-----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, Ac1TnZN9MYDwnORyKUIv5m0x+P4+fFkDaeT0Fe76Y4Rhvjzy4BgHLkIIL/+3J37w voxFH4Rh5PN+aSA1Ep+usg== 0000950129-96-001076.txt : 19960531 0000950129-96-001076.hdr.sgml : 19960531 ACCESSION NUMBER: 0000950129-96-001076 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960530 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960530 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10570 FILM NUMBER: 96574526 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 8-K/A 1 BJ SERVICES 8-K/A DATED 05/30/96 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: MAY 30, 1996 (DATE OF EARLIEST EVENT REPORTED): APRIL 13, 1995 BJ SERVICES COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 1-10570 63-0084140 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER OF INCORPORATION) IDENTIFICATION NO.)
5500 Northwest Central Drive Houston, Texas 77092 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (713) 462-4239 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. 2 3 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE WESTERN COMPANY OF NORTH AMERICA In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of The Western Company of North America and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 7 to the consolidated financial statements, The Western Company of North America changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards No. 109 in 1993. Also in 1993, The Western Company of North America adopted Statement of Financial Accounting Standards No. 106, discussed in Note 8, and accordingly changed its method of accounting for postretirement benefits other than pensions. PRICE WATERHOUSE LLP Houston, Texas February 22, 1995 3 4 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES)
DECEMBER 31, ----------------------- 1994 1993 ---------- -------- ASSETS CURRENT ASSETS: Cash (including cash equivalents of $10,459 in 1994 and $134,467 in 1993) ....................... $ 12,650 $141,279 Marketable securities ............................. -- 18,868 Receivables (less allowances of $4,273 in 1994 and $4,373 in 1993) ......................... 74,080 63,853 Inventories ....................................... 20,065 16,887 Assets held for sale, net - discontinued operations ....................................... 35,060 -- Other current assets .............................. 5,154 9,464 -------- -------- Total current assets ............................ 147,009 250,351 -------- -------- PROPERTY AND EQUIPMENT, AT COST: Pressure pumping equipment ........................ 199,720 183,172 Offshore drilling equipment ....................... -- 69,668 Buildings and other ............................... 56,395 45,098 Construction in progress .......................... 6,676 8,775 -------- -------- 262,791 306,713 Less - Accumulated depreciation and amortization ................................... 76,696 77,897 -------- -------- 186,095 228,816 -------- -------- OTHER ASSETS ........................................ 20,597 9,218 -------- -------- $353,701 $488,385 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt ................. $ -- $ 97,784 Accounts payable .................................. 29,996 33,112 Accrued liabilities ............................... 38,389 51,184 --------- -------- Total current liabilities ....................... 68,385 182,080 --------- -------- LONG-TERM DEBT ...................................... 90,909 90,910 --------- -------- OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS .... 15,258 14,948 --------- -------- STOCKHOLDERS' EQUITY: Common stock -- par value $.10; authorized 50,000,000 shares, issued 18,279,914 and 18,198,285 shares at December 31, 1994 and 1993, respectively ........................... 1,828 1,820 Additional paid-in capital ........................ 193,991 193,451 Cumulative translation adjustment ................. (317) -- Retained earnings (accumulated deficit), since May 12, 1989 ............................... (16,353) 5,176 --------- -------- 179,149 200,447 --------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 6) $ 353,701 $488,385 ========= ========
The accompanying notes are an integral part of these balance sheets. 4 5 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1994 1993 1992 ---------- ---------- ---------- REVENUES: Pressure pumping ............................. $ 307,511 $ 294,073 $ 225,353 Production chemicals ......................... 34,990 -- -- ---------- ---------- ---------- 342,501 294,073 225,353 ---------- ---------- ---------- OPERATING COSTS AND EXPENSES: Pressure pumping ............................. 270,737 250,471 200,532 Production chemicals ......................... 31,027 -- -- Depreciation and amortization ................ 18,814 14,589 14,887 General and administrative ................... 8,846 9,022 8,076 ---------- ---------- ---------- 329,424 274,082 223,495 ---------- ---------- ---------- Operating income ........................... 13,077 19,991 1,858 ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest expense, net of interest capitalized (10,032) (13,505) (10,407) Interest income .............................. 1,236 4,653 1,059 Merger related expenses ...................... (21,118) -- -- Writedown of pressure pumping assets and other -- (7,132) -- ---------- ---------- ---------- Total other income (expense) ............... (29,914) (15,984) (9,348) ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY LOSSES .......................... (16,837) 4,007 (7,490) Provision for income taxes ................... 495 627 353 ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY LOSSES ................... (17,332) 3,380 (7,843) DISCONTINUED OPERATIONS ........................ (4,197) 35,321 9,510 EXTRAORDINARY LOSSES ........................... -- (25,713) (1,223) ---------- ---------- ---------- NET INCOME (LOSS) .............................. $ (21,529) $ 12,988 $ 444 ========== ========== ========== EARNINGS (LOSS) PER SHARE: Primary: Income (loss) from continuing operations before extraordinary losses .................................... $ (0.95) $ 0.18 $ (0.44) Discontinued operations .................... (0.23) 1.90 0.53 Extraordinary losses ....................... -- (1.38) (0.07) ---------- ---------- ---------- Net income (loss) .......................... $ (1.18) $ 0.70 $ 0.02 ========== ========== ========== Fully diluted: Income (loss) from continuing operations before extraordinary losses ............... $ * $ * $ * Discontinued operations .................... * 1.48 * Extraordinary losses ....................... * * * ---------- ---------- ---------- Net income (loss) .......................... $ * $ * $ * ========== ========== ==========
* Fully diluted computation is not reflected because per share effect is antidilutive The accompanying notes are an integral part of these statements. 5 6 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992 ---------- ---------- ---------- CASH FLOWS ASSOCIATED WITH OPERATING ACTIVITIES: Net income (loss) ................................... $ (21,529) $ 12,988 $ 444 Reconciliation of net income (loss) to net cash provided by operating activities -- Depreciation and amortization ..................... 22,846 24,294 26,891 (Gains)/losses on sales of offshore drilling rigs .................................... 4,818 (59,161) -- Writedown of offshore drilling rigs ............... -- 18,328 -- Writedown of pressure pumping assets .............. -- 3,500 -- Extraordinary losses .............................. -- 25,713 1,223 Non-cash provision for income taxes ............... -- 6,630 825 Provision for doubtful accounts receivable ........ (207) (450) -- Other, net ........................................ 1,439 2,146 457 Changes in assets and liabilities -- Accounts receivable .............................. 1,721 10,935 (3,177) Inventory ........................................ (1,319) (4,689) 1,869 Accounts payable ................................. (5,778) 5,077 (2,066) Accrued interest payable ......................... (1,049) (448) 572 Accrued merger related expenses .................. 10,386 -- -- Other, net ....................................... 1,523 (246) (2,512) ---------- ---------- ---------- Net cash provided by operating activities ...... 12,851 44,617 24,526 ---------- ---------- ---------- CASH FLOWS ASSOCIATED WITH INVESTING ACTIVITIES: Additions to property and equipment ................. (21,313) (53,312) (38,773) Acquisitions, net of cash acquired .................. (27,535) (10,400) -- Proceeds from sales of offshore drilling rigs ....... 5,340 169,250 -- Disposition costs for rig sales ..................... -- (4,406) -- Proceeds from sales of marketable securities ........ 18,711 153,458 -- Purchases of marketable securities .................. -- (173,687) -- Other, net .......................................... 964 347 367 ---------- ---------- ---------- Net cash provided (used) in investing activities (23,833) 81,250 (38,406) ---------- ---------- ---------- CASH FLOWS ASSOCIATED WITH FINANCING ACTIVITIES: Debt incurred ....................................... 7,000 7,000 114,801 Debt payments ....................................... (124,946) (7,000) (106,118) Proceeds from exercise of stock options ............. 486 2,243 -- Other, net .......................................... (187) (10) (307) ---------- ---------- ---------- Net cash provided (used) by financing activities (117,647) 2,233 8,376 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ............................ (128,629) 128,100 (5,504) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR ......... 141,279 13,179 18,683 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS - END OF YEAR ............... $ 12,650 $ 141,279 $ 13,179 ========== ========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid, net of interest capitalized .......... $ 11,007 $ 14,182 $ 10,577 Income taxes paid ................................... 1,804 1,965 1,345
NONCASH INVESTING AND FINANCING ACTIVITIES (NOTES 1, 3, 4 AND 8) The accompanying notes are an integral part of these statements. 6 7 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK RETAINED PAR VALUE $.10 ADDITIONAL CUMULATIVE EARNINGS ------------------------- PAID-IN TRANSLATION (ACCUMULATED SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL ---------- ---------- ----------- ----------- ------------ ---------- BALANCE DECEMBER 31, 1991 .............. 17,741 $ 1,774 $ 180,618 -- $ (8,256) $ 174,136 Net income ........................... -- -- -- -- 444 444 Realization of pre-reorganization net operating losses .................... -- -- 825 -- -- 825 Other, net ........................... 1 -- -- -- -- -- ------- -------- --------- ------ --------- ---------- BALANCE DECEMBER 31, 1992 .............. 17,742 1,774 181,443 -- (7,812) 175,405 Net income ........................... -- -- -- -- 12,988 12,988 Realization of pre-reorganization net operating losses .................... -- -- 6,013 -- -- 6,013 Exercise of stock options ............ 455 46 5,374 -- -- 5,420 Tax benefit of stock options exercised -- -- 617 -- -- 617 Other, net ........................... 1 -- 4 -- -- 4 ------- -------- --------- ------ --------- ---------- BALANCE DECEMBER 31, 1993 .............. 18,198 1,820 193,451 -- 5,176 200,447 Net loss ............................. -- -- -- -- (21,529) (21,529) Exercise of stock options ............ 90 9 539 -- -- 548 Cumulative translation adjustment .... -- -- -- (317) -- (317) Other, net ........................... (9) (1) 1 -- -- -- ------- -------- --------- ------ --------- ---------- BALANCE DECEMBER 31, 1994 .............. 18,279 $ 1,828 $ 193,991 $ (317) $ (16,353) $ 179,149 ======= ======== ========= ====== ========= ==========
The accompanying notes are an integral part of these statements. 7 8 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all accounts of The Western Company of North America and its wholly-owned subsidiaries (the "Company"). All significant intercompany transactions have been eliminated in consolidation. PLAN OF REORGANIZATION On February 2, 1988, The Western Company of North America ("WCNA") filed a voluntary petition for reorganization under chapter 11 of the federal Bankruptcy Code. On May 12, 1989 the WCNA Third Amended Plan of Reorganization was consummated. The Company adopted reorganization accounting to record the effects of consummating the Plan of Reorganization. REVENUE RECOGNITION Revenue related to pressure pumping, production chemicals and offshore drilling services and sales of pressure pumping and production chemical products are recognized as services are provided and products are shipped or delivered. The Company uses the percentage-of-completion method for equipment sales contracts to recognize revenues and expenses as the earnings process progresses. CONCENTRATION OF CREDIT RISK The Company's customers consist primarily of major integrated international oil companies and independent oil and gas companies, including companies owned in whole or in part by foreign governments. The Company performs ongoing credit evaluations of its customers and generally does not require material collateral. The Company maintains reserves for potential credit losses, and historically such losses have been within its expectations. No single customer accounted for 10% or more of the Company's consolidated revenues during 1994, 1993 and 1992. CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash equivalents represent highly liquid investments with a maturity of three months or less. Marketable securities represent highly liquid investments with a maturity in excess of three months but less than one year. Cash equivalents and marketable securities are carried at cost, which approximates market value at December 31, 1994 and 1993. During 1994, proceeds from the sales of marketable securities classified as available for sale totaled $18.7 million. Loss on the sales of these securities was immaterial. INVENTORIES Inventories are comprised principally of materials and supplies and are stated at lower of cost or market. Cost is determined using the first-in, first-out method for pressure pumping inventories and the average cost method for production chemicals and offshore drilling rig inventories. 8 9 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT Except for offshore drilling rigs and associated equipment and a well stimulation vessel and associated equipment, property and equipment is depreciated or amortized using the straight-line method over their estimated useful lives. The Company uses the units-of-service method to calculate depreciation expense associated with offshore drilling rigs and its well stimulation vessel. Under this method, depreciation is reduced to 20% of its normal rate while the rigs and the well stimulation vessel are not being utilized. The Company capitalizes renewals and improvements which significantly enhance the value or extend the useful life of an asset. Expenditures for normal maintenance and repairs are charged to expense as incurred. The cost of pressure pumping equipment retired or sold and related accumulated depreciation are removed from the accounts, and gains and losses are reflected in operations. Normal retirements of offshore drilling equipment are reflected in accumulated depreciation accounts; gains or losses arising from unusual retirements are reflected in earnings, and asset cost and related accumulated depreciation are removed from the accounts. INTEREST EXPENSE The Company capitalizes interest expense applicable to significant capital projects which require a period of time to construct. In 1994, 1993 and 1992, total interest incurred was $10.0 million, $19.3 million and $14.0 million, respectively, and interest of $5.8 million in 1993 and $2.3 million in 1992 was capitalized. No interest was capitalized in 1994. Included in the 1992 income from discontinued operations is $1.3 million of interest expense associated with certain rig debt. IMPAIRMENT OF LONG-LIVED ASSETS An impairment writedown on long-lived assets is recorded whenever events or changes in circumstances indicate that market value is less than net book value. Market value is determined by either independent appraisals or calculation of future undiscounted net cash flows. A 1993 writedown of pressure pumping assets and other included a $3.5 million writedown of older pressure pumping equipment and idle facilities to net realizable value in anticipation of disposal. GOODWILL Goodwill represents the excess of cost of acquisitions over the fair value of identifiable assets acquired less liabilities assumed. Goodwill is included as a component of other assets and is amortized on a straight-line basis over 15 years. As of December 31, 1994 and 1993, goodwill was $18.4 million and $1.2 million, respectively, net of accumulated amortization of $1.4 million and $0.2 million, respectively. Impairment of goodwill is evaluated in the same manner as other long-lived assets. 9 10 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACCRUED LIABILITIES At December 31, 1994 and 1993, accrued liabilities included the following:
1994 1993 -------- ------- (In thousands) Accrued extraordinary loss (see Note 5).................. $ -- $23,408 Accrued merger related expenses.......................... 10,386 -- Accrued payroll and related expenses..................... 11,371 10,356 Income taxes payable..................................... 4,495 5,806 Accrued interest......................................... 3,127 4,022
ENVIRONMENTAL COSTS Environmental costs that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of an environmental evaluation or the Company's commitment to a formal plan of action. At December 31, 1994 and 1993, liabilities for environmental costs were $2.6 million and $2.4 million, respectively. INTEREST RATE SWAP During 1993, the Company entered into an interest rate swap agreement to manage its interest rate exposure. This agreement involves the exchange of fixed rate interest payments for floating rate interest payments based on the six month London Interbank Offering Rate ("LIBOR"). The estimated differential to be paid or received at each semiannual settlement date is charged or credited to interest expense as interest rates change. This agreement was entered into with a major financial institution. Management believes the risk of incurring losses related to nonperformance by the financial institution is remote and any such losses would be immaterial. FOREIGN CURRENCY TRANSLATION The financial statements of certain foreign operations are translated from the functional currencies to U.S. dollars. Adjustments resulting from the translation process totaled $0.3 million in 1994 and are reflected as a cumulative translation adjustment in stockholders' equity. EARNINGS (LOSS) PER SHARE Primary earnings (loss) per share is based on the weighted average number of shares of Common Stock, $.10 par value ("Common Stock") and Common Stock equivalent shares (when dilutive) outstanding during the year. Common stock equivalent shares relate to options to purchase shares under various stock option plans (see Note 9). Additionally, the fully diluted earnings per share computation assumes the conversion of the Company's 7 1/4% Convertible Subordinated Debentures (see Note 5). 10 11 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The weighted average number of shares used in computing earnings (loss) per share are as follows:
1994 1993 1992 ---- ---- ---- (In thousands) Primary........................................ 18,236 18,591 17,757 Fully diluted.................................. 23,958 23,794 23,136
RESEARCH AND DEVELOPMENT During the years ended December 31, 1994, 1993 and 1992, expenditures classified as research and development costs incurred by the Company were $8.4 million, $6.5 million and $5.5 million, respectively. RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial statements and notes thereto have been reclassified to conform to the current year's presentation including the presentation of discontinued operations. NOTE 2 - MERGER In November 1994, the Company and BJ Services Company ("BJ Services") entered into a definitive merger agreement. Subject to certain conditions and to appraisal rights under Delaware law, this agreement provides that stockholders of the Company will receive $20 in cash or in shares of BJ Services common stock for each outstanding share of Company Common Stock they own. Additionally, for each share of Common Stock they hold, each stockholder will receive .2 of a five-year warrant to purchase one share of BJ Services common stock for $30 per share. Pursuant to the merger agreement, stockholders may elect to receive any proportion of cash and BJ Services common stock, provided that the total number of shares of Common Stock for which such elections are made will be adjusted so that the total shares for which each type of election is made will be approximately equal. The transaction is subject to the approval of both companies' stockholders, antitrust review and other customary closing conditions, and is expected to close during the first half of 1995. Merger related expenses of $21.1 million represent costs associated with the expected merger with BJ Services and include investment banker, legal and accounting fees, certain severance costs and other miscellaneous expenses. In addition to the expenses recorded in 1994, additional legal fees and other expenses related to the merger are expected to be incurred and recorded in 1995. NOTE 3 - ACQUISITIONS The Company completed the acquisitions, in February 1994, of substantially all of the assets of the production and process chemical business of Unichem International, Inc. ("Unichem") for $19.8 million in cash and in June 1994, of substantially all of the oilfield chemicals business and assets of Betz Energy Chemicals, Inc. ("Betz") for $4.8 million in cash. The businesses acquired from Unichem and Betz are substantially the same. In July 1994, the Company completed the 11 12 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) acquisition of the coiled tubing business of Coiltech, Inc. ("Coiltech") for $3.1 million in cash. All three acquisitions were accounted for using the purchase method of accounting. Goodwill associated with these transactions totaled $18.4 million (see Note 1). The Unichem, Betz and Coiltech results of operations have been included in the consolidated financial statements since January 1994, July 1994 and July 1994, respectively. In April 1993, the Company completed a $10.4 million cash acquisition of the assets of the Smith Energy Services division of Allied Products Corporation. This acquisition was accounted for using the purchase method of accounting. NOTE 4 - DISCONTINUED OPERATIONS The Company formalized a plan in November 1994 (the "Measurement Date") to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the offshore drilling segment has been reclassified in the consolidated statements of operations as discontinued operations. The results of the discontinued operations were as follows:
1994 1993 1992 --------- --------- --------- (In thousands) Revenues ..................................... $ 22,609 $ 64,676 $ 89,613 ========= ========= ========= Income from discontinued operations: Operating income ........................... $ 2,429 $ 4,161 $ 13,919 Other income (loss): Gains on sales of offshore drilling rigs .................................... -- 59,161 -- Writedowns of offshore drilling rigs ..... -- (18,328) -- Interest expense ......................... -- -- (1,333) --------- --------- --------- Income from discontinued operations before income taxes .............................. 2,429 44,994 12,586 Provision for income taxes ................. 152 9,673 3,076 --------- --------- --------- 2,277 35,321 9,510 --------- --------- --------- Loss on disposal, net of income tax benefit in 1994 of $(152) .............................. (6,474) -- -- --------- --------- --------- $ (4,197) $ 35,321 $ 9,510 ========= ========= =========
The loss on disposal includes operating results subsequent to the Measurement Date including shut-down expenses and gain (loss) from the disposal of the two semi-submersible offshore drilling rigs, ALASKAN STAR and PACESETTER IV. In December 1994, the Company completed the sale of the ALASKAN STAR for $11.8 million, of which $6.3 million is a bankers' acceptance drawn on a U.S. bank due within one year. This rig sale resulted in a gain of $0.3 million. In December 1994, the Company signed a letter of intent to sell the PACESETTER IV. The Company completed the sale in early February 1995 for $37.2 million which resulted in a loss of $6.7 million (see Note 13). At December 31, 1994, Assets held for sale, net - discontinued operations primarily consists of the net realizable value of the PACESETTER IV. 12 13 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Income from discontinued operations includes operating results prior to the Measurement Date. Income from discontinued operations during 1993 included the following sales of offshore drilling rigs and writedowns of offshore drilling rigs. In March 1993, the Company completed the sale of the TRITON III jack-up drilling rig for $17.8 million in cash. This sale resulted in a gain of $9.1 million. In July 1993, the Company completed the sale of the DELTA jack-up drilling rig for $1.5 million in cash which resulted in a gain of $0.4 million. In October 1993, the Company completed the sale of nine jack-up drilling rigs and associated equipment and inventories for $150.0 million cash that resulted in a 1993 fourth quarter gain of $49.7 million. The rigs sold were: APOLLO I, APOLLO II, APOLLO IV, NIKE I, POLARIS I, POLARIS II, TRITON I, TRITON II and TRITON IV. In March 1993, the Company wrote down the net book value of its three mat-supported jack-up rigs by $8.8 million. This writedown reflected the low utilization experienced by these types of rigs and the expectation of lower future utilization for them. In December 1993, the Company wrote down the net book value of the ALASKAN STAR semi-submersible drilling rig by $9.5 million. This writedown reflected the Company's lower expectation of future operating cash flow opportunities for second generation semi-submersibles like the ALASKAN STAR. Included in the 1992 income from discontinued operations is $1.3 million of interest expense associated with certain rig debt. NOTE 5 - LONG-TERM DEBT At December 31, 1994 and 1993, long-term debt consisted of the following:
1994 1993 -------- --------- (In thousands) Senior Unsecured: 12 7/8% Senior Notes................................ $ 2,212 $ 100,000 Subordinated Unsecured: 7 1/4% Convertible Subordinated Debentures.......... 88,746 88,746 -------- --------- 90,958 188,746 Less: Unamortized portion of original issue discount.. 49 52 -------- --------- 90,909 188,694 Less: Current portion................................. -- 97,784 -------- --------- $ 90,909 $ 90,910 ======== =========
The 12 7/8% Senior Notes, Due 2002 (the "Notes"), are unsecured and were issued in November 1992 in the face amount of $100 million. During March 1994, the Company purchased, through a tender offer, and retired $97.8 million face amount of the Notes. The aggregate purchase price of these Notes was $117.3 million, resulting in an extraordinary loss of $25.7 million ($1.38 per share) including unamortized original debt issuance costs of $3.2 million, unamortized original issue discount of $2.3 million and offering costs of $0.7 million. This extraordinary loss was recognized in December 1993. The carrying value of the Notes represents the face amount less unamortized original issue discount. Interest at 12 7/8% per annum is payable semiannually. The effective interest rate associated with the Notes, after considering amortization of original issue discount, is 13.33%. 13 14 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Notes mature December 1, 2002, and there are no sinking fund requirements. The indenture governing the Notes contains restrictions and requirements relating to mergers. During the fourth quarter of 1992, the Company issued the Notes and used the net proceeds to prepay secured debt totaling $94.6 million associated with bank loan facilities, ship financing bonds and a note relating to an offshore drilling rig. As a result, it incurred a $1.2 million ($0.07 per share) extraordinary loss primarily representing prepayment penalties and the write-off of unamortized debt issuance costs. In 1990, the Company issued $90 million face amount of 7 1/4% Convertible Subordinated Debentures, due January 15, 2015 (the "Debentures"). Interest at 7 1/4% per annum is payable semiannually. Annual payments equal to 5% of the principal amount of the Debentures commence in 2001; such payments are calculated to retire 70% of principal prior to maturity. The Debentures, unless previously redeemed, are convertible into Common Stock at $17 per share at the option of the holder at any time prior to maturity. The indenture governing the Debentures contains restrictions and requirements relating to mergers. The Company has a $30 million revolving credit facility which had no borrowings outstanding at December 31, 1994 and 1993. Borrowings under this revolving credit facility are secured by the Company's accounts receivable and are limited to a percentage of such receivables. The revolving credit facility bears interest at 1 1/2% over LIBOR or 1/2% over prime and matures December 31, 1995. Commitment fees on the unused portion of the revolving credit facility are 1/2% per annum. The revolving credit facility contains restrictions and requirements relating to, among other things, mergers and maintenance of certain financial ratios. The Company has entered into an interest rate swap agreement which effectively changes fixed-rate debt into floating-rate debt. Under the agreement, the Company receives a fixed rate of 5.26% on a notional principal amount of $100 million and pays a floating rate based on LIBOR, as determined in six month intervals. On June 1, 1995 the notional principal amount will be reduced from $100 million to $75 million until the agreement expires on June 1, 1996. The Company may elect from time to time to terminate the swap agreement. Had it elected to do so at December 31, 1994, it would have been required to make a termination payment of $4.1 million. At December 31, 1994, there were no required principal payments associated with long-term debt until 2001. 14 15 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1994, the fair value of the Company's long-term debt, determined based on quoted market prices, was as follows:
Amount -------------- (In thousands) 12 7/8% Senior Notes............................................ $ 2,349 7 1/4% Convertible Subordinated Debentures...................... 91,519 --------- $ 93,868 =========
Such market prices are subject to changing market conditions; therefore, the fair value of the Company's long-term debt at December 31, 1994 is not indicative of future fair market value. NOTE 6 - COMMITMENTS AND CONTINGENCIES The Company's operating leases include rental commitments associated with office buildings, equipment and vehicles. As of December 31, 1994, the Company had lease commitments for future minimum rental payments as follows:
Amount -------------- (In thousands) 1995.............................................................. $ 7,570 1996.............................................................. 5,281 1997.............................................................. 3,070 1998.............................................................. 1,791 1999.............................................................. 1,528 Thereafter........................................................ 5,452 ------- $24,692 =======
Rental expense for the years ended December 31, 1994, 1993 and 1992 was approximately $9 million, $7 million and $7 million, respectively. At December 31, 1994, the Company was contingently liable for outstanding letters of credit, not reflected in the accompanying consolidated financial statements, in the amount of $3.5 million. Actions for well damage and loss of oil and gas production alleging negligence, breach of contract and fraud, under common law as well as state and federal statutes, are incidental to the pressure pumping business. Actions for personal injury are also incidental to that business and the offshore drilling business where federal statutes permit employees who work on rigs to sue their employers instead of pursuing workmen's compensation remedies. Increasingly, plaintiffs in both property damage and personal injury litigation allege damages for which insurance coverage generally does not exist or is prohibited, such as punitive damages, treble damages or damages for breach of contract. Numerous such incidental lawsuits are pending against the Company which include claims covered by insurance and which are being defended by the Company's insurance carriers. To the extent a plaintiff is ultimately successful on an uninsured portion of a claim, the Company would be responsible for satisfying such judgment. To date, the Company has not, by judgment or through 15 16 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) settlement, incurred a material uninsured liability arising out of personal injury or property damage litigation. From time to time it has been alleged by competitors of the Company that the use by the Company of certain products or methods to perform particular pressure pumping services constitutes infringement of patents they hold. Such claims could result in payment by the Company of damages or royalties and the Company could be enjoined from performing services in which such products or services are used. To date, the Company has not experienced a material reduction in revenues or incurred a material loss as a result of such allegations. Shortly after the public announcement by BJ Services in September 1994 of a proposal to acquire the Company ("BJS Proposal"), four actions were commenced against the Company and its directors in the Delaware Court of Chancery styled CROYDEN ASSOCIATES VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13740, filed September 13, 1994, REGGIE P. JUDICE VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13742, filed September 14, 1994, WILLIAM T. HENDERSON VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13743, filed September 14, 1994, and RUSS SEGER VS. SHELDON R. ERIKSON, ET AL. AND THE WESTERN COMPANY OF NORTH AMERICA, C. A. No. 13769, filed September 27, 1994. The allegations in these lawsuits, all of which were filed as class action complaints, are substantially the same and relate to the rejection of the BJS Proposal by the Company's Board of Directors. The purported class of plaintiffs on whose behalf the class action complaints were filed is all stockholders of the Company. It is claimed in these lawsuits, INTER ALIA, that by failing to accept the BJS Proposal the Company and its directors breached their fiduciary duties to the stockholders of the Company. The plaintiffs seek equitable relief to compel the Company and its directors to perform their fiduciary duties, as such are construed by the plaintiffs, and unspecified damages. The Company believes the allegations in these lawsuits are untrue and that the claims they assert are totally without merit. A motion to consolidate the four actions is pending. 16 17 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - INCOME TAXES Components of the provision for income taxes consisted of the following:
1994 1993 1992 ------- ------- ------ (In thousands) Current tax expense: U.S. federal................................ $ -- $ -- $ -- Foreign..................................... 495 241 353 ------- ------- ------ 495 241 353 ------- ------- ------ Noncash tax expense: U.S. federal................................ -- 386 -- Foreign..................................... -- -- -- ------- ------- ------ -- 386 -- ------- ------- ------ $ 495 $ 627 $ 353 ======= ======= ======
The non-cash taxes are due primarily to the utilization of prereorganization tax benefits which are recorded directly to stockholders' equity and, therefore, are not reflected as a reduction of income tax expense. The total provision for income taxes is reflected in the consolidated statements of operations under the following components:
1994 1993 1992 ------- ------- ------ (In thousands) Continuing operations......................... $ 495 $ 627 $ 353 Discontinued operations........................ -- 9,673 3,076 ------- ------- ------ $ 495 $10,300 $3,429 ======= ======= ======
The deferred tax assets (liabilities) consisted of the following:
December 31, ----------------- January 1, 1994 1993 1993 -------- -------- ------- (In thousands) Gross deferred tax assets: Loss carryforwards.......................... $144,388 $129,346 $157,080 Stock of foreign affiliates................. 28,055 23,247 20,625 Property and equipment...................... 7,433 6,202 5,800 Inventory reserves.......................... 3,201 4,818 5,637 Allowances for doubtful accounts receivable. -- -- 5,449 Other....................................... 16,010 13,566 10,614 -------- -------- ------- 199,087 177,179 205,205 Gross deferred tax liabilities: Property and equipment...................... (13,569) (10,301) (27,050) Deferred tax asset valuation allowance......... (185,518) (166,878) (178,155) -------- -------- -------- $ -- $ -- $ -- ======== ======== ========
17 18 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The differences between the provision for income taxes and income taxes computed using the U.S. federal income tax rate and income (loss) from continuing operations before provision for income taxes and extraordinary losses were as follows:
1994 1993 1992 ------- ------ -------- (In thousands) Income taxes computed using the U.S. federal rate.. $(5,893) $ 1,402 $(2,547) Losses not receiving income tax benefits........... 2,350 -- 2,491 Foreign taxes, net of foreign tax deduction taken.. 327 159 233 Merger related costs not deductible................ 2,720 -- -- Noncash taxes due to carryover tax benefits recorded directly to stockholders' equity......... -- 386 -- Net benefit of operating loss carryforwards........ -- (1,605) -- Other, net......................................... 991 285 176 ------- ------ ------- $ 495 $ 627 $ 353 ======= ======= =======
In 1993, current taxable income was reduced by $84.5 million of net operating loss carryforwards. The financial statement impact was limited to $14.2 million due to the change in deferred tax assets and liabilities. The net change in the deferred tax asset valuation allowance was an increase of $18.6 million in 1994 and a decrease of $11.3 million in 1993. The portion of the deferred tax asset valuation allowance which, if realized, will be recorded directly to stockholders' equity was $114 million at December 31, 1994, $114 million at December 31, 1993 and $120 million at January 1, 1993. The Company has net operating loss carryforwards for federal income tax purposes of $372 million. If not utilized, these carryforwards will expire between 2001 and 2009. As a result of the Company having experienced changes in control as defined in Internal Revenue Code Section 382 in prior years, the usage of approximately $219 million of these carryforwards is subject to an annual limitation. The entire $372 million of carryforwards could be subject to an annual limitation due to the pending merger with BJ Services (see Note 2). For United Kingdom income tax purposes, the Company at December 31, 1994 had tax attribute carryforwards amounting to (pound)43 million which are not subject to an annual limitation. However, these United Kingdom tax benefits will be reduced substantially as a result of the sale of the PACESETTER IV in 1995 (see Note 13). Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The Company elected to adopt SFAS 109 prospectively. The initial adoption did not materially affect results of operations. 18 19 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Income (loss) before provision for income taxes and extraordinary items consisted of the following:
1994 1993 1992 --------- --------- --------- (In thousands) Domestic income (loss)...................... $ (13,303) $ 37,245 $ (20,457) Foreign income (loss)....................... (7,731) 11,756 25,553 --------- --------- --------- $ (21,034) $ 49,001 $ 5,096 ========= ========= =========
NOTE 8 - RETIREMENT AND OTHER BENEFIT PROGRAMS PENSION PLAN The Company has a defined benefit pension plan (the "Pension Plan") covering all employees with one year of service. Pension benefits are based on years of service and average compensation for each employee's five consecutive highest paid years during the last ten years worked. Pension benefits are fully vested after five years of service. Generally, the Company makes annual contributions to the Pension Plan to the extent they are tax deductible and, at a minimum, funds the amount necessary to meet minimum funding requirements under the Employees' Retirement Income Security Act, as amended. Net pension expense for 1994, 1993 and 1992 included the following components:
1994 1993 1992 ------- ------- ------ (In thousands) Service cost - benefits earned during the period ...................................... $ 1,309 $ 1,153 $ 1,240 Interest cost on projected benefit obligation.. 2,822 2,697 2,513 Actual return on plan assets................... 448 (3,485) (1,614) Net gain (loss) deferred....................... (3,132) 1,106 (566) ------- ------- ------- $ 1,447 $ 1,471 $ 1,573 ======= ======= =======
Assumptions used in determining 1994, 1993 and 1992 net pension expense were:
1994 1993 1992 ---- ---- ---- Discount rate..................................... 7.0% 7.75% 8.0% Rate of increase in compensation levels........... 5.0% 5.0% 5.0% Expected long-term rate of return on assets....... 9.0% 9.0% 9.0%
Pension Plan assets consist primarily of government debt securities, corporate equities, money market instruments and long-term corporate debt obligations, both domestic and foreign. The following table sets forth as of December 31, 1994 and 1993 the Pension Plan's estimated funded status, amounts recognized in the Company's consolidated balance sheets and actuarial present value of benefit obligations. The discount rates used to determine all benefit obligations at December 31, 1994 and 1993 were 8.00% and 7.00%, respectively. 19 20 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1994 1993 -------- -------- (In thousands) Projected benefit obligation............................. $ 37,849 $ 39,732 Pension Plan assets at fair value........................ 28,994 29,675 -------- -------- Projected benefit obligation in excess of Pension Plan assets .................................... 8,855 10,057 Net unrecognized prior service cost and gain/loss from past experience......................................... (1,608) (1,879) -------- -------- Accrued pension liability................................ $ 7,247 $ 8,178 ======== ======== Accumulated benefit obligation, including vested benefits of $33.4 million in 1994 and $36.5 million in 1993...... $ 34,684 $ 37,416 ======== ========
POSTRETIREMENT BENEFITS The Company provides postretirement life insurance and medical benefits to retired employees between the ages of 55 and 65. Certain life insurance benefits are also provided to retired employees over 65 years of age. The life insurance is funded by insurance premiums paid entirely by the Company. The medical benefits are funded by a capped self insurance program with contributions made by retirees for themselves and their covered dependents. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires the accrual method of accounting for the expected costs of providing such benefits. Under such accounting method, the future costs of postretirement benefits are recorded during the years employees render service to earn eligibility for such benefits. Net periodic postretirement benefit cost for 1994 and 1993 included the following components:
1994 1993 ------ ------ (In thousands) Service cost - benefits attributed to service during the period............................................ $ 282 $ 232 Actual return on plan assets............................. -- -- Interest cost on accumulated postretirement benefit obligation........................................ 349 336 Amortization of transition obligation.................... 99 117 Other, net............................................... 21 214 ------ ------ $ 751 $ 899 ====== ======
The discount rates used to determine postretirement benefit costs were 7% in 1994 and a weighted average of 7.75% in 1993. 20 21 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table sets forth the status of postretirement benefit obligations at December 31, 1994 and 1993:
1994 1993 ------ ------- (In thousands) Accumulated postretirement benefit obligation Retirees.............................................. $ 1,741 $ 1,746 Other fully eligible participants..................... 1,160 1,134 Other active participants............................. 2,180 2,237 ------- ------- Total accumulated postretirement benefit obligation...... 5,081 5,117 Unrecognized actuarial loss.............................. (44) (546) Unrecognized transition obligation....................... (1,782) (1,881) Plan assets at fair value................................ -- -- ------- ------- Accrued postretirement benefit cost...................... $ 3,255 $ 2,690 ======= =======
The discount rate used to determine postretirement benefit obligations at December 31, 1994 and 1993 were 8% and 7%, respectively. There were no plan assets. For measurement purposes, a 9% annual rate of increase for covered health care benefits was assumed for 1994. The rate is assumed to decrease gradually to 5% by 2026 and remain at that level thereafter. Increasing the health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $279,000 and the aggregate of the service and interest cost components of net postretirement health care cost for fiscal year 1994 by $59,000. NON-EMPLOYEE DIRECTOR RETIREMENT PLAN During 1994, the Company adopted an unfunded retirement plan for non-employee directors. To be eligible for benefits under the plan, a director must have retired from the Board of Directors after having served for at least 10 consecutive years and reached the age of 65. Benefits are payable for 10 years and at December 31, 1994, the Company accrued $250,000 related to the plan. RETIREMENT SAVINGS PLAN All employees with one year of service are eligible to participate in the Company's Retirement Savings Plan. Subject to certain Internal Revenue Code limitations, participants may contribute up to 15% of their annual compensation. Effective March 1, 1994, the Company began matching employee contributions to the Plan up to 6% of compensation at the rate of 25 cents for each dollar the employee contributes. In addition, the Company has the option of providing an additional match at the end of each year at the rate of 1 cent to 25 cents for each dollar the employee has contributed to the Plan during the year up to 6% of compensation. In February 1995, the Company elected to make an additional match at the 25 cents level for the 1994 plan year. Matching contributions made or accrued in 1994 were $656,000. 21 22 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) POSTEMPLOYMENT BENEFITS Effective January 1, 1994, the Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" which requires accrual accounting for postemployment benefits such as disability-related and workers' compensation payments. The effect of this adoption on 1994 operating income was immaterial, as the Company has historically accrued for most of these costs incurred by the Company. At December 31, 1994, the Company's liability for these benefits was $5.1 million. NOTE 9 - STOCK INCENTIVE PLANS The Company maintains a long-term management incentive plan and a non-employee Director stock option plan. Up to 1,837,500 shares of Common Stock may be or have been issued under this long-term management incentive plan. Of such number, 1,112,500 shares were allocated to an employee stock option plan, 375,000 shares were allocated for restricted stock awards and 350,000 shares were allocated for performance share awards. Under the non-employee Director stock option plan, 75,000 shares of Common Stock were reserved for issuance. Under the employee stock option plan, shares of Common Stock may be purchased at a price determined by the Executive Development and Compensation Committee (the "Committee") of the Board of Directors, but in no case less than 90% of market price on date of grant for nonqualified options and 100% of market price on date of grant for incentive stock options. Options which have been granted expire up to ten years after date of grant and are exercisable on a cumulative basis equal to either 25% or 33% for each year outstanding or such other basis as may be determined by the Committee. At December 31, 1994, options to purchase 693,538 shares were outstanding under this plan at option prices ranging from $4.50 to $19.00 per share. Under the non-employee Director stock option plan, shares of Common Stock may be purchased at 100% of market price on date of grant. During 1989, options to purchase 2,500 shares were granted to each non-employee Director, thereafter, pursuant to the plan options to purchase 1,250 shares have been granted to each Director at each annual meeting of the Company's stockholders. This plan is, in most other respects, similar in its operation to the employee stock option plan discussed above. At December 31, 1994, options to purchase 37,500 shares were outstanding under this plan at option prices ranging from $4.00 to $15.38 per share; options to purchase 18,750 shares were exercisable at that date. As a result of the merger agreement signed by BJ Services and the Company (see Note 2), all stock options outstanding under the long-term management incentive plan became fully vested and exercisable for a period of ninety days. At the end of the ninety day period, all options still outstanding will revert back to the original terms of the option plans until consummation of the merger, at which time they will again become fully vested and exercisable. 22 23 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of transactions relating to these stock option plans during 1994, 1993 and 1992 is as follows:
Number of Total Option Options Price --------- ------------ (In thousands) Outstanding at December 31, 1991........................ 320,700 $ 3,472 Granted ($4.00 to $7.00 per share)................... 251,125 1,257 Cancelled ($5.88 to $19.13 per share)................ (96,450) (1,348) -------- -------- Outstanding at December 31, 1992........................ 475,375 3,381 Granted ($4.88 to $12.13 per share).................. 338,500 3,114 Exercised ($4.50 to $9.00 per share)................. (155,937) (898) Cancelled ($7.00 to $18.25 per share)................ (11,281) (101) -------- -------- Outstanding at December 31, 1993........................ 646,657 5,496 Granted ($12.50 to $14.50 per share)................. 238,500 3,076 Exercised ($4.50 to $12.13 per share)................ (69,994) (425) Cancelled ($4.50 to $15.50 per share)................ (84,125) (777) -------- -------- Outstanding at December 31, 1994........................ 731,038 $ 7,370 ======== ========
The number of shares of Common Stock available for future granting of options under these stock option plans was 178,406, 332,781 and 60,000 at December 31, 1994, 1993 and 1992, respectively. In addition to the stock options included in the preceding table, an executive of the Company was granted an option to purchase 268,750 shares of Common Stock at a price of $3.02 per share in connection with his employment in 1987. Compensation associated with these options was recorded pursuant to reorganization accounting. The option agreement expires December 31, 1998. At December 31, 1994, such option was outstanding and exercisable for 248,750 shares. During 1989, the 375,000 shares of Common Stock reserved for restricted stock awards were issued. Compensation associated with such awards was recorded pursuant to reorganization accounting. With one exception, 50% of the shares issued were issued without forfeiture restrictions, and, generally, the remaining restrictions lapsed as to 12.5% of the shares awarded on each of the first four anniversaries of the date the restricted stock awards were issued. At December 31, 1994, no shares remained subject to forfeiture restrictions. The 350,000 performance shares were awarded during 1989 subject to vesting over four years upon the attainment of specified performance objectives or at earlier dates under certain conditions relating to the reduction of principal and interest outstanding under a long-term debt agreement. During 1990, the performance share awards became vested and 140,000 shares of Common Stock were issued. The remainder of the performance share awards were converted into options to purchase 298,945 shares of Common Stock based on the value of such performance share awards. During 1993, all 298,945 options were exercised. This resulted in a 1993 non-cash reclassification of the difference between $4.50, the exercise price, and the value of the share awards when vested from other long-term liabilities to additional paid-in capital. 23 24 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - STOCKHOLDER PROTECTION RIGHTS PLAN In March 1990, the Company's Board of Directors (the "Board") adopted a Stockholder Protection Rights Plan (the "Rights Plan") designed to protect against attempts to acquire control of the Company that the Board believes are not in the best interest of the stockholders. The Rights Plan provides for the distribution of one Right for each outstanding share of Common Stock. Such Rights will separate from the Common Stock upon the earlier of (i) the date any person or group becomes the beneficial owner of 15% or more outstanding Common Stock, or (ii) the tenth business day (or a later date designated by the Board) after any person makes a tender or exchange offer for 15% or more of outstanding Common Stock. Upon separation from Common Stock, each Right will entitle the holder thereof to purchase 1/100th share of Participating Preferred Stock at an exercise price of $70, subject to adjustment (the "Exercise Price"). Each 1/100th share of the Participating Preferred Stock is the economic and voting equivalent to one share of Common Stock. Additionally, if any person or group becomes the beneficial owner of 15% or more of outstanding Common Stock, each Right will entitle the holder thereof to purchase, for the Exercise Price, Common Stock having a value of twice the Exercise Price. Rights held by such person or group would become void. Under certain circumstances, without action by the holders of Rights, the Board may exchange each Right for one share of Common Stock or 1/100th share of Participating Preferred Stock. The Board can terminate the Rights anytime before a person or group acquires 15% or more of outstanding Common Stock. The Company amended the Rights Plan in November 1994 to provide that BJ Services would not be a beneficial owner of Company securities for purposes of the Rights Plan by reason of entering into the merger agreement with the Company or consummating the transactions contemplated therein (see Note 2). 24 25 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS Following is a summary of the Company's domestic and foreign operations by business segment:
PRESSURE PRODUCTION OFFSHORE ELIMINA- PUMPING CHEMICALS DRILLING TIONS CONSOLIDATED -------- ---------- -------- ------- ------------ (In thousands) 1994 REVENUES: Domestic .................................... $ 291,441 $ 34,990 $ -- $ -- $ 326,431 Foreign and export sales .................... 16,070 -- -- -- 16,070 Intersegment sales .......................... -- 963 -- (963) -- ---------- --------- ---------- ---------- ---------- $ 307,511 $ 35,953 $ -- $ (963) $ 342,501 ========== ========= ========== ========== ========== OPERATING INCOME: Domestic .................................... $ 29,258 $ 1,861 $ -- $ -- $ 31,119 Foreign and export sales .................... (8,086) -- -- -- (8,086) ---------- --------- ---------- ---------- ---------- $ 21,172 $ 1,861 $ -- $ -- 23,033 ---------- --------- ---------- ---------- General and administrative .................. (9,956) ---------- Operating income ............................ 13,077 Interest expense, net of interest capitalized ................................ (10,032) Interest income ............................. 1,236 Merger related expenses ..................... (21,118) ---------- Loss from continuing operations before provision for income taxes ................. $ (16,837) ========== IDENTIFIABLE ASSETS: Domestic .................................... $ 234,031 $ 29,112 $ -- $ -- $ 263,143 Foreign ..................................... 25,517 -- 39,655 -- 65,172 ---------- --------- ---------- ----------- ---------- $ 259,548 $ 29,112 $ 39,655 $ -- 328,315 ---------- --------- ---------- ----------- Corporate assets ............................ 25,386 ---------- $ 353,701 ========== 1993 REVENUES: Domestic..................................... $ 278,131 $ -- $ -- $ -- $ 278,131 Foreign and export sales..................... 15,942 -- -- -- 15,942 ---------- --------- ---------- ---------- ---------- $ 294,073 $ -- $ -- $ -- $ 294,073 ========== ========= ========== ========== ========== OPERATING INCOME: Domestic .................................... $ 35,409 $ -- $ -- $ -- $ 35,409 Foreign and export sales .................... (5,744) -- -- -- (5,744) ---------- --------- ---------- ---------- ---------- $ 29,665 $ -- $ -- $ -- 29,665 ---------- --------- ---------- ---------- General and administrative ................ (9,674) ---------- Operating income .......................... 19,991 Interest expense, net of interest capitalized .............................. (13,505) Interest income ........................... 4,653 Writedown of pressure pumping assets and other ................................ (7,132) ----------- Income from continuing operations before provision for income tax and extraordinary loss ....................... $ 4,007 ========== IDENTIFIABLE ASSETS: Domestic .................................. $ 157,031 $ -- $ 894 $ -- $ 157,925 Foreign ................................... 96,932 -- 62,311 -- 159,243 ---------- --------- ---------- ---------- ---------- $ 253,963 $ -- $ 63,205 $ -- 317,168 ---------- --------- ---------- ---------- Corporate assets .......................... 171,217 ---------- $ 488,385 ==========
25 26 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS - (CONTINUED)
PRESSURE PRODUCTION OFFSHORE ELIMINA- PUMPING CHEMICALS DRILLING TIONS CONSOLIDATED ---------- ---------- ---------- ---------- ------------ (In thousands) 1992 REVENUES: Domestic................................... $ 211,576 $ -- $ -- $ -- $ 211,576 Foreign and export sales................... 13,777 -- -- -- 13,777 ---------- --------- ---------- ---------- ---------- $ 225,353 $ -- $ -- $ -- $ 225,353 ========== ========= ========== ========== ========== OPERATING INCOME: Domestic................................... $ 10,640 $ -- $ -- $ -- $ 10,640 Foreign and export sales................... 23 -- -- -- 23 ---------- --------- ---------- ---------- ---------- $ 10,663 $ -- $ -- $ -- 10,663 ---------- --------- ---------- ---------- General and administrative ................ (8,805) ---------- Operating income........................... 1,858 Interest expense, net of interest.......... capitalized.............................. (10,407) Interest income............................ 1,059 ---------- Loss from continuing operations before provision for income taxes and extraordinary loss....................... $ (7,490) ========== IDENTIFIABLE ASSETS: Domestic................................... $ 145,828 $ -- $ 27,990 $ -- $ 173,818 Foreign.................................... 64,969 -- 166,648 -- 231,617 ---------- --------- ---------- ---------- ---------- $ 210,797 $ -- $ 194,638 $ -- 405,435 ---------- --------- ---------- ---------- Corporate assets........................... 26,535 ---------- $ 431,970 ==========
26 27 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS - (CONTINUED) In November 1994, the Company formalized a plan to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the business segment data for 1993 and 1992 has been restated to exclude the offshore drilling segment (see Note 4). The results of operations for the offshore drilling segment for 1993 and 1992 were as follows:
1993 1992 ------- ------- (In thousands) Revenues................................................... $64,676 $89,613 ------- ------- Operating income........................................... $ 4,161 $13,919 Interest expense........................................... -- (1,333) Gains on sales of offshore drilling rigs................... 59,161 -- Writedowns of offshore drilling rigs....................... (18,328) -- ------- ------- Income before income taxes and extraordinary losses........ $44,994 $12,586 ======= =======
1994 1993 1992 ------------------------------ ------------------------------ ----------------------------- DEPRECIATION CAPITAL DEPRECIATION CAPITAL DEPRECIATION CAPITAL AND AMORTIZATION EXPENDITURES AND AMORTIZATION EXPENDITURES AND AMORTIZATION EXPENDITURES ---------------- ------------ ---------------- ------------ ---------------- ------------ (In thousands) Pressure pumping ................... $ 15,601 $ 21,353 $ 13,937 $ 50,166 $ 14,158 $ 29,921 Production chemicals ............... 2,103 5,722 -- -- -- -- Offshore drilling .................. -- 66 -- 11,526 -- 8,765 Corporate .......................... 1,110 861 652 2,020 729 87 -------- -------- -------- -------- -------- -------- $ 18,814 $ 28,002 $ 14,589 $ 63,712 $ 14,887 $ 38,773 ======== ======== ======== ======== ======== ========
27 28 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - SEGMENT INFORMATION AND FOREIGN OPERATIONS - (CONTINUED) Amounts reported above for 1994, 1993 and 1992 foreign and export sales include operations in the following geographic areas:
1994 1993 1992 ---------- ---------- ---------- (In thousands) Revenues: Northwest Europe .......... $ 1,130 $ 434 $ -- West Africa ............... 3,280 3,995 5,997 South America ............. 4,420 1,171 2,014 Far East .................. 1,774 9,355 4,949 Eastern Europe and Former Soviet Union ............. 5,231 814 602 Other ..................... 235 173 215 ---------- ---------- ---------- $ 16,070 $ 15,942 $ 13,777 ========== ========== ========== Operating income (loss): Northwest Europe .......... $ (4,362) $ (4,193) $ (1,260) West Africa ............... (1,452) (1,029) 767 South America ............. 1,034 140 561 Far East .................. (1,016) (152) 327 Eastern Europe and Former Soviet Union ............. (2,062) (408) (206) Other ..................... (228) (102) (166) ---------- ---------- ---------- $ (8,086) $ (5,744) $ 23 ========== ========== ========== Identifiable assets: Northwest Europe .......... $ 41,676 $ 116,232 $ 86,458 West Africa ............... 5,442 5,338 89,097 South America ............. 4,835 16,737 45,040 Far East .................. 5,975 11,982 9,886 Eastern Europe and Former Soviet Union ............. 6,528 7,095 1,023 Other ..................... 716 1,859 113 ---------- ---------- ---------- $ 65,172 $ 159,243 $ 231,617 ========== ========== ==========
The pressure pumping business provides two major services, stimulation and cementing. During 1994, 1993 and 1992, stimulation services accounted for approximately 71%, 73% and 68%, respectively, of the segment's revenues, exclusive of export sales of equipment and products of approximately $5 million, $9 million and $7 million in 1994, 1993 and 1992, respectively. The production chemical business was acquired in 1994 (see Note 3). This segment provides specialty chemicals and services to the upstream oil and gas industry as well as downstream to the refinery, petrochemical, gas processing, pipeline and power generation industries. The Company's well stimulation vessel, WESTERN RENAISSANCE, moved from foreign to domestic operations during the third quarter of 1994. Offshore drilling foreign identifiable assets represent all assets associated with offshore drilling rigs which are operating in foreign waters at the end of each year (see Note 4). Capital expenditures represent cash expended on property and equipment, including interest capitalized. Corporate assets are comprised principally of cash and other assets. 28 29 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Company operating results by quarter for the year ended December 31, 1994 were as follows:
QUARTER ------------------------------------------------------------ FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- --------- --------- (In thousands, except per share amounts) 1994 Revenues: Pressure pumping ................ $ 70,278 $ 70,901 $ 82,052 $ 84,280 $ 307,511 Production chemicals ............ 7,773 7,867 9,700 9,650 34,990 -------- -------- -------- --------- --------- 78,051 78,768 91,752 93,930 342,501 -------- -------- -------- --------- --------- Operating costs and expenses: Pressure pumping ................ 64,677 63,139 71,107 71,814 270,737 Production chemicals ............ 7,092 7,215 8,108 8,612 31,027 Depreciation and amortization ... 4,577 4,347 4,832 5,058 18,814 General and administrative ...... 2,234 2,366 1,953 2,293 8,846 -------- -------- -------- --------- --------- 78,580 77,067 86,000 87,777 329,424 -------- -------- -------- --------- --------- Operating income (loss) ...... (529) 1,701 5,752 6,153 13,077 -------- -------- -------- --------- --------- Other income (expense): Interest expense ................ (3,746) (1,950) (1,954) (2,382) (10,032) Interest income ................. 772 174 109 181 1,236 Merger related expenses(1) ...... -- -- -- (21,118) (21,118) -------- -------- -------- --------- --------- Total other income (expense) .................. (2,974) (1,776) (1,845) (23,319) (29,914) -------- -------- -------- --------- --------- Income (loss) from continuing operations before provision for income taxes and extraordinary loss .............................. (3,503) (75) 3,907 (17,166) (16,837) Provision for income taxes ...... 103 2 205 185 495 -------- -------- -------- --------- --------- Income (loss) from continuing operations ........................ (3,606) (77) 3,702 (17,351) (17,332) Discontinued operations ............ 318 978 1,142 (6,635) (4,197) -------- -------- -------- --------- --------- Net income (loss) .................. $ (3,288) $ 901 $ 4,844 $ (23,986) $ (21,529) ======== ======== ======== ========= ========= Earnings (loss) per share: Income (loss) from continuing operations ..................... $ (0.20) $ 0.00 $ 0.20 $ (0.95) $ (0.95) Discontinued operations ......... 0.02 0.05 0.06 (0.36) (0.23) -------- -------- -------- --------- --------- Net income (loss) ............... $ (0.18) $ 0.05 $ 0.26 $ (1.31) $ (1.18) ======== ======== ======== ========= =========
(1) Merger related expenses of $21.1 million represent costs associated with the expected merger with BJ Services and include investment banker, legal and accounting fees, certain severance costs and other miscellaneous expenses. In addition to the expenses recorded in 1994, additional legal fees and other expenses related to the merger are expected to be incurred and recorded in 1995 (see Note 2). 29 30 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - (CONTINUED) The Company formalized a plan in November 1994 to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the offshore drilling segment has been reclassified in the consolidated statements of operations as discontinued operations (see Note 4). The results of the discontinued operations by quarter for the year ended December 31, 1994 were as follows:
QUARTER ------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- -------- -------- (In thousands) Revenues ................................................. $ 5,495 $ 6,056 $ 6,115 $ 4,943 $ 22,609 ======== ======== ======== ======== ======== Income from discontinued operations ...................... $ 345 $ 1,081 $ 1,172 (169) $ 2,429 Provision for income taxes ............................... 27 103 30 (8) 152 -------- -------- -------- -------- -------- 318 978 1,142 (161) 2,277 -------- -------- -------- -------- -------- Loss on disposal, net of income tax benefit of $(152) .... -- -- -- (6,474) (6,474) -------- -------- -------- -------- -------- $ 318 $ 978 $ 1,142 $ (6,635) $ (4,197) ======== ======== ======== ======== ========
Income from discontinued operations includes operating results prior to the Measurement Date. The loss on disposal includes operating results subsequent to the Measurement Date including shut-down expenses and gain (loss) from the disposal of the two semi-submersible offshore drilling rigs, ALASKAN STAR and PACESETTER IV. In December 1994, the Company completed the sale of the ALASKAN STAR for $11.8 million, of which $6.3 million is a bankers' acceptance drawn on a U.S. bank due within one year. This rig sale resulted in a gain of $0.3 million. In December 1994, the Company signed a letter of intent to sell the PACESETTER IV. The Company completed the sale in early February 1995 for $37.2 million (see Note 13). At December 31, 1994, Assets held for sale, net - discontinued operations primarily consists of the net book value and inventory of the PACESETTER IV, net of the loss on sale of such rig. 30 31 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - (CONTINUED) Company operating results by quarter for the year ended December 31, 1993 were as follows:
QUARTER ------------------------------------------------------------ FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- --------- --------- (In thousands, except per share amounts) 1993 Revenues: Pressure pumping. . . . . . . . . . . . $ 74,901 $ 67,361 $ 71,545 $ 80,266 $ 294,073 Operating costs and expenses: Pressure pumping. . . . . . . . . . . . 62,921 57,487 60,778 69,285 250,471 Depreciation and amortization . . . . . 3,508 3,984 3,596 3,501 14,589 General and administrative. . . . . . . 1,955 1,926 2,029 3,112 9,022 -------- -------- -------- --------- --------- 68,384 63,397 66,403 75,898 274,082 -------- -------- -------- --------- --------- Operating income . . . . . . . . . . 6,517 3,964 5,142 4,368 19,991 -------- -------- -------- --------- --------- Other income (expense): Interest expense. . . . . . . . . . . . (3,631) (3,432) (2,962) (3,480) (13,505) Interest income . . . . . . . . . . . . 146 1,575 383 2,549 4,653 Writedown of pressure pumping assets and other (1) . . . . . . . . . . . . (248) -- -- (6,884) (7,132) -------- -------- -------- --------- --------- Total other income (expense). . . . . (3,733) (1,857) (2,579) (7,815) (15,984) -------- -------- -------- --------- --------- Income (loss) from continuing operations before provision for income taxes and extraordinary loss. . . . . . . . . . . 2,784 2,107 2,563 (3,447) 4,007 Provision for income taxes. . . . . . 180 309 538 (400) 627 -------- -------- -------- --------- --------- Income (loss) from continuing operations before extraordinary loss 2,604 1,798 2,025 (3,047) 3,380 Discontinued operations . . . . . . . . . (114) 166 2,131 33,138 35,321 Extraordinary loss (2). . . . . . . . . . -- -- -- (25,713) (25,713) -------- -------- -------- --------- --------- Net income . . . . . . . . . . . . . . . $ 2,490 $ 1,964 $ 4,156 $ 4,378 $ 12,988 ======== ======== ======== ========= ========= Earnings (loss) per share: Primary: Income (loss) from continuing operations. . . . . . . . . . . . . $ 0.15 $ 0.10 $ 0.11 $ (0.16) $ 0.18 Discontinued operations . . . . . . . (0.01) 0.01 0.11 1.77 1.90 Extraordinary loss. . . . . . . . . . -- -- -- (1.38) (1.38) -------- -------- -------- --------- --------- Net income (loss) . . . . . . . . . . $ 0.14 $ 0.11 $ 0.22 $ 0.23 $ 0.70 ======== ======== ======== ========= ========= Fully diluted: Income (loss) from continuing operations. . . . . . . . . . . . . $ * $ * $ * $ * $ * Discontinued operations . . . . . . . * * * 1.39 1.48 Extraordinary loss. . . . . . . . . . * * * * * -------- -------- -------- --------- --------- Net income (loss) . . . . . . . . . . $ * $ * $ * $ * $ * ======== ======== ======== ========= =========
- ------------- *Fully diluted computation is not reflected because per share effect is antidilutive. (1) The writedown of pressure pumping assets and other totaled $7.1 million and included a $3.5 million writedown of older pressure pumping equipment and idle facilities to net realizable value in anticipation of disposal and various other non-operating costs. (2) During March 1994, the Company purchased through a tender offer $97.8 million face amount of Notes. The aggregate purchase price of these Notes was $117.3 million, resulting in an extraordinary loss of $25.7 million ($1.38 per share) including unamortized original issue costs of $3.2 million, unamortized original issue discount of $2.3 million and offering costs of $.7 million. The anticipated extraordinary loss was accrued during the fourth quarter of 1993. 31 32 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - (CONTINUED) The Company formalized a plan in November 1994 to dispose of the remaining assets of its offshore drilling segment. These assets consisted primarily of two semi-submersible offshore drilling rigs and related equipment and inventory. As a result, the offshore drilling segment has been reclassified in the consolidated statements of operations as discontinued operations. The results of the discontinued operations by quarters for the year ended December 31, 1993 were as follows:
QUARTER ---------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- -------- -------- (In thousands) Revenues ....................................... $ 18,629 $ 19,186 $ 19,870 $ 6,991 $ 64,676 ======== ======== ======== ======== ======== Income from discontinued operations Operating income ............................. $ 462 $ 896 $ 2,406 $ 397 $ 4,161 -------- -------- -------- -------- -------- Other income (loss): Gains on sales of offshore drilling rigs.... 9,076 -- 372 49,713 59,161 Writedowns of offshore drilling rigs ....... (8,828) -- -- (9,500) (18,328) -------- -------- -------- -------- -------- 248 -- 372 40,213 40,833 -------- -------- -------- -------- -------- Income from discontinued operations before income taxes .............. 710 896 2,778 40,610 44,994 Provision for income taxes ..................... 824 730 647 7,472 9,673 -------- -------- -------- -------- -------- $ (114) $ 166 $ 2,131 $ 33,138 $ 35,321 ======== ======== ======== ======== ========
Income from discontinued operations includes operating results prior to the Measurement Date. Income from discontinued operations during 1993 included the following sales of offshore drilling rigs and writedowns of offshore drilling rigs. In March 1993, the Company completed the sale of the TRITON III jack-up drilling rig for $17.8 million in cash. This sale resulted in a gain of $9.1 million. In July 1993, the Company completed the sale of the DELTA jack-up drilling rig for $1.5 million in cash which resulted in a gain of $0.4 million. In October 1993, the Company completed the sale of nine jack-up drilling rigs and associated equipment and inventories for $150.0 million cash that resulted in a 1993 fourth quarter gain of $49.7 million. The rigs sold were: APOLLO I, APOLLO II, APOLLO IV, NIKE I, POLARIS I, POLARIS II, TRITON I, TRITON II and TRITON IV. In March 1993, the Company wrote down the net book value of its three mat-supported jack-up rigs by $8.8 million. This writedown reflected the low utilization experienced by these types of rigs and the expectation of lower future utilization for them. In December 1993, the Company wrote down the net book value of the ALASKAN STAR semi-submersible drilling rig by $9.5 million. This writedown reflected the Company's lower expectation of future operating cash flow opportunities for second generation semi-submersibles like the ALASKAN STAR. 32 33 THE WESTERN COMPANY OF NORTH AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13 - SUBSEQUENT EVENT (UNAUDITED) The Company completed the sale of the PACESETTER IV in early February 1995 for $37.2 million which resulted in a loss of $6.7 million. At December 31, 1994, Assets held for sale, net - discontinued operations primarily consists of the net book value and inventory of the PACESETTER IV, net of the loss on sale of such rig. 33 34 Financial information for The Western Company of North America for the quarter ended March 31, 1995 (unaudited) 34 35 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, ----------------------- 1995 1994 --------- -------- Revenue . . . . . . . . . . . . . . . . . . . . . . . . $ 79,992 $ 78,051 Operating Expenses: Cost of sales and services . . . . . . . . . . . . . . 79,560 76,346 General and administrative . . . . . . . . . . . . . . 2,356 2,234 --------- -------- Operating loss . . . . . . . . . . . . . . . . . . . . . . (1,924) (529) Other income (expense): Interest expense . . . . . . . . . . . . . . . . . . . (2,217) (3,746) Interest income . . . . . . . . . . . . . . . . . . . 181 772 --------- -------- Loss from continuing operations before income taxes . . . . (3,960) (3,503) Income tax expense . . . . . . . . . . . . . . . . . . . . 100 103 --------- -------- Loss from continuing operations . . . . . . . . . . . . . . (4,060) (3,606) Income from discontinued operations . . . . . . . . . . . . 1,303 318 --------- -------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (2,757) $ (3,288) ========= ======== Weighted average shares outstanding . . . . . . . . . . . . 18,533 18,220 Net loss per share: Loss per share from continuing operations . . . . . . $ (0.22) $ (0.20) Income per share from discontinued operations . . . . $ 0.07 $ 0.02 --------- -------- Net loss per share . . . . . . . . . . . . . . . . . . $ (0.15) $ (0.18) ========= ========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 35 36 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1995 1994 ----------- --------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 44,567 $ 12,650 Receivables - net . . . . . . . . . . . . . . . . . . . . . . . 63,926 74,080 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 20,094 20,065 Deferred income taxes and other . . . . . . . . . . . . . . . . 4,535 40,214 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . 133,122 147,009 Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,045 186,095 Goodwill 18,111 18,400 Investments and other assets . . . . . . . . . . . . . . . . . . . . 3,043 2,197 --------- --------- $ 339,321 $ 353,701 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 23,359 $ 29,996 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 33,492 38,389 --------- --------- Total current liabilities . . . . . . . . . . . . . . . . . 56,851 68,385 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,718 90,909 Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . 14,751 15,258 Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 190,001 179,149 --------- --------- $339,321 $ 353,701 ========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 36 37 THE WESTERN COMPANY OF NORTH AMERICA CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1995 1994 --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $( 2,757) $( 3,288) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . 5,304 5,654 Changes in assets and liabilities . . . . . . . . . . . . . . . . (4,283) (10,192) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,178) 212 -------- -------- Net cash used for operating activities . . . . . . . . . . . . (2,914) (7,614) CASH FLOWS FROM INVESTING ACTIVITIES: Property additions . . . . . . . . . . . . . . . . . . . . . . . (2,787) (5,118) Proceeds from disposal of assets . . . . . . . . . . . . . . . . 37,200 317 Proceeds from sale of marketable securities . . . . . . . . . . . 18,711 Acquisition of business . . . . . . . . . . . . . . . . . . . . . (19,769) -------- --------- Net cash provided by (used for) investing activities . . . . . 34,413 (5,859) CASH FLOWS FROM FINANCING ACTIVITIES: Debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . (117,946) Proceeds from issuance of stock . . . . . . . . . . . . . . . . . 418 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 -------- -------- Net cash provided by (used for) investing activities . . . . . 418 (117,847) Increase (decrease) in cash and cash equivalents . . . . . . . . 31,917 (131,320) Cash and cash equivalents at beginning of period . . . . . . . . 12,650 141,279 -------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . $ 44,567 $ 9,959 ======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 37 38 NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1 GENERAL The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial Statements," and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated condensed financial statements have been prepared in conformity with accounting principles and practices (including consolidation practices) reflected in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and in the opinion of BJ Services Company ("BJ Services"), include all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation of the Company's financial position as of March 31, 1995, and the results of its operations and its cash flows for the three months ended March 31, 1995 and 1994. Operating results for the three months ended March 31, 1995 are not necessarily indicative of the results that could be expected for a full year. NOTE 2 SALE OF OFFSHORE DRILLING RIG In December 1994, the Company signed a letter of intent to sell the Pacesetter IV offshore drilling rig for $37.2 million and recorded a net loss of $6.7 million. In February 1995, the sale was completed and the Company received the agreed upon $37.2 million. NOTE 3 CONVERTIBLE SUBORDINATED DEBENTURES In March 1995, holders of $13.2 million in principal amount of the Company's convertible subordinated debentures elected to convert their debentures into 775,991 shares of common stock at the conversion price of $17.00. NOTE 4 SUBSEQUENT EVENT In April 1995, the Company was acquired by BJ Services for a total purchase price of $511.4 million (including transaction costs of $7.2 million), consisting of 12.0 million shares of BJ Services common stock, cash of $247.9 million and warrants to purchase 4.8 million shares of BJ Services common stock at an exercise price of $30 per share, exercisable until the close of business on April 13, 2000. Each stockholder of the Company received $20.00 in cash or 1.003 shares of BJ common stock for each outstanding share of the Company's common stock owned. Additionally, for each share of common stock held, each stockholder received .2 of a five-year warrant to purchase one share of BJ common stock for $30 per share. 38 39 (b) PRO FORMA FINANCIAL INFORMATION The following pro forma information is based upon certain assumptions as of May 30, 1995, and does not reflect financial or other information subsequent to such date with respect to the merger of The Western Company of North America ("Western") with and into BJ Services Company ("BJ Services" or the "Company"). PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The pro forma financial statements are based on the historical financial information of BJ Services and Western giving effect, under the purchase method of accounting, to certain adjustments. The pro forma financial statements are derived from BJ Services' and Western's historical consolidated financial data for the indicated periods, which, in the case of the statement of operations of Western, differs from those periods used for presentation of Western's financial statements included in this Report on Form 8-K/A. In the case of Western, the statement of operations for the year ended September 30, 1994 was derived by combining the last three months of its fiscal year ended December 31, 1993 with the first nine months of its fiscal 1994. The pro forma statement of financial position was prepared as if the Merger occurred on March 31, 1995. The pro forma statements of operations were prepared as if the Merger had occurred as of October 1, 1993 and do not include any estimate for loss of revenue from overlapping locations or the effect of any modifications in operations that might have occurred had BJ Services owned and operated the businesses during the periods presented except as described in the Notes to the Pro Forma Financial Statements. The statements also do not reflect the disposition of assets from BJ Services' Brighton, Colorado and Cortland, Ohio operations. Revenue generated from these operations was $5.6 million for the year ended September 30, 1994 and $4.7 million for the six months ended March 31, 1995. The pro forma financial statements should be read in conjunction with the Notes to Pro Forma Financial Statements and with the Consolidated Financial Statements of BJ Services and the related notes thereto as previously filed and the Consolidated Financial Statements of Western and the related notes thereto, contained elsewhere in this Report on Form 8-K/A. The pro forma financial information has been prepared based upon assumptions deemed appropriate by management of BJ Services. This information is prepared for informational purposes only and is not necessarily indicative of the actual results or financial condition that would have been achieved had the Merger and related financing occurred at these dates or of future results. Actual results of Western's operations are included with BJ Services' results beginning April 1, 1995. 39 40 PRO FORMA STATEMENT OF FINANCIAL POSITION (UNAUDITED) MARCH 31, 1995 (IN THOUSANDS)
Historical Pro Forma -------------------------- ---------------------------- BJ Services Western Adjustments Combined ----------- ------- ----------- -------- ASSETS Current Assets: Cash and cash equivalents $ 5,698 $ 44,567 ($44,567)(2) $ 5,698 Receivables - net 98,053 63,926 161,979 Inventories 42,813 20,094 62,907 Deferred income taxes and other 14,260 4,535 18,795 -------- -------- -------- -------- Total current assets 160,824 133,122 (44,567) 249,379 Property - net 197,033 185,045 53,000 (1) 435,078 Goodwill 20,413 18,111 153,097 (1) 191,621 Deferred income taxes 22,690 60,000 (1) 82,690 Investments and other assets 12,658 3,043 15,701 -------- -------- -------- -------- $413,618 $339,321 $221,530 $974,469 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 48,913 $ 23,359 $ 72,272 Short-term borrowings and current portion of long-term debt 29,291 (29,291)(2) Accrued liabilities 36,568 33,492 17,398 (1) 22,000 (8) 109,458 -------- -------- -------- -------- Total current liabilities 114,772 56,851 10,107 181,730 Long-term debt 74,700 77,718 (75,554)(1) 234,851 (2) 311,715 Other long-term liabilities 27,000 14,751 41,751 Stockholders' equity 197,146 190,001 74,126 (1) (22,000)(8) 439,273 -------- -------- -------- -------- $413,618 $339,321 $221,530 $974,469 ======== ======== ======== ========
See Notes to Pro Forma Financial Statements 40 41 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED MARCH 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Historical Pro Forma ------------------------- ----------------------- BJ Services Western Adjustments Combined ----------- ------- ----------- -------- Revenue $226,083 $173,922 $400,005 Operating Expenses: Cost of sales and services 202,490 164,660 $ 4,438 (3) 371,588 General and administrative 12,453 5,033 17,486 Amortization of goodwill 1,914 (5) 1,914 -------- -------- -------- -------- 214,943 169,693 6,352 390,988 Operating income 11,140 4,229 (6,352) 9,017 Other income (expense): Interest expense (4,618) (4,599) (3,900) (4) (13,117) Interest income 334 362 696 Write-downs and other 940 (21,118) 21,118 (7) 940 -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 7,796 (21,126) 10,866 (2,464) Income tax expense (benefit) 1,674 285 (3,206) (6) (1,247) -------- -------- -------- -------- Income (loss) from continuing operations $ 6,122 $(21,411) 14,072 $ (1,217) ======== ======== ======== ======== Weighted average shares outstanding 15,716 12,040 (1) 27,756 ======== ======== ======== ========= Income (loss) per share from continuing operations $ 0.39 $ (0.04) ======== ======== ======== =========
See Notes to Pro Forma Financial Statements 41 42 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED SEPTEMBER 30, 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Historical Pro Forma ----------------------- -------------------------- BJ Services Western Adjustments Combined ----------- ------- ----------- -------- Revenue $434,476 $328,837 $763,313 Operating Expenses: Cost of sales and services 391,022 306,947 $ 8,875 (3) 706,844 General and administrative 22,709 10,598 33,307 Amortization of goodwill 3,827 (5) 3,827 -------- -------- -------- -------- 413,731 317,545 12,702 743,978 -------- -------- -------- -------- Operating income 20,745 11,292 (12,702) 19,335 Other income (expense): Interest expense (7,383) (11,130) (4,325)(4) (22,838) Interest income 729 3,604 4,333 Write-downs and other (1,315) (6,884) (8,199) -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 12,776 (3,118) (17,027) (7,369) Income tax expense (benefit) 2,006 (90) (5,620)(6) (3,704) -------- -------- -------- -------- Income (loss) from continuing operations before extraordinary loss and cumulative effect of accounting change $ 10,770 $ (3,028) $(11,407) $ (3,665) ======== ======== ======== ======== Weighted average shares outstanding 15,665 12,040 (1) 27,705 ======== ======== ======== Income (loss) per share from continuing operations before extraordinary loss and cumulative effect of accounting change $ 0.69 $ (0.13) ========= ======== ======== ========
See Notes to Pro Forma Financial Statements 42 43 NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS) (1) The pro forma financial statements reflect the purchase of 100% of the outstanding shares of Western common stock in exchange for total consideration of $514.3 million ($21.00 per share), consisting of 12.0 million shares of BJ Common Stock, cash of $240.1 million and warrants to purchase 4.8 million shares of BJ Common Stock. For purposes of determining Western's outstanding shares, it is assumed that such debentures, which had a face value of $75.6 million at March 31, 1995 were converted into 4.4 million shares of Western common stock prior to the transaction (as of May 1995, substantially all of the debentures had been converted). The BJ Common Stock to be issued was valued at $19.94, the average closing price prior to the closing date calculated in accordance with the Merger Agreement. In addition, BJ Services incurred transaction costs of approximately $10.0 million, resulting in a total purchase price of $514.3 million. In accordance with purchase accounting, the assets and liabilities of Western will be recorded on BJ Services' books at estimated fair market value with the remaining purchase price reflected as goodwill. For purposes of these Pro Forma Financial Statements, the allocation of the purchase price has been made based upon valuations and other studies which have not been finalized. Accordingly, the allocation of the purchase price is preliminary. The following adjustments reflect management's estimates of the necessary adjustments to Western's historical Statement of Financial Position to reflect fair market value: BJ Consideration Paid: Cash $ 240,127 Stock 240,127 Warrants 24,000 Transaction costs 10,000 ----------- 514,254 Less: Western stockholders' equity 190,001 Conversion of Western debentures 75,554 ----------- 265,555 ----------- Net Adjustment $ 248,699 ===========
43 44 Allocation of adjustment: Property $ 53,000 Deferred tax asset - net operating loss carryforwards 60,000 Accrual for severance, facility closings and other nonrecurring costs associated with the acquisition (9,400) Accrual for buyout of Western stock options (4,598) Accrual of past service costs - benefit plans (3,400) Goodwill 153,097 ------------- $ 248,699 =============
(2) Assumes that immediately upon consummation of the Merger, BJ Services will utilize a new credit facility to retire all of its then outstanding debt and, after utilizing $44.6 million in available excess cash held by Western, pay the cash portion of the merger consideration as discussed in Note (1). (3) Reflects increased depreciation expense due to the net write-up of property depreciated over its average estimated remaining useful life. (4) Reflects the interest expense on the borrowings under the new credit facility described in Note (2) at an average assumed rate of 5.125% for the fiscal year and 6.625% for the six-month period. The effect of each .125% change in the assumed rate would change interest expense by $390,000 per annum. (5) Reflects amortization of increase to goodwill over a 40-year period. (6) Adjustment to reflect 35% effective tax rate for Western and the tax effect of the pro forma adjustments, with the exception of goodwill amortization. (7) Adjustment to eliminate expenses incurred by Western which are directly attributable to the Merger. (8) The pro forma statement of operations has not been adjusted for the following nonrecurring charges which are estimated and are expected to be incurred by BJ Services within the 12 month period following the Merger: Severance and special incentive costs $ 10,500 Facility closings, equipment relocation, etc. 8,000 Legal, accounting and other 3,500 --------- $ 22,000 ========= 44 45 These items have been reflected in the pro forma statement of financial position as an addition to accrued liabilities and a reduction to stockholders' equity. 45 46 (c) Exhibits.
Exhibit Number Description - -------------- ----------- *10.1 Credit Agreement dated as of April 13, 1995, among BJ Services Company, BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Bank of America National Trust and Savings Association, as agent, and the other financial institutions parties thereto (the "Credit Agreement"). *10.2 Parent Guaranty Agreement dated as of April 13, 1995, by BJ Services Company, in favor of the banks and the agent under the Credit Agreement. *10.3 Form of Guaranty Agreement dated as of April 13, 1995, by each of BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, and Western Petroleum Services International Company, in favor of the banks and the agent under the Credit Agreement. **23.1 Consent of Price Waterhouse LLP.
- -------------------- * Previously filed. ** Filed herewith. 46 47 SIGNATURE 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 hereunto duly authorized. BJ SERVICES COMPANY By /s/ MATTHEW D. FITZGERALD _______________________ Matthew D. Fitzgerald Controller Date: May 30, 1996 47 48 EXHIBIT INDEX
Exhibit Number Description ------ ----------- *10.1 Credit Agreement dated as of April 13, 1995, among BJ Services Company, BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Bank of America National Trust and Savings Association, as agent, and the other financial institutions parties thereto (the "Credit Agreement"). *10.2 Parent Guaranty Agreement dated as of April 13, 1995, by BJ Services Company, in favor of the banks and the agent under the Credit Agreement. *10.3 Form of Guaranty Agreement dated as of April 13, 1995, by each of BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, and Western Petroleum Services International Company, in favor of the banks and the agent under the Credit Agreement. **23.1 Consent of Price Waterhouse LLP.
- ----------- * Previously filed. ** Filed herewith. EX-23.1 2 CONSENT OF PRICE WATERHOUSE 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-36754, 33-52506, 33-62098, 33-58637 and 33-58639) of BJ Services Company and in the Post-Effective Amendment on Form S-3 to the Company's Registration Statement on Form S-4 (No. 33-58017), the Company's Registration Statement on Form S-4 (No. 333- 02287) and the Company's Registration Statement on Form S-3 (No. 333-02731) of our report dated February 22, 1995 relating to the financial statements of The Western Company of North America, which appears in this Current Report on Form 8-K/A of BJ Services Company. PRICE WATERHOUSE LLP Houston, Texas May 22, 1996 -----END PRIVACY-ENHANCED MESSAGE-----