-----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, SSg/Yl/RNHEdWbK/BLunlnnDYWU6epfD9MFqQZmo9fagY+N2bMeJk+Y6zM/CVLPS Cp9Vv9rCBHUHuMAbG9+FzA== 0000950129-96-001396.txt : 19960701 0000950129-96-001396.hdr.sgml : 19960701 ACCESSION NUMBER: 0000950129-96-001396 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960614 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960628 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10570 FILM NUMBER: 96588603 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 1 BJ SERVICES - FORM 8-K - 06/14/96 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 14, 1996 BJ SERVICES COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 1-10570 63-0084140 (STATE OR OTHER JURISDICTION (COMMISSION FILE NO.) (I.R.S. EMPLOYER OF INCORPORATION) IDENTIFICATION NO.) 5500 NORTHWEST CENTRAL DRIVE HOUSTON, TEXAS 77092 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (713) 462-4239 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ================================================================================ 2 ITEM 2. ACQUISITION OF NOWSCO On April 12, 1996, BJ Services Company (the "Company" or "BJ Services") announced a tender offer (the "Nowsco Tender Offer") to acquire all of the outstanding common shares of Nowsco Well Service Ltd. ("Nowsco") for a price per share of Cdn $27.00 ($19.50 per share). On May 6, 1996, Great Lakes Chemical Corporation ("Great Lakes") made a competing tender offer to acquire all the outstanding common shares of Nowsco for a price per share of Cdn $30.90 ($22.55 per share). On June 3, 1996, the Company amended the Nowsco Tender Offer by increasing the consideration offered to Cdn $35.00 per Nowsco common share ($25.55 per share) and in connection therewith was provided access to Nowsco's confidential information that had been provided to Great Lakes. On June 7, 1996, Great Lakes announced that it would neither extend nor increase the consideration offered under its tender offer for all the common shares of Nowsco. On that date, the Great Lakes tender offer expired. On June 14, 1996, the Company acquired more than 97% of Nowsco's common shares, and on June 28, 1996, the Company acquired the remaining common shares. The total purchase price for the acquisition (the "Nowsco Acquisition") of the common shares of Nowsco (including estimated transaction costs of $7.0 million) is estimated to be $581.3 million (Cdn $796.3 million). For the fiscal year ended December 31, 1995, Nowsco reported revenue of Cdn $480.1 million, net income of Cdn $16.2 million (Cdn $.78 per share) and total shareholders' equity of Cdn $286.5 million. Nowsco's operations are conducted in Canada, the United States, Europe, Southeast Asia and Argentina and include oil and gas pressure pumping, coiled tubing, commissioning and pipeline service businesses. In June 1996, in connection with the Nowsco Acquisition, the Company entered into a new bank credit facility (the "New Bank Credit Facility") among the Company, BJ Services Company, U.S.A., BJ Services Company Middle East, BJ Service International, Inc., BJ Services Canada Inc., Bank of America National Trust and Savings Association ("Bank of America"), as agent for the U.S. Banks and as Letter of Credit Issuing Bank, Bank of America Canada, as agent for the Canadian Banks, and the financial institutions named therein (collectively, the "Banks"). The New Bank Credit Facility currently provides for up to $850.0 million in unsecured borrowings in connection with the Nowsco Acquisition, to pay certain existing indebtedness and for general corporate purposes, including a one-year bridge loan facility of $285.0 million, a six-year term loan facility of $315.0 million and a five-year revolving credit facility of $250.0 million (including stand-by letters of credit). An affiliate of Bank of America will act as arranger in syndicating a part of the commitment to a group of financial institutions. The New Bank Credit Facility includes the following covenants, among others: a limitation on liens, security interests and other encumbrances; a limitation on the sale, lease, transfer or other disposition of property; a limitation on permitted consolidations and mergers; a limitation on permitted investments; a limitation on the indebtedness incurred by certain subsidiaries to 10% of consolidated net worth; a limitation on contingent obligations to 10% of consolidated net worth; the maintenance of a maximum capitalization ratio (the ratio of funded indebtedness to total capitalization) of 70% (to be reduced upon giving effect to the Common Stock Offering (as hereinafter defined)) and then declining to 45% in the third fiscal quarter of 1997 and to 40% in the third fiscal quarter of 1998; the maintenance of a minimum consolidated net worth of no less than 90% of net worth as of the end of the most recent fiscal quarter end plus 90% of the aggregate amount of the first $285.0 million of net assets (cash or otherwise) received by the Company from the issuance of any class of capital stock plus 50% of the aggregate amount of any other net assets (cash or otherwise) received by the Company from the issuance of any class of capital stock plus 50% of cumulative net income from April 1, 1996; the maintenance of an EBITDA-to-interest-expense ratio of at least 3.0 to 1.0 during fiscal year 1997 increasing to 3.75 to 1.0 during fiscal year 1998 and 4.25 to 1.0 thereafter; a restriction on amounts payable as dividends and as other "Restricted Payments" (as defined in the New Bank Credit Facility), including the repurchase of stock (no dividends are payable and no stock may be repurchased by the Company until the capitalization ratio is equal to or less than 35%); a limitation on annual capital expenditures for so long as the one-year bridge loan is outstanding to $70.0 million in the aggregate; a mandatory -2- 3 prepayment obligation with respect to certain asset sales; and an obligation to prepay the term loan facility by 50% of the "Free Cash Flow" (as defined in the New Bank Credit Facility) during any fiscal year as long as the Company's capitalization ratio exceeds 35% during any fiscal quarter of such year. Any outstanding amounts under the bridge loan facility will be prepaid from net cash proceeds received by the Company from sales of equity (including the shares to be issued pursuant to the Common Stock Offering) to the extent necessary to reduce the capitalization ratio to 35%. The Company has filed with the Securities and Exchange Commission a registration statement on Form S-3 under the Securities Act of 1933 for the proposed offering of 8,500,000 shares (the "Common Stock Offering") of the Company's common stock, par value $0.10 per share ("Common Stock"), excluding 1,275,000 additional shares of Common Stock subject to purchase upon the exercise by the underwriters of an over-allotment option. The Company will use the net proceeds from the Common Stock Offering to repay certain indebtedness under the New Bank Credit Facility incurred to fund the Nowsco Acquisition, including indebtedness under the bridge loan portion of such facility. BUSINESS OF NOWSCO Nowsco Well Service Ltd. is a corporation incorporated under The Companies Act (Alberta) on August 3, 1965 and continued under the Business Corporations Act (Alberta) by a Certificate of Continuance dated April 19, 1985. Nowsco Well Service Ltd. has a number of wholly owned subsidiaries that conduct business internationally. Unless the context otherwise indicates, Nowsco Well Service Ltd. and its subsidiaries are collectively referred to herein as "Nowsco." Nowsco is headquartered in Calgary, Alberta, Canada and provides, on an international basis, specialized products, equipment and technology principally to owners and operators of oil and gas wells for use in the drilling, completion and reworking of such wells and to pipeline operators for testing, commissioning and maintenance services. Nowsco's specialized products, equipment and technology for oil and gas wells are applied primarily in the cementing and stimulation (including acidizing and fracturing) of wells, coiled tubing services and in related applications involving nitrogen and carbon dioxide. Nowsco also offers an industrial nitrogen service to refineries and process facilities, specializing in leak testing, the purging of existing plant facilities and the commissioning of new plant facilities. Services are provided by Nowsco to pipeline operators including engineering, commissioning and isolation services as well as pipeline monitoring technology that measures critical pipeline parameters. In Canada and the United States, Nowsco designs specialized equipment for its own worldwide use and for sale to third parties. Nowsco provides training to a variety of customers and conducts research and development activities that have resulted in technological advances in the areas of the oil and gas industry in which it operates. Nowsco owns and leases operating bases worldwide, from which its specialized products, equipment and technology are provided and where inventory is stored. The original cost of Nowsco-owned locations at December 31, 1995 was Cdn $39.2 million, of which approximately Cdn $21.4 million related to bases located in Canada, the majority of which are in Alberta, Saskatchewan and British Columbia. In addition, Nowsco owns properties in the United Kingdom, Germany and Syria with a total cost of Cdn $13.6 million and in the United States with a cost of Cdn $3.5 million and in Argentina totalling Cdn $0.7 million. During 1994, Nowsco completed construction of a new operations center in Aberdeen, Scotland to service the North Sea market. During 1995, Nowsco completed construction of a new operations center in Red Deer, Canada to service the central Alberta market. Nowsco also conducts operations from leased premises in various locations. The availability of premises in these areas is not restricted at comparable costs. Nowsco's Fabrication, Research and Development and Training Center in Calgary is a 45,000-square-foot complex located on a seven-acre site owned by Nowsco. Nowsco has invested a total of approximately Cdn $6.9 million in this facility, which opened in November 1979, and also has fabrication facilities in Texas. Nowsco maintains a total of 43 operating bases in Canada and the United States. Its most significant operations in Canada are currently conducted in Alberta, Saskatchewan and British Columbia. Nowsco's corporate head office and Canadian operations regional head office are located in Calgary, Alberta. Services provided in Canada include cementing, fracturing, nitrogen, underbalanced drilling, coiled tubing and acidizing services. In the United States, Nowsco conducts business through wholly owned subsidiaries and presently -3- 4 maintains operating bases in Texas, Louisiana, Pennsylvania, Michigan, Mississippi, West Virginia, Colorado, Kansas, New Mexico, Oklahoma, Indiana and Iowa. Nowsco's U.S. regional head office is located in Houston, Texas. Services provided in the United States are primarily related to pressure pumping and coiled tubing and include fracturing, acidizing, cementing and nitrogen services. In 1995, Nowsco recorded a charge against income of Cdn $5.2 million relating to its U.S. operations, representing a writedown of assets and severance, relocation and reorganization costs. Nowsco's operations outside of North America are carried out in the United Kingdom/Europe, Africa & the Middle East and Asia Pacific with regional head offices located in Aberdeen, Scotland, Nicosia, Cyprus and Jakarta, Indonesia. The majority of these operations are conducted through branches or wholly owned subsidiaries utilizing manpower and expertise available in the country of operation. Operations in Argentina are conducted through Nowsco's associated company, Nowsco Americas S.A., and are headquartered in Buenos Aires. The business consists primarily of cementing and stimulation services. Nowsco maintains 18 international operating bases including those located in the United Kingdom, the Netherlands, Germany, Norway, Syria, Zaire, Dubai, Australia, Indonesia, Sarawak, Malaysia, Thailand, Vietnam, Russia and Argentina. The Company intends to integrate the businesses carried on by the Company and Nowsco. Because the Company has no operations in Canada, it is expected that integration of the two companies' operations would not involve a significant change in Nowsco's operations in Canada. The Company anticipates maintaining the headquarters of the combined companies' Canadian operations in Calgary. On the other hand, integration of the two companies' operations can be expected to result in considerable changes in Nowsco's operations in the United States and less significant changes in some regions outside of North America. The Company expects the Nowsco Acquisition to provide BJ Services with: (i) opportunities to grow the earnings and cash flow of the combined companies, primarily by achieving certain financial and operating efficiencies; (ii) opportunities to expand and further develop the Company's business strengths through combining the strengths of Nowsco with the Company's existing strengths; (iii) opportunities to expand the Company's geographic presence in North America with the addition of Nowsco's Canadian and United States operations and in certain other key international oil and gas producing regions; and (iv) the opportunity to have a larger and more effective presence in the worldwide pressure pumping and coiled tubing markets. ITEM 5. On February 20, 1996, in a transaction exempt from the registration requirements of the Securities Act, the Company issued $125.0 million of 7% Notes due 2006. Three of the Company's subsidiaries that are obligors with respect to the New Bank Credit Facility and the Company's 9.2% Notes Due August 1, 1998 (the "9.2% Notes"), BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East, are guarantors of the 7% Notes. The Company has an effective registration statement under the Securities Act with respect to up to $125.0 million of 7% Series B Notes due 2006 (the "7% Series B Notes") to be offered in exchange for the 7% Notes. The form and terms of the 7% Series B Notes are identical in all material respects to the form and terms of the 7% Notes except that the 7% Series B Notes will be issued in a transaction registered under the Securities Act. The net proceeds from the issuance of the 7% Notes ($123.3 million) were used by the Company to repay indebtedness outstanding under the term loan portion of the Company's then existing bank credit facility. For purposes of providing supplemental information regarding the guarantors of the 7% Notes and the 7% Series B Notes, the consolidated financial statements and consolidated condensed financial statements of BJ Services Company are set forth in this Item 5 as of and for the periods indicated therein. -4- 5 REPORT OF INDEPENDENT ACCOUNTANTS Stockholders of BJ Services Company: We have audited the accompanying consolidated statements of financial position of BJ Services Company and its subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BJ Services Company and its subsidiaries at September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. As described in Note 9 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions effective October 1, 1993 to conform with Statement of Financial Accounting Standards No. 106. DELOITTE & TOUCHE LLP Houston, Texas November 21, 1995 (March 28, 1996 as to Note 15) 6 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue.................................................... $633,660 $434,476 $394,363 Operating Expenses: Cost of sales and services............................... 525,859 368,994 329,042 Research and engineering................................. 12,299 8,621 9,098 Marketing................................................ 26,429 14,169 12,969 General and administrative............................... 28,318 22,709 22,825 Goodwill amortization.................................... 3,266 1,298 691 Unusual charge........................................... 17,200 -------- -------- -------- Total operating expenses................................. 613,371 415,791 374,625 -------- -------- -------- Operating income........................................... 20,289 18,685 19,738 Interest expense........................................... (15,164) (7,383) (5,414) Interest income............................................ 899 729 500 Other income -- net........................................ 2,734 877 2,014 -------- -------- -------- Income before income taxes, minority interest and cumulative effect of accounting change................... 8,758 12,908 16,838 Income tax expense (benefit)............................... (1,102) 2,006 1,593 -------- -------- -------- Income before minority interest and cumulative effect of accounting change........................................ 9,860 10,902 15,245 Minority interest.......................................... (29) 132 684 -------- -------- -------- Income before cumulative effect of accounting change....... 9,889 10,770 14,561 Cumulative effect of change in accounting principle, net of tax benefit of $5,600,000................................ (10,400) -------- -------- -------- Net income................................................. $ 9,889 $ 370 $ 14,561 ======== ======== ======== Net Income Per Share: Income per share before cumulative effect of accounting change................................................ $ .46 $ .69 $ .94 Cumulative effect of change in accounting principle, net of tax................................................ (.67) -------- -------- -------- Net income per share....................................... $ .46 $ .02 $ .94 ======== ======== ======== Weighted average shares outstanding........................ 21,376 15,665 15,456 ======== ======== ========
See Notes to Consolidated Financial Statements 7 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, --------------------- 1995 1994 -------- -------- (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents...................................................... $ 1,842 $ 3,218 Receivables, less allowance for doubtful accounts: 1995, $7,483,000; 1994, $2,184,000................................................................... 168,771 103,754 Inventories: Finished goods............................................................... 46,242 30,970 Work in process.............................................................. 2,392 1,118 Raw materials................................................................ 18,217 6,591 -------- -------- Total inventories....................................................... 66,851 38,679 Deferred income taxes.......................................................... 9,370 4,478 Other current assets........................................................... 10,101 8,230 -------- -------- Total current assets.................................................... 256,935 158,359 Property: Land........................................................................... 13,031 12,031 Buildings...................................................................... 83,205 47,042 Machinery and equipment........................................................ 634,692 446,739 -------- -------- Total property.......................................................... 730,928 505,812 Less accumulated depreciation.................................................. 314,118 306,968 -------- -------- Property -- net.............................................................. 416,810 198,844 Goodwill, net of amortization.................................................... 193,263 20,998 Deferred income taxes............................................................ 107,889 20,607 Investments and other assets..................................................... 14,786 11,258 -------- -------- $989,683 $410,066 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable -- trade...................................................... $ 85,675 $ 54,609 Short-term borrowings.......................................................... 2,000 2,250 Current portion of long-term debt.............................................. 35,600 31,200 Accrued employee compensation and benefits..................................... 24,885 10,521 Income taxes................................................................... 5,915 7,719 Taxes other than income........................................................ 5,460 2,751 Accrued insurance.............................................................. 12,867 2,637 Other accrued liabilities...................................................... 31,869 9,162 -------- -------- Total current liabilities............................................... 204,271 120,849 Long-term debt................................................................... 259,566 74,700 Deferred income taxes............................................................ 11,496 7,194 Accrued postretirement benefits.................................................. 25,146 15,834 Minority interest and other long-term liabilities................................ 22,409 1,562 Commitments and contingencies Stockholders' Equity: Preferred stock (authorized 5,000,000 shares) Common stock, $.10 par value (authorized 80,000,000 shares; issued and outstanding 1995 -- 27,951,784 shares, 1994 -- 15,670,903 shares)...................... 2,795 1,567 Capital in excess of par....................................................... 415,242 151,340 Retained earnings.............................................................. 53,505 43,616 Cumulative translation adjustment.............................................. (4,747) (4,133) Unearned compensation.......................................................... (2,463) -------- -------- Total stockholders' equity.............................................. 466,795 189,927 -------- -------- $989,683 $410,066 ========= =========
See Notes to Consolidated Financial Statements 8 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL CUMULATIVE COMMON IN EXCESS UNEARNED RETAINED TRANSLATION STOCK OF PAR COMPENSATION EARNINGS ADJUSTMENT TOTAL ------ --------- ------------ -------- ----------- -------- (IN THOUSANDS) Balance, September 30, 1992........ $1,304 $ 105,374 $ $ 28,685 $ (569) $134,794 Net income....................... 14,561 14,561 Issuance of stock for: Business acquisition.......... 250 40,537 40,787 Stock options................. 3 504 507 Stock purchase plan........... 4 619 623 Stock performance awards...... 2,855 (2,855) Amortization of unearned compensation.................. 500 500 Cumulative translation adjustment.................... (4,640) (4,640) ------ --------- -------- -------- ------- -------- Balance, September 30, 1993........ 1,561 149,889 (2,355) 43,246 (5,209) 187,132 Net income....................... 370 370 Issuance of stock for: Stock options................. 2 294 296 Stock purchase plan........... 4 680 684 Stock performance awards...... 944 (944) Buyback of stock rights.......... (155) (155) Amortization of unearned compensation.................. 524 524 Revaluation of stock performance awards........................ (312) 312 Cumulative translation adjustment.................... 1,076 1,076 ------ --------- -------- -------- ------- -------- Balance, September 30, 1994........ 1,567 151,340 (2,463) 43,616 (4,133) 189,927 Net income....................... 9,889 9,889 Issuance of stock for: Business acquisition.......... 1,204 262,347 263,551 Stock options................. 2 535 537 Stock purchase plan........... 5 733 738 Stock performance awards...... 17 287 1,803 2,107 Amortization of unearned compensation.................. 660 660 Cumulative translation adjustment.................... (614) (614) ------ --------- -------- -------- ------- -------- Balance, September 30, 1995........ $2,795 $ 415,242 $ $ 53,505 $(4,747) $466,795 ====== ========= ======== ======== ======= ========
See Notes to Consolidated Financial Statements 9 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1995 1994 1993 -------- ------- ------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................... $ 9,889 $ 370 $14,561 Adjustments to reconcile net income to cash provided from (used for) operating activities: Cumulative effect of accounting change................ 10,400 Depreciation and amortization......................... 42,064 25,335 24,170 Net (gain) loss on disposal of assets................. (830) (346) 62 Recognition of unearned compensation.................. 2,463 524 500 Deferred income tax benefit........................... (8,861) (4,959) (4,877) Unusual charge (noncash).............................. 3,646 Minority interest..................................... (29) 132 684 Changes in: Receivables........................................... (1,091) (9,235) (17,550) Accounts payable-trade................................ 7,707 8,417 6,687 Inventories........................................... (8,078) (621) (572) Other current assets and liabilities.................. (1,170) (1,960) (16,481) Other, net............................................ (6,326) (1,802) (7,499) --------- -------- -------- Net cash flows provided from (used for) operating activities............................................... 39,384 26,255 (315) CASH FLOWS FROM INVESTING ACTIVITIES: Property additions......................................... (30,966) (39,345) (37,350) Proceeds from disposal of assets........................... 5,393 2,588 3,982 Acquisitions of businesses, net of cash acquired........... (203,313) (2,000) (7,400) --------- -------- -------- Net cash used for investing activities..................... (228,886) (38,757) (40,768) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock..................... 40,787 Proceeds from exercise of stock options and stock purchase grants................................................... 1,275 980 1,130 Proceeds from (reduction of) borrowings-net................ 192,851 19,120 (689) Principal payment on long-term notes....................... (6,000) (6,000) --------- -------- -------- Net cash flows provided from financing activities.......... 188,126 14,100 41,228 Increase (decrease) in cash and cash equivalents........... (1,376) 1,598 145 Cash and cash equivalents at beginning of year............. 3,218 1,620 1,475 --------- -------- -------- Cash and cash equivalents at end of year................... $ 1,842 $ 3,218 $ 1,620 ========= ======== ========
See Notes to Consolidated Financial Statements 10 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION BJ Services Company is a leading provider of pressure pumping and other oilfield services to the petroleum industry. The consolidated financial statements include the accounts of BJ Services Company and its majority-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts for 1994 and 1993 have been reclassified in the accompanying consolidated financial statements to conform to the current year presentation. The amounts changed were foreign exchange gains and losses, previously classified as other income -- net and now classified in cost of sales and services, and goodwill amortization previously classified as other income -- net and now classified as a separate component of operating expenses. Net income was not affected by these changes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Net income per share: Net income per share has been computed by dividing net income by the weighted average number of outstanding common shares. Common stock equivalents had no material dilutive effect on the computation of net income per share for each year presented. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Cash and cash equivalents: The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Inventories: Inventories, which consist principally of (a) products which are consumed in the Company's services provided to customers, (b) spare parts for equipment used in providing these services and (c) manufactured components and attachments for equipment used in providing services, are stated primarily at the lower of average cost or market. Property: Property is stated at cost less amounts provided for permanent impairments and includes capitalized interest of $216,000, $541,000 and $167,000 for the years ended September 30, 1995, 1994 and 1993, respectively, on funds borrowed to finance the construction of capital additions. Depreciation is generally provided using the straight-line method over the estimated useful lives of individual items. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life or the lease term. Goodwill: Goodwill represents the excess of cost over the fair value of the net assets of companies acquired in purchase transactions. Goodwill is being amortized on a straight-line method over periods ranging from 5 to 40 years. Accumulated amortization at September 30, 1995 and 1994 was $5,174,000 and $1,880,000, respectively. The Company utilizes undiscounted cash flows of acquired operations to evaluate any possible impairment of the related goodwill. Impairment of long-lived assets: In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. SFAS 121's methodology of accounting for impairment and assets to be disposed of is not significantly different from the Company's current policy, and 11 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) therefore the Company does not expect the adoption of this Statement in fiscal 1997 to have a material impact on the Company's financial statements. Investments: Investments in corporate joint ventures in which the Company's ownership interest ranges from 20 to 50 percent and the Company exercises significant influence over operating and financial policies are accounted for using the equity method. Other investments are accounted for using the cost method. The Company maintains no investments in equity securities which have a readily determinable market value. Foreign currency translation: Gains and losses resulting from the remeasurement of assets and liabilities of foreign operations where the U.S. dollar is the functional currency are included in the consolidated statement of operations. Gains and losses resulting from financial statement translation of foreign operations where a foreign currency is the functional currency are included as a separate component of stockholders' equity. The Company's foreign operations primarily use the U.S. dollar as the functional currency. Foreign exchange contracts: From time to time, the Company enters into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. Changes in market value are offset against foreign exchange gains or losses on the related assets or liabilities and are included in cost of sales and services. There were no foreign exchange contracts outstanding at September 30, 1995 and 1994. Environmental remediation and compliance: Environmental remediation and compliance costs are accrued based on estimates of known environmental exposures. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. The accrual is based on facts known at the current time; however, changes in Environmental Protection Agency standards, improvements in cleanup technology and discovery of additional information concerning these exposures could affect the estimated costs in the future. Additionally, there are other potentially responsible parties at certain disposal facilities used by the Company or its predecessors. The accrual reflects an estimate of the allocation of remediation costs between the various parties. The Company expects to pay out such environmental remediation and compliance costs over the next several years. No amounts have been estimated for any potential recovery from the Company's insurance policies. 3. UNUSUAL CHARGE During 1995, the Company recorded an unusual charge of $17.2 million ($.52 per share after-tax) for costs incurred in connection with the acquisition of The Western Company of North America ("Western"). The components of the unusual charge are as follows:
BALANCE AT 1995 1995 SEPTEMBER 30, PROVISION EXPENDITURES 1995 --------- -------------- ------------- (IN THOUSANDS) Facility closings.............................. $ 5,596(1) $ (5,003)(1) $ 593 Change in control costs........................ 5,381 (4,081) 1,300 Legal and other................................ 4,047 (3,570) 477 Severance costs................................ 2,176 (1,976) 200 -------- -------- ------- Total................................ $ 17,200 $(14,630) $ 2,570 ======== ======== =======
- --------------- (1) Includes $3.6 million noncash impairment of facilities. The Company and Western both operated facilities in many of the same locations. Management has made the decision to close the duplicate facilities previously operated by BJ Services and retain those operated by Western. A provision was recorded to adjust the carrying value of these duplicate facilities to estimated net 12 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) realizable value and accruals were recorded for the estimated costs associated with their closings, including maintenance of the facilities until their ultimate sale and relocation of assets. Substantially all of the duplicate facilities were closed as of September 30, 1995. The consummation of the Western acquisition triggered the change in control provision under the Company's 1990 Stock Incentive Plan. As a result, 168,547 performance units previously granted to the Company's executive officers became fully vested and 168,547 shares of common stock were subsequently issued. The unusual charge includes an amount for the excess of the value of the performance units on the date of issuance over the estimated amount which otherwise was earned had the acquisition not occurred. The unusual charge also includes legal, severance of BJ employees and other merger-related costs that would not have been incurred had the acquisition of Western not occurred. 4. ACQUISITIONS OF BUSINESSES In April 1995, the Company acquired Western for total consideration, including transaction costs, of $511.4 million in cash, Company common stock and warrants to purchase common stock. The transaction may be summarized as follows:
(IN THOUSANDS) -------------- Cash................................................... $247,880 Stock issued (12,036,393 shares)....................... 239,551 Warrants issued (4,800,037 warrants)................... 24,000 -------------- Total consideration............................... 511,431 Net assets acquired.................................... 335,891(1) -------------- Goodwill............................................... $175,540 ===========
- --------------- (1) Includes cash acquired of $44.5 million. This acquisition was accounted for using the purchase method of accounting. Accordingly, the results of Western are included in the financial statements beginning April 1, 1995. The assets and liabilities of Western have been recorded on the Company's books at estimated fair market value on April 1, 1995 with the remaining purchase price reflected as goodwill, which is being amortized on a straight-line basis over 40 years. The following unaudited pro forma summary presents the consolidated results of operations, giving no effect to estimated consolidation savings, of the Company for the two years ended September 30, 1995 and 1994 as if the acquisition had occurred at the beginning of each fiscal year:
1995 1994 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue........................................................ $807,582 $763,313 Net income (loss) from continuing operations before cumulative effect of accounting change.................................. 2,308 (15,330) Net income (loss).............................................. 2,308 (25,730) Net income (loss) per share from continuing operations before cumulative effect of accounting change....................... .08 (.55) Net income (loss) per share.................................... .08 (.92)
On February 9, 1994, the Company acquired the remaining 50% ownership of its joint venture in Egypt, Hughes Services C.I., Ltd., for $2.0 million. Prior to the acquisition, this joint venture was accounted for using the equity method of accounting. 13 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On April 1, 1993, the Company completed a transaction to acquire the assets, including existing service contracts, of Norsk Bronnservice A/S, a subsidiary of Odfjell Drilling & Consulting A/S, for $5.4 million. These operations provide cementing, gravel packing and completion fluids services to the Norwegian oil and gas industry. On July 30, 1993, the Company acquired the coiled tubing operations of Italog, S.p.A. for $2.0 million. Italog is based in Milan, Italy and provides coiled tubing and nitrogen pumping services in Italy and Nigeria, under the name of SIAT. The acquisition included the assets and existing contracts of SIAT. The 1993 and 1994 acquisitions have been accounted for as purchases and accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The excess of the consideration paid over the estimated fair value of net assets acquired has been recorded as goodwill and is being amortized over periods ranging from 5 to 40 years. 5. LONG-TERM DEBT AND BANK CREDIT FACILITIES Long-term debt at September 30, 1995 and 1994 consisted of the following:
1995 1994 -------- -------- (IN THOUSANDS) Notes payable, banks........................................... $275,000 $ 81,900 9.2% notes due August 1998..................................... 18,000 24,000 Other.......................................................... 2,166 -------- -------- 295,166 105,900 Less current maturities of long-term debt...................... 35,600 31,200 -------- -------- Long-term debt................................................. $259,566 $ 74,700 ======== ========
On April 15, 1995, the Company canceled its existing credit facility and the outstanding borrowings were repaid with funds from a committed, unsecured credit facility ("Bank Credit Facility") executed to accommodate the acquisition of Western. The Bank Credit Facility consists of a five-year $175.0 million revolver and a six-year $225.0 million term loan, providing an aggregate of $400.0 million in available principal borrowings to the Company. The Company is charged various fees in connection with this Bank Credit Facility, including a commitment fee based on the average daily unused portion of the commitment. Borrowings outstanding under the Bank Credit Facility at September 30, 1995 amounted to $275.0 million, which is comprised of $225.0 million under the term loan and $50.0 million under the revolver. Interest is determined, at the Company's option, by reference to (i) the higher of the reference rate announced from time to time by the lender or the federal funds rate plus .5% per annum, or (ii) the London Interbank Offered Rate ("LIBOR"). A spread over the LIBOR rate is charged at a percentage ranging from .45% to .875% depending on the Company's debt to capital ratio. The weighted average interest rate for such outstanding borrowings was 6.4% and 5.4% at September 30, 1995 and 1994, respectively. The Bank Credit Facility incorporates a swingline facility allowing the Company to borrow up to $20.0 million for up to seven days in minimum advances of $1.0 million. In addition, standby letters of credit are available in an amount not to exceed $20.0 million. No such borrowings were outstanding at September 30, 1995. At September 30, 1995, long-term debt was due in aggregate annual installments of $35,600,000, $37,200,000, $49,200,000, $48,400,000 and $98,400,000 in the years ending September 30, 1996, 1997, 1998, 1999 and 2000, respectively, and an aggregate of $26,366,000 thereafter. Commitment fees under the Company's credit facilities were $207,206, $16,223 and $63,679 for 1995, 1994 and 1993, respectively. 14 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition to the committed facility, the Company had $50.0 million in various unsecured, discretionary lines of credit at September 30, 1995 which expire at various dates in 1996. There are no requirements for commitment fees or compensating balances in connection with these lines of credit. Interest on borrowings is based on prevailing market rates. At September 30, 1995, there was $2.0 million in outstanding borrowings under these lines of credit (none at September 30, 1994). In August 1991, the Company placed $30.0 million of unsecured notes (the "Notes") with private investors. The Notes bear interest at a fixed rate of 9.2% with principal payments due in five equal annual installments, the first of which was paid in August 1994. From October 1991 to May 1995, the Company entered into interest rate swap agreements which effectively converted the Notes from fixed rate debt with an interest rate of 9.2% to floating rate debt. The swap agreement was liquidated in May 1995 at a loss of $679,000. The agreements resulted in an average annual effective interest rate of 11.5% (excluding the loss) and 9.3% on the Notes for 1995 and 1994, respectively. At September 30, 1995, the Company had outstanding letters of credit and performance related bonds totaling $16.6 million and $14.8 million, respectively. The letters of credit are issued to guarantee various trade and insurance activities. The Company's debt agreements contain various customary covenants including maintenance of certain profitability and solvency ratios and restrictions on dividend payments, as defined in the Bank Credit Facility. At September 30, 1995, the Company's debt to capitalization ratio exceeded 35%. As a result, the Company is prohibited, under its Bank Credit Facility from making any dividend payments until such time as the ratio drops below 35%. The Company is also required to make mandatory prepayments from free cash flow (as defined in the Bank Credit Facility) subject to certain ratios as calculated at the end of each fiscal year. At September 30, 1995, an estimate of $4 million of such prepayments has been classified as current maturities of long-term debt. 6. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments held by the Company: Cash and cash equivalents, trade receivables and trade payables: The carrying amount approximates fair value because of the short maturity of those instruments. Long-term debt: The fair value of the Company's Notes is based on the rates currently available to the Company for debt with similar terms and average maturities. Other long-term debt consists of borrowings under the Company's Bank Credit Facility. The carrying amount of such borrowings approximates fair value as the individual borrowings bear interest at current market rates. Interest Rate Swap Agreements: The fair value is based on the amount at which they could be settled, based on amounts obtained from the issuer. Disclosure of the fair value of financial instruments which differed from their carrying value as of September 30, 1995 and 1994 was as follows:
1995 1994 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- ------- 9.2% Notes..................................... $ 18,000 $19,100 $ 24,000 $26,000 Interest rate swap agreement (unrealized loss)........................................ (1,300)
See Note 2 for disclosure of accounting for foreign exchange contracts. 15 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES The geographical sources of income (loss) before income taxes, minority interest and cumulative effect of accounting change for the three years ended September 30, 1995, were as follows:
1995 1994 1993 -------- -------- ------- (IN THOUSANDS) United States....................................... $(31,879) $(12,793) $(8,540) Foreign............................................. 40,637 25,701 25,378 -------- -------- ------- Income before income taxes, minority interest and cumulative effect of accounting change............ $ 8,758 $ 12,908 $16,838 ======== ======== =======
The provision (benefit) for income taxes for the three years ended September 30, 1995 is summarized as follows:
1995 1994 1993 -------- -------- ------- (IN THOUSANDS) Current: United States Foreign........................................... $ 7,759 $ 6,965 $ 6,470 -------- -------- ------- Total current............................. 7,759 6,965 6,470 Deferred: United States..................................... (8,336) (2,831) (4,414) Foreign........................................... (525) (2,128) (463) -------- -------- ------- Total deferred............................ (8,861) (4,959) (4,877) -------- -------- ------- Income tax expense (benefit)........................ $ (1,102) $ 2,006 $ 1,593 ======== ======== =======
The consolidated effective income tax rates (as a percent of income before income taxes, minority interest and cumulative effect of accounting change) for the three years ended September 30, 1995 varied from the United States statutory income tax rate for the reasons set forth below:
1995 1994 1993 ----- ----- ----- (IN THOUSANDS) Statutory rate............................................ 35.0% 35.0% 35.0% Foreign earnings at varying tax rates..................... (79.8) (17.4) (11.9) Amortization of excess tax basis over book basis resulting from separation from former parent...................... (20.4) (13.8) (10.6) Changes in valuation reserve.............................. (14.5) (3.7) Foreign income recognized domestically.................... 37.2 25.6 4.3 Goodwill amortization..................................... 10.3 1.3 .9 Nondeductible expenses.................................... 6.1 1.0 .7 Other -- net.............................................. (1.0) (1.6) (5.2) ----- ----- ----- Effective income tax rate (benefit)....................... (12.6)% 15.6% 9.5% ===== ===== =====
The income tax provisions for 1994 and 1993 included $1,867,000 and $620,000 of deferred foreign tax benefits related to the recognition of foreign net loss carryforwards which were reserved for in the valuation account at September 30, 1993 and September 30, 1992, respectively. 16 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which the Company has operations. Generally, deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. The estimated deferred tax effect of temporary differences and carryforwards at September 30, 1995 and 1994 was as follows:
1995 1994 -------- -------- (IN THOUSANDS) Deferred assets: Expenses accrued for financial reporting, not yet deducted for tax................................................... $ 45,469 $ 7,956 Net operating loss carryforwards............................. 181,400 44,621 Valuation allowance.......................................... (54,420) (11,164) -------- -------- Total deferred tax asset....................................... 172,449 41,413 Deferred liabilities: Differences in depreciable basis of property................. (60,520) (16,838) Income accrued for financial reporting, not yet reported for tax....................................................... (6,166) (6,684) -------- -------- Total deferred tax liability................................... (66,686) (23,522) -------- -------- Deferred tax asset -- net...................................... $105,763 $ 17,891 ======== ========
The net change in the deferred tax asset valuation allowance reflects purchase accounting adjustments made to properly state the anticipated future benefit of the combined net operating loss carryforwards of BJ Services and Western. The entire deferred tax asset valuation allowance, if realized, will be recorded as a reduction to goodwill. At September 30, 1995, the Company had approximately $512 million of U.S. tax net operating loss carryforwards expiring in varying amounts between 2000 and 2010. As a result of Western having experienced changes in control as defined in Internal Revenue Code Section 382 in prior years, and in the current year due to the merger with BJ Services, the usage of approximately $375 million of the tax net operating loss carryforwards is subject to an annual limitation. The potential impact that the annual limitation may have on the usage of tax net operating loss carryforwards has been reflected in the deferred tax asset valuation allowance. The Company also has foreign tax net operating loss carryovers of $6.7 million as of September 30, 1995. The foreign tax net operating loss carryforwards are not subject to an annual limitation and will carry forward indefinitely. The Company does not provide federal income taxes on the undistributed earnings of its foreign subsidiaries that the Company considers to be permanently reinvested in foreign operations. The cumulative amount of such undistributed earnings was approximately $147 million at September 30, 1995. If these earnings were to be remitted to the Company, any U.S. income taxes payable would be substantially reduced by foreign tax credits generated by the repatriation of the earnings. 17 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. GEOGRAPHIC INFORMATION The Company operates exclusively in one business segment -- the oilfield services industry. Summarized information concerning geographic areas in which the Company operated at September 30, 1995, 1994 and 1993 and for each of the years then ended is shown as follows:
WESTERN HEMISPHERE -------------------------- EASTERN HEMISPHERE UNITED LATIN AMERICA -------------------- STATES AND CANADA EUROPE OTHER TOTAL -------- ------------- -------- ------- -------- (IN THOUSANDS) 1995: Revenue................ $345,922 $ 111,447 $104,840 $71,451 $633,660 Operating income (loss).............. (13,683) 22,095 4,942 6,935 20,289 Identifiable assets.... 627,545 88,655 201,838 71,645 989,683 1994: Revenue................ $208,279 $ 75,745 $ 95,181 $55,271 $434,476 Operating income (loss).............. (2,634) 9,590 4,560 7,169 18,685 Identifiable assets.... 127,561 72,558 156,594 53,353 410,066 1993: Revenue................ $196,674 $ 60,560 $ 83,553 $53,576 $394,363 Operating income....... 1,694 2,477 6,217 9,350 19,738 Identifiable assets.... 117,543 54,950 150,612 46,426 369,531
Export sales totaled $2,807,000, $1,392,000 and $1,861,000 for the years ended September 30, 1995, 1994 and 1993, respectively. Corporate general and administrative expense, research and engineering expense and certain other expenses related to worldwide manufacturing and other support functions benefit both domestic and international operations. An allocation of these expenses has been made to foreign areas based on total revenues. The expenses allocated totaled $8,357,000, $6,847,000 and $8,390,000 for the years ended September 30, 1995, 1994 and 1993, respectively. 9. EMPLOYEE BENEFIT PLANS The Company has a thrift plan whereby eligible employees elect to contribute from 2% to 12% of their base salaries to an employee benefit trust. Employee contributions are matched by the Company at the rate of $.50 per $1.00 up to 6% of the employee's base salary. In addition, the Company contributes between 2% and 5% of each employee's base salary depending on his age as of January 1 each year as a base contribution. Company matching contributions vest immediately while base contributions become fully vested after five years of employment. The Company's U.S. employees formerly employed by Western are covered under a thrift plan which is being merged into the Company's thrift plan effective December 31, 1995. During the period since the acquisition, the Company intends to match employee contributions at the same rate as the Company's existing thrift plan. The Company's contributions to these thrift plans amounted to $2,862,000, $2,551,000 and $2,324,000 in 1995, 1994 and 1993, respectively. The Company's U.S. employees formerly employed by Western with at least one year of service are also covered under a defined benefit pension plan as a carryover from the Western acquisition. 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. Management intends to freeze benefits under this plan effective December 31, 1995 and merge all employees under the thrift plan. Management has not yet made a decision on when to terminate the plan and therefore will fund the amounts necessary to meet minimum funding requirements under the Employees' 18 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Retirement Income Security Act, as amended. Because management intends to freeze the plan effective December 31, 1995, the accrued pension liability as of the acquisition date and the net pension expense since the acquisition date have been reflected under that assumption. The funded status of this plan as of September 30, 1995 was as follows (in thousands): Vested benefit obligation........................................ $39,669 ======= Accumulated benefit obligation................................... $40,701 Plan assets at fair value........................................ 34,394 ------- Benefit obligation in excess of plan assets...................... 6,307 Unrecognized gain................................................ 71 ------- Net pension liability.................................. $ 6,378 =======
Assumptions used in accounting for the Company's U.S. defined benefit plan are as follows: Weighted average discount rate...................................... 7.3% Weighted average rate of increase in future compensation............ 5.0% Weighted average expected long-term rate of return on assets........ 9.0%
Costs for the period from April 1, 1995 to September 30, 1995 for the Company's U.S. defined benefit plan were as follows (in thousands): Service cost for benefits earned................................. $ 586 Interest cost on projected benefit obligation.................... 1,382 Actual return on plan assets..................................... (3,267) Net amortization and deferral.................................... 1,916 ------- Net pension cost....................................... $ 617 =======
In addition, the Company sponsors defined benefit plans for foreign operations which cover substantially all employees in the United Kingdom and Venezuela. Due to differences in foreign pension laws and economics, the defined benefit plans are at least partially unfunded. The funded status of these plans at September 30, 1995 and 1994 was as follows (in thousands):
1995 1994 ------- ------- Actuarial present value of: Vested benefit obligation...................................... $ 5,357 $ 4,789 ======= ======= Accumulated benefit obligation................................. $ 6,474 $ 5,292 ======= ======= Projected benefit obligation..................................... $ 9,846 $ 7,155 Plan assets at fair value........................................ (6,718) (5,531) ------- ------- Projected benefit obligation in excess of plan assets............ 3,128 1,624 Unrecognized gain (loss)......................................... (1,093) 248 Unrecognized transition asset, net of amortization............... 155 166 Unrecognized prior service cost.................................. (253) (281) ------- ------- Net pension liability............................................ $ 1,937 $ 1,757 ======= =======
19 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Assumptions used in accounting for the Company's international defined benefit pension plans are as follows: Weighted average discount rate....................................... 6-9% Weighted average rate of increase in future compensation............. 5-7% Weighted average expected long-term rate of return on assets......... 9%
Combined costs for the Company's international defined benefit plans for the two years ended September 30, 1995 were as follows (in thousands):
1995 1994 ------ ----- Net periodic foreign pension cost: Service cost for benefits earned................................. $1,090 $ 830 Interest cost on projected benefit obligation.................... 660 497 Actual return on plan assets..................................... (617) (45) Net amortization and deferral.................................... 158 (391) ------ ----- Net pension cost................................................... $1,291 $ 891 ====== =====
The Company also sponsors a plan whereby certain health care and life insurance benefits are provided for retired employees (primarily U.S.) and their eligible dependents if the employee meets specified age and service requirements. These plans are unfunded and the Company retains the right, subject to existing agreements, to modify or eliminate these plans. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"). In accordance with the requirements of SFAS 106, the Company changed its accounting for postretirement benefits from a cash basis to an accrual basis over an employee's period of service. On October 1, 1993, the Company elected to immediately recognize the cumulative effect of the change in accounting principle of $16.0 million ($10.4 million after tax, or $.67 per share). Effective January 1, 1994, the Company amended its postretirement medical benefit plan to provide credits based on years of service which could be used to purchase coverage under the active employee plans. This change effectively caps the Company's health care inflation rate at a 4% increase per year. The reduction of approximately $5.7 million in the accumulated postretirement benefit obligation due to this amendment is being amortized over the average period of future service to the date of full eligibility for such postretirement benefits of the active employees. Postretirement medical benefit costs were $946,000, $639,000 and $590,000 in 1995, 1994 and 1993, respectively. Net periodic postretirement benefit costs for the two years ended September 30, 1995 included the following components (in thousands):
1995 1994 ------ ----- Service cost -- benefits attributed to service during the period... $ 807 $ 512 Interest cost on accumulated postretirement benefit obligation..... 1,033 798 Amortization of prior service costs................................ (894) (671) ------ ----- Net periodic postretirement benefit cost........................... $ 946 $ 639 ====== =====
20 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The actuarial and recorded liabilities for these postretirement benefits were as follows at September 30, 1995 and 1994 (in thousands):
1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees....................................................... $ 7,680 $ 5,312 Fully eligible active plan participants........................ 3,525 1,569 Other active plan participants................................. 8,988 3,881 ------- ------- 20,193 10,762 Unrecognized cumulative net gain................................. 776 Unrecognized prior service cost.................................. 4,177 5,072 ------- ------- Accrued postretirement benefit liability......................... $25,146 $15,834 ======= =======
The accumulated postretirement benefit obligation was determined using a discount rate of 7% and a health care cost trend rate of 13%, decreasing ratably to 5.2% in the year 2020 and thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would not have a material impact on the accumulated postretirement benefit obligation or the net periodic postretirement benefit cost because these benefits are effectively "capped" by the Company's 1994 plan amendment. 10. COMMITMENTS AND CONTINGENCIES The Company through performance of its service operations is sometimes named as a defendant in litigation, usually relating to claims for bodily injuries or property damage (including claims for well or reservoir damage). The Company maintains insurance coverage against such claims to the extent deemed prudent by management. The Company believes that there are no existing claims of a potentially material adverse nature for which it has not already provided appropriate accruals. Federal, state and local laws and regulations govern the Company's operation of underground fuel storage tanks. Rather than incur additional costs to restore and upgrade tanks as required by regulations, management has opted to remove the existing tanks. The Company is in the process of removing these tanks and has identified certain tanks with leaks which will require remedial cleanups. In addition, the Company is conducting a number of environmental investigations and remedial actions at current and former company locations and, along with other companies, has been named a potentially responsible party at 10 waste disposal sites. The Company has established an accrual of $13,986,000 for such environmental matters, which management believes to be its best estimate of the Company's portion of future costs to be incurred. The Company also maintains insurance for environmental liabilities which the Company believes is reasonable based on its knowledge of its industry. Lease commitments: At September 30, 1995, the Company had long-term operating leases covering certain facilities and equipment with varying expiration dates. Minimum annual rental commitments for the years ended September 30, 1996, 1997, 1998, 1999 and 2000 are $16,198,000, $12,132,000, $10,023,000, $6,866,000 and $5,674,000, respectively, and $35,732,000 in the aggregate thereafter. 21 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. SUPPLEMENTAL FINANCIAL INFORMATION Supplemental financial information for the three years ended September 30, 1995 is as follows:
1995 1994 1993 -------- ------- ------- (IN THOUSANDS) Consolidated Statement of Operations: Research and development expense................... $ 6,801 $ 6,421 $ 6,500 Rent expense....................................... 16,759 15,580 11,020 Net foreign exchange gain (loss)................... 1,537 (762) 228 Consolidated Statement of Cash Flows: Income taxes paid.................................. $ 5,980 $ 6,233 $ 7,168 Interest paid...................................... 12,798 10,330 5,112 Details of acquisitions: Fair value of assets acquired................... $447,622 $ 1,808 $ 4,483 Liabilities assumed............................. 111,731 501 Goodwill........................................ 175,540 693 2,917 Cash paid for acquisitions, net of cash acquired...................................... 203,313 2,000 7,400 Noncash financing activity: Common Stock and warrants issued................ $263,551 Performance shares issued....................... 3,792
The Company's common stock ("Common Stock"), warrants and performance shares were issued in connection with the Western Acquisition as described in Notes 4 and 12. Other income -- net for the three years ended September 30, 1995 is summarized as follows:
1995 1994 1993 -------- ------- ------- (IN THOUSANDS) Gain (loss) on sales of assets -- net................ $ 830 $ 346 $ (62) Gain on Argentine bonds.............................. 400 800 Royalty income....................................... 1,385 Dividend income...................................... 430 Other -- net......................................... 89 131 1,276 -------- ------- ------- Other income -- net.................................. $ 2,734 $ 877 $ 2,014 ======== ======= =======
12. EMPLOYEE STOCK PLANS Stock Option Plans: The Company's 1990 Stock Incentive Plan and 1995 Incentive Plan (the "Plans") provide for the granting of options for the purchase of the Common Stock and other performance-based awards to officers, key employees and nonemployee directors of the Company. Such options vest over a three-year period and are exercisable for periods ranging from one to ten years. An aggregate of 3,000,000 shares of Common Stock have been reserved for grants, of which 1,324,386 were available at September 30, 1995. 22 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock option activity under the Company's Plans is summarized below:
NUMBER OF SHARES 1995 1994 1993 ----------------------------------------------------------------- ----- --- --- (IN THOUSANDS) Stock options outstanding, beginning of year..................... 767 621 451 Changes during the year: Granted (per share): 1995, $16.89 to $21.62...................................... 697 1994, $19.63 to $22.75...................................... 188 1993, $16.28................................................ 195 Exercised/surrendered (per share): 1995, $16.28 to $21.62...................................... (29) 1994, $13.63 to $23.25...................................... (42) 1993, $19.38 to $23.25...................................... (25) ----- --- --- Stock options outstanding, end of year (per share: $12.00 to $23.25)........................................................ 1,435 767 621 ===== === === Stock options exercisable, end of year (per share: $12.00 to $23.25)........................................................ 630 417 250 ===== === ===
Pursuant to the terms of the 1990 Stock Incentive Plan, during 1993 and 1994 the Company also issued a total of 220,316 Performance Units ("Units") to officers of the Company. Each Unit represented the right to receive from the Company at the end of a stipulated period an unrestricted share of Common Stock, contingent upon achievement of certain financial performance goals over the stipulated period. Should the Company have failed to achieve the specific financial goals as set by the Executive Compensation Committee of the Board of Directors, the Units would have been canceled and the related shares reverted to the Company for reissuance under the plan. The aggregate fair market value of the underlying shares granted under this plan was considered unearned compensation at the time of grant and was adjusted annually based on the current market price for the Company's Common Stock. Compensation expense was determined based on management's current estimate of the likelihood of meeting the specific financial goals and charged ratably over the stipulated period. In connection with the acquisition of Western, which triggered certain change of control provisions in the Company's 1990 Stock Incentive Plan, a total of 168,547 Units were converted into Common Stock and issued to officers, with the remaining 51,769 Units canceled. The difference between the amount accrued as of the acquisition date and the value of the shares issued has been reflected as an unusual charge in the accompanying financial statements (see Note 3). As of September 30, 1995, there were no Units outstanding. Stock Purchase Plan: The Company's 1990 Employee Stock Purchase Plan (the "Purchase Plan") is a plan under which all employees may purchase shares of the Company's Common Stock at 85% of market value on the first or last business day of the twelve-month plan period beginning each October, whichever is lower. Such purchases are limited to 10% of the employee's regular pay. A maximum aggregate of 750,000 shares has been reserved under the Purchase Plan, 576,826 of which were available for future purchase at September 30, 1995. In October 1995, 55,440 shares were purchased at $16.68 per share. 13. STOCKHOLDERS' EQUITY Stockholder Rights Plan: The Company has a Stockholder Rights Plan designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. Under this plan, each outstanding share of the Company's Common Stock includes one 23 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) preferred share purchase right ("Right") which becomes exercisable under certain circumstances, including when beneficial ownership of the Company's Common Stock by any person, or group, equals or exceeds 20% of the Company's outstanding Common Stock. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series Two Junior Participating Preferred Stock, at a price of $75, subject to adjustment under certain circumstances. Upon the occurrence of certain events specified in the Stockholder Rights Plan, each holder of a Right (other than an Acquiring Person) will have the right, upon exercise of such Right, to receive that number of shares of common stock of the Company (or the surviving corporation) that, at the time of such transaction, would have a market price of two times the purchase price of the Right. No shares of Series Two Junior Participating Preferred Stock have been issued by the Company at September 30, 1995. In January 1994, the former Stockholder Rights Plan was triggered and the Company redeemed all of the preferred share purchase rights issued under its Stockholder Rights agreement to acquire Series One Junior Participating Preferred Stock. The Rights were redeemed at a price of $.01 per Right, a total cost to the Company of $155,000. Stock Purchase Warrants: In connection with the acquisition of Western (see Note 4), the Company issued 4,800,037 stock purchase warrants ("Warrants"). The Warrants were issued on April 14, 1995 at an initial value of $5.00 per Warrant. Each Warrant represents the right to purchase one share of the Company's common stock at an exercise price of $30, until the expiration date of April 13, 2000. As of September 30, 1995, no Warrants had been exercised. 24 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL FIRST SECOND THIRD FOURTH YEAR QUARTER QUARTER QUARTER QUARTER TOTAL -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Fiscal Year 1995: Revenue............................ $119,415 $106,668 $199,542 $208,035 $633,660 Gross profit(a).................... 17,753 13,788 28,782 35,179 95,502 Net income (loss).................. 4,744 1,378 (5,848)(b) 9,615(c)(d) 9,889 Net income (loss) per share........ .30 .09 (.22)(b) .34(c)(d) .46 Fiscal Year 1994: Revenue............................ $104,757 $ 98,451 $106,318 $124,950 $434,476 Gross profit(a).................... 15,071 10,325 13,327 18,138 56,861 Income before cumulative effect of accounting change................ 3,572 445 2,067 4,686(e) 10,770 Cumulative effect of change in accounting principle, net of tax benefit of $5,600,000............ (10,400) (10,400) Net income (loss).................. (6,828) 445 2,067 4,686(e) 370 Net income (loss) per share: Before cumulative effect of accounting change............. .23 .03 .13 .30(e) .69 Cumulative effect of change in accounting principle, net of tax........................... (.67) (.67) Net income (loss) per share........ (.44) .03 .13 .30(e) .02
- --------------- (a) Represents revenue less cost of sales and services and research and engineering expenses. (b) Includes $16.0 million ($10.4 million after tax or $.40 per share) unusual charge resulting from the acquisition of Western. See Note 3. (c) Includes $1.2 million ($.8 million after tax or $.03 per share) unusual charge resulting from the acquisition of Western. See Note 3. (d) Includes $1.5 million ($.05 per share) of nonrecurring tax benefits. (e) Includes $1.3 million ($.08 per share) of nonrecurring tax benefits. 15. SUPPLEMENTAL GUARANTOR INFORMATION On February 20, 1996, BJ Services Company ("Parent") issued $125.0 million of 7% notes due 2006 ("Notes") as to which its wholly owned, direct subsidiaries, BJ Services Company, U.S.A. ("BJ U.S.A."), BJ Service International, Inc. ("BJ International") and BJ Services Company Middle East ("BJ Middle East") (on a combined basis, the "Guarantor Subsidiaries" and individually a "Guarantor") have fully and unconditionally guaranteed, on a joint and several basis, its obligation to pay principal and interest with respect to the Notes. Each of the guarantees is an unsecured obligation of the Guarantor and ranks pari passu with the guarantees provided by and the obligations of each such Guarantor under the Bank Credit Facility and the obligations of such Guarantor under the 9.2% Notes and with all existing and future unsecured indebtedness of such Guarantor that is not, by its terms, expressly subordinated in right of payment to such guarantee. Substantially all of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the 25 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantors, and such subsidiaries will not be obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the Notes. The following supplemental consolidating condensed financial statements present: 1. Consolidating condensed statements of financial position as of September 30, 1995 and 1994 and consolidating condensed statements of operations and cash flows for each of the three years in the period ended September 30, 1995. 2. The Parent, the combined Guarantor Subsidiaries and the combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. Management does not believe that separate financial statements of the Guarantors of the Notes are material to investors in the Notes. 26 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue.............................. $ $392,207 $267,755 $(26,302) $633,660 Operating Expenses: Cost of sales and services......... 345,937 206,224 (26,302) 525,859 Research and engineering........... 11,505 794 12,299 Marketing.......................... 19,146 7,283 26,429 General and administrative......... 16,055 12,263 28,318 Goodwill amortization.............. 2,573 693 3,266 Unusual charge..................... 17,200 17,200 ------ -------- -------- -------- -------- Total operating expenses... 412,416 227,257 (26,302) 613,371 ------ -------- -------- -------- -------- Operating income (loss).............. (20,209) 40,498 20,289 Interest income...................... 1,384 672 (1,157) 899 Interest expense..................... (12,090) (4,231) 1,157 (15,164) Income from equity investees......... 9,889 29,373 (39,262) Other income -- net.................. 2,683 80 2,763 ------ -------- -------- -------- -------- Income (loss) before income taxes.... 9,889 1,141 37,019 (39,262) 8,787 Income tax expense (benefit)......... (8,748) 7,646 (1,102) ------ -------- -------- -------- -------- Net income........................... $9,889 $ 9,889 $ 29,373 $(39,262) $ 9,889 ====== ======== ======== ======== ========
27 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue............................... $ $249,716 $209,909 $(25,149) $434,476 Operating Expenses: Cost of sales and services.......... 228,071 166,072 (25,149) 368,994 Research and engineering............ 7,671 950 8,621 Marketing........................... 8,608 5,561 14,169 General and administrative.......... 12,025 10,684 22,709 Goodwill amortization............... 1,274 24 1,298 ---- -------- -------- -------- -------- Total operating expenses.... 257,649 183,291 (25,149) 415,791 ---- -------- -------- -------- -------- Operating income (loss)............... (7,933) 26,618 18,685 Interest income....................... 2,869 (2,140) 729 Interest expense...................... (6,685) (2,838) 2,140 (7,383) Income from equity investees.......... 370 17,504 (17,874) Other income (expense) -- net......... 1,830 (1,085) 745 ---- -------- -------- -------- -------- Income before income taxes and cumulative effect of accounting change.............................. 370 7,585 22,695 (17,874) 12,776 Income tax expense (benefit).......... (3,185) 5,191 2,006 ---- -------- -------- -------- -------- Income before cumulative effect of accounting change................... 370 10,770 17,504 (17,874) 10,770 Cumulative effect of change in accounting principle, net of tax.... (10,400) (10,400) ---- -------- -------- -------- -------- Net income............................ $370 $ 370 $ 17,504 $(17,874) $ 370 ==== ======== ======== ======== ========
28 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1993
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ Revenue............................. $ $228,682 $184,431 $(18,750) $394,363 Operating Expenses: Cost of sales and services........ 205,971 141,821 (18,750) 329,042 Research and engineering.......... 8,035 1,063 9,098 Marketing......................... 8,854 4,115 12,969 General and administrative........ 11,879 10,946 22,825 Goodwill amortization............. 691 691 ------ -------- -------- -------- -------- Total operating expenses................ 235,430 157,945 (18,750) 374,625 ------ -------- -------- -------- -------- Operating income (loss)............. (6,748) 26,486 19,738 Interest income..................... 3,081 (1,099) (1,482) 500 Interest expense.................... (6,268) (628) 1,482 (5,414) Income from equity investees........ 14,561 17,566 (32,127) Other income (expense) -- net....... 1,359 (29) 1,330 ------ -------- -------- -------- -------- Income before income taxes.......... 14,561 8,990 24,730 (32,127) 16,154 Income tax expense (benefit)........ (5,571) 7,164 1,593 ------ -------- -------- -------- -------- Net income.......................... $14,561 $ 14,561 $ 17,566 $(32,127) $ 14,561 ====== ======== ======== ======== ========
29 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents........ $ $ 1,842 $ $ $ 1,842 Receivables -- net............... 87,118 81,653 168,771 Inventories -- net............... 38,463 28,388 66,851 Deferred income taxes............ 9,370 9,370 Other current assets............. 3,163 6,938 10,101 -------- -------- -------- --------- -------- Total current assets..... 139,956 116,979 256,935 Investment in subsidiaries....... 171,612 107,653 (279,265) Intercompany advances -- net..... 296,156 (296,156) Property -- net.................. 261,713 155,097 416,810 Deferred income taxes............ 92,447 15,442 107,889 Goodwill and other assets........ 205,403 2,646 208,049 -------- -------- -------- --------- -------- $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 60,677 $ 24,998 $ $ 85,675 Short-term borrowings and current portion of long-term debt..... 37,600 37,600 Accrued employee compensation and benefits...................... 16,277 8,608 24,885 Income and other taxes........... 7 4,097 7,271 11,375 Other accrued liabilities........ 966 29,959 16,648 (2,837) 44,736 -------- -------- -------- --------- -------- Total current liabilities............ 973 148,610 57,525 (2,837) 204,271 Long-term debt..................... 222,566 37,000 259,566 Deferred income taxes.............. 2,248 9,248 11,496 Accrued post retirement benefits and other........................ 46,902 653 47,555 Intercompany advances -- net....... 215,234 78,085 (293,319) Stockholders' equity............... 466,795 171,612 107,653 (279,265) 466,795 -------- -------- -------- --------- -------- $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ========
30 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents........ $ $ 3,218 $ $ $ 3,218 Receivables -- net............... 45,086 58,668 103,754 Inventories -- net............... 18,452 20,227 38,679 Deferred income taxes............ 4,478 4,478 Other current assets............. 2,751 5,479 8,230 -------- -------- -------- --------- -------- Total current assets..... 73,985 84,374 158,359 Investment in subsidiaries......... 159,260 84,008 (243,268) Intercompany advances -- net....... 30,674 (30,674) Property -- net.................... 91,270 107,574 198,844 Deferred income taxes.............. 16,365 4,242 20,607 Goodwill and other assets.......... 28,816 3,440 32,256 -------- -------- -------- --------- -------- $189,934 $294,444 $199,630 $ (273,942) $410,066 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 33,812 $ 20,797 $ $ 54,609 Short-term borrowings and current portion of long-term debt..... 31,200 2,250 33,450 Accrued employee compensation and benefits...................... 4,023 6,498 10,521 Income and other taxes........... 7 2,133 8,330 10,470 Other accrued liabilities........ 6,484 6,041 (726) 11,799 -------- -------- -------- --------- -------- Total current liabilities............ 7 77,652 43,916 (726) 120,849 Long-term debt..................... 37,639 37,061 74,700 Deferred income taxes.............. 2,248 4,946 7,194 Accrued post retirement benefits and other........................ 15,895 1,501 17,396 Intercompany advance -- net........ 1,750 28,198 (29,948) Stockholders' equity............... 189,927 159,260 84,008 (243,268) 189,927 -------- -------- -------- --------- -------- $189,934 $294,444 $199,630 $ (273,942) $410,066 ======== ======== ======== ========= ========
31 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................... $ 9,889 $ 9,889 $ 29,373 $(39,262) $ 9,889 Adjustments to reconcile net income to cash provided by operating activities: Unusual charge (noncash)......... 3,646 3,646 Depreciation and amortization.... 22,688 19,376 42,064 Net gain on disposal of assets... (27) (803) (830) Recognition of unearned compensation.................. 2,463 2,463 Deferred income taxes (benefit)..................... (8,336) (525) (8,861) Income of equity investees....... (9,889) (29,373) 39,262 Changes in: Receivables...................... 21,894 (22,985) (1,091) Accounts payable................. 3,506 4,201 7,707 Inventories...................... 83 (8,161) (8,078) Other current assets and liabilities................... 966 (10,224) 10,199 (2,111) (1,170) Other, net....................... (2,241) 2,167 (8,392) 2,111 (6,355) ------- -------- -------- -------- --------- Net cash provided from (used for) operating activities............. (1,275) 18,376 22,283 39,384 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions................. (8,263) (22,703) (30,966) Proceeds from disposal of assets... 2,662 2,731 5,393 Acquisition of business, net of cash acquired.................... (203,313) (203,313) ------- -------- -------- -------- --------- Net cash used for investing activities....................... (208,914) (19,972) (228,886) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock.... 1,275 1,275 Proceeds from (reduction of) borrowings -- net................ 189,162 (2,311) 186,851 ------- -------- -------- -------- --------- Net cash provided from (used for) financing activities............. 1,275 189,162 (2,311) 188,126 Decrease in cash and cash equivalents...................... (1,376) (1,376) Cash and cash equivalents at beginning of period.............. 3,218 3,218 ------- -------- -------- -------- --------- Cash and cash equivalents at end of period........................... $ $ 1,842 $ $ $ 1,842 ======= ======== ======== ======== =========
32 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................ $ 370 $ 370 $ 17,504 $(17,874) $ 370 Adjustments to reconcile net income to cash provided by operating activities: Cumulative effect of accounting change............................... 10,400 10,400 Depreciation and amortization........... 9,988 15,347 25,335 Net gain on disposal of assets.......... (148) (198) (346) Recognition of unearned compensation.... 524 524 Deferred income taxes (benefit)......... (2,831) (2,128) (4,959) Income of equity investees.............. (370) (17,504) 17,874 Changes in: Receivables............................. (2,666) (6,569) (9,235) Accounts payable........................ 5,165 3,252 8,417 Inventories............................. 57 (678) (621) Other current assets and liabilities.... (2,786) 1,298 (472) (1,960) Other, net.............................. (980) 2,975 (4,137) 472 (1,670) ----- -------- -------- -------- -------- Net cash provided from (used for) operating activities.................... (980) 3,544 23,691 26,255 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions........................ (13,343) (26,002) (39,345) Proceeds from disposal of assets.......... 1,059 1,529 2,588 Acquisition of business, net of cash acquired................................ (2,000) (2,000) ----- -------- -------- -------- -------- Net cash used for investing activities.... (12,284) (26,473) (38,757) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock........... 980 980 Proceeds from borrowings -- net........... 10,338 2,782 13,120 ----- -------- -------- -------- -------- Net cash provided from financing activities.............................. 980 10,338 2,782 14,100 Increase in cash and cash equivalents..... 1,598 1,598 Cash and cash equivalents at beginning of period.................................. 1,620 1,620 ----- -------- -------- -------- -------- Cash and cash equivalents at end of period.................................. $ $ 3,218 $ $ $ 3,218 ===== ======== ======== ======== ========
33 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1993
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................... $ 14,561 $ 14,561 $ 17,566 $(32,127) $ 14,561 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization.... 9,352 14,818 24,170 Net loss on disposal of assets... 62 62 Recognition of unearned compensation.................. 500 500 Deferred income taxes (benefit)..................... (4,414) (463) (4,877) Income of equity investees....... (14,561) (17,566) 32,127 Changes in: Receivables...................... (5,812) (11,738) (17,550) Accounts payable................. 2,240 4,447 6,687 Inventories...................... 2,476 (3,048) (572) Other current assets and liabilities................... (180) (4,949) (11,088) (264) (16,481) Other, net....................... (15,618) (5,468) 14,007 264 (6,815) -------- -------- -------- -------- -------- Net cash provided from (used for) operating activities............. (15,798) (9,018) 24,501 (315) CASH FLOWS FROM INVESTING ACTIVITIES: Property additions................. (6,809) (30,541) (37,350) Proceeds from disposal of assets... 2,043 1,939 3,982 Acquisition of business, net of cash acquired.................... (7,400) (7,400) -------- -------- -------- -------- -------- Net cash used for investing activities....................... (4,766) (36,002) (40,768) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock.... 41,917 41,917 Proceeds from (reduction of) borrowings -- net................ (26,119) 13,929 11,501 (689) -------- -------- -------- -------- -------- Net cash provided from financing activities....................... 15,798 13,929 11,501 41,228 Increase in cash and cash equivalents...................... 145 145 Cash and cash equivalents at beginning of period.............. 1,475 1,475 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period........................... $ $ 1,620 $ $ $ 1,620 ======== ======== ======== ======== ========
34 BJ SERVICES COMPANY CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 35 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, --------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue......................................... $200,794 $106,668 $407,295 $226,083 Operating expenses: Cost of sales and services.................... 167,163 90,665 334,249 190,264 Research and engineering...................... 3,858 2,215 7,602 4,278 Marketing..................................... 9,600 4,004 17,883 7,948 General and administrative.................... 8,233 6,349 16,722 12,453 Goodwill amortization......................... 1,329 289 2,671 578 -------- -------- -------- -------- Total operating expenses.............. 190,183 103,522 379,127 215,521 -------- -------- -------- -------- Operating income................................ 10,611 3,146 28,168 10,562 Interest expense................................ (5,557) (2,311) (11,095) (4,618) Interest income................................. 247 197 326 334 Other income - net.............................. 739 682 1,339 1,518 -------- -------- -------- -------- Income before income taxes...................... 6,040 1,714 18,738 7,796 Income taxes.................................... 1,617 336 5,170 1,674 -------- -------- -------- -------- Net income...................................... $ 4,423 $ 1,378 $ 13,568 $ 6,122 ======== ======== ======== ======== Net income per share: Primary....................................... $ .15 $ .09 $ .48 $ .38 Fully diluted................................. $ .15 $ .09 $ .46 $ .38 Average shares outstanding: Primary....................................... 28,664 15,959 28,560 15,963 Fully diluted................................. 29,281 16,087 29,241 16,087
See Notes to Unaudited Consolidated Condensed Financial Statements 36 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
MARCH 31, SEPTEMBER 30, 1996 1995 ---------- ------------- (UNAUDITED) (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents........................................ $ 3,091 $ 1,842 Receivables -- net............................................... 168,574 168,771 Inventories: Finished goods................................................ 57,074 50,665 Work in process............................................... 2,815 2,394 Raw materials................................................. 11,104 13,792 ---------- --------- Total inventories........................................ 70,993 66,851 Deferred income taxes............................................ 10,348 9,370 Other current assets............................................. 13,255 10,101 ---------- --------- Total current assets.......................................... 266,261 256,935 Property -- net.................................................... 414,080 416,810 Deferred income taxes.............................................. 109,564 107,889 Goodwill and other assets.......................................... 206,061 208,049 ---------- --------- $ 995,966 $ 989,683 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................. $ 87,671 $ 85,675 Short-term borrowings and current portion of long-term debt...... 20,275 37,600 Accrued employee compensation and benefits....................... 20,447 24,885 Income and other taxes........................................... 12,199 11,375 Accrued insurance................................................ 9,804 12,867 Other accrued liabilities........................................ 26,264 31,869 ---------- --------- Total current liabilities................................ 176,660 204,271 Long-term debt..................................................... 282,021 259,566 Deferred income taxes.............................................. 9,633 11,496 Accrued postretirement benefits and other.......................... 42,494 47,555 Stockholders' equity............................................... 485,158 466,795 ---------- --------- $ 995,966 $ 989,683 ========== =========
See Notes to Unaudited Consolidated Condensed Financial Statements 37 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, --------------------- 1996 1995 -------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................. $ 13,568 $ 6,122 Adjustments to reconcile net income to cash provided by operating activities: Amortization of unearned compensation................................ 546 660 Depreciation and amortization........................................ 29,305 13,612 Deferred income taxes (benefit)...................................... 593 (2,264) Net gain on disposal of property..................................... (2) (692) Changes in: Receivables.......................................................... 3,141 5,701 Inventories.......................................................... (2,111) (4,134) Accounts payable..................................................... 1,139 (5,696) Other current assets and liabilities................................. (17,889) 2,351 Other, net........................................................... (9,708) 1,427 -------- -------- Net cash provided from operating activities............................ 18,582 17,087 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions..................................................... (21,795) (15,003) Proceeds from disposal of assets....................................... 735 3,806 Acquisition of business, net of cash acquired.......................... (3,700) -------- -------- Net cash used for investing activities................................. (24,760) (11,197) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (reduction of) borrowings -- net......................... 3,421 (4,159) Proceeds from issuance of stock........................................ 4,006 749 -------- -------- Net cash provided from (used for) financing activities................. 7,427 (3,410) Increase in cash and cash equivalents.................................. 1,249 2,480 Cash and cash equivalents at beginning of period....................... 1,842 3,218 -------- -------- Cash and cash equivalents at end of period............................. $ 3,091 $ 5,698 ======== ========
See Notes to Unaudited Consolidated Condensed Financial Statements 38 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. GENERAL In the opinion of management, the unaudited consolidated condensed financial statements for BJ Services Company (the "Company") include all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial position as of March 31, 1996, and the results of operations and cash flows for each of the six-month periods ended March 31, 1996 and 1995. The consolidated condensed statement of financial position at September 30, 1995 is derived from the September 30, 1995 audited consolidated financial statements. Although management believes the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and the cash flows for the six-month period ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year. Certain amounts for fiscal 1995 have been reclassified in the accompanying consolidated condensed financial statements to conform to the current period presentation. 2. EARNINGS PER SHARE Primary earnings per share are based on the weighted average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common stock for each of the periods presented. Fully diluted earnings per share are based on the weighted average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased from the proceeds using the closing market price of the Company's common stock for each of the periods presented.
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1996 1995 1996 1995 ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income.......................................... $ 4,423 $ 1,378 $13,568 $ 6,122 ======= ======= ======= ======= Average primary common and common equivalent shares outstanding: Common stock...................................... 28,095 15,717 28,055 15,717 Common stock equivalents from assumed exercise of stock options.................................. 569 242 505 246 ------- ------- ------- ------- 28,664 15,959 28,560 15,963 ======= ======= ======= ======= Primary earnings per share.......................... $ .15 $ .09 $ .48 $ .38 ======= ======= ======= ======= Average fully diluted common and common equivalent shares outstanding: Common stock...................................... 28,095 15,717 28,055 15,717 Common stock equivalents from assumed exercise of stock options.................................. 685 370 685 370 Common stock equivalents from assumed exercise of warrants....................................... 501 501 ------- ------- ------- ------- 29,281 16,087 29,241 16,087 ======= ======= ======= ======= Fully diluted earnings per share.................... $ .15 $ .09 $ .46 $ .38 ======= ======= ======= =======
39 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 3. ACQUISITION OF BUSINESS Effective December 1, 1995, the Company acquired the remaining 60% ownership of its previously unconsolidated joint venture in Brazil, for total consideration of $5.4 million consisting of $3.7 million in cash and $1.7 million in debt assumed by the Company. This acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The consolidated statement of operations includes operating results of the subsidiary acquired since the date of acquisition. This acquisition is not material to the Company's financial statements and therefore pro forma information is not presented. 4. LONG-TERM DEBT On February 20, 1996, BJ Services Company ("Parent") issued $125.0 million of 7% Notes due 2006 ("Notes") as to which its direct wholly owned subsidiaries, BJ U.S.A., BJ International and BJ Middle East (on a combined basis, the "Guarantor Subsidiaries" and individually a "Guarantor") have fully and unconditionally guaranteed, on a joint and several basis, its obligation to pay principal and interest with respect to the Notes. Each of the guarantees is an unsecured obligation of the Guarantor and ranks pari passu with the guarantees provided by and the obligations of each such Guarantor under the Bank Credit Facility and the obligations of such Guarantor under the Company's 9.2% Notes due August 1, 1998 and with all existing and future unsecured indebtedness of such Guarantor that is not, by its terms, expressly subordinated in right of payment to such guarantee. The net proceeds from the issuance of the 7% Notes ($123.3 million) were used by the Company to repay indebtedness outstanding under the term loan portion of the Bank Credit Facility. In connection therewith, the Bank Credit Facility was amended to provide for a new maturity schedule for the remaining $96.0 million term loan. At March 31, 1996, principal reductions of the term loan are due in aggregate installments of $5,600,000, $18,800,000, $23,800,000, $23,800,000 and $24,000,000 in the years ended September 30, 1997, 1998, 1999, 2000 and 2001, respectively. 5. SUPPLEMENTAL GUARANTOR INFORMATION As discussed in Note 4, each of the Guarantors has fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to the Notes. Substantially all of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes are direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantor Subsidiaries, and such subsidiaries are not obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the Notes. 40 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) The following supplemental condensed consolidating financial statements present: 1. Condensed consolidating statements of financial position as of March 31, 1996 and September 30, 1995, condensed consolidating statements of operations for each of the three- and six-month periods ended March 31, 1996 and 1995 and condensed consolidating statements of cash flows for each of the six-month periods ended March 31, 1996 and 1995. 2. The Parent, the combined Guarantor Subsidiaries and the combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. Management does not believe that separate financial statements of the Guarantors of the Notes are material to investors in the Notes. 41 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1996
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------- ------------ ------------ Revenue............................. $ $133,095 $77,020 $ (9,321) $200,794 Operating expenses: Cost of sales and services........ 118,344 58,140 (9,321) 167,163 Research and engineering.......... 3,638 220 3,858 Marketing......................... 7,105 2,495 9,600 General and administrative........ 4,921 3,312 8,233 Goodwill amortization............. 1,155 174 1,329 ------ -------- ------- -------- -------- Total operating expenses................ 135,163 64,341 (9,321) 190,183 ------ -------- ------- -------- -------- Operating income (loss)............. (2,068) 12,679 10,611 Interest income..................... 366 242 (361) 247 Interest expense.................... (4,801) (1,117) 361 (5,557) Income from equity investees........ 4,423 8,804 (13,227) Other income -- net................. 997 (258) 739 ------ -------- ------- -------- -------- Income before income taxes.......... 4,423 3,298 11,546 (13,227) 6,040 Income tax expense (benefit)........ (1,125) 2,742 1,617 ------ -------- ------- -------- -------- Net income.......................... $4,423 $ 4,423 $ 8,804 $(13,227) $ 4,423 ====== ======== ======= ======== ========
42 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 1995
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------- ------------ ------------ Revenue............................. $ $ 58,289 $55,264 $ (6,885) $106,668 Operating expenses: Cost of sales and services........ 54,396 43,154 (6,885) 90,665 Research and engineering.......... 2,000 215 2,215 Marketing......................... 2,387 1,617 4,004 General and administrative........ 3,567 2,782 6,349 Goodwill amortization............. 119 170 289 ------ ------- ------- ------- -------- Total operating expenses................ 62,469 47,938 (6,885) 103,522 ------ ------- ------- ------- -------- Operating income (loss)............. (4,180) 7,326 3,146 Interest income..................... 412 181 (396) 197 Interest expense.................... (2,368) (339) 396 (2,311) Income from equity investees........ 1,378 5,276 (6,654) Other income -- net................. 777 (95) 682 ------ ------- ------- ------- -------- Income (loss) before income taxes... 1,378 (83) 7,073 (6,654) 1,714 Income tax expense (benefit)........ (1,461) 1,797 336 ------ ------- ------- ------- -------- Net income.......................... $1,378 $ 1,378 $ 5,276 $ (6,654) $ 1,378 ====== ======= ======= ======= ========
43 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) SIX MONTHS ENDED MARCH 31, 1996
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------- ------------ ------------ Revenue............................ $ $273,122 $ 152,047 $(17,874) $407,295 Operating expenses: Cost of sales and services....... 236,640 115,483 (17,874) 334,249 Research and engineering......... 7,196 406 7,602 Marketing........................ 13,647 4,236 17,883 General and administrative....... 10,098 6,624 16,722 Goodwill amortization............ 2,322 349 2,671 ------ -------- ------- -------- -------- Total operating expenses............... 269,903 127,098 (17,874) 379,127 ------ -------- ------- -------- -------- Operating income................... 3,219 24,949 28,168 Interest income.................... 729 320 (723) 326 Interest expense................... (9,609) (2,209) 723 (11,095) Income from equity investees....... 13,568 16,573 (30,141) Other income (expense) -- net...... 1,620 (281) 1,339 ------ -------- ------- -------- -------- Income before income taxes......... 13,568 12,532 22,779 (30,141) 18,738 Income tax expense (benefit)....... (1,036) 6,206 5,170 ------ -------- ------- -------- -------- Net income......................... $13,568 $ 13,568 $ 16,573 $(30,141) $ 13,568 ====== ======== ======= ======== ========
44 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) SIX MONTHS ENDED MARCH 31, 1995
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------- ------------ ------------ Revenue............................. $ $126,390 $ 111,732 $(12,039) $226,083 Operating expenses: Cost of sales and services........ 114,772 87,531 (12,039) 190,264 Research and engineering.......... 3,754 524 4,278 Marketing......................... 4,703 3,245 7,948 General and administrative........ 6,791 5,662 12,453 Goodwill amortization............. 236 342 578 ------ -------- -------- -------- -------- Total operating expenses................ 130,256 97,304 (12,039) 215,521 ------ -------- -------- -------- -------- Operating income (loss)............. (3,866) 14,428 10,562 Interest income..................... 760 318 (744) 334 Interest expense.................... (3,125) (2,237) 744 (4,618) Income from equity investees........ 6,122 8,560 (14,682) Other income -- net................. 1,397 121 1,518 ------ -------- -------- -------- -------- Income before income taxes.......... 6,122 3,726 12,630 (14,682) 7,796 Income tax expense (benefit)........ (2,396) 4,070 1,674 ------ -------- -------- -------- -------- Net income.......................... $6,122 $ 6,122 $ 8,560 $(14,682) $ 6,122 ====== ======== ======== ======== ========
45 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) MARCH 31, 1996
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents....... $ $ 3,091 $ $ $ 3,091 Receivables -- net.............. 80,778 87,796 168,574 Inventories -- net.............. 38,356 32,637 70,993 Deferred income taxes........... 10,348 10,348 Other current assets............ 6,431 6,824 13,255 -------- -------- -------- --------- -------- Total current assets.... 139,004 127,257 266,261 Investment in subsidiaries...... 185,777 124,469 (310,246) Intercompany advances -- net.... 300,156 (300,156) Property -- net................. 255,694 158,386 414,080 Deferred income taxes........... 92,504 17,060 109,564 Goodwill and other assets....... 202,243 3,818 206,061 -------- -------- -------- --------- -------- $485,933 $813,914 $ 306,521 $ (610,402) $995,966 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................ $ $ 59,519 $ 28,152 $ $ 87,671 Short-term borrowings and current portion of long-term debt......................... 16,600 3,675 20,275 Accrued employee compensation and benefits................. 11,783 8,664 20,447 Income and other taxes.......... 7 2,755 9,437 12,199 Other accrued liabilities....... 768 18,509 17,308 (517) 36,068 -------- -------- -------- --------- -------- Total current liabilities........... 775 109,166 67,236 (517) 176,660 Long-term debt.................... 244,620 37,401 282,021 Deferred income taxes............. 2,274 7,359 9,633 Accrued postretirement benefits and other....................... 42,979 (485) 42,494 Intercompany advances -- net...... 229,098 70,541 (299,639) Stockholders' equity.............. 485,158 185,777 124,469 (310,246) 485,158 -------- -------- -------- --------- -------- $485,933 $813,914 $ 306,521 $ (610,402) $995,966 ======== ======== ======== ========= ========
46 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents....... $ $ 1,842 $ $ $ 1,842 Receivables -- net.............. 87,118 81,653 168,771 Inventories -- net.............. 38,463 28,388 66,851 Deferred income taxes........... 9,370 9,370 Other current assets............ 3,163 6,938 10,101 -------- -------- -------- --------- -------- Total current assets.... 139,956 116,979 256,935 Investment in subsidiaries........ 171,612 107,653 (279,265) Intercompany advances -- net...... 296,156 (296,156) Property -- net................... 261,713 155,097 416,810 Deferred income taxes............. 92,447 15,442 107,889 Goodwill and other assets......... 205,403 2,646 208,049 -------- -------- -------- --------- -------- $467,768 $807,172 $ 290,164 $ (575,421) $989,683 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................ $ $ 60,677 $ 24,998 $ $ 85,675 Short-term borrowings and current portion of long-term debt......................... 37,600 37,600 Accrued employee compensation and benefits................. 16,277 8,608 24,885 Income and other taxes.......... 7 4,097 7,271 11,375 Other accrued liabilities....... 966 29,959 16,648 (2,837) 44,736 -------- -------- -------- --------- -------- Total current liabilities........... 973 148,610 57,525 (2,837) 204,271 Long-term debt.................... 222,566 37,000 259,566 Deferred income taxes............. 2,248 9,248 11,496 Accrued postretirement benefits and other....................... 46,902 653 47,555 Intercompany advances -- net...... 215,234 78,085 (293,319) Stockholders' equity.............. 466,795 171,612 107,653 (279,265) 466,795 -------- -------- -------- --------- -------- $467,768 $807,172 $ 290,164 $ (575,421) $989,683 ======== ======== ======== ========= ========
47 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) SIX MONTHS ENDED MARCH 31, 1996
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................... $13,568 $ 13,568 $ 16,585 $(30,153) $ 13,568 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization.... 18,066 11,239 29,305 Net gain on disposal of assets .............................. (2) (2) Recognition of unearned compensation.................. 546 546 Deferred income taxes (benefit)..................... (1,016) 1,609 593 Income of equity investees....... (13,568) (16,585) 30,153 Changes in: Receivables...................... 6,340 (3,199) 3,141 Accounts payable................. (1,158) 2,297 1,139 Inventories...................... 107 (2,218) (2,111) Other current assets and liabilities................... (198) (21,532) 1,521 2,320 (17,889) Other, net....................... (3,808) 12,461 (16,041) (2,320) (9,708) ------- ------------ ------------- ------------ ------------ Net cash provided from (used for) operating activities............. (4,006) 10,797 11,791 18,582 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions................. (11,081) (10,714) (21,795) Proceeds from disposal of assets... 479 256 735 Acquisition of business, net of cash acquired.................... (3,700) (3,700) ------- ------------ ------------- ------------ ------------ Net cash used for investing activities....................... (10,602) (14,158) (24,760) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock.... 4,006 4,006 Proceeds from (reduction of) borrowings - net................. 1,054 2,367 3,421 ------- ------------ ------------- ------------ ------------ Net cash provided from (used for) financing activities............. 4,006 1,054 2,367 7,427 Increase in cash and cash equivalents ..................... 1,249 1,249 Cash and cash equivalents at beginning of period.............. 1,842 1,842 ------- ------------ ------------- ------------ ------------ Cash and cash equivalents at end of period........................... $ $ 3,091 $ $ $ 3,091 ======= ========= ========== ========= =========
48 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) SIX MONTHS ENDED MARCH 31, 1995
COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $6,122 $ 6,122 $ 8,560 $(14,682) $ 6,122 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization..... 4,860 8,752 13,612 Net gain on disposal of assets.... (692) (692) Recognition of unearned compensation................... 660 660 Deferred income taxes (benefit)... (2,264) (2,264) Income of equity investees........ (6,122) (8,560) 14,682 Changes in: Receivables....................... 5,881 (180) 5,701 Accounts payable.................. (4,857) (839) (5,696) Inventories....................... (1,799) (2,335) (4,134) Other current assets and liabilities.................... 163 1,787 401 2,351 Other, net........................ (749) 4,938 (2,361) (401) 1,427 ------ ------- -------- -------- -------- Net cash provided from (used for) operating activities.............. (749) 5,144 12,692 17,087 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions.................. (2,737) (12,266) (15,003) Proceeds from disposal of assets.... 1,922 1,884 3,806 ------ ------- -------- -------- -------- Net cash used for investing activities........................ (815) (10,382) (11,197) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock..... 749 749 Proceeds from (reduction of) borrowings -- net................. (1,849) (2,310) (4,159) ------ ------- -------- -------- -------- Net cash provided from (used for) financing activities.............. 749 (1,849) (2,310) (3,410) Increase in cash and cash equivalents....................... 2,480 2,480 Cash and cash equivalents at beginning of period............... 3,218 3,218 ------ ------- -------- -------- -------- Cash and cash equivalents at end of period............................ $ $ 5,698 $ $ $ 5,698 ====== ======= ======== ======== ========
49 ITEM 7. (a) Financial statements of business acquired. The consolidated financial statements and condensed consolidated financial statements of Nowsco are set forth in this Item 7 as of and for the periods indicated therein. 50 REPORT OF INDEPENDENT AUDITORS To the Shareholders Nowsco Well Service Ltd. We have audited the consolidated balance sheets of Nowsco Well Service Ltd. as at December 31, 1995, 1994 and 1993 and the consolidated statements of operations, retained earnings and changes in cash position for the years then ended. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1995, 1994 and 1993 and the results of its operations and the changes in its cash position for the years then ended in accordance with generally accepted accounting principles. KPMG PEAT MARWICK THORNE Chartered Accountants Calgary, Alberta February 8, 1996 51 THE FINANCIAL STATEMENTS OF NOWSCO WELL SERVICE LTD. PRESENTED UNDER THIS ITEM 7.(a) HAVE BEEN PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA. NOWSCO WELL SERVICE LTD. CONSOLIDATED BALANCE SHEETS ASSETS
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) CURRENT ASSETS: Cash and short-term deposits............................. $ 14,807 $ 2,016 $ 30,007 Short-term investments................................... 11,784 4,997 53,534 Accounts receivable...................................... 92,104 100,856 80,463 Inventories.............................................. 21,717 26,880 17,963 Prepaid expenses......................................... 4,107 5,544 4,460 -------- -------- -------- Total current assets............................. 144,519 140,293 186,427 INVESTMENT................................................. -- -- 3,300 DUE FROM AFFILIATE......................................... 6,275 4,804 2,597 PROPERTY, PLANT AND EQUIPMENT (NOTE E)..................... 191,645 194,718 131,565 GOODWILL (NOTE F).......................................... 15,951 18,322 21,714 -------- -------- -------- TOTAL............................................ $358,390 $358,137 $345,603 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities................. $ 67,034 $ 74,017 $ 53,237 Income taxes payable..................................... 2,454 2,319 1,066 Current maturities of long-term debt..................... -- 2,739 34,757 -------- -------- -------- Total current liabilities........................ 69,488 79,075 89,060 LONG-TERM DEBT (NOTE G).................................... -- -- 2,757 DEFERRED INCOME TAXES...................................... 2,358 2,445 3,121 SHAREHOLDERS' EQUITY SHARE CAPITAL (NOTE H)................................... 131,955 131,603 131,240 RETAINED EARNINGS........................................ 158,154 149,241 127,444 EQUITY TRANSLATION ADJUSTMENT (NOTE I)................... (3,565) (4,227) (8,019) -------- -------- -------- TOTAL............................................ 286,544 276,617 250,665 -------- -------- -------- $358,390 $358,137 $345,603 ======== ======== ========
See notes to consolidated financial statements. 52 NOWSCO WELL SERVICE LTD. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS) REVENUE: Operations............................................... $480,128 $405,577 $291,513 OPERATING COSTS AND EXPENSES: Material and operating................................... 395,570 326,126 222,942 General and administrative............................... 22,435 20,188 18,240 Depreciation and amortization............................ 40,403 31,135 23,798 Restructuring charge (Note M)............................ 5,194 -- -- -------- -------- -------- Total operating costs and expenses............... 463,602 377,449 264,980 -------- -------- -------- OPERATING INCOME BEFORE UNDERNOTED......................... 16,526 28,128 26,533 Interest and other income................................ 2,908 4,470 7,713 Interest expense......................................... (819) (1,633) (5,280) -------- -------- -------- INCOME BEFORE INCOME TAXES................................. 18,615 30,965 28,966 Income taxes (Note N)...................................... 2,435 1,683 2,530 -------- -------- -------- NET INCOME FOR THE YEAR.................................... $ 16,180 $ 29,282 $ 26,436 ======== ======== ======== Net income per share....................................... $ 0.78 $ 1.41 $ 1.38 ======== ======== ========
See notes to consolidated financial statements. 53 NOWSCO WELL SERVICE LTD. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) Retained earnings at beginning of year..................... $149,241 $127,444 $106,382 Net income for the year.................................... 16,180 29,282 26,436 Dividends.................................................. (7,267) (7,485) (5,374) -------- -------- -------- RETAINED EARNINGS AT END OF YEAR........................... $158,154 $149,241 $127,444 ======== ======== ========
See notes to consolidated financial statements. 54 NOWSCO WELL SERVICE LTD. CONSOLIDATED STATEMENTS OF CHANGES IN CASH POSITION
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) OPERATING ACTIVITIES: Net income before discontinued operations................ $ 16,180 $ 29,282 $ 26,436 Add (deduct) items not affecting cash: Depreciation and amortization......................... 40,403 31,135 23,798 Writedown of assets included in restructuring charge.............................................. 2,613 -- -- Deferred income taxes (recovery)(Note N).............. (75) (1,077) 646 -------- -------- -------- FUNDS FROM CONTINUING OPERATIONS........................... 59,121 59,340 50,880 Decrease (increase) in non-cash working capital from continuing operations (Note P)........................ 17,472 (16,627) (2,615) -------- -------- -------- CASH FLOW FROM CONTINUING OPERATIONS....................... 76,593 42,713 48,265 Cash flow from discontinued operations..................... -- -- 2,900 -------- -------- -------- CASH FLOW FROM OPERATIONS.................................. 76,593 42,713 51,165 -------- -------- -------- INVESTING ACTIVITIES: Purchase of property, plant and equipment................ (45,543) (56,256) (18,565) Proceeds from disposals of property, plant and equipment............................................. 4,293 2,129 2,866 Advances to affiliate.................................... (1,471) (2,207) (136) Acquisition of businesses (Note J)....................... -- (43,205) (29,075) Cash acquired upon acquisition of businesses (Note J).... -- 9,574 -- Debt associated with acquisitions........................ -- -- 4,108 Decrease in investment................................... -- 3,300 415 Decrease (increase) in non-cash working capital related to property, plant and equipment (Note P)............. (4,339) 7,238 1,945 -------- -------- -------- Cash (out) flow from investing activities.................. (47,060) (79,427) (38,442) -------- -------- -------- FINANCING ACTIVITIES: Proceeds from issuance of common shares (Note H)......... 352 1,213 71,961 Reduction in long-term debt.............................. (2,739) (34,709) (13,312) Dividends paid........................................... (7,267) (7,485) (5,374) -------- -------- -------- Cash (out) flow from financing activities.................. (9,654) (40,981) 53,275 -------- -------- -------- INCREASE (DECREASE) IN NET CASH POSITION................... 19,879 (77,695) 65,998 Effect of exchange rate changes on cash position........... (301) 1,167 177 Net cash position, at beginning of year.................... 7,013 83,541 17,366 -------- -------- -------- Net cash position, at end of year.......................... $ 26,591 $ 7,013 $ 83,541 ======== ======== ========
Net cash position comprises cash, short-term deposits and short-term investments. See notes to consolidated financial statements. 55 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 UNLESS STATED OTHERWISE, ALL AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS. NOTE A -- SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements are prepared on the historical cost basis in accordance with accounting principles generally accepted in Canada, which conform in all material respects with those in the United States, except as disclosed in Note Q. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of Nowsco Well Service Ltd. (the "Company") and its subsidiaries. The Company uses the proportionate consolidation method of accounting for investments in which it exercises joint control, and the cost method of accounting for other long-term investments. When there has been a loss in value of an investment that is other than temporary, the investment is written down to recognize such loss. TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS AND BALANCES: The Company's foreign operations' financial statements are translated from the foreign entity currency to Canadian dollars as follows: Self-Sustaining Foreign Operations: All assets and liabilities are translated at the rates prevailing at the balance sheet date. Revenues and expenses are translated at the weighted average rates throughout the year. Adjustments arising from translation are accumulated in the equity translation adjustment account, a separate component of shareholders' equity. Integrated Foreign Operations: Monetary items are translated at the rates prevailing at the balance sheet date and non-monetary items are translated at historic rates. Revenues and expenses are translated at weighted average rates throughout the year (other than depreciation which is translated at the same rates as the related fixed assets). Translation gains and losses are included in income. Exchange gains and losses resulting from both the translation of unhedged foreign currency monetary items and reductions in the Company's net investment in self-sustaining foreign operations are included in income. SHORT-TERM INVESTMENTS: Short-term investments consisting of commercial paper are carried at the lower of cost or market value. At December 31, 1995, 1994 and 1993, cost approximated market value. INVENTORIES: Inventories are carried at the lower of cost, determined under the first-in, first-out or average cost method, and net realizable value. REVENUE RECOGNITION: The Company recognizes revenue for services and products at the time they are provided, except for long-term contracts which are recognized on the percentage of completion method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. The net cost of assets retired or otherwise disposed of and the related accumulated allowance for depreciation are eliminated from the accounts in the year of disposal and the resulting gain or loss is included in income at that time. The provision for depreciation is computed using the straight-line method over the estimated useful life of the assets. The weighted average estimated useful life is 33 years for buildings, 5 years for leasehold improvements, 8 years for equipment, and 6 years for furniture and fixtures. GOODWILL: Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, currently 6 - 40 years. The net book value of goodwill would be written down if the value were permanently impaired. The Company assesses impairment by determining whether the unamortized goodwill balance can be recovered through undiscounted future operating cashflows of the acquired operation over its remaining life. 56 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RESEARCH AND DEVELOPMENT: Research costs are expensed in the year in which they are incurred. Development costs related to a specific product or process that is proven to be technically and economically feasible would be capitalized and amortized over the economic life of the product or process. NET INCOME PER COMMON SHARE: Net income per common share is based on the weighted average number of shares outstanding during the year. Fully diluted net income per share is not presented because the dilutive effect of common shares under option, if such options were exercised, would not be material. NOTE B -- CHANGE IN ACCOUNTING POLICY INVESTMENT IN JOINT VENTURES: Effective January 1, 1995, in response to a recommendation of the Canadian Institute of Chartered Accountants, the Company changed its method of accounting for its 49% investment in a jointly owned Argentine company from the equity method to proportionate consolidation. The financial statements of prior periods have been restated. There is no effect on net income as a result of this change. NOTE C -- FINANCIAL INSTRUMENTS During the year ended December 31, 1995, the Company has used financial instruments as part of its investment strategy. Specifically, the Company has engaged in "cross currency" swaps involving the conversion of Canadian dollars into US dollars and investing the foreign currency in US dollar interest bearing deposit accounts. A forward contract was purchased to convert the US dollar to Canadian dollars on a predetermined date. The Company believes there is no risk associated with this vehicle since exchange rates and interest rates are fixed on the date of the initial conversion. The US dollar interest bearing deposit accounts were maintained with chartered banks in Canada. The maximum funds invested at any time in 1995 was $13.8 million. At December 31, 1995, no such investment vehicle was in use. NOTE D -- INVESTMENT IN JOINT VENTURE The Company owns a 49 percent interest in an Argentine well servicing joint venture, a 40 percent interest in a Malaysian joint venture and a 65 percent interest in an Indonesian joint operation. These joint ventures and operations provide products and services similar to those offered by the Company. These investments are not material to the Company's financial statements. NOTE E -- PROPERTY, PLANT & EQUIPMENT
1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) Property, plant and equipment: Land.......................................... $ 4,922 $ 5,811 $ 5,741 Buildings and improvements.................... 34,807 24,453 22,516 Equipment..................................... 362,090 353,168 265,604 Furniture and fixtures........................ 2,518 2,670 2,495 -------- -------- -------- Total property, plant and equipment...... 404,337 386,102 296,356 -------- -------- -------- Accumulated depreciation: Buildings and improvements.................... 10,334 10,180 9,382 Equipment..................................... 200,541 179,379 153,587 Furniture and fixtures........................ 1,817 1,825 1,822 -------- -------- -------- Total accumulated depreciation........... 212,692 191,384 164,791 -------- -------- -------- $191,645 $194,718 $131,565 ======== ======== ========
57 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE F -- GOODWILL
1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) Goodwill........................................... $ 33,208 $ 32,866 $ 33,556 Accumulated amortization........................... (17,257) (14,544) (11,842) -------- -------- -------- $ 15,951 $ 18,322 $ 21,714 ======== ======== ========
NOTE G -- LONG-TERM DEBT
1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) Notes payable(1)................................... $ -- $ 2,153 $ 4,351 Capital lease obligations(2)....................... -- 586 1,372 Notes payable(3)................................... -- -- 31,791 -------- -------- -------- -- 2,739 37,514 Less current maturities............................ -- 2,739 34,757 -------- -------- -------- Long term debt..................................... $ -- $ -- $ 2,757 ======== ======== ========
- --------------- (1) As part of the purchase price of an acquisition the Company issued non-interest bearing notes denominated in US dollars and secured by the property and equipment acquired. Repaid in full in 1995. (2) Payable in Canadian and US dollars with fixed interest rates ranging from 4.9% to 8.0% per annum. Repaid in full in 1995. (3) Denominated in Australian dollars and repaid in full in April 1994. By way of a foreign exchange swap and forward contracts, the loan was effectively repayable in Canadian dollars and was amortized over five years at an effective interest rate of 13.4%. Secured by a demand debenture and a general assignment of accounts receivable and shares of certain of the Company's subsidiaries. Interest on long-term debt in 1995 was $13,000 (1994 -- $1,383,000; 1993 -- $5,003,000). 58 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE H -- SHARE CAPITAL 1. AUTHORIZED -- an unlimited number of common shares without nominal or par value. 2. ISSUED AND OUTSTANDING -- details of changes in issued share capital, for the three year period ended December 31, 1995 are:
NUMBER OF SHARES AMOUNT ---------------- ----------------- (THOUSANDS OF CANADIAN DOLLARS) Balance, December 31, 1992.......................... 16,418,266 $ 59,279 Issued upon exercise of employee stock options...... 350,800 3,522 Issued upon exercise of special warrants............ 4,000,000 68,950 Cancellation of acquired shares..................... (61,836) (511) ---------- -------- Balance, December 31, 1993.......................... 20,707,230 131,240 Issued upon exercise of employee stock options...... 117,940 1,213 Cancellation of acquired shares..................... (55,624) (850) ---------- -------- Balance, December 31, 1994.......................... 20,769,546 131,603 Issued upon exercise of employee stock options...... 37,000 352 ---------- -------- BALANCE, DECEMBER 31, 1995.......................... 20,806,546 $ 131,955 ========== ========
3. STOCK RELATED INCENTIVE PLANS At December 31, 1995 the Company maintained an Incentive Stock Option Plan. Under the terms of the Incentive Stock Option Plan, options may be granted at the discretion of the Board of Directors to full time officers and employees of the Company. The option price equals the closing price of the Company's shares on the day preceding the date of grant. The options are not assignable, are vested as to 20% of the shares covered thereby for each full year of employment over a five year period commencing on the date of grant, and expire after the 10th anniversary of the date of grant. All options granted under the plan become immediately vested upon a change in control, defined as the acquisition by any purchaser of 20% or more of the common shares of the Company. As at December 31, 1995, the Company also maintained a Stock Appreciation Rights Plan which mirrors the terms of the Incentive Stock Option Plan, except that upon exercise of a right the holder receives, as cash remuneration, the positive difference between the base value of the right and the closing price of the Company's shares on the exercise date. The plan was available to officers and employees of the Company who reside in the United States. During 1995, the Company has taken steps to eliminate this plan by converting Stock Appreciation Rights to Stock Options. A total of 216,800 Stock Appreciation Rights were converted during the period. As at December 31, 1995, 15,200 Stock Appreciation Rights remain outstanding. 59 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The purchase price of common shares under options outstanding as at December 31, 1995 ranged from $9.00 to $23.50. The base value of stock appreciation rights outstanding as at December 31, 1995 ranged from $9.00 to $10.125. The Company has reserved 327,640 shares (1994 -- 555,200; 1993 -- 739,500) for possible future allocations under the Incentive Stock Option Plan. The maximum number of shares available for allocation under the stock option plan is 2,070,000.
COMMON SHARES UNDER OPTION STOCK APPRECIATION RIGHTS ------------------------------------- --------------------------------- 1995 1994 1993 1995 1994 1993 --------- ------------- --------- -------- ------------ ------- Outstanding, beginning of year........................ 1,320,860 1,254,500 830,200 269,000 131,000 49,600 Granted....................... 589,300 209,100 826,500 -- 146,000 110,500 Cancelled..................... (167,800) (24,800) (51,400) (253,200) (3,000) (1,000) Exercised..................... (37,000) (117,940) (350,800) (600) (5,000) (28,100) --------- --------- --------- -------- ------- ------- Outstanding, end of year...... 1,705,360 1,320,860 1,254,500 15,200 269,000 131,000 ========= ========= ========= ======== ======= =======
4. SHAREHOLDER PROTECTION RIGHTS PLAN Under the Company's Shareholders Protection Rights Agreement, one right has been issued in respect of each outstanding common share. The rights are not exercisable and will not trade separately from the common shares at any time prior to a person or group acquiring, or announcing an intention to acquire 19.9% or more of the Company's common shares. If this event occurs, the rights may be exercised by all holders to purchase a determined number of common shares of the Company at a 50% discount to the then prevailing market price. The Rights Plan was ratified by shareholders in 1995 and will expire January 4, 2000. NOTE I -- EQUITY TRANSLATION ADJUSTMENT The following is an analysis of the equity translation adjustment component of shareholders' equity:
1995 1994 1993 ------- ------- ------- (THOUSANDS OF CANADIAN DOLLARS) Balance, beginning of year............................ $(4,227) $(8,019) $(9,705) Translation of self-sustaining foreign operations..... 662 5,310 2,145 Partial repatriation of capital from self-sustaining foreign operations.................................. -- (1,518) (459) ------- ------- ------- Balance, end of year.................................. $(3,565) $(4,227) $(8,019) ======= ======= =======
NOTE J -- ACQUISITIONS In 1994 and 1993, the Company expanded its operations in the US through the acquisition of four businesses. On September 28, 1994, the Company acquired, through a tender offer, the shares of Service Fracturing Company, a public company with onshore stimulation services comparable to those offered by the Company. On December 1, 1994 the Company acquired the shares of Pipeline Dehydrators Inc., a private company providing pipeline services. On June 1, 1993, the Company acquired the shares of Nitrogen Pumping and Coiled Tubing, Inc., a private company specializing in offshore coiled tubing applications in the Louisiana Gulf Coast region. On November 1, 1993 the Company acquired the assets and ongoing business of Acid Engineering, Inc. and the shares of Acid Engineering of Louisiana, Inc., private companies with onshore stimulation services similar to those offered by the Company. The acquisitions have been recorded using the purchase method with results from operations included in these financial statements from the dates of acquisition. 60 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The net assets acquired have been recorded as follows:
1994 1993 ------- ------- (THOUSANDS OF CANADIAN DOLLARS) Combined net assets acquired, at assigned values: Cash........................................................... $ 9,574 $ -- Non-cash current assets........................................ 9,272 12,183 Property, plant and equipment.................................. 29,076 19,130 ------- ------- Total combined net assets.............................. 47,922 31,313 ------- ------- Less: Current liabilities............................................ 4,717 5,453 Long-term debt................................................. -- 559 ------- ------- 4,717 6,012 ------- ------- Net assets acquired............................................ 43,205 25,301 Goodwill....................................................... -- 3,774 ------- ------- $43,205 $29,075 ======= ======= Combined Consideration: Cash........................................................... $43,205 $24,967 Issuance of note payable....................................... -- 4,108 ------- ------- $43,205 $29,075 ======= =======
NOTE K -- CONTINGENCIES AND COMMITMENTS The Company has been named a defendant in various legal actions arising in the normal course of business. It is the opinion of management that final determination of these claims will not materially affect the financial position or operating results of the Company. Canadian Federal taxation authorities have indicated their intention to issue Notices of Reassessment with respect to certain deductions claimed by the Company in connection with interest rate swaps and forward exchange contracts entered into in conjunction with the issuance of Australian denominated notes in 1989. The Company has received an opinion from special legal counsel that it should be entitled to the deductions claimed in its tax returns. Management of the Company is of the opinion that the Company's tax returns, as filed, are substantially correct. Accordingly, no provision has been made in the Company's accounts. If the Company had computed its income tax provisions for the years 1989 to 1995 on the basis of the position advanced by the tax authorities and, after giving effect to the resulting reduction in tax loss carryforwards available in 1995, net income in 1995 would have been reduced by a deferred tax charge of $6.3 million. In addition, future available scientific research and development deductions would be reduced to zero, and investment and scientific research and development tax credits would be reduced from $9.6 million to $8.0 million. The Company has letters of credit outstanding totalling $15,600,000 (1994 -- $16,543,000; 1993 -- $7,828,000) relating to performance under contracts. NOTE L -- PENSION PLANS The Company has defined benefit or defined contribution pension plans covering most of its employees. Benefits for defined benefit plans are based on years of service and employees' compensation levels. The Company is obligated to fund defined benefit plans based on requirements as determined by independent actuaries. 61 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DEFINED BENEFIT PLANS: At December 31, 1995, the actuarial present value of projected benefit obligations for services rendered is $47,292,000 (1994 -- $46,511,000; 1993 -- $42,113,000). The average market value of pension assets is $48,072,000 at December 31, 1995 (1994 -- $45,922,000; 1993 -- $43,990,000). Pension plan assets are stated at average market value using a five-year moving average and include marketable equity and corporate and government debt securities. NOTE M -- RESTRUCTURING CHARGE During 1995, the Company recorded a charge against income of $5,194,000 related to a restructuring of its United States well service operations. Costs were incurred of $980,000 related to employee severance, relocation and base closure expenses. A further $1,278,000 was recorded as a result of the writedown of goodwill and intangibles and $2,936,000 for the writedown of inventory and equipment. NOTE N -- INCOME TAXES
1995 1994 1993 ------- ------- ------- (THOUSANDS OF CANADIAN DOLLARS) Income (loss) before income taxes and discontinued operations: Canada.............................................. $11,798 $18,817 $14,796 Foreign............................................. 6,817 12,148 14,170 ------- ------- ------- $18,615 $30,965 $28,966 ======= ======= ======= Income taxes (recovery): Current: Canada.............................................. $ 281 $ 81 $ 387 Foreign............................................. 2,229 2,679 1,497 ------- ------- ------- $ 2,510 $ 2,760 $ 1,884 ======= ======= ======= Deferred: Canada.............................................. $ -- $ -- $ -- Foreign............................................. (75) (1,077) 646 ------- ------- ------- $ (75) $(1,077) $ 646 ======= ======= ======= Total: Canada.............................................. $ 281 $ 81 $ 387 Foreign............................................. 2,154 1,602 2,143 ------- ------- ------- $ 2,435 $ 1,683 $ 2,530 ======= ======= =======
The provision for deferred income taxes results from timing differences in the recognition of revenues and expenses for income tax and financial statement purposes. The tax effects of these differences are as follows:
1995 1994 1993 ----- ------- ----- (THOUSANDS OF CANADIAN DOLLARS) Depreciation........................................... $(799) $(1,628) $(252) Interest and Other..................................... 724 551 898 ------ ------ - - ------- Provision for deferred income taxes (recovery)......... $ (75) $(1,077) $ 646 ======= ======= =======
62 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's consolidated income tax provision is based upon the tax rates and allowances applicable to each of the various tax jurisdictions under which the Company operates. As a result, the consolidated tax position differs from that expected by applying the combined Canadian federal and provincial income tax rate to consolidated income before income taxes and discontinued operations for the following reasons:
1995 1994 1993 ------- ------- ------- (THOUSANDS OF CANADIAN DOLLARS) Expected combined Canadian federal and provincial tax................................................. $ 8,247 $13,651 $12,783 Differences in foreign statutory tax rates............ (4,462) (2,332) (5,046) Manufacturing and processing deduction................ (169) (1,925) (456) Net impact of current and prior year losses........... (1,783) (7,831) (5,957) Capital and other indirect taxes...................... 760 459 1,370 Other differences..................................... (158) (339) (164) ------- ------- ------- Consolidated income tax provision..................... $ 2,435 $ 1,683 $ 2,530 ======= ======= =======
As at December 31, 1995, the Company and its subsidiaries have unrecorded income tax benefits resulting from income tax losses and scientific research and development expenditures of $88.1 million (Canada -- $30.0 million; Foreign -- $58.1 million). Canadian amounts represent scientific research and development deductions which have an unlimited carryforward period. Foreign amounts are comprised mainly of losses which expire in varying amounts between 1998 and 2010. Recognition has been given in the financial statements to $28.0 million of these amounts (Canada -- $15.4 million; Foreign -- $12.6 million). In addition, the Company has investment and scientific research and development tax credits in Canada of $9.6 million which are available to reduce future federal income taxes payable. The tax credits expire in varying amounts between 1999 and 2005. Please refer also to Note K -- Contingencies and Commitments. NOTE O -- GEOGRAPHIC INFORMATION The Company has identified one industry segment which provides skilled people, specialized technology, products and equipment to the oil and gas industry and to the pipeline, mining and industrial sectors throughout the world. The Company has identified Canada, United States and International as geographic segments. International includes operations in the United Kingdom, Europe, Africa, Middle East, Asia Pacific, Russia and Argentina. 63 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The revenue, operating income (loss), funds from operations and identifiable assets by geographic region are as follows:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) REVENUE: Canada........................................... $151,349 $160,703 $125,057 United States.................................... 141,660 112,241 45,826 International.................................... 187,119 132,633 120,630 -------- -------- -------- $480,128 $405,577 $291,513 ======== ======== ======== OPERATING INCOME (LOSS): Canada........................................... $ 13,701 $ 26,246 $ 16,748 United States.................................... (10,065)(1) (206) 1,107 International.................................... 12,890 2,088 8,678 -------- -------- -------- $ 16,526 $ 28,128 $ 26,533 ======== ======== ======== FUNDS FROM OPERATIONS BEFORE ALLOCATION OF INDIRECT COSTS(2): Canada........................................... $ 28,131 $ 38,731 $ 30,002 United States.................................... 12,000 13,247 6,193 International.................................... 31,680 20,453 25,624 -------- -------- -------- $ 71,811 $ 72,431 $ 61,819 ======== ======== ======== IDENTIFIABLE ASSETS: Canada........................................... $ 99,743 $114,327 $ 76,832 United States.................................... 99,360 113,965 64,251 International.................................... 132,696 122,832 117,191 -------- -------- -------- $331,799 $351,124 $258,274 ======== ======== ======== Cash and equivalents............................... 26,591 7,013 87,329 -------- -------- -------- $358,390 $358,137 $345,603 ======== ======== ========
- --------------- (1) Includes restructuring charge of $5.2 million. (2) Funds from operations exclude non-cash items, interest, other income and indirect corporate and research and development expenditures. 64 NOWSCO WELL SERVICE LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE P -- NON-CASH WORKING CAPITAL The decrease (increase) in non-cash working capital comprises the following:
1995 1994 1993 ------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) Accounts receivable................................. $ 8,752 $(11,112) $(12,482) Inventories......................................... 5,163 (8,917) 1,243 Prepaid expenses.................................... 1,437 (1,084) (1,538) Accounts payable and accrued liabilities............ (2,509) 10,282 10,563 Effects of exchange rate changes.................... 4,629 (5,796) (401) ------- -------- -------- Decrease (increase) in non-cash working capital .... 17,472 (16,627) (2,615) Decrease (increase) in non-cash working capital related to property, plant and equipment.......... (4,339) 7,238 1,945 ------- -------- -------- $13,133 $ (9,389) $ (670) ======= ======== ========
NOTE Q -- UNITED STATES ACCOUNTING PRINCIPLES The consolidated financial statements, prepared in accordance with Canadian generally accepted accounting principles (GAAP), conform with those generally accepted in the United States, except: EQUITY TRANSLATION ADJUSTMENT: During 1994, the Company released $1,518,000 (1993 -- $459,000) of the equity translation adjustment balance into interest and other income on partial repatriation of capital from foreign operations. Under United States GAAP, adjustments to the equity translation account are made only where there is a disposition of ownership to a third party. RECOGNITION OF DEFERRED TAX ASSETS: Under United States GAAP, deferred tax assets and liabilities are recognized and measured based on the likelihood of realization of a tax benefit in future years from the utilization of operating loss and tax credit carryforwards and temporary differences. Applying these provisions to the Company's loss and tax credit carryforwards and temporary differences would result in recognition of a deferred tax asset and an increase in retained earnings of $3,000,000. RETAINED EARNINGS: If the consolidated financial statements were prepared in accordance with United States GAAP, retained earnings would be as follows:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF CANADIAN DOLLARS) Retained earnings per Canadian GAAP................ $158,154 $149,241 $127,444 Add (deduct): Equity translation adjustment.................... (2,956) (2,956) (1,438) Deferred taxes................................... 3,000 -- -- -------- -------- -------- Retained earnings per United States GAAP........... $158,198 $146,285 $126,006 ======== ======== ========
65 NOWSCO WELL SERVICE LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS EXCEPT SHARE INFORMATION)
THREE MONTHS ENDED MARCH 31, ------------------------- 1996 1995 ---------- ---------- Revenue Operations........................................................ $ 126,552 $ 120,287 Operating costs and expenses Material and operating............................................ 101,139 99,285 General and administrative........................................ 5,325 5,711 Depreciation and amortization..................................... 9,884 9,783 ---------- ---------- 116,348 114,779 ---------- ---------- Operating income before undernoted.................................. 10,204 5,508 Interest and other income......................................... 718 159 Interest expense.................................................. (30) (127) ---------- ---------- Income before income taxes.......................................... 10,892 5,540 Income taxes...................................................... 786 888 ---------- ---------- Net income.......................................................... $ 10,106 $ 4,652 ========== ========== Number of shares outstanding at end of period....................... 20,828,796 20,770,146 ========== ========== Net income per share $ 0.49 $ 0.22 ========== ==========
See notes to condensed consolidated financial statements. 66 NOWSCO WELL SERVICE LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS)
MARCH 31, DECEMBER 31, MARCH 31, 1996 1995 1995 --------- ------------ --------- ASSETS Current assets Cash and equivalents....................................... $ 29,708 $ 26,591 $ -- Accounts receivable and other.............................. 104,012 96,211 119,894 Inventories................................................ 24,659 21,717 25,571 -------- ---------- -------- 158,379 144,519 145,465 Due from affiliate........................................... 6,193 6,275 -- Property, plant and equipment -- net......................... 187,952 191,645 205,398 Goodwill -- net.............................................. 15,767 15,951 17,735 -------- ---------- -------- $368,291 $358,390 $368,598 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank indebtedness.......................................... $ -- $ -- $ 3,542 Accounts payable and other................................. 72,485 69,488 76,833 Current maturities of long-term debt....................... -- -- 2,656 -------- ---------- -------- 72,485 69,488 83,031 Deferred income taxes........................................ 2,383 2,358 2,491 Shareholders' equity Share capital.............................................. 132,181 131,955 131,609 Retained earnings.......................................... 168,260 158,154 153,893 Equity translation adjustment.............................. (7,018) (3,565) (2,426) -------- ---------- -------- 293,423 286,544 283,076 -------- ---------- -------- $368,291 $358,390 $368,598 ======== ======== ========
See notes to condensed consolidated financial statements. 67 NOWSCO WELL SERVICE LTD. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH POSITION (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS)
THREE MONTHS ENDED MARCH 31, --------------------- 1996 1995 -------- -------- Operating activities: Net income from operations........................................... $ 10,106 $ 4,652 Add item not affecting cash: Depreciation and amortization..................................... 9,884 9,783 -------- -------- Funds from operations.................................................. 19,990 14,435 (Increase) in non-cash working capital............................... (10,983) (11,234) -------- -------- Cash flow from operations.............................................. 9,007 3,201 Investing activities: Purchase of property, plant and equipment -- net..................... (6,137) (13,913) Due from affiliate................................................... 82 -- -------- -------- Cash (out) flow resulting from investing activities.................... (6,055) (13,913) -------- -------- Financing activities: Proceeds from issuance of common shares.............................. 226 6 Reduction in long-term debt.......................................... -- (86) -------- -------- Cash (out) flow resulting from financing activities.................. 226 (80) -------- -------- Increase (decrease) in net cash position............................... 3,178 (10,792) Effect of exchange rate changes on cash position....................... (61) 237 Net cash position at beginning of year................................. 26,591 7,013 -------- -------- Net cash position* at end of period.................................... $ 29,708 $ (3,542) ======== ========
- --------------- * Net cash position comprises cash, short term deposits, and short term investments less bank indebtedness. See notes to condensed consolidated financial statements. 68 NOWSCO WELL SERVICE LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements, expressed in Canadian dollars, are unaudited, but in the opinion of the Company, all normal recurring adjustments considered necessary for a fair presentation of the consolidated results of the operations for the interim period have been made. Net income per common share was computed by dividing net income by the weighted average number of shares outstanding during the period. Certain comparative information has been reclassified to conform with current period's presentation. FINANCIAL INFORMATION REGARDING GEOGRAPHIC SEGMENTS (UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS) THREE MONTHS ENDED MARCH 31:
OPERATING INCOME FUNDS FROM REVENUE (LOSS) OPERATIONS(1) ------------------- ----------------- ----------------- 1996 1995 1996 1995 1996 1995 -------- -------- ------- ------- ------- ------- Canada................................. $ 52,152 $ 50,206 $ 8,636 $ 7,401 $12,965 $10,976 United States.......................... 34,161 33,546 (371) (542) 4,005 4,023 International.......................... 40,239 36,535 1,939 (1,351) 6,357 3,154 -------- -------- ------- ------- ------- ------- Total........................ $126,552 $120,287 $10,204 $ 5,508 $23,327 $18,153 ======== ======== ======= ======= ======= =======
- --------------- (1) Funds from operations exclude indirect corporate costs and research and development expenditures. 69 ITEM 7. (b) PRO FORMA INFORMATION RELATIVE TO THE ACQUIRED BUSINESS. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following pro forma financial statements are based on the historical financial information of BJ Services, Nowsco and The Western Company of North America ("Western") giving effect to the Nowsco Acquisition and the acquisition of Western (the "Western Acquisition") under the purchase method of accounting, the issuance of 8.5 million shares of Common Stock in the Common Stock Offering, the application of the net proceeds therefrom and the other adjustments described in the accompanying Notes to Pro Forma Financial Statements. For purposes of the pro forma financial statements, Nowsco's statement of operations has been translated from Canadian dollars into U.S. dollars using the average exchange rates prevailing during the respective periods, and Nowsco's statement of financial position has been translated using the exchange rate as of March 31, 1996. The exchange rates used to translate Nowsco's financial information from Canadian dollars to U.S. dollars are as follows: March 31, 1996............................................................ U.S.$.74 Six months ended March 31, 1996........................................... .73 Twelve months ended September 30, 1995.................................... .72
The pro forma financial statements are derived from the historical consolidated financial statements of BJ Services, Nowsco and Western for the indicated periods which, in the case of the statements of operations of Nowsco, differ from the period used for presentation of Nowsco's financial statements. The historical financial information with respect to Nowsco has been taken from or based upon Nowsco's annual report on Form 20-F for the fiscal year ended December 31, 1995, and its quarterly reports to shareholders for the fiscal quarters ended December 31, 1994, September 30, 1995 and March 31, 1996. In the case of Nowsco, the statement of operations for the twelve months ended September 30, 1995 was derived by combining the last three months of its fiscal year ended December 31, 1994 with the first nine months of its fiscal 1995 and the statement of operations for the six months ended March 31, 1996 was derived by combining the last three months of its fiscal year ended December 31, 1995 with the first three months of its fiscal year ended December 31, 1996. The pro forma statement of financial position was prepared as if the Nowsco Acquisition had occurred on March 31, 1996. The pro forma statements of operations were prepared as if the Nowsco Acquisition had occurred as of October 1, 1994 and do not include any estimate for loss of revenue from overlapping locations, any consolidation savings 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. In the case of Western, pro forma adjustments were made to the pro forma statement of operations for the twelve months ended September 30, 1995 to reflect the pro forma results of the Western Acquisition during the first six months of fiscal 1995 assuming the Western Acquisition occurred on October 1, 1994. The adjustments were derived from Western's historical financial statements and from pro forma financial information filed in conjunction with the Western Acquisition on Form 8-K/A dated May 23, 1996. Actual results of Western's operations were included with BJ Services' results beginning April 1, 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 Nowsco and the related notes thereto included elsewhere in this Current Report on Form 8-K. The pro forma financial statements have 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 that would have been achieved had the Nowsco Acquisition and related financing occurred on these dates, or of future results. Actual results of Nowsco's operations will be included with BJ Services' results only from the date on which the Nowsco Acquisition is consummated. 70 PRO FORMA STATEMENT OF FINANCIAL POSITION (UNAUDITED) MARCH 31, 1996
HISTORICAL PRO FORMA(10) ---------------------- --------------------------- BJ SERVICES NOWSCO ADJUSTMENTS COMBINED ----------- -------- ----------- ---------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents..................... $ 3,091 $ 21,984 $ (17,804)(2) $ (4,180)(3) 3,091 Receivables -- net............................ 168,574 76,969 245,543 Inventories................................... 70,993 18,248 89,241 Deferred income taxes and other............... 23,603 23,603 --------- -------- --------- ---------- Total current assets.................. 266,261 117,201 (21,984) 361,478 Property -- net................................. 414,080 139,084 553,164 Deferred income taxes........................... 109,564 10,000(1) 119,564 Goodwill and other assets....................... 206,061 16,250 396,984(1) 619,295 --------- -------- --------- ---------- $ 995,966 $272,535 $ 385,000 $1,653,501 ========= ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.............................. $ 87,671 $ 53,639 $ $ 141,310 Short-term borrowings and current portion of long-term debt............................. 20,275 20,275 Accrued liabilities........................... 68,714 25,000(1) 5,000(9) 98,714 --------- -------- --------- ---------- Total current liabilities............. 176,660 53,639 30,000 260,299 Long-term debt.................................. 282,021 298,548(3) 580,569 Other long-term liabilities..................... 52,127 1,763 53,890 Stockholders' equity............................ 485,158 217,133 (17,804)(2) (199,329)(1) 278,585(3) (5,000)(9) 758,743 --------- -------- --------- ---------- $ 995,966 $272,535 $ 385,000 $1,653,501 ========= ======== ========= ==========
See Notes to Pro Forma Financial Statements 71 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED MARCH 31, 1996
HISTORICAL PRO FORMA(10) ---------------------- ------------------------- NOWSCO BJ SERVICES NOWSCO ADJUSTMENTS COMBINED ----------- -------- ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue.......................................... $ 407,295 $182,183 $ $589,478 Operating Expenses: Cost of sales and services..................... 359,734 164,731 524,465 General and administrative..................... 16,722 7,998 24,720 Goodwill amortization.......................... 2,671 4,962(4) 7,633 Unusual charge................................. 3,349 3,349 ----------- -------- ----------- -------- Total operating expenses.................. 379,127 176,078 4,962 560,167 ----------- -------- ----------- -------- Operating income................................. 28,168 6,105 (4,962) 29,311 Interest expense................................. (11,095) (60) (9,600)(5) (20,755) Interest and other income........................ 1,665 853 2,518 ----------- -------- ----------- -------- Income before income taxes....................... 18,738 6,898 (14,562) 11,074 Income tax expense............................... 5,170 341 (1,287)(6) 4,224 ----------- -------- ----------- -------- Net income....................................... $ 13,568 $ 6,557 $ (13,275) $ 6,850 ======== ======== ========= ======== Weighted average shares outstanding.............. 28,560 8,500(3) 37,060 ======== ========= ======== Net income per share............................. $ .48 $ .18 ======== ========
See Notes to Pro Forma Financial Statements 72 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) TWELVE MONTHS ENDED SEPTEMBER 30, 1995
PRO FORMA(10) HISTORICAL ------------------------------------------ ---------------------- WESTERN NOWSCO BJ SERVICES NOWSCO ADJUSTMENTS ADJUSTMENTS COMBINED ----------- -------- ----------- ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue............................. $ 633,660 $339,269 $ 173,922(7) $ $1,146,851 Operating Expenses: Cost of sales and services........ 564,587 306,849 169,097(7) 1,040,533 General and administrative........ 28,318 16,133 5,033(7) 49,484 Goodwill amortization............. 3,266 2,157(7) 9,925(4) 15,348 Unusual charge.................... 17,200 481 (17,200)(8) 481 -------- -------- -------- -------- ---------- Total operating expenses..... 613,371 323,463 159,087 9,925 1,105,846 -------- -------- -------- -------- ---------- Operating income.................... 20,289 15,806 14,835 (9,925) 41,005 Interest expense.................... (15,164) (640) (8,499)(7) (20,500)(5) (44,803) Interest and other income........... 3,662 3,089 362(7) 7,113 -------- -------- -------- -------- ---------- Income before income taxes.......... 8,787 18,255 6,698 (30,425) 3,315 Income tax expense (benefit)........ (1,102) 2,007 3,099(6) (2,793)(6) 1,211 -------- -------- -------- -------- ---------- Net income.......................... $ 9,889 $ 16,248 3,599 $ (27,632) $ 2,104 ======== ======== ======== ======== ========== Weighted average shares outstanding....................... 21,376 6,550(7) 8,500(3) 36,426 ======== ======== ======== ========== Net income per share................ $ .46 $ .06 ======== ==========
See Notes to Pro Forma Financial Statements 73 NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) The pro forma financial statements reflect the purchase of 100% of the outstanding shares of Nowsco common stock at a price of Cdn $35.00, or $25.55 per share. In accordance with purchase accounting, the assets and liabilities of Nowsco will be recorded on BJ Services' books at estimated fair market value with the remaining purchase price reflected as goodwill. Valuation and other studies which will be used to determine the fair market value of Nowsco's assets and liabilities are not yet available. Accordingly, for purposes of these pro forma financial statements, the allocation of the purchase price has been made based on the historical book value of Nowsco. Such allocation of the purchase price is, therefore, preliminary and the final allocation may be substantially different. The following reflects management's estimates of the necessary adjustments to Nowsco's historical statement of financial position: BJ Services Consideration Paid: Cash to Nowsco stockholders..................................... $574,313 Transaction costs............................................... 7,000 -------- Total consideration............................................. 581,313 Less: Nowsco's stockholders' equity............................... 199,329(a) -------- Net adjustment.................................................. $381,984 ======== Allocation of Adjustment: Deferred tax asset.............................................. $ 10,000 Accrual for severance, facility closings and other nonrecurring costs associated with the acquisition........................ (25,000) Goodwill........................................................ 396,984 -------- $381,984 ========
- --------------- (a) Reflects material cash transactions of $(17,804) directly related and prior to the Nowsco Acquisition. See Note 2. (2) Reflects material cash transactions directly related and prior to the Nowsco Acquisition as follows: Exercise of stock options......................................... $ 17,996 Payment of Great Lakes termination and breakup fees............... (22,300) Payment of Nowsco advisory fees................................... (13,500) -------- $(17,804) ========
(3) Assumes approximately one-half of the acquisition price is financed through the issuance of 8,500,000 shares of Common Stock at a net price of $33.00 per share, and after using the available cash from Nowsco, the Company uses the New Bank Credit Facility to retire its borrowings under its previously existing bank credit facility and to finance the remaining portion of the cash consideration. The financing of the total consideration is summarized as follows: Cash from New Bank Credit Facility................................ $298,548 Cash and short-term investments................................... 4,180 Net proceeds from the Common Stock Offering....................... 278,585 -------- $581,313 ========
(4) Reflects amortization of the increase to goodwill over a 40-year period. (5) Reflects interest expense on the borrowings to finance the Nowsco Acquisition at an average assumed rate of 6.8% for the fiscal year and 6.3% for the six-month period. The effect of each .125% change in the assumed rate would change interest expense by $726 per annum. 74 NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) (6) Adjustment to reflect a 35% assumed tax rate for the acquired operations and the tax effect of the pro forma adjustments, with the exception of goodwill amortization. (7) Adjustments to reflect the pro forma results of the Western Acquisition for the first six months of the fiscal year, assuming that the Western Acquisition occurred on October 1, 1994. (8) Adjustments to eliminate the following nonrecurring charges incurred by BJ Services following and directly related to the Western Acquisition: Facility closings......................................................... $ 5,596 Change in control costs................................................... 5,381 Legal and other........................................................... 4,047 Severance costs........................................................... 2,176 ------- Total........................................................... $17,200 =======
(9) 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 Nowsco Acquisition. Writeoff of unamortized bank fees......................................... $2,000 Legal, accounting and other............................................... 3,000 ------- $5,000 =======
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. (10) The Company anticipates that the Common Stock Offering will be consummated by mid-July 1996 and that the net proceeds therefrom will be applied to repay certain indebtedness under the New Bank Credit Facility. Because the closing of the Common Stock Offering is subject to certain conditions, some of which are outside the control of the Company, the Company can make no assurance that the Common Stock Offering will be consummated. In the event that the Common Stock Offering is not consummated, the pro forma financial information presented herein would be materially different, including the changes summarized below (in millions, except per share amounts):
TWELVE MONTHS SIX MONTHS ENDED ENDED MARCH 31, 1996 SEPTEMBER 30, 1995 MARCH 31, 1996 -------------------- -------------------- -------------------- Short-term borrowings and current portion of long-term debt............ Increase of $278.6 Stockholders' equity........ Decrease of $278.6 Interest expense............ Increase of $ 23.1 Increase of $ 11.0 Net income (loss)........... Decrease of $ 15.0 Decrease of $ 7.2 Net income (loss) per share..................... Decrease of $ .52 Decrease of $ .19
75 (c) Exhibits 23.1 - Consent of KPMG Peat Marwick Thorne 23.2 - Consent of Deloitte & Touche LLP 76 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 thereunto duly authorized. BJ SERVICES COMPANY By: Matthew D. Fitzgerald ----------------------------------- Matthew D. Fitzgerald Controller Date: June 28, 1996 EX-23.1 2 CONSENT OF KPMG PEAT MARWICK THORNE 1 EXHIBIT 23.1 ACCOUNTANTS' CONSENT We 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 ("BJ Services") and in the Post-Effective Amendment on Form S-3 to BJ Services' Registration Statement on Form S-4 (No. 33-58017), BJ Services' Registration Statement on Form S-4 (No. 333-02287) and BJ Services' Registration Statement on Form S-3 (No. 333-02731) of our report dated February 8, 1996 relating to the consolidated balance sheets of Nowsco Well Service Ltd. and subsidiaries as of December 31, 1995, 1994 and 1993, and the related consolidated statements of operations, retained earnings, and changes in cash position for each of the years in the three-year period ended December 31, 1995, which report is included in this Current Report on Form 8-K of BJ Services. KPMG Peat Marwick Thorne - ------------------------------- KPMG Peat Marwick Thorne Calgary, Alberta June 26, 1996 EX-23.2 3 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We 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 ("BJ Services") in the Post-Effective Amendment on Form S-3 to BJ Services' Registration Statement on Form S-4 (No. 33-58017), in BJ Services' Registration Statement on Form S-4 (No. 333-02287) and in BJ Services' Registration Statement on Form S-3 (No. 333-02731) of our report dated November 21, 1995 (May 28, 1996 as to Note 15), appearing in this Current Report on Form 8-K of BJ Services. Deloitte & Touche LLP Houston, Texas June 28, 1996 -----END PRIVACY-ENHANCED MESSAGE-----