-----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, WZxghYHDFAeN9EQoM4d6PK40R4ycqN+70ORxgQ9xBkDX5j4AdEsS9Srh/NwNJMz2 bggv85/HjGNz6hYpyrHW4w== 0001047469-99-020685.txt : 19990517 0001047469-99-020685.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020685 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO CENTRAL INDEX KEY: 0000864328 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 630084140 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-58639 FILM NUMBER: 99624390 BUSINESS ADDRESS: STREET 1: 5500 NW CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 713-462-4239 MAIL ADDRESS: STREET 1: 5500 NORTHWEST CENTRAL DR STREET 2: 5500 NORTHWEST CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77092 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ___ to ___. COMMISSION FILE NUMBER 1-10570 BJ SERVICES COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 63-0084140 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 462-4239 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES __X__ NO___ There were 70,783,460 shares of the registrant's common stock, $.10 par value, outstanding as of May 12, 1999. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BJ SERVICES COMPANY INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statement of Operations (Unaudited) - Three and six months ended March 31, 1999 and 1998 3 Consolidated Condensed Statement of Financial Position - March 31, 1999 (Unaudited) and September 30, 1998 4 Consolidated Condensed Statement of Cash Flows (Unaudited) - Six months ended March 31, 1999 and 1998 5 Notes to Unaudited Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II - OTHER INFORMATION 18
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenue $ 269,601 $ 395,602 $ 564,036 $ 810,962 Operating expenses: Cost of sales and services 226,327 291,983 469,538 596,867 Research and engineering 6,036 8,044 12,628 15,583 Marketing 12,961 14,633 25,810 29,205 General and administrative 12,041 13,140 22,821 26,077 Goodwill amortization 3,382 3,513 6,764 7,040 Unusual charge 18,128 39,695 ----------- ----------- Total operating expenses 278,875 331,313 577,256 674,772 ----------- ----------- ----------- ----------- Operating income (loss) (9,274) 64,289 (13,220) 136,190 Interest expense (7,746) (6,545) (15,401) (12,362) Interest income 223 155 299 346 Other income (expense) - net (376) (277) (507) (766) ------------ ------------ ------------ ------------ Income (loss) before income taxes (17,173) 57,622 (28,829) 123,408 Income tax expense (benefit) (5,786) 19,016 (10,416) 40,725 ------------ ----------- ------------ ----------- Net income (loss) $ (11,387) $ 38,606 $ (18,413) $ 82,683 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- Earnings (loss) per share: Basic $ (.16) $ .51 $ (.26) $ 1.09 Diluted $ (.16) $ .47 $ (.26) $ .99 Weighted average shares outstanding: Basic 70,708 75,155 70,690 76,187 Diluted 72,986 82,178 72,819 83,641
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 3 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS)
MARCH 31, SEPTEMBER 30, 1999 1998 --------------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,100 $ 1,625 Receivables - net 257,981 300,140 Inventories: Finished goods 70,545 78,459 Work in process 2,718 2,574 Raw materials 29,316 30,153 ------------- ------------- Total inventories 102,579 111,186 Deferred income taxes 12,740 12,767 Other current assets 32,405 26,078 ------------- ------------- Total current assets 406,805 451,796 Property - net 613,579 602,028 Deferred income taxes 186,916 171,164 Goodwill - net 496,485 503,259 Other assets 16,096 15,454 ------------- ------------- $ 1,719,881 $ 1,743,701 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 107,681 $ 140,726 Short-term borrowings and current portion of long-term debt 198,054 224,806 Accrued employee compensation and benefits 33,005 41,686 Income and other taxes 26,080 26,113 Accrued insurance 12,807 12,303 Other accrued liabilities 62,091 67,491 ------------- ------------- Total current liabilities 439,718 513,125 Long-term debt 311,825 241,869 Deferred income taxes 8,376 9,021 Other long-term liabilities 79,439 79,622 Stockholders' equity 880,523 900,064 ------------- ------------- $ 1,719,881 $ 1,743,701 ------------- ------------- ------------- -------------
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 4 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED MARCH 31, 1999 1998 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (18,413) $ 82,683 Adjustments to reconcile net income to cash provided by operating activities: Amortization of unearned compensation 180 5,550 Depreciation and amortization 48,194 45,072 Deferred income taxes (benefit) (20,323) 23,656 Unusual charge (non cash) 23,051 Changes in: Receivables 42,159 6,631 Inventories 6,897 (1,669) Accounts payable (33,045) (21,995) Other current assets and liabilities (17,623) (3,120) Other - net (6,564) 4,700 -------------- ------------- Net cash provided by operating activities 24,513 141,508 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (72,631) (68,147) Proceeds from disposal of assets 2,197 4,030 ------------- ------------- Net cash used for investing activities (70,434) (64,117) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) borrowings - net 43,204 (7,323) Purchase of treasury stock (76,819) Proceeds from issuance of stock 2,192 5,301 ------------- ------------- Net cash provided by (used for) financing activities 45,396 (78,841) Decrease in cash and cash equivalents (525) (1,450) Cash and cash equivalents at beginning of period 1,625 3,900 ------------- ------------- Cash and cash equivalents at end of period $ 1,100 $ 2,450 ------------- ------------- ------------- -------------
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 5 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1. GENERAL In the opinion of management, the unaudited consolidated condensed financial statements for BJ Services Company (the "Company") include all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial position as of March 31, 1999, the results of operations for each of the three-month and six-month periods ended March 31, 1999 and 1998 and cash flows for each of the six-month periods ended March 31, 1999 and 1998. The consolidated condensed statement of financial position at September 30, 1998 is derived from the September 30, 1998 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, 1999 are not necessarily indicative of the results to be expected for the full year. Certain amounts for fiscal 1998 have been reclassified to conform to the current year presentation. NOTE 2. EARNINGS PER SHARE Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common stock for each of the periods presented. At the annual meeting of stockholders on January 22, 1998, the Company's stockholders approved an amendment to the Company's charter increasing the number of authorized shares of common stock from 80 million to 160 million shares. A two for one stock split approved by the Board of Directors on December 11, 1997 (effected in the form of a stock dividend) was distributed on February 20, 1998 to stockholders of record as of January 30, 1998. Accordingly, all references in the financial statements to number of shares outstanding and earnings per share amounts have been retroactively restated for all periods presented to reflect the increased number of common shares outstanding resulting from the stock split. 6 The following table presents information necessary to calculate earnings per share for the periods presented (in thousands except earnings per share):
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net income (loss) $ (11,387) $ 38,606 $ (18,413) $ 82,683 Weighted-average common shares outstanding 70,708 75,155 70,690 76,187 ----------- ----------- ----------- ----------- Basic earnings (loss) per share $ (.16) $ .51 $ (.26) $ 1.09 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted-average common and dilutive potential common shares outstanding: Weighted-average common shares outstanding 70,708 75,155 70,690 76,187 Assumed exercise of stock options 1,210 1,772 1,172 1,859 Assumed exercise of warrants 1,068 5,251 957 5,595 ----------- ----------- ----------- ----------- 72,986 82,178 72,819 83,641 ----------- ----------- ----------- ----------- Diluted earnings (loss) per share $ (.16) $ .47 $ (.26)(1) $ .99 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(1) Antidilutive NOTE 3. UNUSUAL CHARGE During the six-months ended March 31, 1999, the Company recorded a pretax unusual charge of $39.7 million ($26.0 million after tax, or $.36 per diluted share) to reflect changes in its operations as a result of the downturn in oilfield drilling activity. The components of the unusual charge are as follows (in thousands):
Balance at 1999 Incurred March 31, Provision to Date 1999 ------------- ------------ ------------- Asset impairments (non cash) $ 23,051 $ (23,051) Severance and related benefits 12,798 (7,820) $ 4,978 Facility closures and other 3,845 (3,310) 535 ------------- ------------ ------------- $ 39,694 $ (34,181) $ 5,513 ------------- ------------ ------------- ------------- ------------ -------------
7 The asset impairment of $23.1 million primarily relates to certain equipment previously utilized in the Company's U.S. operations which will be sold or decommissioned and salvaged for spare parts. The severance and related benefits relate to the cost of the involuntary termination of approximately 1,100 employees worldwide. The Company expects to pay all remaining severance benefits by the end of the third fiscal quarter of 1999. The facility closures and other costs primarily represent remaining lease obligations related to the closure of several locations in the oil producing regions of the U.S. and also one location in Latin America, and costs incurred during the first six months of fiscal 1999 for the relocation of equipment and personnel resulting from the closing of these facilities. NOTE 4. NEW ACCOUNTING STANDARDS Effective October 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income," which established standards for the reporting and displaying of comprehensive income and its components. The components of comprehensive net income (loss), net of tax, are as follows:
Three Months Ended Six Months Ended March 31, March 31, 1999 1998 1999 1998 -------------- ----------- ------------ -------- Net income (loss) attributable to common stockholders $ (11,387) $ 38,606 $ (18,413) $ 82,683 Change in cumulative translation adjustment (5,411) (914) (3,500) 3,903 ------------- ------------ ------------ ----------- Comprehensive net income (loss) $ (16,798) $ 37,692 $ (21,913) $ 86,586 ------------- ------------ ------------ ----------- ------------- ------------ ------------ -----------
Also on October 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), and Statement No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. SFAS 132 standardizes the disclosures for employers' pension and other postretirement benefit plans to the extent possible, and it requires additional information about changes in the benefit obligations and the fair value of plan assets. Both of these statements require additional information to be disclosed in the 1999 Annual Report of Form 10-K and therefore their adoption had no impact on this quarterly report. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments 8 embedded in other contracts and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999 and therefore had no effect on the Company's first or second quarter 1999 financial statements. Management is currently evaluating what, if any, additional adjustment or disclosure may be required when this statement is adopted in fiscal 2000. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's operations are primarily driven by the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. Drilling activity, in turn, is largely dependent on the price of oil and natural gas. This situation often leads to volatility in the Company's revenues and profitability, especially in the United States and Canada, where the Company expects to generate over 50% of its revenues during fiscal 1999. This volatility has been particularly evident during the last twelve months when, as a result of low oil prices (falling below $11 per barrel in December 1998), the industry has recently experienced the lowest worldwide oilfield drilling activity levels in the last 50 years. Due to "aging" oilfields and lower-cost sources of oil internationally, drilling activity in the United States has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986, 1992 and again in early 1999. While U.S. drilling activity temporarily rebounded during 1997, exceeding 1,000 active rigs for the first time since 1991, it has since retracted due to weak oil prices. During the first six months of fiscal 1999, the active U.S. rig count averaged 621 rigs, a 37% decline from the same period in the previous year. Most of the decline occurred in rigs drilling for oil, down 59% during the period. With the exception of Canada, international drilling activity has historically been less volatile than domestic drilling activity. Active international drilling rigs (including Canada) averaged 897 rigs during the first six months of fiscal 1999, a decrease of 29% from the same period of fiscal 1998, due primarily to decreased activity in Canada, Latin America and in Europe. The Canadian average rig count, at 246 average active rigs for the first half of fiscal 1999, was down 46% from the same year earlier period. As with the U.S., most of the activity decline occurred in rigs drilling for oil. Management does not expect a meaningful increase in worldwide oil drilling activity until oil prices recover to at least $16 - 18 per barrel for a sustained period of time. 10 RESULTS OF OPERATIONS The following table sets forth selected key operating statistics reflecting industry rig count and the Company's financial results:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 1999 1998 1999 1998 ------------- -------------- ------------- ------------- Rig Count: (1) U.S. 552 966 621 982 International 910 1,271 897 1,265 Revenue per rig (in thousands) $184.4 $176.8 $371.8 $360.9 Revenue per employee (in thousands) $ 36.6 $ 44.1 $ 73.4 $ 91.6 Percentage of gross profit to revenue (2) 16.1% 26.2% 16.8% 26.4% Percentage of research and engineering expense to revenue 2.2% 2.0% 2.2% 1.9% Percentage of marketing expense to revenue 4.8% 3.7% 4.6% 3.6% Percentage of general and administrative expense to revenue 4.5% 3.3% 4.0% 3.2%
- -------- (1) Industry estimate of average active rigs. (2) Gross profit represents revenue less cost of sales and services. REVENUE: The Company's revenue decreased by 32% and 30%, respectively, compared with the same three and six-month periods of the previous year due primarily to the contraction in worldwide drilling activity. Worldwide drilling and workover activity levels have recently reached near record low levels due primarily to the decline in oil prices. UNITED STATES/MEXICO PRESSURE PUMPING REVENUE The Company's U.S./Mexico pressure pumping revenue declined 46% compared to the prior year's second fiscal quarter due to weakness in drilling and workover activity. The U.S. active rig count declined by 43% compared to the prior year's second fiscal quarter and the workover rig count declined by 45%. The greatest impact was felt in the primarily oil producing regions of Texas and Oklahoma, each of which experienced year over year revenue declines in excess of 50%. Revenues from oil related drilling operations declined by 71%, while natural gas related revenues declined by 41% compared to the prior year's second fiscal quarter. In addition to the revenue declines due to lower activity, pricing for the Company's services in the U.S. declined by approximately 13%. For the six-month period ended March 31, 1999, U.S./Mexico pressure pumping revenue decreased 44% from the comparable period of fiscal 1998. To address the downturn in activity, the Company has been consolidating its U.S. operations, resulting in 11 approximately 800 layoffs and the closure of several locations in oil producing regions. Additionally, idle equipment has been removed from U.S. operations to a central location. A portion of this equipment, for which the Company has recorded a writedown of $15.4 million, will be sold or salvaged for spare parts. The remainder will be redistributed to other operating locations as the need arises. INTERNATIONAL PRESSURE PUMPING REVENUE The Company's international pressure pumping revenue declined by 23% compared to the prior year's second fiscal quarter. The majority of the decline occurred in Canada, where quarterly revenue decreased 37% due to the severe decline in oil drilling activity. Outside North America, international revenue declined by only 17%, despite a 24% decline in active rigs. Each of the Company's international regions showed revenue decreases from the same quarter of the previous fiscal year, with the most significant impact felt in Latin America. Latin American revenues declined by 22% due primarily to a further contraction of activity by customers in Argentina, Ecuador and Venezuela. For the six months ended March 31, 1999, the Company's international pressure pumping revenue declined by 21% from the same period of the previous fiscal year. The greatest decreases on a regional basis were felt in Canada, Latin America and the Middle East, which had year over year revenue decreases of 44%, 19%, and 22%, respectively. Other Revenue Revenues during the three and six-month periods for each of the Company's other service lines, which primarily consist of specialty chemicals, tubular services and process and pipeline services, in total were down 5% and 2%, respectively, from the same periods of the prior year. Activity declines were mostly offset by expansions into new markets and a greater concentration of revenues from downstream activities, which are not as greatly impacted by the decline in drilling activity. OPERATING INCOME: For the quarter ended March 31, 1999, the Company recognized an operating loss of $9.3 million compared to operating income in the second fiscal quarter of fiscal 1998 of $64.3 million. For the six months ended March 31, 1999, the Company recognized an operating loss of $13.2 million compared to operating income in the first half of fiscal 1998 of $136.2 million. The current year to date loss was primarily a result of the Company recording a pretax unusual charge of $39.7 million ($.36 per diluted share after-tax), comprised of $12.8 million of severance costs, $23.1 million of asset writedowns and $3.8 million of other costs associated with the downturn in the oilfield services industry. Operating income margins for the quarter ended March 31, 1999, exclusive of goodwill amortization and unusual charges, declined to 4.5% from 17.1% in the prior year's second fiscal quarter. For the six months ended March 31, 1999, the Company's operating income margins, exclusive of goodwill amortization and unusual charges, declined to 5.9% from 17.7% for the same period of fiscal 1998. The margin declines are primarily a result of the decline in North American drilling and workover activity, and lower pricing. Research and engineering, marketing and general and administrative expenses 12 decreased by $4.8 million and $9.6 million compared with the prior year's second quarter and six-month periods, respectively, due to the implementation of several phases of cost reduction measures beginning in July 1998. Further reductions in operating expenses are expected to be realized in the third fiscal quarter as a result of additional cost reduction programs implemented during April 1999. OTHER: Interest expense increased by $1.2 million and $3.0 million compared with the same three and six month periods of the previous year due primarily to additional borrowings to finance the Company's stock repurchase program implemented in December 1997. The Company has repurchased the equivalent of 6.9 million shares totaling $197 million under this program. The Company's effective tax rate for both the quarter and six-month period, excluding unusual charges, was reduced from 33% to 30% primarily as a result of lower North American profitability which is taxed at a higher effective rate than the Company's average international rate. CAPITAL RESOURCES AND LIQUIDITY Net cash provided from operating activities for the six months ended March 31, 1999 decreased by $117.0 million from the prior year's figure due primarily to reduced profitability, which was only partially offset by the liquidation of working capital balances. Despite the slowdown in activity, management expects to continue to generate positive cash flows from operating activities during the remainder of the fiscal year. Net cash used for investing activities for the six months was $70.4 million, an increase of $6.3 million compared to the same period of the previous year due to increased capital spending. The current year's spending relates primarily to upgrades to the Company's U.S. fracturing fleet, which was already in process before the beginning of the fiscal year. Despite the increased spending through the first six months, capital expenditures for fiscal 1999 are expected to be significantly below 1998 levels due to the curtailment of spending as a result of the slowdown in worldwide drilling activity levels. The actual amount of 1999 capital expenditures, which are currently estimated at $100 - 110 million (excluding acquisitions), will be primarily dependent upon the level of maintenance capital expenditures during the second half of fiscal 1999 and the availability of expansion opportunities and are expected to be funded by cash flows from operating activities and available credit facilities. Management believes cash flows from operating activities and available lines of credit, if necessary, will be sufficient to fund projected capital expenditures. Cash flows from financing activities for the six months ended March 31, 1999 was $45.4 million compared to a usage of cash for financing activities in the year earlier period of $78.8 million. Due to reduced profitability and the resulting reduction in cash flows from operating activities, the Company has not repurchased any of its common stock during this fiscal year. During the same period of the previous year, the Company had used $76.8 million to purchase its common stock under a stock repurchase program approved by the Company's Board of Directors in December 1997. 13 Management strives to maintain low cash balances while utilizing available credit facilities to meet the Company's capital needs. Any excess cash generated has historically been used to pay down outstanding borrowings or fund the Company's stock repurchase program. The Company has a committed, unsecured bank credit facility (the "Bank Credit Facility") which consists of a six-year term loan of approximately $147.8 million (currently drawn partially in Canadian dollars under a provision which is renewed annually at the option of the banks), which is repayable in 22 quarterly installments that began in March 1997, and a five year U.S. $225.0 million revolving facility available through June 2001. At March 31, 1999, borrowings outstanding under the Bank Credit Facility totaled $230.5 million, consisting of $140.5 million under the term loan and $90.0 million of borrowings under the revolver. Principal reductions of term loans under the Bank Credit Facility are due in aggregate annual installments of $21.6 million; $43.2 million; $43.2 million and $32.5 million in the years ending September 30, 1999, 2000, 2001 and 2002, respectively. In addition to the committed facility, the Company had $250.2 million in various unsecured, discretionary lines of credit at March 31, 1999, which expire at various dates in 1999. 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 March 31, 1999, there was $154.9 million in outstanding borrowings under these lines of credit. The Company has issued and outstanding $125.0 million of unsecured 7% Notes due 2006. The net proceeds from the issuance of the 7% notes ($123.3 million) in August 1996 were used by the Company to repay indebtedness outstanding under the term loan portion of the Company's then existing bank credit facility. The Company's interest-bearing debt increased to 36.7% of its total capitalization at March 31, 1999, compared to 34.1% at September 30, 1998, due to borrowings to fund the Company's increased capital spending. The Bank Credit Facility includes various customary covenants and other provisions including the maintenance of certain profitability and solvency ratios and restrictions on dividend payments under certain circumstances, none of which materially restrict the Company's activities. Management believes that the Bank Credit Facility, combined with other discretionary credit facilities and cash flow from operations, provides the Company with sufficient capital resources and liquidity to manage its routine operations, meet debt service obligations and fund projected capital expenditures. YEAR 2000 COMPLIANCE Historically, many computer programs have been written using two digits rather than four to define the applicable year. This programming practice could result in certain computerized applications failing to properly recognize a year that begins with "20" instead of "19." This, in turn, could result in major system failures or miscalculations, and is generally referred to as the "Year 2000 issue." 14 In July 1997, the Company established a formal program to assess the global impact of Year 2000 issues. The Company's own internal systems are the primary area of focus under this program. Such systems include, but are not limited to, data processing and financial reporting software applications, computerized job monitoring hardware and software used at the wellsite and in the Company's labs, embedded control systems and telecommunications and other support equipment. In addition, the program addresses the Company's reliance on third party suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 issues. The Company's Year 2000 program is comprised of four primary phases: (i) inventory of all existing equipment and systems; (ii) assessment of equipment and systems to identify those which are not Year 2000 ready and to prioritize critical systems and equipment; (iii) remediation or replacement of non-Year 2000 ready equipment and systems; (iv) testing and certification of Year 2000 readiness. The Company completed the worldwide inventory of its systems and equipment in September 1997. The Company has also completed the assessment phase (which included testing of any systems deemed to be already Year 2000 compliant) and developed plans for remediation or replacement of all non-compliant systems that are critical to its operations. The Company expects to have remediated those systems and equipment that are critical to its operations by no later than the end of October 1999. The remainder of 1999 will be focused on testing and certification of new and modified programs. Certain non-critical systems may not be addressed until after January 2000; however, the Company believes such systems will not disrupt the Company's operations in a material way. The Company has contacted all of its critical external suppliers of goods and services to assess their compliance efforts and the Company's exposure in the event of a failure of third party compliance efforts. The Company is in the process of reviewing and validating the responses from the suppliers of those products and services and in some cases is seeking additional information or certification. In situations where these suppliers are not compliant or do not respond, the Company is planning to develop contingency plans, including utilizing alternative suppliers. The comprehensive plan designed to achieve an uninterrupted transition into the Year 2000 is expected to cost the Company approximately $1.8 million. In addition, the program has resulted in the acceleration of approximately $1.4million in hardware and software expenditures to replace non-compliant systems. All expenditures related to the Year 2000 initiative are expected to be funded by cash flows from operations and are not expected to materially impact the results of operations. The cost of the project and the dates on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates. There can be no assurances that these estimates will be achieved, and actual results could differ from what is currently anticipated. Failure to address Year 2000 issues, including those critical internal systems, infrastructure and third party suppliers mentioned above, could result in business disruption that could materially affect the Company's operations. In an effort to minimize business interruptions, the Company is in the process of developing contingency plans in the event that circumstances prevent the Company or any of its third party suppliers from meeting any portion of their Year 2000 program 15 schedules. These contingency plans are expected to be completed and in place by the end of September 1999. FORWARD LOOKING STATEMENTS This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 concerning, among other things, the Company's prospects, expected revenues, expenses and profits, developments and business strategies for its operations and Year 2000 readiness, all of which are subject to certain risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "expect," "estimate," "project," "believe," and similar terms and phrases. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Such statements are subject to general economic and business conditions, conditions in the oil and natural gas industry, the business opportunities that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond the control of the Company. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The table below provides information about the Company's market sensitive financial instruments and constitutes a "forward-looking statement." The Company's major market risk exposure is changing interest rates, primarily in the United States and Canada. The Company's policy is to manage interest rates through use of a combination of fixed and floating rate debt. A portion of the Company's borrowings are denominated in foreign currencies which exposes the Company to market risk associated with exchange rate movements. When necessary, the Company enters into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. There were no foreign exchange contracts outstanding at March 31, 1999. All items described are non-trading and are stated in U.S. dollars (in thousands).
EXPECTED MATURITY DATES FAIR VALUE 1999 2000 2001 2002 THEREAFTER TOTAL MARCH 31, 1999 -------- -------- -------- -------- ---------- ---------- ---------------- SHORT TERM BORROWINGS Bank borrowings; US$ denominated $ 38,587 $ 38,587 $ 38,587 Average variable interest rate - 5.91% at March 31, 1999 Bank borrowings; Canadian $ denominated $115,166 $115,166 $115,166 Average variable interest rate - 5.95% at March 31, 1999 Bank borrowings; Deutsche mark denominated $ 1,117 $ 1,117 $ 1,117 Average variable interest rate - 3.31% at March 31, 1999 LONG TERM BORROWINGS Current term loan; US$ denominated $ 5,634 5,634 $ 11,268 $11,268 Variable interest rate - 5.50% at March 31, 1999 Current term loan; Canadian $ $ 15,965 15,965 $ 31,930 $31,930 denominated Variable interest rate - 5.62% at March 31, 1999 Non-current bank borrowings: US$ $90,000 $ 90,000 $90,000 Denominated Variable interest rate - 5.44% at March 31, 1999 Non-current term loan; US$ denominated $ 5,635 11,267 8,588 $ 25,490 $25,490 Variable interest rate - 5.50% at March 31, 1999 Non-current term loan; Canadian $ $15,965 31,930 23,947 $ 71,842 $71,842 denominated Variable interest rate - 5.62% at March 31, 1999 7% Series B Notes - US$ denominated $124,479 $124,479 $ 125,426 Fixed interest rate - 7%
17 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Stockholders on January 28, 1999 in Houston, Texas. All nominated directors were elected, and the adoption of the BJ Services Company 1999 Employee Stock Purchase Plan was approved. (i) Directors elected at the Annual Meeting:
Votes in Votes Favor Withheld ------------------ ----------------- CLASS III DIRECTORS L. William Heiligbrodt 62,302,391 413,574 James L. Payne 62,165,750 550,125 J. W. Stewart 62,308,262 407,703 CLASS II DIRECTORS James E. McCormick 62,284,870 431,095
Directors with terms of office continuing after the Annual Meeting: CLASS I DIRECTORS John R. Huff R. A. LeBlanc Michael E. Patrick 18 CLASS II DIRECTORS Don D. Jordan Michael McShane
Votes in Votes (ii) Favor Withheld ---------- ---------- Adoption of the BJ Services Company 1999 Employee Stock Plan 61,549,389 1,166,576
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS. 27.1 Financial Data Schedule (b) REPORTS ON FORM 8-K. None 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BJ Services Company (Registrant) Date: May 14, 1999 BY \s\ Margaret Barrett Shannon ------------------------------------------------ Margaret Barrett Shannon Vice President and General Counsel Date: May 14, 1999 BY \s\ Matthew D. Fitzgerald ------------------------------------------------ Matthew D. Fitzgerald Vice President, Controller and Chief Accounting Officer 20 EX-27 2 EXHIBIT 27
5 1,000 6-MOS SEP-30-1999 OCT-01-1998 MAR-31-1999 1,100 0 257,981 9,990 102,579 406,805 1,089,140 475,561 1,719,881 439,718 0 0 0 7,638 872,885 1,719,881 564,036 564,036 469,538 469,538 107,718 911 15,401 (28,829) (10,416) (18,413) 0 0 0 (18,413) (.26) (.26)
-----END PRIVACY-ENHANCED MESSAGE-----