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File Pursuant to Rule 424(b)(3)
Registration No. 333-02287
PROSPECTUS
BJ SERVICES COMPANY
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF 7% SERIES B NOTES DUE 2006
FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING
7% SERIES A NOTES DUE 2006
($125,000,000 IN PRINCIPAL AMOUNT OUTSTANDING)
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON AUGUST 2, 1996, UNLESS EXTENDED
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BJ Services Company, a Delaware corporation (as used below, the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal, to exchange $1,000
principal amount of its 7% Series B Notes due 2006 (the "Exchange Notes"), in a
transaction registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for each $1,000 principal amount of
the outstanding 7% Series A Notes due 2006 (the "Existing Notes"), of which
$125,000,000 aggregate principal amount is outstanding (the "Exchange Offer").
The Exchange Notes and the Existing Notes are sometimes referred to herein
collectively as the "Notes."
The Company will accept for exchange any and all Existing Notes that are
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the date the Exchange Offer expires, which will be August 2, 1996 unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Existing Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Existing Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions that may be waived by the
Company and to the terms and provisions of the Registration Rights Agreement (as
defined herein). See "The Exchange Offer." Existing Notes may be tendered only
in denominations of $1,000 and integral multiples thereof. The Company has
agreed to pay the expenses of the Exchange Offer.
The Exchange Notes will be obligations of the Company entitled to the
benefits of the indenture relating to the Notes (the "Indenture"). The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Existing Notes except that (i) the Exchange Notes will be
issued in a transaction registered under the Securities Act and (ii) holders of
Exchange Notes will not be entitled to certain rights of holders under the
Registration Rights Agreement. The holders of Existing Notes will continue to be
subject to the existing restrictions on transfer thereof and, as a general
matter, the Company will not have any further obligation to such holders to
provide for registration under the Securities Act of the Existing Notes held by
them. To the extent that Existing Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered and tendered but
unaccepted Existing Notes could be adversely affected. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer."
The Existing Notes were sold by the Company on February 20, 1996, to
Merrill Lynch & Co., CS First Boston Corporation, BA Securities, Inc. and Chase
Securities, Inc. (the "Initial Purchasers") in transactions not registered under
the Securities Act in reliance upon the exemption provided in Section 4(2) of
the Securities Act. The Initial Purchasers placed the Existing Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. Accordingly, the Existing Notes may not be reoffered, resold or otherwise
transferred in the United States unless such transaction is registered under the
Securities Act or an applicable exemption from the registration requirements of
the Securities Act is available. The Exchange Notes are being offered hereby in
order to satisfy the obligations of the Company under the Registration Rights
Agreement. (continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JULY 3, 1996.
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The Exchange Notes will bear interest from August 1, 1996, the most recent
date on which interest will have been paid on the Existing Notes surrendered in
exchange for the Exchange Notes. Accordingly, holders of Existing Notes that are
accepted for exchange will not receive interest that is accrued but unpaid on
such Existing Notes at the time of tender. The Notes mature on February 1, 2006
and are not redeemable prior to maturity.
Existing Notes were initially represented by a single, global Existing Note
(the "Existing Global Note") in registered form, registered in the name of Cede
& Co., as nominee for The Depository Trust Company ("DTC" or the "Depositary"),
as depositary. The Exchange Notes exchanged for Existing Notes represented by
the Existing Global Note will be initially represented by a single, global
Exchange Note (the "Exchange Global Note") in registered form, registered in the
name of the Depositary. See "Description of the Notes -- Book-Entry, Delivery
and Form." Subject to certain conditions, any person having a beneficial
interest in the Exchange Global Note may, upon request to the Trustee (as
defined herein), exchange such interest for Exchange Notes in definitive form,
in denominations of $1,000 and integral multiples thereof. See "Description of
the Notes -- Certificated Securities."
The Existing Notes are, and the Exchange Notes will be, senior unsecured
obligations of the Company ranking pari passu in right of payment with the
Company's Funded Indebtedness (as defined in the Indenture) under its bank
credit facility and its 9.2% Notes Due August 1, 1998 and senior in right of
payment to all future indebtedness of the Company that is, by its terms,
expressly subordinated to the Notes. The Company's obligations under the Notes
are fully and unconditionally guaranteed by certain of its wholly owned
subsidiaries so that the Notes will not be structurally subordinated to the
Company's Funded Indebtedness under its bank credit facility or any other Funded
Indebtedness of the Company that is guaranteed, from time to time, by
subsidiaries of the Company. The Company has no secured indebtedness as of the
date of this Prospectus. The Indenture provides for the release and addition of
subsidiaries of the Company as Guarantors. The guarantee of the Notes by any
subsidiary may be released if, but only so long as, no other Funded Indebtedness
of the Company is guaranteed by such subsidiary. See "Capitalization" and
"Description of the Notes -- Ranking and Guarantees." The indenture relating to
the Notes contains covenants that limit the Company's ability to incur
indebtedness secured by certain liens and to engage in certain sale/leaseback
transactions.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission"), Exchange Notes issued
pursuant to the Exchange Offer in exchange for Existing Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Existing Notes directly from the Company for
resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" (within the meaning of
Rule 405 of the Securities Act) of the Company or any Guarantor (as hereinafter
defined)), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring the
Exchange Notes in its ordinary course of business and is not participating, and
has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. Holders of Existing Notes wishing to accept
the Exchange Offer must represent to the Company that such conditions have been
met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Existing Notes where
such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the consummation of the Exchange Offer, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
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Prior to the Exchange Offer, there has been no public market for the
Existing Notes or the Exchange Notes. The Exchange Notes have been approved for
listing on the New York Stock Exchange ("NYSE"), subject to notice of issuance.
There can be no assurance that an active market for the Exchange Notes will
develop. To the extent that a market for the Exchange Notes does develop, future
trading prices of the Exchange Notes will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities and other factors, including
the financial condition of the Company.
Although the Initial Purchasers have informed the Company that, following
completion of the Exchange Offer, they each currently intend to make a market in
the Exchange Notes, they are not obligated to do so and any market-making
activities with respect to the Exchange Notes may be discontinued at any time
without notice. The Company will not receive any proceeds from the Exchange
Offer. No dealer-manager is being used in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
Until October 1, 1996 (90 days after commencement of this offering), all
dealers effecting transactions in the Exchange Notes, whether or not
participating in the Exchange Offer, may be required to deliver a Prospectus.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission and to which reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act") and, in accordance therewith, files reports,
proxy statements and other information with the Commission. All such information
and items or information omitted from this Prospectus but contained or
incorporated by reference in the Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following Regional Offices of the Commission: Chicago Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and New York Regional
Office, 7 World Trade Center, New York, New York 10048, or may be obtained on
the Internet from the Commission's Web Site at http://www.sec.gov. Copies of
such material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and such information may also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company's common stock, par value $.10 per share, including the associated
preferred share purchase rights (the "Common Stock"), warrants to purchase
Common Stock and 12 7/8% Senior Notes due 2002 are listed for trading on the
NYSE, and the Exchange Notes have been approved for listing on the NYSE, subject
to notice of issuance.
Note: Management does not believe that separate financial statements of the
Guarantors are material to investors in the Notes, and therefore such financial
statements have not been provided.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents (File
No. 1-10570):
(a) Annual Report on Form 10-K for the fiscal year ended September 30,
1995;
(b) Quarterly Reports on Form 10-Q for the quarterly periods ended
December 31, 1995 and March 31, 1996;
(c) Current Report on Form 8-K filed April 28, 1995, as amended by
Form 8-K/A filed May 31, 1995 and Form 8-K/A filed May 30, 1996; Current
Report on Form 8-K filed February 6, 1996, as amended by Form 8-K/A filed
May 23, 1996; and Current Reports on Form 8-K filed April 16, 1996 and June
28, 1996;
(d) The sections of the Company's Proxy Statement for the January 25,
1996 Annual Meeting of Stockholders entitled "Voting Securities," "Election
of Directors," "Executive Compensation -- Summary Compensation Table,"
"-- Option/SAR Grants in Last Fiscal Year," "-- Aggregated Option/SAR
Exercises in Last Fiscal Year and FY-End Option/SAR Values," "-- Long-Term
Incentive Plans -- Awards in Last Fiscal Year" and "Severance Agreements";
(e) The Annual Report of Nowsco Well Service Ltd. on Form 20-F for the
fiscal year ended December 31, 1995, and the quarterly report of Nowsco
Well Service Ltd. on Form 6-K for the quarterly period ended March 31,
1996; and
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(f) All other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
and prior to termination of the offering made hereby.
Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document,
copies of which are available from the Company as described below, each such
statement being qualified in all respects by such reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM BJ
SERVICES COMPANY, 5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092, ATTENTION:
CORPORATE COMMUNICATIONS MANAGER, TELEPHONE NUMBER (713) 462-4239. IN ORDER TO
PROVIDE FOR TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY
12, 1996. The Company undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference herein, other than the exhibits to such documents, unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates. Written or oral requests for such copies should be
directed to the address set forth above.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and does not purport to be complete. Reference is made to, and
this Summary is qualified in its entirety by and should be read in conjunction
with, the more detailed information contained elsewhere herein or incorporated
by reference in this Prospectus. Unless otherwise defined herein, capitalized
terms used in this Summary have the respective meanings ascribed to them
elsewhere in this Prospectus or in the indenture with respect to the Notes (the
"Indenture"). References in this Prospectus to "BJ Services" and the "Company,"
unless the context requires otherwise, are to BJ Services Company and its
subsidiaries, which include former subsidiaries of The Western Company of North
America ("Western") following the acquisition of Western by BJ Services on April
13, 1995 (the "Western Acquisition"). In references to the issuer of the Notes,
the "Company" means BJ Services Company. Financial and other information
included in this Prospectus includes the Western operations since April 1, 1995.
Currency is expressed as U.S. dollars ("$") or Canadian dollars ("Cdn$").
THE COMPANY
BJ Services is a leading provider of pressure pumping and other oilfield
services for the petroleum industry worldwide. Pressure pumping services offered
by BJ Services consist of well stimulation, cementing, sand control and coiled
tubing services used in the completion of new oil and natural gas wells and in
remedial work on existing wells, both onshore and offshore. These services are
provided through domestic and international locations to customers in most of
the major oil and natural gas producing regions of the United States, Latin
America, Europe, Asia, Africa and the Middle East. The Company believes that it
is the third largest provider of pressure pumping services worldwide, with a
particularly strong presence in the Alaskan North Slope, the Gulf of Mexico,
Canada (through the Nowsco Acquisition (as hereinafter defined)), the North Sea,
Indonesia and most of Latin America. The Company also believes that it is one of
the largest suppliers of casing and tubular services in the U.K. North Sea and
is continuing to expand these services in Latin America, the Middle East and
Southeast Asia. The Company provides commissioning and leak detection services
to offshore platforms and pipelines and also provides specialty chemical
services to the oil, gas, refining and petrochemical industries in the United
States.
On April 13, 1995, the Company completed the Western Acquisition for a
total purchase price of $511.4 million (including transaction costs of $7.2
million), consisting of 12.0 million shares of Common Stock, cash of $247.9
million from borrowings under the Company's then existing bank credit facility
and warrants (the "Warrants") to purchase 4.8 million shares of Common Stock at
an exercise price of $30.00 per share, exercisable until the close of business
on April 13, 2000. The Western Acquisition has provided the Company with a
greater critical mass with which to compete in both domestic and international
markets and permitted it to realize significant consolidation benefits. The
Western Acquisition increased the Company's existing total revenue base by
approximately 75% and more than doubled the Company's domestic revenue base
while eliminating approximately $40 million in annual overhead and redundant
operating costs by combining the two companies.
The Company's principal executive offices are located at 5500 Northwest
Central Drive, Houston, Texas 77092, and its telephone number is (713) 462-4239.
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RECENT DEVELOPMENTS
On April 12, 1996, the Company announced a tender offer (the "Nowsco Tender
Offer") to acquire all of the outstanding common shares (the "Nowsco
Acquisition") 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. The Company consummated the Nowsco Acquisition
during June 1996. 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.
The total purchase price for the Nowsco Acquisition (including estimated
transaction costs of $7.0 million) is estimated to be $581.3 million (Cdn $796.3
million). In connection with the financing of the Nowsco Acquisition, the
Company has entered into a committed, unsecured bank credit facility (the "New
Bank Credit Facility") with Bank of America National Trust and Savings
Association ("Bank of America") and Bank of America Canada, as agents. A portion
of the borrowings under the New Bank Credit Facility is being used to fund the
Nowsco Acquisition. The New Bank Credit Facility includes a $285.0 million
one-year bridge loan, a six-year $315.0 million term loan facility and a $250.0
million revolving credit facility.
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 complementary revenue enhancements, operating and service
efficiencies and eliminating an estimated $20.0 million in annual overhead and
operating costs; (ii) opportunities to expand and further develop its existing
business strengths, including service lines, technology and customer base; (iii)
the addition of operations in Canada, an area which is complementary with the
Company's existing North American operations, and in certain other key
international oil and gas producing regions; and (iv) the opportunity to be a
larger and more effective presence in the worldwide pressure pumping and coiled
tubing markets. The Nowsco Acquisition will provide the Company with a strong,
established presence in Canada and will expand the Company's presence in the
U.S. market and in certain international markets, including Europe, Southeast
Asia and Argentina. The Nowsco Acquisition will also significantly expand the
Company's coiled tubing services and commissioning and leak detection services.
The Nowsco Acquisition is expected to increase the Company's total revenue base
by approximately 42%, and the Company's North American and international revenue
base by 42% and 43%, respectively. On a pro forma basis in fiscal 1995, the
Company would have generated approximately 63% of its revenue from North
American operations and 37% from international operations.
The Company has an effective Registration Statement on Form S-3 (No.
333-02731) under the Securities Act for the proposed offering (the "Common Stock
Offering") of 8,500,000 shares (the "Shares") of 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 intends
to 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. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition -- Capital
Resources and Liquidity."
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SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $125,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal amount
of Existing Notes. The Exchange Notes will be obligations of the Company
entitled to the benefits of the Indenture. The form and terms of the Exchange
Notes are identical in all material respects to the form and terms of the
Existing Notes, except that (i) the offering of the Exchange Notes has been
registered under the Securities Act, (ii) the Exchange Notes will not be subject
to transfer restrictions and (iii) certain provisions relating to an increase in
the stated interest rate on the Existing Notes provided for under certain
circumstances will be eliminated. See "Description of the Notes."
THE EXCHANGE OFFER............ $1,000 principal amount of Exchange Notes will
be issued in exchange for each $1,000 principal
amount of Existing Notes validly tendered and
accepted pursuant to the Exchange Offer. As of
the date hereof, $125,000,000 in aggregate
principal amount of Existing Notes are
outstanding. The Company will issue the
Exchange Notes to tendering holders of Existing
Notes promptly following the Expiration Date.
RESALE........................ Based on existing interpretations of the
Securities Act by the staff of the Commission
set forth in several no-action letters to third
parties, and subject to the immediately
following sentence, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Existing Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than (i)
a broker-dealer who purchased such Existing
Notes directly from the Company for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a
person that is an "affiliate" (within the
meaning of Rule 405 of the Securities Act) of
the Company or any Guarantor), without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that the holder is acquiring the
Exchange Notes in its ordinary course of
business and is not participating, and has no
arrangement or understanding with any person to
participate, in the distribution of the
Exchange Notes. However, any purchaser of Notes
who is an affiliate of the Company or who
intends to participate in the Exchange Offer
for the purpose of distributing the Exchange
Notes, or any broker-dealer who purchased the
Existing Notes from the Company to resell
pursuant to Rule 144A or any other available
exemption under the Securities Act, (i) will
not be able to rely on the interpretations by
the staff of the Commission set forth in the
above-mentioned no-action letters, (ii) will
not be able to tender its Existing Notes in the
Exchange Offer and (iii) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any sale or transfer of the
Notes unless such sale or transfer is made
pursuant to an exemption from such
requirements. The Company does not intend to
seek its own no-action letter and there is no
assurance that the staff of the Commission
would make a similar determination with respect
to the Exchange Notes as it has in such
no-action letters to third parties. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer" and "Plan of Distribution."
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Each broker-dealer that receives Exchange Notes
for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may
be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange
for Existing Notes where such Existing Notes
were acquired by such broker-dealer as a result
of market-making activities or other trading
activities. The Company has agreed that, for a
period of 180 days after the Expiration Date,
it will make this Prospectus available to any
broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
EXPIRATION DATE............... 5:00 p.m., New York City time, on Friday,
August 2, 1996, unless the Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which
the Exchange Offer is extended. See "The
Exchange Offer -- Expiration Date; Extensions;
Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
EXISTING NOTES................ The Exchange Notes will bear interest from
August 1, 1996, the most recent date on which
interest will have been paid on the Existing
Notes surrendered in exchange for the Exchange
Notes. Accordingly, holders of Existing Notes
that are accepted for exchange will not receive
interest that is accrued but unpaid on such
Existing Notes at the time of tender. Interest
on the Exchange Notes will be payable
semiannually on each February 1 and August 1,
commencing on February 1, 1997. See "The
Exchange Offer -- Interest on the Exchange
Notes."
TERMINATION OF THE EXCHANGE
OFFER......................... The Company may terminate the Exchange Offer if
it determines that its ability to proceed with
the Exchange Offer could be materially impaired
due to the occurrence of certain conditions.
The Company does not expect any of the
foregoing conditions to occur, although there
can be no assurance that such conditions will
not occur. Holders of Existing Notes will have
certain rights against the Company under the
Registration Rights Agreement should the
Company fail to consummate the Exchange Offer.
See "The Exchange Offer -- Termination" and
"Description of the Notes -- Registration
Rights Agreement."
PROCEDURES FOR TENDERING
EXISTING NOTES................ Each holder of Existing Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
or such facsimile, together with the Existing
Notes to be exchanged and any other required
documentation to Bank of Montreal Trust
Company, as Exchange Agent, at the address set
forth herein and therein or effect a tender of
Existing Notes pursuant to the procedures for
book-entry transfer as provided for herein and
therein. By executing the Letter of
Transmittal, each
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holder will represent to the Company that,
among other things, the Exchange Notes pursuant
to the Exchange Offer are being acquired in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act,
of the Company or any Guarantor.
Following the consummation of the Exchange
Offer, holders of Existing Notes not tendered
as a general matter will not have any further
registration rights, and the Existing Notes
will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for the Existing Notes
could be adversely affected. See "The Exchange
Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Existing Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer
should contact such registered holder promptly
and instruct such registered holder to tender
on his behalf. If such beneficial owner wishes
to tender on his own behalf, such beneficial
owner must, prior to completing and executing
the Letter of Transmittal and delivering his
Existing Notes, either make appropriate
arrangements to register ownership of the
Existing Notes in such holder's name or obtain
a properly completed bond power from the
registered holder or endorsed certificates
representing the Existing Notes to be tendered.
The transfer of record ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See
"The Exchange Offer -- Procedures for
Tendering."
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Existing Notes who wish to tender
their Existing Notes and whose Existing Notes
are not immediately available, or who cannot
deliver their Existing Notes (or complete the
procedure for book-entry transfer) and deliver
a properly completed Letter of Transmittal and
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Existing Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
WITHDRAWAL RIGHTS............. Tenders of Existing Notes may be withdrawn at
any time prior to the Expiration Date by
furnishing a written or facsimile transmission
notice of withdrawal to the Exchange Agent
containing the information set forth in "The
Exchange Offer -- Withdrawal of Tenders."
ACCEPTANCE OF EXISTING NOTES
AND DELIVERY OF EXCHANGE
NOTES......................... Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer"
and described more fully in "The Exchange
Offer -- Termination"), the Company will accept
for exchange any and all Existing Notes that
are properly tendered in the Exchange Offer
prior to the Expiration Date. See "The
10
<PAGE> 11
Exchange Offer -- Procedures for Tendering."
The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date.
EXCHANGE AGENT................ Bank of Montreal Trust Company, the Trustee
under the Indenture, is serving as exchange
agent (the "Exchange Agent") in connection with
the Exchange Offer. The mailing address of the
Exchange Agent and the address for deliveries
by overnight courier is Bank of Montreal Trust
Company, 77 Water Street, 4th Floor, New York,
New York 10005, and the address for hand
deliveries is Bank of Montreal Trust Company,
77 Water Street, 5th Floor Window, New York,
New York 10005. For assistance and requests for
additional copies of this Prospectus, the
Letter of Transmittal or the Notice of
Guaranteed Delivery, the telephone number for
the Exchange Agent is (212) 701-7653, and the
facsimile number for the Exchange Agent is
(212) 701-7684.
See "The Exchange Offer" for more detailed information concerning the terms of
the Exchange Offer.
11
<PAGE> 12
SUMMARY OF TERMS OF EXCHANGE NOTES
SECURITIES OFFERED............ $125,000,000 principal amount of 7% Series B
Notes.
MATURITY DATE................. February 1, 2006.
INTEREST PAYMENT DATES........ February 1 and August 1 of each year, beginning
February 1, 1997. The February 1, 1997 interest
payment (the first interest payment date with
respect to the Exchange Notes) will include
accrued but unpaid interest from August 1,
1996.
REDEMPTION.................... The Exchange Notes are not redeemable prior to
maturity.
RANKING AND GUARANTEES........ The Exchange Notes are senior unsecured
obligations of the Company and rank pari passu
in right of payment with the Company's Funded
Indebtedness (as defined in the Indenture)
under the New Bank Credit Facility and the 9.2%
Notes (as hereinafter defined) and senior in
right of payment to all future indebtedness of
the Company that is, by its terms, expressly
subordinated to the Exchange Notes. See
"Capitalization." The Company's obligations
under the Exchange Notes are fully and
unconditionally guaranteed by certain of its
subsidiaries so that the Exchange Notes will
not be structurally subordinated to the
Company's Funded Indebtedness under the New
Bank Credit Facility or any other Funded
Indebtedness (as defined in the Indenture) of
the Company that is guaranteed, from time to
time, by subsidiaries of the Company. The
Company has no secured indebtedness as of the
date of this Prospectus. The Indenture provides
for the release and addition of subsidiaries of
the Company as guarantors and for the
limitation of the obligations of each guarantor
under certain circumstances. The guarantee of
the Notes by any subsidiary may be released if,
but only so long as, no other Funded
Indebtedness of the Company is guaranteed by
such subsidiary. See "Description of the
Notes."
COVENANTS..................... The Indenture contains covenants that limit the
Company's ability to incur indebtedness secured
by certain liens and to engage in certain
sale/leaseback transactions. These limitations
are subject to certain qualifications and
exceptions. See "Description of the
Notes -- Certain Covenants."
USE OF PROCEEDS............... The Company will not receive any proceeds from
the Exchange Offer.
DENOMINATIONS................. The Exchange Notes will be issued in
denominations of $1,000 and any integral
multiple thereof.
ABSENCE OF MARKET FOR THE
NOTES......................... The Exchange Notes will be a new issue of
securities for which there currently is no
market. Although the Initial Purchasers have
informed the Company that they each currently
intend to make a market in the Exchange Notes,
they are not obligated to do so, and any
market-making activities with respect to the
Exchange Notes may be discontinued at any time
without notice. The Exchange Notes have been
approved for listing on the NYSE, subject to
notice of issuance. There can be no assurance
that an active market for the Exchange Notes
will develop.
See "Description of the Notes" for more detailed information regarding the terms
of the Exchange Notes.
12
<PAGE> 13
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary consolidated financial data for the
Company and its subsidiaries as of and for the five years ended September 30,
1995 and as of and for the six-month periods ended March 31, 1996 and 1995. The
financial information presented below as of and for the six-month periods ended
March 31, 1996 and 1995, reflects all adjustments, consisting of normal and
recurring adjustments, that in the opinion of management are necessary for a
fair presentation of the Company's consolidated results of operations and
financial position for such periods. The information shown for the six-month
periods is not necessarily indicative of full-year results. The following data
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
------------------- ----------------------------------------------------
1996(1) 1995 1995(1) 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $407,295 $226,083 $633,660 $434,476 $394,363 $330,028 $390,296
Operating expenses, excluding unusual charges
and goodwill amortization................... 376,456 214,943 592,905 414,493 373,934 316,305 358,475
Goodwill amortization......................... 2,671 578 3,266 1,298 691
Unusual charges(2)............................ 17,200 15,700
Operating income (loss)....................... 28,168 10,562 20,289 18,685 19,738 (1,977) 31,821
Interest expense.............................. (11,095) (4,618) (15,164) (7,383) (5,414) (2,977) (3,135)
Other income -- net........................... 1,575 1,677 2,734 877 2,014 297 1,736
Income tax expense (benefit).................. 5,170 1,674 (1,102) 2,006 1,593 (3,657) 5,170
Income (loss) before cumulative effect of
accounting change........................... 13,568 6,122 9,889 10,770 14,561 (1,104) 24,422
Cumulative effect of change in accounting
principle, net of tax(3).................... (10,400)
Net income (loss)............................. 13,568 6,122 9,889 370 14,561 (1,104) 24,422
Net income (loss) per share before cumulative
effect of accounting change:
Primary..................................... $ .48 $ .38 $ .46 $ .69 $ .94 $ (.08) $ 1.88
Fully Diluted............................... $ .46 $ .38 $ .46 $ .69 $ .94 $ (.08) $ 1.88
STATEMENT OF CASH FLOWS DATA:
Net cash flows provided from (used for)
operating activities........................ $ 18,582 $ 17,087 $ 39,384 $ 26,255 $ (315) $ 8,392 $ 26,414
Net cash used for investing activities........ (24,760) (11,197) (228,886) (38,757) (40,768) (76,314) (30,459)
Net cash flows provided from (used for)
financing activities........................ 7,427 (3,410) 188,126 14,100 41,228 64,257 5,492
OTHER DATA:
Depreciation and amortization(4).............. $ 29,305 $ 13,612 $ 42,064 $ 25,335 $ 24,170 $ 12,742 $ 14,497
Capital expenditures(5)....................... 21,795 15,003 30,966 39,345 37,350 26,197 34,588
EBITDA(6)..................................... 59,374 26,185 65,986 45,626 46,422 11,527 48,765
Ratio of earnings to fixed charges(7)......... 2.27x 2.01x 1.37x 1.89x 2.76x 5.58x
FINANCIAL POSITION DATA (AT END OF PERIOD):
Property -- net............................... $414,080 $197,033 $416,810 $198,844 $183,962 $171,420 $134,139
Total assets.................................. 995,966 413,618 989,683 410,066 369,531 328,799 265,686
Long-term debt, including current
maturities.................................. 291,870 98,200 295,166 105,900 90,500 56,500 32,396
Stockholders' equity.......................... 485,158 197,146 466,795 189,927 187,132 134,794 135,307
</TABLE>
- ---------------
(1) Includes the effect of the Western Acquisition since April 1, 1995, which
was accounted for as a purchase in accordance with generally accepted
accounting principles.
(2) Unusual charges for the year ended September 30, 1995 represent nonrecurring
costs associated with the Western Acquisition, including a non-cash charge
for impairment of facilities (approximately $3.6 million), and charges for
severance of employees of BJ Services and other Western Acquisition related
costs. Unusual charges for 1992, which primarily represent a provision for
restructuring the Company's North American operations, include non-cash
charges of approximately $10.6 million for asset writedowns.
(3) In the year ended September 30, 1994, the Company changed its method of
accounting for postretirement benefits other than pensions.
(4) In October 1991, the Company revised the estimated salvage values and
remaining useful lives of certain of its U.S. pumping services equipment to
more closely reflect expected remaining lives. The effect of this change in
accounting estimate resulted in a decrease of $2.9 million, or $.22 per
share, in the Company's net loss for 1992.
(5) Excluding acquisitions of businesses.
(6) Earnings before interest expense, taxes, depreciation and amortization and
cumulative effect of accounting change ("EBITDA") is a supplemental
financial measurement used by the Company in the evaluation of its business
and is presented solely as a supplemental disclosure, and should not be
construed as an alternative to net income, operating income, cash flows from
operating activities or any other measure of financial performance presented
in accordance with generally accepted accounting principles. The amounts
include unusual charges of $17.2 million and $15.7 million in the years
ended September 30, 1995 and 1992, respectively.
(7) For the purpose of calculating this ratio, earnings consist of earnings
before income taxes and fixed charges (excluding capitalized interest).
Fixed charges consist of interest expense and capitalized interest and the
portion of operating lease rental expense that is representative of the
interest factor (deemed to be one-third of the lease rentals). For the year
ended September 30, 1992, earnings were inadequate to cover fixed charges by
$4.4 million because of the unusual charges.
13
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following table sets forth certain unaudited historical information for
the Company and Nowsco and certain pro forma combined financial information
giving effect to the Nowsco Acquisition, which is accounted for as a purchase in
accordance with generally accepted accounting principles, and to the Common
Stock Offering. The information below may not be indicative of the results that
actually would have occurred if the Nowsco Acquisition and the Common Stock
Offering had been consummated on the dates indicated or that will be obtained in
the future. For a complete description of the assumptions and adjustments made
in calculating such pro forma information, see the Pro Forma Financial
Information (Unaudited) and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SIX MONTHS ENDED MARCH 31, 1996 SEPTEMBER 30, 1995
--------------------------------- ---------------------------------
HISTORICAL HISTORICAL
------------------- PRO ------------------- PRO
COMPANY NOWSCO FORMA(1)(2) COMPANY NOWSCO FORMA(1)(2)
-------- -------- ----------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue...................... $407,295 $182,183 $ 589,478 $633,660 $339,269 $1,146,851
Cost of sales and services... 359,734 164,731 524,465 564,587 306,849 1,040,533
General and administrative... 16,722 7,998 24,720 28,318 16,133 49,484
Goodwill amortization........ 2,671 7,633 3,266 15,348
Unusual charges.............. 3,349 3,349 17,200 481 481
Operating income (loss)...... 28,168 6,105 29,311 20,289 15,806 41,005
Interest expense............. (11,095) (60) (20,755) (15,164) (640) (44,603)
Income tax expense
(benefit)................. 5,170 341 4,224 (1,102) 2,007 1,281
Net income (loss)............ 13,568 6,557 6,850 9,889 16,248 2,234
Net income per share......... $ .48 $ .18 $ .46 $ .06
Average shares outstanding... 28,560 37,060 21,376 36,426
OTHER DATA:
Depreciation and
amortization.............. $ 29,305 $ 15,126 $ 49,393 $ 42,064 $ 28,512 $ 94,364
Capital expenditures......... 21,795 16,476 38,271 30,966 36,499 67,465
EBITDA(2).................... 59,374 22,084 81,458 65,986 47,407 142,453
FINANCIAL POSITION DATA (AT END
OF PERIOD):
Property -- net.............. $414,080 $139,084 $ 553,164
Total assets................. 995,966 272,535 1,651,501
Long-term debt, including
current maturities........ 291,870 588,578
Stockholders' equity......... 485,158 217,133 760,583
</TABLE>
- ---------------
(1) The pro forma statements of operations were prepared as if the Nowsco
Acquisition and the Common Stock Offering 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
business during the periods presented, except as described in the Notes to
Pro Forma Financial Statements. Pro forma adjustments were also made to
reflect the pro forma results of the Western Acquisition during the first
six months of fiscal 1995, assuming the acquisition had occurred on October
1, 1994.
(2) EBITDA is a supplemental financial measurement used by BJ Services in the
evaluation of its business and is presented solely as a supplemental
disclosure, and should not be construed as an alternative to net income,
operating income, cash flows from operating activities or any other measure
of financial performance presented in accordance with generally accepted
accounting principles. The historical amounts for the twelve months ended
September 30, 1995 include unusual charges of $17.2 million.
14
<PAGE> 15
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were sold by the Company on February 20, 1996, to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Existing Notes with qualified institutional buyers
("Qualified Institutional Buyers") in reliance on Rule 144A under the Securities
Act. As a condition to the purchase of the Existing Notes by the Initial
Purchasers, the Company and the Guarantors entered into a registration rights
agreement with the Initial Purchasers (the "Registration Rights Agreement"),
which requires, among other things, that promptly following the issuance and
sale of the Existing Notes, the Company and the Guarantors file with the
Commission the Registration Statement with respect to the Exchange Notes, use
their reasonable best efforts to cause the Registration Statement to become
effective under the Securities Act and, upon the effectiveness of the
Registration Statement, offer to the holders of the Existing Notes the
opportunity to exchange their Existing Notes for a like principal amount of
Exchange Notes, which will be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
term "holder" with respect to the Exchange Offer means any person in whose name
Existing Notes are registered on the Company's books or any other person who has
obtained a properly completed bond power from the registered holder or any
person whose Existing Notes are held of record by the Depositary who desires to
deliver such Existing Notes by book-entry transfer of the Depositary.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Existing Notes may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchased such Existing Notes directly from the
Company for resale pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" (within the meaning
of Rule 405 of the Securities Act) of the Company or any Guarantor), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the Exchange Notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. However, any purchaser of Existing Notes who is an affiliate of
the Company or who intends to participate in the Exchange Offer for the purpose
of distributing the Exchange Notes, or any broker-dealer who purchased the
Existing Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (i) will not be able to rely on
the interpretations by the staff of the Commission set forth in the
above-mentioned no-action letters, (ii) will not be able to tender its Existing
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Existing Notes unless such sale or transfer is made
pursuant to an exemption from such requirements. Any holder who tenders in the
Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company and the Guarantors will not be
required to pay an increased interest rate on the Existing Notes. Following the
consummation of the Exchange Offer, holders of Existing Notes not tendered will
not have any further registration rights except in certain limited circumstances
requiring the filing of a Shelf Registration Statement (as defined herein), and
the Existing Notes will continue to be subject to certain restrictions on
transfer. See "Description of the Notes -- Registration Rights Agreement."
Accordingly, the liquidity of the market for the Existing Notes could be
adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Existing Notes
properly tendered and not withdrawn prior to 5:00 p.m. New York
15
<PAGE> 16
City time, on the Expiration Date. After authentication of the Exchange Notes by
the Trustee or an authenticating agent, the Company will issue and deliver
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Existing Notes accepted in the Exchange Offer. Holders may
tender some or all of their Existing Notes pursuant to the Exchange Offer in
denominations of $1,000 and integral multiples thereof.
Each holder of Existing Notes (other than certain specified holders) who
wishes to exchange Existing Notes for Exchange Notes in the Exchange Offer will
be required to represent that (i) it is not an affiliate of the Company or any
Guarantor, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) it has no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Existing Notes where
such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the date of the consummation of the
Exchange Offer, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Existing Notes except that (i) the
offering of the Exchange Notes has been registered under the Securities Act,
(ii) the Exchange Notes will not be subject to transfer restrictions and (iii)
certain provisions relating to an increase in the stated interest rate on the
Existing Notes provided for under certain circumstances will be eliminated. The
Exchange Notes will evidence the same debt as the Existing Notes. The Exchange
Notes will be issued under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of the Existing Notes is outstanding. In connection with the issuance of the
Existing Notes, the Company arranged for the Existing Notes, which were
initially purchased by Qualified Institutional Buyers, to be issued and
transferable in book-entry form through the facilities of the Depositary, acting
as depositary. The Exchange Notes will also be issuable and transferable in
book-entry form through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders as of the close of business on
June 28, 1996. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act, and the rules and
regulations of the Commission thereunder, including Rule 14e-1, to the extent
applicable. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Existing Notes being tendered, and holders of the Existing
Notes do not have any appraisal or dissenters' rights under the General
Corporation Law of the State of Delaware or under the Indenture in connection
with the Exchange Offer. The Company shall be deemed to have accepted validly
tendered Existing Notes when, as and if the Company has given oral or written
notice thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange
Agent will act as agent for the tendering holders for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Existing Notes will be returned, at the
Company's cost, to the tendering holder thereof as promptly as practicable after
the Expiration Date.
Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company will pay all charges
and
16
<PAGE> 17
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Solicitation of Tenders; Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
August 2, 1996, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date to
which the Exchange Offer is extended.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Existing Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Existing Notes not
previously accepted, if any of the conditions set forth herein under
"-- Termination" shall have occurred and shall not have been waived by the
Company (if permitted to be waived by the Company), by giving oral or written
notice of such delay, extension or termination to the Exchange Agent and (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof by the Company to the registered
holders of the Existing Notes. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from August 1, 1996, the most recent
date on which interest will have been paid on the Existing Notes. Accordingly,
holders of Existing Notes that are accepted for exchange will not receive
interest that is accrued but unpaid on such Existing Notes at the time of
tender. Interest on the Exchange Notes will be payable semiannually on each
February 1 and August 1, commencing on February 1, 1997.
PROCEDURES FOR TENDERING
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Existing
Notes by causing the Depositary to transfer such Existing Notes into the
Exchange Agent's account in accordance with the Depositary's procedure for such
transfer. Although delivery of Existing Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depositary, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the Exchange Agent at its address set forth herein under "-- Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF
DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Only a holder may tender its Existing Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Existing Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer
described below) and any other required documents, to the Exchange Agent, prior
to 5:00 p.m. New York City time, on the Expiration Date.
The tender by a holder will constitute an agreement between such holder,
the Company and the Exchange Agent in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
17
<PAGE> 18
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN
OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF
THE COMPANY OR ANY GUARANTOR AND (4) IF THE TENDERING HOLDER IS A BROKER OR
DEALER (AS DEFINED IN THE EXCHANGE ACT) (A) IT ACQUIRED THE EXISTING NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES AND (B) IT HAS NOT ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH
THE COMPANY, ANY GUARANTOR OR ANY "AFFILIATE" OF THE COMPANY OR ANY GUARANTOR
(WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT) TO DISTRIBUTE THE
EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE OF A
BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR
EXISTING NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN
ACKNOWLEDGMENT THAT THE BROKER-DEALER MAY BE DEEMED TO BE A STATUTORY
UNDERWRITER AND MUST DELIVER A COPY OF THIS PROSPECTUS IN CONNECTION WITH THE
RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE EXCHANGE OFFER. SEE
"PLAN OF DISTRIBUTION."
The method of delivery of Existing Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent prior to the Expiration Date.
No Letter of Transmittal or Existing Notes should be sent to the Company.
Holders may also request that their respective brokers, dealers, commercial
banks, trust companies or nominees effect such tender for holders in each case
as set forth herein and in the Letter of Transmittal.
Any beneficial owner whose Existing Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Existing Notes, either
make appropriate arrangements to register ownership of the Existing Notes in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Existing
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" of the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If the Letter of Transmittal is signed by a person
other than the registered holder listed therein, such Existing Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Existing Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Existing
Notes. If the Letter of Transmittal or any Existing Notes or bond powers are
signed or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with such Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Existing Notes at the DTC (the "Book-Entry Transfer Facility") for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Existing Notes by
causing such Book-Entry Transfer Facility to transfer such Existing Notes into
the Exchange Agent's account with respect to the Existing Notes in accordance
with the Book-Entry Transfer
18
<PAGE> 19
Facility's procedures for such transfer. ALTHOUGH DELIVERY OF EXISTING NOTES MAY
BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT THE
BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE LETTER OF TRANSMITTAL PROPERLY
COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE GUARANTEE AND ALL OTHER
REQUIRED DOCUMENTS MUST IN EACH CASE BE TRANSMITTED TO AND RECEIVED OR CONFIRMED
BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH BELOW ON OR PRIOR TO THE
EXPIRATION DATE, OR, IF THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW ARE
COMPLIED WITH, WITHIN THE TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY
OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Existing Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Existing Notes not properly tendered or any Existing Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Existing Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Existing Notes, neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Existing
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Existing Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Existing Notes received
by the Exchange Agent that the Company determines are not properly tendered or
the tender of which is otherwise rejected by the Company and as to which the
defects or irregularities have not been cured or waived by the Company will be
returned by the Exchange Agent to the tendering holder unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Existing Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under "-- Termination,"
terminate the Exchange Offer and (b) to the extent permitted by applicable law,
to purchase Existing Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers may differ
from the terms of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Existing Notes and (i) whose Existing
Notes are not immediately available, or (ii) who cannot deliver their Existing
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, or who cannot complete the procedure for
book-entry transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Existing Notes and the principal amount of such
Existing Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within five NYSE trading days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Existing Notes to be tendered in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Existing Notes delivered
electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Existing Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depositary of
Existing
19
<PAGE> 20
Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Existing Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Existing Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Existing Notes to be withdrawn (the
"Depositor"), (ii) identify the Existing Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Existing Notes or, in
the case of Existing Notes transferred by book-entry transfer, the name and
number of the account at the Depositary to be credited), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Existing Notes were tendered (including any required
signature guarantee) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Existing Notes to register the transfer
of such Existing Notes into the name of the Depositor withdrawing the tender and
(iv) specify the name in which any such Existing Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Existing Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Existing Notes so withdrawn are validly
retendered. Any Existing Notes that have been tendered but are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Existing Notes may be retendered by following
one of the procedures described above under "-- Procedures for Tendering" at any
time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to exchange Exchange Notes for, any
Existing Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Existing Notes if, in the Company's judgment, the
Company's ability to proceed with the Exchange Offer can reasonably be expected
to be impaired as a result of any of the following conditions: (i) that the
Exchange Offer, or the making of any exchange by a holder, violates applicable
law or any applicable interpretation of the staff of the Commission, (ii) that
any action or proceeding shall have been instituted or threatened in any court
or by or before any governmental agency or body with respect to the Exchange
Offer, (iii) that there has been adopted or enacted any law, statute, rule or
regulation that can reasonably be expected to impair the ability of the Company
to proceed with the Exchange Offer, (iv) that there has been declared by United
States federal or Texas or New York state authorities a banking moratorium; and
(v) that trading on the NYSE or generally in the United States over-the-counter
market has been suspended by order of the Commission or any other governmental
agency.
If the Company determines that it may terminate the Exchange Offer for any
of the reasons set forth above, the Company may (i) refuse to accept any
Existing Notes and return any Existing Notes that have been tendered to the
holders thereof, (ii) extend the Exchange Offer and retain all Existing Notes
tendered prior to the Expiration Date of the Exchange Offer, subject to the
rights of such holders of tendered Existing Notes to withdraw their tendered
Existing Notes or (iii) waive such termination event with respect to the
Exchange Offer and accept all properly tendered Existing Notes that have not
been withdrawn. If such waiver constitutes a material change in the Exchange
Offer, the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder, and the Company
will extend
20
<PAGE> 21
the Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
EXCHANGE AGENT
Bank of Montreal Trust Company, the Trustee under the Indenture, has been
appointed as Exchange Agent for the Exchange Offer. In such capacity, the
Exchange Agent has no fiduciary duties and will be acting solely on the basis of
directions of the Company. Requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail or Overnight Courier: Bank of Montreal Trust Company
77 Water Street, 4th Floor
New York, New York 10005
By Hand Delivery: Bank of Montreal Trust Company
77 Water Street, 5th Floor Window
New York, New York 10005
Facsimile Transmission: (212) 701-7684
Confirm by Telephone: (212) 701-7653
</TABLE>
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses
in connection therewith and will indemnify the Exchange Agent for all losses and
claims incurred by it as a result of the Exchange Offer. The Company may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Existing Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Existing Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Existing Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the
Existing Notes tendered, or if tendered Existing Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Existing
Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed by the Company directly to such tendering
holder.
21
<PAGE> 22
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Existing Notes, as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the consummation of the Exchange Offer. The
expenses of the Exchange Offer will be amortized by the Company over the term of
the Exchange Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The discussion regarding certain federal income tax consequences set forth
in this paragraph is based on the opinion of Andrews & Kurth L.L.P., special tax
counsel to the Company, which has been filed as an exhibit to the Registration
Statement. This section is based upon current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Subsequent changes in such authorities may cause the tax
consequences to vary substantially from the consequences described below. No
attempt has been made in the following discussion to comment on all federal
income tax matters affecting holders. Accordingly, each prospective holder
should consult, and should depend on, his own tax advisor in analyzing the
federal, state, local and foreign tax consequences to him of the exchange of
Existing Notes for Exchange Notes and ownership or disposition of Exchange
Notes. The exchange of Exchange Notes for Existing Notes pursuant to the
Exchange Offer should not be treated as an "exchange" for United States federal
income tax purposes because the terms of the Exchange Notes are identical in all
material respects to the terms of the Existing Notes and therefore the Exchange
Notes should not be considered to differ materially in kind or extent from the
Existing Notes. As a result, the Exchange Notes received by a United States
holder should be treated as a continuation of the Existing Notes in the hands of
such holder, and there will be no United States federal income tax consequences
to United States holders exchanging Existing Notes for Exchange Notes pursuant
to the Exchange Offer.
OTHER
Participation in the Exchange Offer is voluntary. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Existing Notes who do not tender their Existing Notes
in the Exchange Offer will continue to hold such Existing Notes and will be
entitled to all the rights, and subject to the limitations applicable thereto,
under the Indenture and the Registration Rights Agreement, except for any such
rights under the Registration Rights Agreement that by their terms terminate or
cease to have further effect as a result of the making of this Exchange Offer.
See "Description of the Notes." All untendered Existing Notes will continue to
be subject to the restrictions on transfer set forth in the Indenture. The
Existing Notes may not be offered, sold or otherwise transferred, prior to the
date which is three years after the later of February 20, 1996 and the last date
on which the Company or any "affiliate" (within the meaning of Rule 144 of the
Securities Act) of the Company was the owner of such Existing Note except (i) to
the Company, (ii) pursuant to a registration statement which has been declared
effective under the Securities Act, (iii) to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) in reliance upon the
exemption from the registration requirements of the Securities Act provided by
Rule 144A, (iv) to institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) in transactions exempt from
the registration requirements of the Securities Act, (v) in transactions
complying with the provisions of Regulation S under the Securities Act or (vi)
pursuant to any other available exemption from the registration requirements
under the Securities Act. To the extent that Existing Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered Existing Notes
could be adversely affected.
22
<PAGE> 23
The Company may in the future seek to acquire untendered Existing Notes in
the open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Existing Notes in accordance with the applicable requirements of the Exchange
and the rules and regulations of the Commission thereunder, including Rule
14e-1, to the extent applicable. The Company has no present plan to acquire any
Existing Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any Existing Notes that are not
tendered pursuant to the Exchange Offer.
23
<PAGE> 24
RECENT DEVELOPMENTS
ACQUISITION OF NOWSCO
On April 12, 1996, the Company announced the Nowsco Tender Offer to acquire
all of the outstanding common shares of Nowsco for a price per share of Cdn
$27.00 ($19.50 per share). On May 6, 1996, 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. The
Company consummated the Nowsco Acquisition during June 1996.
The total purchase price for the Nowsco Acquisition (including estimated
transaction costs of $7.0 million) is estimated to be $581.3 million (Cdn $796.3
million). For a description of the financing of the Nowsco Acquisition, see
"Summary -- Recent Developments," "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Capital Resources and Liquidity." 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.
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 complementary revenue enhancements, operating and service
efficiencies and eliminating an estimated $20.0 million in annual overhead and
operating costs; (ii) opportunities to expand and further develop its existing
business strengths, including service lines, technology and customer base; (iii)
the addition of operations in Canada, an area which is complementary with the
Company's existing North American operations, and in certain other key
international oil and gas producing regions; and (iv) the opportunity to be a
larger and more effective presence in the worldwide pressure pumping and coiled
tubing markets. The Nowsco Acquisition will provide the Company with a strong,
established presence in Canada and will expand the Company's presence in the
U.S. market and in certain international markets, including Europe, Southeast
Asia and Argentina. The Nowsco Acquisition will also significantly expand the
Company's coiled tubing services and commissioning and leak detection services.
The Nowsco Acquisition is expected to increase the Company's total revenue base
by approximately 42%, and the Company's North American and international revenue
base by 42% and 43%, respectively. On a pro forma basis in fiscal 1995, the
Company would have generated approximately 63% of its revenue from North
American operations and 37% from international operations.
The discussion of benefits from the Nowsco Acquisition set forth above and
under the caption "Summary -- Recent Developments" is based upon analyses and
beliefs of members of the Company's management with respect to the anticipated
benefits of the Nowsco Acquisition to BJ Services. Because of the highly
competitive nature of the oilfield service industry, the adverse impact on the
industry resulting from oil and gas price fluctuations, the inherent
uncertainties involved in combining two companies and the limited time available
to conduct a due diligence review of the assets and operations of Nowsco, there
can be no assurance that the combined company will be able to participate fully
in the opportunities or to realize the anticipated benefits of the Nowsco
Acquisition. Information presented and incorporated by reference in this
Prospectus includes forward-looking statements that are based upon numerous
assumptions with respect to Nowsco's operations and the Company's operations
following the Nowsco Acquisition, including the benefits to be realized from the
consolidation of the acquired operations and other factors affecting the
Company's business that are beyond the Company's control. Any changes in such
factors could produce significantly different results.
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
24
<PAGE> 25
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, 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
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 and the Middle East and Asia Pacific with regional head
offices located in Aberdeen, Scotland, Jakarta, Indonesia, and Nicosia, Cyprus.
The majority of these operations are conducted through branches or wholly owned
subsidiaries utilizing manpower and expertise available in the country of
operations. Operations in Argentina are conducted through 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.
25
<PAGE> 26
CAPITALIZATION
The following table sets forth the short-term borrowings and the
capitalization of the Company at March 31, 1996 and as adjusted to reflect (i)
the Nowsco Acquisition, including borrowings under the New Bank Credit Facility
and (ii) the issuance of the Shares in the Common Stock Offering (excluding
1,275,000 shares of Common Stock subject to the underwriters' over-allotment
option) and the application of the net proceeds therefrom ($280.4 million) to
repay certain indebtedness under the New Bank Credit Facility.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings............................................... $ 10,426 $ 10,426
======== ========
Long-term debt:
7% Notes due 2006, net of discount................................ $124,250 $ 124,250
12 7/8% Senior Notes due 2002..................................... 2,170 2,170
9.2% Notes due August 1998........................................ 18,000 18,000
Notes payable to banks............................................ 147,450 444,158
-------- --------
Total long-term debt, including current maturities........ 291,870 588,578
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized;
none issued....................................................
Common stock, $.10 par value; 80,000,000 shares authorized;
28,164,670 and 36,664,670 shares issued, respectively(1)....... 2,817 3,667
Capital in excess of par.......................................... 419,772 699,347
Retained earnings, less cumulative translation adjustment......... 62,569 62,569
-------- --------
Total stockholders' equity................................ 485,158 765,583
-------- --------
Total capitalization................................................ $777,028 $1,354,161
======== ========
</TABLE>
- ---------------
(1) As of March 31, 1996, the Company had 4,792,651 outstanding Warrants, and
1,584,957 shares of Common Stock were reserved for issuance pursuant to
outstanding stock options and other outstanding awards under the Company's
employee benefit plans.
In connection with the financing of the Nowsco Acquisition, the Company
entered into the New Bank Credit Facility. The borrowers and guarantors under
the New Bank Credit Facility are the Company and three of its 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"). BJ
Services Canada Inc. ("BJ Canada") is a borrower in Canadian dollars under the
New Bank Credit Facility. Outstanding borrowings under the New Bank Credit
Facility as of June 28, 1996 totaled $733.0 million at a weighted average rate
of 6.5%. After giving effect to the Nowsco Acquisition and the application of
the net proceeds from the Common Stock Offering to repay certain indebtedness
under the New Bank Credit Facility, the Company would have had an estimated
$117.0 million in additional availability under the New Bank Credit Facility as
of June 28, 1996. See the Pro Forma Financial Information included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition -- Capital Resources and
Liquidity."
As of March 31, 1996, pursuant to certain note agreements entered into in
August 1991, the Company had $18.0 million aggregate principal amount
outstanding under its 9.2% Notes Due August 1, 1998 (the "9.2% Notes"). BJ
U.S.A., BJ International and BJ Middle East are also borrowers under the 9.2%
Notes. The principal amount of the 9.2% Notes is payable annually on August 1 in
installments of $6.0 million until maturity on August 1, 1998. The Company
expects either to prepay the 9.2% Notes or to amend the 9.2% Note agreements to
include covenants substantially similar to the covenants under the New Bank
Credit Facility.
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<PAGE> 27
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Existing Notes in like principal amount, the terms of which are identical in all
material respects to the Exchange Notes except that (i) the offering of the
Exchange Notes has been registered under the Securities Act, (ii) the Exchange
Notes are not subject to transfer restrictions and (iii) certain provisions
relating to an increase in the stated interest rate on the Existing Notes
provided for under certain circumstances will be eliminated. The Existing Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in a change in the indebtedness of the Company.
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<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's operations are primarily driven by the number of oil and gas
wells being drilled, the depth and drilling conditions of such wells, the number
of well completions and the level of workover activity worldwide. Drilling
activity, in turn, is largely dependent on the price of oil and natural gas.
This is especially true in the United States, where the Company generates
approximately 60% of its revenues.
Due to "aging" oilfields and lower-cost sources of oil internationally,
drilling activity in the United States has declined more than 75% from its peak
in 1981. Record low drilling activity levels were experienced in 1986 and 1992.
As a result, pumping service companies have been unable to recapitalize their
aging United States fleets due to the inability, under current market
conditions, to generate adequate returns on new capital investments. The Company
believes it is important to operate with a greater critical mass in key U.S.
markets to improve returns in this environment. This conclusion led to the
decision to withdraw from certain low activity areas in the past several years
and to consolidate its remaining operations with those acquired in April 1995
from Western, which had a larger presence in the United States.
The rig count in the United States averaged 739 active drilling rigs during
fiscal 1995, a 6% and 2% decline, compared with 1994 and 1993, respectively, and
the second lowest count on record. The rig count in the United States averaged
708 and 737 active drilling rigs during the respective three-month and six-month
periods ended March 31, 1996. Compared with the same periods of the prior fiscal
year, drilling activity was flat for the three-month period and 4% lower for the
six-month period, primarily due to lower oil related drilling. Drilling for
natural gas increased by 11% and was flat during the respective three-month and
six-month periods. Due to the relatively strong oil and natural gas prices
recently being realized, management expects United States drilling activity
levels for the last half of the fiscal year to be above prior year levels.
While international drilling activity (excluding Canada) has historically
been less volatile than domestic drilling activity, the international active rig
count had declined in each of the last four years prior to fiscal 1995 due to
weak oil prices and economic and political instability in certain overseas
countries. The most significant declines in international drilling activity
occurred in the North Sea, Italy, Nigeria and Mexico. The activity decline has
leveled off somewhat with the active rig count for 1995 up slightly from 1994.
International drilling activity increased by 4% and 5% during the most recent
three-month and six-month periods, respectively, compared with the same prior
year periods on the strength of development work in Latin America, especially
Argentina and Venezuela, and renewed exploration programs in the United Kingdom
North Sea.
In both the United States and internationally, there has been a continuing
trend by oil and gas companies toward "alliances" with the service companies.
These alliances take various forms, including packaged or integrated services,
single source suppliers and turnkey agreements. Approximately 20% of the
Company's revenues were generated under such alliances, or approximately $117
million of the Company's revenues during 1995. Approximately 19% of the
Company's revenues were generated under such alliances during the first six
months of fiscal 1996.
EXPANSIONS AND ACQUISITIONS
Management believes the primary opportunities for geographic and product
expansion remain in international markets. As a result, other than the Western
Acquisition, the Company's capital spending and expansion efforts have been
primarily focused outside of the United States. The Company's expansion efforts
during the past three years have included expanding pumping services into
several key international markets, including Saudi Arabia, Qatar and Vietnam;
expanding tubular services and commissioning and leak detection services into
geographic regions outside the North Sea; adding additional pumping service
capacity in key Latin American markets; and acquiring Norsk Bronnservice A/S
("NBS") in April 1993, Italog S.p.A. ("SIAT") in July 1993, the remaining 50%
ownership of its joint venture in Egypt in February 1994 and the remaining 60%
of the Company's Brazilian joint venture in December 1995.
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<PAGE> 29
On April 13, 1995, the Company completed the Western Acquisition for a
total purchase price of $511.4 million (including transaction costs of $7.2
million), consisting of 12.0 million shares of Common Stock, cash of $247.9
million from borrowings under the Company's then existing bank credit facility
and Warrants to purchase 4.8 million shares of Common Stock. The Western
Acquisition provides the Company with a greater critical mass with which to
compete in domestic and international markets and the opportunity to realize
significant consolidation benefits. The Western Acquisition has increased the
Company's existing total revenue base by approximately 75% and has more than
doubled the Company's domestic revenue base. In addition, approximately $40
million in overhead and redundant operating costs have been eliminated annually
by combining the two companies.
The Company consummated the Nowsco Acquisition during June 1996 for a total
purchase price (including estimated transaction costs of $7.0 million) 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 and net income of Cdn
$16.2 million (Cdn $.78 per share). For the two months ended May 31, 1996,
Nowsco's results of operations were adversely affected by a longer than usual
period of reduced activity caused by weather conditions. As a result, Nowsco's
operating income and net income for the two month period were lower than for the
comparable period for 1995. For a more complete description of the Nowsco
Acquisition, see "Summary -- Recent Developments" and "Recent Developments." The
information presented in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" does not include the Nowsco Acquisition,
which occurred after the periods presented. For pro forma financial information
giving effect to the Nowsco Acquisition, see "Summary -- Summary Historical and
Pro Forma Financial Information (Unaudited)" and the Pro Forma Financial
Information (Unaudited) and the related notes thereto included elsewhere in this
Prospectus.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1996
AND 1995
Revenue. Revenue for the quarter ended March 31, 1996 was $200.8 million,
an 88% increase from the prior year's second quarter. For the six months ended
March 31, 1996, revenue was $407.3 million, an 80% increase over the same period
of the previous year. Both such increases were primarily driven by increased
international activity and expansions, and the acquisition of Western.
U.S. revenue more than doubled during the three-month and six-month periods
ended March 31, 1996 as a result of adding the former Western operations. On a
pro forma basis, however, U.S. revenue declined by 3% and 8%, respectively,
primarily as a result of activity reductions in the oil regions and a
significant revenue decline in the Company's Rocky Mountain region as a result
of lower spending by the Company's primary customers, mostly independent oil and
gas producers. Pricing of the Company's services has remained relatively stable
in the United States, or has declined slightly, over the past year.
Management's U.S. revenue outlook for the remainder of the fiscal year is
positive as a result of the recent strengthening of oil and gas prices. The
Company's March 1996 revenue exceeded that of March's prior year revenue and
March's rig count showed the first year over year increase in several years. The
Company expects this trend to continue throughout the remainder of the fiscal
year.
International revenue for the three-month and six-month periods ended March
31, 1996 increased by 38% and 31%, respectively, over the same periods of fiscal
1995. This represents the thirteenth consecutive quarter of international
revenue improvement. Each of the Company's international regions has experienced
higher revenue growth compared with the year earlier periods. The Company's
Latin America region has generated the highest revenue increases (up 47% for
both the three-month and six-month periods) as a result of strong activity
increases in Argentina as well as revenue increases in Venezuela and Colombia
from recent capital investments. Revenue from the Company's pumping service
expansions into Vietnam, Saudi Arabia and Brazil, combined with improving
activity in the United Kingdom and Nigeria, also contributed to the
international revenue growth. The Company's tubular services and commissioning
and leak detection product lines also showed strong gains during the most recent
quarter from strong North Sea activity and as a result of their recent
expansions into parts of the Far East, Middle East and South America.
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<PAGE> 30
Management expects the year-over-year international revenue increases to
continue over the remainder of the fiscal year, however, at a much lower growth
rate. In January 1996, the Company decided to "warm stack" a stimulation vessel
acquired from Western, the "Renaissance." The vessel's hull is expected to be
sold by the end of the fiscal year with the proceeds used to reduce outstanding
debt, while the vessel's stimulation equipment will be removed and redeployed to
other of the Company's operating locations. The Company believes that the
liquidation of the vessel, if consummated, will not have a material adverse
impact on the Company's operating results.
Operating Income. The Company's operating income more than doubled for both
the three-month and six-month periods ended March 31, 1996 as a result of the
previously mentioned revenue increases. All operating expenses were higher as a
result of the Western Acquisition. The cost of sales and services as a
percentage of revenue, however, declined by 1.7% and 2.1%, respectively,
primarily as a result of cost reduction efforts implemented after the
acquisition of Western and the economies of scale in having a larger U.S.
operation. Marketing expenses represent a higher percentage of revenue than the
prior year due to the higher concentration of the additional revenues being in
the United States, which requires a relatively greater marketing effort.
Marketing expenses also increased due to commissions on international business.
The increase in goodwill amortization also resulted from the Western
Acquisition, which was accounted for under the purchase method with the
resulting goodwill being amortized over a 40-year period.
Interest expense increased by $3.2 million and $6.5 million, respectively,
over the same three-month and six-month periods of the previous year as a result
of increased borrowings to fund the Western Acquisition. See "-- Financial
Condition -- Capital Resources and Liquidity."
The year-to-date effective tax rate increased to 28% from 21% in the
comparable six-month period of the prior year primarily due to marginal tax
rates on higher U.S. profitability.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND
1993
The following table sets forth selected key operating statistics reflecting
industry rig count and the Company's financial results:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Average active rigs:(1)
United States ............................................... 739 784 755
Canada....................................................... 246 244 162
International (excluding Canada)............................. 750 747 783
Revenue per rig (in thousands)................................. $425.6 $283.8 $256.4
Revenue per employee (in thousands)............................ $168.3 $160.4 $151.4
Percentage of gross profit to revenue(2)....................... 15.1% 13.1% 14.3%
Percentage of marketing expense to revenue..................... 4.2% 3.3% 3.3%
Percentage of general and administrative expense to revenue.... 4.5% 5.2% 5.8%
</TABLE>
- ---------------
(1) Industry estimate of average active rigs published by Baker Hughes
Incorporated.
(2) Gross profit represents revenue less cost of sales and services and research
and engineering expenses.
Revenue. Revenue increased by 10% in 1994 and 46% during 1995, the third
consecutive yearly increase. The increase in 1994 was driven primarily by the
Company's international expansion program and an increase in domestic natural
gas drilling and stimulation activity. In 1995, the increase was due primarily
to continued growth of the international expansion, increased activity in Latin
America and the Western Acquisition.
U.S. revenues increased by 6% and 67% in 1994 and 1995, respectively. The
1994 increase was due primarily to a 12% increase in the active rig count for
gas-related drilling, partially offset by a 4% decline in the rig count for
oil-related drilling. In addition, customer alliances contributed an additional
$14.5 million in
30
<PAGE> 31
revenues during the year. During the first six months of 1995 (prior to the
Western Acquisition), the Company's revenues increased 5% over the same period
in 1994 due primarily to the increased placement of cementing units and the
addition of a stimulation vessel in the Gulf of Mexico. With the Western
Acquisition, the Company's U.S. revenues over the balance of the year more than
doubled, accounting for the remainder of the 67% increase for 1995.
In the last quarter of 1995, continued weak natural gas prices caused many
of the Company's customers to significantly curtail their drilling activity.
During this period, management believes it retained most of the key customers of
both the Company and Western. However, since the former Western operations were
more heavily concentrated in the natural gas regions of the United States, the
decline in natural gas drilling activity significantly impacted the Company's
operations. While pricing for the Company's U.S. pumping services remained
relatively stable during 1995, pricing remains depressed compared to levels
realized in the past. Management expects these competitive pricing conditions to
remain until a significant increase in drilling activity occurs.
International revenues increased by 14% and 27% during 1994 and 1995,
respectively. The increases were primarily attributable to three factors: (a)
continued geographic expansion of the Company's tubular services and
commissioning and leak detection service lines, (b) significant increase in
Latin America business and (c) acquisitions. The tubular services and
commissioning and leak detection product lines have now been expanded into 13
countries, including parts of the Middle East, Africa, South America, Southeast
Asia and Australia. Most of the revenue growth in Latin America (up 36% and 46%
in 1994 and 1995, respectively) was a result of increased cementing and
stimulation activity with both private and national oil and gas companies in
Argentina and the addition of a stimulation vessel in 1994 and a coiled tubing
barge in 1995 to service the Lake Maracaibo, Venezuela market. The acquisitions
which contributed to the Company's revenue growth were NBS in April 1993, SIAT
in July 1993, the former Egypt joint venture in February 1994 and Western in
April 1995, which added international operations in Indonesia, Hungary and
Nigeria. These acquisitions added approximately $14 million and $30 million in
international revenue during 1994 and 1995, respectively, compared with 1993.
Operating Income. Operating income decreased by $1.1 million in 1994 and
increased by $1.6 million in 1995. In 1994, the decrease was due primarily to
lower margins on the Company's North Sea stimulation business caused by lower
activity and pricing, and a decline in U.S. pricing. In 1995, the increase was
primarily due to the revenue increases described above, partially offset by a
$17.2 million unusual charge incurred in 1995. The unusual charge was taken in
conjunction with a consolidation program that is designed to improve
efficiencies and reduce costs resulting from the Western Acquisition. Included
in the unusual charge is an adjustment to the carrying value of duplicate
operating facilities, severance and related benefit costs, benefits due under
agreements covering the Company's executives which were triggered as a result of
the Western Acquisition, and legal and other costs that would not have been
incurred had the Western Acquisition not occurred.
The cost of sales and services as a percentage of revenue decreased to
83.0% in 1995 as compared to 84.9% and 83.4% in 1994 and 1993, respectively. The
increase from 1993 to 1994 was due primarily to a decline in U.S. pricing, which
negatively impacted margins by $5.5 million, and lower margins on the Company's
North Sea stimulation business caused by lower activity and pricing. The
reduction in 1995 was primarily as a result of cost reduction efforts
implemented after the Western Acquisition and the economies of scale by having a
larger U.S. operation.
Other operating expenses, excluding the unusual charge and goodwill
amortization, increased by 1% and 47% in 1994 and 1995, respectively. The 1994
increase was attributable to higher marketing expenses from international
expansion efforts and corporate marketing and alliance programs, partially
offset by lower research and engineering and general and administrative expenses
due to the Company's continued overhead reduction efforts. The 1995 increase was
primarily attributable to overhead from the former Western operations, along
with increased marketing expenses related to international expansions. Marketing
expenses are expected to increase as a percentage of sales due to the higher
concentration of Western's revenues earned in the United States, which requires
a relatively greater marketing effort. The increase in goodwill
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<PAGE> 32
amortization resulted from the aforementioned acquisitions, most significantly
Western, which will result in annual goodwill amortization expense of $4.4
million.
Other. Interest expense increased by $2.0 million and $7.8 million in 1994
and 1995, respectively. The 1994 increase resulted from higher interest rates
and increased borrowings to fund the Company's international expansions and
acquisitions. While interest rates continued to increase marginally during 1995,
the additional interest expense is primarily attributed to borrowings incurred
to finance the Western Acquisition. See "-- Financial Condition -- Capital
Resources and Liquidity" and Notes 4 and 5 of the Notes to Consolidated
Financial Statements.
Other income was a net gain in both 1994 and 1995 due to nonrecurring gains
on asset sales and, in 1995, $1.4 million of royalty income from one of the
Company's proprietary products.
Primarily as a result of profitability in international jurisdictions where
the statutory rate is below the U.S. rate and the availability of tax benefits
from the Company's reorganization pursuant to its initial public offering in
1990, the Company's effective tax rate remained below the U.S. statutory rate
during 1995. Additionally, certain nonrecurring benefits have reduced the
Company's effective tax rate, including $1.3 million in 1993 resulting from a
change in the valuation reserve for net operating losses and from changes in tax
laws in the United States and other countries, $1.9 million in 1994 from a
change in the valuation reserve for net operating losses and $1.5 million in
1995 from the favorable settlement of a tax audit and from tax losses
attributable to foreign exchange fluctuations in certain international
jurisdictions.
Minority interest expense declined in both 1994 and 1995, as a result of
lower profitability of the Company's Southeast Asian joint ventures and losses
by the Company's Nigerian joint venture. Results in 1994 include a $16.0 million
($10.4 million after tax) charge for the cumulative effect of an accounting
change for retiree health benefits. See Note 9 of the Notes to Consolidated
Financial Statements.
FINANCIAL CONDITION
Capital Resources and Liquidity. Net cash provided from operating
activities for the six months ended March 31, 1996 increased by $1.4 million
from the prior year's figure. Higher profitability and depreciation was
partially offset by the payment of merger-related and various other expenses
previously accrued for. Cash flows from operating activities increased to $26.3
million in 1994 and $39.4 in 1995 as compared to cash used for operating
activities of $.3 million in 1993. The 1994 improvement resulted primarily from
a smaller increase in both receivables and other current assets and liabilities
compared with 1993. In 1995, cash flows from operating activities increased
primarily as a result of higher profitability and higher noncash expenses during
the period.
At March 31, 1996, borrowings outstanding under the Company's then existing
bank credit facility amounted to $146.0 million. Management strives to maintain
low cash balances while utilizing available credit facilities to meet the
Company's capital needs. Excess cash generated is used to pay down outstanding
borrowings.
In June 1996, in connection with the Nowsco Acquisition, the Company
entered into the New Bank Credit Facility among the Company, BJ U.S.A., BJ
Middle East, BJ International, BJ Canada, 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 (repayable in 22 quarterly installments beginning in March
1997) 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%
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<PAGE> 33
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) 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 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 net cash proceeds of $280.4 million to be received upon the
issuance of 8,500,000 Shares in the Common Stock Offering) to the extent
necessary to reduce the capitalization ratio to 35%.
Proceeds of $123.3 million from the issuance of the Existing Notes on
February 20, 1996 were used to repay debt outstanding under the term loan
portion of the Company's then existing bank credit facility, which was incurred
in April 1995 to finance a portion of the purchase price for the Western
Acquisition.
The outstanding balance of the 9.2% Notes, issued in 1991, was $18.0
million at March 31, 1996. Principal reductions of $6.0 million are required
annually each August until maturity on August 1, 1998.
The Company's interest-bearing debt represented 38.4% of its total
capitalization at March 31, 1996, a slight decrease from 38.9% at the previous
fiscal year-end. The New Bank Credit Facility and 9.2% Notes contain various
customary covenants, including the maintenance of certain profitability and
solvency ratios and restrictions on dividend payments. Management believes that
the New Bank Credit Facility, combined with other discretionary credit
facilities and cash flow from operations, provides the Company with sufficient
capital resources and liquidity to manage its routine operations and fund
projected capital expenditures.
At March 31, 1996, the Company had approximately $512 million of U.S. tax
net operating loss carryforwards expiring between 2000 and 2010. With the
Western Acquisition, the Company acquired approximately $375 million of tax net
operating loss carryforwards, subject to certain limitations, expiring between
2000 and 2008. Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," the Company is required to record a deferred tax
asset for the future tax benefit of these tax net operating loss carryforwards,
as well as other items, if realization is "more likely than not." As previously
discussed, the Western Acquisition gives the Company a greater critical mass
with which to compete in the United States as it has more than doubled the
Company's U.S. revenue base. In addition, with the combination of the Company
and Western, the Company has realized significant consolidation benefits.
Management estimates that approximately $40 million of overhead and redundant
operating costs have been eliminated annually as a result of the combination of
the two companies. Management has concluded that the Company's future U.S.
taxable income will be sufficient over the remaining carryforward periods to
realize the tax benefits represented by approximately $332 million of tax net
operating loss carryforwards acquired with Western and generated by the
Company's operations prior to the Western Acquisition. The tax benefits
resulting from the Western Acquisition have been included in the approximately
$84 million net deferred tax asset recognized in the purchase price allocation
at the acquisition date. Valuation allowances have been established for the
benefit of the tax net operating loss carryforwards that are estimated to expire
prior to their utilization.
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<PAGE> 34
Requirements for Capital. Excluding acquisitions, capital expenditures
during the six months ended March 31, 1996 were $21.8 million, or $6.8 million
higher than the spending in the comparable six months of the prior year. The
current period's spending related primarily to international expansion
opportunities (primarily in Latin America), offshore cementing skids and
upgrades of the Company's information systems. Other investing activities
included the acquisition of the remaining 60% interest in the Company's joint
venture in Brazil for total consideration of $5.4 million consisting of $3.7
million of cash and $1.7 million of debt assumed by the Company. Excluding
acquisitions, capital expenditures during 1995 were $31.0 million, or $8.4
million below 1994 spending. Spending for 1995 related primarily to offshore
operations both in the United States and abroad, and international growth
opportunities, including geographic expansions and expansions of services. The
prior year's spending included approximately $11 million for the construction of
two offshore stimulation vessels. Investing activities in the fiscal year ended
September 30, 1995 included $5.4 million of proceeds from the sale of a
duplicate facility and other disposals of assets.
Capital expenditures for fiscal 1996 are projected to be approximately $45
million, excluding acquisitions, and are expected to include spending for
continued geographic expansions of all service lines, construction or upgrading
of at least two offshore vessels, additional capacity in certain high margin
locations and normal levels of replacement capital. The actual amount of fiscal
1996 capital expenditures will be primarily dependent upon the availability of
expansion opportunities and will 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.
When used in this Prospectus, the words "expect," "estimate," "project,"
"believe" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions. 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.
BUSINESS
GENERAL
The Company, whose operations trace back to the Byron Jackson Company
(which was founded in 1872), was organized in 1990 under the corporate laws of
the State of Delaware. The Company is a leading provider of pressure pumping and
other oilfield services serving the petroleum industry worldwide. The Company's
pressure pumping services consist of well stimulation, cementing, sand control
and coiled tubing services used in the completion of new oil and natural gas
wells and in remedial work on existing wells, both onshore and offshore. Other
oilfield services include casing and tubular services provided to the oil and
gas exploration and production industry, commissioning and leak detection
services provided to offshore platforms and pipelines and specialty chemical
services.
On April 13, 1995, the Company completed the Western Acquisition for a
total purchase price of $511.4 million (including transaction costs of $7.2
million), consisting of 12.0 million shares of Common Stock, cash of $247.9
million from borrowings under the Company's then existing bank credit facility
and Warrants to purchase 4.8 million shares of Common Stock. The Western
Acquisition provides the Company with a greater critical mass with which to
compete in both domestic and international markets and the opportunity to
realize significant consolidation benefits. The Western Acquisition has
increased the Company's existing total revenue base by approximately 75% and has
more than doubled the Company's existing domestic revenue base. In addition,
approximately $40 million in annual overhead and redundant operating costs have
been eliminated by combining the two companies. During the year ended September
30, 1995, the Company generated approximately 39% of its revenue from cementing
services, 47% from stimulation services and 14% from product and equipment sales
and other oilfield services (37%, 48% and 15%, respectively, during the portion
of the 1995 fiscal year since the Western Acquisition). Over the same period,
the Company generated approximately 55% of its revenue from domestic operations
and 45% from international operations (60% and 40%, respectively, since the
Western Acquisition).
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<PAGE> 35
The Company consummated the Nowsco Acquisition during June 1996 for a total
purchase price (including estimated transaction costs of $7.0 million) estimated
to be $581.3 million (Cdn $796.3 million). For a description of the Nowsco
Acquisition and Nowsco's business, see "Summary -- Recent Developments" and
"Recent Developments." 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. Nowco'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.
CEMENTING SERVICES
The Company's cementing services, which accounted for approximately 39% of
the Company's total revenue during 1995, consist of blending cement and water
with various solid and liquid additives to create a slurry that is pumped into a
well between the casing and the wellbore. The additives and the properties of
the slurry are designed to ensure the proper pump time, compressive strength and
fluid loss control, and vary depending upon the well depth, downhole
temperatures and pressures and formation characteristics.
The Company provides regional laboratory testing services to evaluate
slurry properties, which vary with cement supplier and local water properties.
Job design recommendations are developed by the Company's field engineers to
achieve desired porosity and bonding characteristics.
There are a number of specific applications for cementing services used in
oilfield operations. The principal application is the cementing behind the
casing pipe and the wellbore during the drilling and completion phase of a well
("primary cementing"). Primary cementing is performed to (i) isolate fluids
between the casing and productive formations and other formations which would
damage the productivity of hydrocarbon producing zones or damage the quality of
freshwater aquifers, (ii) seal the casing from corrosive formation fluids and
(iii) provide structural support for the casing string. Cementing services are
also utilized when recompleting wells from one producing zone to another and
when plugging and abandoning wells.
STIMULATION SERVICES
The Company's stimulation services, which accounted for approximately 47%
of the Company's total revenue during 1995, consist of fracturing, acidizing,
sand control, nitrogen and coiled tubing services designed to improve the flow
of oil and gas from producing formations and are summarized as follows:
Fracturing. Fracturing services are performed to enhance the production of
oil and gas from formations having such low permeability that the natural flow
is restricted. The fracturing process consists of pumping a fluid gel into a
cased well at sufficient pressure to "fracture" the formation. Sand, bauxite or
synthetic proppant which is suspended in the gel is pumped into the fracture to
prop it open. The size of a fracturing job is generally expressed in terms of
the pounds of proppant. The main pieces of equipment used in the fracturing
process are the blender, which blends the proppant and chemicals into the
fracturing fluid, and the pumping unit, which is capable of pumping significant
volumes at high pressures. The Company's fracturing pump units are capable of
pumping slurries at pressures of up to 14,000 pounds per square inch at rates of
up to four barrels per minute. In some cases, fracturing is performed by an acid
solution pumped under pressure without a proppant or with small amounts of
proppant.
An important element of fracturing services is the design of the fracturing
treatment, which includes determining the proper fracturing fluid, proppants and
injection program to maximize results. The Company's field engineering staff
provides technical evaluation and job design recommendations as an integral
element of its fracturing service for the customer. Technological developments
in the industry over the past three to four years have focused on proppant
concentration control (i.e., proppant density), liquid gel concentrate
capabilities, computer design and monitoring of jobs and cleanup properties for
fracturing fluids. Over the past decade, the Company has successfully introduced
equipment to respond to these technological advances. During 1991, the Company
introduced a patented, borate-based fracturing fluid, Spectra Frac G(R). During
1993, the Company introduced two additional fracturing fluids, Medallion FracSM
and Spartan FracSM. These fracturing fluids are now used in most of the
Company's fracturing treatments. During 1994, the Company
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commercialized a proprietary enzyme chemistry used in conjunction with the three
fracturing fluids. These "enzyme breakers" can significantly enhance the
production of oil and gas in a wide range of wells.
Acidizing. Acidizing is performed to enhance the flow rate of oil and gas
from wells with reduced flow caused by formation damage due to drilling or
completion fluids, or the buildup over time of various materials that block the
formation. Acidizing entails pumping large volumes of specially formulated acids
into reservoirs to dissolve barriers and enlarge crevices in the formation,
thereby eliminating obstacles to the flow of oil and gas. The Company maintains
a fleet of mobile acid transport and pumping units to provide acidizing services
for the onshore market.
Sand Control. Sand control services involve the pumping of gravel to fill
the cavity created around the wellbore during drilling. The gravel provides a
filter for the exclusion of formation sand from the producing pathway. Oil and
gas is then free to move through the gravel into the wellbore to be produced.
These services are primarily provided in the Gulf of Mexico, the North Sea,
Venezuela, Trinidad and Indonesia.
Nitrogen. There are a number of uses for nitrogen, an inert gas, in
pressure pumping operations. Used alone, it is effective in displacing fluids
during drill stem testing. However, nitrogen services are used principally in
applications which support the Company's cementing and fracturing services.
Coiled Tubing. Coiled tubing involves the injection of coiled tubing into
wells to perform various applications and functions for use principally in
well-servicing operations. The application of coiled tubing to drilling
operations also has increased in recent years due to improvements in coiled
tubing technology. Coiled tubing is a flexible steel pipe with a diameter of
less than three inches manufactured in lengths of thousands of feet and wound or
coiled along a large reel on a truck or skid-mounted unit. Due to the small
diameter of coiled tubing, it can be inserted through production pipe and used
to perform workovers without using a larger, more costly workover rig. The other
principal advantages of employing coiled tubing in a workover include (i) not
having to "shut-in" the well during such operations, thereby allowing production
to continue and reducing the risk of formation damage to the well, (ii) the
ability to reel continuous coiled tubing in and out of a well significantly
faster than conventional pipe, which must be jointed and unjointed, (iii) the
ability to direct fluids into a wellbore with more precision, allowing for
localized stimulation treatments and providing a source of energy to power a
downhole motor or manipulate downhole tools and (iv) enhanced access to remote
or offshore fields due to the smaller size and mobility of a coiled tubing unit.
Recent technological improvements to coiled tubing have increased its
dependability and durability, expanding coiled tubing's potential uses and
markets.
The Company participates in the offshore stimulation market through the use
of skid-mounted pump units and through operation of several stimulation vessels
including the "Vestfonn" in the North Sea, the "Sea Hero," the "Tad Tide" and
the "Jan Tide" in the Gulf of Mexico and the "BJ003" and the "BJ007" on Lake
Maracaibo in Venezuela. The Jan Tide and the BJ003 were commissioned in the
spring of 1994 and the BJ007 in the summer of 1995. The "Renaissance," formerly
used as a stimulation vessel in the North Sea, has been "warm stacked" and is
currently being marketed for sale for use other than as a stimulation vessel.
The Company believes that as production continues to decline in key
producing fields of the U.S. and certain international regions, the demand for
fracturing and stimulation services is likely to increase. The Company has
recently increased its pressure pumping capabilities in certain international
markets.
OTHER SERVICES
The Company's other services, including product and equipment sales for
cementing and stimulation services, as well as the following services, accounted
for approximately 14% of the Company's total revenue in 1995. Such product and
equipment sales to customers are generally made in the course of providing
cementing and stimulation services to certain customers and, other than the
specialty chemical business, the Company generally does not sell proprietary
products to other companies involved in well servicing.
Casing and Tubular Services. Casing services principally consist of
installing (or "running") pipe in a wellbore to protect the structural integrity
of the wellbore and to seal various zones in the well. These services are
primarily provided during the drilling and completion phases of a well. Tubular
services, which consist of
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running pipe inside the casing to improve the flow of oil and gas, are
principally provided during workovers. The Company expects that workover
activity and the demand for tubular services in the North Sea should increase
during at least the next several years as operators there attempt to mitigate
the decline in production from the North Sea's mature fields.
Commissioning and Leak Detection Services. Leak detection services,
provided through the Company's Comtec division, involve the inspection and
testing of the integrity of pipe connections in offshore drilling and production
platforms, onshore and offshore pipelines and industrial plants, and are
provided during the commissioning, decommissioning, installation or construction
stages of these infrastructures, as well as during routine maintenance checks.
Specialty Chemical Services. Specialty chemical services, provided through
the Company's Unichem division acquired as part of Western, include corrosion
and scale inhibitors, as well as process chemicals and paraffin control for the
treatment of oil wells and for refining, gas processing plant and petrochemical
facility maintenance and flow improvement.
OPERATIONS
The Company's cementing and stimulation services are used in the completion
of new oil and gas wells and in remedial work on existing wells. These services
are provided through domestic and international locations to customers in most
of the major oil and natural gas producing regions of the United States, Latin
America, Europe, Southeast Asia, Africa and the Middle East. The Company
believes that it is the third largest provider of cementing and stimulation
services worldwide, with a particularly strong presence in the Alaskan North
Slope, the Gulf of Mexico, the North Sea, Indonesia and most of Latin America.
Cementing and stimulation services are provided to both land-based and offshore
customers on a 24-hour, on-call basis, through regional and district facilities
in over 70 locations worldwide, utilizing complex, truck- or skid-mounted
equipment designed and constructed for the particular service furnished. After
such equipment is moved to a well location, it is configured with appropriate
connections to perform the specific services required. The mobility of this
equipment permits the Company to provide cementing and stimulation services to
changing geographic areas. Management believes that the Company's cementing and
stimulation equipment is adequate to service both current and projected levels
of market activity in the near term.
The Company maintains a fleet of mobile cement blending and pumping
equipment for onshore operations. Offshore operations are performed with
skid-mounted cement pumping units. The Company has successfully utilized its
patented RAM (Recirculating Averaging Mixer) both for onshore applications and
as an offshore skid. In 1991, the Company introduced a sand control blender, the
Cyclone, which also has pressure pumping and fracturing applications. Responding
to its customers' monitoring needs, in 1992 the Company introduced a
computerized monitor, which allows for real-time monitoring of the cementing
process.
Principal materials utilized in cementing and stimulation services include
cement, fracturing proppants, acid and bulk chemical additives. Generally, these
items are available from several suppliers, and the Company generally utilizes
more than one supplier for each item. The Company also produces certain of its
specialized products through Company-owned blending facilities in Germany and
Singapore. Sufficient material inventories are maintained to allow the Company
to provide on-call services to its customers to whom the materials are resold in
the course of providing cementing and stimulation services. An inventory of
repair parts and maintenance items for cementing and stimulation equipment is
carried to ensure continued operations without significant downtime caused by
parts shortages. The Company has not experienced significant difficulty in
obtaining necessary supplies of these materials or replacing equipment parts and
does not anticipate a shortage in the foreseeable future.
The Company believes that coiled tubing and other materials utilized in
performing coiled tubing services are and will continue to be widely available
from a number of manufacturers. Although there are only two principal
manufacturers of the reels around which the coiled tubing is wrapped, the
Company is not aware of any difficulty in obtaining coiled tubing reels in the
past, and the Company anticipates no such difficulty in the future.
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The Company's operations are subject to hazards inherent in the oil and gas
industry, such as fire, explosion, blowouts and oil spills, which can cause
personal injury or loss of life, damage to property, equipment, the environment
and marine life, and suspension of operations. In addition, claims for loss of
oil and gas production and damages to formations are incidental to the pressure
pumping business. The Company maintains insurance coverage that it believes to
be customary in the industry against these hazards and whenever possible obtains
agreements from customers providing indemnification against liability to others.
However, such insurance provides for substantial deductibles and premium
adjustments based on claims experience and excludes coverage for damages
resulting from breach of contract or based on alleged fraud or deceptive trade
practices. Neither insurance nor indemnity agreements can provide complete
protection against casualty losses.
ENGINEERING AND SUPPORT SERVICES
The Company maintains a manufacturing and research and development center
near Houston, Texas. The Company's research and development organization is
divided into three distinct areas-Petroleum Engineering, Instrumentation
Engineering and Mechanical Engineering.
Petroleum Engineering. The Petroleum Engineering laboratory specializes in
designing fluids with enhanced performance characteristics in the fracturing,
acidizing and cementing operations (i.e., "frac fluids" and "cement slurries").
As fluids must perform under a wide range of downhole pressures, temperatures
and other conditions, this design process is a critical element in developing
products to meet customer needs.
In addition to fluids technology, the Company's Petroleum Engineering group
develops and supports a wide range of proprietary software utilized in the
monitoring of both cement and stimulation job parameters. This software,
combined with the Company's internally developed monitoring hardware, allows for
real-time job control as well as post-job analysis.
Instrumentation Engineering. The pumping services industry utilizes an
array of both monitoring and control instrumentation as an integral element of
providing cementing and stimulation services. The Company's monitoring and
control instrumentation, developed by its Instrumentation Engineering group,
complements its products and equipment and provides customers with desired
real-time monitoring of critical applications.
Mechanical Engineering. Though similarities exist among the major
competitors in the general design of their pumping equipment, the actual
engine/transmission configurations as well as the mixing and blending systems
differ significantly. Additionally, different approaches to the integrated
control systems result in equipment designs which are usually distinct in
performance characteristics for each competitor. The Company's Mechanical
Engineering group is responsible for the design and manufacturing of virtually
all of the Company's primary pumping and blending equipment. However, some
peripheral support equipment that is generic to the industry is purchased
externally. The Company's Mechanical Engineering group provides new product
design as well as support to the rebuilding and field maintenance functions.
MANUFACTURING
In addition to the engineering facility, the Company's technology and
research center houses its main equipment and instrumentation manufacturing
facility. This operation currently occupies approximately 65,000 square feet and
includes complete fabrication, engine and transmission rebuilding, pump
manufacturing and assembly capabilities. As a result of the Western Acquisition,
the Company acquired a research and engineering center located in The Woodlands,
north of Houston, Texas. The Company also has ancillary manufacturing facilities
in Singapore and Scotland. The Company employs outside vendors for some
fabrication but is not dependent on any one source.
COMPETITION
Pressure Pumping Services. The Company competes with larger pumping
service companies, in particular Halliburton Energy Services, a division of
Halliburton Company, and Dowell, a division of
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Schlumberger Limited, in all areas of the U.S. in which the Company participates
and in most international regions. Several smaller companies compete with the
Company in certain areas of the United States and in certain foreign countries.
The principal methods of competition that apply to the Company's business are
its prices, service record and reputation in the industry. While Halliburton
Energy Services and Dowell are larger in terms of overall revenues, the Company
has a number one or a number two share position in several pumping service
markets, including many regions in the United States, the North Sea and Latin
America.
Other Services. The Company believes that it is one of the largest
suppliers of casing and tubular services in the U.K. North Sea and is expanding
such services in Latin America. The largest provider of casing and tubular
services in Europe is Weatherford Enterra, Inc. In the United Kingdom, casing
and tubular services are typically provided under long-term contracts which
limit the opportunities to compete for business until the end of the contract
term. In continental Europe, shorter-term contracts are typically available for
bid by the provider of casing and tubular services. The Company believes it is
one of the largest suppliers of commissioning and leak detection services in the
U.K. North Sea. In specialty chemical services, there are several major chemical
suppliers significantly larger than the Company's Unichem division.
MARKETS AND CUSTOMERS
General. Demand for the Company's services and products depends primarily
upon the number of oil and gas wells being drilled, the depth and drilling
conditions of such wells, the number of well completions and the level of
workover activity worldwide.
The Company's principal customers consist of major and independent oil and
gas producing companies. During 1995, the Company provided oilfield services to
over 2,500 customers, none of which accounted for more than 5% of consolidated
revenues. While the loss of certain of the Company's largest customers could
have a material adverse effect on Company revenues and operating results in the
near term, management believes the Company would be able to obtain other
customers for its services in the event it lost any of its largest customers.
In both the United States and internationally, there has been a continuing
trend by oil and gas companies toward "alliances" with the service companies.
These alliances take various forms including packaged or integrated services,
single source suppliers and turnkey agreements. Approximately 20% of the
Company's revenues are generated under such alliances, or approximately $117
million of the Company's revenues during 1995, and approximately 19% of the
Company's revenues were generated under such alliances during the first six
months of fiscal 1996.
United States. The Company provides its pumping services to its U.S.
customers through a network of over 40 locations, a majority of which offer both
cementing and stimulation services. Demand for the Company's services in the
United States is primarily driven by oil and natural gas drilling activity,
which is affected by the current and anticipated prices of oil and natural gas.
Due to aging oilfields and lower-cost sources of oil internationally, drilling
activity in the United States has declined more than 75% from its peak in 1981.
Record low drilling activity levels were experienced in 1986 and 1992. As a
result, pumping service companies have been unable to recapitalize their aging
U.S. fleets due to the inability, under current market conditions, to generate
adequate returns on new capital investments. Management believes it is important
to operate with a greater critical mass in key U.S. markets to improve returns
in this environment. This conclusion led to the decision to withdraw from
certain low activity areas in the past several years and to consolidate the
Company's operations with those acquired from Western, which had a larger
presence in the United States.
International. The Company operates in more than 30 countries in the major
international oil and natural gas producing areas of Latin America, Europe,
Africa, Southeast Asia and the Middle East. The Company generally provides
services to its international customers through wholly owned foreign
subsidiaries. Additionally, the Company holds certain controlling and minority
interests in joint venture companies, through which it conducts a portion of its
international operations. For geographic information, see Note 8 of the Notes to
Consolidated Financial Statements.
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The international market is somewhat less volatile than the U.S. market
despite energy price fluctuations. Due to the significant investment and
complexity in international projects, management believes drilling decisions
relating to such projects tend to be evaluated and monitored with a longer-term
perspective with regard to oil and gas pricing. Additionally, the international
market is dominated by major oil companies and national oil companies which tend
to have different objectives and more operating flexibility than the typical
independent producer in the United States. International activities have been
increasingly important to the Company's results of operations since 1992, when
it implemented a strategy to expand its international presence.
In general, the Company operates in those international markets where it
can achieve and maintain both a significant share position and an attractive
return on its investment. The Company's major international revenue and income
producing operations are in the North Sea in the European market; Indonesia and
Malaysia in the Southeast Asian market; and Argentina, Venezuela, Ecuador and
Colombia in the Latin American market. In Brazil, the Company recently completed
the acquisition of the 60% interest of its local joint venture partner. Foreign
operations are subject to special risks that can materially affect the sales and
profits of the Company, including currency exchange rate fluctuations, the
impact of inflation, governmental expropriation, exchange controls, political
instability and other risks.
EMPLOYEES
At September 30, 1995, the Company had a total of 4,777 employees.
Approximately 37% of the Company's employees are employed outside the United
States.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's business is affected both directly and indirectly by
governmental regulations relating to the oil and gas industry in general, as
well as environmental and safety regulations which have specific application to
the Company's business.
The Company, through the routine course of providing its services, handles
and stores bulk quantities of hazardous materials. In addition, leak detection
services involve the inspection and testing of facilities for leaks of hazardous
or volatile substances. If leaks or spills of hazardous materials handled,
transported or stored by the Company occur, the Company may be responsible under
applicable environmental laws for costs of remediating damage to the surface,
sub-surface or aquifers incurred in connection with such occurrence.
Accordingly, the Company has implemented and continues to implement various
procedures for the handling and disposal of hazardous materials. Such procedures
are designed to minimize the occurrence of spills or leaks of these materials.
The Company has implemented and continues to implement various procedures
to further assure its compliance with environmental regulations. Such procedures
generally pertain to the operation of underground storage tanks, disposal of
empty chemical drums, improvement to acid and wastewater handling facilities and
cleaning of certain areas at the Company's facilities. The estimated cost for
such procedures, including other environmental investigations and remedial
actions, is approximately $14 million which will be distributed over a period of
several years, for which the Company has provided appropriate reserves. In
addition, the Company maintains insurance for certain environmental liabilities
which the Company believes is reasonable based on its knowledge of the industry.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," imposes liability without regard to fault or the
legality of the original conduct, on certain classes of persons that contributed
to the release of a "hazardous substance" into the environment. Certain disposal
facilities used by the Company or its predecessors have been investigated under
state and federal superfund statutes, and the Company has been named as a
potentially responsible party for cleanup at 10 such sites. Although the
Company's level of involvement varies at each site, in general, the Company is
one of numerous parties named and will be obligated to pay an allocated share of
the cleanup costs. While it is not feasible to predict the outcome of these
matters with certainty, management is of the opinion that their ultimate
resolution should not have a material effect on the Company's operations or
financial position.
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RESEARCH AND DEVELOPMENT; PATENTS
Research and development activities are directed primarily toward
improvement of existing products and services and the design of new products and
processes to meet specific customer needs. Research and development expenses for
each of the three fiscal years ended September 30, 1995 were approximately $6.8
million, $6.4 million and $6.5 million, respectively.
The Company currently holds numerous patents relating to products and
equipment used in its pumping services business. While such patents, in the
aggregate, are important to maintaining the Company's competitive position, no
single patent is considered to be of a critical or essential nature.
Additionally, the Company operates under various license arrangements,
generally ranging from 10 to 20 years in duration, relating to certain products
or techniques. None of these license arrangements is of a material nature.
To remain competitive, the Company devotes significant resources to
developing technological improvements to its products. In 1991, the Company
introduced a borate-based fracturing fluid, Spectra Frac G(R), which is being
widely used in the U.S. stimulation market and the North Sea. In 1993, this
product was complemented with two additional fracturing fluids, Spartan FracSM
and Medallion FracSM, which have expanded the Company's service line offerings
to cover a broader range of economic and downhole design variables. These
products replaced several products previously made available to customers.
During 1994, the Company commercialized a proprietary enzyme chemistry used in
conjunction with the three fracturing fluids. These "enzyme breakers"
significantly enhance the production of oil and gas in a wide range of wells. In
1991, the Company introduced its "Cyclone" blender which, along with Western's
completion tool technology, have helped address the growing sand control and
frac pack markets in the Gulf of Mexico and the North Sea. The Company believes
that these products and equipment have enabled the Company to maintain or
increase its market share in the United States, the Gulf of Mexico and the North
Sea.
In 1995, the Company developed Sandstone Acid(TM), a matrix acidizing
chemistry used in sandstone formations. While still in the early stages of
testing, management believes this product offers significant advantages over
conventional acidizing methods in sandstone reservoirs. The Company intends to
continue to devote significant resources to its research and development
efforts.
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MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
J. W. Stewart................. 52 Director, Chairman of the Board, President and
Chief Executive Officer
Michael McShane............... 41 Director, Vice President -- Finance and Chief Financial
Officer
David D. Dunlap............... 34 Vice President -- International Operations
Thomas H. Koops............... 49 Vice President -- Technology and Logistics
Margaret B. Shannon........... 46 Vice President -- General Counsel
Kenneth A. Williams........... 45 Vice President -- North American Operations
Matthew D. Fitzgerald......... 38 Controller
Taylor M. Whichard............ 37 Treasurer
Stephen A. Wright............. 48 Director of Human Resources
L. William Heiligbrodt........ 54 Director
John R. Huff.................. 50 Director
Don D. Jordan................. 64 Director
R. A. LeBlanc................. 66 Director
James E. McCormick............ 68 Director
Michael E. Patrick............ 52 Director
</TABLE>
Mr. Stewart, director (Class III) of the Company since 1990, joined Hughes
Tool Company in 1969 as Project Engineer. He served as Vice President -- Legal
and Secretary of Hughes Tool Company and as Vice President -- Operations for a
predecessor of the Company prior to being named President of the Company in
1986.
Mr. McShane, director (Class II) of the Company since 1990, joined the
Company in 1987 from Reed Tool Company, an oilfield tool company, where he was
employed for seven years. At Reed Tool Company he held various financial
management positions, including Corporate Controller and Regional Controller of
Far East Operations.
Mr. Dunlap joined the Company in 1984 as a District Engineer and was named
Vice President -- International Operations in 1995. He has previously served as
Vice President -- Sales for the Coastal Division of North America and U.S. Sales
and Marketing Manager.
Mr. Koops joined the Company as Manager -- Products and Technical Services
in 1976. He was named Vice President -- Manufacturing and Logistics of the
Company in 1988 and began serving in his current position in 1992.
Ms. Shannon joined the Company in February 1994 as Vice
President -- General Counsel from the law firm of Andrews & Kurth L.L.P., where
she had been a partner since 1984.
Mr. Williams joined the Company in 1973 and has since held various
positions in the U.S. operations. Prior to being named Vice President -- North
American Operations in 1991, he served as Region Manager -- Western U.S. and
Canada.
Mr. Fitzgerald joined the Company as Controller in 1989 from Baker Hughes
Incorporated, where he was the Director of Corporate Audit. Prior to that, he
was a Senior Manager with the certified public accounting firm of Ernst &
Whinney.
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Mr. Whichard joined the Company as Tax and Treasury Manager in 1989 from
Weatherford International, where he was the Tax Manager. Prior to being named
Treasurer in 1992, he served in various positions, including Tax Director and
Assistant Treasurer.
Mr. Wright joined the Company as Manager of Compensation and Benefits in
1985 from Global Marine Inc., an offshore drilling company, and was named to his
current position with the Company in 1987.
Mr. Heiligbrodt, director (Class III) of the Company since 1992, is
President, Chief Operating Officer and a director of Service Corporation
International, a funeral services corporation ("SCI"). He has served in various
management positions with SCI since February 1990. Prior to joining SCI, Mr.
Heiligbrodt served as President of Provident Services, Inc. from March 1988 to
February 1990. Prior to that, he served for five years as Vice Chairman and
Chief Executive Officer of WEDGE Group, Incorporated, a multi-industry holding
company. He is Chairman of the Nominating Committee and a member of the
Executive Compensation Committee.
Mr. Huff, director (Class I) of the Company since 1992, is Chairman,
President and Chief Executive Officer of Oceaneering International, Inc., an
oilfield services corporation. Mr. Huff has been President, Chief Executive
Officer and a director of Oceaneering since 1986 and Chairman of the Board of
Oceaneering since 1990. Mr. Huff is also a director of Production Operators
Corp. He is a member of the Audit Committee and the Executive Compensation
Committee.
Mr. Jordan, director (Class II) of the Company since 1990, is Chairman,
Chief Executive Officer and a director of Houston Industries Incorporated, a
public utility holding company with interests in domestic and international
electric utility companies and projects. Mr. Jordan has been employed by various
subsidiaries of Houston Industries Incorporated since 1956. He currently serves
as a director of Texas Commerce Bancshares, UTECH Joint Venture and AEGIS
Insurance Services. He is Chairman of the Executive Compensation Committee and a
member of the Audit Committee.
Mr. LeBlanc, director (Class I) of the Company since 1994, served in
various executive positions with Keystone International, Inc., a manufacturer of
flow control products, including Chairman of the Board, Chief Executive Officer
and a director, from 1959 until his retirement in July 1995. Mr. LeBlanc also
serves as an advisory member of the board of directors of Texas Commerce Bank
National Association. He is a member of the Audit Committee and the Nominating
Committee.
Mr. McCormick, director (Class III) of the Company since 1990, served in
various executive positions with ORYX Energy Company, a diversified energy
company, including President and Chief Operating Officer and a director, from
1977 until his retirement on March 1, 1992. Mr. McCormick currently serves on
the board of directors of Lone Star Technology, Snyder Oil Company and Texas
Commerce Bank National Association. He is Chairman of the Audit Committee and a
member of the Executive Compensation Committee and the Nominating Committee.
Mr. Patrick, director (Class I) of the Company since April 1995, Chief
Investment Officer of the Meadows Foundation since December 1, 1995; consultant
from 1994 to 1995; President of Lomas Information Systems, Inc., a subsidiary of
Lomas Financial Corporation, from 1993 to 1994; Executive Vice President, Chief
Financial Officer and a director of Lomas Financial Corporation and President
and Chief Operating Officer of its Lomas Mortgage USA subsidiary, both of which
are engaged in mortgage banking, real estate and information services, from 1992
until 1994; and Executive Vice Chancellor for Asset Management of the University
of Texas System, where he was responsible for the investment of all endowment
funds, from 1984 to 1991. He is a member of the Executive Compensation
Committee.
The terms of the Class I, Class II and Class III directors expire in 1997,
1998 and 1996, respectively.
A Special Committee of the Board of Directors is responsible for
administering certain employee arrangements related to the acquisition of
Western. The Special Committee is composed of Messrs. McCormick (Chairman),
LeBlanc and Patrick.
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DESCRIPTION OF THE NOTES
GENERAL
The Existing Notes were issued under the Indenture, dated as of February 1,
1996, by and among the Company, the Guarantors and Bank of Montreal Trust
Company, as trustee under the Indenture (the "Trustee"). The Exchange Notes will
be issued under the same Indenture. The Exchange Notes will be issued solely in
exchange for an equal principal amount of Existing Notes pursuant to the
Exchange Offer. The form and terms of the Exchange Notes will be identical in
all material respects to the form and terms of the Existing Notes except that
(i) the offering of the Exchange Notes has been registered under the Securities
Act, (ii) the Exchange Notes will not be subject to transfer restrictions and
(iii) certain provisions relating to an increase in the stated interest rate on
the Existing Notes provided for under certain circumstances will be eliminated.
See "-- Registration Rights Agreement." The Notes are subject to the terms
stated in the Indenture, as supplemented, a copy of which has been filed as an
exhibit to the Registration Statement, and holders of the Notes are referred
thereto for a statement of those terms. The statements and definitions of terms
under this caption relating to the Notes and the Indenture described below are
summaries and do not purport to be complete. Such summaries make use of certain
terms defined in the Indenture and are qualified in their entirety by express
reference to the Indenture. Certain terms used herein are defined below under
"-- Certain Definitions."
The Existing Notes and the Exchange Notes will constitute a single series
of debt securities under the Indenture. If the Exchange Offer is consummated,
holders of Existing Notes who do not exchange their Existing Notes for Exchange
Notes will vote together with holders of the Exchange Notes for all relevant
purposes under the Indenture. In that regard, the Indenture requires that
certain actions by the holders thereunder (including acceleration following an
Event of Default) must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the
outstanding securities issued under the Indenture. In determining whether
holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Existing Notes that remain outstanding after the Exchange Offer will be
aggregated with the Exchange Notes, and the holders of such Existing Notes and
the Exchange Notes will vote together as a single series for all such purposes.
Accordingly, all references herein to specified percentages in aggregate
principal amount of the outstanding Notes shall be deemed to mean, at any time
after the Exchange Offer is consummated, such percentages in aggregate principal
amount of the Existing Notes and the Exchange Notes then outstanding.
Each Note matures on February 1, 2006 and bears interest at 7% per annum
from February 20, 1996, payable semiannually on February 1 and August 1 of each
year, commencing August 1, 1996, to the person in whose name the Note is
registered at the close of business on the January 15 or July 15 next preceding
such interest payment date. Interest is computed on the basis of a 360-day year
of twelve 30-day months. Principal and interest will be payable at the offices
of the Trustee, provided that, at the option of the Company, payment of interest
will be made by check mailed to the address of the person entitled thereto as it
appears in the register of the Notes (the "Register") maintained by the
Registrar. The Notes are transferable and exchangeable at the office of the
Registrar and any co-registrar and will be issued in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple thereof.
The Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with certain transfers
and exchanges.
The Notes may not be redeemed prior to maturity and will not be subject to
any sinking fund. Following the consummation of the Exchange Offer, holders of
Existing Notes not tendered as a general matter will not have any further
registration rights under the Registration Rights Agreement.
RANKING AND GUARANTEES
The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with the Company's Funded Indebtedness under the New
Bank Credit Facility and the 9.2% Notes and senior in right of payment to all
future indebtedness of the Company that is, by its terms, expressly subordinated
to the Notes.
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The following wholly owned subsidiaries of the Company (collectively, the
"Guarantors") have fully and unconditionally guaranteed (the "Guarantees") on a
joint and several basis the Company's obligations to pay principal and interest
with respect to the Notes: BJ U.S.A., BJ International and BJ Middle East. Each
of the Guarantees is an unsecured obligation of the Guarantor providing such
Guarantee. The Guarantee of each of BJ U.S.A., BJ International and BJ Middle
East ranks pari passu with the guarantee provided by and the borrowings of each
such Guarantor under the New 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. The Company has no secured indebtedness
as of the date of this Prospectus.
Under the terms of the Indenture, a Guarantor may be released from its
Guarantee if such Guarantor is not a guarantor of (or co-obligor on) any Funded
Indebtedness of the Company other than the Notes and other than Funded
Indebtedness of the Company (i) subject to a release provision similar to the
release provision described in this paragraph and (ii) the related guarantee (or
obligation) of which will be released substantially concurrently with the
release of the Guarantee of such Guarantor pursuant to such release provision,
provided that no Default or Event of Default under the Indenture has occurred
and is continuing. The Indenture also provides that if any Subsidiary of the
Company guarantees or becomes a co-obligor on any Funded Indebtedness of the
Company other than the Notes at any time subsequent to the date on which the
Notes are originally issued (including, without limitation, following any
release of such Subsidiary from its Guarantee as described above), then the
Company will cause the Notes to be equally and ratably guaranteed by such
Subsidiary, which shall thereupon become a Guarantor.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under its Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal,
state or foreign law. Each Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.
Although holders of the Notes are direct creditors of the Company's
principal direct Subsidiaries by virtue of the Guarantees, existing or future
creditors of the Guarantors could avoid or subordinate Guarantees, in whole or
in part, under fraudulent conveyance laws to the extent they were successful in
establishing that (i) a Guarantee was incurred with intent to hinder, delay or
defraud any present or future creditor or contemplated insolvency with a design
to prefer one or more creditors to the exclusion in whole or in part of others
or (ii) any of the Guarantors did not receive fair consideration or reasonably
equivalent value for issuing its Guarantee and that it (w) was insolvent at the
time of such issuance, or (x) was rendered insolvent by reason of such issuance,
or (y) was engaged in a business or transaction for which its assets constituted
unreasonably small capital to carry on its business or (z) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured. Under the circumstances referred to in clause (ii), but not clause (i),
above, the provision of the Indenture described in the previous paragraph
generally limit the obligations of each Guarantor to the maximum amount that
would not constitute a fraudulent conveyance or transfer under applicable law.
To the extent any Guarantee is avoided as a fraudulent conveyance or held
unenforceable for any other reason (or limited pursuant to such provision), the
holders of the Notes will cease to have any claim (or, as applicable, have only
a limited claim) in respect of a Guarantor, and will be solely creditors of the
Company or any Guarantor whose Guarantee was not avoided or held unenforceable
(or to the extent not so limited). In such event (and to the extent of any such
limitation), the claims of the holders of the Notes would be subject to the
prior payment of all liabilities of the Subsidiaries of the Company who were not
valid Guarantors.
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
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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
Guarantors, and such Subsidiaries are not obligated with respect to the Notes.
As a result, the claims of creditors of the Non-Guarantor Subsidiaries
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.
CERTAIN COVENANTS
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Subsidiary of the Company to, issue, assume or guarantee any
Indebtedness for borrowed money secured by any Lien on any property or asset now
owned or hereafter acquired by the Company or such Subsidiary without making
effective provision whereby any and all Notes then or thereafter outstanding
will be secured by a Lien equally and ratably with any and all other obligations
thereby secured for so long as any such obligations shall be so secured.
The foregoing restriction does not, however, apply to:
(a) Liens existing on the date on which the Notes are originally
issued or provided for under the terms of agreements existing on such date;
(b) Liens on property securing (i) all or any portion of the cost of
acquiring, constructing, altering, improving or repairing any property or
assets, real or personal, or improvements used or to be used in connection
with such property or (ii) Indebtedness incurred by the Company or any
Subsidiary of the Company prior to or within one year after the later of
the acquisition, the completion of construction, alteration, improvement or
repair or the commencement of commercial operation thereof, which
Indebtedness is incurred for the purpose of financing all or any part of
the purchase price thereof or construction or improvements thereon;
(c) Liens securing Indebtedness owed by a Subsidiary of the Company to
the Company or to any other Subsidiary of the Company;
(d) Liens on the property of any Person existing at the time such
Person becomes a Subsidiary of the Company and not incurred as a result of
(or in connection with or in anticipation of) such Person becoming a
Subsidiary of the Company, provided that such Liens do not extend to or
cover any property or assets of the Company or any of its Subsidiaries
other than the property encumbered at the time such Person becomes a
Subsidiary of the Company and do not secure Indebtedness with a principal
amount in excess of the principal amount outstanding at such time;
(e) Liens on any property securing (i) Indebtedness incurred in
connection with the construction, installation or financing of pollution
control or abatement facilities or other forms of industrial revenue bond
financing or (ii) Indebtedness issued or guaranteed by the United States or
any State thereof or any department, agency or instrumentality of either;
(f) any Lien extending, renewing or replacing (or successive
extensions, renewals or replacements of) any Lien of any type permitted
under clause (a), (b), (d) or (e) above, provided that such Lien extends to
or covers only the property that is subject to the Lien being extended,
renewed or replaced and that the principal amount of the Indebtedness
secured thereby shall not exceed the principal amount of Indebtedness so
secured at the time of such extension, renewal or replacement; or
(g) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (f) above) securing Indebtedness for borrowed money of
the Company or any Subsidiary of the Company in an aggregate principal
amount which, together with the aggregate amount of Attributable
Indebtedness deemed to be outstanding in respect of all Sale/Leaseback
Transactions entered into pursuant to clause (a) of the covenant described
under "Limitation on Sale/Leaseback Transactions" below (exclusive of any
such Sale/Leaseback Transactions otherwise permitted under clauses (a)
through (f)
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above), does not at the time such Indebtedness is incurred exceed 10% of
the Consolidated Net Worth of the Company (as shown in the most recent
audited consolidated balance sheet of the Company and its Subsidiaries).
Limitation on Sale/Leaseback Transactions. The Indenture provides that the
Company will not, and will not permit any Subsidiary to, enter into any
Sale/Leaseback Transaction with any person (other than the Company or a
Subsidiary) unless:
(a) the Company or such Subsidiary would be entitled to incur
Indebtedness, in a principal amount equal to the Attributable Indebtedness
with respect to such Sale/Leaseback Transaction, secured by a Lien on the
property subject to such Sale/Leaseback Transaction pursuant to the
covenant described under "Limitation on Liens" above without equally and
ratably securing the Notes pursuant to such covenant;
(b) after the date on which the Notes are originally issued and within
a period commencing six months prior to the consummation of such
Sale/Leaseback Transaction and ending six months after the consummation
thereof, the Company or such Subsidiary shall have expended for property
used or to be used in the ordinary course of business of the Company and
its Subsidiaries an amount equal to all or a portion of the net proceeds of
such Sale/Leaseback Transaction and the Company shall have elected to
designate such amount as a credit against such Sale/Leaseback Transaction
(with any such amount not being so designated to be applied as set forth in
clause (c) below); or
(c) the Company, during the 12-month period after the effective date
of such Sale/Leaseback Transaction, shall have applied to the voluntary
defeasance or retirement of Notes or any Pari Passu Indebtedness an amount
equal to the greater of the net proceeds of the sale or transfer of the
property leased in such Sale/Leaseback Transaction and the fair value, as
determined by the Board of Directors of the Company, of such property at
the time of entering into such Sale/Leaseback Transaction (in either case
adjusted to reflect the remaining term of the lease and any amount expended
by the Company as set forth in clause (b) above), less an amount equal to
the principal amount of Notes and Pari Passu Indebtedness voluntarily
defeased or retired by the Company within such 12-month period and not
designated as a credit against any other Sale/Leaseback Transaction entered
into by the Company or any Subsidiary during such period.
LIMITATIONS ON MERGERS AND CONSOLIDATIONS
The Indenture provides that neither the Company nor any Guarantor (other
than any Guarantor that shall have been released from its Guarantee pursuant to
the provisions of the Indenture) will consolidate with or merge into any Person,
or sell, lease, convey, transfer or otherwise dispose of all or substantially
all of its assets to any Person, unless: (i) the Person formed by or surviving
such consolidation or merger (if other than the Company or such Guarantor, as
the case may be), or to which such sale, lease, conveyance, transfer or other
disposition shall be made (collectively, the "Successor"), is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia (or, alternatively, in the case of a Guarantor
organized under the laws of a jurisdiction outside the United States, a
corporation organized and existing under the laws of such foreign jurisdiction),
and the Successor assumes by supplemental indenture in a form satisfactory to
the Trustee all of the obligations of the Company or such Guarantor, as the case
may be, under the Indenture and under the Notes; and (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing.
CERTAIN DEFINITIONS
The following is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms and
for the definitions of other capitalized terms used herein and not defined
below.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of (x)
the amount by which the fair value of the property of such Guarantor at such
date exceeds the total amount of liabilities, including, without
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limitation, the probable amount of contingent liabilities (after giving effect
to all other fixed and contingent liabilities incurred or assumed on such date)
of such Guarantor at such date, but excluding liabilities under the Guarantee of
such Guarantor, and (y) the amount by which the present fair saleable value of
the assets of such Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of any obligations of such Subsidiary under the
Guarantee of such Guarantor), excluding debt in respect of the Guarantee of such
Guarantor, as they become absolute and matured.
"Attributable Indebtedness," when used with respect to any Sale/Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at the rate set forth or implicit in the terms of the lease included
in such transaction) of the total obligations of the lessee for rental payments
(other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items which do not constitute payments for property rights)
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with generally accepted accounting principles; and the amount of such
obligation shall be the capitalized amount thereof determined in accordance with
generally accepted accounting principles.
"Consolidated Net Worth" of the Company means the consolidated
stockholders' equity of the Company and its Subsidiaries, as determined in
accordance with generally accepted accounting principles.
"Funded Indebtedness" means all Indebtedness (including Indebtedness
incurred under any revolving credit, letter of credit or working capital
facility) that matures by its terms, or that is renewable at the option of any
obligor thereon to a date, more than one year after the date on which such
Indebtedness is originally incurred.
"Indebtedness" of any Person at any date means, without duplication, (i)
all indebtedness of such Person for borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such Person or only to a portion
thereof), (ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of such Person in
respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto), other than standby letters of credit and
performance bonds issued by such Person in the ordinary course of business, to
the extent not drawn or, to the extent drawn, if such drawing is reimbursed not
later than the third Business Day following demand for reimbursement, (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred in the
ordinary course of business, (v) all Capitalized Lease Obligations of such
Person, (vi) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of others guaranteed by such Person to the extent of such guarantee
and (viii) all Hedging Obligations of such Person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law. For
the purposes of the Indenture, the Company or any Subsidiary of the Company
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease Obligation or other title retention agreement
relating to such asset.
"Non-Recourse Indebtedness" means, at any date, the aggregate amount at
such date of Indebtedness of the Company or a Subsidiary of the Company in
respect of which the recourse of the holder of such Indebtedness, whether direct
or indirect and whether contingent or otherwise, is effectively limited to
specified assets, and with respect to which neither the Company nor any of its
Subsidiaries provides any credit support.
"Pari Passu Indebtedness" means any Indebtedness of the Company, whether
outstanding on the date on which the Notes are originally issued or thereafter
created, incurred or assumed, unless, in the case of any
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particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall be subordinated in right of payment to the Notes.
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company, for a
period of more than three years, of any real or tangible personal property,
which property has been or is to be sold or transferred by the Company or such
Subsidiary to such Person in contemplation of such leasing.
"Significant Subsidiary" has the meaning set forth in Regulation S-X under
the Exchange Act.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as being: (i) default by
the Company or any Guarantor for 30 days in payment of any interest on the
Notes; (ii) default by the Company or any Guarantor in any payment of principal
of the Notes; (iii) default by the Company or any Guarantor in compliance with
any of its other covenants or agreements in, or provisions of, the Notes, the
Guarantees or the Indenture which shall not have been remedied within 60 days
after written notice by the Trustee or by the holders of at least 25% in
principal amount of the Notes then outstanding; (iv) the acceleration of the
maturity of any Indebtedness (other than the Notes or any Non-Recourse
Indebtedness) of the Company or any Subsidiary of the Company having an
outstanding principal amount of $20 million or more individually or in the
aggregate, or a default in the payment of any principal or interest in respect
of any Indebtedness (other than the Notes or any Non-Recourse Indebtedness) of
the Company or any Subsidiary of the Company having an outstanding principal
amount of $20 million or more individually or in the aggregate and such default
shall be continuing for a period of 30 days without the Company or such
Subsidiary, as the case may be, effecting a cure of such default; (v) a judgment
or order for the payment of money in excess of $20 million (net of applicable
insurance coverage) having been rendered against the Company, a Guarantor or any
Significant Subsidiary of the Company and such judgment or order shall continue
unsatisfied and unstayed for a period of 30 days; or (vi) certain events
involving bankruptcy, insolvency or reorganization of the Company, a Guarantor
or any Significant Subsidiary of the Company. Pursuant to the Indenture,
Guarantors may not be released from their Guarantees if a Default or Event of
Default has occurred and is continuing. The obligations of any Subsidiary of the
Company that becomes a Guarantor are not dependent upon whether such Subsidiary
becomes a Guarantor prior to or after an Event of Default. The Indenture will
provide that the Trustee may withhold notice to the holders of the Notes of any
default (except in payment of principal of or interest on the Notes) if the
Trustee considers it in the interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default occurs and is continuing
with respect to the Indenture, the Trustee or the holders of not less than 25%
in principal amount of the Notes outstanding may declare the principal of and
accrued but unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company or a Guarantor occurs and is continuing, the
principal of and interest on all the Notes will become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holders of the Notes. The amount due and payable on the acceleration of any
Note will be equal to 100% of the principal amount of such Note, plus accrued
interest to the date of payment. Under certain circumstances, the holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
The Indenture provides that no holder of a Note may pursue any remedy under
the Indenture unless (i) the Trustee shall have received written notice of a
continuing Event of Default, (ii) the Trustee shall have received a request from
holders of at least 25% in principal amount of the Notes to pursue such remedy,
(iii) the Trustee shall have been offered indemnity reasonably satisfactory to
it and (iv) the Trustee shall have failed to act for a period of 60 days after
receipt of such notice and offer of indemnity; however, such provision does not
affect the right of a holder of a Note to sue for enforcement of any overdue
payment thereon.
The holders of a majority in principal amount of the Notes then outstanding
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee under the Indenture, subject
to certain limitations specified in the Indenture. The Indenture requires the
annual
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filing by the Company with the Trustee of a written statement as to compliance
with the covenants contained in the Indenture.
MODIFICATION AND WAIVER
The Indenture provides that modifications and amendments to the Indenture
or the Notes may be made by the Company, the Guarantors and the Trustee with the
consent of the holders of a majority in principal amount of the Notes then
outstanding; provided that no such modification or amendment may, without the
consent of the holder of each Note then outstanding affected thereby, (i) reduce
the amount of Notes whose holders must consent to an amendment, supplement or
waiver; (ii) reduce the rate of or change the time for payment of interest,
including default interest, on any Note; (iii) reduce the principal of or change
the fixed maturity of any Note; (iv) make any Note payable in money other than
that stated in the Note; (v) impair the right to institute suit for the
enforcement of any payment of principal of or interest on any Note; (vi) make
any change in the percentage of principal amount of Notes necessary to waive
compliance with certain provisions of the Indenture; or (vii) waive a continuing
Default or Event of Default in the payment of principal of or interest on the
Notes. The Indenture provides that modifications and amendments of the Indenture
may be made by the Company, the Guarantors and the Trustee without the consent
of any holders of Notes in certain limited circumstances, including (a) to cure
any ambiguity, omission, defect or inconsistency, (b) to provide for the
assumption of the obligations of the Company or any Guarantor under the
Indenture upon the merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company or any such Guarantor, (c) to
provide for uncertificated Notes in addition to or in place of certificated
Notes, (d) to reflect the release of any Guarantor from its Guarantee, or the
addition of any Subsidiary of the Company as a Guarantor, in the manner provided
by the Indenture, (e) to comply with any requirement in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act of
1939 or (f) to make any change that does not adversely affect the rights of any
holder of Notes in any material respect.
The Indenture provides that the holders of a majority in aggregate
principal amount of the Notes then outstanding may waive any past default under
the Indenture, except a default in the payment of principal or interest.
DISCHARGE AND TERMINATION
Defeasance of Certain Obligations. The Indenture provides that the Company
and the Guarantors may terminate certain of their obligations under the
Indenture, including those described under the section "Certain Covenants," if
(i) the Company irrevocably deposits in trust with the Trustee cash or
non-callable U.S. Government Obligations or a combination thereof sufficient to
pay principal of and interest on the Notes to maturity, and to pay all other
sums payable by it under the Indenture; (ii) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit; (iii) the
Company shall have delivered to the Trustee an Opinion of Counsel from
nationally recognized counsel acceptable to the Trustee or a tax ruling to the
effect that the holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of the Company's exercise of its option
under such section and will be subject to Federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
option had not been exercised; (iv) the Company delivers to the Trustee certain
other documents called for by the Indenture, including an Officers' Certificate
and Opinions of Counsel; and (v) certain other conditions are satisfied. The
Company's payment obligations and the Guarantors' Guarantees shall survive until
the Notes are no longer outstanding.
Discharge. The Indenture provides that the Indenture shall cease to be of
further effect (subject to certain exceptions relating to compensation and
indemnity of the Trustee and repayment to the Company of excess money or
securities) when (i) either (A) all outstanding Notes theretofore authenticated
and issued (other than destroyed, lost or stolen Notes that have been replaced
or paid) have been delivered to the Trustee for cancellation; or (B) all
outstanding Notes not theretofore delivered to the Trustee for cancellation (x)
have become due and payable or (y) will become due and payable at their stated
maturity within one year and the Company has deposited or caused to be deposited
with the Trustee as funds (immediately available to
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the holders in the case of clause (x)) in trust for such purpose an amount
which, together with earnings thereon, will be sufficient to pay and discharge
the entire indebtedness on such Notes for principal and interest to the date of
such deposit (in the case of Notes which have become due and payable) or to the
stated maturity, as the case may be; (ii) the Company has paid all other sums
payable by it under the Indenture; and (iii) the Company has delivered to the
Trustee an Officers' Certificate stating that all conditions precedent to
satisfaction and discharge of the Indenture have been complied with, together
with an Opinion of Counsel to the same effect.
GOVERNING LAW
The Indenture and the Notes are governed by and will be construed in
accordance with the laws of the State of New York, but without giving effect to
applicable principles of conflicts of law to the extent the application of the
laws of another jurisdiction would be required thereby.
THE TRUSTEE
Bank of Montreal Trust Company is the Trustee under the Indenture. Its
address is 77 Water Street, 4th Floor, New York, New York 10005. The Company has
also appointed the Trustee as the initial Registrar and as initial Paying Agent
under the Indenture. Bank of Montreal Trust Company is an affiliate of Bank of
Montreal, which is a lender under the Company's previous bank credit facility.
Bank of Montreal received a portion of the repayment by the Company of
borrowings under such bank credit facility from the proceeds of the offering of
the Existing Notes.
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act of 1939, as amended), it must eliminate such conflict or
resign.
The Indenture provides that in case an Event of Default shall occur (and be
continuing), the Trustee will be required to use the degree of care and skill of
a prudent man in the conduct of his own affairs. The Trustee is under no
obligation to exercise any of its powers under the Indenture at the request of
any of the holders of the Notes, unless such holders shall have offered the
Trustee indemnity reasonably satisfactory to it.
BOOK-ENTRY, DELIVERY AND FORM
The Existing Notes were initially issued in the form of the Existing Global
Note. Upon issuance, the Existing Global Note was deposited with, or on behalf
of, the Depositary and registered in the name of Cede & Co., as nominee of the
Depositary.
The Existing Notes, to the extent validly tendered and accepted and
directed by their holders in their Letters of Transmittal, will be exchanged
through book-entry electronic transfer for the Exchange Global Note in
definitive, fully registered form, without coupons, registered in the name of
Cede & Co., as nominee of the Depositary. References to "Global Note" shall be
references to the Exchange Global Note and the Existing Global Note.
Ownership of beneficial interests in a Global Note is limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants. Ownership of beneficial interests in the Global Notes will
be shown on, and the transfer of these ownership interests will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, no beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with the applicable procedures of
51
<PAGE> 52
DTC and, if applicable, Cedel, societe anonyme ("Cedel"), and Morgan Guaranty
Trust Company of New York, as operator of the Euroclear system ("Euroclear") (in
addition to those under the Indenture).
Payments on Global Notes will be made to DTC or its nominee, as the
registered owner thereof. None of the Company, the Guarantors, the Trustee or
any paying agent has any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment in
respect of a Global Note representing any Notes held by it or its nominee, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such Global
Note for such Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. The laws of some states require that certain
Persons take physical delivery of securities in definitive form. Consequently,
the ability to transfer beneficial interests in a Global Note to such Persons
may be limited. Because DTC can only act on behalf of participants, who in turn
act on behalf of indirect participants (as defined below) and certain banks, the
ability of a Person having a beneficial interest in a Global Note to pledge such
interest to Persons that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be affected by the lack of a physical
certificate of such interest.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC and facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Access to the DTC system
is also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly ("indirect participants"). The
rules applicable to DTC and its participants are on file with the Commission.
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Guarantors or the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel or
the participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Notes in the name of,
and cause the same to be delivered to, such Person or Persons (or the nominee of
any thereof). In addition, if (i) DTC or any successor depositary (the
"Depositary") notifies the Company in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in the form
of Certificated Securities under the Indenture, then, upon surrender by the
registered owner or holder of a Global Note (a "Global Note Holder") of its
Global Note, Notes in such form will be issued to
52
<PAGE> 53
each Person that such Global Note Holder and the Depositary identify as the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on, and
will be protected in relying on, instructions from such Global Note Holder or of
the Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
REGISTRATION RIGHTS AGREEMENT
The Company and the Guarantors entered into the Registration Rights
Agreement with the Initial Purchasers for the benefit of the holders of the
Existing Notes wherein the Company and the Guarantors agreed, for the benefit of
the holders of the Existing Notes, to (i) use their reasonable best efforts, to
the extent not prohibited by law, to file with the Commission, within 60 days
after the date of original issuance of the Existing Notes, the Exchange Offer
Registration Statement relating to the Exchange Offer for the Exchange Notes,
which will have terms identical in all material respects to the Existing Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions and will not provide for any increase in the interest rate thereon
under the circumstances described below), (ii) use their reasonable best
efforts, to the extent not prohibited by law, to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
120 days after the date of original issuance of the Existing Notes, (iii) to use
their reasonable best efforts to cause such Exchange Offer Registration
Statement to remain effective until the closing of the Exchange Offer and (iv)
to use their reasonable best efforts to consummate the Exchange Offer within 180
days following the original issuance of the Existing Notes.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Existing Notes may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchased such Existing Notes directly from the
Company for resale pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" (within the meaning
of Rule 405 of the Securities Act) of the Company or any Guarantor), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the Exchange Notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. However, any purchaser of Existing Notes who is an affiliate of
the Company or who intends to participate in the Exchange Offer for the purpose
of distributing the Exchange Notes, or any broker-dealer who purchased the
Existing Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (i) will not be able to rely on
the interpretations by the staff of the Commission set forth in the
above-mentioned no-action letters, (ii) will not be able to tender its Existing
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Existing Notes unless such sale or transfer is made
pursuant to an exemption from such requirements. The Company does not intend to
seek its own no-action letter and there is no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Notes
as it has in such no-action letters to third parties.
Each holder of the Existing Notes (other than certain specified holders)
who wishes to exchange Existing Notes for Exchange Notes in the Exchange Offer
will be required to represent that (i) it is not an affiliate of the Company or
any Guarantor, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. In addition, in connection with any resales of Exchange
Notes, any broker-dealer who acquired the Existing Notes for its own account as
a result of market-making activities or other trading activities (a
"Participating Broker-Dealer") must deliver a prospectus meeting the
requirements of the Securities Act. The staff of the Commission has taken the
position that Participating Broker-Dealers may
53
<PAGE> 54
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Existing Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company and the
Guarantors will be required, for a period of 180 days following the consummation
of the Exchange Offer, to use their reasonable best efforts to allow
Participating Broker-Dealers to use the prospectus contained in the Exchange
Offer Registration Statement in connection with the resale of Exchange Notes
received in exchange for Existing Notes acquired by such Participating
Broker-Dealers for their own account as a result of market-making or other
trading activities.
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company and the Guarantors to
effect the Exchange Offer, or if for any reason the Exchange Offer Registration
Statement is not declared effective within 120 days following the date of
original issuance of the Existing Notes or the Exchange Offer is not consummated
within 180 days after such date, or upon the request of the Initial Purchasers
in certain circumstances, the Company and the Guarantors will, in lieu of
effecting (or, in the case of such a request by the Initial Purchasers, in
addition to effecting) the registration of the Exchange Notes pursuant to the
Exchange Offer Registration Statement (i) as promptly as practicable, file with
the Commission the Shelf Registration Statement covering resales of the Existing
Notes, (ii) use their reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act by the 180th day
after the date of original issuance of the Existing Notes (or promptly in the
event of a request by the Initial Purchasers) and (iii) use their reasonable
best efforts to keep effective the Shelf Registration Statement until three
years after its effective date (or until one year after such effective date if
such Shelf Registration Statement is filed at the request of the Initial
Purchasers) or until all of the Existing Notes covered by such Shelf
Registration Statement have been sold. The Company will, in the event of the
filing of a Shelf Registration Statement, provide to each holder of the Existing
Notes copies of the prospectus which is a part of the Shelf Registration
Statement and provide notice when the Shelf Registration Statement has become
effective. A holder of Existing Notes that sells such Existing Notes pursuant to
the Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each holder
of the Existing Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement in order to have their Existing Notes included in
the Shelf Registration Statement and to benefit from the provisions regarding
the increase in the interest rate borne by the Existing Notes described in the
second succeeding paragraph.
Each Existing Note will contain a legend to the effect that the holder of
such Existing Notes by its acceptance thereof, will be deemed to have agreed to
be bound by the provisions of the Registration Rights Agreement. In that regard,
each holder will be deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event which makes any statement in the
prospectus which is part of the Shelf Registration Statement (or, in the case of
Participating Broker Dealers, the prospectus which is a part of the Exchange
Offer Registration Statement) untrue in any material respect or which requires
the making of any changes in such prospectus in order to make the statements
therein not misleading or of certain other events specified in the Registration
Rights Agreement, such holder (or Participating Broker-Dealer, as the case may
be) will suspend the sale of Existing Notes pursuant to such prospectus until
the Company and the Guarantors have amended or supplemented such prospectus to
correct such misstatement or omission and have furnished copies of the amended
or supplemented prospectus to such holder (or Participating Broker-Dealer, as
the case may be) or the Company and the Guarantors have given notice that the
sale of the Existing Notes may be resumed, as the case may be. If the Company
and the Guarantors shall give such notice to suspend the sale of the Existing
Notes, they shall extend the relevant period referred to above during which they
are required to keep effective the Shelf Registration Statement (or the period
during which Participating Broker-Dealers are entitled to use the prospectus
included in the Exchange Offer Registration Statement in connection with the
resale of Exchange Notes, as the case may be) by the number of days during the
period from and including the date of the giving of such notice to and including
the date when holders shall
54
<PAGE> 55
have received copies of the supplemented or amended prospectus necessary to
permit resales of the Existing Notes or to and including the date on which the
Company and the Guarantors have given notice that the sale of Existing Notes may
be resumed, as the case may be.
The Registration Rights Agreement provides that in the event that either
(a) the Exchange Offer Registration Statement is not filed with the Commission
on or prior to the 60th day following the date of original issuance of the
Existing Notes, (b) the Exchange Offer Registration Statement is not declared
effective on or prior to the 120th day following the date of original issuance
of the Existing Notes or (c) the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to the Existing Notes is not declared
effective on or prior to the 180th day following the date of original issuance
of the Existing Notes, the interest rate borne by the Existing Notes shall be
increased by .50% per annum following such 60th day in the case of clause (a)
above, such 120th day in the case of clause (b) above and such 180th day in the
case of clause (c) above; provided that the aggregate amount of any such
increase in the interest rate on the Existing Notes pursuant to the foregoing
provisions shall in no event exceed .50% per annum; and provided, further, that
if the Exchange Offer Registration Statement is not declared effective on or
prior to the 120th day following the date of original issuance of the Existing
Notes and the Company shall request holders of Existing Notes to provide the
information called for by the Registration Rights Agreement for inclusion in the
Shelf Registration Statement, then Existing Notes owned by holders who do not
deliver such information to the Company or who do not provide comments on the
Shelf Registration Statement when required pursuant to the Registration Rights
Agreement will not be entitled to any such increase in the interest rate for any
day after the 180th day following the date of original issuance of the Existing
Notes. Upon (x) the filing of the Exchange Offer Registration Statement after
the 60th day described in clause (a) above, (y) the effectiveness of the
Exchange Offer Registration Statement after the 120th day described in clause
(b) above or (z) the consummation of the Exchange Offer or the effectiveness of
the Shelf Registration Statement, as the case may be, after the 180th day
described in clause (c) above, the interest rate on the Existing Notes from the
date of such filing, effectiveness or consummation, as the case may be, will be
reduced to the original interest rate of the Existing Notes; provided, however,
that the interest rate on the Existing Notes will be reduced to the original
interest rate only if all of the events set forth in the immediately preceding
sentence causing the interest rate on the Existing Notes to increase have been
cured.
The Registration Rights Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, which is filed as an
exhibit to this Registration Statement. In addition, the information set forth
above concerning certain interpretations of and positions taken by the staff of
the Commission is not intended to constitute legal advice, and prospective
investors should consult their own legal advisors with respect to such matters.
55
<PAGE> 56
PLAN OF DISTRIBUTION
In case of a broker-dealer that acquired Existing Notes for its own account
as a result of market making activities or other trading activities, such
broker-dealer may, if it is able to make the representations set forth in the
fourth paragraph under "The Exchange Offer -- Procedures for Tendering," obtain
Exchange Notes in the Exchange Offer and may resell such Exchange Notes without
registration under the Securities Act, provided that such broker-dealer delivers
to the purchaser of such Exchange Notes a copy of a prospectus relating thereto,
which may be this Prospectus as supplemented or amended from time to time. Such
broker-dealer may offer the Exchange Notes for sale from time to time in one or
more transactions on the NYSE, in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices, and any resale may
be made directly to purchasers or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or purchasers of any such Exchange Notes. The Letter of
Transmittal (i) requires that any broker-dealer who acquired Existing Notes for
its own account as a result of market-making activities or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of the Exchange Notes pursuant to the Exchange
Offer but (ii) states that such broker-dealer, by so delivering a prospectus,
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay certain expenses
incident to the Exchange Offer, other than commissions or concessions of any
brokers or dealers, and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in this Prospectus untrue in any material respect or which
requires the making of any changes in this Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of this
Prospectus until the Company has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such broker-dealer. If the Company shall have given
any such notice to suspend the use of this Prospectus, it shall extend the
180-day period referred to above by the number of days during the period from
and including the date of the giving of such notice to and including when
broker-dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Notes.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Existing Notes may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchased such Existing Notes directly from the
Company for resale pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" (within the meaning
of Rule 405 of the Securities Act) of the Company or any Guarantor), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the Exchange Notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. Any holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
There currently is no market for the Notes. The Exchange Notes have been
approved for listing on the NYSE, subject to notice of issuance. Although the
Initial Purchasers have informed the Company that they currently intend to make
a market in the Exchange Notes, they are not obligated to do so, and any such
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<PAGE> 57
market making may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for the
Exchange Notes.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of the Company as of September 30, 1995 and 1994 and for each of the
three years in the period ended September 30, 1995, included or incorporated by
reference in this Registration Statement, have been audited by Deloitte & Touche
LLP, independent accountants, as stated in their reports, which are included or
incorporated by reference herein, and have been so included or incorporated by
reference in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of Nowsco Well Service Ltd. as of
December 31, 1995, 1994 and 1993 and for each of the years in the three-year
period ended December 31, 1995 have been included and incorporated by reference
herein in reliance upon the report of KPMG Peat Marwick Thorne, Chartered
Accountants, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of The Western Company of North
America as of December 31, 1994 and 1993 and for each of the three years in the
period ended December 31, 1994 incorporated by reference in this Registration
Statement have been so incorporated by reference in reliance on the report of
Price Waterhouse LLP, independent accountants, and have been so incorporated by
reference in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
57
<PAGE> 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants of BJ Services..................................... F-2
Consolidated Statement of Operations of BJ Services for the Years Ended September 30,
1995, 1994 and 1993................................................................ F-3
Consolidated Statement of Financial Position of BJ Services as of September 30, 1995
and 1994........................................................................... F-4
Consolidated Statement of Stockholders' Equity of BJ Services for the Years Ended
September 30, 1995, 1994 and 1993.................................................. F-5
Consolidated Statement of Cash Flows of BJ Services for the Years Ended September 30,
1995, 1994 and 1993................................................................ F-6
Notes to Consolidated Financial Statements of BJ Services............................ F-7
Consolidated Condensed Statement of Operations of BJ Services (Unaudited) -- Three-
and six-month periods ended March 31, 1996 and 1995................................ F-32
Consolidated Condensed Statement of Financial Position of BJ Services -- March 31,
1996 (Unaudited) and September 30, 1995............................................ F-33
Consolidated Condensed Statement of Cash Flows of BJ Services (Unaudited) -- Six
months ended March 31, 1996 and 1995............................................... F-34
Notes to Unaudited Consolidated Condensed Financial Statements of BJ Services........ F-35
Report of Independent Auditors of Nowsco............................................. F-46
Consolidated Balance Sheets of Nowsco as of December 31, 1995, 1994 and 1993......... F-47
Consolidated Statements of Operations of Nowsco for the Years Ended December 31,
1995, 1994 and 1993................................................................ F-48
Consolidated Statements of Retained Earnings of Nowsco for the Years Ended December
31, 1995, 1994 and 1993............................................................ F-49
Consolidated Statements of Changes in Cash Position of Nowsco for the Years Ended
December 31, 1995, 1994 and 1993................................................... F-50
Notes to Consolidated Financial Statements of Nowsco................................. F-51
Condensed Consolidated Statements of Operations of Nowsco (Unaudited) -- Three Months
Ended March 31, 1996 and 1995...................................................... F-61
Condensed Consolidated Balance Sheets of Nowsco (Unaudited) -- March 31, 1996 and
1995 and December 31, 1995......................................................... F-62
Condensed Consolidated Statements of Changes in Cash Position of Nowsco
(Unaudited) -- Three Months Ended March 31, 1996 and 1995.......................... F-63
Notes to Unaudited Condensed Consolidated Financial Statements of Nowsco............. F-64
Pro Forma Financial Information (Unaudited).......................................... F-65
</TABLE>
Note: Management does not believe that separate financial statements of the
Guarantors are material to investors in the Notes, and therefore such financial
statements have not been provided.
F-1
<PAGE> 59
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)
F-2
<PAGE> 60
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 61
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 62
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL CUMULATIVE
COMMON IN EXCESS UNEARNED RETAINED TRANSLATION
STOCK OF PAR COMPENSATION EARNINGS ADJUSTMENT TOTAL
------ --------- ------------ -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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
====== ========= ======== ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 63
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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
========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 64
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
F-7
<PAGE> 65
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:
<TABLE>
<CAPTION>
BALANCE AT
1995 1995 SEPTEMBER 30,
PROVISION EXPENDITURES 1995
--------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======== ======== =======
</TABLE>
- ---------------
(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
F-8
<PAGE> 66
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
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
===========
</TABLE>
- ---------------
(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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
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)
</TABLE>
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.
F-9
<PAGE> 67
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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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
======== ========
</TABLE>
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.
F-10
<PAGE> 68
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:
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
9.2% Notes..................................... $ 18,000 $19,100 $ 24,000 $26,000
Interest rate swap agreement (unrealized
loss)........................................ (1,300)
</TABLE>
See Note 2 for disclosure of accounting for foreign exchange contracts.
F-11
<PAGE> 69
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======== ======== =======
</TABLE>
The provision (benefit) for income taxes for the three years ended
September 30, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======== ======== =======
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
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%
===== ===== =====
</TABLE>
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.
F-12
<PAGE> 70
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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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
======== ========
</TABLE>
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.
F-13
<PAGE> 71
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:
<TABLE>
<CAPTION>
WESTERN HEMISPHERE
-------------------------- EASTERN HEMISPHERE
UNITED LATIN AMERICA --------------------
STATES AND CANADA EUROPE OTHER TOTAL
-------- ------------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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'
F-14
<PAGE> 72
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):
<TABLE>
<S> <C>
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
=======
</TABLE>
Assumptions used in accounting for the Company's U.S. defined benefit plan
are as follows:
<TABLE>
<S> <C>
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%
</TABLE>
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):
<TABLE>
<S> <C>
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
=======
</TABLE>
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):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
F-15
<PAGE> 73
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:
<TABLE>
<S> <C>
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%
</TABLE>
Combined costs for the Company's international defined benefit plans for
the two years ended September 30, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ -----
<S> <C> <C>
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
====== =====
</TABLE>
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):
<TABLE>
<CAPTION>
1995 1994
------ -----
<S> <C> <C>
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
====== =====
</TABLE>
F-16
<PAGE> 74
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):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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.
F-17
<PAGE> 75
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======== ======= =======
</TABLE>
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.
F-18
<PAGE> 76
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under the Company's Plans is summarized below:
<TABLE>
<CAPTION>
NUMBER OF SHARES 1995 1994 1993
----------------------------------------------------------------- ----- --- ---
(IN THOUSANDS)
<S> <C> <C> <C>
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
===== === ===
</TABLE>
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
F-19
<PAGE> 77
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.
F-20
<PAGE> 78
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL
FIRST SECOND THIRD FOURTH YEAR
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
F-21
<PAGE> 79
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.
F-22
<PAGE> 80
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
====== ======== ======== ======== ========
</TABLE>
F-23
<PAGE> 81
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
==== ======== ======== ======== ========
</TABLE>
F-24
<PAGE> 82
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
====== ======== ======== ======== ========
</TABLE>
F-25
<PAGE> 83
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========= ========
</TABLE>
F-26
<PAGE> 84
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========= ========
</TABLE>
F-27
<PAGE> 85
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======= ======== ======== ======== =========
</TABLE>
F-28
<PAGE> 86
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
===== ======== ======== ======== ========
</TABLE>
F-29
<PAGE> 87
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
F-30
<PAGE> 88
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
F-31
<PAGE> 89
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
F-32
<PAGE> 90
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
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
========== =========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
F-33
<PAGE> 91
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
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
======== ========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
F-34
<PAGE> 92
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
F-35
<PAGE> 93
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.
F-36
<PAGE> 94
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.
F-37
<PAGE> 95
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
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
====== ======== ======= ======== ========
</TABLE>
F-38
<PAGE> 96
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
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
====== ======= ======= ======= ========
</TABLE>
F-39
<PAGE> 97
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
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
====== ======== ======= ======== ========
</TABLE>
F-40
<PAGE> 98
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
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
====== ======== ======== ======== ========
</TABLE>
F-41
<PAGE> 99
BJ SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
MARCH 31, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========= ========
</TABLE>
F-42
<PAGE> 100
BJ SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========= ========
</TABLE>
F-43
<PAGE> 101
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
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======= ========= ========== ========= =========
</TABLE>
F-44
<PAGE> 102
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
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
====== ======= ======== ======== ========
</TABLE>
F-45
<PAGE> 103
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
F-46
<PAGE> 104
THE FINANCIAL STATEMENTS OF NOWSCO WELL SERVICE LTD. PRESENTED ON
PAGES F-47 THROUGH F-64 HAVE BEEN PREPARED IN ACCORDANCE WITH
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA.
NOWSCO WELL SERVICE LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-47
<PAGE> 105
NOWSCO WELL SERVICE LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-48
<PAGE> 106
NOWSCO WELL SERVICE LTD.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-49
<PAGE> 107
NOWSCO WELL SERVICE LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN CASH POSITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
Net cash position comprises cash, short-term deposits and short-term
investments.
See notes to consolidated financial statements.
F-50
<PAGE> 108
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.
F-51
<PAGE> 109
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
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
F-52
<PAGE> 110
NOWSCO WELL SERVICE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- GOODWILL
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
Goodwill........................................... $ 33,208 $ 32,866 $ 33,556
Accumulated amortization........................... (17,257) (14,544) (11,842)
-------- -------- --------
$ 15,951 $ 18,322 $ 21,714
======== ======== ========
</TABLE>
NOTE G -- LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
- ---------------
(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).
F-53
<PAGE> 111
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:
<TABLE>
<CAPTION>
AMOUNT
NUMBER OF SHARES -----------------
---------------- (THOUSANDS OF
CANADIAN DOLLARS)
<S> <C> <C>
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
========== ========
</TABLE>
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.
F-54
<PAGE> 112
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.
<TABLE>
<CAPTION>
COMMON SHARES UNDER OPTION STOCK APPRECIATION RIGHTS
------------------------------------- ---------------------------------
1995 1994 1993 1995 1994 1993
--------- ------------- --------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
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
========= ========= ========= ======== ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
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.
F-55
<PAGE> 113
NOWSCO WELL SERVICE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net assets acquired have been recorded as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(THOUSANDS OF
CANADIAN DOLLARS)
<S> <C> <C>
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
======= =======
</TABLE>
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.
F-56
<PAGE> 114
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
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------- -----
(THOUSANDS OF CANADIAN
DOLLARS)
<S> <C> <C> <C>
Depreciation........................................... $(799) $(1,628) $(252)
Interest and Other..................................... 724 551 898
----- ------- -----
Provision for deferred income taxes (recovery)......... $ (75) $(1,077) $ 646
===== ======= =====
</TABLE>
F-57
<PAGE> 115
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:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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.
F-58
<PAGE> 116
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
- ---------------
(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.
F-59
<PAGE> 117
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:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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)
======= ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
F-60
<PAGE> 118
NOWSCO WELL SERVICE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS OF CANADIAN DOLLARS EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
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
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-61
<PAGE> 119
NOWSCO WELL SERVICE LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
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
========= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-62
<PAGE> 120
NOWSCO WELL SERVICE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH POSITION
(UNAUDITED)
(THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
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)
======== ========
</TABLE>
- ---------------
* Net cash position comprises cash, short term deposits, and short term
investments less bank indebtedness.
See notes to condensed consolidated financial statements.
F-63
<PAGE> 121
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:
<TABLE>
<CAPTION>
OPERATING INCOME FUNDS FROM
REVENUE (LOSS) OPERATIONS(1)
------------------- ----------------- -----------------
1996 1995 1996 1995 1996 1995
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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 $18,153
======== ======== ======= ======= ======= =======
</TABLE>
- ---------------
(1) Funds from operations exclude indirect corporate costs and research and
development expenditures.
F-64
<PAGE> 122
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma financial statements are based on the historical
financial information of BJ Services, Nowsco and Western giving effect to the
Nowsco Acquisition and the Western Acquisition under the purchase method of
accounting, the issuance of 8.5 million shares of Common Stock in the Common
Stock Offering, the application of the net proceeds therefrom and the other
adjustments described in the accompanying Notes to Pro Forma Financial
Statements. For purposes of the pro forma financial statements, Nowsco's
statement of operations has been translated from Canadian dollars into U.S.
dollars using the average exchange rates prevailing during the respective
periods, and Nowsco's statement of financial position has been translated using
the exchange rate as of March 31, 1996. The exchange rates used to translate
Nowsco's financial information from Canadian dollars to U.S. dollars are as
follows:
<TABLE>
<S> <C>
March 31, 1996............................................................ U.S.$.74
Six months ended March 31, 1996........................................... .73
Twelve months ended September 30, 1995.................................... .72
</TABLE>
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 Prospectus. 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 was
consummated.
F-65
<PAGE> 123
PRO FORMA STATEMENT OF FINANCIAL POSITION (UNAUDITED)
MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ---------------------------
BJ SERVICES NOWSCO ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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)
(2,000)(9) 617,295
-------- -------- --------- ----------
$995,966 $272,535 $ 383,000 $1,651,501
======== ======== ========= ==========
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)
3,000(9) 96,714
-------- -------- --------- ----------
Total current liabilities............. 176,660 53,639 28,000 258,299
Long-term debt.................................. 282,021 296,708(3) 578,729
Other long-term liabilities..................... 52,127 1,763 53,890
Stockholders' equity............................ 485,158 217,133 (17,804)(2)
(199,329)(1)
280,425(3)
(5,000)(9) 760,583
-------- -------- --------- ----------
$995,966 $272,535 $ 383,000 $1,651,501
======== ======== ========= ==========
</TABLE>
See Notes to Pro Forma Financial Statements
F-66
<PAGE> 124
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- -------------------------
NOWSCO
BJ SERVICES NOWSCO ADJUSTMENTS COMBINED
----------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
======== ========
</TABLE>
See Notes to Pro Forma Financial Statements
F-67
<PAGE> 125
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------
---------------------- WESTERN NOWSCO
BJ SERVICES NOWSCO ADJUSTMENTS ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
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) (20,300)(5) (44,603)
Interest and other income........... 3,662 3,089 362(7) 7,113
-------- -------- -------- -------- ----------
Income before income taxes.......... 8,787 18,255 6,698 (30,225) 3,515
Income tax expense (benefit)........ (1,102) 2,007 3,099(6) (2,723)(6) 1,281
-------- -------- -------- -------- ----------
Net income.......................... $ 9,889 $ 16,248 3,599 $ (27,502) $ 2,234
======== ======== ======== ======== ==========
Weighted average shares
outstanding....................... 21,376 6,550(7) 8,500(3) 36,426
======== ======== ======== ==========
Net income per share................ $ .46 $ .06
======== ==========
</TABLE>
See Notes to Pro Forma Financial Statements
F-68
<PAGE> 126
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:
<TABLE>
<S> <C>
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
========
</TABLE>
- ---------------
(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:
<TABLE>
<S> <C>
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)
========
</TABLE>
(3) Reflects the issuance of 8,500,000 shares of Common Stock at $34.25 per
share which generated net proceeds of $280.4 million, the use of the
available cash from Nowsco, and the use of the New Bank Credit Facility to
finance the remaining portion of the cash consideration.
The financing of the total consideration is summarized as follows:
<TABLE>
<S> <C>
Cash from New Bank Credit Facility................................ $296,708
Cash and short-term investments................................... 4,180
Net proceeds from the Common Stock Offering....................... 280,425
--------
$581,313
========
</TABLE>
(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 $724 per annum.
F-69
<PAGE> 127
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:
<TABLE>
<S> <C>
Facility closings......................................................... $ 5,596
Change in control costs................................................... 5,381
Legal and other........................................................... 4,047
Severance costs........................................................... 2,176
-------
Total........................................................... $17,200
=======
</TABLE>
(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.
<TABLE>
<S> <C>
Writeoff of unamortized bank fees......................................... $2,000
Legal, accounting and other............................................... 3,000
-------
$5,000
=======
</TABLE>
These items have been reflected in the pro forma statement of financial
position as a reduction of other assets, an addition to accrued liabilities
and a reduction to stockholders' equity.
F-70
<PAGE> 128
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE GUARANTORS, THE INITIAL PURCHASERS OR ANY OF THEIR RESPECTIVE
AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY OR THE
GUARANTORS SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 4
Incorporation of Certain Documents by
Reference............................ 4
Summary................................ 6
The Exchange Offer..................... 15
Recent Developments.................... 24
Capitalization......................... 26
Use of Proceeds........................ 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 28
Business............................... 34
Management............................. 42
Description of the Notes............... 44
Plan of Distribution................... 56
Legal Matters.......................... 57
Experts................................ 57
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
================================================================================
================================================================================
$125,000,000
EXCHANGE OFFER
BJ SERVICES COMPANY
7% SERIES B NOTES
DUE 2006
------------------------
PROSPECTUS
------------------------
JULY 3, 1996
================================================================================
