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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ to ______.
COMMISSION FILE NUMBER 1-10570
BJ SERVICES COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0084140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 462-4239
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- ----
There were 28,192,510 shares of the registrant's common stock, $.10 par value,
outstanding as of May 10, 1996.
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BJ SERVICES COMPANY
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statement of Operations (Unaudited) - Three
and six months ended March 31, 1996 and 1995 3
Consolidated Condensed Statement of Financial Position -
March 31, 1996 (Unaudited) and September 30, 1995 4
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Six months ended March 31, 1996 and 1995 5
Notes to Unaudited Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION 16
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
<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
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BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
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 post retirement 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
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BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1996 1995
------------- ------------
<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 by 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 by (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
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BJ SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 GENERAL
In the opinion of management, the unaudited consolidated condensed financial
statements for BJ Services Company (the "Company") include all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial position as of March 31, 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 year
presentation.
NOTE 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 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.
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The following table presents information necessary to calculate earnings per
share for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
<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>
NOTE 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.
7
<PAGE> 8
NOTE 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
Services Company, U.S.A., BJ Service International, Inc., and BJ Services
Company Middle East (collectively "Guarantor Subsidiaries" and individually
"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 such
Guarantor Subsidiaries under the Bank Credit Facility and the obligations of
such Guarantor Subsidiaries under the 9.2% Notes and with all existing and
future unsecured indebtedness of such Guarantor for borrowed money 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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's operations are primarily driven by the number of oil and 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
the key United States 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 The Western Company of North America ("Western"),
which had a larger presence in the United States.
The rig count in the United States averaged 708 and 737 active drilling rigs
during the respective three 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 and six-month
periods. Due to the relatively strong oil and natural gas prices currently
being realized, management expects United States drilling activity levels for
the last half of the fiscal year to be above prior year levels.
International drilling activity (excluding Canada) has historically been less
volatile than domestic drilling activity. International drilling activity
increased by 4% and 5% during the most recent three 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 19% of the
Company's revenues were generated under such alliances during the first six
months of fiscal 1996.
9
<PAGE> 10
EXPANSIONS AND ACQUISITIONS
Management believes the primary opportunities for geographic and service line
expansion remain in international markets. As a result, other than the
acquisition of Western (the "Western Acquisition"), the Company's capital
spending and expansion efforts have been primarily focused outside the United
States. The Company's expansion efforts during the past year have included the
expansion of pumping services into several key international markets, including
Saudi Arabia 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 the
acquisition of the remaining 60% of the Company's Brazilian joint venture.
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),
which was paid approximately half in cash and half in shares of the Company's
common stock and warrants to purchase 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 beginning in the June 1995 quarter. In
addition, approximately $40 million of overhead and redundant operating costs
have been eliminated annually by combining the two companies.
RECENT DEVELOPMENTS
On April 12, 1996, the Company announced a tender offer (the "Nowsco Tender
Offer") to acquire all of the outstanding common shares of Nowsco Well Service
Ltd. ("Nowsco") for a price per share of Cdn ("Canadian") $27.00
(approximately U.S. $19.80 per share). According to its certified shareholder
listing, Nowsco had 20,855,936 shares issued and outstanding as of April 10,
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. Nowsco's operations are
conducted in Canada, the United States, Europe, Southeast Asia, Argentina and
Russia and include oil and gas pressure pumping, coiled tubing, commissioning
and pipeline service businesses. The Nowsco Tender Offer is subject to certain
conditions, including, without limitation, the waiver or invalidation of
Nowsco's shareholders' rights plan, the tender of at least 66-2/3% of Nowsco's
outstanding common shares and the receipt of regulatory approvals. On May 4,
1996, Great Lakes Chemical Corporation announced a competing offer for all of
the outstanding common shares of Nowsco, at Cdn $30.90 per share. Nowsco
announced on May 4, 1996 that its Board of Directors had unanimously resolved
to recommend that Nowsco shareholders tender their shares to the offer made by
Great Lakes Chemical Corporation. On May 13, 1996, the Company instituted
proceedings before the Ontario Securities Commission challenging various terms
of the pre- acquisition agreement between Nowsco and Great Lakes Chemical
Corporation. No assurance can be given that the Company will be successful in
its efforts to consummate a transaction with Nowsco, or if it is successful, on
what terms.
10
<PAGE> 11
RESULTS OF OPERATIONS
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, a 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.
United States revenue more than doubled during the three and six months periods
as a result of adding the former Western operations. On a pro forma basis,
however, United States 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 United
States, or has declined slightly, over the past year.
Management's United States 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 and six-month periods 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 have 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 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 UK 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.
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.
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<PAGE> 12
Operating Income: The Company's operating income more than doubled for both the
three and six-month periods as a result of the previously mentioned revenue
increases. All operating expenses were higher as 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 United States 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 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 prior
six-month period primarily due to marginal tax rates on higher United States
profitability.
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.
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 April 1995, the Company
replaced its then outstanding credit facility with a new bank credit facility
(the "Existing Bank Credit Facility") executed to accommodate the Western
Acquisition. The Existing Bank Credit Facility currently consists of a
five-year $175.0 million revolving credit facility and a six-year $96.0 million
term loan, providing an aggregate of $271.0 million in available principal
borrowings to the Company. At March 31, 1996, borrowings outstanding under the
Existing Bank Credit Facility amounted to $146.0 million consisting of $96.0
million under the term loan and $50.0 million borrowed under the revolver. At
March 31, 1996, principal reductions of term loans under the Existing Bank
Credit Facility 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 ending September 30,
1997, 1998, 1999, 2000 and 2001, respectively.
On February 20, 1996, the Company issued $125.0 million of 7% Notes in a
transaction exempt from the registration requirements of the Securities Act of
1933 (the "Securities Act"). Three of the Company's subsidiaries that are
obligors with respect to the Existing Bank Credit Facility and the 9.2% Notes,
BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services
Company
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<PAGE> 13
Middle East, are full and unconditional guarantors on a joint and several basis
of the 7% Notes. The Company has filed a registration statement with the
Securities and Exchange Commission (the "Commission") for up to $125 million of
7% Series B Notes due 2006 (the "7% Series B Notes") to be offered in exchange
for the 7% Notes. The form and terms of the 7% Series B Notes are identical in
all material respects to the form and terms of the 7% Notes except that the 7%
Series B Notes will be issued in a transaction registered under the Securities
Act. The net proceeds from the issuance of the 7% Notes ($123.3 million) were
used by the Company to repay indebtedness outstanding under the term loan
portion of the Existing Bank Credit Facility.
The Company has received a commitment letter from its commercial bank to amend
or replace the Existing Bank Credit Facility with a new $680.0 million
committed, unsecured bank credit facility (the "New Bank Credit Facility"). A
portion of the borrowings thereunder will be used to fund the Nowsco
acquisition, if consummated. The Company and three of its subsidiaries, BJ
Services Company, U.S.A., BJ Service International, Inc. and BJ Services
Company Middle East, will be borrowers and guarantors under the New Bank Credit
Facility. The New Bank Credit Facility will include a one- year bridge loan of
$200.0 million, a six-year term loan facility of $280.0 million and a revolving
credit facility (including stand-by letters of credit) of $200.0 million and
will contain covenants and other provisions that are substantially similar to
those under the Existing Bank Credit Facility. Interest under the New Bank
Credit Facility will be 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 1/2% per annum or (ii) the London interbank
offered rate (LIBOR). The New Bank Credit Facility will contain certain
mandatory prepayment obligations from proceeds of certain asset sales and free
cash flow (as defined). The obligations of the lender to make loans under the
New Bank Credit Facility are subject to certain conditions, including, without
limitation, the consummation of the Nowsco Tender Offer or the consummation of
the Nowsco acquisition by negotiation or otherwise. The Company will not enter
into the New Bank Credit Facility unless the Nowsco transaction is consummated.
On April 23, 1996, the Company filed with the Commission a registration
statement on Form S-3 under the Securities Act, Registration No. 333-02731 (the
"Registration Statement") for the proposed offering of 5,869,000 shares (the
"Shares") of the Company's common stock, par value $0.10 per share ("Common
Stock") (excluding 880,350 additional shares of Common Stock subject to
purchase upon the exercise by the underwriters of an over-allotment option).
The closing of the offering of the Shares is conditioned upon the consummation
of the Nowsco Tender Offer or upon the acquisition of all of the outstanding
common shares of Nowsco (the "Nowsco Acquisition"). The Company will use the
net proceeds from the offering to repay certain indebtedness incurred under the
New Bank Credit Facility to fund the Nowsco Tender Offer or the Nowsco
Acquisition, including all of the indebtedness under the bridge loan portion of
such facility.
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.
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<PAGE> 14
The Company's interest-bearing debt represented 38.4% of its total
capitalization at March 31, 1996, a slight decrease from 38.9% at September 30,
1995. The Company's Existing 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 Existing Bank Credit Facility, combined with other discretionary
credit facilities and cash flow from operations, provide the company with
sufficient capital resources and liquidity to manage its routine operations and
fund projected capital expenditures other than the Nowsco acquisition, which,
if consummated, will be funded through the New Bank Credit Facility.
At March 31, 1996, the Company had approximately $512 million of United States
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" (SFAS 109), 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 United States 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 United States 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 benefits of the tax net operating loss
carryforwards that are estimated to expire prior to their utilization.
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 quarter of the prior year. The current
year's spending related primarily to international expansion opportunities,
(primarily in Latin America), offshore cementing skids and upgrades of the
Company's information system. 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.
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
14
<PAGE> 15
be funded by cash flows from operating activities and available credit
facilities. Management believes cash flow from operating activities and
available lines of credit, if necessary, will be sufficient to fund projected
capital expenditures.
When used in this document, the words "expect," "estimate," "project" 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.
15
<PAGE> 16
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Company's 1995 Annual Report on Form 10-K,
shortly after the public announcement in September 1994 of the
proposed acquisition of The Western Company of North America
("Western") by the Company (the "Proposed Acquisition"), four
actions were commenced against Western and its directors in
the Delaware Court of Chancery, styled Croyden Associates v.
Sheldon R. Erikson, et al., and The Western Company of North
America, C.A. No. 13740, filed September 13, 1994; Reggie P.
Judice v. Sheldon R. Erikson, et al., and The Western Company
of North America, C.A. No. 13742, filed September 14, 1994;
William T. Henderson v. Sheldon R. Erikson, et al., and The
Western Company of North America, C.A. No. 13743, filed
September 14, 1994, and Russ Seger v. Sheldon R. Erikson, et
al., and The Western Company of North America, C.A. No. 13769,
filed September 27, 1994. The allegations in these lawsuits,
all of which were filed as alleged class action complaints,
were substantially the same and related to the rejection of
the Proposed Acquisition by the Board of Directors of Western.
The purported class of plaintiffs on whose behalf the class
action complaints were filed were all stockholders of Western.
Among the claims included in these lawsuits was the claim
that, by failing to accept the Proposed Acquisition, Western
and its directors breached their fiduciary duties to the
stockholders of Western. In their complaints, the plaintiffs
sought equitable relief to compel Western and its directors to
perform their fiduciary duties, as construed by the
plaintiffs, and unspecified damages. Two former directors of
Western, Michael E. Patrick and William J. Johnson are now
directors of the Company. Effective February 27, 1996, each
of the above actions was dismissed with prejudice with no
settlement contributions from any of the defendants.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None.
16
<PAGE> 17
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on January
25, 1996, in Houston, Texas. All nominated directors were
elected, and the amendment of the Company's 1995 Incentive
Plan was approved.
(i) Directors elected at the Annual Meeting:
<TABLE>
<CAPTION>
Votes in Votes Broker
Class III Directors Favor Withheld Non-Votes
------------------- --------- -------- ---------
<S> <C> <C> <C>
L. William Heiligbrodt 25,183,716 344,299 0
James E. McCormick 25,183,000 345,069 0
J.W. Stewart 25,157,661 370,408 0
</TABLE>
Directors with terms of office continuing after the Annual
Meeting:
Class I Directors
John R. Huff
R. A. LeBlanc
Michael E. Patrick
Class II Directors
William J. Johnson
Don D. Jordan
Michael McShane
(ii) Amendment of Article IV of the Company's 1995 Incentive
Plan:
<TABLE>
<CAPTION>
Votes in Votes Broker
Favor Against Abstentions Non-Votes
--------- ------- ----------- ---------
<S> <C> <C> <C>
20,187,185 5,661,650 153,986 0
</TABLE>
Item 5. Other Information
None
17
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed by the Company on
April 16, 1996, to report the tender offer of the Company to
acquire all of the outstanding Common Stock of Nowsco Well
Service Ltd.
A Current Report on Form 8-K was filed by the Company on
February 6, 1996 filing unaudited pro-forma financial
statements of the Company for the year ended September 30,
1995 giving effect to the Company's April 1995 acquisition
of The Western Company of North America as if the
acquisition had occurred on October 1, 1994.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BJ Services Company
(Registrant)
Date: May 15, 1996 BY: \s\ Margaret Barrett Shannon
------------------------------------
Margaret Barrett Shannon
Vice President and General
Counsel
Date: May 15, 1996 BY: \s\ Matthew D. Fitzgerald
------------------------------------
Matthew D. Fitzgerald
Controller and Chief
Accounting Officer
20
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description
27.01 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,091
<SECURITIES> 0
<RECEIVABLES> 168,574
<ALLOWANCES> 7,307
<INVENTORY> 70,993
<CURRENT-ASSETS> 266,261
<PP&E> 414,080
<DEPRECIATION> 344,643
<TOTAL-ASSETS> 995,966
<CURRENT-LIABILITIES> 176,660
<BONDS> 0
<COMMON> 2,817
0
0
<OTHER-SE> 482,341
<TOTAL-LIABILITY-AND-EQUITY> 995,966
<SALES> 0
<TOTAL-REVENUES> 200,794
<CGS> 0
<TOTAL-COSTS> 167,163
<OTHER-EXPENSES> 23,020
<LOSS-PROVISION> 905
<INTEREST-EXPENSE> 5,557
<INCOME-PRETAX> 6,040
<INCOME-TAX> 1,617
<INCOME-CONTINUING> 4,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,423
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
