<PAGE> 1
===============================================================================
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 JUNE 30, 1997
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)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 63-0084140
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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 38,428,207 shares of the registrant's common stock, $.10 par value,
outstanding as of August 7, 1997.
===============================================================================
<PAGE> 2
BJ SERVICES COMPANY
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement of Operations (Unaudited) - Three
and nine months ended June 30, 1997 and 1996 3
Consolidated Condensed Statement of Financial Position -
June 30, 1997 (Unaudited) and September 30, 1996 4
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Nine months ended June 30, 1997 and 1996 5
Notes to Unaudited Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
PART II - OTHER INFORMATION 24
</TABLE>
2
<PAGE> 3
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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $ 368,619 $ 220,960 $ 1,052,697 $ 628,255
Operating expenses:
Cost of sales and services 284,516 178,415 828,967 512,664
Research and engineering 6,367 3,992 18,359 11,594
Marketing 13,291 9,837 37,092 27,720
General and administrative 12,734 9,027 37,407 25,749
Goodwill amortization 3,515 1,354 10,900 4,025
Unusual charge 3,539 3,539
--------- --------- ----------- ---------
Total operating expenses 320,423 206,164 932,725 585,291
--------- --------- ----------- ---------
Operating income 48,196 14,796 119,972 42,964
Interest expense (7,780) (5,654) (24,078) (16,749)
Interest income 300 217 603 543
Other income - net 27 1,664 879 3,003
--------- --------- ----------- ---------
Income before income taxes 40,743 11,023 97,376 29,761
Income taxes 12,632 1,951 29,094 7,121
--------- --------- ----------- ---------
Net income $ 28,111 $ 9,072 $ 68,282 $ 22,640
========= ========= =========== =========
Net income per share
Primary $ .68 $ .31 $ 1.67 $ .79
Fully diluted $ .68 $ .31 $ 1.65 $ .77
Average shares outstanding
Primary 41,170 29,651 40,853 28,705
Fully diluted 41,354 29,663 41,291 29,573
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE> 4
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,483 $ 2,897
Receivables - net 294,817 271,583
Inventories:
Finished goods 67,897 59,926
Work in process 8,084 9,479
Raw materials 20,682 17,696
---------- ----------
Total inventories 96,663 87,101
Deferred income taxes 12,364 19,349
Other current assets 21,243 37,217
---------- ----------
Total current assets 428,570 418,147
Property - net 576,321 558,156
Deferred income taxes 190,041 132,666
Goodwill - net 522,305 567,260
Other assets 14,094 32,931
---------- ----------
$1,731,331 $1,709,160
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 143,684 $ 141,966
Short-term borrowings and current
portion of long-term debt 92,902 34,358
Accrued employee compensation and benefits 35,247 32,227
Income and other taxes 16,877 13,698
Accrued insurance 14,105 13,282
Other accrued liabilities 53,527 56,494
---------- ----------
Total current liabilities 356,342 292,025
Long-term debt 412,224 523,004
Deferred income taxes 7,031 11,740
Accrued post retirement benefits and other 33,907 40,688
Stockholders' equity 921,827 841,703
---------- ----------
$1,731,331 $1,709,160
========== ==========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE> 5
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 68,282 $ 22,640
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of unearned compensation 1,125 819
Unusual charge (noncash) 3,539
Depreciation and amortization 67,364 44,288
Deferred income taxes 19,962 697
Changes in:
Receivables (21,273) (9,448)
Inventories (6,222) (2,246)
Accounts payable (595) (47)
Other current assets and liabilities 4,477 (23,187)
Other - net (38,954) (16,673)
--------- ---------
Net cash provided by operating activities 94,166 20,382
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (60,043) (34,372)
Proceeds from disposal of assets 26,126 4,458
Acquisition of business, net of cash acquired (13,464) (586,535)
--------- ---------
Net cash used for investing activities (47,381) (616,449)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - net 591,701
Reduction of borrowings - net (52,236)
Proceeds from issuance of stock 6,037 4,536
--------- ---------
Net cash provided by (used for) financing activities (46,199) 596,237
Increase in cash and cash equivalents 586 170
Cash and cash equivalents at beginning of period 2,897 1,842
--------- ---------
Cash and cash equivalents at end of period $ 3,483 $ 2,012
========= =========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
<PAGE> 6
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 June 30, 1997, the results of
operations for each of the three-month and nine-month periods ended June 30,
1997 and 1996 and the results of cash flows for each of the nine-month periods
ended June 30, 1997 and 1996. The consolidated condensed statement of financial
position at September 30, 1996 is derived from the September 30, 1996 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 three and nine-month periods ended June
30, 1997 are not necessarily indicative of the results to be expected for the
full year.
Supplemental Cash Flow Disclosure -- In 1997, the Company increased its
estimate of the amount of pre-acquisition losses of Western and Nowsco for
which it is more likely than not that tax benefits will ultimately be realized.
Accordingly, the Company has recorded a $69.4 million increase in the deferred
tax asset along with a corresponding decrease in goodwill.
Certain amounts for fiscal 1996 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 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 at the end of each of the periods presented if greater than the
average market price during the period.
6
<PAGE> 7
The following table presents information necessary to calculate earnings per
share for the periods presented (in thousands except earnings per share):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 28,111 $ 9,072 $ 68,282 $ 22,640
=========== =========== =========== ===========
Average primary common and common equivalent
shares outstanding:
Common stock 38,355 28,190 38,292 28,100
Common stock equivalents from assumed
exercise of stock options 857 771 815 605
Common stock equivalents from assumed
exercise of warrants 1,958 690 1,746
----------- ----------- ----------- -----------
41,170 29,651 40,853 28,705
=========== =========== =========== ===========
Primary earnings per share $ .68 $ .31 $ 1.67 $ .79
=========== =========== =========== ===========
Average fully diluted common and common equivalent
shares outstanding:
Common stock 38,355 28,190 38,292 28,100
Common stock equivalents from
assumed exercise of stock options 887 774 887 774
Common stock equivalents from
assumed exercise of warrants 2,112 699 2,112 699
----------- ----------- ----------- -----------
41,354 29,663 41,291 29,573
=========== =========== =========== ===========
Fully diluted earnings per share $ .68 $ .31 $ 1.65 $ .77
=========== =========== =========== ===========
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share." SFAS
128 establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing EPS
previously found in Accounting Principles Board Opinion No. 15 ("APB 15"),
"Earnings Per Share," and makes them comparable to international EPS standards.
The statement replaces the presentation of primary EPS and fully diluted EPS,
and requires presentation of basic EPS and diluted EPS. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS is computed similarly to fully diluted EPS pursuant to APB 15. This
statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. Proforma basic EPS for the three months ended June 30,
7
<PAGE> 8
1997 and 1996 is $.73 and $.32, respectively. Proforma basic EPS for the nine
months ended June 30, 1997 and 1996 is $1.78 and $.81, respectively. Based on
the Company's current capital structure, proforma diluted EPS is the same as
primary EPS for all periods presented.
NOTE 3 ACQUISITION OF BUSINESS
Effective December 1, 1996, the Company acquired the remaining 51% ownership of
its previously unconsolidated joint venture in Argentina, for total
consideration of $13.5 million which was funded through borrowings under
existing credit facilities. 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.
NOTE 4 NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," (SFAS No. 130) and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," (SFAS
No. 131). SFAS No. 130 and SFAS No. 131 are effective for periods beginning
after December 15, 1997. SFAS No. 130 establishes standards for the reporting
and displaying of comprehensive income and its components. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in interim and annual financial
statements. These two statements will have no effect on the Company's 1997
financial statements, but management is currently evaluating what, if any,
additional disclosures may be required when these two statements are adopted in
the first quarter of fiscal 1999.
8
<PAGE> 9
NOTE 5 SUPPLEMENTAL GUARANTOR INFORMATION
In August 1996, the Company exchanged unsecured 7% Series B Notes due 2006 (the
"7% Series B Notes") for its then outstanding unsecured 7% Notes due 2006.
Three of the Company's subsidiaries, BJ Services Company, U.S.A., BJ Service
International, Inc. and BJ Services Company Middle East (collectively, the
"Guarantor Subsidiaries"), are guarantors of the 7% Series B Notes. Each of the
Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and
several basis, the Company's obligation to pay principal and interest with
respect to the 7% Series B 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 7% Series B Notes. Although
holders of the 7% Series B Notes are direct creditors of the Company's
principal direct subsidiaries by virtue of the guarantees, the Company has
subsidiaries ("NonGuarantor Subsidiaries") that are not included among the
Guarantor Subsidiaries, and such subsidiaries are not obligated with respect to
the 7% Series B 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 7% Series B Notes.
The following supplemental consolidating condensed financial statements
present:
1. Consolidating condensed statements of financial position as of June
30, 1997 and September 30, 1996, consolidating condensed statements of
operations for each of the three-month and nine-month periods ended June 30,
1997 and 1996 and consolidating condensed statements of cash flows for each of
the nine-month periods ended June 30, 1997 and 1996.
2. BJ Services Company (the "Parent"), combined Guarantor Subsidiaries
and 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 Guarantor
Subsidiaries of the 7% Series B Notes are material to investors in the 7%
Series B Notes.
9
<PAGE> 10
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ $ 212,038 $ 167,704 $ (11,123) $ 368,619
Operating expenses:
Cost of sales and services 162,816 132,823 (11,123) 284,516
Research and engineering 2,172 4,195 6,367
Marketing 10,314 2,977 13,291
General and administrative 6,369 6,365 12,734
Goodwill amortization 951 2,564 3,515
-------------- ------------- ------------- ----------- -------------
Total operating expenses 182,622 148,924 (11,123) 320,423
-------------- ------------- ------------- ----------- -------------
Operating income 29,416 18,780 48,196
Interest income 1,339 205 (1,244) 300
Interest expense (5,353) (3,671) 1,244 (7,780)
Income from equity investees 28,111 9,932 (38,043)
Other income (expense) - net 218 (191) 27
-------------- ------------- ------------- ----------- -------------
Income before income taxes 28,111 35,552 15,123 (38,043) 40,743
Income tax expense 7,441 5,191 12,632
-------------- ------------- ------------- ----------- -------------
Net income $ 28,111 $ 28,111 $ 9,932 $ (38,043) $ 28,111
============== ============= ============= =========== =============
</TABLE>
10
<PAGE> 11
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ $ 144,063 $ 83,991 $ (7,094) $ 220,960
Operating expenses:
Cost of sales and services 121,775 63,734 (7,094) 178,415
Research and engineering 3,789 203 3,992
Marketing 7,567 2,270 9,837
General and administrative 5,731 3,296 9,027
Goodwill amortization 1,179 175 1,354
Unusual charge 3,539 3,539
-------------- ------------- ------------- -------------- -------------
Total operating expenses 143,580 69,678 (7,094) 206,164
-------------- ------------- ------------- -------------- -------------
Operating income 483 14,313 14,796
Interest income 348 217 (348) 217
Interest expense (6,392) 390 348 (5,654)
Income from equity investees 9,072 13,203 (22,275)
Other income-net 329 1,335 1,664
-------------- ------------- ------------- -------------- -------------
Income before income taxes 9,072 7,971 16,255 (22,275) 11,023
Income tax expense (benefit) (1,101) 3,052 1,951
-------------- ------------- ------------- -------------- -------------
Net income $ 9,072 $ 9,072 $ 13,203 $ (22,275) $ 9,072
============== ============= ============= ============== =============
</TABLE>
11
<PAGE> 12
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ $ 590,111 $ 487,912 $ (25,326) $ 1,052,697
Operating expenses:
Cost of sales and services 468,884 385,409 (25,326) 828,967
Research and engineering 6,020 12,339 18,359
Marketing 27,626 9,466 37,092
General and administrative 18,998 18,409 37,407
Goodwill amortization 3,332 7,568 10,900
-------------- ------------- ------------- -------------- -------------
Total operating expenses 524,860 433,191 (25,326) 932,725
-------------- ------------- ------------- -------------- -------------
Operating income 65,251 54,721 119,972
Interest income 3,571 688 (3,656) 603
Interest expense (16,688) (11,046) 3,656 (24,078)
Income from equity investees 68,282 26,299 (94,581)
Other income (expense) - net 1,066 (187) 879
-------------- ------------- ------------- -------------- -------------
Income before income taxes 68,282 79,499 44,176 (94,581) 97,376
Income tax expense 11,217 17,877 29,094
-------------- ------------- ------------- -------------- -------------
Net income $ 68,282 $ 68,282 $ 26,299 $ (94,581) $ 68,282
============== ============= ============= ============== =============
</TABLE>
12
<PAGE> 13
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ $ 417,185 $ 236,038 $ (24,968) $ 628,255
Operating expenses:
Cost of sales and services 358,415 179,217 (24,968) 512,664
Research and engineering 10,985 609 11,594
Marketing 21,214 6,506 27,720
General and administrative 15,829 9,920 25,749
Goodwill amortization 3,501 524 4,025
Unusual charge 3,539 3,539
-------------- ------------- ------------- -------------- -------------
Total operating expenses 413,483 196,776 (24,968) 585,291
-------------- ------------- ------------- -------------- -------------
Operating income 3,702 39,262 42,964
Interest income 1,077 537 (1,071) 543
Interest expense (16,001) (1,819) 1,071 (16,749)
Income from equity investees 22,640 29,776 (52,416)
Other income-net 1,949 1,054 3,003
-------------- ------------- ------------- -------------- -------------
Income before income taxes 22,640 20,503 39,034 (52,416) 29,761
Income tax expense (benefit) (2,137) 9,258 7,121
-------------- ------------- ------------- -------------- -------------
Net income $ 22,640 $ 22,640 $ 29,776 $ (52,416) $ 22,640
============== ============= ============= ============== =============
</TABLE>
13
<PAGE> 14
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF FINANCIAL POSITION
(IN THOUSANDS)
JUNE 30, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ $ 3,483 $ $ $ 3,483
Receivables - net 123,785 171,032 294,817
Inventories - net 44,626 52,037 96,663
Deferred income taxes 12,364 12,364
Other current assets 6,985 14,258 21,243
-------------- ------------- ------------- ---------------- --------------
Total current assets 191,243 237,327 428,570
Investment in subsidiaries 282,751 181,389 (464,140)
Intercompany advances 639,659 (639,659)
Property - net 299,550 276,771 576,321
Deferred income taxes 162,038 28,003 190,041
Goodwill - net 100,487 421,818 522,305
Other assets 10,390 3,704 14,094
-------------- ------------- ------------- ---------------- --------------
$ 922,410 $ 945,097 $ 967,623 $ (1,103,799) $ 1,731,331
============== ============= ============= ================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ $ 81,712 $ 61,972 $ $ 143,684
Short-term borrowings and
current portion of long-term debt 25,154 67,748 92,902
Accrued employee
compensation and benefits 19,336 15,911 35,247
Income and other taxes 4,280 12,597 16,877
Other accrued liabilities 583 30,517 37,004 (472) 67,632
-------------- ------------- ------------- ---------------- --------------
Total current liabilities 583 160,999 195,232 (472) 356,342
Long-term debt 232,523 179,701 412,224
Deferred income taxes 7,031 7,031
Accrued post retirement
benefits and other 33,896 11 33,907
Intercompany advances-net 234,928 404,259 (639,187)
Stockholders' equity 921,827 282,751 181,389 (464,140) 921,827
-------------- ------------- ------------- ---------------- --------------
$ 922,410 $ 945,097 $ 967,623 $ (1,103,799) $ 1,731,331
============== ============= ============= ================ ==============
</TABLE>
14
<PAGE> 15
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF FINANCIAL POSITION
(IN THOUSANDS)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ $ 2,897 $ $ $ 2,897
Receivables - net 109,110 162,473 271,583
Inventories - net 39,222 47,879 87,101
Deferred income taxes 19,349 19,349
Other current assets 5,379 31,838 37,217
------------- ---------------- ------------- ---------------- --------------
Total current assets 175,957 242,190 418,147
Investment in subsidiaries 213,404 150,339 (363,743)
Intercompany advances - net 628,979 (628,979)
Property - net 292,075 266,081 558,156
Deferred income taxes 112,574 20,092 132,666
Goodwill - net 171,551 395,709 567,260
Other assets 13,467 19,464 32,931
------------- ---------------- ------------- ---------------- --------------
$ 842,383 $ 915,963 $ 943,536 $ (992,722) $ 1,709,160
============= ================ ============= ================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ $ 78,740 $ 63,226 $ $ 141,966
Short-term borrowings and
current portion of long-term debt 6,015 28,343 34,358
Accrued employee
compensation and benefits 20,548 11,679 32,227
Income and other taxes 2,635 11,063 13,698
Other accrued liabilities 680 35,428 33,668 69,776
------------- ---------------- ------------- ---------------- --------------
Total current liabilities 680 143,366 147,979 292,025
Long-term debt 276,461 246,543 523,004
Deferred income taxes 11,740 11,740
Accrued post retirement
benefits and other 39,343 1,345 40,688
Intercompany advances - net 243,389 385,590 (628,979)
Stockholders' equity 841,703 213,404 150,339 (363,743) 841,703
------------- ---------------- ------------- ---------------- --------------
$ 842,383 $ 915,963 $ 943,536 $ (992,722) $ 1,709,160
============= ================ ============= ================ ==============
</TABLE>
15
<PAGE> 16
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 68,282 $ 68,282 $ 26,299 $ (94,581) $ 68,282
Adjustments to reconcile net income to
cash provided by (used for) operating
activities:
Depreciation and amortization 29,305 38,059 67,364
Recognition of unearned compensation 1,125 1,125
Deferred income taxes 19,962 19,962
Income of equity investees (68,282) (26,299) 94,581
Changes in:
Receivables (14,675) (6,598) (21,273)
Accounts payable 2,972 (3,567) (595)
Inventories (5,404) (818) (6,222)
Other current assets and liabilities (97) 901 4,145 (472) 4,477
Advances, net (5,940) (82,205) 87,673 472
Other, net 59,309 (98,263) (38,954)
-------------- ------------- ------------- -------------- -------------
Net cash provided by (used for)
operating activities (6,037) 33,311 66,892 94,166
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (31,043) (29,000) (60,043)
Proceeds from disposal of assets 23,117 3,009 26,126
Acquisition of business,
net of cash acquired (13,464) (13,464)
-------------- ------------- ------------- -------------- -------------
Net cash used for
investing activities (7,926) (39,455) (47,381)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 6,037 6,037
Proceeds from borrowings-net (24,799) (27,437) (52,236)
-------------- -------------- ------------- -------------- -------------
Net cash provided by (used for)
financing activities 6,037 (24,799) (27,437) (46,199)
Increase in cash and cash equivalents 586 586
Cash and cash equivalents
at beginning of period 2,897 2,897
-------------- ------------- ------------- -------------- -------------
Cash and cash equivalents
at end of period $ $ 3,483 $ $ $ 3,483
============== ============= ============= ============== =============
</TABLE>
16
<PAGE> 17
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT
OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,640 $ 22,640 $ 29,776 $ (52,416) $ 22,640
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 27,153 17,135 44,288
Net gain on disposal of assets (10) (2,256) (2,266)
Recognition of unearned compensation 819 819
Deferred income taxes (benefit) 697 697
Unusual charge 3,539 3,539
Income of equity investees (22,640) (29,776) 52,416
Changes in:
Receivables (2,889) (6,559) (9,448)
Accounts payable (317) 270 (47)
Inventories 551 (2,797) (2,246)
Other current assets and liabilities (222) 6,257 (32,262) 3,040 (23,187)
Advances, net (4,314) (432,732) 440,086 (3,040)
Other, net (15,280) 873 (14,407)
-------------- ------------- ------------- -------------- -------------
Net cash provided by (used for)
operating activities (4,536) (420,045) 444,963 20,382
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (12,591) (21,781) (34,372)
Proceeds from disposal of assets 1,632 2,826 4,458
Acquisition of business,
net of cash acquired (586,535) (586,535)
-------------- ------------- ------------- -------------- -------------
Net cash used for
investing activities (10,959) (605,490) (616,449)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 4,536 4,536
Proceeds from (reduction of)
borrowings-net 431,174 160,527 591,701
-------------- ------------- ------------- -------------- -------------
Net cash provided by
financing activities 4,536 431,174 160,527 596,237
Increase in cash and cash equivalents 170 170
Cash and cash equivalents
at beginning of period 1,842 1,842
-------------- ------------- ------------- -------------- -------------
Cash and cash equivalents
at end of period $ $ 2,012 $ $ $ 2,012
============== ============= ============= ============== =============
</TABLE>
17
<PAGE> 18
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 is
expected to generate approximately one-half of its revenues during fiscal 1997.
Due to "aging" U.S. 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 U.S. markets to improve returns in this environment. This conclusion
led to the decision in April 1995 to consolidate its U.S. operations with those
of The Western Company of North America ("Western"), which had a larger
presence in the United States. The Company's U.S. critical mass was further
increased through the acquisition of Nowsco Well Service Ltd. ("Nowsco") in
June 1996 which added operations in the mid-continental and northeastern U.S.,
the latter being an area in which the Company did not have an existing
presence.
Relatively stronger oil and gas prices have recently caused U.S. operators to
be more optimistic about the industry. As a result, the normal seasonal decline
did not occur during the first half of 1997 and drilling activity exceeded 900
rigs for the first time since 1993. U.S. exploration and production spending is
forecast to increase 15 to 20% during 1997 compared with the previous year. The
rig count in the United States averaged 934 and 878 active drilling rigs during
the respective three and nine-month periods ended June 30, 1997. Such activity
represents a 23% and 18% increase over the same three and nine-month periods of
the prior fiscal year, respectively. The activity increase during the quarter
was due to an increase in both oil and natural gas drilling.
With the exception of Canada, international drilling activity has historically
been less volatile than domestic drilling activity. International drilling
activity increased by 13% and 11% compared with the prior year's three and
nine-month periods, respectively, primarily on the strength of development work
in Canada.
In both the U.S. and internationally, there has been a continuing trend by oil
and gas companies toward alliances with service companies. These alliances take
various forms including packaged or integrated services, single source
suppliers and turnkey agreements. More than 20% of the Company's revenues are
generated under such alliances.
18
<PAGE> 19
EXPANSIONS AND ACQUISITIONS
The Company's expansion and acquisition efforts over the past several years
have been focused on adding critical mass to its U.S. operations and
international geographic expansions of its existing product lines. The
acquisition of Nowsco in June 1996 (the "Nowsco Acquisition") contributed
towards both these efforts by giving the Company the number one pumping
services market position in Canada, where the Company had not operated since
1992, and adding to the Company's existing market positions in several key U.S.
and international markets. The Nowsco Acquisition added approximately 40% to
the Company's existing revenue base. The Company strengthened its market
position in Argentina in December 1996 by acquiring the remaining 51% interest
in its Argentine joint venture, NASA. The Company's original 49% share was
acquired through the Nowsco Acquisition.
RESULTS OF OPERATIONS
Revenue: Revenue increased by 67% and 68% over the same three and nine-month
periods of the previous fiscal year, primarily as a result of the acquisition
of Nowsco and a strong recovery in the U.S. oil and gas markets.
The Company's U.S. pressure pumping operations continued its strong
year-over-year improvement with a 48% revenue increase over prior year's third
quarter. Taking into account prior year's Nowsco revenues, these operations
showed a pro forma revenue increase of 25%, benefiting from a 23% increase in
the active rig count. For the nine-month period ended June 30, 1997, U.S.
revenues increased 47% over the same period of the prior year. Revenues in most
of the central U.S. regions were up sharply, most significantly in Texas and
Oklahoma. Management expects U.S. drilling activity to remain strong during the
remainder of 1997 in comparison to the prior year.
The Company's international pressure pumping operations continued their strong
growth with revenues increasing by 92% (30% on a pro forma basis) from prior
year's third quarter and 96% for the first nine-month period. This represents
the eighteenth consecutive quarter of international revenue improvement. The
Company's newly acquired Canadian operations achieved their highest ever third
quarter revenue figures increasing 51% and 45% on a pro forma basis over the
prior year's three and nine-month periods, respectively. Such activity increase
was primarily a result of a less pronounced spring breakup (the period at the
beginning of spring when municipalities place restrictions on vehicle weights
to prevent damage to the roads during the spring thaw) and particularly strong
fracturing and coiled tubing activity. Other international areas showing
significant revenue increases during these periods included the UK (mainly
coiled tubing), Indonesia and Thailand. The Company's Middle East region also
had another strong quarter reflecting new contracts in India, Egypt and Saudi
Arabia. The Company's operations in Venezuela continued to benefit from
increased coiled tubing revenues resulting from the addition of a coiled tubing
barge since the previous year. Partially offsetting these gains were pro forma
revenue declines in Argentina, due to a slowdown in drilling activity by YPF,
and in Malaysia.
19
<PAGE> 20
Management expects the year-over-year international revenue to continue to
increase over the next several quarters.
The Company's other service lines, which include tubular services, commissioning
and pipeline inspection and production chemical businesses showed an overall
revenue increase of 85% for both the three and nine-month periods ended June 30,
1997 over the same periods of the previous year due mainly to the Nowsco
acquisition, as well as activity gains in each of these service lines on a pro
forma basis.
Operating Income: Operating income more than doubled for both the three and
nine-month periods as a result of the revenue increase and higher operating
margins resulting from efficiencies derived from the combination of the
Company's and former Nowsco operations and the operating leverage that results
from increased U.S. activity. The cost of sales and services as a percentage of
revenue during the three and nine-month periods was 3.5% and 2.9% lower,
respectively, than in the same periods of the prior year primarily as a result
of cost reduction efforts implemented after the acquisition of Nowsco, U.S. net
price improvement of 4 to 5% and the economies of scale in having a larger U.S.
operation. Other operating expenses, excluding goodwill amortization, increased
by 42% and 43% over the same three and nine-month periods of fiscal 1996
primarily as a result of additional overhead from the former Nowsco operations.
The increase in goodwill amortization resulted from the Nowsco Acquisition,
which was accounted for under the purchase method of accounting. The unusual
charge in 1996 consisted of $1.9 million in interest relating to borrowings
incurred to finance the Nowsco Acquisition and a $1.6 million write-off of bank
fees in connection with the Company's previous bank facility.
Interest expense increased by $2.1 million and $7.3 million, respectively, over
the same three and nine-month periods of the previous year due to increased
borrowings to fund the Nowsco Acquisition. See "Capital Resources and
Liquidity."
The year-to-date effective tax rate increased to 30% from 24% due to the higher
U.S. profitability which is taxed at the 35% statutory rate.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided from operating activities for the nine months ended June 30,
1997 increased by $73.8 million from the prior year's figure. Higher
profitability, depreciation and amortization and deferred income taxes were
partially offset by higher receivable balances. Net cash used for investing
activities for the nine-month period was $47.4 million, a $569.1 million
decrease from the first nine months of the prior year due to the Company's
acquisition of Nowsco in June 1996 and the receipt of $20.3 million in cash in
1997 on the sale of the hull from the Renaissance, partially offset by higher
capital spending and the acquisition of the remaining 51% ownership of the
Company's previously unconsolidated joint venture in Argentina. Because net
cash flows from operating activities were sufficient to cover the Company's
capital requirements, the Company was able to reduce net borrowings by $52.2
million during the current nine-month period.
20
<PAGE> 21
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, the Company replaced its
existing credit facility with a committed, unsecured bank credit facility (the
"New Bank Credit Facility") executed to accommodate the Nowsco Acquisition. The
New Bank Credit Facility consists of a Canadian $320.0 million (approximately
U.S. $230 million) six-year term loan, which is repayable in 22 quarterly
installments which began in March 1997, and a five-year U.S. $325.0 million
revolving facility. At June 30, 1997, borrowings outstanding under the New Bank
Credit Facility amounted to $313.3 million consisting of $213.3 million under
the term loan and $100.0 million borrowed under the revolver. At June 30, 1997,
principal reductions of term loans under the New Bank Credit Facility are due
in aggregate installments of $8,468,082; $33,872,327; $43,308,190; $46,453,477;
$46,453,477 and $34,789,297 in the years ending September 30, 1997, 1998, 1999,
2000, 2001 and 2002, respectively.
The outstanding balance of the Company's 9.2% Notes, issued in 1991, was $12.0
million at June 30, 1997. Principal reductions of $6.0 million are required
annually each August until maturity on August 1, 1998.
In addition to the committed facility, the Company had $143.0 million in
various unsecured, discretionary lines of credit at June 30, 1997 which expire
at various dates in 1998. 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 June 30, 1997 and September
30, 1996, there were $53.3 million and $2.5 million, respectively, in
outstanding borrowings under these lines of credit.
The Company's interest-bearing debt represented 35.4% of its total
capitalization at June 30, 1997, a decrease from 39.8% at the previous fiscal
year-end. The Company's 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, will provide the Company with
sufficient capital resources and liquidity to manage its routine operations and
fund projected capital expenditures.
In a transaction entered into subsequent to June 30, 1997 involving the transfer
of certain pumping service equipment assets, the Company expects to receive
approximately $100 million in the fourth fiscal quarter which will be used to
reduce outstanding bank debt. As a result of the reduced debt, the Company will
realize a reduction in future interest expense of approximately $6 million per
year. The equipment will be used to provide services to the Company for its
customers for which the Company will pay a service fee over a period of at least
eight, but not more than fourteen years. The transaction generated a book gain
of approximately $37 million which will be amortized over twelve years. The
taxable gain of approximately $91 million will be completely offset with net
operating loss carryforwards that are available to the Company as a result of
the Western acquisition. The
21
<PAGE> 22
expected tax benefit of the net operating loss utilization has been recorded as
a reduction to goodwill in the quarter ended June 30, 1997.
At June 30, 1997, the Company had approximately $540 million of United States
tax net operating loss carryforwards expiring between 2000 and 2011;
approximately $115 million of non-U.S. tax net operating loss carryforwards
expiring in varying amounts beginning in 1997; and approximately $7 million in
non-U.S. tax credits which expire in varying amounts between 1999 and 2009.
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." The 1995
acquisition of The Western Company of North America (the "Western Acquisition")
provided the Company with a greater critical mass with which to compete in the
United States as it more than doubled the Company's United States revenue base.
In addition, with the combination of Nowsco and Western, the Company has
realized significant consolidation benefits. Management estimates that in
excess of $64 million of overhead and redundant operating costs have been
eliminated annually as a result of the combination of the three companies. Net
tax benefits resulting from the acquisitions approximate $189 million and have
been included as a deferred tax asset recognized in the purchase price
allocation. Valuation allowances have been established for the benefits of the
tax net operating loss carryforwards that are estimated to expire prior to
their utilization. In 1997, the Company increased its estimate of the amount of
pre-acquisition losses of Western and Nowsco for which it is more likely than
not that tax benefits will ultimately be realized. Accordingly, the Company has
recorded a $69.4 million increase in the deferred tax asset along with a
corresponding decrease in goodwill. Management estimates that the utilization
of net operating loss carryforwards will result in cash taxes of less than
one-half of the book tax rate over the next several years.
Excluding acquisitions, capital expenditures during the first nine months of
the fiscal year were $60.0 million, or $25.7 million higher than the spending
in the comparable period of the prior year. The current year's spending relates
primarily to the construction of two additional pumping service vessels (both
in Latin America), expansion of cementing and stimulation capacity in the Gulf
of Mexico and Latin America, and upgrades of the Company's information systems.
Other investing activities included the acquisition of the remaining 51%
interest in the Company's joint venture in Argentina for total consideration of
$13.5 million.
Capital expenditures for fiscal 1998 are expected to exceed 1997 levels, and
are expected to include spending for coiled tubing growth opportunities,
additional capacity in certain high margin locations and higher levels of
replacement capital. The actual amount of fiscal 1998 capital expenditures
(excluding acquisitions) will be primarily dependent upon the availability of
expansion opportunities and are expected to be funded by cash flows from
operating activities and available credit facilities. Management believes cash
flows from operating activities and available lines of credit, if necessary,
will be sufficient to fund projected capital expenditures.
22
<PAGE> 23
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other
things, the Company's prospects, developments and business strategies for its
operations, all of which are subject to certain risks, uncertainties and
assumptions. These forward-looking statements are identified by their use of
terms and phrases such as "expect," "estimate," "project," "believe," and
similar terms and phrases. 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.
23
<PAGE> 24
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
24
<PAGE> 25
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: August 8, 1997 BY /s/ J. W. STEWART
--------------------------------
J. W. Stewart
Chairman of the Board,
President, and Chief
Executive Officer
Date: August 8, 1997 BY /s/ MATTHEW D. FITZGERALD
--------------------------------
Matthew D. Fitzgerald
Controller and Chief
Accounting Officer
25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 3,483
<SECURITIES> 0
<RECEIVABLES> 294,817
<ALLOWANCES> 5,561
<INVENTORY> 96,663
<CURRENT-ASSETS> 428,570
<PP&E> 988,653
<DEPRECIATION> 412,332
<TOTAL-ASSETS> 576,321
<CURRENT-LIABILITIES> 356,342
<BONDS> 0
0
0
<COMMON> 3,838
<OTHER-SE> 917,989
<TOTAL-LIABILITY-AND-EQUITY> 1,731,331
<SALES> 1,052,697
<TOTAL-REVENUES> 1,052,697
<CGS> 0
<TOTAL-COSTS> 828,967
<OTHER-EXPENSES> 103,758
<LOSS-PROVISION> 1,398
<INTEREST-EXPENSE> 24,078
<INCOME-PRETAX> 97,376
<INCOME-TAX> 29,094
<INCOME-CONTINUING> 68,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,282
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.65
</TABLE>
