<PAGE> 1
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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 DECEMBER 31, 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>
<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 38,672,357 shares of the registrant's common stock, $.10 par value,
outstanding as of February 10, 1998.
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<PAGE> 2
BJ SERVICES COMPANY
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statement of Operations (Unaudited) - Three
months ended December 31, 1997 and 1996 3
Consolidated Condensed Statement of Financial Position -
December 31, 1997 (Unaudited) and September 30, 1997 4
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Three months ended December 31, 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 8
PART II - OTHER INFORMATION 13
</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
DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenue $ 415,360 $ 340,380
Operating expenses:
Cost of sales and services 304,884 272,208
Research and engineering 7,539 5,912
Marketing 14,572 11,631
General and administrative 12,937 10,717
Goodwill amortization 3,527 3,784
------------ ------------
Total operating expenses 343,459 304,252
------------ ------------
Operating income 71,901 36,128
Interest expense (6,006) (8,320)
Interest income 380 41
Other income (expense) - net (489) 143
------------ ------------
Income before income taxes 65,786 27,992
Income taxes 21,709 8,018
------------ ------------
Net income $ 44,077 $ 19,974
============ ============
Earnings per share:
Basic $ .57 $ .26
Diluted $ .52 $ .25
Weighted average shares outstanding:
Basic 77,198 76,418
Diluted 85,036 81,252
</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>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,157 $ 3,900
Receivables - net 343,117 332,851
Inventories:
Finished goods 73,268 73,343
Work in process 4,951 6,969
Raw materials 25,649 23,922
------------ ------------
Total inventories 103,868 104,234
Deferred income taxes 11,521 12,986
Other current assets 22,556 20,773
------------ ------------
Total current assets 489,219 474,744
Property - net 546,969 540,356
Deferred income taxes 175,219 183,076
Goodwill - net 509,830 513,388
Other assets 15,346 15,204
------------ ------------
$ 1,736,583 $ 1,726,768
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 153,811 $ 162,467
Short-term borrowings and current
portion of long-term debt 114,213 102,698
Accrued employee compensation and benefits 32,552 38,807
Income and other taxes 23,987 21,126
Accrued insurance 15,849 15,486
Other accrued liabilities 55,024 44,760
------------ ------------
Total current liabilities 395,436 385,344
Long-term debt 282,970 298,634
Deferred income taxes 9,270 7,598
Accrued postretirement benefits and other 74,467 74,965
Stockholders' equity 974,440 960,227
------------ ------------
$ 1,736,583 $ 1,726,768
============ ============
</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>
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,077 $ 19,974
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of unearned compensation 3,600 375
Depreciation and amortization 21,517 22,799
Deferred income taxes 13,504 4,455
Changes in:
Receivables (10,266) (10,337)
Inventories 366 5,521
Accounts payable (8,656) (3,596)
Other current assets and liabilities 4,405 (2,011)
Other - net 4,647 (10,052)
------------ ------------
Net cash provided by operating activities 73,194 27,128
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (28,148) (14,538)
Proceeds from disposal of assets 1,641 1,599
Acquisition of business, net of cash acquired (13,464)
------------ ------------
Net cash used for investing activities (26,507) (26,403)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of borrowings - net (4,149) (2,838)
Purchase of treasury stock (42,632)
Proceeds from issuance of stock 4,351 4,431
------------ ------------
Net cash provided by (used for) financing activities (42,430) 1,593
Increase in cash and cash equivalents 4,257 2,318
Cash and cash equivalents at beginning of period 3,900 2,897
------------ ------------
Cash and cash equivalents at end of period $ 8,157 $ 5,215
============ ============
</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 December 31, 1997, and the results
of operations and cash flows for each of the three month periods ended December
31, 1997 and 1996. The consolidated condensed statement of financial position
at September 30, 1997 is derived from the September 30, 1997 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-month period ended December 31,
1997 are not necessarily indicative of the results to be expected for the full
year.
Certain amounts for fiscal 1997 have been reclassified to conform to the
current year presentation.
NOTE 2 EARNINGS PER SHARE
In October 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share ("EPS")". In accordance with this
standard, the Company has replaced the presentation of primary EPS and fully
diluted EPS with the presentation of basic EPS and diluted EPS for all periods
presented. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is based on the weighted-average
number of shares outstanding during each period and the assumed exercise of
dilutive stock options and warrants less the number of treasury shares assumed
to be purchased from the proceeds using the average market price of the
Company's common stock for each of the periods presented.
At the annual meeting of stockholders on January 22, 1998, the Company's
stockholders approved an amendment to the Company's charter increasing the
number of authorized shares of common stock from 80 million to 160 million
shares. As a result, a 2 for 1 stock split approved by the Board of Directors
on December 11, 1997 (to be effected in the form of a stock dividend) was
approved by the stockholders to be distributed on or about February 20, 1998 to
stockholders of record as of January 30, 1998. Accordingly, all references in
the financial statements to number of shares outstanding and earnings per share
amounts have been retroactively restated for all periods presented to reflect
the increased number of common shares outstanding resulting from the stock
split.
6
<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
DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Net income $ 44,077 $ 19,974
Average common shares outstanding: 77,198 76,418
---------- ----------
Basic earnings per share $ .57 $ .26
========== ==========
Average common and dilutive potential common shares outstanding:
Average common shares outstanding 77,198 76,418
Assumed exercise of stock options 1,950 1,628
Assumed exercise of warrants 5,888 3,206
---------- ----------
85,036 81,252
Diluted earnings per share $ .52 $ .25
========== ==========
</TABLE>
7
<PAGE> 8
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 and Canada, where the
Company expects to generate over 60% of its revenues during fiscal 1998.
Published industry surveys have estimated 1998 spending will exceed 1997 levels
by 10 to 12%. Such estimates, however, were predicated on oil prices which
exceed current levels. If oil prices remain at current levels for a prolonged
period, such budgets are likely to be reduced.
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.
Until recently, excess capacity among pumping service companies resulted in the
inability to generate adequate returns on new capital investments. To improve
returns in this environment, the Company believes it is important to operate
with a greater "critical mass" in the key U.S. markets. This conclusion led to
the decision in April 1995 to consolidate its 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. operations were 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 and improved oilfield technology
and equipment have recently led to more favorable drilling conditions in the
United States. As a result, during August 1997 the U.S. active rig count
exceeded 1,000 rigs for the first time since 1991. The U.S. active rig count
averaged 997 rigs during the quarter ended December 31, 1997, an 18% increase
over the prior year's first fiscal quarter. The increase in activity occurred
primarily in drilling for natural gas which was up 27% compared with the prior
year. While U.S. drilling activity is expected to continue to be relatively
strong during fiscal 1998, the rate of increase is expected to decline in the
second half of the fiscal year.
With the exception of Canada, international drilling activity has
historically been less volatile than domestic drilling activity. Active
international drilling rigs averaged 1,260 during the first fiscal quarter, an
increase of 13% over the first quarter of 1997, primarily on the strength of
development work in Canada. Calendar 1997 was a record year in terms of the
number of wells drilled in Canada. Canadian drilling activity is expected to
remain strong during the next several years due to the completion of additional
pipeline capacity.
8
<PAGE> 9
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. More than 20% of the
Company's revenues are generated under such alliances. While the Company's
service line offerings are not as comprehensive as some of its major
competitors, management believes the trend towards alliances has not had a
material adverse impact on the Company's operating results to date.
RESULTS OF OPERATIONS
The following table sets forth selected key operating statistics
reflecting industry rig count and the Company's financial results:
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31
1998 1997
------ ------
<S> <C> <C>
Rig Count: (1)
U.S 997 845
International 1,260 1,115
Revenue per rig (in thousands) $184.0 $173.7
Revenue per employee (in thousands) $ 47.9 $ 45.4
Percentage of gross profit to revenue (2) 26.6% 20.0%
Percentage of research and engineering expense to revenue 1.8% 1.7%
Percentage of marketing expense to revenue 3.5% 3.4%
Percentage of general and administrative expense to revenue 3.1% 3.1%
</TABLE>
- --------
(1) Industry estimate of average active rigs.
(2) Gross profit represents revenue less cost of sales and services.
Revenue: The Company's revenue increased by 22% compared with the first
quarter of the previous year due primarily to strong worldwide drilling
activity and to improved pricing. While the relatively stronger drilling
activity is expected to continue into at least the Company's second and third
fiscal quarters, recent weakness in oil prices could impact comparisons as
early as the latter half of calendar 1998. As yet, however, the Company has not
experienced any significant reduction in business as a result of the lower oil
prices.
United States
The Company's U.S. revenues increased by 27% during the quarter due
primarily to strong pressure pumping activity across all regions and from a
large gel pigging job by its pipeline inspection business. The Company's U.S.
pressure pumping revenues were up 26%, exceeding the 18% increase in the active
rig count due to better pricing for its services. With the U.S. rig count
9
<PAGE> 10
averaging 997 active rigs during the quarter, the Company was operating at near
full capacity in most of its regions. The Company's U.S. coiled tubing,
acidizing and downhole tool revenues were especially strong; however,
fracturing revenue increased only 14% due to relatively flat workover activity.
Activity in the Gulf of Mexico was also strong, with the Company operating a
record number of offshore cementing skid units and experiencing increased
revenue from its offshore stimulation vessels.
International
The Company's international revenues increased by 16% over prior year's
first fiscal quarter. Led by a strong increase in stimulation activity, the
Company's international operations generated their twentieth consecutive
quarter of year over year revenue improvement. Stimulation activity was
particularly strong in the North Sea, Canada, Indonesia and Latin America.
Revenues generated from the Company's well kill operations in Bangladesh also
contributed to the revenue improvement.
Operating Income: Operating income almost doubled from the prior year's
first fiscal quarter, with operating income margins exclusive of goodwill
amortization increasing to 18.2% of revenues from 11.7%. The gross margin
improvement was due to the Company's North American pumping operations running
at high utilization levels, along with continued strength in international
markets. Although increasing on an absolute basis, each of the other cash
operating expenses (research and engineering, marketing, and general and
administrative) were relatively constant as a percentage of revenue. The
increases are reflective of increased support costs from the higher activity
levels, as well as increased spending on coiled tubing research, international
commissions, information systems and incentives.
Other: Interest expense decreased by $2.3 million from the prior year's
first quarter due to a reduction in borrowing from strong operating cash flows,
and a financing transaction in the fourth quarter of the prior fiscal year.
Other expense increased to $.5 million primarily as a result of minority
interest in higher profitability from the Company's international joint
ventures. The Company's effective tax rate increased to 33% from 29% in prior
year's first quarter as a result of the higher U.S. profitability.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided from operating activities for the three months ended
December 31, 1997 increased by $46.1 million from the prior year's figure due
primarily to higher profitability, deferred income taxes and changes in other
net. Net cash used for investing activities for the three-month period was
$26.5 million, relatively flat with the prior year. Capital spending, which
increased by $13.6 million, or 94% this quarter compared to the same quarter of
the previous year, was offset by the acquisition in fiscal 1997 of the
remaining 51% ownership of the Company's previously unconsolidated joint
venture in Argentina. The current quarter's spending relates primarily to
additional fracturing capacity for Canada and Latin America and upgrades to the
Company's
10
<PAGE> 11
information systems. The Company utilized net cash flows from operating
activities to repurchase $42.6 million of its common stock and reduced
outstanding borrowings by $4.1 million during the quarter ended December 31,
1997. The common stock was purchased under a stock repurchase program approved
by the Company's Board of Directors in December 1997 authorizing purchases up
to $150 million at the discretion of the Company's management.
Management strives to maintain low cash balances while utilizing
available credit facilities to meet the Company's capital needs. Any excess
cash generated is used to pay down outstanding borrowings. The Company has a
committed, unsecured bank credit facility (the "Bank Credit Facility") which
consists of a Canadian $320 million (approximately U.S. $232 million) six-year
term loan, that is repayable in 22 quarterly installments which began in March
1997, and a five year U.S. $225 million revolving credit facility. At December
31, 1997, borrowings outstanding under the Bank Credit Facility totaled $190.5
million, consisting wholly of borrowings under the term loan. Principal
reductions of term loans under the Bank Credit Facility are due in aggregate
annual installments of $24.6 million; $42.0 million; $45.1 million; $45.1
million; and $33.7 million in the years ending September 30, 1998, 1999, 2000,
2001 and 2002, respectively.
In addition to the Bank Credit Facility, the Company had $97.9 million in
various unsecured, discretionary lines of credit at December 31, 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 December 31, 1997, there
were $82.3 million in outstanding borrowings under these lines of credit.
The Company has issued and outstanding $125.0 million principal amount of
unsecured 7% Notes due 2006 (the "7% Notes"). The net proceeds from the
issuance of the 7% Notes ($123.3 million) were used by the Company to repay
indebtedness outstanding under the term loan portion of the Company's then
existing bank credit facility. The guarantees of the 7% Notes by certain
subsidiaries of the Company were released in accordance with their terms in
December 1997.
The $6.0 million outstanding balance of the Company's 9.2% Notes and the
$2.2 million outstanding balance of the Company's 12 7/8% Notes were repaid in
December 1997.
The Company's interest-bearing debt represented 29.0% of its total
capitalization at December 31, 1997, compared to 29.5% at September 30, 1997.
The Bank Credit Facility includes various customary covenants and other
provisions including the maintenance of certain profitability and solvency
ratios and restrictions on dividend payments. Management believes that the Bank
Credit Facility, combined with other discretionary credit facilities and cash
flow from operations, provides the Company with sufficient capital resources
and liquidity to manage its routine operations and fund projected capital
expenditures.
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,
11
<PAGE> 12
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.
12
<PAGE> 13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
The Company has issued and outstanding, $125.0 million of
unsecured 7% Notes due 2006. The guarantees of the 7% Notes
by three of the Company's subsidiaries, BJ Services Company,
U.S.A., BJ Service International, Inc. and BJ Services
Company Middle East, were released in accordance with their
terms in December 1997.
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
13
<PAGE> 14
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: February 12, 1998 BY /s/ Michael McShane
------------------------------------
Michael McShane
Senior Vice President, Finance
and Chief Financial Officer
Date: February 12, 1998 BY /s/ Matthew D. Fitzgerald
------------------------------------
Matthew D. Fitzgerald
Vice President and Controller
and Chief Accounting Officer
<PAGE> 15
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27.1 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,157
<SECURITIES> 0
<RECEIVABLES> 343,117
<ALLOWANCES> 6,441
<INVENTORY> 103,868
<CURRENT-ASSETS> 489,219
<PP&E> 941,692
<DEPRECIATION> 394,723
<TOTAL-ASSETS> 1,736,583
<CURRENT-LIABILITIES> 395,436
<BONDS> 0
0
0
<COMMON> 3,867
<OTHER-SE> 970,573
<TOTAL-LIABILITY-AND-EQUITY> 1,736,583
<SALES> 415,360
<TOTAL-REVENUES> 415,360
<CGS> 304,884
<TOTAL-COSTS> 304,884
<OTHER-EXPENSES> 38,575
<LOSS-PROVISION> 299
<INTEREST-EXPENSE> 6,006
<INCOME-PRETAX> 65,786
<INCOME-TAX> 21,709
<INCOME-CONTINUING> 44,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,077
<EPS-PRIMARY> .57
<EPS-DILUTED> .52
</TABLE>
