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