<PAGE>
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, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _______ to _______.
COMMISSION FILE NUMBER 1-10570
BJ SERVICES COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0084140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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 70,707,286 shares of the registrant's common stock, $.10 par
value, outstanding as of February 10, 1999.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
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, 1998 and 1997 3
Consolidated Condensed Statement of Financial Position -
December 31, 1998 (Unaudited) and September 30, 1998 4
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Three months ended December 31, 1998 and 1997 5
Notes to Unaudited Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION 16
</TABLE>
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Revenue $294,435 $415,360
Operating expenses:
Cost of sales and services 243,211 304,884
Research and engineering 6,592 7,539
Marketing 12,849 14,572
General and administrative 10,780 12,937
Goodwill amortization 3,382 3,527
Unusual Charge 21,567
-------- --------
Total operating expenses 298,381 343,459
-------- --------
Operating income (loss) (3,946) 71,901
Interest expense (7,655) (5,817)
Interest income 76 191
Other income (expense) - net (131) (489)
-------- --------
Income (loss) before income taxes (11,656) 65,786
Income tax expense (benefit) (4,630) 21,709
-------- --------
Net income (loss) $ (7,026) $ 44,077
-------- --------
-------- --------
Earnings (loss) per share:
Basic $ (.10) $ .57
Diluted $ (.10) $ .52
Weighted average shares outstanding:
Basic 70,673 77,197
Diluted 72,669 85,096
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,387 $ 1,625
Receivables - net 270,223 300,140
Inventories:
Finished goods 75,931 78,459
Work in process 2,012 2,574
Raw materials 29,958 30,153
---------- ----------
Total inventories 107,901 111,186
Deferred income taxes 11,846 12,767
Other current assets 27,545 26,078
---------- ----------
Total current assets 420,902 451,796
Property - net 610,214 602,028
Deferred income taxes 178,946 171,164
Goodwill - net 499,867 503,259
Other assets 14,868 15,454
---------- ----------
$1,724,797 $1,743,701
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 106,863 $ 140,726
Short-term borrowings and current
portion of long-term debt 182,990 224,806
Accrued employee compensation and benefits 40,380 41,686
Income and other taxes 25,374 26,113
Accrued insurance 12,339 12,303
Other accrued liabilities 62,009 67,491
---------- ----------
Total current liabilities 429,955 513,125
Long-term debt 310,046 241,869
Deferred income taxes 8,270 9,021
Other long-term liabilities 79,552 79,622
Stockholders' equity 896,974 900,064
---------- ----------
$1,724,797 $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> THREE MONTHS ENDED
DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,026) $ 44,077
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of unearned compensation 3,600
Depreciation and amortization 23,496 21,517
Deferred income taxes (benefit) (9,449) 13,504
Unusual charge (non cash) 13,955
Changes in:
Receivables 29,917 (10,266)
Inventories 2,447 366
Accounts payable (33,863) (8,656)
Other current assets and liabilities (6,512) 4,405
Other - net 486 4,647
---------- ----------
Net cash provided by operating activities 13,451 73,194
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (43,715) (28,148)
Proceeds from disposal of assets 3,641 1,641
---------- ----------
Net cash used for investing activities (40,074) (26,507)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) borrowings - net 26,361 (4,149)
Purchase of treasury stock (42,632)
Proceeds from issuance of stock 2,024 4,351
---------- ----------
Net cash provided by (used for) financing activities 28,385 (42,430)
Increase in cash and cash equivalents 1,762 4,257
Cash and cash equivalents at beginning of period 1,625 3,900
---------- ----------
Cash and cash equivalents at end of period $ 3,387 $ 8,157
---------- ----------
---------- ----------
</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 December 31, 1998, and the
results of operations and cash flows for each of the three month periods
ended December 31, 1998 and 1997. 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
three-month period ended December 31, 1998 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 2 for 1 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
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The following table presents information necessary to calculate earnings per
share for the periods presented (in thousands except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
Net income (loss) $ (7,026) $ 44,077
Weighted-average common shares outstanding 70,673 77,197
---------- ----------
Basic earnings (loss) per share $ (.10) $ .57
---------- ----------
---------- ----------
Weighted-average common and dilutive potential common
shares outstanding:
Weighted-average common shares outstanding 70,673 77,197
Assumed exercise of stock options 1,153 2,010
Assumed exercise of warrants 843 5,889
---------- ----------
72,669 85,096
---------- ----------
Diluted earnings (loss) per share $ (.10) $ .52
---------- ----------
---------- ----------
</TABLE>
NOTE 3 UNUSUAL CHARGE
During the quarter ended December 31, 1998, the Company recorded a pretax
unusual charge of $21.6 million ($14.0 million after tax, or $.19 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 December 31,
Provision to Date 1998
--------- -------- -----------
<S> <C> <C> <C>
Asset impairments (non cash) $13,955 $(13,955)
Severance and related benefits 6,417 (1,482) $4,935
Facility closures and other 1,195 (275) 920
------- -------- ------
$21,567 $(15,712) $5,855
------- -------- ------
------- -------- ------
</TABLE>
The asset impairment of $14.0 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 costs relate to the involuntary termination of approximately 700
employees worldwide. The Company expects to pay all remaining severance
benefits by the end of
7
<PAGE>
the third fiscal quarter of 1999. The facility closure 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.
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
December 31,
------------------
1998 1997
-------- -------
<S> <C> <C>
Net income (loss) attributable to common stockholders $(7,026) $44,077
Change in cumulative translation adjustment 1,911 4,818
-------- -------
Comprehensive net income (loss) $(5,115) $48,895
-------- -------
-------- -------
</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 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
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.
8
<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 latter
half of calendar 1998 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. For the quarter ended
December 31, 1998, the active U.S. rig count averaged 690 rigs, a 31% decline
from the same period in the previous year. Most of the decline occurred in
rigs drilling for oil, down 41% during the period.
With the exception of Canada, international drilling activity has
historically been less volatile than U.S. drilling activity. Active
international drilling rigs (excluding Canada) averaged 682 rigs during the
first quarter of fiscal 1999, a decrease of 16% from the first quarter of
fiscal 1998, primarily due to decreased activity in Latin America. The
Canadian average rig count, however, at 201 active rigs for the quarter ended
December 31, 1998 was down 55% from the same quarter of the previous year.
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.
9
<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>
Quarter Ended
December 31,
----------------
1998 1997
------ ------
<S> <C> <C>
Rig Count: (1)
U.S. 690 997
International 883 1,260
Revenue per rig (in thousands) $187.3 $ 184.0
Revenue per employee (in thousands) $ 36.8 $ 47.9
Percentage of gross profit to revenue (2) 17.4% 26.6%
Percentage of research and engineering expense to revenue 2.2% 1.8%
Percentage of marketing expense to revenue 4.4% 3.5%
Percentage of general and administrative expense to revenue 3.7% 3.1%
</TABLE>
- --------
(1) Industry estimate of drilling activity as measured by average active rigs.
(2) Gross profit represents revenue less cost of sales and services.
REVENUE: The Company's revenue for the quarter ended December 31, 1998
decreased by 29% from the first quarter 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 for the quarter
declined 42% from the first quarter of the previous year due to weakness in
drilling and workover activity. The U.S. active rig count declined by 31%
compared to the prior year's first fiscal quarter, and the workover rig count
declined by 35%. Except for the Northeast region, year over year revenue
declined in each of the U.S. regions, with the greatest impact being felt in
the primarily oil producing regions of Texas and the West Coast. Oil
drilling activity in the U.S. decreased by 50% during the first quarter of
fiscal 1999 compared to the same quarter of the prior year, while gas
drilling activity decreased 20%. Pricing for the Company's services in the
U.S. declined by approximately 4%. In addition, the Company has experienced
some market share deterioration in the U.S. due to attempts to maintain
pricing, as well as higher than average activity reductions by the Company's
key customers. Revenues in Mexico, however, almost doubled compared to the
same quarter of the previous year due to a new contract which began in
mid-1998. To address the downturn in activity, the Company has been
consolidating its U.S. operations, resulting in the closure of several
locations in oil producing regions. Additionally, idle equipment has been
removed from operations. A portion
10
<PAGE>
of this equipment, for which the Company has recorded a writedown of $12.0
million, will be sold or salvaged for spare parts. The remainder will be
redistributed to other operating locations as needs arise.
INTERNATIONAL PRESSURE PUMPING REVENUE
The Company's international pressure pumping revenue declined by 19%
compared to the prior year's first fiscal quarter. The majority of the
decline occurred in Canada, where quarterly revenue decreased 51% due to the
severe decline in oil drilling activity. Outside North America,
international revenue declined by only 7%, despite a 16% decline in active
rigs. The Company's operations in Europe/Africa and Asia Pacific held up
well despite the low oil prices, each showing revenue increases during the
quarter. Latin American revenues declined by 15% due primarily to a further
contraction of activity by customers in Argentina, Ecuador and Venezuela.
OTHER REVENUE
Revenues during the quarter for the Company's other service lines, which
primarily consist of specialty chemicals, tubular services and process and
pipeline services, in total were relatively flat with the prior year as
activity declines were mostly offset by expansions into new markets. In
addition, these service lines generate a portion of revenues from downstream
activities which are not as greatly impacted by the decline in drilling
activity.
OPERATING INCOME: For the quarter ended December 31, 1998, the Company
recognized an operating loss of $3.9 million compared to operating income in
the first quarter of fiscal 1998 of $71.9 million. The current quarter's
loss was primarily a result of the Company's recording a pretax unusual
charge of $21.6 million ($.19 per share after-tax), comprised of $6.4 million
of severance cots, $14.0 million of asset writedowns and $1.2 million of
other costs associated with the downturn in the oilfield services industry.
Operating income margins, exclusive of goodwill amortization and unusual
charges, declined to 7.1% from 18.2% in the prior year's first fiscal
quarter. The margin decline is 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 decreased by
$4.8 million compared with the prior year's first quarter. Further
reductions in operating expenses are expected to be realized in the second
fiscal quarter as a result of cost reduction programs implemented during the
first quarter.
OTHER: Interest expense increased by $1.8 million due 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 the quarter ended December 31, 1997 was 33%. The
Company's effective tax benefit rate for the quarter ended December 31, 1998
was 40% primarily as a result of writedowns in the U.S. and lower North
American profits which are taxed at a higher effective rate than the
Company's average international rate.
11
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided from operating activities for the three months ended
December 31, 1998 decreased by $59.7 million from the prior year's figure due
primarily to reduced profitability. Due to the slowdown in activity, this
trend is expected to continue for the next several quarters.
Net cash used for investing activities for the three-month period was
$40.1 million, an increase of $13.6 million compared to the same quarter of
the previous year due to increased capital spending. The current quarter'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 for the quarter, 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, currently
estimated at $100 -- $110 million (excluding acquisitions), will be primarily
dependent upon maintenance capital levels and the availability of
international 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 flow from financing activities for the quarter ended December 31,
1998 was $28.4 million compared to a net use of cash for financing activities
in the year earlier quarter of $42.4 million. The Company did not repurchase
any of its common stock during the quarter ended December 31, 1998. During
the same quarter of the previous year, the Company had purchased $42.6
million of its common stock under a stock repurchase program approved by the
Company's Board of Directors in December 1997.
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 December 31, 1998, borrowings
outstanding under the Bank Credit Facility totaled $227.8 million, consisting
of $147.8 million under the term loan and $80.0 million of borrowings under
the revolver. Principal reductions of term loans under the Bank Credit
Facility are due in aggregate annual installments of $31.6 million; $42.2
million; $42.2 million and $31.8 million in the years ending September 30,
1999, 2000, 2001 and 2002, respectively.
In addition to the committed facility, the Company had $245.6 million in
various unsecured, discretionary lines of credit at December 31, 1998, which
expire at various dates in 1999. There are no requirements for commitment
fees or compensating balances in connection with these lines of
12
<PAGE>
credit. Interest on borrowings is based on prevailing market rates. At
December 31, 1998, there was $140.8 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 35.5% of its total
capitalization at December 31, 1998, compared to 34.1% at September 30, 1998,
due to borrowings to fund the Company's 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."
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 internal systems include,
but are not limited to, data processing and financial reporting software
applications, computerized job monitoring hardware and software used at the
well site and in the Company's labs, embedded control systems and tele-
communications 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 June 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
13
<PAGE>
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 $1.7
million. In addition, the program has resulted in the acceleration of
approximately $1.4 million 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 schedules. These contingency
plans are expected to be completed and in place by the end of June 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.
14
<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 December 31, 1998.
All items described are non-trading and are stated in U.S. dollars (in
thousands).
<TABLE>
<CAPTION>
Expected Maturity Dates Fair Value
(in thousands) 1999 2000 2001 2002 Thereafter Total December 31, 1998
---- ---- ---- ---- ---------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT TERM BORROWINGS
Bank borrowings; US$ denominated $ 31,728 $31,728 $31,728
Average variable interest rate -
6.17% at December 31, 1998
Bank borrowings; Canadian$ $107,886 $107,886 $107,886
denominated
Average variable interest rate -
5.83% at December 31, 1998
Bank borrowings; Deutsche mark
denominated $ 1,196 $1,196 $1,196
Average variable interest rate -
3.73% at December 31, 1998
LONG TERM BORROWINGS
Current term loan; US$ denominated $ 8,451 2,817 $11,268 $11,268
Variable interest rate - 6.03% at
December 31, 1998
Current term loan; Canadian$ $ 23,184 7,728 $30,912 $30,912
denominated
Variable interest rate - 5.49% at
December 31, 1998
Non-current bank borrowings:US$ $ 80,000 $80,000 $80,000
denominated
Variable interest rate - 5.96% at
December 31, 1998
Non-current term loan; US$ $8,451 11,267 8,588 $28,306 $28,306
denominated
Variable interest rate - 6.03% at
December 31, 1998
Non-current term loan; Canadian$ $23,184 30,912 23,184 $77,280 $77,280
denominated
Variable interest rate - 5.49% at
December 31, 1998
7% Series B Notes - US$ denominated $124,460 $124,460 $128,163
Fixed interest rate - 7%
</TABLE>
15
<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
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
16
<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: February 12, 1999 BY\s\Margaret B. Shannon
----------------------------------
Margaret B. Shannon
Vice President and General Counsel
Date: February 12, 1999 BY\s\Matthew D. Fitzgerald
----------------------------------
Matthew D. Fitzgerald
Vice President and Controller
and Chief Accounting Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,387
<SECURITIES> 0
<RECEIVABLES> 270,223
<ALLOWANCES> 9,879
<INVENTORY> 107,901
<CURRENT-ASSETS> 420,902
<PP&E> 1,076,024
<DEPRECIATION> 465,810
<TOTAL-ASSETS> 1,724,797
<CURRENT-LIABILITIES> 429,955
<BONDS> 0
0
0
<COMMON> 7,638
<OTHER-SE> 889,336
<TOTAL-LIABILITY-AND-EQUITY> 1,724,797
<SALES> 294,435
<TOTAL-REVENUES> 294,435
<CGS> 243,211
<TOTAL-COSTS> 243,211
<OTHER-EXPENSES> 55,170
<LOSS-PROVISION> 457
<INTEREST-EXPENSE> 7,655
<INCOME-PRETAX> (11,656)
<INCOME-TAX> (4,630)
<INCOME-CONTINUING> (7,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,026)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
