<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 DECEMBER 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 462-4239
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
There were 76,277,560 shares of the registrant's common stock, $.10 par value,
outstanding as of February 10, 2000.
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<PAGE>
BJ SERVICES COMPANY
INDEX
PART I - FINANCIAL INFORMATION:
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Statement of Operations (Unaudited) - Three
months ended December 31, 1999 and 1998 3
Consolidated Condensed Statement of Financial Position -
December 31, 1999 (Unaudited) and September 30, 1999 4
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Three months ended December 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 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II - OTHER INFORMATION 18
</TABLE>
2
<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
DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Revenue $354,820 $294,435
Operating expenses:
Cost of sales and services 280,207 243,211
Research and engineering 6,046 6,592
Marketing 13,482 12,849
General and administrative 14,195 10,780
Goodwill amortization 3,369 3,382
Unusual Charge 21,567
----------- -----------
Total operating expenses 317,299 298,381
----------- -----------
Operating income (loss) 37,521 (3,946)
Interest expense (6,969) (7,655)
Interest income 86 76
Other income (expense) - net (548) (131)
------------ ------------
Income (loss) before income taxes 30,090 (11,656)
Income tax expense (benefit) 9,628 (4,630)
----------- ------------
Net income (loss) $ 20,462 $ (7,026)
=========== ============
Earnings (loss) per share:
Basic $ .27 $ (.10)
Diluted $ .25 $ (.10)
Weighted average shares outstanding:
Basic 74,692 70,673
Diluted 82,647 70,673
</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,
1999 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,713 $ 3,924
Receivables - net 322,221 297,975
Inventories:
Finished goods 60,225 64,995
Work in process 1,953 2,116
Raw materials 38,065 30,176
------------- -------------
Total inventories 100,243 97,287
Deferred income taxes 14,740 15,668
Other current assets 25,831 24,109
------------- -------------
Total current assets 466,748 438,963
Property - net 594,797 659,717
Deferred income taxes 199,059 201,774
Goodwill - net 486,364 489,736
Other assets 37,596 34,574
------------- -------------
$1,784,564 $1,824,764
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 127,765 $ 128,422
Short-term borrowings and current
portion of long-term debt 113,235 150,452
Accrued employee compensation and benefits 34,092 37,749
Income and other taxes 25,089 25,439
Accrued insurance 12,871 12,041
Other accrued liabilities 86,450 91,043
------------- -------------
Total current liabilities 399,502 445,146
Long-term debt 192,384 422,764
Deferred income taxes 6,054 6,578
Other long-term liabilities 136,876 73,187
Stockholders' equity 1,049,748 877,089
------------- -------------
$1,784,564 $1,824,764
============= =============
</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,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 20,462 $ (7,026)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Amortization of unearned compensation 840
Depreciation and amortization 26,482 23,496
Deferred income taxes (benefit) 6,648 (9,449)
Unusual charge (non cash) 13,955
Changes in:
Receivables (24,246) 29,917
Inventories (2,956) 2,447
Accounts payable (657) (33,863)
Other current assets and liabilities (12,678) (6,512)
Other - net (5,467) 486
-------------- -------------
Net cash provided by operating activities 8,428 13,451
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (13,745) (43,715)
Proceeds from disposal of assets 121,021 3,641
------------- -------------
Net cash provided by (used for) investing activities 107,276 (40,074)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) borrowings - net (267,597) 26,361
Proceeds from issuance of stock 151,682 2,024
------------- -------------
Net cash provided by (used for) financing activities (115,915) 28,385
Increase (decrease) in cash and cash equivalents (211) 1,762
Cash and cash equivalents at beginning of period 3,924 1,625
------------- -------------
Cash and cash equivalents at end of period $ 3,713 $ 3,387
============= =============
</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, 1999, and the results
of operations and cash flows for each of the three month periods ended December
31, 1999 and 1998. The consolidated condensed statement of financial position at
September 30, 1999 is derived from the September 30, 1999 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, 1999 are not
necessarily indicative of the results to be expected for the full year.
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.
6
<PAGE>
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,
1999 1998
------- -------
<S> <C> <C>
Net income (loss) $20,462 $(7,026)
Weighted-average common shares outstanding 74,692 70,673
------- -------
Basic earnings (loss) per share $ .27 $ (.10)
======= =======
Weighted-average common and dilutive potential common shares outstanding:
Weighted-average common shares outstanding 74,692 70,673
Assumed exercise of stock options 2,436 1,153
Assumed exercise of warrants 5,519 843
----------- ----------
82,647 72,669(1)
----------- ----------
Diluted earnings (loss) per share $ .25 $ (.10)
=========== ===========
</TABLE>
(1) Antidilutive because the Company incurred a net loss in this period.
NOTE 3 SEGMENT INFORMATION
The Company has three business segments: U.S./Mexico Pressure Pumping,
International Pressure Pumping and Other Oilfield Services. The U.S./Mexico
Pressure Pumping Services segment includes cementing services and stimulation
services (consisting of fracturing, acidizing, sand control, nitrogen, coiled
tubing and downhole tools services) which are provided throughout the United
States and Mexico. The International Pressure Pumping Services segment also
includes cementing and stimulation services which are provided to over 40
countries in the major international oil and natural gas producing areas of
Latin America, Europe, Africa, Southeast Asia, Canada and the Middle East. The
Other Oilfield Services segment consists of specialty chemicals, tubular
services and process and pipeline services, both throughout the U.S. and
internationally.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates the
performance of its operating segments based on operating income excluding
goodwill amortization and unusual charges. Intersegment sales and transfers
are not significant.
Summarized financial information concerning the Company's segments is shown in
the following table. The "Corporate" column includes corporate general and
administrative expenses, goodwill amortization and unusual charges not allocated
to segments.
7
<PAGE>
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
U.S./MEXICO INTERNATIONAL OTHER
PRESSURE PRESSURE OILFIELD
PUMPING PUMPING SERVICES CORPORATE TOTAL
----------------- ----------------- ------------ -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED DECEMBER 31, 1999
Revenues $ 166,588 $ 145,410 $ 42,646 $ 176 $ 354,820
Operating income (loss) 29,128 13,614 4,051 (9,272) 37,521
Identifiable assets 408,727 590,185 121,400 664,252 1,784,564
THREE MONTHS ENDED DECEMBER 31, 1998
Revenues $ 125,293 $ 124,599 $ 44,199 $ 344 $ 294,435
Operating income (loss) 2,941 12,544 5,591 (25,022) (3,946)
Identifiable assets 401,685 523,923 116,051 683,138 1,724,797
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Total operating profit (loss) for reportable
segments $ 37,521 $ (3,946)
Interest income (expense) - net (6,883) (7,579)
Other income (expense) - net (548) (131)
------------ -------------
Income (loss) before income taxes $ 30,090 $ (11,656)
======== ==========
</TABLE>
NOTE 4 COMPREHENSIVE INCOME
The components of comprehensive net income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Net income (loss) attributable to common stockholders $20,462 $(7,026)
Change in cumulative translation adjustment (325) 1,911
--------- ---------
Comprehensive net income (loss) $20,137 $(5,115)
======= ========
</TABLE>
8
<PAGE>
NOTE 5 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 were as follows
(in thousands):
<TABLE>
<S> <C>
Asset impairment $13,955
Severance and related benefits 6,417
Facility closure and other 1,195
-------
$21,567
=======
</TABLE>
The asset impairment of $14.0 million primarily related to certain equipment
previously utilized in the Company's U.S. operations which was held for sale, or
had been decommissioned and salvaged for spare parts. The severance and related
benefits costs related to the involuntary termination of approximately 700
employees worldwide. All expenditures for this provision were made as of
September 30, 1999.
NOTE 6 COMMITMENTS AND CONTINGENCIES
In December 1999, the Company completed a transaction involving the transfer of
certain pumping service equipment assets. The Company received $120.0 million,
which was used to pay outstanding bank debt. The equipment will be used to
provide services to the Company's customers for which the Company will pay a
service fee over a period of at least six, but not more than twelve years. The
transaction generated a deferred gain for book purposes of approximately $63
million, which will be amortized over ten years. Minimum annual service fee
commitments related to this transaction are $12,865,000 for each of the
years ended September 30, 2000, 2001, 2002, 2003 and 2004, and $59,814,000 in
the aggregate thereafter.
NOTE 7 STOCKHOLDERS' EQUITY
In October 1999, the Company reissued 4,027,972 shares of treasury stock through
a private placement with certain financial institutions. The proceeds from the
private placement of $144.0 million were used to pay down outstanding debt. The
Company has also entered into privately negotiated option agreements pursuant to
which it currently intends to repurchase an equivalent number of shares in April
2000 for a total of $149.0 million. The Company expects to utilize proceeds of
approximately $144 million from the exercise of outstanding warrants, or, if the
warrants are not exercised, borrow under existing credit facilities to fund the
repurchase. These outstanding warrants expire in April 2000 at an exercise price
of $15 per share.
9
<PAGE>
NOTE 8 NEW ACCOUNTING STANDARDS
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,
2000 and therefore had no effect on the Company's first quarter 2000 financial
statements. Management is currently evaluating what, if any, additional
adjustment or disclosure may be required when this statement is adopted in
fiscal 2001.
10
<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
historically has generated in excess of 50% of its revenues.
Due to "aging" oilfields and lower-cost sources of oil internationally, drilling
activity in the United States has declined more than 75% from its peak in 1981.
Record low drilling activity levels were experienced in 1986, 1992 and again in
early 1999. U.S. drilling activity temporarily rebounded during 1997 (exceeding
1,000 active rigs for the first time since 1991); however, it subsequently
retracted due to weak oil prices. U.S. drilling activity levels bottomed out in
April 1999 and subsequently recovered to exceed the previous year levels by
October 1999. Despite the recovery in the latter half of fiscal 1999, the U.S.
average fiscal 1999 active rig count represented the lowest in history and was
down 34% from the average level of both fiscal 1997 and 1998. The recovery in
U.S. drilling has continued in fiscal year 2000. The active U.S. rig count
averaged 774 rigs in the quarter ended December 31, 1999, a 12 % increase over
the same period in the previous year.
Drilling activity outside North America has historically been less volatile than
domestic drilling activity. Due to low oil prices during most of the year,
international drilling activity also reached record low levels during 1999 as
each of the Company's international regions experienced double digit activity
declines. While Canadian drilling activity began to recover during the last half
of 1999, drilling activity in other international regions is not expected to
recover until mid-2000. Active international drilling rigs (excluding Canada)
averaged 571 rigs during the first quarter of fiscal 2000, a decrease of 16%
from the first quarter of fiscal 1999. The North Sea and Asia Pacific regions
have experienced the largest declines. Due primarily to the recovery in oil
prices, however, the Canadian average rig count, at 337 active rigs for the
quarter ended December 31, 1999, was up 68% from the same quarter of the
previous year. The winter 2000 drilling season in Canada is expected to be one
of the busiest in history.
ACQUISITION
On June 28, 1999, the Company completed the acquisition of selected assets
and subsidiaries of Fracmaster Ltd. ("Fracmaster"), an oilfield services company
based in Calgary, Alberta with operations in Canada, the United States, Russia
and China. The acquisition was completed for a total purchase price of $78.4
million. In the near-term, the acquisition of Fracmaster is expected to
primarily impact the Company's operations in Canada.
11
<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
December 31,
--------------------------------------
1999 1998
---- ----
<S> <C> <C>
Rig Count: (1)
U.S......................................................................... 774 690
International............................................................... 908 883
Revenue per rig (in thousands)................................................. $211.0 $187.3
Revenue per employee (in thousands) ......................................... $44.7 $36.8
Percentage of gross profit to revenue (2)...................................... 21.0% 17.4%
Percentage of research and engineering expense to revenue ..................... 1.7% 2.2%
Percentage of marketing expense to revenue .................................... 3.8% 4.4%
Percentage of general and administrative expense to revenue.................... 4.0% 3.7%
</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, 1999
was $354.8 million, an increase of 21% from prior year's first quarter. The
increase was primarily due to increased North American drilling activity and
benefits from the acquisition of Fracmaster Ltd. in June 1999. Also contributing
to the revenue increase was an improvement in U.S. revenue per active rig. This
occurred because independent oil companies, with whom the Company has a stronger
market position, contributed most of the rise in U.S. drilling activity.
Management expects the Company to continue to achieve revenue improvement in
each of the remaining quarters of fiscal 2000 when compared with the same
quarter of the previous year.
OPERATING INCOME: For the quarter ended December 31, 1999, the
Company's operating income was $37.5 million compared to an operating loss of
$3.9 million in the same period of the previous year. The prior year'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
costs, $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, increased to
11.5 % from 7.1% in the prior year's first fiscal quarter. The margin
improvement is primarily a result of cost reduction programs implemented during
1999, partially offset by increased general and administrative expenses
resulting from higher accruals for incentive bonuses which are based upon the
Company's earnings and stock price.
OTHER: Interest expense for the quarter ended December 31, 1999
decreased by $.7 million from the same period in 1998 due primarily to the
reduction of debt from the receipt of $144 million
12
<PAGE>
of proceeds from the private placement of common stock in October 1999 (see
also Capital Resources and Liquidity).
INCOME TAXES: The Company's effective tax rate for the quarter
increased to 32% from 30% in the year earlier period (excluding unusual charges)
due to increased profitability in the higher tax jurisdictions of North America.
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.
U.S./MEXICO PRESSURE PUMPING SEGMENT
The Company's U.S./Mexico pressure pumping revenues for the quarter
ended December 31, 1999 increased by 33% from the year earlier period. The
Company's U.S. operations contributed all of the increase, up 37% despite
drilling activity increasing only 12% during the quarter. The improvement
resulted primarily from a resumption of business from independent operators due
to higher commodity prices. Workover activity, especially coiled tubing and
acidizing work, was especially strong during the quarter.
U.S./Mexico pressure pumping operating income margins increased to
17.5% of revenue in the first quarter of fiscal 2000 as compared to only 2.4%
during the same period of the previous year due primarily to improved
utilization of personnel and equipment. Pricing for the Company's U.S/Mexico
pressure pumping services declined by approximately 5% from the same quarter of
the previous year as excess capacity among the pumping service companies
resulting from the temporary downturn in activity in the first half of 1999 led
to more competitive pricing. Pricing improved marginally on a sequential quarter
basis as a result of a price book increase implemented during the quarter. The
majority of the benefit of this price book increase is expected to take place in
subsequent quarters.
INTERNATIONAL PRESSURE PUMPING SEGMENT
Due to increased Canadian drilling activity along with revenue
generated from the former Fracmaster operations in Canada and Russia,
international pressure pumping revenue increased by 17% compared with the first
fiscal quarter of 1999. Outside Canada, international pressure pumping revenues
for the quarter declined 9% from prior year's first quarter due to continued
weakness in drilling and workover activity which most heavily impacted the
Company's operations in its Europe and Africa and Asia Pacific regions. As a
result of new contracts and improving activity in selected locations, management
believes activity levels have reached bottom and is expecting sequential revenue
increases in its international regions during the second fiscal quarter.
Operating income margins as a percentage of revenue for the Company's
international pressure pumping operations were 9.4% for the first quarter of
fiscal 2000, relatively flat with the same period of the previous year.
Operating income margins in Canada increased as a result of efficiencies gained
through full equipment and personnel utilization due to the increased activity.
13
<PAGE>
These gains, however, were offset by margin decreases in the Company's Europe
and Africa region due to reduced North Sea activity, where the Company's vessel
operations have a relatively high fixed cost base, and shutdown costs incurred
in closing a facility in Germany. Additionally, the operating income margins for
selected international locations were negatively impacted by startup costs
incurred for new projects that will begin generating revenues in the second
fiscal quarter. Pricing for the Company's international pressure pumping
services also declined slightly due to competitive pressure on pricing resulting
from the downturn in drilling activity.
OTHER SERVICES SEGMENT
Revenue during the quarter for the Company's other service lines, which
primarily consist of specialty chemicals, tubular services and process and
pipeline services, was down 4% from the same period of the previous year. The
tubular services line contributed most of the decrease as it was more heavily
impacted by the drop in international drilling activity, most significantly in
the North Sea. The operating income decline was in line with the revenue
decrease.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided from operating activities for the three months ended
December 31, 1999 was $8.4 million, a decrease of $5.0 million from the prior
year's figure. Higher profitability was offset by increases in working capital,
as a result of the rapid revenue growth in North America. This is in contrast to
the liquidation of working capital balances in the same year-earlier period,
which was at the beginning of the activity downturn in the first half of 1999.
Net cash provided by investing activities for the three-month period was
$107.3 million compared to a net use of cash for investing activities in the
year earlier quarter of $40.1 million. The increase is due primarily to proceeds
received from a transaction involving the transfer of certain pumping service
equipment assets. Subsequent to the transfer of equipment, the Company received
$120.0 million, which was used to repay outstanding bank debt. As a result of
the reduced debt, the Company will realize a reduction in annual interest
expense of approximately $7 million. The equipment is being used to provide
services to the Company for its customers for which the Company is paying a
service fee for a period of at least six, but not more than twelve, years. The
transaction generated a deferred gain for book purposes of approximately $63
million, which is carried in "Other long-term liabilities", and is being
amortized over a ten-year period. The taxable gain of $79.7 million was
completely offset with net operating loss carryforwards. Excluding this
transaction, investing activities declined by $27.4 million due to the
curtailment of capital spending beginning in mid-year 1999 caused by the
depressed business environment. Capital expenditures for fiscal 2000 are
expected to be well below the fiscal 1999 spending of $110.6 million. The actual
amount of 2000 capital expenditures, currently estimated at $70-80 million
(excluding acquisitions), will be primarily dependent upon maintenance capital
levels and the availability of U.S. offshore and international expansion
opportunities and are expected to be funded by cash flows from operating
activities.
Cash flows used for financing activities for the quarter ended December
31, 1999 was $115.9 million compared to cash flows provided by financing
activities in the year earlier quarter of $28.4
14
<PAGE>
million. Together with the proceeds received from the sale of equipment
discussed above, the Company used $144.0 million received through the private
placement of 4,027,972 shares of common stock with certain financial
institutions to reduce outstanding debt by $267.6 million. In connection with
the private placement, the Company has also entered into privately negotiated
option agreements pursuant to which it is committed to repurchase an
equivalent number of shares in April 2000 for a total of $149.0 million. The
Company expects to utilize proceeds of approximately $144 million from the
exercise of outstanding warrants or, if the warrants are not exercised,
borrow under existing credit facilities, to fund the repurchase. These
outstanding warrants expire in April 2000 at an exercise price of $15 per
share.
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 $110.9 million (currently drawn partially in Canadian
dollars under a provision which is renewable 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, 1999, borrowings outstanding under the Bank Credit
Facility totaled $110.9 million, consisting solely of borrowings under the term
loan. Principal reductions of term loans under the Bank Credit Facility are due
in aggregate annual installments of $33.3 million, $44.5 million and $33.1
million in the years ending September 30, 2000, 2001 and 2002, respectively.
In addition to the committed facility, the Company had $203.1 million in
various unsecured, discretionary lines of credit at December 31, 1999, which
expire at various dates in 2000. 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, 1999, there was
$68.6 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 Company's interest-bearing debt decreased to 22.5% of its total
capitalization at December 31, 1999, compared to 39.5% at September 30, 1999,
due to repayment of borrowings from the proceeds received from the equipment
sale and the private placement of common stock. 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 flows 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. If the discretionary lines of credit are not
renewed, or if borrowings under these lines of credit otherwise become
unavailable, the Company expects to refinance this debt by arranging additional
committed bank facilities or through other long-term borrowing alternatives.
15
<PAGE>
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 were the
primary area of focus; however it also addressed the Company's reliance on third
party suppliers and the possible impact to the Company should those third
parties fail to remediate their own Year 2000 issues. By the end of December
1999, the Company had completed its program of remediation or replacement of all
noncompliant systems and equipment that were critical to its operations, To
date, the Company has not experienced any material failures of its systems or
those of its third party suppliers. Although there is still a possibility that
in the coming months, certain systems could experience failures due to the Year
2000 issue, the Company does not believe that any such failure would materially
affect the Company's operations.
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 December 31, 1999. All items described are non-trading and are
stated in U.S. dollars (in thousands).
<TABLE>
<CAPTION>
EXPECTED MATURITY DATES FAIR VALUE
2000 2001 2002 2003 THEREAFTER TOTAL DECEMBER 31, 1999
---- ---- ---- ---- ---------- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT TERM BORROWINGS
Bank borrowings; US$ denominated $ 4,317 $ 4,317 $ 4,317
Average variable interest rate - 9.50%
at December 31, 1999
Bankers' acceptance notes; Canadian $
denominated $ 63,286 $ 63,286 $ 63,286
Average variable interest rate - 5.72%
at December 31, 1999
Bank borrowings; Deutsche mark
denominated $ 1,030 $ 1,030 $ 1,030
Average variable interest rate - 3.09%
at December 31, 1999
LONG TERM BORROWINGS
Current term loan; US$ denominated $ 9,758 3,253 $ 13,011 $ 13,011
Variable interest rate - 6.90% at
December 31, 1999
Current term loan; Canadian $
denominated $ 23,582 7,861 $ 31,443 $ 31,443
Variable interest rate - 5.60% at
December 31, 1999
Current Leases: US $ denominated $ 318 $ 318 $ 318
Variable interest rate - 6.18% at
December 31, 1999
Non-current term loan; US$ denominated $ 9,758 9,902 $ 19,660 $ 19,660
Variable interest rate - 6.90% at
December 31, 1999
Non-current term loan; Canadian $
denominated $ 23,582 23,238 $ 46,820 $ 46,820
Variable interest rate - 5.60% at
December 31, 1999
Non-current leases; US $ denominated $ 687 383 128 $ 1,198 $ 1,198
Variable interest rate - 6.18% at
December 31, 1999
7% Series B Notes - US$ denominated $124,536 $124,536 $118,539
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
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.
A report on Form 8-K was filed on December 17, 1999,
under Item 5 reporting a transaction involving the
transfer of certain pumping services assets and
attaching as exhibit 10.1 under Item 7, the Trust
Indenture and Security Agreement dated as of December
15, 1999 among First Security Trust Company of Nevada,
BJ Services Equipment II, L.P. and State Street Bank
and Trust Company, as Indenture Trustee and as exhibit
10.2, the Amended and Restated Agreement of Limited
Partnership dated as of December 15, 1999 of BJ
Services Equipment II, L.P.
18
<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 14, 2000 BY /s/ MARGARET B. SHANNON
-------------------------------------
Margaret B. Shannon
Vice President and General Counsel
Date: February 14, 2000 BY /s/ Matthew D. Fitzgerald
-------------------------------------
Matthew D. Fitzgerald
Vice President and Controller
and Chief Accounting Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,713
<SECURITIES> 0
<RECEIVABLES> 322,221
<ALLOWANCES> 21,610
<INVENTORY> 100,243
<CURRENT-ASSETS> 466,748
<PP&E> 1,040,322
<DEPRECIATION> 445,525
<TOTAL-ASSETS> 1,784,564
<CURRENT-LIABILITIES> 399,502
<BONDS> 0
0
0
<COMMON> 7,638
<OTHER-SE> 1,042,110
<TOTAL-LIABILITY-AND-EQUITY> 1,784,564
<SALES> 354,820
<TOTAL-REVENUES> 354,820
<CGS> 280,207
<TOTAL-COSTS> 280,207
<OTHER-EXPENSES> 37,092
<LOSS-PROVISION> 1,545
<INTEREST-EXPENSE> 6,969
<INCOME-PRETAX> 30,090
<INCOME-TAX> 9,628
<INCOME-CONTINUING> 20,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,462
<EPS-BASIC> .27
<EPS-DILUTED> .25
</TABLE>
