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, 2001
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 areacode: (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 82,274,048 shares of the registrant's common stock, $.10 par value,
outstanding as of May 10, 2001.
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================================================================================
BJ SERVICES COMPANY
INDEX
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statement of Operations (Unaudited) - Three
and six months ended March 31, 2001 and 2000 3
Consolidated Condensed Statement of Financial Position -
March 31, 2001 (Unaudited) and September 30, 2000 4
Consolidated Statement of Stockholders' Equity (Unaudited) -
Six months ended March 31, 2001 5
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Six months ended March 31, 2001 and 2000 6
Notes to Unaudited Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II - OTHER INFORMATION 20
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31 March 31,
2001 2000 2001 2000
---------- ---------- ------------ -----------
Revenue $549,661 $390,755 $1,039,339 $ 745,575
Operating expenses:
Cost of sales and services 377,743 302,997 725,062 584,449
Research and engineering 8,877 7,241 16,770 13,284
Marketing 15,638 13,411 29,769 26,147
General and administrative 16,903 13,862 32,803 27,560
Goodwill amortization 3,375 3,368 6,749 6,737
---------- ---------- ------------ -----------
Total operating expenses 422,536 340,879 811,153 658,177
---------- ---------- ------------ -----------
Operating income 127,125 49,876 228,186 87,398
Interest expense (3,773) (5,015) (7,817) (11,984)
Interest income 470 163 873 249
Other income (expense) - net (1,471) (861) (2,735) (1,410)
---------- ---------- ------------ -----------
Income before income taxes 122,351 44,163 218,507 74,253
Income tax expense 41,599 14,839 74,292 24,467
---------- ---------- ------------ -----------
Net income $ 80,752 $ 29,324 $ 144,215 $ 49,786
========== ======== ========== ==========
Earnings per share:
Basic $ .98 $ .38 $ 1.76 $ .66
Diluted $ .96 $ .34 $ 1.72 $ .60
Weighted average shares outstanding:
Basic 82,039 76,717 82,044 75,699
Diluted 83,819 84,933 83,871 83,226
Proforma earnings per share (See Note 2):
Basic $ $.49 $ .19 $ .88 $ .33
Diluted $ $.48 $ .17 $ .86 $ .30
Proforma weighted average shares outstanding (See Note 2):
Basic 164,078 153,434 164,088 151,398
Diluted 167,638 169,866 167,742 166,452
See Notes to Unaudited Consolidated Condensed Financial Statements
3
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(In thousands)
March 31, September 30,
2001 2000
---------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,376 $ 6,472
Receivables - net 445,911 348,106
Inventories:
Product 64,326 57,988
Work-in-process 2,647 1,408
Parts 61,819 53,399
---------- ----------
Total inventories 128,792 112,795
Deferred income taxes 14,032 15,632
Other current assets 26,826 23,373
---------- ----------
Total current assets 623,937 506,378
Property - net 608,941 585,394
Deferred income taxes 142,345 199,795
Goodwill - net 482,823 476,237
Other assets 15,588 17,429
---------- ----------
$1,873,634 $1,785,233
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 167,941 $ 147,581
Short-term borrowings and current
portion of long-term debt 34,829 34,100
Accrued employee compensation and benefits 47,935 48,536
Income and other taxes 23,518 22,771
Accrued insurance 12,461 11,557
Other accrued liabilities 69,887 72,546
---------- ----------
Total current liabilities 356,571 337,091
Long-term debt 126,631 141,981
Deferred income taxes 9,524 7,966
Other long-term liabilities 128,242 128,424
Stockholders' equity 1,252,666 1,169,771
---------- ----------
$1,873,634 $1,785,233
========== ==========
See Notes to Unaudited Consolidated Condensed Financial Statements
4
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated
Capital Other
Common In Excess Treasury Unearned Retained Comprehensive
Stock Of Par Stock Compensation Earnings Income Total
------- ---------- ---------- ------------- --------- ------------- -------
(in thousands)
Balance, September 30, 2000 $ 8,688 $ 948,859 $ (165,154) $ (3,433) $ 376,270 $ 4,541 $ 1,169,771
Comprehensive income:
Net income 144,215
Other comprehensive income, net of tax:
Cumulative translation adjustments (597)
Comprehensive income 143,618
Reissuance of treasury stock for:
Stock options 33,991 (22,204) 11,787
Stock purchase plan 8,052 (2,727) 5,325
Stock performance awards (1,814) 1,397 419 2
Acquisition 267 171 438
Treasury stock purchased (81,019) (81,019)
Recognition of unearned compensation 2,744 2,744
Revaluation of stock performance awards 677 (677)
Stock performance grant 4,141 (4,141)
------- --------- ---------- --------- --------- ------- -----------
Balance, March 31, 2001 $ 8,688 $ 951,863 $ (202,466) $ (5,507) $ 496,144 $ 3,944 $ 1,252,666
======= ========= ========== ========= ========= ======= ===========
See Notes to Unaudited Consolidated Condensed Financial Statements
5
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
March 31,
2001 2000
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $144,215 $ 49,786
Adjustments to reconcile net income to cash
provided by operating activities:
Minority interest 3,055 1,593
Amortization of unearned compensation 2,744 2,190
Depreciation and amortization 51,493 51,784
Deferred income taxes 59,299 16,148
Changes in:
Receivables (94,379) (42,471)
Inventories (15,510) (9,476)
Accounts payable 19,966 12,880
Other current assets and liabilities (6,131) (25,590)
Other - net 2,974 (7,629)
-------- ---------
Net cash provided by operating activities 167,726 49,215
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (74,809) (32,589)
Proceeds from disposal of assets 7,718 123,308
Acquisition of business, net of cash acquired (10,996)
-------- ---------
Net cash provided by (used for) investing activities (78,087) 90,719
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings - net (23,830) (325,489)
Proceeds from issuance of stock 17,114 187,211
Purchase of treasury stock (81,019)
-------- ---------
Net cash used for financing activities (87,735) (138,278)
Increase in cash and cash equivalents 1,904 1,656
Cash and cash equivalents at beginning of period 6,472 3,924
-------- ---------
Cash and cash equivalents at end of period $ 8,376 $ 5,580
======== =========
See Notes to Unaudited Consolidated Condensed Financial Statements
6
BJ SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 General
In the opinion of management, the unaudited consolidated condensed financial
statements for BJ Services Company (the "Company") include all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial position and statement of stockholders' equity as
of March 31, 2001, and the results of operations for each of the three-month and
six-month periods ended March 31, 2001 and 2000 and cash flows for each of the
six-month periods ended March 31, 2001 and 2000. The consolidated condensed
statement of financial position at September 30, 2000 is derived from the
September 30, 2000 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, 2001 are not necessarily indicative of the results to be
expected for the full year.
Certain amounts for fiscal 2000 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
with the exercise proceeds using the average market price of the Company's
common stock for each of the periods presented.
7
The following table presents information necessary to calculate earnings per
share for the periods presented (in thousands except per share amounts):
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
------- ------- -------- --------
Net income $80,752 $29,324 $144,215 $ 49,786
Weighted-average common shares outstanding 82,039 76,717 82,044 75,699
------- ------- -------- --------
Basic earnings per share $ .98 $ .38 $ 1.76 $ .66
======= ======= ======== ========
Weighted-average common and dilutive potential
common shares outstanding:
Weighted-average common shares
outstanding 82,039 76,717 82,044 75,699
Assumed exercise of stock options 1,780 2,054 1,827 1,854
Assumed exercise of warrants 6,162 5,673
------- ------- -------- --------
83,819 84,933 83,871 83,226
------- ------- -------- --------
Diluted earnings per share $ .96 $ .34 $ 1.72 $ .60
======= ======= ======== ========
At a special meeting of stockholders on May 10, 2001, the Company's stockholders
approved an amendment to the Company's charter increasing the number of
authorized shares of common stock from 160 million to 380 million shares. As a
result, a 2 for 1 stock split approved by the Board of Directors on March 22,
2001 (to be effected in the form of a stock dividend) will be distributed on or
about May 31, 2001 to stockholders of record as of May 17, 2001. Accordingly,
proforma information is provided in the financial statements for all periods
presented for shares outstanding and earnings per share amounts to reflect the
increased number of common shares to be outstanding resulting from the stock
split.
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) that are provided throughout the United
States and Mexico. The International Pressure Pumping Services segment also
includes cementing and stimulation services provided in over 40 countries in the
major 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 provided in the U.S. and internationally.
8
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's annual financial
statement footnotes. 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 and goodwill amortization.
Business Segments
U.S./Mexico International Other
Pressure Pressure Oilfield
Pumping Pumping Services Corporate Total
------------------ ------------------ ------------- --------------- ----------------
(in thousands)
Three months ended March 31, 2001
Revenues $290,964 $211,410 $ 46,839 $ 448 $ 549,661
Operating income (loss) 95,649 40,153 6,001 (14,678) 127,125
Three months ended March 31, 2000
Revenues $173,913 $176,741 $ 39,947 $ 154 $ 390,755
Operating income (loss) 28,261 31,861 271 (10,517) 49,876
Six months ended March 31, 2001
Revenues $544,878 $399,173 $ 94,748 $ 540 $1,039,339
Operating income (loss) 171,561 68,812 12,205 (24,392) 228,186
Identifiable assets 432,955 623,972 119,872 696,835 1,873,634
Six months ended March 31, 2000
Revenues $340,501 $322,151 $ 82,593 $ 330 $ 745,575
Operating income (loss) 57,389 45,475 4,322 (19,788) 87,398
Identifiable assets 327,673 608,250 112,202 748,668 1,796,793
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------------- ------------------------------------
2001 2000 2001 2000
------------- --------------- --------------- ----------------
Total operating profit for
reportable segments $127,125 $49,876 $228,186 $ 87,398
Interest income (expense) - net (3,303) (4,852) (6,944) (11,735)
Other income (expense) - net (1,471) (861) (2,735) (1,410)
-------- ------- -------- --------
Income before income taxes $122,351 $44,163 $218,507 $ 74,253
======== ======= ======== ========
9
Note 4 Comprehensive Income
The components of comprehensive net income, net of tax, are as follows in
thousands:
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
------- ------- -------- -------
Net income attributable to common
stockholders $80,752 $29,324 $144,215 $49,786
Change in cumulative translation adjustment (699) (302) (597) (627)
------- ------- -------- -------
Comprehensive net income $80,053 $29,022 $143,618 $49,159
======= ======= ======== =======
Note 5 New Accounting Standards
Effective October 1, 2000, the Company adopted Financial Accounting Standards
Board Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities. This statement
requires recognition of all derivatives as either assets or liabilities in the
statement of financial position and their measurement at fair value. The
adoption of SFAS 133 did not have a material impact on the Company's financial
position or results of operations.
Note 6 Business Acquisition
In February 2001, the Company completed the acquisition of Preeminent Energy
Services ("Preeminent") for a total purchase price of $21.4 million (including
transaction costs) in cash and Company common stock. The transaction may be
summarized as follows:
Cash paid $11,614
Stock issued 438
Debt assumed 9,311
-------
Total purchase price 21,363
Fair Value of Net Assets Acquired 8,026
-------
Goodwill $13,337
=======
This acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of Preeminent's operations are included in the
consolidated condensed statement of operations beginning February 1, 2001. The
assets and liabilities of Preeminent have been recorded in the Company's
consolidated condensed statement of financial position at estimated fair market
value as of February 1, 2001 with the remaining purchase price reflected as
goodwill, which is being amortized on a straight-line basis over 40 years. The
allocation of the purchase price is preliminary, as valuation and other studies
have not been finalized. It is not expected that the final allocation of
purchase price will produce materially different results from those presented
herein. Proforma
10
financial information is not presented as the Company's management does not
believe that this acquisition is material to the Company's consolidated
financial statements.
11
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. Despite a recovery in the latter half of fiscal 1999, the
U.S. average fiscal 1999 active rig count represented the lowest in history. The
recovery in U.S. drilling continued throughout fiscal 2000 and into fiscal 2001
due to exceptionally strong oil and natural gas prices. For the six-month period
ended March 31, 2001, the active U.S. rig count averaged 1,106 rigs, a 43%
increase over the same period in fiscal 2000. For the three-month period ended
March 31, 2001, the active U.S. rig count averaged 1,139 rigs, which is the
highest average quarterly U.S. rig count since 1986.
Drilling activity outside North America has historically been less volatile
than domestic drilling activity and the downturn and recovery cycles tend to lag
those of North America. While Canadian drilling activity began to recover during
the latter part of fiscal 1999, activity in most of the other international
regions has only recently begun to recover from the 1999 record lows. The
recovery in Canadian drilling activity continued into fiscal 2001 with active
rigs averaging 445 rigs during the six-month period ending March 31, 2001, a 9%
increase over the same period of the previous fiscal year. For the quarter ended
March 31, 2001, Canadian drilling activity averaged 515 rigs, 7.4% higher than
the same period of the prior year. Active international drilling rigs (excluding
Canada) averaged 717 rigs during the six-month period ended March 31, 2001, a
25% increase over the comparable period of fiscal 2000. For the three-month
period ended March 31, 2001, international drilling rigs (excluding Canada)
averaged 724 rigs, a 26% increase over the same period of fiscal 2000.
12
Results of Operations
The following table sets forth selected key operating statistics reflecting
industry rig counts and the Company's financial results:
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
--------- ----------- ----------- -------------
Rig Count: (1)
U.S. 1,139 770 1,106 772
International 1,239 1,056 1,162 982
Revenue per rig (in thousands) $231.1 $214.0 $458.2 $425.1
Revenue per employee (in thousands) $ 56.1 $ 46.7 $108.2 $ 91.3
Percentage of gross profit to revenue (2) 31.3% 22.5% 30.2% 21.6%
Percentage of research and engineering expense to
revenue 1.6% 1.9% 1.6% 1.8%
Percentage of marketing expense to revenue 2.8% 3.4% 2.9% 3.5%
Percentage of general and administrative expense to
revenue 3.1% 3.5% 3.2% 3.7%
(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 March 31, 2001 was
$549.7 million, an increase of 41% from the previous year's second fiscal
quarter and the highest quarterly revenue in the Company's history. For the six-
month period ended March 31, 2001, the Company's revenue was $1.0 billion, an
increase of 39% from the same period of fiscal 2000. These record results were
attributable to continued improvements in U.S. drilling activity and pricing,
and gradually increasing international drilling activity. Management expects the
Company to continue to achieve revenue improvement in each of the remaining
quarters of fiscal 2001 compared with the same quarters of the previous year.
Operating Income: For the quarter ended March 31, 2001, the Company's
operating income was $127.1 million, compared to operating income of $49.9
million in the second quarter of fiscal 2000. For the six months ended March 31,
2001, the Company recorded operating income of $228.2 million compared to $87.4
million in the first half of fiscal 2000. The Company's gross profit margins for
the quarter increased to 31.3% from 22.5% in the prior year's second fiscal
quarter. For the six months ended March 31, 2001, the Company's gross profit
margins increased to 30.2% from 21.6% for the same period of fiscal 2000. The
margin improvements were primarily a result of improved U.S. pricing, better
equipment utilization, and labor efficiencies and more than offset a $2.6
million impairment write-down of idle operating assets identified for disposal.
These efficiencies are reflected in the increase in both revenue per rig and
revenue per employee during the first six months of fiscal 2001 compared to the
same period of fiscal 2000. Partially offsetting the
13
improved margins were increases in research and engineering, marketing and
general and administrative expenses which increased by $6.9 million and $12.4
million compared with the prior year's second quarter and six-month period,
respectively, due primarily to higher accruals for incentive plans, which are
based upon the Company's earnings and stock price. Each of these operating
expenses, however, declined as a percentage of revenue for both the three and
six-month periods.
Other: Interest expense decreased by $1.2 million and $4.2 million,
respectively, compared with the same three and six-month periods of the previous
year due to lower outstanding debt. This was a result of the application of
improved free cash flow from operations. The proceeds of the exercise of
warrants reduced outstanding debt in the previous fiscal year. Borrowings and
interest expense are expected to continue to decrease in 2001 because of
expected continued strong cash flow from operations.
Income Taxes: The Company's effective tax rate for the six-month period
ended March 31, 2001 increased to 34% from 33% in the same period of last year
primarily as a result of increased profitability in the higher tax jurisdictions
of North America.
U.S./Mexico Pressure Pumping Segment
The Company's U.S./Mexico pressure pumping revenues for the three and six-
month periods ended March 31, 2001increased by 67% and 60%, respectively, from
the same prior year periods. Each of the Company's major U.S. service lines,
including cementing, stimulation, coiled tubing and downhole tools, showed
revenue increases, and all U.S. operating regions realized revenue increases in
excess of 50% compared with the prior year's second quarter. These increases are
primarily due to increased drilling activity and improved pricing. U.S. drilling
activity for the quarter ended March 31, 2001 increased by 48% over the same
quarter of fiscal 2000, to an average of 1,139 active rigs (79% of which were
drilling for natural gas) during the quarter. This represents the highest
average quarterly rig count since 1986. For the six months ended March 31, 2001,
the U.S. active rig count averaged 1,106, a 43% increase over the same period of
the previous fiscal year. U.S. workover activity levels also increased, up 16%
during the first six months of fiscal 2001 compared to the same period of fiscal
2000. The stronger activity levels also allowed the Company to capture most of
its September 2000 and a portion of its March 2001 price book increases. Also
during the quarter, the Company completed the acquisition of Preeminent Energy
Services, a Louisiana based coiled tubing company, which strengthened the
Company's existing Gulf Coast and South Texas capabilities. As a result of the
price improvement and the expected continuation of strong drilling and workover
activity levels, management believes that revenues generated by its U.S./Mexico
pressure pumping operations during the remaining two quarters of fiscal 2001
will continue to substantially exceed those in the comparable periods of fiscal
2000.
Operating income for the Company's U.S./Mexico pressure pumping operations
was $95.6 million in the second quarter of fiscal 2001 compared to $28.3 million
in the same period of fiscal 2000. For the six-month period ended March 31,
2001, U.S./Mexico pressure pumping operating income was $171.6 million, compared
to $57.4 million during the same year earlier
14
period. The improvements were due primarily to improved pricing, better
equipment utilization, and labor efficiencies. On a year-over-year basis,
pricing improved approximately 24% as a result of price book increases
implemented during September 2000 and March 2001. On a sequential basis, pricing
improved approximately 6% from the previous quarter.
International Pressure Pumping Segment
Revenue for the Company's international pressure pumping operations for the
quarter and six-month periods ended March 31, 2001 increased 20% and 24%,
respectively, compared with the same periods of the previous fiscal year. These
were due primarily to an increase in Canadian gas drilling, increased
stimulation activity in several international regions and contributions from
geographic expansions. For the quarter ended March 31, 2001, each of the
Company's international regions except Europe/Africa showed year-over-year
revenue increases, with its Russia/China region up 57%, Asia Pacific region up
30%, Latin America region up 43%, Middle East region up 46%, and Canada region
up 11%. While the Europe/Africa region recorded a 6% decline in revenue, this
was solely due to an abnormally slow quarter for North Sea vessel stimulation
work caused by project delays. For the six-month period ended March 31, 2001,
all of the Company's international regions showed year-over-year revenue
increases. As a result of new contracts and improving activity in selected
locations, management expects revenue increases for each of its international
regions throughout the remainder of fiscal 2001 when compared to the same
quarter of fiscal 2000.
As a result of the improved activity, operating income for the Company's
international pressure pumping operations was $40.2 million in the second
quarter of fiscal 2001 compared to $31.9 million in the same quarter of fiscal
2000. For the six months ended March 31, 2001, operating income was $68.8
million, an increase of $23.3 million over the same period of fiscal 2000. In
addition to the improved activity, operating margins improved slightly due to
startup costs in selected international locations that negatively impacted
operating margins in the first six months of the previous year.
Other Services Segment
Revenue for the Company's other service lines, which consist of specialty
chemicals, tubular services and process and pipeline services, increased 17% in
the second quarter of fiscal 2001 compared to the same period of the prior year
due primarily to increased activity from the process and pipeline inspection
service line in Canada and Europe. For the six months ended March 31, 2001,
revenue for these combined service lines increased 15% over the same period of
fiscal 2000 due primarily to geographic expansions.
Operating income for these service lines was $6.0 million (12.8% of
revenue) in the three-month period ended March 31, 2001 compared to $.3 million
(.7% of revenue) in the same period of fiscal 2000. For the six-month period
ended March 31, 2001, operating income for the Company's other service lines was
$12.2 million, an increase of $7.9 million over the same period of fiscal 2000.
Operating income margins in the Company's tubular service and process and
pipeline service lines benefited most from the increased revenue as they were
better able to cover their relatively high
15
fixed cost base. Also contributing to the percentage increase in margins was the
impact of startup costs incurred during the first half of fiscal 2000 for new
projects in the process and pipeline services group that were delayed until the
prior year's third fiscal quarter.
Capital Resources and Liquidity
- -------------------------------
Net cash provided from operating activities for the first half of fiscal
2001 was $167.7 million, an increase of $118.5 million from the comparable
period of the prior year, due primarily to higher profitability and non-cash
U.S. tax expense due to loss carryforwards. This was partially offset by
increases in working capital, particularly accounts receivable and inventories,
caused by the rapid revenue growth in North America.
Net cash used for investing activities in the first six months of fiscal
2001 was $78.1 million, compared to net cash of $90.7 million provided by
investing activities in the comparable period of 2000. The prior year's net cash
provided by investing activities was due primarily to proceeds received from a
transaction involving the transfer of certain pumping service equipment assets
in the first quarter of fiscal 2000. Subsequent to the transfer of equipment,
the Company received $120.0 million that was used to repay outstanding bank
debt. Excluding this prior year transaction, net cash used for 2001 investing
activities increased by $48.8 million due mostly to increased capital spending
and the acquisition of Preeminent Energy Services in February 2001 for net cash
of $11.0 million. Projected capital expenditures for fiscal 2001 are expected
to increase significantly from 2000 and are currently planned to be
approximately $150 - 165 million. The 2001 capital program will primarily
replace and enhance U.S. fracturing equipment and expand stimulation resources
internationally. The actual amount of 2001 capital expenditures will be
dependent upon the availability of external manufacturing capacity and is
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 used for financing activities for the six months ended March 31,
2001, were $87.7 million compared to $138.3 million in the comparable period of
fiscal 2000. Financing activities in the first half of fiscal 2000 included a
private placement of 4.0 million shares of common stock in October 1999 that
generated proceeds of $144.0 million used to pay down outstanding debt. During
the first six months of fiscal 2001, the Company purchased 1.4 million shares of
its common stock at a cost of $81.0 million.
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") consisting of a six-year term
loan of approximately $30.3 million (currently drawn 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. Presently,
the Company is in negotiations to replace the revolving credit facility.
16
Management expects, subject to final negotiations and the execution of a
definitive credit agreement, to have a committed facility in place prior to the
expiration of the existing credit facility at June 30, 2001. At March 31, 2001,
borrowings outstanding under the Bank Credit Facility totaled $30.3 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 $14.5 million and $15.8 million in the years ending September
30, 2001 and 2002, respectively.
In addition to the committed facility, the Company had $146.7 million in
various unsecured, discretionary lines of credit at March 31, 2001, which expire
at various dates in 2001. 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, 2001, there was
$6.5 million in outstanding borrowings under these lines of credit.
Because of improved free cash flows from operations and despite the
repurchase of the Company's common stock during the first quarter of fiscal
2001, the Company's total interest-bearing debt decreased to 11.4% of its total
capitalization at March 31, 2001, compared to 13.1% at September 30, 2000. 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.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), as amended. 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.
The adoption of SFAS 133 at the beginning of fiscal year 2001 did not have a
material impact on the Company's financial position or results of 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 all of which are subject to certain risks,
uncertainties and assumptions. These forward-looking statements are identified
by their use of terms
17
and phrases such as "expect," "estimate," "project," "believe," "achievable" 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, weather conditions that affect 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.
18
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 was one foreign exchange contract
outstanding at March 31, 2001 in the amount of $41.9 million. This contract was
settled on April 2, 2001 with no gain or loss. All items described are non-
trading and are stated in U.S. dollars.
Expected Maturity Dates Fair Value
2000 2001 2002 2003 Thereafter Total March 31, 2001
---- ---- ---- ---- ---------- ----- --------------
(in thousands)
SHORT TERM BORROWINGS
Bank borrowings; US$ denominated $ 548 $ 548 $ 548
Average variable interest rate - 6.04% at
March 31, 2001
Bank borrowings: Canadian $ denominated $ 2,114 $ 2,114 $ 2,114
Average variable interest rate - 6.75% at
March 31, 2001
Bank borrowings; Deutsche mark $ 2,720 $ 2,720 $ 2,720
denominated Average variable interest
rate - 5.16% at
March 31, 2001
LONG TERM BORROWINGS
Current term loan; Canadian $ denominated $ 14,563 14,563 $ 29,126 $ 29,126
Variable interest rate - 5.36% at
March 31, 2001
Current Leases: US $ denominated $ 321 $ 321 $ 321
Variable interest rate - 6.18% at
March 31, 2001
Non-current term loan; Canadian $ $ 1,214 $ 1,214 $ 1,214
denominated
Variable interest rate - 5.36% at
March 31, 2001
Non-current leases; US $ denominated $ 435 350 $ 785 $ 785
Variable interest rate - 6.18% at
March 31, 2001
7% Series B Notes - US$ denominated $124,632 $ 124,632 $ 127,100
Fixed interest rate - 7%
19
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On March 22, 2001, the Board of Directors of BJ Services Company
(the "Company") approved an amendment to the Company's Amended
Certificate of Incorporation to increase the number of shares of
authorized common stock of the Company, par value $0.10 per share
(the "Common Stock"), from 160,000,000 shares to 380,000,000 shares
(the "Charter Amendment"). The Charter Amendment was approved by
the Company's stockholders at a special meeting of stockholders
held on May 10, 2001. On March 22, 2001, the Board of Directors of
the Company declared a stock split, which will be effected in the
form of a stock dividend (the "Stock Split") on the issued shares
of Common Stock. The dividend will be paid on or about May 31,
2001, in newly issued shares to stockholders of record on May 17,
2001. Stockholders of record as of the close of business on May 17,
2001, the record date for the stock split (the "Stock Split Record
Date"), will receive one additional share of Common Stock for each
share of Common Stock held by such stockholder on the Stock Split
Record Date.
After giving effect to the Stock Split, the Company's preferred
share purchase rights associated with the Common Stock (the
"Rights"), and certain liquidation, dividend and voting rights
associated with the Company's authorized but unissued Series A
Junior Participating Preferred Stock issuable upon distribution and
exercise of the Rights (the "Preferred Stock") will be
proportionately adjusted to reflect the effect of the Stock Split.
After giving effect to such adjustments to the Rights, the number
of Rights associated with each share of Common Stock has been
adjusted to be one-quarter of a Right to purchase a one one-
thousandth interest in a share of the Company's authorized
Preferred Stock. The Rights are subject to further adjustments
pursuant to their terms under certain circumstances.
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 25,
2001 in Houston, Texas. All nominated directors were elected, and
the BJ Services Company 2000 Incentive Plan was approved.
20
(i) Directors elected at the Annual Meeting:
Votes in Votes
Favor Withheld
----- --------
Class II Directors
------------------
Don D. Jordan 74,593,495 240,624
Michael McShane 74,599,969 234,150
Directors with terms of office continuing after the Annual Meeting:
Class I Directors
-----------------
John R. Huff
R.A. LeBlanc
Michael E. Patrick
Class III Directors
-------------------
L. William Heiligbrodt
James L. Payne
J.W. Stewart
Votes in Votes
(ii) Favor Withheld
----- ---------
Adoption of the BJ Services
Company 2000 Stock Incentive Plan 53,217,181 21,616,936
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
*3.5 Certificate of Amendment to Certificate of Incorporation,
dated May 10, 2001.
*10.28 Director's Benefit Plan effective December 7, 2000.
*10.29 BJ Services Deferred Compensation Plan effective October 1,
2000
* Filed herewith
21
10.30 Amendment effective May 10, 2001 to BJ Services Company 1995
Incentive Plan (filed as Appendix B to the Company's Proxy
Statement dated April 10, 2001 and incorporated herein by
reference.)
10.31 Amendment effective May 10, 2001 to BJ Services Company 1997
Incentive Plan (filed as Appendix C to the Company's Proxy
Statement dated April 10, 2001 and incorporated herein by
reference.)
10.32 Second Amendment effective May 10, 2001 to BJ Services
Company 2000 Incentive Plan (filed as Appendix D to the
Company's Proxy Statement dated April 10, 2001 and
incorporated herein by reference.)
(b) Reports on Form 8-K.
None
22
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 15, 2001 BY\s\Michael McShane
-----------------------------------------
Michael McShane
Senior Vice President, Finance, Chief
Financial Officer and Director
(Principal Financial Officer)
Date: May 15, 2001 BY\s\James Horsch
-----------------------------------------
James Horsch
Controller
(Principal Accounting Officer)
23