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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, 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 (I.R.S. Employer
of 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 156,470,712 shares of the registrant's common stock, $.10 par value,
outstanding as of February 8, 2002.
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BJ SERVICES COMPANY
INDEX
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statement of Operations (Unaudited) - Three
months ended December 31, 2001 and 2000 3
Consolidated Condensed Statement of Financial Position -
December 31, 2001 (Unaudited) and September 30, 2001 4
Consolidated Statement of Stockholders' Equity (Unaudited) -
Three months ended December 31, 2001 5
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Three months ended December 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 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION 19
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
December 31,
2001 2000
-------- --------
Revenue $510,061 $489,678
Operating expenses:
Cost of sales and services 364,363 347,319
Research and engineering 8,814 7,893
Marketing 15,784 14,131
General and administrative 16,016 15,900
Goodwill amortization 3,374
-------- --------
Total operating expenses 404,977 388,617
-------- --------
Operating income 105,084 101,061
Interest expense (1,896) (4,044)
Interest income 374 403
Other income (expense) - net (576) (1,264)
-------- --------
Income before income taxes 102,986 96,156
Income tax expense 36,045 32,693
-------- --------
Net income $ 66,941 $ 63,463
======== ========
Earnings per share:
Basic $ .42 $ .39
Diluted $ .42 $ .38
Weighted average shares outstanding:
Basic 157,991 164,100
Diluted 160,839 167,874
See Notes to Unaudited Consolidated Condensed Financial Statements
3
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(In thousands)
December 31, September 30,
2001 2001
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 44,013 $ 84,103
Receivables - net 396,673 475,715
Inventories:
Products 72,115 67,744
Work in process 3,086 2,850
Parts 67,525 64,544
---------- ----------
Total inventories 142,726 135,138
Deferred income taxes 10,840 15,139
Other current assets 34,494 22,538
---------- ----------
Total current assets 628,746 732,633
Property - net 704,166 676,445
Deferred income taxes 52,433 79,526
Goodwill - net 476,765 476,795
Other assets 23,439 19,968
---------- ----------
$1,885,549 $1,985,367
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 160,918 $ 190,803
Short-term borrowings and current
portion of long-term debt 4,057 13,976
Accrued employee compensation and benefits 47,542 67,079
Income and other taxes 30,172 31,738
Accrued insurance 10,100 10,593
Other accrued liabilities 73,742 75,409
---------- ----------
Total current liabilities 326,531 389,598
Long-term debt 79,314 79,393
Deferred income taxes 3,436 10,172
Other long-term liabilities 136,898 136,123
Stockholders' equity 1,339,370 1,370,081
---------- ----------
$1,885,549 $1,985,367
========== ==========
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, 2001 $17,376 $966,550 $(295,449) $(4,891) $690,128 $(3,633) $1,370,081
Comprehensive income:
Net income 66,941
Other comprehensive income, net of tax:
Cumulative translation adjustments (521)
Comprehensive income 66,420
Reissuance of treasury stock for:
Stock options 1,655 (1,058) 597
Stock purchase plan 5,330 (1,660) 3,670
Treasury stock purchased (102,125) (102,125)
Recognition of unearned compensation 727 727
------- -------- --------- ------------ -------- ------------- ----------
Balance, December 31, 2001 $17,376 $966,550 $(390,589) $(4,164) $754,351 $(4,154) $1,339,370
======= ======== ========= ============ ======== ============= ==========
See Notes to Unaudited Consolidated Condensed Financial Statements
5
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
December 31,
2001 2000
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 66,941 $ 63,463
Adjustments to reconcile net income to cash
provided by operating activities:
Minority interest 1,502 1,599
Amortization of unearned compensation 727 870
Depreciation and amortization 24,438 25,500
Deferred income taxes 27,324 24,760
Changes in:
Receivables 79,042 (39,826)
Inventories (7,588) (6,376)
Accounts payable (29,885) 1,408
Other current assets and liabilities (37,887) 9,184
Other - net (4,326) 941
--------- --------
Net cash provided by operating activities 120,288 81,523
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (53,503) (28,069)
Proceeds from disposal of assets 981 6,701
--------- --------
Net cash used for investing activities (52,522) (21,368)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) borrowings - net (9,998) 14,571
Proceeds from issuance of stock 4,267 7,704
Purchase of treasury stock (102,125) (81,019)
--------- --------
Net cash used for financing activities (107,856) (58,744)
Increase (decrease) in cash and cash equivalents (40,090) 1,411
Cash and cash equivalents at beginning of period 84,103 6,472
--------- --------
Cash and cash equivalents at end of period $ 44,013 $ 7,883
========= ========
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 of BJ Services Company (the "Company") include all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of its financial position and statement of stockholders' equity as
of December 31, 2001, and its results of operations and cash flows for each of
the three- month periods ended December 31, 2001 and 2000. The consolidated
condensed statement of financial position at September 30, 2001 is derived from
the September 30, 2001 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 cash flows for the three-month period
ended December 31, 2001 are not necessarily indicative of the results to be
expected for the full year.
Note 2 Earnings Per Share ("EPS")
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.
At a special meeting 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 shares to 380 million shares. As a result, a 2 for
1 stock split (effected in the form of a stock dividend) was distributed on May
31, 2001 to stockholders of record as of May 17, 2001. Accordingly, all
references in the financial statements to numbers 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.
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
December 31,
2001 2000
-------- --------
Net income $ 66,941 $ 63,463
Weighted-average common shares outstanding 157,991 164,100
-------- --------
Basic earnings per share $ .42 $ .39
======== ========
Weighted-average common and dilutive potential common
shares outstanding:
Weighted-average common shares outstanding 157,991 164,100
Assumed exercise of stock options 2,848 3,774
-------- --------
160,839 167,874
-------- --------
Diluted earnings per share $ .42 $ .38
======== ========
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 segment includes cementing services and stimulation services
(consisting of fracturing, acidizing, sand control, nitrogen, coiled tubing and
downhole tools services) provided throughout the United States and Mexico. The
International Pressure Pumping segment also includes cementing and stimulation
services provided to customers in over 40 countries in the major international
oil and natural gas producing areas of Latin America, Europe, Russia, 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.
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. Operating segment performance is evaluated 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 expenses not
allocated to the operating segments.
8
Business Segments
U.S./Mexico International Other
Pressure Pressure Oilfield
Pumping Pumping Services Corporate Total
----------- ----------- --------- ---------- ---------
(in thousands)
Three Months Ended December 31, 2001
Revenues $273,126 $186,928 $ 49,972 $ 35 $ 510,061
Operating income (loss) 82,174 24,731 5,619 (7,440) 105,084
Identifiable assets 500,111 606,922 132,345 646,171 1,885,549
Three Months Ended December 31, 2000
Revenues $253,914 $187,763 $ 47,941 $ 60 $ 489,678
Operating income (loss) 75,912 28,685 6,188 (6,350) 104,435
Identifiable assets 369,669 593,604 118,746 721,689 1,803,708
Three Months Ended Three Months Ended
December 31, 2001 December 31, 2000
----------------- -----------------
(in thousands)
Total operating profit for reportable
segments $105,084 $104,435
Goodwill amortization (3,374)
Interest expense - net (1,522) (3,641)
Other income (expense) - net (576) (1,264)
-------- --------
Income before income taxes $102,986 $ 96,156
======== ========
Note 4 Comprehensive Income
The components of comprehensive net income, net of tax, are as follows (in
thousands):
Three Months Ended
December 31,
-----------------
2001 2000
------- -------
Net income attributable to common stockholders $66,941 $63,463
Change in cumulative translation adjustment (521) 102
------- -------
Comprehensive net income $66,420 $63,565
======= =======
9
Note 5 Commitments and Contingencies
The Company recently entered into two long-term vessel charter operating lease
agreements. Annual commitments under these agreements for the years ending
September 30, 2002, 2003, 2004, 2005 and 2006 are $20.8 million, $6.0 million,
$6.1 million, $6.3 million and $6.0 million, respectively and $30.2 million in
the aggregate thereafter.
Note 6 New Accounting Standards
Effective October 1, 2001, the Company adopted Financial Accounting Standards
Board Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 142 requires that goodwill no longer be amortized to earnings, but instead
must be reviewed for possible impairment annually, or more frequently if certain
indicators arise. The Company ceased amortizing goodwill on October 1, 2001.
The Company is required to complete the initial step of a transitional
impairment test within six months of adopting of SFAS 142 and to complete the
final step of the transitional impairment test by the end of the fiscal year.
Any impairments identified in this transitional test will be recorded as a
cumulative effect of a change in accounting principle.
Had the Company been accounting for its goodwill under SFAS 142 for all periods
presented, the Company's net income (in thousands) and earnings per share would
have been as follows:
Three Months Ended
December 31,
2001 2000
------- -------
Reported net income $66,941 $63,463
Add back: Goodwill amortization 3,374
------- -------
Adjusted net income $66,941 $66,837
======= =======
Basic earnings per share:
Reported net income $ .42 $ .39
Goodwill amortization .02
------- -------
Adjusted net income $ .42 $ .41
======= =======
Diluted earnings per share:
Reported net income $ .42 $ .38
Goodwill amortization .02
------- -------
Adjusted net income $ .42 $ .40
======= =======
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company's worldwide 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.
Drilling activity, in turn, is largely dependent on the price of crude 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 that began in the latter half of fiscal
1999, the U.S. average fiscal 1999 rig count of 601 active rigs represented the
lowest in history. The recovery in U.S. drilling that began in 1999 continued
throughout fiscal 2000 and 2001 due to exceptionally strong oil and natural gas
prices. Crude oil and natural gas prices have fallen over the past several
months, however, and North American drilling activity has begun to decline. For
the three-month period ended December 31, 2001, the active U.S. rig count
averaged 1,004 rigs, a 6% decrease from the same period in fiscal 2001. The
Company's management believes that such activity will decline further over the
remainder of this fiscal year.
Drilling activity outside North America has historically been less volatile
than domestic drilling activity. International drilling activity also reached
record low levels during 1999 due to low oil prices during most of the year.
While Canadian drilling activity began to recover during the latter part of
fiscal 1999, activity in most of other international regions did not begin to
significantly recover until the latter half of fiscal 2001. Active
international drilling rigs (excluding Canada) averaged 736 rigs during fiscal
2001, an increase of 19% over fiscal 2000. Oil and natural gas prices remained
strong throughout most of fiscal 2001 and Canadian drilling activity continued
the recovery begun in late 1999, averaging 365 active drilling rigs during
fiscal 2001, up 9% from the previous fiscal year. During the first quarter of
fiscal 2002, active international drilling rigs (excluding Canada) averaged 748
rigs, a 5% increase over the same quarter of fiscal 2001. In Canada during that
period, however, lower natural gas prices combined with unseasonably warm
weather resulted in a 26% decrease in Canadian drilling activity compared to the
same period of the previous year. The Company expects Canadian drilling
activity in fiscal 2002 to be remain below activity levels in comparative
periods of fiscal 2001 and for drilling activity outside North America to be
relatively unchanged year-over-year.
11
Results of Operations
The following table sets forth selected key operating statistics reflecting
industry rig count and the Company's financial results:
Three Months Ended December 31,
---------------------------------
2001 2000
------ ------
Rig Count: /(1)/
U.S........................................................ 1,004 1,073
International.............................................. 1,026 1,086
Revenue per rig (in thousands)............................... $ 251.3 $ 226.8
Revenue per employee (in thousands).......................... $ 46.6 $ 51.0
Percentage of gross profit to revenue /(2)/.................. 28.6% 29.1%
Percentage of research and engineering expense to revenue.... 1.7% 1.6%
Percentage of marketing expense to revenue................... 3.1% 2.9%
Percentage of general and administrative expense to revenue.. 3.1% 3.2%
________
(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, 2001
was $510.1 million, a 4.2% increase from the previous year's first fiscal
quarter. However, management expects the Company's revenues in fiscal 2002 to
decrease approximately 10 - 15% from the record levels in 2001 because of recent
declines in natural gas and crude oil prices that have led to reductions in
North American drilling activity.
Operating Income: For the quarter ended December 31, 2001, the Company's
operating income was $105.1 million, an increase of $4.0 million over the same
period of the previous fiscal year. The Company's gross profit margins declined
slightly from 29.1% in the prior year's first quarter to 28.6% in the current
year's first quarter. The margin deterioration was the result of reduced
drilling and workover activity and a decline in U.S. pricing. The Company also
experienced a slight increase in research and engineering and marketing expenses
due to increased costs to support fiscal 2001 revenue levels. Management
believes pricing may decline further as activity levels decline during the
remainder of fiscal 2002, and that the combination of reduced activity and
pricing would result in further margin deterioration. The prior year's first
quarter operating earnings included $3.4 million of goodwill amortization. The
Company ceased amortizing goodwill in the first quarter of the current fiscal
year with its adoption of Financial Accounting Standards Board Statement No.
142, "Goodwill and Other Intangible Assets" (See Accounting Pronouncements).
12
Other: Interest expense in the first quarter of fiscal 2002 decreased by
$2.1 million compared to the same period of the previous year. Interest-bearing
debt was $83.4 million at December 31, 2001, compared to $190.7 million at
December 31, 2000.
Income Taxes: The Company's effective tax rate increased to 35% from 34% in
the prior year's first fiscal quarter primarily as a result of higher
profitability in North America where tax rates are somewhat higher than some
international jurisdictions.
U.S./Mexico Pressure Pumping Segment
For the quarter ended December 31, 2001, the Company's U.S./Mexico revenues
were $273.1 million, an increase of 8% over the prior year's first fiscal
quarter despite a 6% decline in drilling activity. This revenue increase was
due primarily to U.S. pricing improvement gained as fiscal 2001 progressed.
Because of recent weakness in natural gas prices and the resulting slowdown in
U.S. drilling activity, U.S. prices declined approximately 4% during the first
fiscal quarter of 2002. Management believes fiscal 2002 U.S./Mexico pressure
pumping revenue will decline from that of fiscal 2001 by approximately 20 - 25%
because of declining drilling activity and its impact on U.S. pricing.
U.S./Mexico pressure pumping operating income was $82.2 million in the
first quarter of fiscal 2002 compared to $75.9 million in the same period of
fiscal 2001. The increase of $6.3 million resulted primarily from pricing
improvement of 10% on a year-over-year basis (resulting from price book
increases implemented during fiscal 2001) offset by increased labor and
equipment costs incurred to meet the rapid activity growth in fiscal 2001.
Management believes operating income margins as a percentage of revenue in the
U.S./Mexico segment will decline over the remainder of fiscal 2002 because of
anticipated price deterioration in the U.S. resulting from reduced drilling
activity.
International Pressure Pumping Segment
Revenue for the Company's international pressure pumping operations was
$186.9 million in the first quarter of fiscal 2002, relatively unchanged from
the same period of the previous fiscal year despite a 6% decline in the
international rig count. Excluding Canada, where revenues decreased 10% due to a
26% reduction in drilling activity, international pressure pumping revenues
increased 4% compared to the same quarter of fiscal 2001. The largest year-
over-year revenue increases were $3.2 million in Russia (up 59%) and $3.7
million in the Middle East Region (up 21%). The Company's expanded service
lines contributed to the growth in Russia workover and stimulation revenues,
while a coiled tubing contract in Kazakhstan contributed to the Middle East
revenue increase. Partially offsetting these gains was a $4.7 million or 10%
revenue decrease in the Company's Latin America Region from the same quarter of
fiscal 2001 resulting from reduced drilling activity in Colombia and Venezuela.
International pressure pumping revenues are expected to decline slightly from
2001 levels during the remainder of fiscal 2002 due mostly to the effects of the
slowing Canadian drilling activity.
13
Operating income for the Company's international pressure pumping
operations was $24.7 million for the first quarter of fiscal 2002, a decrease of
$4.0 million from the same quarter of the previous year primarily because of
reduced profits in Canada caused by reduced drilling activity.
Other Services Segment
Revenue for each of the Company's other service lines, which consist of
specialty chemicals, tubular services and process and pipeline services, were
$50.0 million in the first quarter of fiscal 2002, a 4% increase over the same
period of the previous year. Tubular services revenues increased 20% from
activity improvements, particularly in Europe and the Middle East and expansion
in West Africa. Revenue of the Unichem specialty chemicals division increased
5%, while revenue for the process and pipeline inspection service line was
unchanged from the previous year's first quarter.
Operating income for the Company's other service lines for the quarter
ended December 31, 2001 was $5.6 million, a 10% decrease from the same period of
fiscal 2001. The decrease was mostly attributable to slightly reduced profit
margins in the process and pipeline services operations.
Capital Resources and Liquidity
- -------------------------------
Net cash provided from operating activities for the first quarter of fiscal
2002 was $120.3 million, an increase of $38.8 million from the comparable period
of the prior year, due primarily to a reduction of working capital, particularly
accounts receivable.
Net cash used for investing activities in the first quarter of fiscal 2002
was $52.5 million, an increase of $31.2 million compared to the same period of
the previous year, mostly because of increased capital expenditures. Capital
expenditures for fiscal 2002 are expected to be comparable to fiscal 2001
spending levels at approximately $170 to $185 million. The 2002 capital program
is expected to be used primarily for replacement and enhancement of U.S.
fracturing equipment and expansion of stimulation services internationally. The
actual amount of 2002 capital expenditures will be somewhat dependent on the
availability of external manufacturing capacity and the identification of
service expansion opportunities. The capital program is expected to be funded by
cash flows from operating activities and available credit facilities, which
management believes will be sufficient to fund projected expenditures.
Cash flows used for financing activities for the three months ended
December 31, 2001 were $107.9 million, compared to cash flows used for financing
activities in the first quarter of fiscal 2001 of $58.7 million. During the
first quarter of fiscal 2002, the Company purchased 4.4 million shares of its
common stock at a cost of $102.1 million under a share repurchase program
approved by the Company's Board of Directors. The share repurchase program, as
amended, authorizes purchases up to $750 million, $251.0 million of which was
available for future purchase as of December 31, 2001.
14
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 share repurchase program. In June 2001, the Company replaced its
existing credit facility with a new $400 million committed line of credit
("Committed Credit Facility"). The Committed Credit Facility consists of a $200
million, 364-day commitment that renews annually at the option of the lenders
and a $200 million three-year commitment. There were no outstanding borrowings
under the Committed Credit Facility at December 31, 2001.
In addition to the Committed Credit Facility, the Company had $114.9
million in various unsecured, discretionary lines of credit at December 31,
2001, which expire at various dates in 2002. There are no requirements for
commitment fees or compensating balances in connection with these lines of
credit and interest on borrowings is based on prevailing market rates. At
December 31, 2001, there were $4.6 million in outstanding borrowings under these
lines of credit.
The Company recently entered into two long-term vessel charter operating
lease agreements. Annual commitments under these agreements for the years ending
September 30, 2002, 2003, 2004, 2005 and 2006 are $20.8 million, $6.0 million,
$6.1 million, $6.3 million and $6.0 million, respectively and $30.2 million in
the aggregate thereafter.
Due to repayment of borrowings from cash flows from operations, the
Company's total interest-bearing debt decreased to 5.9% of its total
capitalization (total capitalization equals the sum of interest-bearing debt and
stockholders' equity)at December 31, 2001, compared to 14.1% at December 31,
2000 and 6.4% at September 30, 2001. The Committed Credit Facility includes
various customary covenants and other provisions including the maintenance of
certain profitability and solvency ratios, none of which materially restrict the
Company's activities. Management believes that the Committed 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
Accounting Pronouncements
Effective October 1, 2001, the Company adopted Financial Accounting
Standards Board Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 142 requires that goodwill no longer be amortized to earnings, but
instead must be reviewed for possible impairment. The Company ceased the
amortization of goodwill beginning October 1, 2001. According to the
requirements of SFAS 142, the Company is currently assessing the fair value of
each of its reporting units to determine if such fair value exceeds the book
value of each of these reporting units (after allocation of goodwill).
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 requires the fair value of a
liability for an asset retirement legal obligation to be recognized in the
period in which it is incurred. When the liability is initially recorded,
associated costs are capitalized by increasing the carrying amount of the
related long-lived asset. Over time, the liability is accreted to its present
value each period and the capitalized cost is depreciated over the useful life
of the related asset. SFAS 143 is effective for fiscal years beginning after
June 15, 2002, with earlier application encouraged. SFAS 143 requires entities
to record a cumulative effect of a change in accounting principle in the income
statement in the period of adoption. The Company plans to adopt SFAS 143 on
October 1, 2002 and is in the process of determining the effect of adoption on
its consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 provides new
guidance on the recognition of impairment losses on long-lived assets to be held
and used or to be disposed and also broadens the definition of what constitutes
a discontinued operation and how the results of a discontinued operation are to
be measured and presented. SFAS 144 supercedes SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
APB Opinion No. 30, while retaining many of the requirements of these two
statements. Under SFAS 144, assets held for sale that are a component of an
entity will be included in discontinued operations if the operations and cash
flows will be or have been eliminated from the ongoing operations of the entity
and the entity will not have any significant continuing involvement in the
operations prospectively. SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with early adoption encouraged. SFAS 144 is not expected to
materially change the methods used by the Company to measure impairment losses
on long-lived assets, but may result in future dispositions being reported as
discontinued operations to a greater extent than is currently permitted. The
Company plans to adopt SFAS 144 on October 1, 2002.
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
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of terms and phrases such as "expect," "estimate," "project," "believe,"
"achievable," "anticipate" 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, fluctuating prices
of crude oil and natural gas, 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.
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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 to foreign currency fluctuations
internationally and changing interest rates, primarily in the United States and
Europe. The Company's policy is to manage interest rates through use of a
combination of fixed and floating rate debt. If the floating rates were to
increase by 10% from December 31, 2001 rates, the Company's combined interest
expense to third parties would increase by a total of $1,000 each month in which
such increase continued. At December 31, 2001, the Company had issued fixed-rate
debt of $78.8 million. These instruments are fixed-rate and, therefore, do not
expose the Company to the risk of loss in earnings due to changes in market
interest rates. However, the fair value of these instruments would increase by
$1.7 million if interest rates were to decline by 10% from their rates at
December 31, 2001.
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 December 31, 2001 in the amount of $1.9
million. This contract was settled on January 2, 2002 with no gain or loss. All
items described are non-trading and are stated in U.S. dollars (in thousands).
Expected Maturity Dates Fair Value
2002 2003 2004 2005 Thereafter Total December 31, 2001
---- ---- ---- ---- ---------- ----- -----------------
SHORT-TERM BORROWINGS
Bank borrowings; US $ denominated $1,529 $ 1,529 $ 1,529
Average variable interest rate - 5.75% at
December 31, 2001
Bank borrowings; Euro denominated $2,210 $ 2,210 $ 2,210
Average variable interest rate - 5.08% at
December 31, 2001
LONG-TERM BORROWINGS
Current leases; US $ denominated $ 318 $ 318 $ 318
Variable interest rate - 6.18% at
December 31, 2001
Non-current leases; US $ denominated $ 301 $ 210 $ 511 $ 511
Variable interest rate - 6.18% at
December 31, 2001
7% Series B Notes - US $ denominated $78,803 $78,803 $82,034
Fixed interest rate - 7%
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
BJ Services Company ("BJ") filed a patent infringement suit
against Halliburton Energy Services ("Halliburton") in March of
2000 in connection with BJ's patented method of well fracturing
using the Vistar (TM) fracturing fluid. The lawsuit is pending in
U.S. District Court in Houston, Texas and is scheduled for trial
on March 18, 2002. BJ alleges in the suit that Halliburton's use
of a competing fracturing method infringes BJ's patent. The suit
alleges that damages adequate to compensate for Halliburton's
infringement exceed $100 million. Halliburton is using the
competing method widely in the Rocky Mountain area and in South
Texas. BJ will also be seeking an injunction to prevent
Halliburton from continuing to offer services using the competing
method. Halliburton has filed a counterclaim asserting that the
patent issued to BJ is not valid or is otherwise unenforceable.
Halliburton also claims that its use of the competing method does
not infringe the BJ patent.
As with any litigation, the outcome at trial is not certain. BJ
is confident in its legal position, however, no assurances can be
made that any recovery will be achieved. BJ does not believe that
a negative outcome in this litigation (which could include
invalidation of BJ's patent) would have any material effect on
its operations.
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.
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None
(b) Reports on Form 8-K.
None
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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 13, 2002 BY \s\ Margaret B. Shannon
-----------------------------------------
Margaret B. Shannon
Vice President and General Counsel
Date: February 13, 2002 BY \s\ James Horsch
-----------------------------------------
James Horsch
Controller and Chief Accounting
Officer
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