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, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ___ to ___.
COMMISSION FILE NUMBER 1-10570
BJ SERVICES COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0084140
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 462-4239
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
There were 82,949,604 shares of the registrant's common stock, $.10 par value,
outstanding as of May 10, 2000.
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, 2000 and 1999 3
Consolidated Condensed Statement of Financial Position -
March 31, 2000 (Unaudited) and September 30, 1999 4
Consolidated Condensed Statement of Cash Flows (Unaudited) -
Six months ended March 31, 2000 and 1999 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 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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenue $ 390,755 $ 269,601 $ 745,575 $ 564,036
Operating expenses:
Cost of sales and services 301,501 226,327 581,707 469,538
Research and engineering 7,251 6,036 13,297 12,628
Marketing 14,201 12,961 27,683 25,810
General and administrative 14,558 12,041 28,753 22,821
Goodwill amortization 3,368 3,382 6,737 6,764
Unusual charge 18,128 39,695
--------- --------- --------- ---------
Total operating expenses 340,879 278,875 658,177 577,256
--------- --------- --------- ---------
Operating income (loss) 49,876 (9,274) 87,398 (13,220)
Interest expense (5,015) (7,746) (11,984) (15,401)
Interest income 163 223 249 299
Other income (expense) - net (861) (376) (1,410) (507)
--------- --------- --------- ---------
Income (loss) before income taxes 44,163 (17,173) 74,253 (28,829)
Income tax expense (benefit) 14,839 (5,786) 24,467 (10,416)
--------- --------- --------- ---------
Net income (loss) $ 29,324 $ (11,387) $ 49,786 $ (18,413)
========= ========= ========= =========
Earnings (loss) per share:
Basic $ .38 $ (.16) $ .66 $ (.26)
Diluted $ .35 $ (.16) $ .60 $ (.26)
Weighted average shares outstanding:
Basic 76,717 70,708 75,699 70,690
Diluted 84,933 70,708 83,226 70,690
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
MARCH 31, SEPTEMBER 30,
2000 1999
---------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 5,580 $ 3,924
Receivables - net 339,795 297,975
Inventories:
Product 54,879 64,995
Work in process 1,362 2,116
Parts 50,522 30,176
---------- ----------
Total inventories 106,763 97,287
Deferred income taxes 16,397 15,668
Other current assets 27,346 24,109
---------- ----------
Total current assets 495,881 438,963
Property - net 591,593 659,717
Deferred income taxes 190,007 201,774
Goodwill - net 482,983 489,736
Other assets 36,329 34,574
---------- ----------
$1,796,793 $1,824,764
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 141,302 $ 128,422
Short-term borrowings and current
portion of long-term debt 83,181 150,452
Accrued employee compensation and benefits 38,313 37,749
Income and other taxes 23,869 25,439
Accrued insurance 11,462 12,041
Other accrued liabilities 76,488 91,043
---------- ----------
Total current liabilities 374,615 445,146
Long-term debt 164,546 422,764
Deferred income taxes 6,735 6,578
Other long-term liabilities 135,248 73,187
Stockholders' equity 1,115,649 877,089
---------- ----------
$1,796,793 $1,824,764
========== ==========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
BJ SERVICES COMPANY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
MARCH 31,
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 49,786 $ (18,413)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Amortization of unearned compensation 2,190 180
Depreciation and amortization 51,784 48,194
Deferred income taxes (benefit) 16,148 (20,323)
Unusual charge - non cash 23,051
Changes in:
Receivables (42,471) 42,159
Inventories (9,476) 6,897
Accounts payable 12,880 (33,045)
Other current assets and liabilities (25,590) (17,623)
Other - net (6,036) (6,564)
--------- ---------
Net cash provided by operating activities 49,215 24,513
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (32,589) (72,631)
Proceeds from disposal of assets 123,308 2,197
--------- ---------
Net cash provided by (used for) investing activities 90,719 (70,434)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) borrowings - net (325,489) 43,204
Proceeds from issuance of stock 187,211 2,192
--------- ---------
Net cash provided by (used for) financing activities (138,278) 45,396
Increase (decrease) in cash and cash equivalents 1,656 (525)
Cash and cash equivalents at beginning of period 3,924 1,625
--------- ---------
Cash and cash equivalents at end of period $ 5,580 $ 1,100
========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
BJ SERVICES COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 GENERAL
In the opinion of management, the unaudited consolidated condensed financial
statements for BJ Services Company (the "Company") include all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial position as of March 31, 2000, and the results of
operations for each of the three-month and six-month periods ended March 31,
2000 and 1999 and cash flows for each of the six-month periods ended March 31,
2000 and 1999. 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 six-month period ended March 31, 2000 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
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,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income (loss) $ 29,324 $ (11,387) $ 49,786 $ (18,413)
Weighted-average common shares outstanding 76,717 70,708 75,699 70,690
----------- ----------- ----------- -----------
Basic earnings (loss) per share $ .38 $ (.16) $ .66 $ (.26)
=========== =========== =========== ===========
Weighted-average common and dilutive potential
common shares outstanding:
Weighted-average common shares
outstanding 76,717 70,708 75,699 70,690
Assumed exercise of stock options 2,054 1,210 1,854 1,172
Assumed exercise of warrants 6,162 1,068 5,673 957
----------- ----------- ----------- -----------
84,933 72,986(1) 83,226 72,819(1)
----------- -------------- ----------- -----------
Diluted earnings (loss) per share $ .35 $ (.16) $ .60 $ (.26)
=========== =========== =========== ===========
(1) Antidilutive because the Company incurred a net loss in this period.
As discussed in Note 7, in fiscal 2000 the Company has executed common stock
transactions, including the April 2000 issuance of 9,575,704 shares of common
stock upon exercise of warrants. Had these transactions occurred on October 1,
1999, basic earnings per share for the three and six-month periods ended March
31, 2000 would have been $.36 and $.61, respectively, while diluted earnings per
share would have been $.35 and $.60, respectively.
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, provided in selected U.S. and
international regions.
The accounting policies of the segments are the same as those described in the
summary of
7
significant accounting policies in the Company's annual report. 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.
BUSINESS SEGMENTS
U.S./MEXICO INTERNATIONAL OTHER
PRESSURE PRESSURE OILFIELD
PUMPING PUMPING SERVICES CORPORATE TOTAL
----------------- ----------------- ------------ -------------- --------------
(IN THOUSANDS)
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
THREE MONTHS ENDED MARCH 31, 1999
Revenues $99,007 $132,606 $37,831 $157 $269,601
Operating income (loss) (7,864) 17,404 3,112 (21,926) (9,274)
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 416,635 608,250 112,202 659,706 1,796,793
SIX MONTHS ENDED MARCH 31, 1999
Revenues $224,300 $257,205 $82,030 $501 $564,036
Operating income (loss) (4,923) 29,948 8,703 (46,948) (13,220)
Identifiable assets 385,202 525,110 110,419 699,150 1,719,881
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Total operating profit (loss) for
reportable segments $ 49,876 $ (9,274) $ 87,398 $(13,220)
Interest income (expense) - net (4,852) (7,523) (11,735) (15,102)
Other income (expense) - net (861) (376) (1,410) (507)
-------- -------- -------- --------
Income (loss) before income taxes $ 44,163 $(17,173) $ 74,253 $(28,829)
======== ======== ======== ========
8
NOTE 4 COMPREHENSIVE INCOME
The components of comprehensive net income (loss), net of tax, are as follows in
thousands:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
-------------- ----------- ------------ --------
Net income (loss) attributable to
common stockholders $ 29,324 $ (11,387) $ 49,786 $ (18,413)
Change in cumulative translation adjustment (302) (5,411) (627) (3,500)
------------- ------------ ------------ ------------
Comprehensive net income (loss) $ 29,022 $ (16,798) $ 49,159 $ (21,913)
============ ============ =========== ============
NOTE 5 UNUSUAL CHARGE
During the six months ended March 31, 1999, the Company recorded a pretax
unusual charge of $39.7 million ($26.0 million after tax, or $.36 per diluted
share) to reflect changes in its operations as a result of the downturn in
oilfield drilling activity. The components of the unusual charge are as follows
(in thousands):
Asset impairments (non cash) $23,051
Severance and related benefits 12,798
Facility closures and other 3,846
---------
$39,695
=========
The asset impairment of $23.1 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 1,100
employees worldwide. The facility closures and other costs primarily represent
remaining lease obligations related to the closure of several locations in the
oil producing regions of the U.S. and also one location in Latin America, and
costs incurred during the first six months of fiscal 1999 for the relocation of
equipment and personnel resulting from the closing of these facilities. Except
for the remaining lease obligations of $.5 million related to the closure of
locations, all expenditures for this provision were made as of September 30,
1999. The unexpended provision for remaining lease obligations related to the
closure of locations was $.3 million at March 31, 2000.
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, included in other
long-term liabilities, of approximately $63 million, which is being amortized
over ten years. Minimum annual
9
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 also entered into privately negotiated option agreements pursuant to
which it repurchased an equivalent number of shares in April 2000 for a total of
$149.0 million. The Company utilized proceeds of approximately $144 million from
the exercise of outstanding warrants to fund the repurchase. These warrants were
exercised in April 2000 at an exercise price of $15 per share. Each warrant
represented the right to purchase two shares. A total of 9,575,704 shares of
common stock were issued upon exercise of these warrants.
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 fiscal 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
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 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 during both fiscal 1997 and 1998. The recovery in U.S.
drilling has continued in fiscal 2000. For the six-month period ended March 31,
2000, the active U.S. rig count averaged 772 rigs, a 24% increase over the same
period in fiscal 1999. Most of this increase came from rigs drilling for gas,
which increased 32% from the same period of the previous year. The average
number of rigs drilling for oil remained relatively constant.
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 most other international regions is not expected
to recover until at least mid-2000. Active international drilling rigs
(excluding Canada) averaged 574 rigs during the six-month period ended March 31,
2000, a decrease of 12% from the same period of the previous year. The North Sea
and Asia Pacific regions have experienced the largest declines. Due primarily to
the recovery in oil prices, however, Canadian drilling activity continued the
recovery begun in late 1999, averaging 408 active drilling rigs for the
six-month period ended March 31, 2000, up 66% from the same period of the
previous year.
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 has primarily impacted
the Company's operations in Canada.
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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
-------- -------- -------- --------
Rig Count: (1)
U.S 770 552 772 621
International 1,056 910 982 897
Revenue per rig (in thousands) $ 214.0 $ 184.4 $ 425.1 $ 371.8
Revenue per employee (in thousands) $ 46.9 $ 36.6 $ 91.6 $ 73.4
Percentage of gross profit to revenue (2) 22.8% 16.1% 22.0% 16.8%
Percentage of research and engineering
expense to revenue 1.9% 2.2% 1.8% 2.2%
Percentage of marketing expense to revenue 3.6% 4.8% 3.7% 4.6%
Percentage of general and administrative
expense to revenue 3.7% 4.5% 3.9% 4.0%
(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, 2000 was
$390.8 million, an increase of 45% from prior year's second fiscal quarter. For
the six-month period ended March 31, 2000, the Company's revenue was $745.6
million, an increase of 32% from the same period of fiscal 1999. The increases
were primarily due to increased North American drilling and workover 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. In addition, the Company's average job size increased during
this period due to larger fracturing treatments. Management expects the Company
to continue to achieve revenue improvement in each of the remaining quarters of
fiscal 2000 compared with the same quarter of the previous year.
OPERATING INCOME: For the quarter ended March 31, 2000, the Company's
operating income was $49.9 million compared to an operating loss of $9.3 million
in the same period of the previous year. For the six months ended March 31,
2000, the Company recorded operating income of $87.4 million compared to an
operating loss of $13.2 million in the first half of fiscal 1999. The prior
year's loss was primarily a result of the Company's recording a pretax unusual
charge of $39.7 million ($.36 per diluted share after-tax), comprised of $12.8
million of severance costs, $23.1 million of asset writedowns and $3.8 million
of other costs associated with the downturn in the oilfield services industry.
The Company's gross profit margins increased to 22.8% from 16.1% in the prior
year's second fiscal quarter. For the six months ended March 31, 2000, the
Company's
12
gross profit margins increased to 22.0% from 16.8% for the same period of
fiscal 1999. The margin improvement is primarily a result of increased North
American drilling and workover activity and the impact of cost reduction
programs implemented during 1999. Such margin improvement was partially
offset by increased research and engineering, marketing and general and
administrative expenses which increased by $5.0 million and $8.5 million
compared with the prior year's second quarter and six-month periods,
respectively, due primarily to higher accruals for incentive bonuses which
are based upon the Company's earnings and stock price. Each of those other
operating expenses, however, declined as a percentage of revenue for both the
three and six-month periods.
OTHER: Interest expense decreased by $2.7 million and $3.4 million,
respectively, compared with the same three and six-month periods of the previous
year due to lower borrowings resulting from improved cash flows as well as an
equipment refinancing transaction and a private placement of common stock, both
of which were completed in the Company's first fiscal quarter (see also Capital
Resources and Liquidity).
INCOME TAXES: The Company's effective tax rate for the six-month period
ended March 31, 2000 increased to 33% from 30% in the same year earlier period
(excluding unusual charges) due to increased profitability in the higher tax
jurisdictions of North America. Including unusual charges, the Company's
effective tax rate for the six-month period ended March 31, 1999 was 36%, the
higher rate primarily being 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 three and
six-month periods ended March 31, 2000 increased by 76% and 52%, respectively,
from the same year earlier periods. The Company's U.S. operations contributed
all of the increase, up 60% for the first six months of fiscal 2000 compared to
the same period of fiscal 1999 despite drilling activity increasing only 24%
during the same period. Such improvement resulted primarily from a resumption of
business from independent operators due to higher commodity prices and from
larger fracturing treatments. U.S. workover activity, especially coiled tubing
and acidizing work, also was strong during the three and six-month periods ended
March 31, 2000, increasing 39% and 21%, respectively, over the same periods of
the previous year.
U.S./Mexico pressure pumping operating income was $28.3 million in the
second quarter of fiscal 2000 compared to an operating loss of $7.9 million in
the same period of the previous year. For the six-month period ended March 31,
2000, U.S./Mexico pressure pumping operating income was $57.4 million, compared
to an operating loss of $4.9 million during the same year earlier period. The
improvements were due primarily to increased drilling and workover business,
combined with better utilization of personnel and equipment as a result of cost
reduction measures implemented in fiscal 1999. Pricing during the quarter
improved by approximately 3%, both on a year-over-year and a sequential quarter
basis primarily as a result of a price book increase implemented during November
1999.
13
INTERNATIONAL PRESSURE PUMPING SEGMENT
Due to record Canadian drilling activity along with revenue generated
from the former Fracmaster operations in Canada and Russia, international
pressure pumping revenue increased by 33% compared with the second fiscal
quarter of 1999. For the six-month period ended March 31, 2000, international
pressure pumping revenue increased by 25% over the same period of fiscal 1999.
Excluding Canada, where revenues increased 139%, international pressure pumping
revenues for the six-month period ended March 31, 2000 were down only 4%
compared with the same period of the prior year despite a 12% decline in
drilling activity. Continued weakness in drilling activity most significantly
impacted the Company's operations in its Europe/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 quarterly revenue increases in its international pressure pumping
revenues (excluding Canada) during the remainder of fiscal 2000.
Operating income margins for the Company's international pressure
pumping operations were 18.0% of revenue for the quarter ended March 31, 2000
compared to 13.1% for the same fiscal quarter of 1999. For the six-month period
ended March 31, 2000, operating income margins were 14.1%, relatively unchanged
from those in the same period of the prior year. Operating income margins in
Canada increased as a result of efficiencies gained through full equipment and
personnel utilization due to the increased activity. These gains, however, were
mostly offset by lower pricing outside North America and margin decreases in the
Company's Europe/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 during the first
quarter of fiscal 2000. Additionally, the operating income margins for selected
international locations were negatively impacted by startup costs incurred for
delayed projects.
OTHER SERVICES SEGMENT
Revenue during the second fiscal quarter for the Company's other
service lines, which primarily consist of specialty chemicals, tubular services
and process and pipeline services, increased 6% from the same period of the
previous year, effectively offsetting the revenue shortfall experienced in the
first quarter versus the prior year's first quarter. Operating income margins as
a percentage of revenue for these service lines declined to 5.2% in the
six-month period ended March 31, 2000 versus 10.6% in the same period of the
prior year. The tubular services line contributed most of the decrease since
this service line, which normally contributes a higher profit margin percentage
than the others in this segment, experienced revenue declines from the previous
year as it was more heavily impacted by the drop in international drilling
activity, most significantly in the North Sea. Also contributing to the
operating income decline were job delays and higher startup costs in the process
and pipeline services group for new projects that are beginning in the third
fiscal quarter.
14
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided from operating activities for the six months ended March
31, 2000 was $49.2 million, an increase of $24.7 million from the comparable
prior year's figure. Higher profitability was partially 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, due to the activity downturn in the first half of 1999.
Net cash provided by investing activities for the six-month period was
$90.7 million, compared to a net use of cash for investing activities in the
year earlier period of $70.4 million. The increase is 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, which was used to repay
outstanding bank debt. As a result of the reduced debt, the Company is realizing
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 $41.2 million due
primarily 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 geared towards maintenance
capital and 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 six months ended March
31, 2000 was $138.3 million, compared to cash flows provided by financing
activities in the comparable year earlier period of $45.4 million. Together with
the proceeds received from the sale of equipment discussed above and
approximately $43 million received from the exercise of stock options, the
Company used $144.0 million received through the private placement of 4.0
million shares of common stock to reduce outstanding debt by $325.5 million. In
connection with the private placement, the Company also entered into privately
negotiated option agreements pursuant to which it repurchased an equivalent
number of shares in April 2000 for a total of $149.0 million. In April 2000, the
Company utilized proceeds of $143.6 million from the exercise of outstanding
warrants combined with borrowings under existing credit facilities, to fund the
repurchase. A total of 4,787,852 warrants, at an exercise price of $15 per share
(each warrant represented the right to purchase two shares) , were exercised
before their expiration date of April 13, 2000, leaving only 8,224 issued and
outstanding warrants which expired unexercised. The exercise of the warrants
resulted in the issuance of 9,575,704 shares of common stock.
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
15
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 $70.2
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 March 31,
2000, borrowings outstanding under the Bank Credit Facility totaled $70.2
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 $15.7 million, $31.3 million and $23.2 million in the
years ending September 30, 2000, 2001 and 2002, respectively.
In addition to the committed facility, the Company had $123.8 million in
various unsecured, discretionary lines of credit at March 31, 2000, 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 March 31, 2000, there was
$53.0 million in outstanding borrowings under these lines of credit.
The Company also has issued and outstanding $125.0 million of unsecured 7%
Notes due 2006.
The Company's interest-bearing debt decreased to 18.2% of its total
capitalization March 31, 2000, 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.
16
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.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates, primarily in
the United States and Canada. The Company's policy is to manage interest rates
through use of a combination of fixed and floating rate debt. A portion of the
Company's borrowings are denominated in foreign currencies which exposes the
Company to market risk associated with exchange rate movements. When necessary,
the Company enters into forward foreign exchange contracts to hedge the impact
of foreign currency fluctuations. There were no foreign exchange contracts
outstanding at March 31, 2000. All items described are non-trading and are
stated in U.S. dollars (in thousands).
EXPECTED MATURITY DATES FAIR VALUE
2000 2001 2002 2003 THEREAFTER TOTAL MARCH 31, 2000
---- ---- ---- ---- ---------- ----- --------------
SHORT TERM BORROWINGS
Bank borrowings; US$ denominated $2,627 $2,627 $2,627
Average variable interest rate -
10.00% at March 31, 2000
Bankers' acceptance notes; Canadian $
denominated $47,864 $47,864 $47,864
Average variable interest rate - 5.79%
at March 31, 2000
Bank borrowings; Deutsche mark
denominated $1,004 $1,004 $1,004
Average variable interest rate - 4.00%
at March 31, 2000
LONG TERM BORROWINGS
Current term loan; Canadian $ $15,684 15,684 $31,368 $31,368
denominated
Variable interest rate - 5.76% at
March 31, 2000
Current Leases: US $ denominated $318 $318 $318
Variable interest rate - 6.18% at
March 31, 2000
Non-current term loan; Canadian $
denominated $15,684 23,182 $38,866 $38,866
Variable interest rate - 5.76% at
March 31, 2000
Non-current leases; US $ denominated $614 383 128 $1,125 $1,125
Variable interest rate - 6.18% at
March 31, 2000
7% Series B Notes - US$ denominated $124,555 $124,555 $118,870
Fixed interest rate - 7%
18
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on January
27, 2000 in Houston, Texas. All nominated directors were
elected, and amendments to the BJ Services Company 1990 Stock
Incentive Plan, the BJ Services Company 1995 Incentive Plan
and the BJ Services Company 1997 Incentive Plan were approved.
(i) Directors elected at the Annual Meeting:
Votes in Votes
Favor Withheld
----- --------
CLASS I DIRECTORS
John R. Huff 61,873,299 6,219,678
R. A. LeBlanc 61,853,224 6,239,753
Michael E. Patrick 61,870,763 6,222,214
Directors with terms of office continuing after the Annual
Meeting:
CLASS II DIRECTORS
Don D. Jordan
Michael McShane
19
CLASS III DIRECTORS
L. William Heiligbrodt
James L. Payne
J. W. Stewart
Votes in Votes
Favor Withheld
----- --------
(ii)
Amendment to the BJ Services
Company 1990 Stock Incentive Plan 64,680,223 3,361,347
(iii)
Amendment to the BJ Services
Company 1995 Incentive Plan 64,673,829 3,341,076
(iv)
Amendment to the BJ Services
Company 1997 Incentive Plan 64,492,842 3,520,918
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS.
10.28 Form of Amended and Restated Executive Severance
Agreement between BJ Services Company and certain
executive officers.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None
20
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 12, 2000 BY\s\Michael Mcshane
----------------------------------------------
Michael McShane
Senior Vice President, Finance, Chief
Financial Officer and Director (Principal
Financial Officer)
Date: May 12, 2000 BY\s\Matthew D. Fitzgerald
----------------------------------------------
Matthew D. Fitzgerald
Vice President and Controller
(Principal Accounting Officer)
21