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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER 1-10570
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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, 77092
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 462-4239
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK $.10 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK NEW YORK STOCK EXCHANGE
12 7/8% SENIOR NOTES DUE DECEMBER 1, 2002 NEW YORK STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K / /.
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At December 8, 1995, the registrant had outstanding 28,011,972 shares of
Common Stock, $.10 par value per share. The aggregate market value of the Common
Stock on such date (based on the closing prices in the daily composite list for
transactions on the New York Stock Exchange) held by nonaffiliates of the
registrant was approximately $750,622,842.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held January 25, 1996 are incorporated by reference into Part
III.
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PART I
ITEM 1. BUSINESS
GENERAL
BJ Services Company (the "Company"), whose operations trace back to the
Byron Jackson Company (which was founded in 1872), was organized in 1990 under
the corporate laws of the State of Delaware. The Company is a leading provider
of pressure pumping and other oilfield services serving the petroleum industry
worldwide. The Company's pressure pumping services consist of well stimulation,
cementing, sand control and coiled tubing services used in the completion of new
oil and natural gas wells and in remedial work on existing wells, both onshore
and offshore. Other oilfield services include casing and tubular services
provided to the oil and gas exploration and production industry, commissioning
and leak detection services provided to offshore platforms and pipelines,
primarily in the United Kingdom, and specialty chemical services.
On April 13, 1995, the Company completed the acquisition (the
"Acquisition") of The Western Company of North America ("Western") for a total
purchase price of approximately $511 million. The Acquisition provides the
Company with a greater "critical mass" with which to compete in both the U.S.
and international markets and the opportunity to realize significant
consolidation benefits. On an annual basis, the Acquisition is expected to
increase the Company's existing total revenue base by approximately 75% and more
than double the Company's existing U.S. revenue base. In addition, it is
estimated that approximately $40 million of annual overhead and redundant
operating costs will be eliminated by combining the two companies. During the
year ended September 30, 1995, giving effect to the Acquisition since April 1,
1995, the Company generated approximately 86% of its revenue from pressure
pumping services and 14% of its revenue from product and equipment sales and
other oilfield services (85% and 15%, respectively, since the Acquisition). Over
the same period, the Company generated approximately 55% of its revenue from
domestic operations and 45% from international operations (59% and 41%,
respectively, since the Acquisition).
PUMPING SERVICES
CEMENTING SERVICES. The Company's cementing services, which accounted for
approximately 39% of the Company's total revenue during 1995 (37% since the
Acquisition), consist of blending cement and water with various solid and liquid
additives to create a slurry that is pumped into a well between the casing and
the wellbore. The additives and the properties of the slurry are designed to
ensure the proper pump time, compressive strength and fluid loss control, and
vary depending upon the well depth, downhole temperatures and pressures, and
formation characteristics.
The Company provides regional laboratory testing services to evaluate
slurry properties, which vary with cement supplier and local water properties.
Job design recommendations are developed by the Company's field engineers to
achieve desired porosity and bonding characteristics.
There are a number of specific applications for cementing services used in
oilfield operations. The principal application is the cementing between the
casing pipe and the wellbore during the drilling and completion phase of a well
("primary cementing"). Primary cementing is performed to (1) isolate fluids
behind the casing between productive formations and other formations which would
damage the productivity of hydrocarbon producing zones or damage the quality of
freshwater aquifers, (2) seal the casing from corrosive formation fluids, and
(3) provide structural support for the casing string. Cementing services are
also utilized when recompleting wells from one producing zone to another and
when plugging and abandoning wells.
STIMULATION SERVICES. The Company's stimulation services, which accounted
for approximately 47% of the Company's total revenue during 1995 (48% since the
Acquisition), consist of hydraulic fracturing, acidizing, sand control, nitrogen
and coiled tubing services designed to improve the flow of oil and gas from
producing formations and are summarized as follows:
Fracturing. Fracturing is performed to enhance the production of oil and
gas from formations having such low permeability that the natural flow is
restricted. The fracturing process consists of pumping a fluid gel into a cased
well at sufficient pressure to "fracture" the formation. Sand, bauxite or
synthetic proppant which is
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suspended in the gel is pumped into the fracture to prop it open. The size of a
fracturing job is generally expressed in terms of the pounds of proppant. The
main pieces of equipment used in the fracturing process are the blender, which
blends the proppant and chemicals into the fracturing fluid, and the pumping
unit, which is capable of pumping significant volumes at high pressures. The
Company's fracturing pump units are capable of pumping slurries at pressures of
up to 14,000 pounds per square inch at rates of up to four barrels per minute.
In some cases, fracturing is performed by an acid solution pumped under pressure
without a proppant or with small amounts of proppant.
An important element of fracturing services is the design of the fracturing
treatment, which includes determining the proper fracturing fluid, proppants and
injection program to maximize results. The Company's field engineering staff
provides technical evaluation and job design recommendations as an integral
element of its fracturing service for the customer. Technological developments
in the industry over the past three to four years have focused on proppant
concentration control (i.e., proppant density), liquid gel concentrate
capabilities, computer design and monitoring of jobs and cleanup properties for
fracturing fluids. Over the past decade, the Company has successfully introduced
equipment to respond to these technological advances. During 1991, the Company
introduced a patented, borate-based fracturing fluid, Spectra Frac G(R). During
1993, the Company introduced two additional fracturing fluids, Medallion FracSM
and Spartan FracSM. These fracturing fluids are now used in most of the
Company's fracturing treatments. During 1994, the Company commercialized a
proprietary enzyme chemistry used in conjunction with the three fracturing
fluids. These "enzyme breakers" can significantly enhance the production of oil
and gas in a wide range of wells.
Acidizing. Acidizing is performed to enhance the flow rate of oil and gas
from wells with reduced flow caused by formation damage due to drilling or
completion fluids, or the buildup over time of various materials that block the
formation. Acidizing entails pumping large volumes of specially formulated acids
into reservoirs to dissolve barriers and enlarge crevices in the formation,
thereby eliminating obstacles to the flow of oil and gas. The Company maintains
a fleet of mobile acid transport and pumping units to provide acidizing services
for the onshore market.
Sand Control. Sand control services involve the pumping of gravel to fill
the cavity created around the wellbore during drilling. The gravel provides a
filter for the exclusion of formation sand from the producing pathway. Oil and
gas is then free to move through the gravel into the wellbore to be produced.
These services are primarily provided in the Gulf of Mexico, the North Sea,
Venezuela, Trinidad and Indonesia.
Nitrogen. There are a number of uses for nitrogen, an inert gas, in
pressure pumping operations. Used alone, it is effective in displacing fluids
during drill stem testing. However, nitrogen services are used principally in
applications which support the Company's cementing and fracturing services.
Coiled Tubing Services. Coiled tubing services involve the injection of
coiled tubing into wells to perform various applications and functions for use
principally in well-servicing operations. The application of coiled tubing to
drilling operations also has increased in recent years due to improvements in
coiled tubing technology. Coiled tubing is a flexible steel pipe with a diameter
of less than three inches manufactured in lengths of thousands of feet and wound
or coiled along a large reel on a truck or skid-mounted unit. Due to the small
diameter of coiled tubing, it can be inserted through production pipe and used
to perform workovers without using a larger, more costly workover rig. The other
principal advantages of employing coiled tubing in a workover include (i) not
having to "shut-in" the well during such operations, thereby allowing production
to continue and reducing the risk of formation damage to the well, (ii) the
ability to reel continuous coiled tubing in and out of a well significantly
faster than conventional pipe, which must be jointed and unjointed, (iii) the
ability to direct fluids into a wellbore with more precision, allowing for
localized stimulation treatments and providing a source of energy to power a
downhole motor or manipulate downhole tools and (iv) enhanced access to remote
or offshore fields due to the smaller size and mobility of a coiled tubing unit.
Recent technological improvements to coiled tubing have increased its
dependability and durability, expanding coiled tubing's potential uses and
markets.
The Company participates in the offshore stimulation market through the use
of skid-mounted pump units and through operation of several stimulation vessels
including the "Renaissance" and the "Vestfonn" in
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the North Sea, the "Sea Hero," "Tad Tide" and "Jan Tide" in the Gulf of Mexico
and the "BJ003" and "BJ007" on Lake Maracaibo in Venezuela. The Jan Tide and
BJ003 were commissioned in the spring of 1994 and the BJ007 in the summer of
1995.
The Company believes that as production continues to decline in key
producing fields of the U.S. and certain international regions, the demand for
fracturing and stimulation services is likely to increase. The Company has
recently increased its pressure pumping capabilities in certain international
markets.
OTHER
The Company's other businesses, including product and equipment sales for
cementing and stimulation services, as well as the following services, accounted
for approximately 14% of the Company's total revenue in 1995 (15% since the
Acquisition). Such products and equipment sales to customers are generally made
in the course of providing cementing and stimulation services to certain
customers and, other than the specialty chemical business, the Company generally
does not sell proprietary products to other companies involved in well
servicing.
CASING AND TUBULAR SERVICES. Casing services principally consist of
installing (or "running") pipe in a wellbore to protect the structural integrity
of the wellbore and to seal various zones in the well. These services are
primarily provided during the drilling and completion phases of a well. Tubular
services, which consist of running pipe inside the casing to improve the flow of
oil and gas, are principally provided during workovers. The Company expects that
workover activity and the demand for tubular services in the North Sea should
increase during at least the next several years as operators there attempt to
mitigate the decline in production from the North Sea's mature fields.
COMMISSIONING AND LEAK DETECTION SERVICES. Leak detection services,
provided through the Company's Comtec division, involve the inspection and
testing of the integrity of pipe connections in offshore drilling and production
platforms, onshore and offshore pipelines and industrial plants, and are
provided during the commissioning, decommissioning, installation or construction
stages of these infrastructures, as well as during routine maintenance checks.
As a result of the Piper Alpha disaster in 1988 and regulations issued
thereafter by the U.K. Department of Energy, the Company expects the demand for
these services to grow due to increased interest in environmental protection and
enhanced safety measures and the need to maintain, upgrade and replace aging
pipeline infrastructures.
SPECIALTY CHEMICAL SERVICES. Specialty chemical services, provided through
the Company's Unichem division acquired from Western, include corrosion and
scale inhibitors, as well as process chemicals and paraffin control for the
treatment of oil wells and for refining, gas processing plant and petrochemical
facility maintenance and flow improvement.
OPERATIONS
Pressure pumping services are provided to both land-based and offshore
customers on a 24-hour, on-call basis, through regional and district facilities
in over 70 locations worldwide, utilizing complex, truck- or skid-mounted
equipment designed and constructed for the particular pressure pumping service
furnished. After such equipment is moved to a well location, it is configured
with appropriate connections to perform the specific services required. The
mobility of this equipment permits the Company to provide pressure pumping
services to changing geographic areas. Management believes that the Company's
pressure pumping equipment is adequate to service both current and projected
levels of market activity in the near term.
The Company maintains a fleet of mobile cement blending and pumping
equipment for onshore operations. Offshore operations are performed with
skid-mounted cement pumping units. The Company has successfully utilized its
patented RAM (Recirculating Averaging Mixer) both for onshore applications and
as an offshore skid. In 1991, the Company introduced a sand control blender, the
Cyclone, which also has pressure pumping and fracturing applications. Responding
to its customers' monitoring needs, in 1992 the Company introduced its
computerized monitor which allows for real-time monitoring of the cementing
process.
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Principal materials utilized in the pressure pumping business include
cement, fracturing proppants, acid and bulk chemical additives. Generally, these
items are available from several suppliers, and the Company utilizes more than
one supplier for each item. The Company also produces certain of its specialized
products through company-owned blending facilities in Germany and Singapore.
Sufficient material inventories are maintained to allow the Company to provide
oncall services to its customers to whom the materials are resold in the course
of providing pressure pumping services. Repair parts and maintenance items for
pressure pumping equipment are carried in inventory to ensure continued
operations without significant downtime caused by parts shortages. The Company
has not experienced significant difficulty in obtaining necessary supplies of
these materials or replacing equipment parts and does not anticipate a shortage
in the foreseeable future.
The Company believes that coiled tubing and other materials utilized in
performing coiled tubing services are and will continue to be widely available
from a number of manufacturers. Although there are only two principal
manufacturers of the reels around which the coiled tubing is wrapped, the
Company is not aware of any difficulty in obtaining coiled tubing reels in the
past, and the Company anticipates no such difficulty in the future.
ENGINEERING AND SUPPORT SERVICES
The Company maintains a manufacturing and research and development center
near Houston, Texas. The Company's research and development organization is
divided into three distinct areas - Petroleum Engineering, Instrumentation
Engineering and Mechanical Engineering.
Petroleum Engineering. The Petroleum Engineering laboratory specializes in
designing fluids with enhanced performance characteristics in the fracturing,
acidizing and cementing operations (i.e., "frac fluids" and "cement slurries").
As fluids must perform under a wide range of downhole pressures, temperatures
and other conditions, this design process is a critical element in developing
products to meet customer needs.
In addition to fluids technology, the Company's Petroleum Engineering group
develops and supports a wide range of proprietary software utilized in the
monitoring of both cement and stimulation job parameters. This software,
combined with the Company's internally developed monitoring hardware, allows for
real-time job control as well as post-job analysis.
Instrumentation Engineering. The pumping services industry utilizes an
array of both monitoring and control instrumentation as an integral element of
providing cementing and stimulation services. The Company's monitoring and
control instrumentation, developed by its Instrumentation Engineering group,
complements its products and equipment and provides customers with desired
real-time monitoring of critical applications.
Mechanical Engineering. Though similarities exist between the major
competitors in the general design of their pumping equipment, the actual
engine/transmission configurations as well as the mixing and blending systems
differ significantly. Additionally, different approaches to the integrated
control systems result in equipment designs which are usually distinct in
performance characteristics for each competitor. The Company's Mechanical
Engineering group is responsible for the design and manufacturing of virtually
all of the Company's primary pumping and blending equipment. However, some
peripheral support equipment which is generic to the industry is purchased
externally. The Company's Mechanical Engineering group provides new product
design as well as support to the rebuilding and field maintenance functions.
MANUFACTURING
In addition to the engineering facility, the Company's technology and
research center houses its main equipment and instrumentation manufacturing
facility. This operation currently occupies approximately 65,000 square feet and
includes complete fabrication, engine and transmission rebuilding, pump
manufacturing and assembly capabilities. As a result of the Acquisition, the
Company acquired a research and engineering center located in The Woodlands,
north of Houston, Texas. The Company also has ancillary
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manufacturing facilities in Singapore and Scotland. The Company employs outside
vendors for some fabrication but is not dependent on any one source.
COMPETITION
Pressure Pumping Services. The Company competes with larger pumping service
companies, in particular the Halliburton Company ("Halliburton") and Dowell, a
division of Schlumberger Ltd. ("Dowell Schlumberger"), in all areas of the U.S.
in which the Company participates and in most international regions. In
addition, Nowsco Well Service Ltd. ("Nowsco") competes with the Company in the
U.S. and some international markets. Nowsco has recently been expanding its
presence in the U.S. market through acquisitions and increased capital
investment. Several smaller companies compete with the Company in certain areas
of the U.S. and in certain foreign countries. The principal methods of
competition which apply to the Company's business are its prices, service record
and reputation in the industry. While Halliburton and Dowell Schlumberger are
significantly larger in terms of overall revenues, the Company has a number one
or a number two share position in several markets, including many regions in the
United States, the North Sea and Latin America.
Other Services: The Company believes that it is one of the largest
suppliers of casing and tubular services in the U.K. North Sea and is expanding
such services in Latin America. The largest provider of casing and tubular
services in Europe is Weatherford Enterra, Inc. In the U.K., casing and tubular
services are typically provided under long-term contracts which limit the
opportunities to compete for business until the end of the contract term. In
continental Europe, shorter-term contracts are typically available for bid by
the provider of casing and tubular services. The Company believes it and Nowsco
are the largest suppliers of commissioning and leak detection services in the
U.K. North Sea. In specialty chemical services, there are several major chemical
suppliers significantly larger than the Company's Unichem division.
MARKETS AND CUSTOMERS
Demand for the Company's services and products depends primarily upon the
number of oil and gas wells being drilled, the depth and drilling conditions of
such wells, the number of well completions and the level of workover activity
worldwide.
The Company's principal customers consist of major and independent oil and
gas producing companies. During 1995, the Company provided oilfield services to
over 2,500 customers, none of which accounted for more than 5% of consolidated
revenues. While the loss of certain of the Company's largest customers could
have a material adverse effect on Company revenues and operating results in the
near term, management believes the Company would be able to obtain other
customers for its services in the event it lost any of its largest customers.
In both the U.S. and internationally, there has been a continuing trend by
oil and gas companies toward "alliances" with the service companies. These
alliances take various forms including packaged or integrated services, single
source suppliers and turnkey agreements. During 1995, approximately $117 million
of the Company's revenues were generated under such alliances.
United States. The Company provides its pumping services to its U.S.
customers through a network of over 40 locations, a majority of which offer both
cementing and stimulation services. Demand for the Company's services in the
U.S. is primarily driven by oil and natural gas drilling activity, which is
affected by the current and anticipated prices of oil and natural gas. Due to
weak energy prices and lower-cost sources of oil internationally, drilling
activity in the U.S. has declined more than 75% from its peak in 1981. Record
low drilling activity levels were experienced in 1986 and 1992. As a result,
pumping service companies have been unable to recapitalize their aging U.S.
fleets due to the inability, under current market conditions, to generate
adequate returns on new capital investments. Management believes it is important
to operate with a greater "critical mass" in key U.S. markets to improve returns
in this environment. This conclusion led to the decision to withdraw from
certain low activity areas in the past several years and to consolidate the
Company's operations with those acquired from Western, which had a larger
presence in the U.S.
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International. The Company operates in over 30 countries in the major
international oil and natural gas producing areas of Latin America, Europe,
Africa, Southeast Asia and the Middle East. The Company generally provides
services to its international customers through wholly-owned foreign
subsidiaries. Additionally, the Company holds certain controlling and minority
interests in joint venture companies, through which it conducts a portion of its
international operations. For geographic information, see Note 8 of the Notes to
Consolidated Financial Statements.
The international market is somewhat less volatile than the U.S. market
despite energy price fluctuations. Due to the significant investment and
complexity in international projects, management believes drilling decisions
relating to such projects tend to be evaluated and monitored with a longer-term
perspective with regard to oil and gas pricing. Additionally, the international
market is dominated by major oil companies and national oil companies which tend
to have different objectives and more operating flexibility than the typical
independent producer in the U.S. International activities have been increasingly
important to the Company's results of operations since 1992, when it implemented
a strategy to expand its international presence.
In general, the Company operates in those international markets where it
can achieve and maintain both a significant share position and achieve and
maintain an attractive return on its investment. The Company's major
international revenue and income producing operations are in the North Sea in
the European market; Indonesia and Malaysia in the Southeast Asian market; and
Argentina, Venezuela, Ecuador and Colombia in the Latin American market. Foreign
operations are subject to special risks that can materially affect the sales and
profits of the Company, including currency exchange rate fluctuations, the
impact of inflation, governmental expropriation, exchange controls, political
instability and other risks.
EMPLOYEES
At September 30, 1995, the Company had a total of 4,777 employees.
Approximately 37% of the Company's employees are employed outside the United
States.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's business is affected both directly and indirectly by
governmental regulations relating to the oil and gas industry in general, as
well as environmental and safety regulations which have specific application to
the Company's business.
The Company, through the routine course of providing its services, handles
and stores bulk quantities of hazardous materials. In addition, leak detection
services involve the inspection and testing of facilities for leaks of hazardous
or volatile substances. If leaks or spills of hazardous materials handled,
transported or stored by the Company occur, the Company may be responsible under
applicable environmental laws for costs of remediating damage to the surface,
sub-surface or aquifers incurred in connection with such occurrence.
Accordingly, the Company has implemented and continues to implement various
procedures for the handling and disposal of hazardous materials. Such procedures
are designed to minimize the occurrence of spills or leaks of these materials.
The Company has implemented and continues to implement various procedures
to further assure its compliance with environmental regulations. Such procedures
generally pertain to the operation of underground storage tanks, disposal of
empty chemical drums, improvement to acid and wastewater handling facilities and
cleaning of certain areas at the Company's facilities. The estimated cost for
such procedures, including other environmental investigations and remedial
actions, is approximately $14 million which will be distributed over a period of
several years, for which the Company has provided appropriate reserves. In
addition, the Company maintains insurance for certain environmental liabilities
which the Company believes is reasonable based on its knowledge of the industry.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," imposes liability without regard to fault or the
legality of the original conduct, on certain classes of persons that contributed
to the release of a "hazardous substance" into the environment. Certain disposal
facilities used by the Company or its predecessors have been investigated under
state and federal superfund
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statutes, and the Company has been named as a potentially responsible party for
cleanup at 10 such sites. Although the Company's level of involvement varies at
each site, in general, the Company is one of numerous parties named and will be
obligated to pay an allocated share of the cleanup costs. While it is not
feasible to predict the outcome of these matters with certainty, management is
of the opinion that their ultimate resolution should not have a material effect
on the Company's operations or financial position.
RESEARCH AND DEVELOPMENT; PATENTS
Research and development activities are directed primarily toward
improvement of existing products and services and the design of new products and
processes to meet specific customer needs. Research and development expenses for
each of the three fiscal years ended September 30, 1995 were $6,801,000,
$6,421,000 and $6,500,000, respectively.
The Company currently holds numerous patents relating to products and
equipment used in its pumping services business. While such patents, in the
aggregate, are important to maintaining the Company's competitive position, no
single patent is considered to be of a critical or essential nature.
Additionally, the Company operates under various license arrangements,
generally ranging from 10 to 20 years in duration, relating to certain products
or techniques. None of these license arrangements is of a material nature.
To remain competitive, the Company devotes significant resources to
developing technological improvements to its products. In 1991, the Company
introduced a borate based fracturing fluid, Spectra Frac G(R), which is being
widely used in the U.S. stimulation market and the North Sea. In 1993, this
product was complemented with two additional fracturing fluids, Spartan FracSM
and Medallion FracSM, which have expanded the Company's services line offering
to cover a broader range of economic and downhole design variables. These
products replaced several products previously made available to customers.
During 1994, the Company commercialized a proprietary enzyme chemistry used in
conjunction with the three fracturing fluids. These "enzyme breakers"
significantly enhance the production of oil and gas in a wide range of wells. In
1991, the Company introduced its "Cyclone" blender which, along with Western's
completion tool technology, have helped address the growing sand control and
frac pack markets in the Gulf of Mexico and the North Sea. The Company believes
that these products and equipment have enabled the Company to maintain or
increase its market share in the United States, the Gulf of Mexico and the North
Sea.
In 1995, the Company developed Sandstone Acid(TM), a matrix acidizing
chemistry used in sandstone formations. While still in the early stages of
testing, management believes this product offers significant advantages over
conventional acidizing methods in sandstone reservoirs. The Company intends to
continue to devote significant resources to its research and development
efforts.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company and their positions and ages
are as follows:
OFFICE
NAME AGE POSITION WITH THE COMPANY HELD SINCE
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J. W. Stewart.................... 51 Chairman of the Board, President and Chief 1986
Executive Officer
Michael McShane.................. 41 Vice President -- Finance and Chief 1987
Financial Officer
David Dunlap..................... 34 Vice President -- International Operations 1995
Thomas H. Koops.................. 49 Vice President -- Technology and Logistics 1988
Margaret B. Shannon.............. 46 Vice President -- General Counsel 1994
Kenneth A. Williams.............. 45 Vice President -- North American Operations 1991
Matthew D. Fitzgerald............ 38 Controller 1989
Taylor M. Whichard............... 37 Treasurer 1992
Stephen A. Wright................ 48 Director of Human Resources 1987
Mr. Stewart joined Hughes Tool Company in 1969 as Project Engineer. He
served as Vice President -- Legal and Secretary of Hughes Tool Company and as
Vice President -- Operations for a predecessor of the Company prior to being
named President of the Company in 1986.
Mr. McShane joined the Company in 1987 from Reed Tool Company, an oilfield
tool company, where he was employed for seven years. At Reed Tool Company he
held various financial management positions including Corporate Controller and
Regional Controller of Far East Operations.
Mr. Dunlap joined the Company in 1984 as a District Engineer and was named
Vice President -- International Operations in December 1995. He has previously
served as Vice President -- Sales for the Coastal Division of North America and
U.S. Sales and Marketing Manager.
Mr. Koops joined the Company as Manager -- Products and Technical Services
in 1976, prior to being named Vice President -- Manufacturing and Logistics of
the Company in 1988 and to his current position in 1992.
Ms. Shannon joined the Company in 1994 as Vice President -- General Counsel
from the law firm of Andrews & Kurth L.L.P. where she had been a partner since
1984.
Mr. Williams joined the Company in 1973 and has since held various
positions in the U.S. operations. Prior to being named Vice President -- North
American Operations in 1991, he served as Region Manager -- Western U.S. and
Canada.
Mr. Fitzgerald joined the Company as Controller in 1989 from Baker Hughes
Incorporated, an oil service company, where he was the Director of Corporate
Audit. Prior thereto, he was a Senior Manager with the certified public
accounting firm of Ernst & Whinney.
Mr. Whichard joined the Company as Tax and Treasury Manager in 1989 from
Weatherford International, an oil service company, where he was the Tax Manager.
Prior to being named Treasurer in 1992, he served in various positions including
Tax Director and Assistant Treasurer.
Mr. Wright joined the Company as Manager of Compensation and Benefits in
1985 from Global Marine Inc., an offshore drilling company, and assumed his
current position with the Company in 1987.
ITEM 2. PROPERTIES
The Company's properties consist primarily of pressure pumping and blending
units and related support equipment such as bulk storage and transport units.
The Company's pressure pumping and blending fleet is
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owned and unencumbered. The Company's tractor fleet, more than half of which are
leased, is used to transport the pumping and blending units. The Company's
domestic light duty truck fleet is also leased, whereas a majority of trucks in
the international light duty truck fleet are owned by the Company.
The Company both owns and leases regional and district facilities from
which pressure pumping services and other oilfield services are provided to
land-based and offshore customers. The Company's principal executive offices in
Houston, Texas are leased. The technology and research center located near
Houston, Texas is owned by the Company, as are blending facilities located in
Germany and Singapore. The Company operates several stimulation vessels,
including the Renaissance and the Vestfonn in the North Sea and the BJ003 and
BJ007 in Venezuela which are owned, and the Sea Hero, Tad Tide and Jan Tide in
the Gulf of Mexico on which the hulls are leased. For additional information
with respect to the Company's lease commitments, see Note 10 of the Notes to
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company, through performance of its service operations, is sometimes
named as a defendant in litigation, usually relating to claims for bodily
injuries or property damage (including claims for well or reservoir damage). The
Company maintains insurance coverage against such claims to the extent deemed
prudent by management. The Company believes that there are no existing claims of
a potentially material adverse nature for which it has not already provided
appropriate accruals.
Shortly after the public announcement in September 1994 of the proposed
acquisition of Western by the Company (the "Proposed Acquisition"), four actions
were commenced against Western and its directors in the Delaware Court of
Chancery, styled Croyden Associates v. Sheldon R. Erikson, et al., and The
Western Company of North America, C.A. No. 13740, filed September 13, 1994;
Reggie P. Judice v. Sheldon R. Erikson, et al., and The Western Company of North
America, C.A. No. 13742, filed September 14, 1994; William T. Henderson v.
Sheldon R. Erikson, et al., and The Western Company of North America, C.A. No.
13743, filed September 14, 1994, and Russ Seger v. Sheldon R. Erikson, et al.,
and The Western Company of North America, C.A. No. 13769, filed September 27,
1994. The allegations in these lawsuits, all of which were filed as alleged
class action complaints, are substantially the same and relate to the rejection
of the Proposed Acquisition by the Board of Directors of Western. The purported
class of plaintiffs on whose behalf the class action complaints were filed is
all stockholders of Western. Among the claims included in these lawsuits is the
claim that, by failing to accept the Proposed Acquisition, Western and its
directors breached their fiduciary duties to the stockholders of Western. In
their complaints, the plaintiffs sought equitable relief to compel Western and
its directors to perform their fiduciary duties, as construed by the plaintiffs,
and unspecified damages. Three former directors of Western, Michael E. Patrick,
William J. Johnson, and David A.B. Brown, are now directors of the Company. No
significant developments have occurred in any of these actions since the
consummation of the Acquisition.
As a result of the Acquisition, the Company assumed responsibility for
certain claims and proceedings made against Western in connection with its
business. Some, but not all, of such claims and proceedings will continue to be
covered under insurance policies of Western that were in place at the time of
the merger. Although the outcome of the claims and proceedings against the
Company (including Western) cannot be predicted with certainty, management
believes that there are no existing claims or proceedings that are likely to
have a materially adverse effect on the Company's financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for stockholders' vote during the fourth quarter
of the fiscal year ended September 30, 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company began trading on The New York Stock
Exchange in July 1990 under the symbol "BJS" and in April 1995, Warrants to
purchase common stock ("Warrants") under the symbol "BJSW". At December 8, 1995
there were approximately 640 holders of record of the Company's Common Stock and
1,140 holders of record of the Warrants.
The following table sets forth for the periods indicated the high and low
sales prices per share for the Company's Common Stock and Warrants reported on
the NYSE composite tape.
COMMON STOCK WARRANT
PRICE RANGE PRICE RANGE
--------------- ------------
HIGH LOW HIGH LOW
----- ----- ---- ---
Fiscal 1994
1st Quarter..................................... 26.50 18.00
2nd Quarter..................................... 22.50 17.50
3rd Quarter..................................... 22.38 17.38
4th Quarter..................................... 22.13 18.25
Fiscal 1995
1st Quarter..................................... 21.00 16.25
2nd Quarter..................................... 20.50 15.50
3rd Quarter..................................... 26.00 20.38 5.63 3.63
4th Quarter..................................... 27.38 22.63 6.88 4.13
Fiscal 1996
1st Quarter (through December 8, 1995).......... 27.00 20.50 6.25 3.00
Since its initial public offering in 1990, BJ Services has not paid any
cash dividends to its stockholders. The Company expects that, for the
foreseeable future, any earnings will be retained for the development of the
Company's business and, accordingly, no dividends will be declared on the Common
Stock.
On August 1, 1991, the Company issued $30.0 million of 9.2% Notes Due
August 1, 1998 (the "Notes") pursuant to note agreements among the Company, the
Company's subsidiaries and the purchasers of the Notes. The principal amount of
the Notes is payable in five annual installments from August 1, 1994 through
August 1, 1998, and interest is payable quarterly.
On April 14, 1995, the company canceled its existing credit facility and
the outstanding borrowings were repaid with funds from a committed, unsecured
credit facility ("Bank Credit Facility") executed to accommodate the
Acquisition. The Bank Credit Facility consists of a five-year $175.0 million
revolver and a six-year $225.0 million term loan, providing an aggregate of
$400.0 million in available principal borrowings to the Company.
Subsequent to the execution of the Bank Credit Facility, the Notes were
amended to incorporate provisions contained in the Bank Credit Facility. The
Bank Credit Facility and the Notes contain a restriction on dividend payments
pursuant to which the Company is prohibited from declaring or paying dividends
or other distributions on, or purchasing or redeeming any shares of or rights
with respect to, the Company's capital stock (each a "Restricted Payment" and
collectively, "Restricted Payments") when the Company's debt to capitalization
ratio exceeds 35%, except that the Company may declare and make dividend
payments or other distributions payable solely in its capital stock. The Company
may make Restricted Payments if (i) there exists no default and such payment
would not result in an Event of Default, and (ii) the debt to capitalization is
equal to or less than 35% immediately prior to and after giving effect to such
payment, subject to the following limitations: (a) cash dividends paid by the
company during any fiscal quarter shall not exceed an amount equal to 50% of
Consolidated Net Income (as defined) for the preceding four fiscal quarters; and
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(b) the aggregate dollar amount of all Restricted Payments, including cash
dividends, shall not exceed the Available Amount, defined in the Bank Credit
Facility as the amount equal to (i) 50% of Consolidated Net Income on a
cumulative basis since the Execution Date plus (ii) 50% of the aggregate net
cash proceeds from the issuance or sale after the Execution Date of shares of
the company's capital stock.
Each outstanding share of Common Stock includes one preferred share
purchase right ("Right"). Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series Two Junior Participating
Preferred Stock ("Preferred Stock"), at a price of $75 per one one-hundredth of
a share (the "Purchase Price"), subject to adjustment under certain
circumstances. Holders of Preferred Stock are entitled to receive, when, as and
if declared by the Board of Directors, (a) a dividend in an amount per share
equal to, subject to certain adjustments, 100 times the aggregate per share
amount of all cash dividends and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions (other than a
dividend payable in shares of Common Stock or other capital stock of the Company
or a distribution of rights or warrants to acquire any such share, including any
debt security convertible into or exchangeable for such share at a price less
than the current market price of such share) declared on the Common Stock and
(b) a preferential cash dividend, if any, on the tenth day of March, June,
September and December of each year commencing on the first such quarterly
dividend payment date after the first issuance of a share or fraction of a share
of Preferred Stock, in an amount equal to $1.00 per share of Preferred Stock
less the per share amount of all cash dividends declared on the Preferred Stock
pursuant to clause (a) of this sentence since the immediately preceding
quarterly dividend payment date, or, with respect to the first quarterly
dividend payment date, since the first issuance of any share or fraction of
share of Preferred Stock. The foregoing dividend amounts are subject to
adjustment in the event of any stock dividend, stock split or combination with
respect to the Common Stock. The holders of Preferred Stock are not entitled to
the payment of interest with respect to accrued but unpaid dividends. No shares
of Preferred Stock have been issued by the Company to date.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical financial data
of the Company. The selected operating and financial position data as of and for
each of the five years in the period ended September 30, 1995 have been derived
from the audited consolidated financial statements of the Company. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto which are included elsewhere herein.
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1995(1) 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA:
Revenue................................... $633,660 $434,476 $394,363 $330,028 $390,296
Operating expenses, excluding unusual
charges and goodwill amortization...... 592,905 414,493 373,934 316,305 358,475
Goodwill amortization..................... 3,266 1,298 691
Unusual charges(2)........................ 17,200 15,700
Operating income (loss)................... 20,289 18,685 19,738 (1,977) 31,821
Interest expense.......................... (15,164) (7,383) (5,414) (2,977) (3,135)
Other income -- net....................... 2,734 877 2,014 297 1,736
Income tax expense (benefit).............. (1,102) 2,006 1,593 (3,657) 5,170
Income (loss) before cumulative effect of
accounting change...................... 9,889 10,770 14,561 (1,104) 24,422
Cumulative effect of change in accounting
principle, net of tax(3)............... (10,400)
Net income (loss)......................... 9,889 370 14,561 (1,104) 24,422
Net income (loss) per share............... 0.46 0.02 0.94 (0.08) 1.88
Depreciation and amortization(4).......... 42,064 25,335 24,170 12,742 14,497
Capital expenditures(5)................... 30,966 39,345 37,350 26,197 34,588
FINANCIAL POSITION DATA (AT END OF PERIOD):
Property, net............................. $416,810 $198,844 $183,962 $171,420 $134,139
Total assets.............................. 989,683 410,066 369,531 328,799 265,686
Long-term debt, excluding current
maturities............................. 259,566 74,700 84,500 55,500 31,000
Stockholders' equity...................... 466,795 189,927 187,132 134,794 135,307
- ---------------
(1) Includes the effect of the acquisition of Western by the Company since April
1, 1995, which was accounted for as a purchase in accordance with generally
accepted accounting principles. See Note 4 of the Notes to Consolidated
Financial Statements.
(2) Unusual charges for the fiscal year ended September 30, 1995 represent
nonrecurring costs associated with the acquisition of Western, including
writedown of idle facilities, severance of BJ employees and other
merger-related costs. Unusual charges for 1992 primarily represent a
provision for restructuring the Company's North American operations. See
Note 3 of the Notes to Consolidated Financial Statements.
(3) In the fiscal year ended September 30, 1994, the Company changed its method
of accounting for postretirement benefits other than pensions. See Note 9
of the Notes to Consolidated Financial Statements.
(4) In October 1991, BJ Services revised the estimated salvage values and
remaining useful lives of certain of its U.S. pumping services equipment to
more closely reflect expected remaining lives. The effect of this change in
accounting estimate resulted in a decrease of $2.9 million, or $.22 per
share, in BJ Services' net loss for 1992.
(5) Excluding acquisitions of businesses.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's operations are primarily driven by the number of oil and 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 is especially true in the United States, where the Company generates
approximately 60% of its revenues after giving effect to the Acquisition.
Due to weak energy prices 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 and 1992.
As a result, pumping service companies have been unable to recapitalize their
aging United States fleets due to the inability, under current market
conditions, to generate adequate returns on new capital investments. The Company
believes it is important to operate with a greater "critical mass" in key U.S.
markets to improve returns in this environment. This conclusion led to the
decision to withdraw from certain low activity areas in the past several years
and to consolidate its remaining operations with those acquired in April 1995
from Western, which had a larger presence in the United States.
The rig count in the United States averaged 739 active drilling rigs during
1995, a 6% and 2% decline, compared with 1994 and 1993, respectively, and the
second lowest count on record. Most of the activity decline was the result of a
reduction in drilling for natural gas. The average rig count for rigs drilling
for natural gas was down 5% during 1995 and 8% during the most recent quarter.
It is anticipated that natural gas drilling activity will remain weak over at
least the next quarter.
While international (excluding Canada) drilling activity has historically
been less volatile than domestic drilling activity, the international active rig
count had declined in each of the last four years prior to fiscal 1995 due to
weak oil prices and economic and political instability in certain overseas
countries. The most significant declines in international drilling activity
occurred in the North Sea, Italy, Nigeria and Mexico. The activity decline has
leveled off somewhat with the active rig count for 1995 up slightly from 1994.
Management expects international drilling activity to increase in 1996 on the
strength of development work in Latin America, especially Argentina and
Venezuela, and renewed exploration programs in the U.K. North Sea.
In both the U.S. and internationally, there has been a continuing trend by
oil and gas companies toward "alliances" with the service companies. These
alliances take various forms including packaged or integrated services, single
source suppliers and turnkey agreements. During 1995, approximately $117 million
of the Company's revenues were generated under such alliances.
EXPANSIONS AND ACQUISITIONS
Management believes the primary opportunities for geographic and product
expansion remain in international markets. As a result, other than the
Acquisition, the Company's capital spending and expansion efforts have been
primarily focused outside of the U.S. The Company's expansion efforts during the
past three years have included the expansion of pumping services into several
key international markets, including Saudi Arabia, Qatar and Vietnam; expanding
tubular services and commissioning and leak detection services into geographic
regions outside the North Sea; adding additional pumping service capacity in key
Latin American markets; and the acquisitions of Norsk Bronnservice A/S ("NBS")
in April 1993, Italog S.p.A ("SIAT") in July 1993, and the remaining 50%
ownership of its joint venture in Egypt in February 1994.
On April 13, 1994, the Company completed the Acquisition for a total
purchase price of $511.4 million (including transaction costs of $7.2 million),
paid approximately half in cash and half in shares of Company common stock and
warrants to purchase common stock. The Acquisition provides the Company with a
greater "critical mass" with which to compete in U.S. and international markets
and the opportunity to realize significant consolidation benefits. The
Acquisition is expected to add revenues of up to 70-80% to the Company's
previous revenue base and has more than doubled the Company's U.S. revenue base
beginning in the June 1995 quarter. In addition, it is estimated that at least
$40 million of overhead and redundant operating costs will be eliminated
annually by combining the two companies.
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RESULTS OF OPERATIONS
The following table sets forth selected key operating statistics reflecting
industry rig count and the Company's financial results:
YEAR ENDED SEPTEMBER 30,
--------------------------
1995 1994 1993
------ ------ ------
Average active rigs:(1)
U.S............................................................. 739 784 755
International (excluding Canada)................................ 750 747 783
Revenue per rig (in thousands).................................... $425.6 $283.8 $256.4
Revenue per employee (in thousands)............................... $168.3 $160.4 $151.4
Percentage of gross profit to revenue(2).......................... 15.1% 13.1% 14.3%
Percentage of marketing expense to revenue........................ 4.2% 3.3% 3.3%
Percentage of general and administrative expense to revenue....... 4.5% 5.2% 5.8%
- ---------------
(1) Industry estimate of average active rigs published by Baker Hughes
Incorporated.
(2) Gross profit represents Company revenue less cost of sales and services and
research and engineering expenses.
Revenue: Revenue increased by 10% in 1994 and 46% during 1995, the third
consecutive yearly increase. The increase in 1994 was driven primarily by the
Company's international expansion program and an increase in U.S. natural gas
drilling and stimulation activity. In 1995, the increase was due primarily to
continued growth of the international expansion, increased activity in Latin
America and the Acquisition.
U.S. revenues increased by 6% and 67% in 1994 and 1995, respectively. The
1994 increase was due primarily to a 12% increase in the active rig count for
gas-related drilling, partially offset by a 4% decline in the rig count for
oil-related drilling. In addition, customer alliances contributed an additional
$14.5 million in revenues during the year. During the first six months of 1995
(prior to the Acquisition), the Company's revenues increased 5% over the same
period in 1994 due primarily to the increased placement of cementing units and
the addition of a stimulation vessel in the Gulf of Mexico. With the
Acquisition, the Company's U.S. revenues over the balance of the year more than
doubled, accounting for the remainder of the 67% increase for 1995.
In the last quarter of 1995, continued weak natural gas prices caused many
of the Company's customers to significantly curtail their drilling activity.
During this period, management believes it retained most of the key customers of
both the Company and Western. However, since the former Western operations were
more heavily concentrated in the natural gas regions of the United States, the
decline in natural gas drilling activity significantly impacted the Company's
operations. While pricing for the Company's U.S. pumping services remained
relatively stable during 1995, pricing remains depressed compared to levels
realized in the past. Management expects these competitive pricing conditions to
remain until a significant increase in drilling activity occurs.
International revenues increased by 14% and 27% during 1994 and 1995,
respectively. The increases were primarily attributable to three factors: (a)
continued geographic expansion of the Company's tubular services, and
commissioning and leak detection service lines; (b) significant increase in
Latin America business; and (c) acquisitions. The tubular services and
commissioning and leak detection product lines have now been expanded into 13
countries, including parts of the Middle East, Africa, South America, Southeast
Asia and Australia. Most of the revenue growth in Latin America (up 36% and 46%
in 1994 and 1995, respectively) was a result of increased cementing and
stimulation activity with both private and national oil and gas companies in
Argentina, and the addition of a stimulation vessel in 1994 and a coiled tubing
barge in 1995 to service the Lake Maracaibo, Venezuela market. The acquisitions
which contributed to the Company's revenue growth were NBS in April 1993, SIAT
in July 1993, the former Egypt joint venture in February 1994, and Western in
April 1995, which added international operations in Indonesia, Hungary and
Nigeria. These acquisitions
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added approximately $14 million and $30 million in international revenue during
1994 and 1995, respectively, compared with 1993.
Operating Income: Operating income decreased by $1.1 million in 1994 and
increased by $1.6 million in 1995. In 1994, the decrease was due primarily to
lower margins on the Company's North Sea stimulation business caused by lower
activity and pricing, and a decline in U.S. pricing. In 1995, the increase was
primarily due to the revenue increases described above partially offset by a
$17.2 million unusual charge incurred in 1995. The unusual charge was taken in
conjunction with a consolidation program that is designed to improve
efficiencies and reduce costs resulting from the Acquisition. Included in the
unusual charge is an adjustment to the carrying value of duplicate operating
facilities, severance and related benefit costs, benefits due under agreements
covering the Company's executives which were triggered as a result of the
Acquisition, and legal and other costs that would not have been incurred had the
Acquisition not occurred.
The cost of sales and services as a percentage of revenue decreased to
83.0% in 1995 as compared to 84.9% and 83.4% in 1994 and 1993, respectively. The
increase from 1993 to 1994 was due primarily to a decline in U.S. pricing, which
negatively impacted margins by $5.5 million, and lower margins on the Company's
North Sea stimulation business caused by lower activity and pricing. The
reduction in 1995 was primarily as a result of cost reduction efforts
implemented after the Acquisition and the economies of scale by having a larger
U.S. operation.
Other operating expenses, excluding the unusual charge and goodwill
amortization, increased by 1% and 47% in 1994 and 1995, respectively. The 1994
increase was attributable to higher marketing expenses from international
expansion efforts and corporate marketing and alliance programs, partially
offset by lower research and engineering and general and administrative expenses
due to the Company's continued overhead reduction efforts. The 1995 increase was
primarily attributable to overhead from the former Western operations, along
with increased marketing expenses related to international expansions. Marketing
expenses are expected to increase as a percentage of sales due to the higher
concentration of Western's revenues earned in the United States, which requires
a relatively greater marketing effort. The increase in goodwill amortization
resulted from the aforementioned acquisitions, most significantly Western, which
will result in annual goodwill amortization expense of $4.4 million.
Other: Interest expense increased by $2.0 million and $7.8 million in 1994
and 1995, respectively. The 1994 increase resulted from higher interest rates
and increased borrowings to fund the Company's international expansions and
acquisitions. While interest rates continued to increase marginally during 1995,
the additional interest expense is primarily attributed to borrowings incurred
to finance the Acquisition. See "Financial Condition -- Capital Resources and
Liquidity" and Notes 4 and 5 of the Notes to Consolidated Financial Statements.
Other income was a net gain in both 1994 and 1995 due to nonrecurring gains
on asset sales and, in 1995, $1.4 million of royalty income from one of the
Company's proprietary products. Such royalty income is expected to decline in
1996 due to a reduction in use by the licensee.
Primarily as a result of profitability in international jurisdictions where
the statutory rate is below the U.S. rate and the availability of tax benefits
from the Company's reorganization pursuant to its initial public offering in
1990, the Company's effective tax rate remained below the U.S. statutory rate
during 1995. Additionally, certain nonrecurring benefits have reduced the
Company's effective tax rate, including $1.3 million in 1993 resulting from a
change in the valuation reserve for net operating losses and from changes in tax
laws in the U.S. and other countries, $1.9 million in 1994 from a change in the
valuation reserve for net operating losses and $1.5 million in 1995 from the
favorable settlement of a tax audit and from tax losses attributable to foreign
exchange fluctuations in certain international jurisdictions.
Minority interest expense declined in both 1994 and 1995, as a result of
lower profitability of the Company's Southeast Asian joint venture and losses by
the Company's Nigerian joint venture. Results in 1994 include a $16.0 million
($10.4 million after tax) charge for the cumulative effect of an accounting
change for retiree health benefits. See Note 9 of the Notes to Consolidated
Financial Statements.
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FINANCIAL CONDITION
Capital Resources and Liquidity: Cash flows from operating activities
increased to $26.3 million in 1994 and $39.4 in 1995 as compared to cash used in
operating activities of $.3 million in 1993. The 1994 improvement resulted
primarily from a smaller increase in both receivables and other current assets
and liabilities compared with 1993. In 1995, cash flows from operating
activities increased primarily as a result of higher profitability and higher
noncash expenses during the period.
Management strives to maintain low cash balances while utilizing available
credit facilities to meet the Company's capital needs. Excess cash generated is
used to pay down outstanding borrowings. On April 14, 1995 the Company replaced
its existing credit facility with the Bank Credit Facility, executed to
accommodate the Acquisition. The Bank Credit Facility consists of a five-year
$175.0 million revolving credit facility and a six-year $225.0 million term
loan, providing an aggregate of $400.0 million in available principal borrowings
to the Company. At September 30, 1994, borrowings outstanding under the Bank
Credit Facility amounted to $275.0 million consisting of the $225.0 million term
loan and $50.0 million borrowed under the revolver.
The outstanding balance of the Company's 9.2% Notes, issued in 1991, was
$18.0 million at September 30, 1995. Principal reductions of $6.0 million are
required annually each August until maturity on August 1, 1998.
The Company's interest-bearing debt represented 38.9% of its total
capitalization at September 30, 1995, compared to 36.3% at the previous fiscal
year-end. The increase reflects borrowings used to acquire Western. The
Company's Bank Credit Facility and 9.2% Notes contain various customary
covenants, including the maintenance of certain profitability and solvency
ratios and restriction on dividend payments. Management believes that the Bank
Credit Facility, combined with other discretionary credit facilities and cash
flow from operations, will provide the Company with sufficient capital resources
and liquidity to manage its routine operations and fund projected capital
expenditures.
At September 30, 1995, the Company had approximately $512 million of U.S.
tax net operating loss carryforwards expiring between 2000 and 2010. With the
Acquisition, the Company acquired approximately $375 million of tax net
operating loss carryforwards, subject to certain limitations, expiring between
2000 and 2008. Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), the Company is required to record a
deferred tax asset for the future tax benefit of these tax net operating loss
carryforwards, as well as other items, if realization is "more likely than not."
As previously discussed, the Acquisition gives the Company a greater "critical
mass" with which to compete in the U.S. as it has more than doubled the
Company's U.S. revenue base. In addition, with the combination of the Company
and Western, the Company expects to realize significant consolidation benefits.
Management estimates that approximately $40 million of overhead and redundant
operating costs will be eliminated annually as a result of the combination of
the two companies. Based on the weight of the available evidence, management has
concluded that the Company's future U.S. taxable income will be sufficient over
the remaining carryforward periods to realize the tax benefits represented by
approximately $332 million of tax net operating loss carryforwards acquired with
Western and generated by the Company's operations prior to the Acquisition. The
tax benefits resulting from the Acquisition have been included in the $84
million net deferred tax asset recognized in the purchase price allocation at
the acquisition date. Valuation allowances have been established for the
benefits of the tax net operating loss carryforwards that are estimated to
expire prior to their utilization.
Requirements for Capital: Excluding acquisitions, capital expenditures
during 1995 were $31.0 million, or $8.4 million below 1994 spending. The current
year's spending relates primarily to offshore operations both in the United
States and abroad, and international growth opportunities, including geographic
expansions and expansions of services. The prior year's spending included
approximately $11 million for the construction of two offshore stimulation
vessels. Investing activities in the fiscal year ended September 30, 1995
included $5.4 million of proceeds from the sale of a duplicate facility and
other disposals of assets.
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Capital expenditures for fiscal 1996 are projected to be approximately $45
million, excluding acquisitions, and are expected to include spending for
continued geographic expansions of all service lines, construction or upgrading
of at least two offshore vessels, additional capacity in certain high margin
locations and normal levels of replacement capital. The actual amount of fiscal
1996 capital expenditures will be primarily dependent upon the availability of
expansion opportunities and will 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders of BJ Services Company:
We have audited the accompanying consolidated statements of financial position
of BJ Services Company and its subsidiaries as of September 30, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1995.
Our audits also included the financial statement schedule listed at Item 14.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of BJ Services Company and its
subsidiaries at September 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1995 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As described in Note 9 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than pensions
effective October 1, 1993 to conform with Statement of Financial Accounting
Standards No. 106.
DELOITTE & TOUCHE LLP
Houston, Texas
November 21, 1995
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BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Revenue.................................................... $633,660 $434,476 $394,363
Operating Expenses:
Cost of sales and services............................... 525,859 368,994 329,042
Research and engineering................................. 12,299 8,621 9,098
Marketing................................................ 26,429 14,169 12,969
General and administrative............................... 28,318 22,709 22,825
Goodwill amortization.................................... 3,266 1,298 691
Unusual charge........................................... 17,200
-------- -------- --------
Total operating expenses................................. 613,371 415,791 374,625
-------- -------- --------
Operating income........................................... 20,289 18,685 19,738
Interest expense........................................... (15,164) (7,383) (5,414)
Interest income............................................ 899 729 500
Other income -- net........................................ 2,734 877 2,014
-------- -------- --------
Income before income taxes, minority interest and
cumulative effect of accounting change................... 8,758 12,908 16,838
Income tax expense (benefit)............................... (1,102) 2,006 1,593
-------- -------- --------
Income before minority interest and cumulative effect of
accounting change........................................ 9,860 10,902 15,245
Minority interest.......................................... (29) 132 684
-------- -------- --------
Income before cumulative effect of accounting change....... 9,889 10,770 14,561
Cumulative effect of change in accounting principle, net of
tax benefit of $5,600,000................................ (10,400)
-------- -------- --------
Net income....................................... $ 9,889 $ 370 $ 14,561
======== ======== ========
Net Income Per Share:
Income per share before cumulative effect of accounting
change................................................ $ .46 $ .69 $ .94
Cumulative effect of change in accounting principle, net
of tax................................................ (.67)
-------- -------- --------
Net income per share............................. $ .46 $ .02 $ .94
======== ======== ========
Weighted average shares outstanding.............. 21,376 15,665 15,456
======== ======== ========
See Notes to Consolidated Financial Statements
20
21
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
SEPTEMBER 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
Current Assets:
Cash and cash equivalents...................................................... $ 1,842 $ 3,218
Receivables, less allowance for doubtful accounts: 1995, $7,483,000; 1994,
$2,184,000................................................................... 168,771 103,754
Inventories:
Finished goods............................................................... 46,242 30,970
Work in process.............................................................. 2,392 1,118
Raw materials................................................................ 18,217 6,591
-------- --------
Total inventories....................................................... 66,851 38,679
Deferred income taxes.......................................................... 9,370 4,478
Other current assets........................................................... 10,101 8,230
-------- --------
Total current assets.................................................... 256,935 158,359
Property:
Land........................................................................... 13,031 12,031
Buildings...................................................................... 83,205 47,042
Machinery and equipment........................................................ 634,692 446,739
-------- --------
Total property.......................................................... 730,928 505,812
Less accumulated depreciation.................................................. 314,118 306,968
-------- --------
Property -- net.............................................................. 416,810 198,844
Goodwill, net of amortization.................................................... 193,263 20,998
Deferred income taxes............................................................ 107,889 20,607
Investments and other assets..................................................... 14,786 11,258
-------- --------
$989,683 $410,066
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable -- trade...................................................... $ 85,675 $ 54,609
Short-term borrowings.......................................................... 2,000 2,250
Current portion of long-term debt.............................................. 35,600 31,200
Accrued employee compensation and benefits..................................... 24,885 10,521
Income taxes................................................................... 5,915 7,719
Taxes other than income........................................................ 5,460 2,751
Accrued insurance.............................................................. 12,867 2,637
Other accrued liabilities...................................................... 31,869 9,162
-------- --------
Total current liabilities............................................... 204,271 120,849
Long-term debt................................................................... 259,566 74,700
Deferred income taxes............................................................ 11,496 7,194
Accrued postretirement benefits.................................................. 25,146 15,834
Minority interest and other long-term liabilities................................ 22,409 1,562
Commitments and contingencies
Stockholders' Equity:
Preferred stock (authorized 5,000,000 shares)
Common stock, $.10 par value (authorized 80,000,000 shares; issued and
outstanding
1995 --27,951,784 shares, 1994 -- 15,670,903 shares)....................... 2,795 1,567
Capital in excess of par....................................................... 415,242 151,340
Retained earnings.............................................................. 53,505 43,616
Cumulative translation adjustment.............................................. (4,747) (4,133)
Unearned compensation.......................................................... (2,463)
-------- --------
Total stockholders' equity.............................................. 466,795 189,927
-------- --------
$989,683 $410,066
======== ========
See Notes to Consolidated Financial Statements
21
22
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL CUMULATIVE
COMMON IN EXCESS UNEARNED RETAINED TRANSLATION
STOCK OF PAR COMPENSATION EARNINGS ADJUSTMENT TOTAL
------ --------- ------------ -------- ----------- --------
(IN THOUSANDS)
Balance, September 30, 1992........ $1,304 $ 105,374 $ 28,685 $ (569) $134,794
Net income....................... 14,561 14,561
Issuance of stock for:
Business acquisition.......... 250 40,537 40,787
Stock options................. 3 504 507
Stock purchase plan........... 4 619 623
Stock performance awards...... 2,855 $ (2,855)
Amortization of unearned
compensation.................. 500 500
Cumulative translation
adjustment.................... (4,640) (4,640)
------ --------- -------- -------- ------- --------
Balance, September 30, 1993........ 1,561 149,889 (2,355) 43,246 (5,209) 187,132
Net income....................... 370 370
Issuance of stock for:
Stock options................. 2 294 296
Stock purchase plan........... 4 680 684
Stock performance awards...... 944 (944)
Buyback of stock rights.......... (155) (155)
Amortization of unearned
compensation.................. 524 524
Revaluation of stock performance
awards........................ (312) 312
Cumulative translation
adjustment.................... 1,076 1,076
------ --------- -------- -------- ------- --------
Balance, September 30, 1994........ 1,567 151,340 (2,463) 43,616 (4,133) 189,927
Net income....................... 9,889 9,889
Issuance of stock for:
Business acquisition.......... 1,204 262,347 263,551
Stock options................. 2 535 537
Stock purchase plan........... 5 733 738
Stock performance awards...... 17 287 1,803 2,107
Amortization of unearned
compensation.................. 660 660
Cumulative translation
adjustment.................... (614) (614)
------ --------- -------- -------- ------- --------
Balance, September 30, 1995........ $2,795 $ 415,242 $ 53,505 $(4,747) $466,795
====== ========= ======== ======== ======= ========
See Notes to Consolidated Financial Statements
22
23
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 9,889 $ 370 $14,561
Adjustments to reconcile net income to cash provided from
(used for) operating activities:
Cumulative effect of accounting change................ 10,400
Depreciation and amortization......................... 42,064 25,335 24,170
Net (gain) loss on disposal of assets................. (830) (346) 62
Recognition of unearned compensation.................. 2,463 524 500
Deferred income tax benefit........................... (8,861) (4,959) (4,877)
Unusual charge (noncash).............................. 3,646
Minority interest..................................... (29) 132 684
Changes in:
Receivables........................................... (1,091) (9,235) (17,550)
Accounts payable-trade................................ 7,707 8,417 6,687
Inventories........................................... (8,078) (621) (572)
Other current assets and liabilities.................. (1,170) (1,960) (16,481)
Other, net............................................ (6,326) (1,802) (7,499)
-------- ------- -------
Net cash flows provided from (used for) operating
activities............................................... 39,384 26,255 (315)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions......................................... (30,966) (39,345) (37,350)
Proceeds from disposal of assets........................... 5,393 2,588 3,982
Acquisitions of businesses, net of cash acquired........... (203,313) (2,000) (7,400)
-------- ------- -------
Net cash used for investing activities..................... (228,886) (38,757) (40,768)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock..................... 40,787
Proceeds from exercise of stock options and stock purchase
grants................................................... 1,275 980 1,130
Proceeds from (reduction of) borrowings-net................ 192,851 19,120 (689)
Principal payment on long-term notes....................... (6,000) (6,000)
-------- ------- -------
Net cash flows provided from financing activities.......... 188,126 14,100 41,228
Increase (decrease) in cash and cash equivalents........... (1,376) 1,598 145
Cash and cash equivalents at beginning of year............. 3,218 1,620 1,475
-------- ------- -------
Cash and cash equivalents at end of year................... $ 1,842 $ 3,218 $ 1,620
======== ======= =======
See Notes to Consolidated Financial Statements
23
24
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
BJ Services Company is a leading provider of pressure pumping and other
oilfield services to the petroleum industry. The consolidated financial
statements include the accounts of BJ Services Company and its majority-owned
subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Certain amounts for 1994 and 1993 have been reclassified in the
accompanying consolidated financial statements to conform to the current year
presentation. The amounts changed were foreign exchange gains and losses,
previously classified as other income-net and now classified in cost of sales
and services, and goodwill amortization previously classified as other
income-net and now classified as a separate component of operating expenses. Net
income was not affected by these changes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net income per share: Net income per share has been computed by dividing
net income by the weighted average number of outstanding common shares. Common
stock equivalents had no material dilutive effect on the computation of net
income per share for each year presented.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from these estimates.
Cash and cash equivalents: The Company considers all highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.
Inventories: Inventories, which consist principally of (a) products which
are consumed in the Company's services provided to customers, (b) spare parts
for equipment used in providing these services and c) manufactured components
and attachments for equipment used in providing services, are stated primarily
at the lower of average cost or market.
Property: Property is stated at cost less amounts provided for permanent
impairments and includes capitalized interest of $216,000, $541,000 and $167,000
for the years ended September 30, 1995, 1994 and 1993, respectively, on funds
borrowed to finance the construction of capital additions. Depreciation is
generally provided using the straight-line method over the estimated useful
lives of individual items. Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated useful life or the lease
term.
Goodwill: Goodwill represents the excess of cost over the fair value of the
net assets of companies acquired in purchase transactions. Goodwill is being
amortized on a straight-line method over periods ranging from 5 to 40 years.
Accumulated amortization at September 30, 1995 and 1994 was $5,174,000 and
$1,880,000, respectively. The Company utilizes undiscounted cash flows of
acquired operations to evaluate any possible impairment of the related goodwill.
Investments: Investments in companies in which the Company's ownership
interest ranges from 20 to 50 percent and the Company exercises significant
influence over operating and financial policies are accounted for using the
equity method. Other investments are accounted for using the cost method.
Foreign currency translation: Gains and losses resulting from financial
statement translation of foreign operations where the U.S. dollar is the
functional currency are included in the consolidated statement of operations.
Gains and losses resulting from financial statement translation of foreign
operations where a
24
25
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
foreign currency is the functional currency are included as a separate component
of stockholders' equity. The Company's foreign operations primarily use the U.S.
dollar as the functional currency.
Foreign exchange contracts: From time to time, the Company enters into
forward foreign exchange contracts to hedge the impact of foreign currency
fluctuations on certain assets and liabilities denominated in foreign
currencies. Changes in market value are offset against foreign exchange gains or
losses on the related assets or liabilities and are included in cost of sales
and services. There were no foreign exchange contracts outstanding at September
30, 1995.
Environmental remediation and compliance: Environmental remediation and
compliance costs are accrued based on estimates of known environmental
exposures. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably estimated.
3. UNUSUAL CHARGE
During 1995, the Company recorded an unusual charge of $17.2 million ($.52
per share after-tax) for costs incurred in connection with the acquisition of
The Western Company of North America ("Western"). The components of the unusual
charge are as follows:
BALANCE AT
1995 1995 SEPTEMBER 30,
PROVISION EXPENDITURES 1995
--------- ------------ -------------
Facility closings............................... $ 5,596(1) $ (5,003)(1) $ 593
Change in control costs......................... 5,381 (4,081) 1,300
Legal and other................................. 4,047 (3,570) 477
Severance costs................................. 2,176 (1,976) 200
-------- -------- -------
Total................................. $ 17,200 $(14,630) $ 2,570
======== ======== =======
- ---------------
(1) Includes $3,646 noncash impairment of facilities.
The Company and Western both operated facilities in many of the same
locations. Management has made the decision to close the duplicate facilities
previously operated by BJ Services and retain those operated by Western. A
provision was recorded to adjust the carrying value of these duplicate
facilities to estimated net realizable value and accruals were recorded for the
estimated costs associated with their closings, including maintenance of the
facilities until their ultimate sale and relocation of assets. Substantially all
of the duplicate facilities were closed as of September 30, 1995.
The consummation of the Western acquisition triggered the change in control
provision under the Company's 1990 Stock Incentive Plan. As a result, 168,547
performance units previously granted to the Company's executive officers became
fully vested and 168,547 shares of common stock were subsequently issued. The
unusual charge includes an amount for the excess of the value of the performance
units on the date of issuance over the estimated amount which otherwise was
earned had the acquisition not occurred.
The unusual charge also includes legal, severance of BJ employees and other
merger-related costs that would not have been incurred had the acquisition of
Western not occurred.
25
26
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS OF BUSINESSES
In April 1995, the Company acquired Western for total consideration,
including transaction costs, of $511.4 million in cash, Company common stock and
warrants to purchase common stock. The transaction may be summarized as follows:
(IN THOUSANDS)
--------------
Cash................................................... $247,880
Stock issued (12,036,393 shares)....................... 239,551
Warrants issued (4,800,037 warrants)................... 24,000
--------
Total consideration............................... 511,431
Net assets acquired.................................... 335,891(1)
--------
Goodwill.......................................... $175,540
========
- ---------------
(1) Includes cash acquired of $44.5 million.
This acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of Western are included in the financial statements
beginning April 1, 1995. The assets and liabilities of Western have been
recorded on the Company's books at estimated fair market value on April 1, 1995
with the remaining purchase price reflected as goodwill, which is being
amortized on a straight-line basis over 40 years. The following unaudited pro
forma summary presents the consolidated results of operations, excluding
estimated consolidation savings, of the Company for the two years ended
September 30, 1995 and 1994 as if the acquisition had occurred at the beginning
of each fiscal year:
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenue........................................................ $807,582 $763,313
Net income (loss) from continuing operations before cumulative
effect of accounting change.................................. 2,308 (15,330)
Net income (loss).............................................. 2,308 (25,730)
Net income (loss) per share from continuing operations before
cumulative effect of accounting change....................... .08 (.55)
Net income (loss) per share.................................... .08 (.92)
On February 9, 1994, the Company acquired the remaining 50% ownership of
its joint venture in Egypt, Hughes Services C.I., Ltd., for $2.0 million. Prior
to the acquisition, this joint venture was accounted for using the equity method
of accounting.
On April 1, 1993, the Company completed a transaction to acquire the
assets, including existing service contracts, of Norsk Bronnservice A/S, a
subsidiary of Odfjell Drilling & Consulting A/S, for $5.4 million. These
operations provide cementing, gravel packing and completion fluids services to
the Norwegian oil and gas industry.
On July 30, 1993 the Company acquired the coiled tubing operations of
Italog, S.p.A. for $2.0 million. Italog is based in Milan, Italy and provides
coiled tubing and nitrogen pumping services in Italy and Nigeria, under the name
of SIAT. The acquisition included the assets and existing contracts of SIAT.
The 1993 and 1994 acquisitions have been accounted for as purchases and
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the date of acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired has been
recorded as goodwill and is being amortized over periods ranging from 5 to 40
years.
26
27
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND BANK CREDIT FACILITIES
Long-term debt at September 30, 1995 and 1994 consisted of the following:
1995 1994
-------- --------
(IN THOUSANDS)
Notes payable, banks........................................... $275,000 $ 81,900
9.2% notes due August 1998..................................... 18,000 24,000
Other.......................................................... 2,166
-------- --------
295,166 105,900
Less current maturities of long-term debt...................... 35,600 31,200
-------- --------
Long-term debt................................................. $259,566 $ 74,700
======== ========
On April 15, 1995, the Company canceled its existing credit facility and
the outstanding borrowings were repaid with funds from a committed, unsecured
credit facility ("Bank Credit Facility") executed to accommodate the acquisition
of Western. The Bank Credit Facility consists of a five-year $175.0 million
revolver and a six-year $225.0 million term loan, providing an aggregate of
$400.0 million in available principal borrowings to the Company. The Company is
charged various fees in connection with this Bank Credit Facility, including a
commitment fee based on the average daily unused portion of the commitment.
Borrowings outstanding under the Bank Credit Facility at September 30, 1995
amounted to $275.0 million, which is comprised of $225.0 million under the term
loan and $50.0 million under the revolver. Interest is charged on outstanding
borrowings based on current market rates. The weighted average interest rate for
such outstanding borrowings was 6.4% at September 30, 1995.
The Bank Credit Facility incorporates a swingline facility allowing the
Company to borrow up to $20.0 million for up to seven days in minimum advances
of $1.0 million. In addition, standby letters of credit are available in an
amount not to exceed $20.0 million. No such borrowings were outstanding at
September 30, 1995.
At September 30, 1995, long-term debt was due in aggregate annual
installments of $35,600,000, $37,200,000, $49,200,000, $48,400,000 and
$98,400,000 in the years ending September 30, 1996, 1997, 1998, 1999 and 2000,
respectively, and an aggregate of $26,366,000 thereafter.
Commitment fees under the Company's credit facilities were $207,206,
$16,223 and $63,679 for 1995, 1994 and 1993, respectively.
In addition to the committed facility, the Company had $50.0 million in
various unsecured, discretionary lines of credit at September 30, 1995 which
expire at various dates in 1996. 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 September 30, 1995, there
were $2.0 million in outstanding borrowings under these lines of credit (none at
September 30, 1994).
In August 1991, the Company placed $30.0 million of unsecured notes (the
"Notes") with private investors. The Notes bear interest at a fixed rate of 9.2%
with principal payments due in five equal annual installments the first of which
was paid in August 1994. From October 1991 to May 1995, the Company entered into
interest rate swap agreements which effectively converted the Notes from fixed
rate debt with an interest rate of 9.2% to floating rate debt. The swap
agreement was liquidated in May 1995 at a loss of $679,000. The agreements
resulted in an average annual effective interest rate of 11.5% (excluding the
loss) and 9.3% on the Notes for 1995 and 1994, respectively.
27
28
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1995, the Company had outstanding letters of credit and
performance related bonds totaling $16.6 million and $14.8 million,
respectively. The letters of credit are issued to guarantee various trade and
insurance activities.
The Company's debt agreements contain various customary covenants including
maintenance of certain profitability and solvency ratios and restrictions on
dividend payments, as defined in the Bank Credit Facility. At September 30,
1995, the Company's debt to capitalization ratio exceeded 35%. As a result, the
Company is prohibited, under its Bank Credit Facility from making any dividend
payments until such time as the ratio drops below 35%. The Company is also
required to make mandatory prepayments from free cash flow (as defined in the
Bank Credit Facility) subject to certain ratios as calculated at the end of each
fiscal year. At September 30, 1995, an estimate of $4 million of such
prepayments has been classified as current maturities of long-term debt.
6. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Cash Equivalents, Trade Receivables and Trade Payables: The
carrying amount approximates fair value because of the short maturity of those
instruments.
Long-term Debt: Based on the rates currently available to the Company for
debt with similar terms and average maturities, the fair value of the Company's
Notes is $19.1 million. Other long-term debt consists of borrowings under the
Company's Bank Credit Facility. The carrying amount of such borrowings
approximates fair value as the individual borrowings bear interest at current
market rates.
7. INCOME TAXES
The geographical sources of income (loss) before income taxes, minority
interest and cumulative effect of accounting change for the three years ended
September 30, 1995, were as follows:
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
United States....................................... $(31,879) $(12,793) $(8,540)
Foreign............................................. 40,637 25,701 25,378
-------- -------- -------
Income before income taxes, minority interest and
cumulative effect of accounting change............ $ 8,758 $ 12,908 $16,838
======== ======== =======
The provision (benefit) for income taxes for the three years ended
September 30, 1995 is summarized as follows:
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
Current:
United States
Foreign........................................... $ 7,759 $ 6,965 $ 6,470
-------- -------- -------
Total current............................. 7,759 6,965 6,470
Deferred:
United States..................................... (8,336) (2,831) (4,414)
Foreign........................................... (525) (2,128) (463)
-------- -------- -------
Total deferred............................ (8,861) (4,959) (4,877)
-------- -------- -------
Income tax expense (benefit)........................ $ (1,102) $ 2,006 $ 1,593
======== ======== =======
28
29
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated effective income tax rates (as a percent of income before
income taxes, minority interest and cumulative effect of accounting change) for
the three years ended September 30, 1995 varied from the United States statutory
income tax rate for the reasons set forth below:
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
Statutory rate............................................ 35.0% 35.0% 35.0%
Foreign earnings at varying tax rates..................... (79.8) (17.4) (11.9)
Amortization of excess tax basis over book basis resulting
from separation from former parent...................... (20.4) (13.8) (10.6)
Changes in valuation reserve.............................. (14.5) (3.7)
Foreign income recognized domestically.................... 37.2 25.6 4.3
Goodwill amortization..................................... 10.3 1.3 .9
Nondeductible expenses.................................... 6.1 1.0 .7
Other -- net.............................................. (1.0) (1.6) (5.2)
----- ----- -----
Effective income tax rate (benefit)....................... (12.6)% 15.6% 9.5%
The income tax provisions for 1994 and 1993 included $1,867,000 and
$620,000 of deferred foreign tax benefits related to the recognition of foreign
net loss carryforwards which were reserved for in the valuation account at
September 30, 1993 and September 30, 1992, respectively.
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions in which the Company has
operations. Generally, deferred tax assets and liabilities are classified as
current or noncurrent according to the classification of the related asset or
liability for financial reporting. The estimated deferred tax effect of
temporary differences and carryforwards at September 30, 1995 and 1994 were as
follows:
1995 1994
-------- --------
(IN THOUSANDS)
Deferred assets:
Expenses accrued for financial reporting, not yet deducted
for tax................................................... $ 45,469 $ 7,956
Net operating loss carryforwards............................. 181,400 44,621
Valuation allowance.......................................... (54,420) (11,164)
-------- --------
Total deferred tax asset....................................... 172,449 41,413
Deferred liabilities:
Differences in depreciable basis of property................. (60,520) (16,838)
Income accrued for financial reporting, not yet reported for
tax....................................................... (6,166) (6,684)
-------- --------
Total deferred tax liability................................... (66,686) (23,522)
-------- --------
Deferred tax asset -- net...................................... $105,763 $ 17,891
======== ========
The net change in the deferred tax asset valuation allowance reflects
purchase accounting adjustments made to properly state the anticipated future
benefit of the combined net operating loss carryforwards of BJ and Western. The
entire deferred tax asset valuation allowance, if realized, will be recorded as
a reduction to goodwill.
At September 30, 1995, the Company had approximately $512 million of U.S.
tax net operating loss carryforwards expiring in varying amounts between 2000
and 2010. As a result of Western having experienced changes in control as
defined in Internal Revenue Code Section 382 in prior years, and in the current
year due
29
30
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the merger with BJ, the usage of approximately $375 million of the tax net
operating loss carryforwards is subject to an annual limitation. The potential
impact that the annual limitation may have on the usage of tax net operating
loss carryforwards has been reflected in the deferred tax asset valuation
allowance.
The Company also has foreign tax net operating loss carryovers of $6.7
million as of September 30, 1995. The foreign tax net operating loss
carryforwards are not subject to an annual limitation and will carryforward
indefinitely.
The Company does not provide federal income taxes on the undistributed
earnings of its foreign subsidiaries that the Company considers to be
permanently reinvested in foreign operations. The cumulative amount of such
undistributed earnings was approximately $147 million at September 30, 1995. If
these earnings were to be remitted to the Company, any U.S. income taxes payable
would be substantially reduced by foreign tax credits generated by the
repatriation of the earnings.
8. GEOGRAPHIC INFORMATION
The Company operates exclusively in one business segment -- the oilfield
services industry. Summarized information concerning geographic areas in which
the Company operated at September 30, 1995, 1994 and 1993 and for each of the
years then ended is shown as follows:
WESTERN HEMISPHERE
-------------------------- EASTERN HEMISPHERE
UNITED LATIN AMERICA --------------------
STATES AND CANADA EUROPE OTHER TOTAL
-------- ------------- -------- ------- --------
(IN THOUSANDS)
1995:
Revenue................ $345,922 $ 111,447 $104,840 $71,451 $633,660
Operating income
(loss).............. (13,683) 22,095 4,942 6,935 20,289
Identifiable assets.... 627,545 88,655 201,838 71,645 989,683
1994:
Revenue................ $208,279 $ 75,745 $ 95,181 $55,271 $434,476
Operating income
(loss).............. (2,634) 9,590 4,560 7,169 18,685
Identifiable assets.... 127,561 72,558 156,594 53,353 410,066
1993:
Revenue................ $196,674 $ 60,560 $ 83,553 $53,576 $394,363
Operating income....... 1,694 2,477 6,217 9,350 19,738
Identifiable assets.... 117,543 54,950 150,612 46,426 369,531
Export sales totaled $2,807,000, $1,392,000 and $1,861,000 for the years
ended September 30, 1995, 1994 and 1993, respectively.
Corporate general and administrative expense, research and engineering
expense and certain other expenses related to worldwide manufacturing and other
support functions benefit both domestic and international operations. An
allocation of these expenses has been made to foreign areas based on total
revenues. The expenses allocated totaled $8,357,000, $6,847,000 and $8,390,000
for the years ended September 30, 1995, 1994 and 1993, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company has a thrift plan whereby eligible employees elect to
contribute from 2% to 12% of their base salaries to an employee benefit trust.
Employee contributions are matched by the Company at the rate of $.50 per $1.00
up to 6% of the employee's base salary. In addition, the Company contributes
between 2% and 5% of each employee's base salary depending on his age as of
January 1 each year as a base contribution. Company matching contributions vest
immediately while base contributions become fully vested after five
30
31
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years of employment. The Company's U.S. employees formerly employed by Western
are covered under a thrift plan which is being merged into the Company's thrift
plan effective December 31, 1995. During the period since the acquisition, the
Company intends to match employee contributions at the same rate as the
Company's existing thrift plan. The Company's contributions to these thrift
plans amounted to $2,862,000, $2,551,000 and $2,324,000 in 1995, 1994 and 1993,
respectively.
The Company's U.S. employees formerly employed by Western with at least one
year of service are also covered under a defined benefit pension plan as a
carryover from the Western acquisition. Pension benefits are based on years of
service and average compensation for each employee's five consecutive highest
paid years during the last ten years worked. Pension benefits are fully vested
after five years of service.
Management intends to freeze benefits under this plan effective December
31, 1995 and merge all employees under the thrift plan. Management has not yet
made a decision on when to terminate the plan and therefore will fund the
amounts necessary to meet minimum funding requirements under the Employees'
Retirement Income Security Act, as amended. Because management intends to freeze
the plan effective December 31, 1995, the accrued pension liability as of the
acquisition date and the net pension expense since the acquisition date have
been reflected under that assumption. The funded status of this plan as of
September 30, 1995 was as follows (in thousands):
Vested benefit obligation........................................ $39,669
=======
Accumulated benefit obligation................................... $40,701
Plan assets at fair value........................................ 34,394
-------
Benefit obligation in excess of plan assets...................... 6,307
Unrecognized gain................................................ 71
-------
Net pension liability.................................. $ 6,378
=======
Assumptions used in accounting for the Company's U.S. defined benefit plan
are as follows:
Weighted average discount rate...................................... 7.3%
Weighted average rate of increase in future compensation............ 5.0%
Weighted average expected long-term rate of return on assets........ 9.0%
Costs for the period from April 1, 1995 to September 30, 1995 for the
Company's U.S. defined benefit plan were as follows (in thousands):
Service cost for benefits earned................................. $ 586
Interest cost on projected benefit obligation.................... 1,382
Actual return on plan assets..................................... (3,267)
Net amortization and deferral.................................... 1,916
-------
Net pension cost....................................... $ 617
=======
31
32
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company sponsors defined benefit plans for foreign
operations which cover substantially all employees in the United Kingdom and
Venezuela. Due to differences in foreign pension laws and economics, the defined
benefit plans are at least partially unfunded. The funded status of these plans
at September 30, 1995 and 1994 was as follows (in thousands):
1995 1994
------- -------
Actuarial present value of:
Vested benefit obligation...................................... $ 5,357 $ 4,789
======= =======
Accumulated benefit obligation................................. $ 6,474 $ 5,292
======= =======
Projected benefit obligation..................................... 9,846 7,155
Plan assets at fair value........................................ (6,718) (5,531)
------- -------
Projected benefit obligation in excess of plan assets............ 3,128 1,624
Unrecognized gain (loss)......................................... (1,093) 248
Unrecognized transition asset, net of amortization............... 155 166
Unrecognized prior service cost.................................. (253) (281)
------- -------
Net pension liability............................................ $ 1,937 $ 1,757
======= =======
Assumptions used in accounting for the Company's international defined
benefit pension plans are as follows:
Weighted average discount rate....................................... 6-9%
Weighted average rate of increase in future compensation............. 5-7%
Weighted average expected long-term rate of return on assets......... 9%
Combined costs for the Company's international defined benefit plans for
the two years ended September 30, 1995 were as follows (in thousands):
1995 1994
------ -----
Net periodic foreign pension cost:
Service cost for benefits earned................................. $1,090 $ 830
Interest cost on projected benefit obligation.................... 660 497
Actual return on plan assets..................................... (617) (45)
Net amortization and deferral.................................... 158 (391)
------ -----
Net pension cost................................................... $1,291 $ 891
====== =====
The Company also sponsors a plan whereby certain health care and life
insurance benefits are provided for retired employees (primarily U.S.) and their
eligible dependents if the employee meets specified age and service
requirements. These plans are unfunded and the Company retains the right,
subject to existing agreements, to modify or eliminate these plans.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" ("SFAS 106"). In accordance with the requirements of SFAS
106, the Company changed its accounting for postretirement benefits from a cash
basis to an accrual basis over an employee's period of service. On October 1,
1993, the Company elected to immediately recognize the cumulative effect of the
change in accounting principle of $16.0 million ($10.4 million after tax, or
$.67 per share).
Effective January 1, 1994 the Company amended its postretirement medical
benefit plan to provide credits based on years of service which could be used to
purchase coverage under the active employee plans.
32
33
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This change effectively caps the Company's health care inflation rate at a 4%
increase per year. The reduction of approximately $5.7 million in the
accumulated postretirement benefit obligation due to this amendment is being
amortized over the average period of future service to the date of full
eligibility for such postretirement benefits of the active employees.
Postretirement medical benefit costs were $946,000, $639,000 and $590,000 in
1995, 1994 and 1993, respectively.
Net periodic postretirement benefit costs for the two years ended September
30, 1995 included the following components (in thousands):
1995 1994
------ -----
Service cost -- benefits attributed to service during the period... $ 807 $ 512
Interest cost on accumulated postretirement benefit obligation..... 1,033 798
Amortization of prior service costs................................ (894) (671)
------ -----
Net periodic postretirement benefit cost........................... $ 946 $ 639
====== =====
The actuarial and recorded liabilities for these postretirement benefits
were as follows at September 30, 1995 and 1994 (in thousands):
1995 1994
------- -------
Accumulated postretirement benefit obligation:
Retirees....................................................... $ 7,680 $ 5,312
Fully eligible active plan participants........................ 3,525 1,569
Other active plan participants................................. 8,988 3,881
------- -------
20,193 10,762
Unrecognized cumulative net gain................................. 776
Unrecognized prior service cost.................................. 4,177 5,072
------- -------
Accrued postretirement benefit liability......................... $25,146 $15,834
======= =======
The accumulated postretirement benefit obligation was determined using a
discount rate of 7% and a health care cost trend rate of 13%, decreasing ratably
to 5.2% in the year 2020 and thereafter. Increasing the assumed health care cost
trend rates by one percentage point in each year would not have a material
impact on the accumulated postretirement benefit obligation or the net periodic
postretirement benefit cost because these benefits are effectively "capped" by
the Company's 1994 plan amendment.
10. COMMITMENTS AND CONTINGENCIES
The Company through performance of its service operations is sometimes
named as a defendant in litigation, usually relating to claims for bodily
injuries or property damage (including claims for well or reservoir damage). The
Company maintains insurance coverage against such claims to the extent deemed
prudent by management. The Company believes that there are no existing claims of
a potentially material adverse nature for which it has not already provided
appropriate accruals.
Federal, state and local laws and regulations govern the Company's
operation of underground fuel storage tanks. Rather than incur additional costs
to restore and upgrade tanks as required by regulations, management has opted to
remove the existing tanks. The Company is in the process of removing these tanks
and has identified certain tanks with leaks which will require remedial
cleanups. In addition, the Company is conducting a number of environmental
investigations and remedial actions at current and former company locations and,
along with other companies, has been named a potentially responsible party at 10
waste disposal sites. The Company has established an accrual of $13,986,000 for
such environmental matters which management believes to be its best estimate of
the Company's portion of future costs to be incurred. The
33
34
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company also maintains insurance for environmental liabilities which the Company
believes is reasonable based on its knowledge of its industry.
Lease Commitments: At September 30, 1995, the Company had long-term
operating leases covering certain facilities and equipment with varying
expiration dates. Minimum annual rental commitments for the years ended
September 30, 1996, 1997, 1998, 1999 and 2000 are $16,198,000, $12,132,000,
$10,023,000, $6,866,000 and $5,674,000, respectively, and $35,732,000 in the
aggregate thereafter.
11. SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental financial information for the three years ended September 30,
1995 is as follows:
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
Consolidated Statement of Operations:
Research and development expense................... $ 6,801 $ 6,421 $ 6,500
Rent expense....................................... 16,759 15,580 11,020
Net foreign exchange gain (loss)................... 1,537 (762) 228
Consolidated Statement of Cash Flows:
Income taxes paid.................................. $ 5,980 $ 6,233 $ 7,168
Interest paid...................................... 12,798 10,330 5,112
Details of acquisitions:
Fair value of assets acquired................... 447,622 1,808 4,483
Liabilities assumed............................. 111,731 501
Goodwill........................................ 175,540 693 2,917
Cash paid for acquisitions, net of cash
acquired...................................... 203,313 2,000 7,400
In connection with the Acquisition, the Company issued $263,551 of common
stock and warrants to Western stockholders.
Other income -- net for the three years ended September 30, 1995 is
summarized as follows:
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
Gain (loss) on sales of assets -- net................ $ 830 $ 346 $ (62)
Gain on Argentine bonds.............................. 400 800
Royalty income....................................... 1,385
Dividend income...................................... 430
Other -- net......................................... 89 131 1,276
-------- ------- -------
Other income -- net.................................. $ 2,734 $ 877 $ 2,014
======== ======= =======
12. EMPLOYEE STOCK PLANS
Stock Option Plans:
The Company's 1990 Stock Incentive Plan and 1995 Incentive Plan (the
"Plans") provide for the granting of options for the purchase of the Company's
common stock ("Common Stock") and other performance based awards to officers,
key employees and nonemployee directors of the Company. Such options vest over a
three year period and are exercisable for periods ranging from one to ten years.
An aggregate of 3,000,000 shares of Common Stock have been reserved for grants,
of which 1,324,386 were available at September 30, 1995.
34
35
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under the Company's Plans is summarized below:
NUMBER OF SHARES 1995 1994 1993
---------------- ----- ---- ----
(IN THOUSANDS)
Stock options outstanding, beginning of year..................... 767 621 451
Changes during the year:
Granted (per share):
1995, $16.89 to $21.62...................................... 697
1994, $19.63 to $22.75...................................... 188
1993, $16.28................................................ 195
Exercised/surrendered (per share):
1995, $16.28 to $21.62...................................... (29)
1994, $13.63 to $23.25...................................... (42)
1993, $19.38 to $23.25...................................... (25)
----- --- ---
Stock options outstanding, end of year (per share: $12.00 to
$23.25)........................................................ 1,435 767 621
===== === ===
Stock options exercisable, end of year (per share: $12.00 to
$23.25)........................................................ 630 417 250
===== === ===
Pursuant to the terms of the 1990 Stock Incentive Plan, during 1993 and
1994 the Company also issued a total of 220,316 Performance Units ("Units") to
officers of the Company. Each Unit represented the right to receive from the
Company at the end of a stipulated period an unrestricted share of Common Stock,
contingent upon achievement of certain financial performance goals over the
stipulated period. Should the Company have failed to achieve the specific
financial goals as set by the Executive Compensation Committee of the Board of
Directors, the Units would have been canceled and the related shares reverted to
the Company for reissuance under the plan. The aggregate fair market value of
the underlying shares granted under this plan was considered unearned
compensation at the time of grant and was adjusted annually based on the current
market price for the Company's Common Stock. Compensation expense was determined
based on management's current estimate of the likelihood of meeting the specific
financial goals and charged ratably over the stipulated period. In connection
with the acquisition of Western, which triggered certain change of control
provisions in the Company's 1990 Stock Incentive Plan, a total of 168,547 Units
were converted into Common Stock and issued to officers, with the remaining
51,769 Units canceled. The difference between the amount accrued as of the
acquisition date and the value of the shares issued has been reflected as an
unusual charge in the accompanying financial statements (see Note 3). As of
September 30, 1995 there were no Units outstanding.
Stock Purchase Plan:
The Company's 1990 Employee Stock Purchase Plan (the "Purchase Plan") is a
plan under which all employees may purchase shares of the Company's Common Stock
at 85% of market value on the first or last business day of the twelve-month
plan period beginning each October, whichever is lower. Such purchases are
limited to 10% of the employee's regular pay. A maximum aggregate of 750,000
shares has been reserved under the Purchase Plan, 576,826 of which were
available for future purchase at September 30, 1995. In October 1995, 55,440
shares were purchased at $16.68 per share.
13. STOCKHOLDERS' EQUITY
Stockholder Rights Plan:
The Company has a Stockholder Rights Plan designed to deter coercive
takeover tactics and to prevent an acquirer from gaining control of the Company
without offering a fair price to all of the Company's stockholders. Under this
plan, each outstanding share of the Company's Common Stock includes one
35
36
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred share purchase right ("Right") which becomes exercisable under certain
circumstances, including when beneficial ownership of the Company's Common Stock
by any person, or group, equals or exceeds 20% of the Company's outstanding
Common Stock. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series Two Junior Participating
Preferred Stock, at a price of $75, subject to adjustment under certain
circumstances. Upon the occurrence of certain events specified in the
Stockholder Rights Plan, each holder of a Right (other than an Acquiring Person)
will have the right, upon exercise of such Right, to receive that number of
shares of common stock of the Company (or the surviving corporation) that, at
the time of such transaction, would have a market price of two times the
purchase price of the Right. No shares of Series Two Junior Participating
Preferred Stock have been issued by the Company at September 30, 1995.
In January 1994, the former Stockholder Rights Plan was triggered and the
Company redeemed all of the preferred share purchase rights issued under its
Stockholder Rights agreement to acquire Series One Junior Participating
Preferred Stock. The Rights were redeemed at a price of $.01 per Right, a total
cost to the Company of $155,000.
Stock Purchase Warrants:
In connection with the acquisition of Western (See Note 4), the Company
issued 4,800,037 stock purchase warrants ("Warrants"). The Warrants were issued
on April 14, 1995 at an initial value of $5.00 per Warrant. Each Warrant
represents the right to purchase one share of the Company's common stock at an
exercise price of $30, until the expiration date of April 13, 2000. As of
September 30, 1995, no Warrants had been exercised.
36
37
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL
FIRST SECOND THIRD FOURTH YEAR
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Year 1995:
Revenue............................ $119,415 $106,668 $199,542 $208,035 $633,660
Gross profit(a).................... 17,753 13,788 28,782 35,179 95,502
Net income (loss).................. 4,744 1,378 (5,848)(b) 9,615(c)(d) 9,889
Net income (loss) per share........ .30 .09 (.22)(b) .34(c)(d) .46
Fiscal Year 1994:
Revenue............................ $104,757 $ 98,451 $106,318 $124,950 $434,476
Gross profit(a).................... 15,071 10,325 13,327 18,138 56,861
Income before cumulative effect of
accounting change................ 3,572 445 2,067 4,686(e) 10,770
Cumulative effect of change in
accounting principle, net of tax
benefit of $5,600,000............ (10,400) (10,400)
Net income (loss).................. (6,828) 445 2,067 4,686(e) 370
Net income (loss) per share:
Before cumulative effect of
accounting change............. .23 .03 .13 .30(e) .69
Cumulative effect of change in
accounting principle, net of
tax........................... (.67) (.67)
Net income (loss) per share........ (.44) .03 .13 .30(e) .02
- ---------------
(a) Represents revenue less cost of sales and services and research and
engineering expenses.
(b) Includes $16 million ($10.4 million after tax or $.40 per share) unusual
charge resulting from the acquisition of Western. See Note 3.
(c) Includes $1.2 million ($.8 million after tax or $.03 per share) unusual
charge resulting from the acquisition of Western. See Note 3.
(d) Includes $1.5 million ($.05 per share) of nonrecurring tax benefits.
(e) Includes $1.3 million ($.08 per share) of nonrecurring tax benefits.
37
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is set forth in the
section entitled "Election of Directors" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 25, 1996, which
section is incorporated herein by reference. For information regarding executive
officers of the Company, see page 12 hereof. Information concerning compliance
with Section 16(a) of the Exchange Act is set forth in the section entitled
"Compliance with Section 16(a) of the Exchange Act" in the Proxy Statement of
the Company for the Annual Meeting of Stockholders to be held January 25, 1996,
which section is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item is set forth in the sections entitled "Executive
Compensation" and "Severance Agreements" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 25, 1996, which
sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information for this item is set forth in the sections entitled "Voting
Securities" and "Election of Directors" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 25, 1996, which
sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
38
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report or incorporated herein
by reference:
(1) Financial Statements:
The following financial statements of the Registrant as set forth
under Part II, Item 8 of this report on Form 10-K on the pages
indicated.
PAGE IN THIS
FORM 10-K
------------
Report of Independent Accountants........................ 19
Consolidated Statement of Operations for the years ended
September 30, 1993, 1994 and 1995...................... 20
Consolidated Statement of Financial Position as of
September 30, 1994 and 1995............................ 21
Consolidated Statement of Stockholders' Equity for the
years ended September 30, 1993, 1994 and 1995.......... 22
Consolidated Statement of Cash Flows for the years ended
September 30, 1993, 1994 and 1995...................... 23
Notes to Consolidated Financial Statements............... 24
(2) Financial Statement Schedule:
SCHEDULE PAGE
NUMBER DESCRIPTION OF SCHEDULE NUMBER
- -------- --------------------------------------------------- ------
II Valuation and Qualifying Accounts.................. 43
All other financial statement schedules are omitted because of the absence
of conditions under which they are required or because all material information
required to be reported is included in the consolidated financial statements and
notes thereto.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 1995.
(3) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
*2.1 -- Agreement and Plan of Merger dated as of November 17, 1994 ("Merger
Agreement"), among BJ Services Company, WCNA Acquisition Corp. and
The Western Company of North America.
*2.2 -- First Amendment to Agreement and Plan of Merger dated March 7, 1995,
among BJ Services Company, WCNA Acquisition Corp. and The Western
Company of North America.
3.1 -- Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Form 8-K filed April 18, 1995, and incorporated herein by
reference).
3.2 -- Certificate of Designation of Series Two Junior Participating
Preferred Stock (filed as Exhibit 3.1 to the Company's Registration
Statement on Form 8-A dated January 12, 1994 and incorporated herein
by reference).
*3.3 -- Bylaws of the Company, as amended.
4.1 -- Specimen form of certificate for the Common Stock (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-1 (Reg. No.
33-35187) and incorporated herein by reference).
39
40
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
4.2 -- Stockholder Rights Agreement dated as of January 12, 1994, between
the Company and First Chicago Trust Company of New York, as Rights
Agent (filed as Exhibit 4.1 to the Company's Registration Statement
on Form 8-A dated January 12, 1994 and incorporated herein by
reference), as amended by the First Amendment to Stockholders Rights
Agreements dated as of June 22, 1994 (filed as Exhibit 2 to the
Company's Form 8-A/A Amendment No. 1 to Form 8-A dated August 26,
1994 and incorporated herein by reference) and by the Second
Amendment to Stockholder Rights Agreement dated as of September 22,
1994 (filed as Exhibit 3 to the Company's Form 8-A/A Amendment No. 2
to Form 8-A dated September 30, 1994 and incorporated herein by
reference).
4.3 -- Indenture between The Western Company of North America and United
States Trust Company of New York, Trustee, dated as of November 15,
1992, which includes the form of 12 7/8% Senior Note due 2002 as an
Exhibit thereto (filed as Exhibit to Registration Statement of
Western on Form S-2 (Reg. No. 33-51852), and incorporated herein by
reference).
4.4 -- First Supplemental Indenture, dated March 2, 1994, to Indenture,
dated as of November 15, 1992, between The Western Company of North
America and United States Trust Company of New York, Trustee (filed
as Exhibit to Form 10-K of Western for the year ended December 31,
1993, and incorporated herein by reference).
4.5 -- Second Supplemental Indenture, dated as of April 13, 1995, to
Indenture dated as of November 15, 1992, between The Western Company
of North America, BJ Services Company and United States Trust Company
of New York, Trustee (filed as Exhibit 10.5 to Post-Effective
Amendment No. 1 to Registration Statement on Form S-4 (Reg. No.
33-58017), and incorporated herein by reference).
*4.6 -- Warrant Agreement with respect to the Company's warrants to purchase
common stock.
10.1 -- Relationship Agreement dated as of July 20, 1990, between the Company
and Baker Hughes Incorporated (filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-35187) and
incorporated herein by reference).
10.2 -- Tax Allocation Agreement dated as of July 20, 1990, between the
Company and Baker Hughes Incorporated (included as Exhibit A to
Exhibit 10.1) (filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-35187) and incorporated herein by
reference).
+10.3 -- 1990 Stock Incentive Plan, as amended and restated (filed as Exhibit
10.1 to the Company's Registration Statement on Form S-8 (Reg. No.
33-62098) and incorporated herein by reference.
+10.4 -- 1990 Employee Stock Purchase Plan (filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-35187) and
incorporated herein by reference).
+10.5 -- BJ Services Retirement Thrift Plan effective November 16, 1992 (filed
as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1992 and incorporated herein by reference).
+10.6 -- BJ Services Company 1995 Incentive Plan (filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-8 (Reg. No. 33-58637) and
incorporated herein by reference).
+10.7 -- The Western Company Retirement Savings Plan, as restated, and as
amended by Amendment No. 1 and the Second Amendment thereto (filed as
Exhibits 4.5, 4.6 and 4.7, respectively, to the Company's
Registration Statement (Reg. No. 33-58639) on Form S-8 and
incorporated herein by reference).
40
41
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
---------- ----------------------
+10.8 -- Form of Severance Agreement between BJ Services Company and certain
executive officers (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1993 and
incorporated herein by reference).
10.9 -- Note Agreement dated August 1, 1991 ("Note Agreement") by and among
the Company, BJ Services Company U.S.A., BJ Service International,
Inc., and BJ Services Company Middle East for the issuance of $30.0
million of 9.2% Senior Notes due August 1, 1998 (filed as Exhibit 4.4
to the Company's Annual Report on Form 10-K for the year ended
September 30, 1991 and incorporated herein by reference), as amended
by an Amendment to Note Agreement dated as of September 30, 1992
(filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1992 and incorporated herein by
reference).
*10.10 -- Second Amendment to Note Agreement dated as of September 19, 1995.
*10.11 -- Credit Agreement dated as of April 13, 1995, among the Company, BJ
Services Company, U.S.A., BJ Service International, Inc., BJ Services
Company Middle East, Bank of America National Trust and Saving
Association, as agent, and the other financial institutions parties
thereto (the "Credit Agreement") (filed as Exhibit 10.1 to the
Company's Form 8-K/A filed May 31, 1995 and incorporated herein by
reference) as amended by an Amendment to "Credit Agreement" dated as
of April 25, 1995 (filed herewith).
10.12 -- Parent Guaranty Agreement dated as of April 13, 1995, by the Company,
in favor of the banks and the agent under the Credit Agreement (filed
as Exhibit 10.2 to the Company's Form 8-K/A filed May 31, 1995 and
incorporated herein by reference).
10.13 -- Form of Guaranty Agreement dated as of April 13, 1995, by each of BJ
Services Company, U.S.A., BJ Service International, Inc., BJ Services
Company Middle East, and Western Petroleum Services International
Company, in favor or the banks and the agent under the Credit
Agreement (filed as Exhibit 10.3 to the Company's Form 8-K/A filed
May 31, 1995 and incorporated herein by reference).
*11.1 -- Earnings per share.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Deloitte & Touche LLP.
*27.1 -- Financial data schedule.
- ---------------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
41
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ J.W. STEWART
J.W. Stewart,
President and Chief Executive
Officer
Date: December 21, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
----------- ----- ----
/s/ J.W. STEWART Chairman of the Board, December 21, 1995
J.W. Stewart President, and Chief
Executive Officer,
(Principal Executive
Officer)
/s/ MICHAEL MCSHANE Vice President -- Finance, December 21, 1995
Michael McShane Chief Financial Officer
and Director
(Principal Financial
Officer)
/s/ MATTHEW D. FITZGERALD Controller December 21, 1995
Matthew D. Fitzgerald (Principal Accounting
Officer)
/s/ DAVID A.B. BROWN Director December 21, 1995
David A.B. Brown
/s/ L. WILLIAM HEILIGBRODT Director December 21, 1995
L. William Heiligbrodt
/s/ JOHN R. HUFF Director December 21, 1995
John R. Huff
/s/ WILLIAM J. JOHNSON Director December 21, 1995
William J. Johnson
/s/ DON D. JORDAN Director December 21, 1995
Don D. Jordan
/s/ R.S. LEBLANC Director December 21, 1995
R.A. LeBlanc
/s/ JAMES E. MCCORMICK Director December 21, 1995
James E. McCormick
/s/ MICHAEL E. PATRICK Director December 21, 1995
Michael E. Patrick
42
43
BJ SERVICES COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(IN THOUSANDS)
ADDITIONS
-----------------------
BALANCE AT CHARGED TO
BEGINNING CHARGED OTHER BALANCE AT
OF PERIOD TO EXPENSE ACCOUNTS DEDUCTIONS END OF PERIOD
---------- ---------- ---------- ---------- -------------
YEAR ENDED September 30, 1993
Allowance for doubtful accounts
receivable............................ $2,304 $ 985 $ 937(1) $ 2,352
Reserve for inventory obsolescence and
adjustment............................ 6,782 882 1,700 845(2) 8,519
YEAR ENDED September 30, 1994
Allowance for doubtful accounts
receivable............................ $2,352 $1,177 $1,345(1) $ 2,184
Reserve for inventory obsolescence and
adjustment............................ 8,519 708 1,081(2) 8,146
YEAR ENDED September 30, 1995
Allowance for doubtful accounts
receivable............................ $2,184 $1,399 $4,105(3) $ 205(1) $ 7,483
Reserve for inventory obsolescence and
adjustment............................ 8,146 115 2,061(3) 777(2) 9,545
- ---------------
(1) Deductions in the allowance for doubtful accounts principally reflect the
write-off of previously reserved accounts.
(2) Deductions in the reserve for inventory obsolescence and adjustment
principally reflect the sale or disposal of related inventory.
(3) Additions to the reserve resulting from the Acquisition.
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44
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
*2.1 -- Agreement and Plan of Merger dated as of November 17, 1994 ("Merger
Agreement"), among BJ Services Company, WCNA Acquisition Corp. and
The Western Company of North America.
*2.2 -- First Amendment to Agreement and Plan of Merger dated March 7, 1995,
among BJ Services Company, WCNA Acquisition Corp. and The Western
Company of North America.
3.1 -- Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Form 8-K filed April 18, 1995, and incorporated herein by
reference).
3.2 -- Certificate of Designation of Series Two Junior Participating
Preferred Stock (filed as Exhibit 3.1 to the Company's Registration
Statement on Form 8-A dated January 12, 1994 and incorporated herein
by reference).
*3.3 -- Bylaws of the Company, as amended.
4.1 -- Specimen form of certificate for the Common Stock (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-1 (Reg. No.
33-35187) and incorporated herein by reference).
4.2 -- Stockholder Rights Agreement dated as of January 12, 1994, between
the Company and First Chicago Trust Company of New York, as Rights
Agent (filed as Exhibit 4.1 to the Company's Registration Statement
on Form 8-A dated January 12, 1994 and incorporated herein by
reference), as amended by the First Amendment to Stockholders Rights
Agreements dated as of June 22, 1994 (filed as Exhibit 2 to the
Company's Form 8-A/A Amendment No. 1 to Form 8-A dated August 26,
1994 and incorporated herein by reference) and by the Second
Amendment to Stockholder Rights Agreement dated as of September 22,
1994 (filed as Exhibit 3 to the Company's Form 8-A/A Amendment No. 2
to Form 8-A dated September 30, 1994 and incorporated herein by
reference).
4.3 -- Indenture between The Western Company of North America and United
States Trust Company of New York, Trustee, dated as of November 15,
1992, which includes the form of 12 7/8% Senior Note due 2002 as an
Exhibit thereto (filed as Exhibit to Registration Statement of
Western on Form S-2 (Reg. No. 33-51852), and incorporated herein by
reference).
4.4 -- First Supplemental Indenture, dated March 2, 1994, to Indenture,
dated as of November 15, 1992, between The Western Company of North
America and United States Trust Company of New York, Trustee (filed
as Exhibit to Form 10-K of Western for the year ended December 31,
1993, and incorporated herein by reference).
4.5 -- Second Supplemental Indenture, dated as of April 13, 1995, to
Indenture dated as of November 15, 1992, between The Western Company
of North America, BJ Services Company and United States Trust Company
of New York, Trustee (filed as Exhibit 10.5 to Post-Effective
Amendment No. 1 to Registration Statement on Form S-4 (Reg. No.
33-58017), and incorporated herein by reference).
*4.6 -- Warrant Agreement with respect to the Company's warrants to purchase
common stock, including attached Form of Warrant Certificate.
45
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
10.1 -- Relationship Agreement dated as of July 20, 1990, between the Company
and Baker Hughes Incorporated (filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-35187) and
incorporated herein by reference).
10.2 -- Tax Allocation Agreement dated as of July 20, 1990, between the
Company and Baker Hughes Incorporated (included as Exhibit A to
Exhibit 10.1) (filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-35187) and incorporated herein by
reference).
+10.3 -- 1990 Stock Incentive Plan, as amended and restated (filed as Exhibit
10.1 to the Company's Registration Statement on Form S-8 (Reg. No.
33-62098) and incorporated herein by reference.
+10.4 -- 1990 Employee Stock Purchase Plan (filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-35187) and
incorporated herein by reference).
+10.5 -- BJ Services Retirement Thrift Plan effective November 16, 1992 (filed
as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1992 and incorporated herein by reference).
+10.6 -- BJ Services Company 1995 Incentive Plan (filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-8 (Reg. No. 33-58637) and
incorporated herein by reference).
+10.7 -- The Western Company Retirement Savings Plan, as restated, and as
amended by Amendment No. 1 and the Second Amendment thereto (filed as
Exhibits 4.5, 4.6 and 4.7, respectively, to the Company's
Registration Statement (Reg. No. 33-58639) on Form S-8 and
incorporated herein by reference).
+10.8 -- Form of Severance Agreement between BJ Services Company and certain
executive officers (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1993 and
incorporated herein by reference).
10.9 -- Note Agreement dated August 1, 1991 ("Note Agreement") by and among
the Company, BJ Services Company U.S.A., BJ Service International,
Inc., and BJ Services Company Middle East for the issuance of $30.0
million of 9.2% Senior Notes due August 1, 1998 (filed as Exhibit 4.4
to the Company's Annual Report on Form 10-K for the year ended
September 30, 1991 and incorporated herein by reference), as amended
by an Amendment to Note Agreement dated as of September 30, 1992
(filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1992 and incorporated herein by
reference).
*10.10 -- Second Amendment to Note Agreement dated as of September 19, 1995.
*10.11 -- Credit Agreement dated as of April 13, 1995, among the Company, BJ
Services Company, U.S.A., BJ Service International, Inc., BJ Services
Company Middle East, Bank of America National Trust and Saving
Association, as agent, and the other financial institutions parties
thereto (the "Credit Agreement") (filed as Exhibit 10.1 to the
Company's Form 8-K/A filed May 31, 1995 and incorporated herein by
reference) as amended by an Amendment to "Credit Agreement" dated as
of April 25, 1995 (filed herewith).
10.12 -- Parent Guaranty Agreement dated as of April 13, 1995, by the Company,
in favor of the banks and the agent under the Credit Agreement (filed
as Exhibit 10.2 to the Company's Form 8-K/A filed May 31, 1995 and
incorporated herein by reference).
10.13 -- Form of Guaranty Agreement dated as of April 13, 1995, by each of BJ
Services Company, U.S.A., BJ Service International, Inc., BJ Services
Company Middle East, and Western Petroleum Services International
Company, in favor or the banks and the agent under the Credit
Agreement (filed as Exhibit 10.3 to the Company's Form 8-K/A filed
May 31, 1995 and incorporated herein by reference).
*11.1 -- Earnings per share.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Deloitte & Touche LLP.
*27.1 -- Financial data schedule.
- ---------------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.