Financial Results (in millions, except per share amounts) 3 Months Ended 6/30/04 3/31/04 6/30/03 Revenue $658.7 $647.1 $546.6 Net Income $129.3 $73.3 $49.5 Diluted Earnings Per Share $0.79 $0.45 $0.31
Sequentially, consolidated revenue increased 2%. U.S./Mexico Pressure Pumping Services increased 15%, International Pressure Pumping Services decreased 23% and Other Oilfield Services increased 24%. Compared to prior year's third quarter, consolidated revenue increased 21%, with U.S./Mexico Pressure Pumping Services increasing 27%, International Pressure Pumping Services increasing 6%, and Other Oilfield Services up 30%.
Operating income margins during the quarter were 16.1%, down from 17.1% reported in the previous quarter and up from 14.0% reported in last year's third quarter. Sequentially, the decline in the operating income margin was primarily due to the seasonal drilling activity decline in Canada. The improvement year over year was due to favorable margins on activity gains in the U.S. pressure pumping market, as well as gains in revenue from the Completion Tools and Completion Fluids businesses.
Capital spending was $55.9 million for the quarter. Cash plus short term investments, as of June 30, 2004 was $536.9 million, which exceeded total debt by $38.1 million at June 30, 2004.
U.S./Mexico Pressure Pumping Services
The Company's U.S./Mexico Pressure Pumping Services revenue increased 15% sequentially, resulting from a U.S. price book increase (effective May 1, 2004) and a 4% combined average drilling rig count increase in the U.S. and Mexico.
Compared to the third quarter of the prior year, revenue in U.S./Mexico increased 27%, resulting from a U.S. price book increase (effective May 1, 2004) and a 15% average drilling rig count increase for the U.S. and Mexico combined. During the third quarter of fiscal 2004, 86% of the U.S. rigs were drilling for natural gas, a slight increase from the prior year.
International Pressure Pumping Services
International Pressure Pumping Services revenue declined 23% sequentially primarily due to a 60% revenue decline in Canada. Drilling rig activity in Canada declined 62% during the third quarter as a result of seasonal spring break-up. International revenue excluding Canada was up 4% sequentially, led by increased activity in Russia, the U.K. and India. These increases were offset somewhat by activity declines in Africa.
Year over year, International Pressure Pumping Services revenue was up 6% led by Canadian revenue improvement of 22%. Although average active drilling rig count was flat, the Canadian increase in revenue resulted from favorable job mix, price improvement and positive foreign exchange translation. International revenue excluding Canada was up 2% year over year as increases in Russia and India were offset by declines in Africa, Colombia and Norway.
Other Oilfield Services
Revenue from the Company's Other Oilfield Services (completion fluids, completion tools, process and pipeline services, casing and tubular services and production chemical services) was up 24% sequentially led by Process and Pipeline Services, Completion Tools and Completion Fluids. Compared to the third quarter of the prior year, revenue for these services increased 30%, with all services showing an increase.
CEO Stewart Comments
Chairman and CEO Bill Stewart commented, "During the June quarter, stimulation activity in the U.S. market remained strong, our Process and Pipeline Services division experienced a nice rebound from its low seasonal March quarter and our Completion Tools and Completion Fluids divisions generated a combined revenue increase of 19%. These improvements contributed to offset the significant decline in revenue from our Canadian business.
"U.S. activity has increased since the end of our June quarter and our forecast assumes U.S. activity will continue increasing for the balance of calendar year 2004. During the September quarter, we estimate rig activity in the U.S. to average 3-4% higher than the June quarter. The Canadian market is recovering from its seasonal decline and is expected to show improvement over last year's September quarter. For these reasons, we believe earnings will be in the $0.54 to $0.56 range for our fourth fiscal quarter and will be in the range of $2.16 to $2.18 for the fiscal year ending September 30, 2004."
The following table reflects the percentage change in the Company's revenue by geographic area for the June 2004 quarter compared to the March 2004 quarter and June 2003 quarter. The information presented is based on the Company's combined service and product line offering by region.
Geographic Sequential Year Over Year U.S. 16% 27% Canada -54% 24% -2% 26% Latin America (includes Mexico) 7% 10% Europe/Africa 3% -3% Russia 41% 53% Middle East 16% 29% Asia Pacific 5% 7% 9% 11%
Non-GAAP Financial Measures
A non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that 1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet, or statement of cash flows, or 2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.
The Company anticipates utilizing non-GAAP financial measures in today's earnings release conference call. The most common non-GAAP financial measure used by the Company is free cash flow. The reconciliations to the most comparable GAAP measure are posted on the Investor's section of our website at http://www.bjservices.com . The required disclosures for these measures were included in our September 30, 2003 Form 10-K, also posted on our website. Any unexpected disclosures of non-GAAP financial measures discussed on the call will be posted on our website as soon as possible after the disclosure.
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