-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N3ojSgiz9jdUoXcrgLR6aofUNzwn72OSNRgMUlogPQcXe8GBL8ZFGh0OvrrR6b43 M+kVa+8cml1zgsCSnrBWQQ== 0000899243-00-002691.txt : 20001219 0000899243-00-002691.hdr.sgml : 20001219 ACCESSION NUMBER: 0000899243-00-002691 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BJ SERVICES CO CENTRAL INDEX KEY: 0000864328 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 630084140 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10570 FILM NUMBER: 790969 BUSINESS ADDRESS: STREET 1: 5500 NW CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 7134624239 MAIL ADDRESS: STREET 1: 5500 NORTHWEST CENTRAL DR STREET 2: 5500 NORTHWEST CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77092 10-K 1 0001.txt FOR THE YEAR ENDED SEPTEMBER 30, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From to . ---------------- Commission file number 1-10570 ---------------- BJ SERVICES COMPANY (Exact name of registrant as specified in its charter)
Delaware 63-0084140 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5500 Northwest Central Drive, Houston, Texas 77092 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 462-4239 ---------------- Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock $.10 par value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange 7% Series B Notes due 2006 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 ((S)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 [_]. At December 1, 2000, the registrant had outstanding 82,108,985 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 $4,446,792,188. DOCUMENTS INCORPORATED BY REFERENCE: Portions of Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held January 25, 2001 are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 cementing and stimulation 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 product and equipment sales for pressure pumping services, tubular services provided to the oil and natural gas exploration and production industry, commissioning and inspection services provided to refineries, pipelines and offshore platforms and specialty chemical services. In April 1995, the Company completed the acquisition of The Western Company of North America ("Western" and the "Western Acquisition") which provided the Company with a greater critical mass with which to compete in both domestic and international markets and the realization of significant consolidation benefits. The Western Acquisition increased the Company's then existing total revenue base by approximately 75% and more than doubled the Company's then existing domestic revenue base. In addition, in excess of $40 million in annual overhead and redundant operating costs were eliminated annually by combining the two companies. In June 1996, the Company completed the acquisition of Nowsco Well Service Ltd. ("Nowsco" and the "Nowsco Acquisition") for a total purchase price of $582.6 million (including transaction costs of $6.2 million). Nowsco's operations were conducted primarily in Canada, the United States, Europe, Southeast Asia and Argentina and included pressure pumping and commissioning and inspection services businesses. The Nowsco Acquisition added approximately 40% to the Company's then existing revenue base. During the year ended September 30, 2000, the Company generated approximately 86% of its revenue from pressure pumping services and 14% from product and equipment sales and other oilfield services. Over the same period, the Company generated approximately 52% of its revenue from U.S. operations and 48% from international operations. Pressure Pumping Services Cementing Services The Company's cementing services, which accounted for approximately 32% of the Company's total revenue during 2000, consist of blending high-grade 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 achieve the proper cement set up time, compressive strength and fluid loss control, and vary depending upon the well depth, downhole temperatures and pressures, and formation characteristics. The Company provides central, regional and district laboratory testing services to evaluate slurry properties, which vary with cement supplier and local water sources. Job design recommendations are developed by the Company's field engineers to achieve desired comprehensive strength 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 (i) isolate fluids behind the casing between productive formations and other formations that would damage the productivity of hydrocarbon producing zones or damage the quality of freshwater aquifers, (ii) seal the casing from corrosive 2 formation fluids, and (iii) 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 54% of the Company's total revenue during 2000, consist of fracturing, acidizing, sand control, nitrogen, coiled tubing and downhole tool services. These services are designed to improve the flow of oil and natural gas from producing formations and are summarized as follows: Fracturing. Fracturing services are performed to enhance the production of oil and natural gas from formations having such 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 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, which can exceed 200,000 lbs. The main pieces of equipment used in the fracturing process are the blender, which blends the proppant and chemicals into the fracturing fluid, the pumping unit, which is capable of pumping significant volumes at high pressures, and a monitoring van loaded with real time monitoring equipment and computers used to control the fracturing process. The Company's fracturing pump units are capable of pumping slurries at pressures of up to 15,000 pounds per square inch at rates of up to four barrels per minute. During 2000, the Company introduced and successfully field tested the Gorilla(TM) pumping unit, a 2700 hydraulic horsepower frac trailer. This unit provides the most efficient, highest horsepower pump available in the service industry. 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 several 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. The Company also introduced equipment to respond to these technological advances. In 1998, the Company introduced a low polymer fracturing fluid (Vistar(TM)) designed to provide greater fracture length with minimal polymer residue. Vistar(TM) was commercialized in 1999 and is now used in over 50% of the Company's U.S. frac treatments. Acidizing. Acidizing services are performed to enhance the flow rate of oil and natural 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 natural gas. The Company maintains a fleet of mobile acid transport and pumping units to provide acidizing services for the onshore market, and maintains acid storage and pumping equipment on most of its offshore stimulation vessels. 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 natural gas are then free to move through the gravel into the wellbore to be produced. These services are utilized primarily in unconsolidated reservoirs and 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 in various oilfield applications, including underbalanced drilling. However, nitrogen services are used principally in applications which support the Company's coiled tubing and fracturing services. 3 Coiled Tubing. 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 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 five inches manufactured in continuous 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 existing production tubing 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. Downhole Tools. The Company provides downhole tools and technical personnel for gravel pack and frac pack completions, reservoir flow testing, well stimulation and well servicing applications, operating from key service bases on the U.S. Gulf Coast. The Company's downhole tool capabilities fall into two categories--completion tools and service tools. Completion tools, which are used after a well is drilled to bring the well into production, generally are sold and remain in the well. Service tools, which are used to perform a wide range of downhole operations to maintain or improve a well, generally are rented by customers from nearby tool inventories of the Company. While marketed separately, downhole tool sales and services are provided primarily during the course of providing other pressure pumping services. The Company participates in the offshore stimulation market through the use of skid-mounted pumping units and through operation of several stimulation vessels including one in the North Sea, three in the Gulf of Mexico and four in South America. 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 other stimulation services is likely to increase. The Company has been increasing its pressure pumping capabilities in certain international markets over the past several years. Other Services The Company's other services, 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 2000. Such products and equipment sales to customers are generally made in areas where pressure pumping services are primarily provided by local service companies. Other than in its specialty chemical business, the Company generally does not sell proprietary products to other companies involved in well servicing. Tubular Services. Tubular services principally consist of installing (or "running") casing and production tubing into a wellbore. Casing is run 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. Production tubing is run inside the casing. Oil and natural gas are produced through the tubing. These services are provided during the completion and workover phases. Process and Pipeline Services. Process and pipeline services 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. Historically, hydrocarbon storage and production facilities have been tested for leaks using either water under pressure or a "live" system 4 whereby oil, gas or water was introduced at operating pressure. At remote locations such as offshore facilities, the volume of fresh water required to test the facility made its use impractical and the use of flammable or toxic fluids created a risk of explosion or other health hazards. Commission leak testing, or CLT, uses a nitrogen and helium gas mixture in conjunction with certain specialized equipment to detect very small leaks in joints, instruments and valves that form the components of such facilities. Although the process is safer and more practical than traditional leak detection methods, it may in some instances be more expensive. Accordingly its use is restricted to those instances where environmental and safety concerns are particularly acute. Pipeline testing and commissioning services include filling, pressure testing, de-watering, purging and vacuum drying of pipelines. Other pipeline services include grouting and insulating of pipeline bundles. Recent technical innovations include the development of pipeline gels, both hydrocarbon and aqueous, for pipeline cleaning and transport as well as plugs used for isolation purposes. The Company has also developed high friction pig trains and freezing techniques for the isolation of sections of pipelines. In conducting its pipeline inspection business, the Company uses "intelligent pigs." Intelligent pigs are pipeline monitoring vehicles which, together with interpretational software, offer to pipeline operators, constructors and regulators measurement of pipeline geometry, determination of pipeline location and orientation and examination of the pipeline's internal condition. In addition, the customer can develop a structural analysis using the measured pipeline geometry information. The operator's planning is improved through the utilization of the data to determine the pipeline's status, estimate current and future reliability and provide recommendations on remedial or maintenance requirements which consider the severity of the problem identified. Analysis work using intelligent pigs can be routinely performed with maintenance monitoring programs implemented as a method for increasing safety for people, property and the environment. Specialty Chemical Services. Specialty chemical services are provided to customers in the upstream and downstream oil and natural gas businesses through the Company's Unichem division. These services involve the design of treatments and the sale of products to reduce the negative effects of corrosion, scale, paraffin, bacteria, and other contaminants in the production and processing of oil and natural gas. Unichem's products are used by customers engaged in crude oil production, natural gas processing, raw and finished oil and natural gas product transportation, refining, fuel additizing and petrochemical manufacturing. Unichem's services address two principal priorities of such customers: (1) the protection of the customer's capital investment in metal goods, such as downhole casing and tubing, pipelines and process vessels, and (2) the treatment of fluids to allow the fluid to meet the specifications of the particular operation, such as production transferred to a pipeline, water discharged overboard from a platform, or fuel sold at a marketing terminal. 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 100 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 pumping equipment for onshore operations. Offshore operations are performed with skid-mounted cement pumping units primarily using the Company's patented Recirculating Averaging Mixer ("RAM"). Most cementing units are equipped with computerized systems which allow for real-time monitoring and control of the cementing processes. 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 5 utilizes more than one supplier for each item. The Company also produces certain of its specialized pressure pumping products through company-owned blending facilities in Germany, Singapore and Canada. Sufficient material inventories are maintained to allow the Company to provide on-call 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 experienced only intermittent tightness in supply or extended lead times in obtaining necessary supplies of these materials or replacing equipment parts and does not anticipate any chronic shortage of any of these items 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 three 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 two primary research and development centers--one in Tomball, Texas (near Houston) and the other in Calgary, Alberta. The Company's research and development organization is divided into five distinct areas-- Petroleum Engineering, Software Applications, Instrumentation Engineering, Mechanical Engineering and Coiled Tubing 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. Software Applications. The Company's software applications 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 pressure pumping industry utilizes an array of 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 primary pumping equipment and certain 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. Coiled Tubing Engineering. The coiled tubing engineering group is located in Calgary, Alberta. This group provides most of the support and research and development activities for the Company's coiled tubing services. Development work for drilling applications (DUCT(TM)) involves using coiled tubing directional drilling technology for completions and directional underbalanced drilling. The Company is also actively involved in the ongoing development of downhole tools that may be run on coiled tubing, including rotary jetting equipment and through-tubing inflatable packer systems. The Company's SandVac(TM) system is a licensed jet 6 pump system used with concentric coiled tubing to clean unwanted sand from horizontal wells. The tool and coiled tubing configuration allow sand to be drawn into the system and brought to surface through a cleaning process analogous to a vacuum. Manufacturing In addition to the engineering facility, the Company's research and technology center near Houston also houses its main equipment and instrumentation manufacturing facility. This operation currently occupies approximately 345,000 square feet and includes complete fabrication, engine and transmission rebuilding, pump manufacturing, assembly, warehousing, laboratory, training and engineering capabilities. The Company also has smaller manufacturing capabilities in several international locations. The Company employs outside vendors for manufacturing of its coiled tubing units and certain fabrication work, but is not dependent on any one source. Competition Pressure Pumping Services. There are two primary companies with which the Company competes in pressure pumping services, Halliburton Energy Services, a division of Halliburton Company, and Dowell, a division of Schlumberger Ltd. These companies have operations in most areas of the U.S. in which the Company participates and in most international regions. It is estimated that, exclusive of "captive" service companies, these two competitors, along with the Company, provide over 90% of pressure pumping services to the industry. Several smaller companies compete with the Company in certain areas of the U.S. and in certain international locations. The principal methods of competition which apply to the Company's business are its prices, service record and reputation in the industry. While Halliburton Energy Services and Dowell are larger in terms of overall pressure pumping revenues, the Company has a number one or a number two share position in several markets throughout the world. Other Services. The Company believes that it is one of the largest suppliers of tubular services in the U.K. North Sea and has expanded such services into other international markets in the past several years. The largest provider of tubular services is Weatherford International, Inc. In the U.K., 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 tubular services. The Company believes it is the largest provider of commissioning and leak detection services and one of the largest providers of pipeline inspection services. In specialty chemical services, there are several competitors 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 natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. The Company's principal customers consist of major and independent oil and natural gas producing companies. During 2000, the Company provided oilfield services to several thousand 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 of a loss of any of its largest customers. United States. The United States represents the largest single oilfield services market in the world. The Company provides its pressure pumping services to its U.S. customers through a network of over 50 locations throughout the U.S., a majority of which offer both cementing and stimulation services. Demand for the Company's pressure pumping services in the U.S. is primarily driven by oil and natural gas drilling activity, which tends to be extremely volatile depending on the current and anticipated prices of oil and natural gas. Due 7 to aging oilfields 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 and again in 1999. During most of the 1990's, excess capacity among pumping service companies has generally resulted in the inability to generate adequate returns on new capital investments. To improve returns in this environment, management believes it is important to operate with a greater "critical mass" in the key U.S. markets. This conclusion led to the decision to consolidate the Company's operations with those acquired from Western, which had a larger presence in the U.S., and with operations acquired from Nowsco. Despite a recovery in the latter half of fiscal 1999, the U.S. average fiscal 1999 active rig count represented the lowest in history and was down 34% from the previous fiscal year. The recovery in U.S. drilling continued in fiscal 2000 as the active rig count averaged 842 rigs, a 40% increase over fiscal 1999. Most of the increase occurred in the number of rigs drilling for gas, which increased 48% over the previous year, while the average number of rigs drilling for oil increased 16%. This recovery has continued into fiscal 2001 due to exceptionally strong oil and natural gas prices. International. The Company operates in over 40 countries in the major international oil and natural gas producing areas of Latin America, Europe, Africa, Southeast Asia, Canada and the Middle East. The Company generally provides services to its international customers through wholly-owned foreign subsidiaries. Additionally, the Company holds certain controlling and minority interests in several joint venture companies, through which it conducts a portion of its international operations. With the acquisition of Fracmaster Ltd. in June 1999, the Company's Canadian operations now represent its largest international operation with over 14% of consolidated revenue in fiscal 2000. Other than Canada, the international market is somewhat less volatile than the U.S. market. 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 natural 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 stability 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 the Company implemented a strategy to expand its international presence. The Company now operates in most of the major oil and natural gas producing regions of the world. International 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. Certain international locations bill their services in local currency, however, the majority of the Company's international services are billed in U.S. dollars. Employees At September 30, 2000, the Company had a total of 9,265 employees. Approximately 58% of the Company's employees were 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 natural 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 8 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 future cost for such procedures is $7.0 million which will be incurred over a period of several years, and 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 third-party owned disposal facilities used by the Company or its predecessors have been investigated under state and federal Superfund statutes, and the Company is currently named as a potentially responsible party for cleanup at five 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 for pressure pumping services are directed primarily toward improvement of existing products and services and the design of new products and processes to meet specific customer needs. 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. To remain competitive, the Company devotes significant resources to developing technological improvements to its pumping services products. Many of these improvements have centered on improving products in fracturing systems and, more recently, in deepwater cementing applications. In 1991, the Company introduced a borate-based fracturing fluid, Spectra Frac(R) G, 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 Frac(R) and Medallion Frac(R), which have expanded the Company's services line offering to cover a broader range of economic and downhole design variables. During 1994, the Company commercialized a proprietary enzyme process used in conjunction with the three fracturing fluids. These "enzyme breakers" significantly enhance the production of oil and natural gas in a wide range of wells. During 1998, the Company introduced a low polymer fracturing fluid (Vistar(TM)) designed to provide greater fracture length with minimal polymer residue. This product has been successfully utilized in a wide variety of applications since 1998. During 1999 and 2000, the Company successfully introduced and field tested a low and mid stress range deformable particle (FlexSand(TM)) designed to prevent proppant flowback and extend the life of the fracturing treatment. During 2000, the Company developed and successfully field tested a continually mixed, crosslinked hydrochloric acid system, XL Acid(R). XL Acid(R) provides deep penetration of live acid to effectively etch large areas of the formation. To address the trend towards more deepwater completions, the Company has developed DeepSet(TM), a cementing system designed to handle low sea floor temperatures, and new automated foam cementing equipment designed to address shallow water flows typically found in deepwater environments. 9 During 2000, the Company successfully field tested the TST-3(TM) service packer. This packer provides the latest in service tool technology and operational efficiency. The testing and development of new products is an integral part of the Company's pipeline inspection and coiled tubing businesses. Developments also include a MFL corrosion inspection tool; ROTO-JET(R), a tool for use in wellbore scale removal; SandVac(TM), a licensed jet pump system used to clean unwanted sand from horizontal wells, and various downhole tools and other technologies used in directional drilling applications using coiled tubing. 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 material. The Company intends to continue to devote significant resources to its research and development efforts. For information regarding the amounts of research and development expenses for each of the three fiscal years ended September 30, 2000, see Note 12 of the Notes to Consolidated Financial Statements. Risk Factors This document contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements discuss the Company's prospects, expected revenues, expenses and profits, strategies for its operations and other subjects. All of these areas are subject to risks and uncertainties. The forward-looking statements are based on assumptions which may not prove to be accurate. Actual results could differ significantly from the results expected, as a result of the risk factors discussed below. The Company's operations are subject to hazards present in the oil and natural gas industry, such as fire, explosion, blowouts and oil spills. These incidents as well as accidents or problems in normal operations can cause personal injury or death and damage to property or the environment. The customer's operations can also be interrupted. From time to time, customers seek to recover from the Company for damage to their equipment or property that occurred while the Company was performing work. In the pressure pumping business, these include customer claims for loss of oil and natural gas production and damage to underground reservoir formations. In the specialty chemical business, some products are sold for use in refineries. In the process and pipeline business, work is done on petrochemical plants as well as pipelines. Damage to the customer's property could be extensive if a major problem occurred. The Company has insurance coverage that it believes is customary in the industry against these hazards. However, such insurance has large deductibles and certain exclusions. The Company's insurance premiums can be increased or decreased based on the claims made by the Company under its insurance policies. The insurance does not cover damages from breach of contract by the Company or based on alleged fraud or deceptive trade practices. Whenever possible, the Company obtains agreements from customers that limit the Company's liability. Insurance and customer agreements do not provide complete protection against the losses and risks described above. The Company's international operations are subject to special risks that can significantly affect the Company's sales and profits. These risks include changes in currency exchange rates, the impact of inflation, governmental expropriation of assets, exchange controls, political instability and other risks. Other risk factors that could cause actual results to be different from those expected include: general economic and business conditions; the business opportunities that may be presented to and pursued by the Company; lower prices and decreased drilling for oil and natural gas; weather conditions that affect conditions in the oil and natural gas industry; higher prices for products used by the Company in its operations; lower spending on exploration and development by customers in the oil and natural gas industry; and changes in environmental laws and other governmental regulations. Most of these risks are beyond the control of the Company. 10 Executive Officers of the Registrant The current executive officers of the Company and their positions and ages are as follows:
Office Held Name Age Position with the Company Since - ---- --- ------------------------- ------ J. W. Stewart........... 56 Chairman of the Board, President and Chief 1990 Executive Officer Michael McShane......... 46 Senior Vice President--Finance and Chief 1998 Financial Officer David Dunlap............ 39 Vice President and President--International 1995 Division Matthew D. Fitzgerald... 43 Vice President and Controller 1998 Thomas H. Koops......... 54 Vice President--Technology and Logistics 1992 Margaret B. Shannon..... 51 Vice President--General Counsel 1994 T. M. Whichard.......... 42 Vice President and Treasurer 1998 Kenneth A. Williams..... 50 Vice President and President--U.S. Division 1991 Stephen A. Wright....... 53 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. In 1990, he was also named Chairman and Chief Executive Officer of the Company. Mr. McShane joined the Company from Reed Tool Company in 1987 as Vice President--Finance and was named Senior Vice President--Finance in 1998. 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. Fitzgerald joined the Company as Controller in 1989 from Baker Hughes Incorporated and was named Vice President in 1998. Prior thereto, he was a Senior Manager with the certified public accounting firm of Ernst & Whinney. 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. Whichard joined the Company as Tax and Treasury Manager in 1989 from Weatherford International and was named Treasurer in 1992 and Vice President in 1998. Prior to being named Treasurer in 1992, he served in various positions including Tax Director and Assistant Treasurer. 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. 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. 11 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. Although a portion of the Company's U.S. pressure pumping and blending fleet is being utilized through a servicing agreement with an outside party, the majority of its worldwide fleet is owned and unencumbered. The Company's tractor fleet, most of which in the U.S. is 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 vehicles used in its international operations 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 centers located near Houston, Texas and Calgary, Alberta are owned by the Company, as are blending facilities located in Germany, Singapore and Canada. The Company operates several stimulation vessels, including one in the North Sea and four in South America which are owned, and three in the Gulf of Mexico on which the hulls are leased. The Company believes that its facilities are adequate for its current operations. For additional information with respect to the Company's lease commitments, see Note 11 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 that are likely to have a materially adverse effect on the Company for which it has not already provided. As a result of the Western Acquisition and the Nowsco Acquisition, the Company assumed responsibility for certain claims and proceedings made against Western and Nowsco in connection with their businesses. Some, but not all, of such claims and proceedings will continue to be covered under insurance policies of the Company's predecessors that were in place at the time of the acquisitions. Although the outcome of the claims and proceedings against the Company (including Western and Nowsco) 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. 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, 2000. 12 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". Warrants to purchase common stock ("Warrants") were issued in April 1995 and traded under the symbol "BJSW". At December 1, 2000 there were approximately 2,028 holders of record of the Company's Common Stock. The Warrants expired on April 13, 2000. 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 Price Range Range ------------- -------------- High Low High Low ------ ------ ------- ------ Fiscal 1999 1st Quarter..................................... $22.19 $13.25 $ 18.13 $ 6.88 2nd Quarter..................................... 24.13 13.50 20 .75 7.00 3rd Quarter..................................... 31.75 19.75 35 .00 13.50 4th Quarter..................................... 39.00 26.81 49 .06 25.88 Fiscal 2000 1st Quarter..................................... $43.44 $26.69 $ 57.00 $25.00 2nd Quarter..................................... 76.75 38.13 12 2.69 46.75 3rd Quarter..................................... 75.63 53.38 119.00 83.25 4th Quarter..................................... 70.75 53.00 Fiscal 2001 1st Quarter (through December 1, 2000).......... 63.06 48.00
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 or used for the share repurchase program discussed below and, accordingly, no cash dividends are expected to be declared on the Common Stock. At September 30, 2000, there were 86,877,662 shares of Common Stock issued and 82,648,214 shares outstanding. On December 19, 1997, the Company's Board of Directors authorized a stock repurchase program of up to $150 million (subsequently increased to $300 million in May 1998 and again to $450 million in September 2000). Repurchases are made at the discretion of the Company's management and the program will remain in effect until terminated by the Company's Board of Directors. The Company purchased 5,996,400 shares at a cost of $196.6 million during fiscal 1998, none during 1999 and 400,000 shares at a cost of $22.8 million during fiscal 2000. Subsequent to the end of the fiscal year, the Company has purchased an additional 1,413,400 shares at a cost of $81.0 million. In October 1999, the Company reissued 4,027,972 shares of treasury stock through a private placement with certain financial institutions. The proceeds from the private placement of $144.0 million were used to pay down outstanding debt. The Company also entered into privately negotiated option agreements pursuant to which it repurchased an equivalent number of shares in April 2000 for a total of $149.0 million. The Company utilized proceeds of $143.5 million from the exercise of outstanding warrants, combined with borrowings under existing credit facilities, to fund the repurchase. A total of 4,787,852 warrants, at an exercise price of $15 per share (each warrant represented the right to purchase two shares), were exercised before their expiration date of April 13, 2000. The exercise of warrants resulted in the issuance of 9,575,704 shares of Common Stock. The Company's Bank Credit Facility prohibits any dividend payments when the Company's debt to capitalization ratio exceeds 35% immediately prior to and after giving effect to the declaration of any dividend, except that the Company may declare and make dividend payments solely in its capital stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Capital Resources and Liquidity" and Note 6 of the Notes to Consolidated Financial Statements. 13 The Company has a Stockholder Rights Plan (the "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-half of a 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 15% 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 A Junior Participating Preferred Stock at a price of $150, subject to adjustment under certain circumstances. Upon the occurrence of certain events specified in the 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 A Junior Participating Preferred Stock have been issued by the Company. 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, 2000 have been derived from the audited consolidated financial statements of the Company, some of which appear elsewhere in this Annual Report. 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, --------------------------------------------------------- 2000 1999(1) 1998 1997 1996(1) ---------- ---------- ---------- ---------- --------- (in thousands, except per share amounts) Operating Data: Revenue............... $1,555,389 $1,131,334 $1,527,468 $1,466,573 $ 965,261 Operating expenses, excluding unusual charges and goodwill amortization......... 1,346,667 1,092,879 1,289,295 1,269,731 875,022 Goodwill amortization......... 13,497 13,525 13,824 14,435 7,910 Unusual charges(2).... 39,695 26,586 7,425 Operating income (loss)............... 195,225 (14,765) 197,763 182,407 74,904 Interest expense...... (19,968) (31,365) (25,685) (30,715) (26,948) Other income (expense)--net....... (1,550) 613 (772) 1,727 3,321 Income tax expense (benefit)............ 57,307 (15,221) 54,654 46,462 12,105 Net income (loss)..... 117,976 (29,688) 117,400 107,906 40,486 Earnings (loss) per share: Basic................ 1.49 (.42) 1.58 1.40 .66 Diluted.............. 1.40 (.42) 1.44 1.31 .65 Depreciation and amortization......... 102,018 99,800 91,497 90,376 66,050 Capital expenditures(3)...... 80,518 110,566 167,961 102,198 54,158 Financial Position Data (at end of period): Property--net......... $ 585,394 $ 659,717 $ 602,028 $ 540,356 $ 558,156 Total assets.......... 1,785,233 1,824,764 1,743,701 1,726,768 1,709,160 Long-term debt, excluding current maturities........... 141,981 422,764 241,869 298,634 523,004 Stockholders' equity.. 1,169,771 877,089 900,064 960,227 841,703
- -------- (1) Includes the effect of the acquisitions of Fracmaster in 1999 and Nowsco in 1996, both of which were accounted for as purchases in accordance with generally accepted accounting principles. For further details of the Fracmaster acquisition, see Note 3 of the Notes to Consolidated Financial Statements. (2) Unusual charges represent nonrecurring costs associated with the downturn in oilfield drilling activity in 1999 and 1998 and the acquisition of Nowsco in 1996. For further details of the 1999 and 1998 unusual charges, see Note 4 of the Notes to Consolidated Financial Statements. (3) Excluding acquisitions of businesses. 14 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company's operations are primarily driven by the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. Drilling activity, in turn, is largely dependent on the price of oil and natural gas. This situation often leads to volatility in the Company's revenues and profitability, especially in the United States and Canada, where the Company historically has generated in excess of 50% of its revenues. Due to "aging" oilfields and lower-cost sources of oil internationally, drilling activity in the United States has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986, 1992 and again in early 1999. Despite a recovery in the latter half of fiscal 1999, the U.S. average fiscal 1999 active rig count represented the lowest in history and was down 34% from the previous fiscal year. The recovery in U.S. drilling continued in fiscal 2000 as the active U.S. rig count averaged 842 rigs, a 40% increase over fiscal 1999. Most of the increase occurred in the number of rigs drilling for gas, which increased 48% over the previous fiscal year, while the average number of rigs drilling for oil increased 16%. This recovery has continued into fiscal 2001 due to exceptionally strong oil and natural gas prices. Drilling activity outside North America has historically been less volatile than domestic drilling activity. Due to low oil prices during most of the year, international drilling activity also reached record low levels during 1999. While Canadian drilling activity began to recover during the latter part of fiscal 1999, activity in most of the other international regions is not expected to significantly recover until at least the middle of fiscal 2001. Active international drilling rigs (excluding Canada) averaged 617 rigs during fiscal 2000, little changed from fiscal 1999. Due primarily to the improvement in oil and natural gas prices, however, Canadian drilling activity continued the recovery begun in late 1999, averaging 335 active drilling rigs during fiscal 2000 and up 58% from the previous fiscal year. Acquisition On June 28, 1999, the Company completed the acquisition of selected assets and subsidiaries of Fracmaster Ltd. ("Fracmaster"), an oilfield services company based in Calgary, Alberta with operations in Canada, the United States, Russia and China. The acquisition was completed for a total purchase price of $78.4 million. Fracmaster generated worldwide revenue of $209.1 million during its fiscal year ended December 31, 1998. The acquisition of Fracmaster has primarily impacted the Company's operations in Canada and Russia. 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, ---------------------- 2000 1999 1998 ------ ------ ------ Rig Count: (1) U.S................................................. 842 601 906 International....................................... 952 828 1,109 Revenue per rig (in thousands)........................ $867.0 $791.7 $758.0 Revenue per employee (in thousands)................... $187.0 $152.7 $173.0 Percentage of gross profit to revenue (2)............. 22.2% 13.9% 24.4% Percentage of research and engineering expense to revenue.............................................. 1.7% 2.1% 2.0% Percentage of marketing expense to revenue............ 3.4% 4.4% 3.5% Percentage of general and administrative expense to revenue.............................................. 3.6% 4.1% 3.3%
- -------- (1) Industry estimate of drilling activity as measured by average active rigs. (2) Gross profit represents revenue less cost of sales and services. 15 Revenue: Due primarily to increased North American drilling and workover activity, as well as benefits from the acquisition of Fracmaster in June 1999, the Company's revenue for fiscal 2000 reached a record level of $1.56 billion, an increase of 38% over fiscal 1999. Such revenues reflect a strong recovery over 1999 when, after six consecutive years of revenue growth, the Company's revenue declined by 26%. Each of the Company's service lines--pressure pumping, process and pipeline services, tubular services and specialty chemicals-- experienced revenue decreases in fiscal 1999. Management expects the Company's revenues in fiscal 2001 to increase by in excess of 15% over 2000, as the North American drilling market remains strong and the Company has begun to see signs of an international recovery with several new contracts being awarded or pending. Operating Income (Loss): For the year ended September 30, 2000, the Company's operating income was $195.2 million, compared to an operating loss of $14.8 million in fiscal 1999. The Company's gross profit margins for fiscal 2000 increased to 22.2% from 13.9% in fiscal 1999. The margin improvement was primarily a result of increased North American drilling and workover activity, pricing improvement in the U.S. and the impact of cost reduction programs implemented during 1999. These efficiencies are reflected in the increase in both revenue per rig and revenue per employee in fiscal 2000. Partially offsetting the improved margins were increases in research and engineering, marketing and general and administrative expenses totaling $17.4 million due primarily to higher accruals for incentive plans, which are based upon the Company's earnings and stock price and from overhead resulting from the Fracmaster acquisition. Each of these operating expenses, however, declined as a percentage of revenues. The 1999 operating loss was primarily a result of the Company recording a pretax unusual charge of $39.7 million ($.36 per diluted share after-tax), comprised of $12.8 million of severance costs, $23.1 million of asset writedowns and $3.8 million of other costs associated with the downturn in the oilfield services industry. In addition, the 1999 operating loss included $16.7 million for costs resulting from the acquisition of Fracmaster, and additional severance costs and asset writedowns primarily associated with the Company's international operations, all of which were included in cost of sales. Excluding these items, the 1999 operating income decline was primarily a result of the decline in North and Latin American drilling and workover activity, and lower pricing. Research and engineering, marketing and general and administrative expenses in total decreased by $13.8 million in 1999 compared to 1998 due to the implementation of three phases of cost reduction programs beginning in July 1998, and a lower incentive provision during the year. In addition to the 1999 writedown, the Company also recorded a $26.6 million ($.22 per diluted share after-tax) unusual charge in 1998 to reflect employee severance, asset writedowns and other costs associated with the downturn in the industry which began during the later part of 1998. Other: Interest expense in 2000 decreased by $11.4 million compared to the previous year due to lower borrowings resulting from improved cash flow from operations, as well as proceeds from an equipment refinancing transaction and a private placement of common stock, both of which were completed in the Company's first fiscal quarter (see also Capital Resources and Liquidity). Interest expense increased by $5.7 million in 1999 compared to 1998 due primarily to additional borrowings to finance the Company's stock repurchase program implemented in December 1997. The Company had repurchased shares at a cost totaling $196.6 million under this program as of September 30, 1999 and purchased an additional $22.8 million near the end of fiscal 2000. Management expects to continue its share repurchases during fiscal 2001. Despite these share repurchases, interest expense is expected to continue to decrease in 2001 due to reduced outstanding borrowings as a result of continued strong cash flow from operations. Income Taxes: The Company's effective tax rate has remained below the U.S. statutory rate during each of the past three years primarily as a result of profitability in international jurisdictions where the statutory tax rate is below the U.S. rate, the availability of certain nonrecurring tax benefits and the availability of tax benefits from the Company's reorganization pursuant to its initial public offering in 1990. The effective tax rate decreased to 32.7% in 2000 from 33.9% in 1999, following an increase from 31.8% in 1998. 16 U.S./Mexico Pressure Pumping Segment The Company's U.S./Mexico pressure pumping revenues in fiscal 2000 reached a record $743.8 million, a 64% increase over 1999. The increase is primarily due to increased drilling and workover activity, which increased 40% and 25%, respectively over the prior year, along with an improvement in U.S. revenue per active rig. This improvement occurred because independent oil companies, with whom the Company has a strong market position, contributed most of the increase in U.S. drilling activity and also from larger fracturing treatments. Also contributing to the increased U.S. revenues in 2000 was an increase in prices of approximately 16%, as the Company implemented new price books in November 1999 and again in September 2000. The Company's U.S./Mexico pressure pumping revenues declined by 38% in 1999 compared to 1998 as a result of lower activity and pricing caused by the record low drilling levels. The fiscal 1999 average active rig count, down 34% from the previous year, was the lowest in recorded history. Workover activity in 1999 was also weak, down 32% during the year. Excluding Mexico, each of the Company's U.S. regions experienced revenue declines in 1999, with the oil producing regions of Texas and Oklahoma being the most severely impacted. In addition, 1999 pricing declined by approximately 16% compared to the previous year. Revenue in the Company's Mexico operations increased as a result of a new contract and the expansion of operations in Northeast Mexico. As a result of the price increases in fiscal 2000 and the expected continuation of strong drilling and workover activity levels, management believes that fiscal 2001 revenue generated by its U.S./Mexico pressure pumping operations will exceed that of fiscal 2000 by in excess of 25%. Operating income for the Company's U.S./Mexico pressure pumping operations was $141.8 million in fiscal 2000 compared to an operating loss of $3.9 million in fiscal 1999. The improvement was due primarily to increased drilling and workover business, better utilization of personnel and equipment as a result of cost reduction measures implemented in fiscal 1999 and better pricing. On a year-over-year basis, pricing improved approximately 16% as a result of the aforementioned price book increases implemented during November 1999 and again in September 2000. The operating loss in fiscal 1999 was primarily caused by deceased revenues resulting from the severe decline in drilling and workover activity and corresponding lower prices for the Company's products and services as the market contracted. International Pressure Pumping Segment Revenue for the Company's international pressure pumping operations was $629.2 million in fiscal 2000, an increase of 24% compared with the previous fiscal year. This increase was due mostly to the addition of the former Fracmaster operations in Canada and Russia and a 58% increase in drilling activity in Canada. Excluding Canada, where revenues increased 93%, fiscal 2000 international pressure pumping revenues increased 6% despite average drilling activity being flat with the prior year levels. Increased revenues in the Company's Latin America region were mostly offset by the impact of continued weakness in drilling activity in other international areas, most significantly in the Company's Asia Pacific operations. As a result of new contracts and improving activity in selected locations, management expects each of its international regions to show revenue increases in fiscal 2001 compared to fiscal 2000. Revenue for the Company's international pressure pumping operations was $505.6 million in fiscal 1999, a decrease of 17% compared to fiscal 1998. With the exception of its Russia operations, each of the Company's international regions experienced revenue declines during 1999, with its Canadian and Latin American operations showing the largest declines. The revenue declines were a result of lower drilling activity and pricing in each of these regions. Operating income for the Company's international pressure pumping operations was $68.5 million in fiscal 2000 compared to $39.8 million in fiscal 1999. The improvement was primarily due to improved Canadian business and a non-recurring charge relating primarily to asset writedowns that reduced operating margins for the Company's international pressure pumping operations by $9.5 million in the third quarter of fiscal 1999. Operating income in Canada increased as a result of efficiencies gained through better equipment and personnel utilization throughout the year, and from having a full year of the former Fracmaster operations. These gains, however, were partially offset by lower pricing outside North America, margin decreases in the Company's Europe/Africa region due to reduced North Sea activity (where the Company's operations have a relatively high 17 fixed cost base), and shutdown costs incurred in closing a facility in Germany in early 2000. Additionally, the operating income margins for the Company's Middle East region were negatively impacted by startup costs incurred for delayed projects. Operating income in fiscal 1999 declined by $57.7 million from the $97.5 million generated by the Company's international pressure pumping operations in fiscal 1998. Such decrease was primarily a result of lower drilling activity and lower pricing in each of the Company's international regions, combined with the $9.5 million non-recurring charge made in the third quarter of fiscal 1999. Other Services Segment Revenue for each of the Company's other service lines, which consist of specialty chemicals, tubular services and process and pipeline services, increased 7% in fiscal 2000 compared to the prior year due primarily to the recovery in drilling activity levels. Revenue for these service lines had declined 8% in 1999 from 1998 after increasing in the previous two years. The 1999 decrease was due primarily to drilling activity declines, which were mostly offset by expansions into new markets and these service lines' greater concentration of revenues from nondrilling oilfield activities, which are not as greatly impacted by the decline in the active rig count. Operating income for these service lines declined to $17.9 million (9.8% of revenue) in fiscal 2000 compared to $19.0 million (11.1% of revenue) in 1999. Operating income margins in the Company's tubular services line suffered from the drop in drilling activity in the North Sea as it was unable to make a corresponding reduction in its fixed cost base. Also contributing to the operating income decline were job delays and higher startup costs in the process and pipeline services group for new projects that began late in the fiscal year. Operating income in 1999 had declined from $27.6 million (14.9% of revenue) in 1998 primarily as a result of startup costs incurred in expanding these service lines geographically which replaced revenues lost due to reduced drilling activity. Capital Resources and Liquidity Net cash provided from operating activities for fiscal 2000 was $204.7 million, an increase of $140.3 million from the prior year, due primarily to higher profitability and non-cash U.S. tax expense due to loss carryforwards. This was partially offset by increases in working capital, particularly accounts receivable and inventories, as a result of the rapid revenue growth in North America. Net cash provided from operating activities was $64.4 million in 1999, a decrease of $219.9 million from 1998, primarily as a result of the lower profitability. In addition, the tax benefit from 1999 U.S. operating losses was non-cash due to the Company's cumulative net operating loss position. This was partially offset by the additional liquidation of working capital balances from the reduction in activity and the non-cash portion of the unusual charge. Net cash provided by investing activities in fiscal 2000 was $43.7 million, compared to net cash used for investing activities in 1999 of $176.7 million. The increase is due primarily to proceeds received from a transaction involving the transfer of certain pumping service equipment assets in the first quarter of fiscal 2000. Subsequent to the transfer of equipment, the Company received $120.0 million, which was used to repay outstanding bank debt. The equipment is being used to provide services to the Company for its customers for which the Company is paying a service fee for a period of at least six, but not more than thirteen, years. The transaction generated a deferred gain for book purposes of approximately $63 million, which is carried in "Other long-term liabilities", and is being amortized over a thirteen-year period. The taxable gain of $79.7 million was completely offset with net operating loss carryforwards. Excluding this transaction, cash used for investing activities declined by $100.5 million due to the curtailment of capital spending beginning in mid-year 1999 and because 1999's investing activities included the acquisition of Fracmaster. The 2000 capital spending related primarily to maintenance capital and U.S. offshore and international expansion. The 1999 increase in cash used for investing activities of $15.7 million was due primarily to the acquisition of Fracmaster in June 1999 for net cash consideration of $73.4 million. Excluding this acquisition, investing activities in 1999 declined by $57.8 million, primarily due to a curtailment of capital spending caused by the depressed business environment. The 1999 capital spending related primarily to upgrades to the Company's U.S. fracturing fleet 18 and expansion of the Tomball Manufacturing and Research and Development facility. The 1998 capital spending related primarily to additional fracturing and coiled tubing capacity for the Company's international growth initiatives, upgrades to the Company's U.S. pumping fleet and upgrades to the Company's information systems. Projected capital expenditures for fiscal 2001 are expected to increase significantly from 2000 and are currently expected to be approximately $150-165 million. The 2001 capital program is expected to be used primarily for replacement and enhancement of U.S. fracturing equipment and stimulation expansion internationally. The actual amount of 2001 capital expenditures will be primarily dependent on the availability of external manufacturing capacity and is expected to be funded by cash flows from operating activities and available credit facilities. Management believes cash flows from operating activities and available lines of credit, if necessary, will be sufficient to fund projected capital expenditures. Cash flows used for financing activities for fiscal 2000 was $245.9 million, compared to cash flows provided by financing activities in fiscal 1999 of $114.6 million. Financing activities in fiscal 2000 included a private placement of 4.0 million shares of common stock in October 1999 that generated proceeds of $144.0 million, which was used to pay down outstanding debt. In connection with the private placement, the Company also entered into privately negotiated option agreements pursuant to which it repurchased an equivalent number of shares in April 2000 for a total of $149.0 million. In April 2000, the Company utilized proceeds of $143.5 million from the exercise of outstanding warrants, combined with borrowings under existing credit facilities, to fund the repurchase. A total of 4,787,852 warrants, at an exercise price of $15 per share (each warrant represented the right to purchase two shares), were exercised before their expiration date of April 13, 2000. The exercise of the warrants resulted in the issuance of 9,575,704 shares of common stock. In September 2000, the Company also repurchased 400,000 shares of its common stock at a cost of $22.8 million under a share repurchase program initially approved by the Company's Board of Directors in December 1997. The share repurchase program initially authorized purchases up to $150 million and was subsequently increased to $300 million in May 1998 and to $450 million in September 2000. Subsequent to the end of fiscal 2000, the Company has purchased an additional 1,413,400 shares of its common stock at a cost of $81.0 million. These financing activities, along with proceeds from the exercise of stock options and cash provided by operating and investing activities, allowed the Company to reduce 2000 outstanding borrowings by $397.1 million. Cash flows provided by financing activities in 1999 were $114.6 million, compared to a usage of cash for financing activities in 1998 of $125.6 million. The 1999 proceeds from borrowings were used to fund the Fracmaster acquisition and the Company's capital spending program. In 1998, the Company used $196.6 million to purchase its common stock under a stock repurchase program approved by the Company's Board of Directors in December 1997. Due to reduced profitability and the resulting reduction in cash flows from operating activities, the Company did not repurchase any of its common stock during 1999. Management strives to maintain low cash balances while utilizing available credit facilities to meet the Company's capital needs. Any excess cash generated has historically been used to pay down outstanding borrowings or fund the Company's stock repurchase program. The Company has a committed, unsecured bank credit facility (the "Bank Credit Facility") which consists of a six-year term loan of approximately $46.8 million (currently drawn in Canadian dollars under a provision which is renewable annually at the option of the banks), which is repayable in 22 quarterly installments that began in March 1997, and a five year U.S. $225.0 million revolving facility available through June 2001. At September 30, 2000, borrowings outstanding under the Bank Credit Facility totaled $46.8 million, consisting solely of borrowings under the term loan. Principal reductions of term loans under the Bank Credit Facility are due in aggregate annual installments of $30.4 million and $16.4 million in the years ending September 30, 2001 and 2002, respectively. In addition to the committed facility, the Company had $149.4 million in various unsecured, discretionary lines of credit at September 30, 2000, which expire at various dates in 2001. There are no requirements for commitment fees or compensating balances in connection with these lines of credit. Interest on borrowings is based on prevailing market rates. At September 30, 2000, there was $3.4 million in outstanding borrowings under these lines of credit. 19 The Company's total interest-bearing debt decreased to 13.1% of its total capitalization at September 30, 2000, compared to 39.5% at September 30, 1999, due to repayment of borrowings from cash flows from operations, the proceeds received from the equipment transfer, the private placement of common stock, warrant exercises and stock option exercises. The Bank Credit Facility includes various customary covenants and other provisions including the maintenance of certain profitability and solvency ratios and restrictions on dividend payments under certain circumstances, none of which materially restrict the Company's activities. Management believes that the Bank Credit Facility, combined with other discretionary credit facilities and cash flows from operations, provides the Company with sufficient capital resources and liquidity to manage its routine operations, meet debt service obligations and fund projected capital expenditures. If the discretionary lines of credit are not renewed, or if borrowings under these lines of credit otherwise become unavailable, the Company expects to refinance this debt by arranging additional committed bank facilities or through other long-term borrowing alternatives. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 and therefore was not used in preparing the Company's 2000 financial statements. The adoption of SFAS 133 at the beginning of fiscal year 2001 did not have a material impact on the Company's financial position or results of operations. Forward Looking Statements This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 concerning, among other things, the Company's prospects, expected revenues, expenses and profits, developments and business strategies for its operations all of which are subject to certain risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms and phrases such as "expect," "estimate," "project," "believe," "achievable" and similar terms and phrases. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Such statements are subject to general economic and business conditions, conditions in the oil and natural gas industry, weather conditions that affect conditions in the oil and natural gas industry, the business opportunities that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond the control of the Company. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. 20 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk The table below provides information about the Company's market sensitive financial instruments and constitutes a "forward-looking statement." The Company's major market risk exposure is changing interest rates, primarily in the United States and Canada. The Company's policy is to manage interest rates through use of a combination of fixed and floating rate debt. A portion of the Company's borrowings are denominated in foreign currencies which exposes the Company to market risk associated with exchange rate movements. When necessary, the Company enters into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. There was one material foreign exchange contract outstanding at September 30, 2000 in the amount of $50.6 million. This contract was settled on October 1, 2000 with no gain or loss. All items described are non-trading and are stated in U.S. dollars.
Expected Maturity Dates Fair Value --------------------------- September 30, 2001 2002 2003 2004 Thereafter Total 2000 ------- ------- ----- ----- ---------- -------- ------------- (in thousands) SHORT TERM BORROWINGS Bank borrowings; US $ denominated............ $ 2,547 $ 2,547 $ 2,547 Average variable interest rate--10.50% at September 30, 2000.. Bank borrowings; Deutsche mark denominated............ $ 902 $ 902 $ 902 Average variable interest rate--5.01% at September 30, 2000..... LONG TERM BORROWINGS Current-term loan; Canadian $ denominated............ $30,333 $ 30,333 $ 30,333 Variable interest rate-- 6.25% at September 30, 2000................... Current Leases; US $ denominated............ $ 318 $ 318 $ 318 Variable interest rate-- 6.18% at September 30, 2000................... Non-current-term loan; Canadian $ denominated............ $16,430 $ 16,430 $ 16,430 Variable interest rate-- 6.25% at September 30, 2000................... Non-current leases; US $ denominated............ $ 575 $ 383 $ 958 $ 958 Variable interest rate-- 6.18% at September 30, 2000................... 7% Series B Notes--US $ denominated............ $124,593 $124,593 $120,946 Fixed interest rate--7%
21 ITEM 8. Financial Statements and Supplementary Data INDEPENDENT AUDITORS' REPORT Stockholders of BJ Services Company: We have audited the accompanying consolidated statements of financial position of BJ Services Company and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2000. Our audits also included the financial statement schedule listed at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. 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. DELOITTE & TOUCHE LLP Houston, Texas November 16, 2000 22 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (in thousands, except per share amounts) Revenue..................................... $1,555,389 $1,131,334 $1,527,468 Operating Expenses: Cost of sales and services................ 1,210,299 973,931 1,155,356 Research and engineering.................. 27,078 23,269 30,308 Marketing................................. 53,011 49,312 53,803 General and administrative................ 56,279 46,367 49,828 Goodwill amortization..................... 13,497 13,525 13,824 Unusual charges........................... 39,695 26,586 ---------- ---------- ---------- Total operating expenses................ 1,360,164 1,146,099 1,329,705 ---------- ---------- ---------- Operating income (loss)..................... 195,225 (14,765) 197,763 Interest expense............................ (19,968) (31,365) (25,685) Interest income............................. 1,576 608 748 Other income (expense)--net................. (1,550) 613 (772) ---------- ---------- ---------- Income (loss) before income taxes........... 175,283 (44,909) 172,054 Income tax expense (benefit)................ 57,307 (15,221) 54,654 ---------- ---------- ---------- Net income (loss)........................... $ 117,976 $ (29,688) $ 117,400 ========== ========== ========== Earnings (Loss) Per Share: Basic..................................... $ 1.49 $ (.42) $ 1.58 Diluted................................... $ 1.40 $ (.42) $ 1.44 Weighted-Average Shares Outstanding: Basic..................................... 79,254 70,789 74,482 Diluted................................... 84,350 70,789 81,263
See Notes to Consolidated Financial Statements 23 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
September 30, ---------------------- 2000 1999 ASSETS ---------- ---------- (in thousands) Current Assets: Cash and cash equivalents............................. $ 6,472 $ 3,924 Receivables, less allowance for doubtful accounts: 2000, $11,545,000; 1999, $20,572,000................. 348,106 297,975 Inventories: Products............................................. 57,988 43,632 Work in process...................................... 1,408 2,116 Parts................................................ 53,399 51,539 ---------- ---------- Total inventories.................................. 112,795 97,287 Deferred income taxes................................. 15,632 15,668 Other current assets.................................. 23,373 24,109 ---------- ---------- Total current assets............................... 506,378 438,963 Property: Land.................................................. 12,619 12,410 Buildings and other................................... 198,066 170,111 Machinery and equipment............................... 863,214 957,314 ---------- ---------- Total property..................................... 1,073,899 1,139,835 Less accumulated depreciation......................... 488,505 480,118 ---------- ---------- Property--net...................................... 585,394 659,717 Goodwill, net of amortization.......................... 476,237 489,736 Deferred income taxes.................................. 199,795 201,774 Investments and other assets........................... 17,429 34,574 ---------- ---------- $1,785,233 $1,824,764 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable--trade............................... $ 147,581 $ 128,422 Short-term borrowings................................. 3,449 105,965 Current portion of long-term debt..................... 30,651 44,487 Accrued employee compensation and benefits............ 48,536 37,749 Income taxes.......................................... 15,754 15,641 Taxes other than income............................... 7,017 9,798 Accrued insurance..................................... 11,557 12,041 Other accrued liabilities............................. 72,546 91,043 ---------- ---------- Total current liabilities.......................... 337,091 445,146 Long-term debt......................................... 141,981 422,764 Deferred income taxes.................................. 7,966 6,578 Accrued postretirement benefits........................ 30,149 29,932 Other long-term liabilities............................ 98,275 43,255 Commitments and contingencies Stockholders' Equity: Preferred stock (authorized 5,000,000 shares) Common stock, $.10 par value (authorized 160,000,000 shares; 86,877,662 shares issued and 82,648,214 shares outstanding in 2000; 76,382,162 shares issued and 71,177,549 shares outstanding in 1999)........... 8,688 7,638 Capital in excess of par.............................. 948,859 765,866 Retained earnings..................................... 376,270 269,797 Accumulated other comprehensive income................ 4,541 4,924 Unearned compensation................................. (3,433) (614) Treasury stock at cost (2000--4,229,448 shares; 1999--5,204,613 shares)............................... (165,154) (170,522) ---------- ---------- Total stockholders' equity......................... 1,169,771 877,089 ---------- ---------- $1,785,233 $1,824,764 ========== ==========
See Notes to Consolidated Financial Statements 24 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Capital Accumulated In Other Common Excess Treasury Unearned Retained Comprehensive Stock Of Par Stock Compensation Earnings Income Total ------ -------- --------- ------------ -------- ------------- ---------- Balance, September 30, 1997................... $3,853 $763,063 $(7,075) $201,897 $(1,511) $ 960,227 Comprehensive income: Net income............. 117,400 Other comprehensive income, net of tax Cumulative translation adjustments........... 12,855 Minimum pension liability adjustment.. (3,925) Comprehensive income.... 126,330 Issuance of stock for: Stock options.......... 7 1,873 1,880 Stock purchase plan.... 9 2,861 2,870 Warrants surrendered... 39 39 Stock performance awards................ 1,068 (1,068) Stock split............ 3,769 (3,769) Treasury stock purchased.............. $(196,608) (196,608) Treasury stock reissued............... 2,804 (1,899) 905 Recognition of unearned compensation........... 1,850 1,850 Revaluation of stock performance............ (7,790) 5,928 (1,862) Tax benefit from exercise of options.... 4,433 4,433 ------ -------- --------- ------- -------- ------- ---------- Balance, September 30, 1998................... 7,638 765,547 (193,804) (365) 313,629 7,419 900,064 Comprehensive income: Net income............. (29,688) Other comprehensive income, net of tax Cumulative translation adjustments........... (5,585) Minimum pension liability adjustment.. 3,090 Comprehensive income.... (32,183) Issuance of stock for: Warrants surrendered... 70 70 Reissuance of treasury stock for: Stock options.......... 14,796 (9,750) 5,046 Stock purchase plan.... 4,144 (2,172) 1,972 Stock performance awards................ (2,235) 4,342 115 (2,222) Recognition of unearned compensation........... 1,140 1,140 Revaluation of stock performance awards..... 1,504 (1,504) Tax benefit from exercise of options.... 980 980 ------ -------- --------- ------- -------- ------- ---------- Balance, September 30, 1999................... 7,638 765,866 (170,522) (614) 269,797 4,924 877,089 Comprehensive income: Net income............. 117,976 Other comprehensive income, net of tax Cumulative translation adjustments........... (888) Minimum pension liability adjustment.. 505 Comprehensive income.... 117,593 Issuance of stock for: Warrants surrendered... 956 142,570 143,526 Stock options.......... 94 15,058 15,152 Treasury stock purchased.............. (171,796) (171,796) Reissuance of treasury stock for: Stock options.......... 32,629 (17,058) 15,571 Stock purchase plan.... 10,959 (6,171) 4,788 Stock performance awards................ (1,302) 1,579 (277) Stock private placement............. 131,997 12,003 144,000 Recognition of unearned compensation........... 3,390 3,390 Stock performance award.................. 3,651 (3,651) Revaluation of stock performance............ 2,557 (2,558) (1) Tax benefit from exercise of options.... 20,459 20,459 ------ -------- --------- ------- -------- ------- ---------- Balance, September 30, 2000................... $8,688 $948,859 $(165,154) $(3,433) $376,270 $ 4,541 $1,169,771 ====== ======== ========= ======= ======== ======= ==========
See Notes to Consolidated Financial Statements 25 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30, ------------------------------ 2000 1999 1998 --------- -------- --------- (in thousands) Cash flows from operating activities: Net income (loss.............................. $ 117,976 $(29,688) $ 117,400 Adjustments to reconcile net income to cash provided from operating activities: Depreciation and amortization................ 102,018 99,800 91,497 Net (gain) loss on disposal of assets........ 1,451 147 89 Recognition of unearned compensation......... 3,390 1,140 1,850 Deferred income tax expense (benefit)........ 39,037 (32,866) 31,426 Unusual charge (noncash)..................... 23,051 15,278 Minority interest............................ 3,263 2,585 3,206 Changes in: Receivables.................................. (47,808) 19,191 28,689 Accounts payable--trade...................... 19,125 (22,444) (22,248) Inventories.................................. (16,928) 19,921 (5, 750) Other current assets and liabilities......... (18,028) (5,837) 13,580 Other, net................................... 1,213 (10,571) 9,325 --------- -------- --------- Net cash flows provided from operating activities................................... 204,709 64,429 284,342 Cash flows from investing activities: Property additions............................ (80,518) (110,566) (167,961) Proceeds from disposal of assets.............. 127,492 7,270 9,372 Acquisitions of businesses, net of cash acquired..................................... (3,240) (73,442) (2,459) --------- -------- --------- Net cash provided from (used for) investing activities................................... 43,734 (176,738) (161,048) Cash flows from financing activities: Proceeds from exercise of stock options and stock purchase plan.......................... 35,511 7,997 5,696 Proceeds from stock private placement......... 144,000 Proceeds from warrant exercise................ 143,526 70 Purchase of treasury stock.................... (171,796) (196,608) Proceeds from (repayment of) bank borrowings-- net.......................................... (397,136) 106,541 71,343 Principal payment on other long-term notes.... (6,000) --------- -------- --------- Net cash flows provided from (used for) financing activities......................... (245,895) 114,608 (125,569) Increase (decrease) in cash and cash equivalents.................................. 2,548 2,299 (2,275) Cash and cash equivalents at beginning of year......................................... 3,924 1,625 3,900 --------- -------- --------- Cash and cash equivalents at end of year...... $ 6,472 $ 3,924 $ 1,625 ========= ======== =========
See Notes to Consolidated Financial Statements 26 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 1999 and 1998 have been reclassified in the accompanying consolidated financial statements to conform to the current year presentation. 2. Summary of Significant Accounting Policies 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 (i) products which are consumed in the Company's services provided to customers, (ii) spare parts for equipment used in providing these services and (iii) manufactured components and attachments for equipment used in providing services, are stated primarily at the lower of weighted-average cost or market. Property: Property is stated at cost less amounts provided for permanent impairments and includes capitalized interest of $1,557,000, $2,317,000, and $1,665,000 for the years ended September 30, 2000, 1999, and 1998, 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. Intangible assets: 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. Patents are being amortized on a straight line basis over their estimated useful lives, not to exceed 17 years. Accumulated amortization on intangible assets at September 30, 2000 and 1999 was $70,557,000 and $51,934,000 respectively. The Company utilizes undiscounted estimated cash flows to evaluate any possible impairment of intangible assets. If such cash flows are less than the net carrying value of the intangible assets, the Company records an impairment charge equal to the difference in discounted estimated cash flows and the net carrying value. The discount rate utilized is based on market factors at the time the charge is determined. 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. Revenue Recognition: The Company recognizes revenue as services are rendered or products are delivered. Certain revenues from the Company's process and pipeline services are reported on the percentage of completion method of accounting using measurements of progress towards completion appropriate for the work performed. 27 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 as cost of sales. Gains and losses resulting from financial statement translation of foreign operations where a foreign currency is the functional currency are included as a separate component of stockholders' equity. Except in Canada, the Company's foreign operations 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 was one foreign exchange contract outstanding at September 30, 2000 in the amount of $50.6 million and none in 1999. This contract was settled on October 1, 2000 with no gain or loss. 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. Impairment of long-lived assets: In accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company recognizes impairment losses for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. In the years ended September 30, 1999 and 1998, the Company recorded an impairment of $23.1 million and $12.3 million, respectively, against certain long-lived assets based on a decrease in the undiscounted cash flows expected to be generated by these assets as a result of the downturn in oilfield drilling activity. See Note 4. Employee stock-based compensation: In fiscal 1997, the Company adopted Financial Accounting Standards Board Statement No. 123, "Accounting for Stock- Based Compensation" ("SFAS 123"). Under SFAS 123, the Company is permitted to either record expenses for stock options and other stock-based employee compensation plans based on their fair value at the date of grant or to continue to apply Accounting Principles Board Opinion No. 25 ("APB 25") and recognize compensation expense, if any, based on the intrinsic value of the equity instrument at the measurement date. The Company elected to continue following APB 25; therefore, no compensation expense has been recognized because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant. New accounting pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 and therefore was not used in preparing the Company's 2000 financial statements. The adoption of this Standard at the beginning of fiscal year 2001 did not have a material impact on the Company's financial position or results of operations. 28 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Acquisitions of Businesses Effective June 28, 1999, the Company acquired selected assets and subsidiaries of Fracmaster Ltd. for total consideration of $78.4 million. This acquisition was accounted for using the purchase method of accounting. Accordingly, the results of Fracmaster Ltd.'s operations were included in the Company's statement of operations beginning July 1, 1999. The assets and liabilities of Fracmaster Ltd. have been recorded in the Company's statement of financial position at estimated fair market value of $78.4 million at September 30, 1999. The allocation of the purchase price may be summarized as follows (in millions): Fair value of assets acquired(1)..................................... $129.6 Debt assumed......................................................... (1.7) Liabilities assumed.................................................. (37.1) Excess of fair value over cost....................................... (12.4) ------ $ 78.4 ======
- -------- (1) Includes cash acquired of $4.9 million. Pro forma financial information is not presented as this acquisition is not material to the Company's consolidated financial statements. Other: Effective June 1, 2000, the Company acquired the remaining 60% ownership of its previously unconsolidated joint venture in Malaysia for total consideration of $3.2 million in cash. Effective September 30, 1998, the Company acquired the remaining 51% ownership of its previously unconsolidated joint venture in Bolivia for total consideration of $2.6 million in cash. Each of these "other" acquisitions have been accounted for using the purchase method of accounting and, accordingly, any excess of the total consideration over the estimated fair value of the net assets acquired has been recorded as goodwill and is being amortized over 40 years. These acquisitions are not material to the Company's financial statements and therefore pro forma information is not presented. 4. Unusual Charges During fiscal 1999, the Company recorded pretax unusual charges totaling $39.7 million ($26.0 million after tax, or $.36 per diluted share) to reflect changes in its operations as a result of the downturn in oilfield drilling activity. The components of the unusual charge are as follows (in thousands):
Balance at 1999 Incurred September 30, Provision to Date 2000 --------- -------- ------------- Asset impairments (noncash)................ $23,051 $(23,051) Severance and related benefits............. 12,798 (12,798) Facility closures and other................ 3,846 (3,730) $ 116 ------- -------- ------ $39,695 $(39,579) $ 116 ======= ======== ======
The 1999 asset impairment losses of $23.1 million primarily relate to certain equipment previously utilized in the Company's U.S. operations, which were sold or decommissioned and salvaged for spare parts. The 29 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) severance and related benefits relate to the cost of the involuntary termination of approximately 1,100 employees worldwide. The facility closures and other costs primarily represent remaining lease obligations related to the closure of several locations in the oil producing regions of the U.S. and also one location in Latin America, and costs incurred during the first six months of fiscal 1999 for the relocation of equipment and personnel resulting from the closing of these facilities. Except for the remaining lease obligations of $.5 million related to the closure of locations, all expenditures for this provision were made as of September 30, 1999. The unexpended provision for remaining lease obligations related to the closure of locations was $.1 million at September 30, 2000. During the fourth quarter of fiscal 1998, the Company recorded a pretax unusual charge of $26.6 million ($17.6 million after tax, or $.22 per diluted share) to reflect changes in its operations as a result of the downturn in oilfield drilling activity. The components of the unusual charge were as follows (in thousands):
1998 Provision --------- Asset impairments (noncash)........................................ $12,218 Severance and related benefits..................................... 7,830 Bad debt expense (noncash)......................................... 3,005 Facility closure (1)............................................... 2,455 Other.............................................................. 1,078 ------- $26,586 =======
- -------- (1) Includes $55 noncash impairment of facilities. The 1998 asset impairment losses of $12.2 million consist principally of the write-down of certain non-productive facilities and equipment in the U.S., and result from the evaluation of the Company's ability to recover asset costs given the downturn in oilfield drilling activity. The severance and related benefits costs relate to the involuntary termination of approximately 850 permanent and contracted personnel worldwide, substantially all of which had been notified as of September 30, 1998. The bad debt expense relates to the write-off of uncollectible receivables resulting from certain customers' inability to pay their obligations due to reduced production revenue as a result of the lower prices for oil and natural gas. The facility closure costs relate to the closing of certain marginal operating locations which were most impacted by the drilling downturn and also cancellation costs related to a proposed new office building. The other costs relate primarily to legal expenses resulting from the employee terminations and cancellation costs related to certain proposed equipment purchases. All expenditures for the 1998 provision were made as of September 30, 1999. 5. Earnings Per Share In October 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("EPS"). In accordance with this standard the Company has replaced the presentation of primary EPS and fully diluted EPS with the presentation of basic EPS and diluted EPS for all periods presented. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares outstanding during each period and the assumed exercise of dilutive stock options and warrants less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common stock for each of the periods presented. At the annual meeting of stockholders on January 22, 1998, the Company's stockholders approved an amendment to the Company's charter increasing the number of authorized shares of common stock from 80 30 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) million to 160 million shares. A 2 for 1 stock split approved by the Board of Directors on December 11, 1997 (effected in the form of a stock dividend) was distributed on February 20, 1998 to stockholders of record as of January 30, 1998. Accordingly, all references in the financial statements to number of shares outstanding and earnings per share amounts have been retroactively restated for all periods presented to reflect the increased number of common shares outstanding resulting from the stock split. The following table presents information necessary to calculate earnings per share for the three years ended September 30, 2000 (in thousands, except per share amounts):
2000 1999 1998 -------- -------- -------- Net income (loss).............................. $117,976 $(29,688) $117,400 Average common shares outstanding.............. 79,254 70,789 74,482 -------- -------- -------- Basic earnings (loss) per share................ $ 1.49 $ (.42) $ 1.58 ======== ======== ======== Average common and dilutive potential common shares outstanding: Average common shares outstanding............ 79,254 70,789 74,482 Assumed exercise of stock options............ 2,176 (1) 1,780 Assumed exercise of warrants(2).............. 2,920 (1) 5,001 -------- -------- -------- 84,350 70,789 81,263 -------- -------- -------- Diluted earnings (loss) per share.............. $ 1.40 $ (.42) $ 1.44 ======== ======== ========
- -------- (1) Antidilutive because the Company incurred a net loss in this period. (2) Includes dilutive impact of warrants for the periods they were outstanding through April 2000. 6. Long-Term Debt and Bank Credit Facilities Long-term debt at September 30, 2000 and 1999 consisted of the following (in thousands):
2000 1999 -------- -------- Notes payable, banks...................................... $ 46,763 $341,064 7% Series B Notes due 2006, net of discount............... 124,593 124,517 Other..................................................... 1,276 1,670 -------- -------- 172,632 467,251 Less current maturities of long-term debt................. 30,651 44,487 -------- -------- Long-term debt............................................ $141,981 $422,764 ======== ========
The Company has a committed, unsecured bank credit facility (the "Bank Credit Facility") consisting of a six-year term loan of approximately $46.8 million (currently drawn in Canadian dollars under a provision which is renewable annually at the option of the banks), which is repayable in 22 quarterly installments that began in March 1997, and a five year U.S. $225.0 million revolving facility available through June 2001. Interest on outstanding borrowings is charged based on prevailing market rates. Interest rates were 6.25% and 5.65% at September 30, 2000 and 1999, respectively. The Company is charged various fees in connection with the Bank Credit Facility, including a commitment fee based on the average daily unused portion of the commitment. Commitment fees under the Company's credit facilities were $290,000, $155,000, and $355,000 for 2000, 1999 and 1998, respectively. At September 30, 2000, borrowings outstanding under the Bank Credit 31 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Facility totaled $46.8 million, consisting solely of borrowings under the term loan. Principal reductions of term loans under the Bank Credit Facility are due in aggregate annual installments of $30.4 million and $16.4 million in the years ending September 30, 2001 and 2002, respectively. In addition to the committed facility, the Company had $149.4 million in various unsecured, discretionary lines of credit at September 30, 2000, which expire at various dates in 2001. There are no requirements for commitment fees or compensating balances in connection with these lines of credit. Interest on borrowings is based on prevailing market rates. At September 30, 2000, there were $3.4 million in outstanding borrowings under these lines of credit. At September 30, 1999, there were $106.0 million in outstanding borrowings under these lines of credit. The weighted average interest rates on short-term borrowings outstanding as of September 30, 2000 and 1999 were 9.1% and 5.6%, respectively. The Company has issued and outstanding $125.0 million of unsecured 7% Notes due 2006. The net proceeds from the issuance of the 7% Notes ($123.3 million) in August 1996 were used by the Company to repay indebtedness outstanding under the term loan portion of the Company's then existing bank credit facility. At September 30, 2000, the Company had outstanding letters of credit and performance related bonds totaling $18.9 million and $46.2 million, respectively. The letters of credit are issued to guarantee various trade 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, none of which materially restrict the Company's activities. 7. 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, Trade Payables and Short-Term Borrowings: The carrying amount approximates fair value because of the short maturity of those instruments. Long-term Debt: Fair value is based on the rates currently available to the Company for debt with similar terms and average maturities. 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. The fair value of financial instruments which differed from their carrying value at September 30, 2000 and 1999 was as follows (in thousands):
2000 1999 ----------------- ----------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- 7.0% Series B Notes...................... $124,593 $120,946 $124,517 $121,936
32 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Income Taxes The geographical sources of income (loss) before income taxes for the three years ended September 30, 2000 were as follows (in thousands):
2000 1999 1998 -------- -------- -------- United States................................... $100,576 $(67,887) $ 72,120 Foreign......................................... 74,707 22,978 99,934 -------- -------- -------- Income (loss) before income taxes............... $175,283 $(44,909) $172,054 ======== ======== ========
The provision (benefit) for income taxes for the three years ended September 30, 2000 is summarized below (in thousands):
2000 1999 1998 ------- -------- ------- Current: United States................................... $ 1,081 $ 379 Foreign......................................... 17,189 $ 17,645 22,849 ------- -------- ------- Total current................................. 18,270 17,645 23,228 Deferred: United States................................... 38,635 (26,501) 28,353 Foreign......................................... 402 (6,365) 3,073 ------- -------- ------- Total deferred................................ 39,037 (32,866) 31,426 ------- -------- ------- Income tax (benefit) expense...................... $57,307 $(15,221) $54,654 ======= ======== =======
The consolidated effective income tax rates (as a percent of income before income taxes) for the three years ended September 30, 2000 varied from the United States statutory income tax rate for the reasons set forth below:
2000 1999 1998 ---- ----- ---- Statutory rate........................................... 35.0% (35.0)% 35.0% Foreign earnings at varying rates........................ (5.4) (10.4) (7.2) Foreign income recognized domestically................... .3 (4.8) .6 Goodwill amortization.................................... 2.1 10.5 2.8 Nondeductible expenses................................... 1.1 5.6 .8 Other--net............................................... (.4) .2 (.2) ---- ----- ---- 32.7% (33.9)% 31.8% ==== ===== ====
33 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 as of September 30, 2000 and 1999 were as follows (in thousands):
2000 1999 -------- -------- Assets: Expenses accrued for financial reporting purposes, not yet deducted for tax............................ $ 74,425 $ 50,590 Net operating loss carryforwards..................... 195,639 233,314 Valuation allowance.................................. (39,140) (34,920) -------- -------- Total deferred tax asset........................... 230,924 248,984 Liabilities: Differences in depreciable basis of property......... (20,994) (33,723) Income accrued for financial reporting purposes, not yet reported for tax................................ (2,469) (4,397) -------- -------- Total deferred tax liability....................... (23,463) (38,120 ) -------- -------- Net deferred tax asset................................. $207,461 $210,864 ======== ========
At September 30, 2000, the Company had approximately $421 million of U.S. tax net operating loss carryforwards expiring in varying amounts between 2002 and 2014. The Company also had approximately $80 million of foreign tax net operating loss carryforwards and approximately $11 million of foreign research and development tax credit carryforwards as of September 30, 2000. Of the foreign tax net operating loss carryforwards, approximately $54 million is not subject to an annual limitation and will carryforward indefinitely. The foreign research and development tax credit carryforward and the remaining loss carryforward, if not used, will expire in varying amounts beginning in 2001. The potential impact of the expiration of net operating loss and research and development tax credit carryforwards has been reflected in the deferred tax asset valuation allowance balance as of September 30, 2000 and 1999. In 2000, the deferred tax valuation allowance was increased by $1.1 million as a result of final adjustments to the Fracmaster purchase price allocation. The allowance was increased by $3.9 million related to net operating losses recognized in Venezuela, which are expected to expire prior to utilization. The allowance was reduced by $.8 million as a result of foreign exchange movements. 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 $446 million at September 30, 2000. 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. 34 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Segment Information The Company has three business segments: U.S./Mexico Pressure Pumping, International Pressure Pumping and Other Oilfield Services. The U.S./Mexico Pressure Pumping Services segment includes cementing services and stimulation services (consisting of fracturing, acidizing, sand control, nitrogen, coiled tubing and downhole tools services) which are provided throughout the United States and Mexico. The International Pressure Pumping Services segment also includes cementing and stimulation services which are provided to over 40 countries in the major international oil and natural gas producing areas of Latin America, Europe, Africa, Southeast Asia, Canada and the Middle East. The Other Oilfield Services segment consists of specialty chemicals, tubular services and process and pipeline services, both throughout the U.S. and internationally. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates the performance of its operating segments based on operating income excluding goodwill amortization and unusual charges. Intersegment sales and transfers are not significant. Summarized financial information concerning the Company's segments is shown in the following table. The "Corporate" column includes corporate general and administrative expenses, goodwill amortization and unusual charges. Business Segments
U.S./Mexico International Other Pressure Pressure Oilfield Pumping Pumping Services Corporate Total ----------- ------------- -------- --------- ---------- (in thousands) 2000 Revenues................ $743,788 $629,218 $182,354 $ 29 $1,555,389 Operating income (loss)................. 141,816 68,536 17,940 (33,067) 195,225 Identifiable assets..... 351,269 573,414 119,105 741,445 1,785,233 Capital expenditures.... 31,656 36,150 7,863 4,849 80,518 Depreciation and amortization........... 38,791 52,258 11,112 (143) 102,018 1999 Revenues................ $453,912 $505,613 $171,184 $ 625 $1,131,334 Operating income (loss)................. (3,889) 39,791 18,973 (69,640) (14,765) Identifiable assets..... 356,794 584,936 122,121 760,913 1,824,764 Capital expenditures.... 42,460 36,515 12,607 18,984 110,566 Depreciation and amortization........... 36,532 44,951 10,677 7,640 99,800 1998 Revenues................ $726,729 $612,672 $185,329 $ 2,738 $1,527,468 Operating income (loss)................. 117,604 97,494 27,611 (44,946) 197,763 Identifiable assets..... 359,349 530,848 123,613 729,891 1,743,701 Capital expenditures.... 58,070 89,924 14,853 5,114 167,961 Depreciation and amortization........... 34,280 40,822 10,145 6,250 91,497
35 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Geographic Information
Long-Lived Revenues Assets ---------- ---------- (in thousands) 2000 United States.......................................... $ 801,431 $ 693,860 Canada................................................. 223,227 105,174 Other foreign countries................................ 530,731 280,026 ---------- ---------- Consolidated total................................... $1,555,389 $1,079,060 ========== ========== 1999 United States.......................................... $ 488,566 $ 769,492 Canada................................................. 118,996 114,159 Other foreign countries................................ 523,772 300,376 ---------- ---------- Consolidated total................................... $1,131,334 $1,184,027 ========== ========== 1998 United States.......................................... $ 779,715 $ 780,029 Canada................................................. 153,611 68,582 Other foreign countries................................ 594,142 272,130 ---------- ---------- Consolidated total................................... $1,527,468 $1,120,741 ========== ==========
Revenues by Product Line
2000 1999 1998 ---------- ---------- ---------- (in thousands) Cementing................................... $ 492,159 $ 356,762 $ 499,789 Stimulation................................. 846,796 577,077 797,578 Other....................................... 216,434 197,495 230,101 ---------- ---------- ---------- Total revenue............................. $1,555,389 $1,131,334 $1,527,468 ========== ========== ==========
A reconciliation from the segment information to consolidated income (loss) before income taxes is set forth below (in thousands):
2000 1999 1998 -------- -------- -------- Total operating profit (loss) for reportable segments................................... $195,225 $(14,765) $197,763 Interest income (expense)--net.............. (18,392) (30,757) (24,937) Other income (expense)--net................. (1,550) 613 (772) -------- -------- -------- Income (loss) before income taxes........... $175,283 $(44,909) $172,054 ======== ======== ========
36 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. Employee Benefit Plans U.S. Benefit Plans The Company administers a thrift plan for U.S. based employees 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 their age as of January 1 each year as a base contribution. Company matching contributions vest immediately while base contributions become fully vested after five years of employment. The Company's contributions to these thrift plans amounted to $7,614,000, $7,365,000 and $7,916,000 in 2000, 1999 and 1998, respectively. Effective October 1, 2000, the Company established a supplemental executive retirement plan. The unfunded defined benefit plan will provide Company executives with supplemental retirement benefits. The supplemental retirement benefits are based on the highest consecutive three years compensation out of the final ten years and become vested at age 55. The Company's U.S. employees formerly employed by The Western Company of North America ("Western") with at least one year of service are 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. Benefits under the Western plan were frozen effective December 31, 1995, at which time all earned benefits were vested. Management has not yet made a decision on whether 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. The funded status of this plan at September 30, 2000 and 1999 was as follows (in thousands):
2000 1999 ------- ------- Vested benefit obligation.................................. $52,221 $53,383 ======= ======= Accumulated benefit obligation............................. $52,221 $53,383 Plan assets at fair value.................................. 51,396 48,970 ------- ------- Benefit obligation in excess of plan assets................ 825 4,413 Unrecognized loss.......................................... (3,663) (4,440) Adjustment required to recognize minimum liability......... 3,663 4,440 ------- ------- Net pension liability...................................... $ 825 $ 4,413 ======= =======
The following provides a reconciliation of the benefit obligation and plan assets:
2000 1999 ------- ------- Change in benefit obligation Defined benefit plan obligation, beginning of year......... $53,383 $56,577 Interest cost.............................................. 3,756 3,589 Actuarial (gain)/loss...................................... (1,758) (3,617) Benefits paid from plan assets............................. (3,160) (3,166) ------- ------- Defined benefit plan obligation, end of year............... $52,221 $53,383 ======= ======= Change in plan assets Fair value of plan assets, beginning of year............... $48,970 $47,377 Company contributions...................................... 2,300 Actual return on plan assets............................... 3,286 4,759 Benefits paid from plan assets............................. (3,160) (3,166) ------- ------- Fair value of plan assets, end of year..................... $51,396 $48,970 ======= =======
37 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Pursuant to the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company recorded in other noncurrent liabilities a minimum pension liability adjustment of $3.7 million and $4.4 million as of September 30, 2000 and 1999, respectively. As there were no previously unrecognized prior service costs at September 30, 2000 and 1999, the full amount of the adjustments, net of related deferred tax benefit, are reflected as a reduction of stockholders' equity. See Note 12 for disclosure of the amounts included in other comprehensive income. Assumptions used in accounting for the Company's U.S. defined benefit plan were as follows:
2000 1999 1998 ---- ---- ---- Weighted-average discount rate........................... 7.70% 7.25% 6.50% Weighted-average expected long-term rate of return on assets.................................................. 9.00% 9.00% 9.00%
Costs for each of the three years ended September 30, 2000 for the Company's U.S. defined benefit plan were as follows (in thousands):
2000 1999 1998 ------- ------- ------- Interest cost on projected benefit obligation... $ 3,756 $ 3,589 $ 3,571 Expected return on plan assets.................. (4,268) (4,142) (4,044) Net amortization and deferral................... 520 ------- ------- ------- Net pension cost (benefit)...................... $ (512) $ (33) $ (473) ======= ======= =======
Foreign Benefit Plans In addition, the Company sponsors defined benefit plans for foreign operations, which cover substantially all employees in Canada and the United Kingdom. Effective July 1, 2000, a defined contribution component was added to the Canadian pension plan and active members were permitted to elect whether to participate in the defined benefit or defined contribution component of the plan. The plan conversion resulted in a settlement of the projected benefit obligation with respect to members who elected to transfer their benefits entitlement to the defined contribution component of the plan. A settlement gain of $1.5 million was recognized in other income for the year ended September 30, 2000. The Company also sponsored a defined benefit plan in Venezuela until 1998. During fiscal year 1998, a new labor law was enacted in Venezuela which resulted in termination of the plan. The new labor law in essence prospectively requires employers to fund stipulated amounts based on employees' salaries into a trust fund. After making the contribution, the Company has no further obligation. Therefore, no obligation is included for Venezuela in the figures below. The funded status of the Company's international plans at September 30, 2000 and 1999 was as follows (in thousands):
2000 1999 ------- ------- Actuarial present value of: Vested benefit obligation.............................. $48,788 $53,998 ======= ======= Accumulated benefit obligation......................... $48,850 $55,327 ======= ======= Projected benefit obligation............................. $54,622 $61,519 Plan assets at fair value................................ 64,776 65,311 ------- ------- Plan assets in (excess of) less than projected benefit obligation.............................................. (10,154) (3,792) Unrecognized gain (loss)................................. 10,198 5,344 Unrecognized transition asset, net of amortization....... 19 26 Unrecognized prior service cost.......................... (130) (170) ------- ------- Net pension (asset) liability............................ $ (67) $ 1,408 ======= =======
38 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following provides a reconciliation of the benefit obligation and plan assets of the Company's international defined benefit plans (in thousands):
2000 1999 ------- ------- Change in benefit obligation Defined benefit obligation, beginning of year.............. $61,519 $58,667 Service cost............................................... 4,700 5,478 Interest cost.............................................. 3,844 3,860 Actuarial (gain)/loss...................................... (1,762) (3,894) Benefits paid from plan assets............................. (2,039) (3,658) Contributions by plan participants......................... 847 1,045 Settlement on conversion................................... (8,075) Foreign currency exchange rate change...................... (4,412) 21 ------- ------- Defined benefit obligation, end of year.................... $54,622 $61,519 ======= ======= Change in plan assets Fair value of plan assets, beginning of year............... $65,311 $52,668 Actual return on plan assets............................... 10,219 11,286 Company contributions...................................... 2,552 2,783 Contributions by plan participants......................... 1,720 1,981 Benefits paid from plan assets............................. (2,039) (3,658) Settlement of assets on conversion......................... (8,257) Foreign currency exchange rate change...................... (4,730) 251 ------- ------- Fair value of plan assets, end of year..................... $64,776 $65,311 ======= =======
Assumptions used in accounting for the Company's international defined benefit pension plans were as follows: Weighted-average discount rate.......................................... 6-7% Weighted-average rate of increase in future compensation................ 2-5% Weighted-average expected long-term rate of return on assets............ 2-9%
Combined costs for the Company's international defined benefit plans for the three years ended September 30, 2000 were as follows (in thousands):
2000 1999 1998 ------ ------- ------ Net periodic foreign pension cost: Service cost for benefits earned................. $4,700 $ 5,478 $5,492 Interest cost on projected benefit obligation.... 3,844 3,860 4,112 Expected return on plan assets................... (7,459) (11,387) 3,335 Recognized gain on settlement.................... (1,454) Net amortization and deferral.................... 2,423 7,309 (7,615) ------ ------- ------ Net pension cost................................... $2,054 $ 5,260 $5,324 ====== ======= ======
In addition, the Company expensed $130,000, $780,000 and $910,000 during 2000, 1999 and 1998, respectively, relating to the settlement of the pension liability resulting from the enactment of the new labor law in Venezuela. 39 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Postretirement Benefit Plans The Company also sponsors plans 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. The Company's postretirement medical benefit plan provides credits based on years of service which can be used to purchase coverage under the active employee plans. This plan effectively caps the Company's health care inflation rate at a 4% increase per year. The 1995 reduction in the accumulated postretirement benefit obligation of approximately $5.7 million due to this cap is being amortized over the average period of future service to the date of full eligibility for such postretirement benefits of the active employees. Net periodic postretirement benefit costs for the three years ended September 30, 2000 included the following components (in thousands):
2000 1999 1998 ------ ------ ------ Service cost for benefits attributed to service during the period................................ $1,392 $1,786 $1,563 Interest cost on accumulated postretirement benefit obligation............................... 1,615 1,532 1,513 Amortization of prior service costs............... (599) (894) (894) Amortization of cumulative unrecognized net gain.. (546) (65) ------ ------ ------ Net periodic postretirement benefit cost.......... $1,862 $2,424 $2,117 ====== ====== ======
The actuarial and recorded liabilities for these postretirement benefits were as follows at September 30, 2000 and 1999 (in thousands):
2000 1999 ------- ------- Accumulated postretirement benefit obligation: Retirees.................................................. $ 6,687 $7 ,420 Fully eligible active plan participants................... 2,681 2,072 Other active plan participants............................ 14,345 13,330 ------- ------- 23,713 22,822 Unrecognized cumulative net gain............................ 6,436 6,511 Unrecognized prior service cost............................. 599 ------- ------- Accrued postretirement benefit liability.................... $30,149 $29,932 ======= =======
The following provides a reconciliation of the benefit obligation and plan assets (in thousands):
2000 1999 ------- ------- Change in benefit obligation Postretirement benefit obligation, beginning of year....... $22,822 $25,017 Service cost............................................... 1,392 1,786 Interest cost.............................................. 1,615 1,532 Actuarial (gain)/loss...................................... (472) (4,667) Benefits paid.............................................. (1,644) (846) ------- ------- Postretirement benefit obligation, end of year............. $23,713 $22,822 ======= =======
The accumulated postretirement benefit obligation at September 30, 2000 and 1999 was determined using a discount rate of 7.70% and 7.25%, respectively, and a health care cost trend rate of 4%, reflecting the cap 40 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) discussed above. Increasing the assumed health care cost trend rates by one percentage point 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. 11. 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 has completed the removal of these tanks and has remedial cleanups in progress related to the tank removals. In addition, the Company is conducting environmental investigations and remedial actions at current and former company locations and, along with other companies, is currently named as a potentially responsible party at five, third-party owned waste disposal sites. The Company has established an accrual of approximately $7 million for such environmental matters, which is management's best estimate of the Company's portion of future costs to be incurred. The Company also maintains insurance for environmental liabilities in amounts which the Company believes are reasonable based on its knowledge of potential exposures. In December 1999, the Company completed a transaction involving the transfer of certain pumping service equipment assets. The Company received $120.0 million, which was used to pay outstanding bank debt. The equipment will be used to provide services to the Company's customers for which the Company will pay a service fee over a period of at least six, but not more than 13 years. The transaction generated a deferred gain for book purposes, included in other long-term liabilities, of approximately $63 million, which is being amortized over 13 years. The balance of the deferred gain was $57.4 million as of September 30, 2000. In 1997, the Company completed a transaction involving the transfer of certain pumping service equipment assets. The Company received $100.0 million, which was used to pay outstanding bank debt. The equipment will be used to provide services to the Company's customers for which the Company will pay a service fee over a period of at least eight, but not more than 14 years. The transaction generated a deferred gain for book purposes of approximately $38 million, which will be amortized over 12 years. The balance of the deferred gain was $25.4 million and $28.3 million as of September 30, 2000 and 1999, respectively. Lease and Other Long-Term Commitments: At September 30, 2000, the Company had long-term operating leases and service fee commitments covering certain facilities and equipment, as well as other long-term commitments, with varying expiration dates. Minimum annual commitments for the years ended September 30, 2001, 2002, 2003, 2004 and 2005 are $47,141,000, $40,889,000, $35,155,000, $33,198,000 and $33,788,000, respectively and $134,205,000 in the aggregate thereafter. 41 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. Supplemental Financial Information Supplemental financial information for the three years ended September 30, 2000 is as follows (in thousands):
2000 1999 1998 ------- ------- ------- Consolidated Statement of Operations: Research and development expense............... $10,943 $10,573 $11,908 Rent expense................................... 56,235 46,871 46,153 Net foreign exchange gain (loss)............... (1,625) (68) (896) Consolidated Statement of Cash Flows: Income taxes paid.............................. $23,725 $15,571 $23,953 Interest paid.................................. 20,368 31,835 25,595 Details of acquisitions: Fair value of assets acquired................. 3,711 112,276 3,855 Liabilities assumed........................... 471 38,834 2,949 Goodwill...................................... 1,553 Cash paid for acquisitions, net of cash acquired..................................... 3,240 73,442 2,459
Other income (expense)--net for the three years ended September 30, 2000 is summarized as follows (in thousands):
2000 1999 1998 ------- ------ ------ Rental income...................................... $ 1,395 $ 114 $ 384 Gain (loss) on sales of assets--net................ (1,451) (147) (89) Minority interest.................................. (3,263) (2,585) (3,206) Non-operating net foreign exchange gain (loss)..... (26) 35 1,110 Dividend income.................................... 2,197 Gain on pension settlement......................... 1,454 Other--net......................................... 341 999 1,029 ------- ------ ------ Other income (expense)--net........................ $(1,550) $ 613 $ (772) ======= ====== ======
Accumulated other comprehensive income consists of the following (in thousands):
Minimum Pension Cumulative Liability Translation Adjustment Adjustment Total ---------- ----------- ------- Balance, September 30, 1997................. $(2,051) $ 540 $(1,511) Changes..................................... (3,925) 12,855 8,930 ------- ------- ------- Balance, September 30, 1998................. (5,976) 13,395 7,419 Changes..................................... 3,090 (5,585) (2,495) ------- ------- ------- Balance, September 30, 1999................. (2,886) 7,810 4,924 Changes..................................... 505 (888) (383) ------- ------- ------- Balance, September 30, 2000................. $(2,381) $ 6,922 $ 4,541 ======= ======= =======
42 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The tax effects allocated to each component of other comprehensive income may be summarized as follows (in thousands):
Tax Before-Tax (Expense) Net-of-Tax Amount Benefit Amount ---------- --------- ---------- Year Ended September 30, 1998: Foreign currency translation adjustment... $12,855 $12,855 Minimum pension liability adjustment...... (6,038) $ 2,113 (3,925) ------- ------- ------- Other comprehensive income................ $ 6,817 $ 2,113 $ 8,930 ======= ======= ======= Year Ended September 30, 1999: Foreign currency translation adjustment... $(5,585) $(5,585) Minimum pension liability adjustment...... 4,754 $(1,664) 3,090 ------- ------- ------- Other comprehensive income................ $ (831) $(1,664) $(2,495) ======= ======= ======= Year Ended September 30, 2000: Foreign currency translation adjustment... $ (888) $ (888) Minimum pension liability adjustment...... 777 $ (272) 505 ------- ------- ------- Other comprehensive income................ $ (111) $ (272) $ (383) ======= ======= =======
13. Employee Stock Plans Stock Option Plans: The Company's 1990 Stock Incentive Plan, 1995 Incentive Plan and 1997 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 or four-year period and are exercisable for periods ranging from one to ten years. An aggregate of 9,000,000 shares of Common Stock has been reserved for grants, of which 1,826,937 were available for future grants at September 30, 2000. A summary of the status of the Company's stock option activity, and related information for the years ended September 30, 2000, 1999 and 1998 is presented below (in thousands, except per share prices):
2000 1999 1998 ---------------------- ---------------------- ---------------------- Weighted-Avg. Weighted-Avg. Weighted-Avg. Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year................ 4,388 $16.34 2,888 $16.64 2,582 $13.14 Granted................. 76 35.55 2,023 14.73 503 35.22 Exercised............... (1,932) 16.52 (468) 10.78 (164) 16.92 Forfeited............... (56) 17.57 (55) 18.01 (33) 30.31 ------ ----- ----- Outstanding at end of year................... 2,476 16.77 4,388 16.36 2,888 16.64 ====== ===== ===== Options exercisable at year-end............... 905 $16.66 2,143 $15.41 2,260 $12.94 Weighted-average fair value of options granted during the year................... $20.40 $11.16 $26.30
43 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes information about stock options outstanding as of September 30, 2000 (in thousands, except per share prices):
Options Outstanding Options Exercisable ------------------------------------- -------------------- Weighted-Avg. Weighted-Avg. Weighted-Avg. Remaining Exercise Exercise Range of Exercise Price Shares Contractual Life Price Shares Price ----------------------- ------ ---------------- ------------- ------ ------------- $6.00 to 10.78.......... 313 4.2 $8.74 313 $8.74 10.79 to 21.56.......... 1,677 7.7 14.03 327 13.65 21.57 to 36.38.......... 486 6.9 31.36 265 29.73 ----- --- 2,476 7.1 16.77 905 16.66 ===== ===
SFAS 123 encourages, but does not require, companies to record compensation cost for employee stock-based compensation plans at fair value as determined by generally recognized option pricing models such as the Black-Scholes model or the binomial model. Because of the inexact and subjective nature of deriving stock option values using these methods, the Company has adopted the disclosure-only provisions of SFAS 123 and continues to account for stock-based compensation as it has in the past using the intrinsic value method prescribed in APB 25. Accordingly, no compensation expense has been recognized for the Company's employee stock option plans. Had compensation cost for the Company's employee stock option plans been determined based on the fair value at the grant date for awards issued in 2000, 1999 and 1998 consistent with the provisions of SFAS 123, the Company's net earnings and diluted earnings per share would have been reduced by $6.4 million or $.08 per share, $6.0 million or $.08 per share and $4.4 million or $.05 per share in 2000, 1999 and 1998, respectively. As this calculation does not consider the effect of awards issued prior to 1996, it may not be representative of the effects on pro forma net income in future years. The pro forma fair value of options at the date of grant was estimated using the Black-Scholes model and the following assumptions:
2000 1999 1998 ------ ------ ------ Expected life (years).............................. 5.0 7.9 7.7 Interest rate...................................... 5.8% 6.2% 4.9% Volatility......................................... 64.2% 65.4% 66.2% Dividend yield..................................... 0 0 0 Weighted-average fair value per share at grant date.............................................. $20.40 $11.16 $26.30
Stock Purchase Plan: The Company's 1990 Employee Stock Purchase Plan and the Company's 1999 Employee Stock Purchase Plan (together, the "Purchase Plan") are plans under which all employees may purchase shares of the 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 4,500,000 shares has been reserved under the Purchase Plan, 3,220,938 of which were available for future purchase at September 30, 2000. In October 2000, 196,922 shares were purchased at $27.04 per share and in October 1999, 347,316 shares were purchased at $13.81 per share. Had compensation cost for the Company's stock purchase plan been determined consistent with the provisions of SFAS 123, the Company's net earnings and diluted earnings per share would have been reduced by $1.6 million or $.02 per share, $1.4 million or $.02 per share and $.6 million or $.01 per share in 2000, 1999 and 1998, respectively. The pro forma value of the employees' purchase rights was estimated using the Black-Scholes model with the following assumptions; no dividend yield; an expected life of 1 year; expected volatility of 64.2% in 2000, 65.4% in 1999 and 66.2% in 1998; and a risk free interest rate of 6.16% in 2000, 4.99% in 1999 and 4.68% in 1998. The weighted-average fair value per share of these purchase rights granted in 2000, 1999 and 1998 was $12.21, $6.23 and $6.81, respectively. 44 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock Incentive Plan: Pursuant to the terms of the 1990 Stock Incentive Plan, during 1993 through 1999 the Company also issued a total of 643,686 Performance Units ("Units") to officers of the Company. Each Unit represents the right to receive from the Company at the end of a stipulated period one unrestricted share of Common Stock, contingent upon achievement of certain financial performance goals over the stipulated period. Should the Company fail to achieve the specific financial goals as set by the Executive Compensation Committee of the Board of Directors, the Units are canceled and the related shares revert to the Company for reissuance under the plan. The aggregate fair market value of the underlying shares granted under this plan is considered unearned compensation at the time of grant and is adjusted annually based on the current market price for the Common Stock. Compensation expense is determined based on management's current estimate of the likelihood of meeting the specific financial goals and charged ratably over the stipulated period. On October 12, 1998, the Executive Compensation Committee of the Board of Directors reviewed the Company's performance for the three-year period ending September 30, 1998 for purposes of determining the performance criteria achievement level for the Unit awards made in November 1995. Based on various performance factors including comparison of the Company's stock price to the peer group established at the time of grant (which has changed significantly due to mergers and acquisitions in the oilfield sector), earnings growth, return on equity growth and return on assets growth, the Compensation Committee decided that the 1995 Units should vest at the level of 66% of the maximum level. Therefore, a total of 123,145 Units were converted into Common Stock and issued to officers, 25,495 Units were deferred for later issuance and 76,572 Units were cancelled. Of the 25,495 deferred units, all but 5,705 were converted into Common Stock as of September 30, 2000. On November 23, 1999, the Executive Compensation Committee of the Board of Directors reviewed the Company's performance for the three-year period ending September 30, 1999 and determined that the highest level of performance criteria was achieved for the Unit awards made in December 1996. Therefore, a total of 40,924 Units were converted into Common Stock and issued to officers. As of September 30, 2000, there were 122,733 Units outstanding. On November 16, 2000, the Executive Compensation Committee of the Board of Directors reviewed the Company's performance for the three-year period ending September 30, 2000 and determined that the highest level of performance criteria was achieved for the Unit awards made in December 1997. Therefore, a total of 29,702 Units were converted into Stock and issued to officers. 14. Stockholders' Equity Stockholder Rights Plan: The Company has a Stockholder Rights Plan (the "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 Common Stock includes one preferred share purchase right ("Right") which becomes exercisable under certain circumstances, including when beneficial ownership of the Common Stock by any person, or group, equals or exceeds 15% 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 A Junior Participating Preferred Stock at a price of $150, subject to adjustment under certain circumstances. Upon the occurrence of certain events specified in the 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 A Junior Participating Preferred Stock has been issued by the Company at September 30, 2000. The Rights were proportionately adjusted as of the stock split record date to reflect the effect of the February 1998 stock split. Stock Purchase Warrants: In connection with the acquisition of Western in 1995, 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. Subsequent to the February 1998 stock split, each Warrant represented the right to purchase two shares of the Common Stock at an exercise price of $15 per share, until the expiration date of 45 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) April 13, 2000. A total of 4,787,852 Warrants were exercised before their expiration date, leaving only 8,224 issued and outstanding Warrants which expired unexercised. The exercise of the Warrants resulted in the issuance of 9,575,704 shares of Common Stock. Stock Split: At the annual meeting of stockholders on January 22, 1998, the Company's stockholders approved an amendment to the Company's charter increasing the number of authorized shares of common stock from 80 million to 160 million shares. This allowed the Company to effect a 2 for 1 stock split (in the form of a dividend) previously authorized by the Board of Directors on December 11, 1997. The distribution on February 20, 1998 increased the number of shares outstanding from 37,694,427 to 75,388,854 (net of treasury shares of 986,000, which did not split). All share and per share data, including stock option and stock purchase plan information have been restated to reflect the stock split. Treasury Stock: In December 1997, the Board of Directors approved a share repurchase program authorizing purchases of up to $150 million of Common Stock at the discretion of the Company's management. In May 1998, the Board approved an increase in the authorized amount of up to $300 million and in September 2000, the Board approved an additional increase of up to $150 million. Under this program, the Company repurchased 5,996,400 shares at a cost of $196.6 million during fiscal 1998, none during fiscal 1999 and 400,000 shares at a cost of $22.8 million during fiscal 2000. In October 1999, the Company reissued 4,027,972 shares of treasury stock through a private placement with certain financial institutions. The proceeds from the private placement of $144.0 million were used to pay down outstanding debt. The Company also entered into privately negotiated option agreements pursuant to which it repurchased an equivalent number of shares in April 2000 for a total of $149.0 million. The Company utilized proceeds of $143.5 million from the exercise of Warrants to fund the purchase. 15. Quarterly Financial Data (Unaudited)
First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year Total -------- -------- -------- -------- ---------- (in thousands, except per share amounts) Fiscal Year 2000: Revenue............ $354,820 $390,755 $371,294 $438,520 $1,555,389 Gross profit(1).... 67,325 80,517 71,883 98,287 318,012 Net income......... 20,462 29,324 25,908 42,282 117,976 Earnings per share: Basic............ .27 .38 .31 .51 1.49 Diluted.......... .25 .35 .31 .50 1.40 Fiscal Year 1999: Revenue............ $294,435 $269,601 $253,093 $314,205 $1,131,334 Gross profit(1).... 43,769 36,492 10,689 43,184 134,134 Net income (loss).. (7,026)(2) (11,387)(3) (16,095) 4,820 (29,688) Earnings per share: Basic............ (.10) (.16) (.23) .07 (.42) Diluted.......... (.10) (.16) (.23) .06 (.42)
- -------- (1) Represents revenue less cost of sales and services and research and engineering expenses. (2) Includes $21.6 million ($14.0 million after tax, or $.19 per diluted share) unusual charge resulting from the restructuring of worldwide operations due to the downturn in oilfield drilling activity. See Note 4. (3) Includes $18.1 million ($12.1 million after tax, or $.17 per diluted share) unusual charge resulting from the restructuring of worldwide operations due to the downturn in oilfield drilling activity. See Note 4. 46 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, 2001 which section is incorporated herein by reference. For information regarding executive officers of the Company, see page 11 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, 2001, 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, 2001, 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, 2001, which sections are incorporated herein by reference. ITEM 13. Certain Relationships and Related Transactions None. 47 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 Auditors...................................... 22 Consolidated Statement of Operations for the years ended September 30, 1998, 1999 and 2000............................................ 23 Consolidated Statement of Financial Position as of September 30, 1999 and 2000...................................................... 24 Consolidated Statement of Stockholders' Equity for the years ended September 30, 1998, 1999 and 2000.................................. 25 Consolidated Statement of Cash Flows for the years ended September 30, 1998, 1999 and 2000............................................ 26 Notes to Consolidated Financial Statements.......................... 27
(2) Financial Statement Schedules:
Schedule Page Number Description of Schedule Number -------- ----------------------- ------ II Valuation and Qualifying Accounts 53
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 2000. (3) Exhibits:
Exhibit Number 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 (filed as Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, and incorporated herein by reference). 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 (filed as Exhibit 2.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1995, and incorporated herein by reference). 3.1 Certificate of Incorporation, as amended as of April 13, 1995 (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 1999 and incorporated herein by reference). 3.2 Certificate of Amendment to Certificate of Incorporation, dated January 22, 1998 (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1999 and incorporated herein by reference). 3.3 Certificate of Designation of Series A Junior Participating Preferred Stock, as amended (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996 and incorporated herein by reference).
48
Exhibit Number Description of Exhibit ------- ---------------------- *3.4 Bylaws of the Company, as amended as of December 7, 2000. 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 Amended and Restated Rights Agreement dated September 26, 1996, between the Company and First Chicago Trust Company of New York, as Rights Agent (filed as Exhibit 4.1 to the Company's Form 8-K dated October 21, 1996 and incorporated herein by reference). 4.3 First Amendment to Amended and Restated Rights Agreement and Appointment of Rights Agent, dated March 31, 1997, among the Company, First Chicago Trust Company of New York and The Bank of New York (filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 and incorporated herein by reference). 4.6 Indenture among BJ Services Company, BJ Services Company, U.S.A., BJ Services Company Middle East, BJ Service International, Inc. and Bank of Montreal Trust Company, Trustee, dated as of February 1, 1996, which includes the form of 7% Notes due 2006 and Exhibits thereto (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Reg. No. 333-02287) and incorporated herein by reference). 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 Amendment effective December 12, 1996, to 1990 Stock Incentive Plan, as amended and restated (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996, and incorporated herein by reference). 10.5 Amendment effective July 22, 1999 to 1990 Stock Incentive Plan (filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended September 30, 1999, and incorporated herein by reference). 10.6 Amendment effective January 27, 2000 to 1990 Stock Incentive Plan (filed as Appendix A to the Company's Proxy Statement dated December 20, 1999 and incorporated herein by reference). 10.7 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). 10.8 Amendments effective January 25, 1996, and December 12, 1996, to BJ Services Company 1995 Incentive Plan (filed as Exhibit 10.9 to the Company's Annual Report on form 10-K for the year ended September 30, 1996, and incorporated herein by reference). 10.9 Amendment effective July 22, 1999 to BJ Services Company 1995 Incentive Plan (filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended September 30, 1999, and incorporated herein by reference). 10.10 Amendment effective January 27, 2000 to BJ Services Company 1995 Incentive Plan (filed as Appendix B to the Company's Proxy Statement dated December 20, 1999 and incorporated herein by reference). 10.11 1997 Incentive Plan (filed as Appendix B to the Company's Proxy Statement dated December 22, 1997 and incorporated herein by reference).
49
Exhibit Number Description of Exhibit ------- ---------------------- 10.12 Amendment effective July 22, 1999 to 1997 Incentive Plan (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended September 30, 1999, and incorporated herein by reference). 10.13 Amendment effective January 27, 2000 to 1997 Incentive Plan (filed as Appendix C to the Company's Proxy Statement dated December 20, 1999 and incorporated herein by reference). 10.14 1999 Employee Stock Purchase Plan (filed as Appendix A to the Company's Proxy Statement dated December 21, 1998 and incorporated herein by reference). *10.15 BJ Services Supplemental Executive Retirement Plan effective October 1, 2000. 10.16 Key Employee Security Option Plan (filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 and incorporated herein by reference). 10.17 Form of Amended and Restated Executive Severance Agreement between BJ Services Company and certain executive officers (filed as Exhibit 10.28 to the Company's Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference). 10.18 Amended and Restated Credit Agreement dated as of August 7, 1996, among the Company, BJ Services Company U.S.A., BJ Service International, Inc., and BJ Services Company Middle East, Nowsco Well Service, Ltd., and Bank of America National Trust and Savings Association and Bank of America Canada, as agents, and the other financial institutions parties thereto (the "Credit Agreement") (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference). 10.19 First Amendment to Amended and Restated Credit Agreement dated as of November 14, 1997 among the Company, BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Nowsco Well Service Ltd., Bank of America National Trust and Savings Association, Bank of America Canada, The Chase Manhattan Bank, Bank of Montreal, Royal Bank of Canada, Toronto Dominion (Texas), Inc., Credit Lyonnais New York Branch, and Wells Fargo Bank (Texas), National Association (filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 and incorporated herein by reference). 10.20 Second Amendment to Amended and Restated Credit Agreement dated as of October 30, 1998 among the Company, BJ Services Company, U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Nowsco Well Service Ltd., Bank of America National Trust and Savings Association, Bank of America Canada, The Chase Manhattan Bank, Bank of Montreal, Royal Bank of Canada, Toronto Dominion (Texas), Inc. and Wells Fargo Bank (Texas), National Association (filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended September 30, 1998 and incorporated herein by reference). 10.21 Form of Revolving Note, U.S. Term Note, Prime Rate Note and Swing Loan Note pursuant to the Credit Agreement (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996 and incorporated herein by reference). 10.22 Parent Guaranty Agreement dated as of August 7, 1996, by the Company under the Credit Agreement (filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996 and incorporated herein by reference). 10.23 Trust Indenture and Security Agreement dated as of August 7, 1997 among First Security Bank, National Association, BJ Services Equipment, L.P. and State Street Bank and Trust Company, as Indenture Trustee (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 and incorporated herein by reference). 10.24 Indenture Supplement No. 1 dated as of August 8, 1997 between First Security Bank, as Nonaffiliated Partner Trustee, and BJ Services Equipment, L.P., and State Street Bank and Trust Company, as Indenture Trustee (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 and incorporated herein by reference).
50
Exhibit Number Description of Exhibit ------- ---------------------- 10.25 Amended and Restated Agreement of Limited Partnership dated as of August 7, 1997 of BJ Services Equipment, L.P (filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended September 30, 1997 and incorporated herein by reference). 10.26 Trust Indenture and Security Agreement dated as of December 15, 1999 among First Security Trust Company of Nevada, BJ Services Equipment II, L.P. and State Street Bank and Trust Company, as Indenture Trustee (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 15, 1999 and incorporated herein by reference). 10.27 Amended and Restated Agreement of Agreement of Limited Partnership dated as of December 15, 1999 of BJ Services Equipment II, L.P. (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated December 15, 1999 and incorporated herein by reference). *21.1 Subsidiaries of the Company. *23.1 Consent of Deloitte & Touche LLP. *27.1 Financial data schedule.
- -------- * Filed herewith. 51 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 /s/ J.W. Stewart By __________________________________ J.W. Stewart President and Chief Executive Officer Date: December 18, 2000 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.
Signature Title Date --------- ----- ---- /s/ J.W. Stewart Chairman of the Board, December 18, 2000 ______________________________________ President, and Chief J.W. Stewart Executive Officer (Principal Executive Officer) /s/ Michael McShane Senior Vice President-- December 18, 2000 ______________________________________ Finance, Chief Financial Michael McShane Officer and Director (Principal Financial Officer) /s/ Matthew D. Fitzgerald Vice President and December 18, 2000 ______________________________________ Controller (Principal Matthew D. Fitzgerald Accounting Officer) /s/ L. William Heiligbrodt Director December 18, 2000 ______________________________________ L. William Heiligbrodt /s/ John R. Huff Director December 18, 2000 ______________________________________ John R. Huff /s/ Don D. Jordan Director December 18, 2000 ______________________________________ Don D. Jordan /s/ R.A. LeBlanc Director December 18, 2000 ______________________________________ R.A. LeBlanc /s/ Michael E. Patrick Director December 18, 2000 ______________________________________ Michael E. Patrick /s/ James L. Payne Director December 18, 2000 ______________________________________ James L. Payne
52 BJ SERVICES COMPANY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the Years Ended September 30, 1998, 1999 and 2000 (in thousands)
Additions --------------------- Balance at Charged to Beginning Charged to Other Balance at of Period Expense Accounts Deductions End of Period ---------- ---------- ---------- ---------- ------------- YEAR ENDED SEPTEMBER 30, 1998 Allowance for doubtful accounts receivable.... $ 6,194 $4,140 $ 1,244(1) $ 9,090 Reserve for inventory obsolescence and adjustment............. 9,537 893 $ 479(3) 2,458(2) 8,451 YEAR ENDED SEPTEMBER 30, 1999 Allowance for doubtful accounts receivable.... $ 9,090 $3,301 $10,344(3) $ 2,16 3(1) $20,572 Reserve for inventory obsolescence and adjustment............. 8,451 1,749 $ 1,831(3) 2,356(2) 9 ,675 YEAR ENDED SEPTEMBER 30, 2000 Allowance for doubtful accounts receivable.... $20,572 $4,325 $ 1,154(3) $14,5 06(1) $11,545 Reserve for inventory obsolescence and adjustment............. 9,675 1,107 215(3) 1,776(2) 9,221
- -------- (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 principally resulting from acquisitions of businesses. 53 EX-3.4 2 0002.txt AMENDED AND RESTATED BYLAWS OF BJ SERVICES EXHIBIT 3.4 AMENDED AND RESTATED BYLAWS OF BJ SERVICES COMPANY AS OF DECEMBER 7, 2000 Table of Contents
Page No. -------- ARTICLE I - Offices............................................................ 1 Section 1. Registered Office........................................ 1 Section 2. Other Offices............................................ 1 ARTICLE II - Meetings of Stockholders.......................................... 1 Section 1. Place of Meetings........................................ 1 Section 2. Annual Meeting of Stockholders........................... 1 Section 3. Quorum; Adjourned Meetings and Notice Thereof............ 1 Section 4. Voting................................................... 2 Section 5. Proxies.................................................. 2 Section 6. Special Meetings......................................... 2 Section 7. Notice of Stockholders' Meetings......................... 2 Section 8. Waiver of Notice......................................... 3 Section 9. Maintenance and Inspection of Stockholder List........... 3 Section 10. Stockholder Action by Written Consent Without a Meeting.. 3 Section 11. Inspectors of Election................................... 3 Section 12. Procedure for Stockholders' Meetings..................... 4 Section 13. Order of Business........................................ 4 Section 14. Procedures for Bringing Business before an Annual Meeting 4 Section 15. Procedures for Nominating Directors...................... 5 ARTICLE III - Directors........................................................ 6 Section 1. Number and Qualification of Directors.................... 6 Section 2. Election and Term of Office.............................. 6 Section 3. Resignation and Removal of Directors..................... 7 Section 4. Vacancies................................................ 7 Section 5. Powers................................................... 8 Section 6. Place of Directors' Meetings............................. 8 Section 7. Regular Meetings......................................... 8 Section 8. Special Meetings......................................... 8 Section 9. Quorum................................................... 8 Section 10. Action Without Meeting................................... 9 Section 11. Telephonic Meetings...................................... 9 Section 12. Meetings and Action of Committees........................ 9 Section 13. Special Meetings of Committees........................... 9 Section 14. Minutes of Committee Meetings............................ 10 Section 15. Compensation of Directors................................ 10 Section 16. Indemnification.......................................... 10
Page No. -------- ARTICLE IV - Officers.......................................................... 11 Section 1. Officers................................................. 11 Section 2. Election of Officers..................................... 11 Section 3. Subordinate Officers..................................... 11 Section 4. Removal and Resignation of Officers...................... 12 Section 5. Vacancies in Offices..................................... 12 Section 6. Chairman of the Board.................................... 12 Section 7. Vice Chairman of the Board............................... 12 Section 8. President................................................ 12 Section 9. Vice Presidents.......................................... 12 Section 10. Secretary................................................ 12 Section 11. Chief Financial Officer.................................. 13 Section 12. Treasurer and Controller................................. 13 ARTICLE V - Certificates of Stock.............................................. 13 Section 1. Certificates............................................. 13 Section 2. Signature on Certificates................................ 14 Section 3. Statement of Stock Rights, Preferences, Privileges....... 14 Section 4. Lost Certificates........................................ 14 Section 5. Transfers of Stock....................................... 14 Section 6. Fixing Record Date....................................... 14 Section 7. Registered Stockholders.................................. 15 ARTICLE VI - General Provisions - Dividends.................................... 15 Section 1. Dividends................................................ 15 Section 2. Payment of Dividends; Directors' Duties.................. 15 Section 3. Checks................................................... 15 Section 4. Corporate Contracts and Instruments...................... 15 Section 5. Fiscal Year.............................................. 16 Section 6. Manner of Giving Notice.................................. 16 Section 7. Waiver of Notice......................................... 16 Section 8. Annual Statement......................................... 16 ARTICLE VII - Amendments....................................................... 17 Section 1. Amendment by Directors................................... 17 Section 2. Amendments by Stockholders............................... 17
BYLAWS OF BJ SERVICES COMPANY ARTICLE I Offices Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders Section 1. All meetings of the stockholders shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Section 2. An annual meeting of stockholders shall be held on the fourth Thursday in January in each year, if not a legal holiday, and if a legal holiday, then on the next business day following, at 2:00 p.m. or at such other date and time as may be determined from time to time by resolution adopted by the Board of Directors, for the purpose of electing, subject to Article III, Section 17 hereof, one class of the directors of the Corporation, and transacting such other business as may properly be brought before the meeting. Section 3. A majority of the stock issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which are present in person or represented by proxy, without regard to class or series, shall constitute a quorum for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), or by these Bylaws. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes present may continue to transact business until adjournment provided that any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority of the voting stock represented in person or by proxy may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present 20 or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat. Section 4. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy and entitled to vote shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 5. At each meeting of the stockholders, each stockholder having the right to vote may vote in person or may authorize another person or persons to act for him by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. All proxies must be filed with the Secretary of the Corporation at the beginning of each meeting in order to be counted in any vote at the meeting. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney in fact. Except as otherwise set forth in the Certificate of Incorporation, each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the Corporation on the record date set by the Board of Directors as provided in Article V, Section 6 hereof. Section 6. Special meetings of the stockholders, for any purpose, or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called at any time by the Board of Directors or by a committee of the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in these Bylaws, include the power to call meetings. Special meetings of stockholders of the corporation may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 7. Any notice requested to be given to stockholders by statute, the Certificate of Incorporation or these Bylaws, including notice of any meeting of stockholders, shall be given personally, by first-class mail or by telegraphic communication, charges prepaid, addressed to the stockholder at the address of such stockholder appearing on the books of the Corporation or given by the stockholder to the Corporation for the purpose of notice. If no such address appears on the Corporation's books or has been so given, notice shall be deemed to have been given if sent by first class mail or telegraphic communication to the Corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where such principal executive office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram. 2 If any notice addressed to a stockholder at the address of such stockholder appearing on the books of a Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder at such address, all further notices shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder upon written demand of the stockholder at the principal executive office of the Corporation for a period of one year from the date of the giving of such notice. Section 8. Attendance of a person at a meeting shall constitute a waiver of notice to such person of such meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened, or objects to the consideration of matters not included in the notice of the meeting. Section 9. The officer or agent who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where their meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept open at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine such list or to vote at any meetings of stockholders. Section 10. No action shall be taken by stockholders except at an annual or special meeting of stockholders, and stockholders may not act by written consent. Section 11. Before any meeting of stockholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any stockholder or a stockholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one or three. If inspectors are appointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one or three inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any stockholder or a stockholder's proxy shall, appoint a person to fill such vacancy. 3 The duties of these inspectors shall be as follows: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) Receive votes or ballots; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes; (e) Determine when the polls shall close; (f) Determine the results; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. Section 12. Meetings of the stockholders shall be presided over by the Chairman of the Board of Directors, or in his absence, by the Vice Chairman, the President or by any Vice President, or, in the absence of any of such officers, by a chairman to be chosen by a majority of the stockholders entitled to vote at the meeting who are present in person or by proxy. The Secretary, or, in his absence, any person appointed by the Chairman, shall act as secretary of all meetings of the stockholders. Section 13. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting. Section 14. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting of the stockholders except in accordance with the procedures hereinafter set forth in this Section 14; provided, however, that nothing in this Section 14 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedures. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (1) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (2) otherwise properly brought before the meeting by or at the direction of the Board, or (3) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice 4 must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the date of the anniversary of the annual meeting of the Corporation's stockholders held in the prior year. Any adjournment(s) or postponement(s) of the original meeting whereby the meeting will reconvene within 30 days from the original date shall be deemed for purposes of notice to be a continuation of the original meeting and no business may be brought before any such reconvened meeting unless timely notice of such business was given to the Secretary of the Corporation for the meeting as originally scheduled. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and their reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 14, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 15. Notwithstanding anything in these Bylaws to the contrary, only persons who are nominated in accordance with the procedures hereinafter set forth in this Section 15 shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders only (1) by or at the direction of the Board of Directors or (2) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice of procedures set forth in this Section 15. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the date of the anniversary of the annual meeting of the Corporation's stockholders held in the prior year in the case of an annual meeting or, in the case of a special meeting called by the Board of Directors (or by a committee of the Board) for the purpose of electing directors, not more than 10 days following the earlier of the date of notice of such special meeting or the date on which a public announcement of such meeting is made. Any adjournment(s) or postponement(s) of the original meeting whereby the meeting will reconvene within 30 days from the original date shall be deemed for purposes of notice to be a continuation of the original meeting and no nominations by a shareholder of persons to be elected directors of the Corporation may be made at any such reconvened meeting other than pursuant to a notice that was timely for the meeting on the date originally scheduled. Such stockholder's notice shall set forth: (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor 5 regulation thereto (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the Corporation's books, of such stockholder, and (B) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 15, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE III Directors Section 1. The Board of Directors shall consist of a minimum of four (4) and a maximum of ten (10) directors. The number of directors shall be fixed from time to time within the minimum and the maximum number established by the then elected Board of Directors. The number of directors until changed by the Board shall be seven (7). The maximum number of directors may not be increased by the Board of Directors to exceed ten (10) without the affirmative vote of 75% of the members of the entire Board. The directors need not be stockholders. No officer of the Corporation may serve on a board of directors of any company having a present or retired employee on the Corporation's Board of Directors. No person associated with an organization whose services are contracted by the Corporation shall serve on the Corporation's Board of Directors, provided however that this prohibition may be waived by a majority of the members of the whole Board if the Board in its judgment determines that such waiver would be in the best interest of the Corporation. Section 2. The Board of Directors shall be divided into three classes, Class I, Class II and Class III. The number of directors in each class shall be the whole number contained in the quotient arrived at by dividing the authorized number of directors by three, and if a fraction is also contained in such quotient then if such fraction is one-third (1/3), the extra director shall be a member of Class III, and if the fraction is two-thirds (2/3), one of the extra directors shall be a member of Class III and the other a member of Class II. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, however, that the directors initially appointed to Class I shall serve for a term ending on the date of the first annual meeting next following September 30, 1990, the directors initially appointed to Class II shall serve for a term ending on the date of the second annual meeting next following September 30, 1990, and the directors initially appointed to Class III shall serve for a term ending on the date of the third annual meeting next following September 30, 1990. One class of the directors shall be elected at each annual meeting of the stockholders. If any such annual meeting is not held or the directors are not elected thereat, the directors may be 6 elected at any special meeting of stockholders held for that purpose. All directors shall hold office until their respective successors are elected and qualified or until their earlier death, resignation or removal. Section 3. Directors who are employees of the Corporation must resign from the Board of Directors at the time of any diminution in their duties or responsibilities as an officer, at the time they leave the employ of the Corporation for any reason or on their 70th birthday. A director's term of office shall automatically terminate on the date of the annual meeting of stockholders following: (i) his 70th birthday, or (ii) any fiscal year in which he has failed to attend at least 66% of the meetings of the Board of Directors and any committees of the Board of Directors on which such director serves. The requirements of clause (i) of the preceding sentence shall not apply to a director who is 71 years old and serving on the Corporation's Board of Directors as of December 10, 1998; such person shall be eligible to serve as a director until the Annual Meeting of Stockholders that takes place in the year 2000. The requirements of clause (i) of the second sentence of this section shall not apply to a director who is 69 years old and serving on the Corporation's Board of Directors as of December 9, 1999; such person shall be eligible to be nominated for election to an additional three-year term at the Annual Meeting of Stockholders to be held in 2000 and to serve until the end of the three-year term for which he is elected. The requirements of clause (i) of the second sentence of this section shall not apply to a director who is 68 years old and serving on the Corporation's Board of Directors as of December 7, 2000; such person shall be eligible to be nominated for election to an additional three- year term at the Annual Meeting of Stockholders to be held in 2001 and to serve until the end of the three-year term for which he is elected. Any director may be removed for cause by the holders of a majority of the shares of the Corporation entitled to vote in the election of directors; stockholders may not remove any director without cause. The Board of Directors may not remove any director for or without cause, and no recommendation by the Board of Directors that a director be removed for cause may be made to the stockholders except by the affirmative vote of not less than 75% of the members of the whole Board; provided that the Board may remove any director who fails to resign as required by the provisions of these Bylaws. Section 4. Except as otherwise provided by statute or the Certificate of Incorporation, in the case of any increase in the number of directors, such additional director or directors shall be proposed for election to terms of office that will most nearly result in each Class of directors containing one- third of the entire number of members of the whole Board, and, unless such position is to be filled by a vote of the stockholders at an annual or special meeting, shall be elected by a majority vote of the directors in such Class or Classes, voting separately by Class. In the case of any vacancy in the Board of Directors, however created, the vacancy or vacancies shall be filled by majority vote of the directors remaining in the Class in which the vacancy occurs or, if only one such director remains, by such director. In the event one or more directors shall resign, effective at a future date, such vacancy or vacancies shall be filled as provided herein. Directors so chosen or elected shall hold office for the remaining term of the directorship to which appointed. Any director elected or chosen as provided herein shall serve for the unexpired term of office or until his successor is elected and qualified or until his earlier death, resignation or removal. 7 In the event of any decrease in the authorized number of directors, (a) each director then serving as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his prior death, resignation or removal, and (b) the newly eliminated directorships resulting from such decrease shall be apportioned by the board of directors to such class or classes as shall, so far as possible, bring the number of directors in the respective classes into conformity with the formula in Section 2 hereof as applied to the new authorized number of directors. Section 5. The property and business of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Meetings of the Board of Directors Section 6. The directors may hold their meetings and have one or more offices, and keep the books of the Corporation outside the state of Delaware. Section 7. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board. Except as otherwise provided by statute, any business may be transacted at any regular meeting of the Board of Directors. Section 8. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Vice Chairman or the President on at least forty- eight hours' notice to each director. Special meetings shall be called by the President or the Secretary in like manner and on like notice on the written request of any two directors unless the Board consists of only one director, in which case special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of the sole director. Section 9. At all meetings of the Board of Directors a majority of the authorized number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. If only one director is authorized, such sole director shall constitute a quorum. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action is approved by at least a majority of the required quorum for such meeting. 8 Section 10. Unless otherwise restricted by statute, the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 11. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Committees of Directors Section 12. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each such committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If no alternate members have been appointed, the committee member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. The Board of Directors shall, by resolution passed by a majority of the whole Board, designate one member of each committee as chairman of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, but no such committee shall have the power or authority to authorize an amendment to the Certificate of Incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amend the Bylaws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Section 13. Special meetings of committees may be called by the Chairman of such committee, the Chairman of the Board or the President, on at least 48 hours notice to each member and alternate member. Alternate members shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. If a committee is comprised of an odd number of members, a quorum shall consist of a majority of that number. If the committee is comprised of an even number of members, a quorum shall consist of one-half of that number. If a committee is comprised of two members, a quorum shall consist of both members. 9 Section 14. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when requested. Compensation of Directors Section 15. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Indemnification Section 16. (a) The Corporation shall indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or any of its direct or indirect wholly-owned subsidiaries or, while a director, officer, employee or agent of the Corporation or any of its direct or indirect wholly-owned subsidiaries, is or was serving at the request of the Corporation or any of its direct or indirect wholly-owned subsidiaries, as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including counsel fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the full extent permitted by applicable laws provided that the Corporation shall not be obligated to indemnify any such person against any such action, suit or proceeding which is brought by such person against the Corporation or any of its direct or indirect wholly-owned subsidiaries or the directors of the Corporation or any of its direct or indirect wholly-owned subsidiaries, other than an action brought by such person to enforce his rights to indemnification hereunder, unless a majority of the Board of Directors of the Corporation shall have previously approved the bringing of such action, suit or proceeding. The Corporation shall indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was licensed to practice law and an employee (including an employee who is or was an officer) of the Corporation or any of its direct or indirect wholly-owned subsidiaries and, while acting in the course of such employment committed or is alleged to have committed any negligent acts, errors or omissions in rendering professional legal services at the request of the Corporation or pursuant to his employment (including, without limitation, rendering written or oral legal opinions to third parties) against expenses (including counsel fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the full extent permitted by applicable law; provided that the Corporation shall not be obligated to indemnify any 10 such person against any action, suit or proceeding arising out of any adjudicated criminal, dishonest or fraudulent acts, errors or omissions of such person or any adjudicated willful, intentional or malicious acts, errors or omissions of such person. (b) Expenses incurred by an officer or director of the Corporation or any of its direct or indirect wholly-owned subsidiaries in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section 16. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (c) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 16 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any provision of law, the Corporation's Certificate of Incorporation, the Certificate of Incorporation or bylaws or other governing documents of any direct or indirect wholly owned subsidiary of the Corporation, or any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding any of the positions or having any of the relationships referred to in this Section 16. ARTICLE IV Officers Section 1. The officers of the Corporation shall be a Chairman of the Board, a President, a Chief Financial Officer, a Vice President, a Secretary, a Treasurer and a Controller. The Corporation may also have, at the discretion of the Board of Directors, a Vice Chairman of the Board, one or more additional Vice Presidents, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Section 2. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by the Board of Directors, and each shall serve at the pleasure of the Board, subject to the rights, if any, of any officer under any contract of employment. Section 3. The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors may from time to time determine. 11 Section 4. Any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors, provided that such removal shall not prejudice the remedy of such officer for breach of any contract of employment. Any officer may resign at any time by giving written notice to the Corporation. Any such resignation shall take effect on receipt of such notice or at any later time specified therein. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. Section 5. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office. Section 6. The Chairman of the Board shall, if present, preside at all meetings of the Board of Directors and of the stockholders, and shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the Bylaws. Section 7. The Vice Chairman of the Board shall exercise and perform such powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed in these Bylaws. In the absence of the Chairman of the Board, the Vice Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors. Section 8. The President shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. In the absence of the Chairman of the Board and the Vice Chairman of the Board, the President shall preside at all meetings of the stockholders and the Board of Directors. He shall have the general powers and duties of management usually vested in the office of President of a Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws. Section 9. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the President, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws or the President. Section 10. The Secretary shall keep or cause to be kept, at the principal office or such other place as the Board of Directors may order, a book of minutes of all meetings and actions of directors, committees of directors and stockholders, with the time and place of holding, whether 12 regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' and committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent or registrar, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws. Section 11. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall be open at all times to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. Section 12. The Treasurer and the Controller shall each have such powers and perform such duties as from time to time may be prescribed for him by the Board of Directors, the President or these Bylaws. ARTICLE V Certificates of Stock Section 1. Every holder of stock of the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, if one be appointed, or the Treasurer or an Assistant Treasurer, if one be appointed, of the Corporation, certifying the number of shares represented by the certificate owned by such stockholder in the Corporation. 13 Section 2. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided by statute, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Lost, Stolen or Destroyed Certificates Section 4. The Board of Directors, the Secretary and the Treasurer each may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the owner of such certificate, or his legal representative. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to furnish the Corporation a bond in such form and substance and with such surety as it may direct as indemnity against any claim that may be made against the Corporation with respect to the Certificate alleged to have been lost, stolen or destroyed. Transfers of Stock Section 5. Upon surrender to the Corporation, or the transfer agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Fixing Record Date Section 6. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders, or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose 14 of any other lawful action, the Board of Directors may fix a record date which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Registered Stockholder Section 7. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware. ARTICLE VI General Provisions Dividends Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the Corporation's capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Before declaration of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, thinks proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may thereafter abolish any such reserve in its absolute discretion. Checks Section 3. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation shall be signed by such officer or officers as the Board of Directors or the President or any Vice President, acting jointly, may from time to time designate. Section 4. The President, any Vice President, the Secretary or the Treasurer may enter into contracts and execute instruments on behalf of the Corporation. The Board of Directors, the President or any Vice President may authorize any officer or officers, and any employee or 15 employees or agent or agents of the Corporation or any of its subsidiaries, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Fiscal Year Section 5. The fiscal year of the Corporation shall be October 1 through September 30, unless otherwise fixed by resolution of the Board of Directors. Notices Section 6. Whenever, under the provisions of the statutes, the Certificate of Incorporation or these Bylaws, notice is required to be given to any director, it shall not be construed to require personal notice, but such notice may be given in writing, by mail, addressed to such director, at his address as it appears on the records of the Corporation (unless prior to the mailing of such notice he shall have filed with the Secretary a written request that notices intended for him be mailed to some other address, in which case such notice shall be mailed to the address designated in the request) with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail; provided, however, that, in the case of notice of a special meeting of the Board of Directors, if such meeting is to be held within seven calendar days after the date of such notice, notice shall be deemed given as of the date such notice shall be accepted for delivery by a courier service that provides "opening of business next day" delivery, so long as at least one attempt shall have been made, on or before the date such notice is accepted for delivery by such courier service, to provide notice by telephone to each director at his principal place of business and at his principal residence. Notice to directors may also be given by telegram, by personal delivery or telephone. Section 7. Whenever any notice is required to be given under the provisions of the statutes, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, or by telegraph, cable or other written form of recorded communication, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Annual Statement Section 8. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. 16 ARTICLE VII Amendments Section 1. Except any amendment to this Article VII and to Article II, Section 6, Article II, Section 10, Article III, Section 1 (as it relates to increases in the number of directors), Article III, Section 2, the last sentence of Article III, Section 3 (as it relates to removal of directors), Article III, Section 4, Article III, Section 16 and Article VI, Section 6 of these Bylaws, or any of such provisions, which shall require approval by the affirmative vote of directors representing at least 75% of the number of directors provided for in accordance with Article III, Section 1, and except as otherwise expressly provided in a bylaw adopted by the stockholders as hereinafter provided, the directors, by the affirmative vote of a majority of the whole Board and without the assent or vote of the stockholders, may at any meeting, make, repeal, alter, amend or rescind any of these Bylaws, provided the substance of the proposed amendment or other action shall have been stated in a notice of the meeting. Section 2. These Bylaws may not be altered, amended or rescinded, and new Bylaws may not be adopted, by the stockholders of the Corporation except by the vote of the holders of not less than 75% of the total voting power of all shares of stock of the Corporation entitled to vote in the election of directors, considered for such purpose as one class. 17 EX-10.15 3 0003.txt SUPPLEMENTAL EXEC RETIREMENT PLAN EXHIBIT 10.15 BJ SERVICES COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I PURPOSE 1.1 PURPOSE OF PLAN. The purpose of the BJ Services Company Supplemental Executive Retirement Plan (the "Plan") is to advance the interests of BJ Services Company (the "Company"), its subsidiaries and affiliates (hereinafter sometimes collectively or individually referred to as the "Employer") and its owners by attracting and retaining in its employ highly qualified individuals for the successful conduct of its business. The Employer hopes to accomplish these objectives by helping to provide for the retirement of its key employees selected to participate in the Plan. 1.2 ERISA STATUS. The Plan is intended to qualify for certain exemptions under Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), provided for plans that are unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. ARTICLE II DEFINITIONS AND CONSTRUCTION 2.1 DEFINITIONS. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary. (1) ACTUARIAL EQUIVALENT. The lump sum amount that is equal in value to a Participant's Pension determined pursuant to Article IV, based on an interest rate equal to the average Applicable Interest Rate for the longer of (a) the period beginning on the Effective Date and ending upon the month preceding the Applicable Date or (b) the five-year period ending on the month preceding the Applicable Date (or some other prevailing interest rate selected by the Committee) and on mortality rate assumptions determined by using the 1983 Group Annuity Mortality Table (or some other prevailing mortality table selected by the Committee). (2) APPLICABLE DATE. The earlier of (a) the date the Participant ceases to participate in the Plan, (b) the date the Participant dies, (c) the date the Participant becomes disabled, (d) the date of the Participant's Termination or (e) in the event the Committee, in its sole discretion, determines to pay benefits under the Plan in a lump sum following a Change of Control, the date of such Change of Control. (3) APPLICABLE INTEREST RATE. The annual rate of interest on 30-year Treasury securities for any month as published by the Federal Reserve Board. 1 (4) BASE CONTRIBUTION BENEFIT. The annual benefit derived by accumulating the Employer Base Contributions (as such term is defined in the Thrift Plan) that would have been made on behalf of a Participant under the Thrift Plan (or any predecessor thereto sponsored or maintained by the Employer or any predecessor or affiliate thereof) without regard to the limitations imposed by the Code at an interest rate for each calendar year equal to the average Applicable Interest Rate for the twelve months preceding such calendar year (or some other prevailing interest rate selected by the Committee), compounded annually to the Applicable Date. A Participant's Base Contribution Benefit shall be adjusted in the event that the Participant's Employer Base Contributions under the Thrift Plan are reduced as a result of the limitations imposed by the Code and there is no corresponding contribution under the SRP Plan. (5) BENEFICIARY. The person designated by each Participant, on a form provided by the Employer for this purpose, to receive the Participant's distribution under Article V in the event of the Participant's death prior to receiving complete payment of his Account. In order to be effective under this Plan, any form designating a Beneficiary must be delivered to the Committee before the Participant's death. In the absence of such an effective designation of a Beneficiary, "Beneficiary" means the Participant's spouse, or if there is no spouse on the date of the Participant's death, the Participant's executor or administrator or heirs at law if there is no administration of the Participant's estate. (6) BOARD. The Board of Directors of the Company. (7) CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred upon, and shall mean (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding shares of Common Stock, $.10 par value per share, of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan(s) (or related trust(s)) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, immediately following such reorganization, merger or consolidation, the conditions described in clause (i), (ii) and (iii) of clause (c) of this Section are satisfied; (b) the approval by the Company's stockholders of the sale or disposition of all or substantially all of the Company's assets or the dissolution or liquidation of the Company; or (c) the approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless immediately following such reorganization, merger or consolidation (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation 2 entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan(s) (or related trust(s) of the Company and/or its subsidiaries or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 25% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board (as defined below) at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation. The "Incumbent Board" shall mean individuals who, as of the date the Plan is adopted by the Board, constitute the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either (1) an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act), or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (2) a plan or agreement to replace a majority of the members of the Board then comprising the Incumbent Board. (8) CODE. The Internal Revenue Code of 1986, as amended. (9) COMMITTEE. The Compensation Committee of the Board, or such other administrative committee that is appointed by the Board to administer the Plan. (10) COMPANY. BJ Services Company, a corporation organized and existing under the laws of the State of Delaware, or its successor or successors. (11) COMPENSATION. The sum of base salary and bonuses received by a Participant during a calendar year. (12) EARLY RETIREMENT. A Participant's Termination on or after the later of (i) his fifty-fifth birthday or (ii) the date he becomes vested pursuant to Article V, but prior to eligibility for Normal Retirement. 3 (13) EFFECTIVE DATE. October 1, 2000. (14) ELIGIBLE EMPLOYEE. A highly compensated or management employee of the Employer. (15) EMPLOYER. The Company, its subsidiaries and affiliates. (16) ERISA. The Employee Retirement Income Security Act of 1974, as amended. (17) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended. (18) HIGHEST AVERAGE COMPENSATION. The average Compensation received by a Participant during the three consecutive complete calendar years of employment (or, if less, his complete calendar years of employment) within the last ten complete calendar years of employment (or, if less, his complete calendar years of employment) prior to the Applicable Date that yield the highest average Compensation. (19) NORMAL RETIREMENT. A Participant's Termination on or after his sixtieth birthday. (20) PARTICIPANT. An Eligible Employee who has been selected by the Committee as a Participant in the Plan until such Eligible Employee ceases to be a Participant in accordance with Article III of the Plan. (21) PENSION. With respect to a Participant eligible to receive benefits under the Plan, a series of annual payments for the life of the Participant determined pursuant to Article IV. (22) PLAN. The BJ Services Company Supplemental Executive Retirement Plan, as amended from time to time. (23) PLAN YEAR. The twelve-consecutive month period commencing January 1 of each year. (24) PRIOR PENSION BENEFIT. The annual benefit, if any, payable to a Participant from or with respect to a defined benefit plan sponsored or maintained at any time by the Employer or any predecessor or affiliate thereof, determined as if payable at Normal Retirement in the form of a Pension. (25) SEVERANCE AGREEMENT. An agreement between the Company and a Participant that provides for benefits in the event of certain terminations of employment following a Change of Control. (26) SOCIAL SECURITY BENEFIT. Twelve (12) times the projected monthly primary insurance amount under the federal Social Security Act the Participant will be eligible to receive at age 62, calculated under the provisions of the federal Social Security Act as in effect at the time of such calculation and using assumptions and indices approved by the Committee. 4 (27) SRP PLAN. The BJ Services Supplemental Retirement Thrift Plan, as amended from time to time. (28) TERMINATION. The termination of a Participant's employment with the Employer for any reason whatsoever. (29) THRIFT PLAN. The BJ Services Retirement Thrift Plan, as amended from time to time. (30) VESTED PERCENTAGE. The percentage of a Participant's benefit which, pursuant to the Plan, is nonforfeitable. (31) YEARS OF SERVICE. The number of years of a Participant's employment with the Employer from his last date of hire to the Applicable Date, including any fractional years rounded to the nearest one-hundredth of one year. In addition, the Committee, in its sole discretion, may credit a Participant with Years of Service for service with the Employer prior to his last date of hire. The Committee shall notify the Participant in writing of any such credit for prior service with the Employer. ARTICLE III Participation The Committee, in its sole discretion, shall select and notify in writing those Eligible Employees of the Employer who shall participate in the Plan. An Eligible Employee who has been selected by the Committee as a Participant shall continue to participate in the Plan until the earlier of (a) the date the Committee notifies the Participant that he is no longer eligible to participate in the Plan or (b) the date of his Termination. A Participant who ceases to participate in the Plan pursuant to (a) of the preceding sentence shall be treated as if he had terminated employment with the Employer but his benefit shall not be payable until after his Termination. An Eligible Employee who is rehired by the Employer following his Termination shall become a Participant only if such Eligible Employee is again selected to participate in the Plan by the Committee. ARTICLE IV Benefits 4.1 PROVISION FOR BENEFITS. Benefits under the Plan shall constitute general obligations of the Employer in accordance with the terms of the Plan. No amounts in respect of such benefits shall be set aside or held in trust, and no recipient of any benefit shall have any right to have the benefit paid out of any particular assets of the Employer. (However, the Board may establish a trust(s) out of which the benefits hereunder may be paid, provided that the principal and income of such trust(s) are subject to the claims of the creditors of the Employer in the event of insolvency as provided for under the terms of such trust(s).) 5 4.2 NORMAL RETIREMENT BENEFIT. The benefit in the event of Normal Retirement shall be equal to the Actuarial Equivalent of the Pension, which shall be derived from the following formula: Highest Average Compensation times the lesser of: i) two percent times Years of Service, or ii) sixty percent, the product of which is multiplied by the Participant's Vested Percentage, the product of which is then offset in all years by the sum of: i) the Base Contribution Benefit, ii) the Prior Pension Benefit, and iii) the Social Security Benefit. Payment of the Normal Retirement benefit shall begin as of the Participant's Termination. 4.3 EARLY RETIREMENT BENEFIT. The benefit in the event of Early Retirement shall be equal to the Actuarial Equivalent of the Pension, which shall be derived from the following formula: Highest Average Compensation times the lesser of: i) two percent times Years of Service, or ii) sixty percent, the product of which is multiplied by the Participant's Vested Percentage, reduced by five percent times the number of years that the Participant's Early Retirement precedes his eligibility for Normal Retirement, and then offset in all years by the sum of: i) the Base Contribution Benefit, ii) the Prior Pension Benefit, and iii) the Social Security Benefit. Payment of the Early Retirement benefit shall begin as of the Participant's Termination. 4.4 PRE-TERMINATION CESSATION OF PARTICIPATION BENEFIT. The benefit in the event a Participant ceases to participate in the Plan prior to his Termination shall be equal to the Actuarial Equivalent of the Pension, calculated as of the date of such cessation using the Participant's age as of such date, which shall be derived from the following formula: Highest Average Compensation times the lesser of: i) two percent times Years of Service, or ii) sixty percent, the product of which is multiplied by the Participant's Vested Percentage, reduced by five percent times the number of years that the cessation of participation precedes his eligibility for Normal Retirement, but no more than twenty-five percent, and then offset in all years by the sum of: i) the Base Contribution Benefit, ii) the Prior Pension Benefit, and iii) the Social Security Benefit. The cessation benefit shall be accumulated at an interest rate for each calendar year equal to the average Applicable Interest Rate for the twelve months preceding such calendar year (or some other prevailing interest rate selected by the Committee) until payment of such benefit begins. Notwithstanding the foregoing, no cessation benefit shall be paid pursuant to this Section 4.4 unless the Participant's Termination occurs on or after his eligibility for Early Retirement. Payment of the cessation benefit shall begin as of the Participant's Termination. 4.5 PRE-TERMINATION DEATH BENEFIT. In the event the Participant dies prior to his Termination but after eligibility for Early Retirement or Normal Retirement, the benefit payable to his Beneficiary shall be calculated as if the Participant's Termination was an Early Retirement or Normal Retirement that occurred on the date of his death. In the event the Participant dies prior to his Termination and prior to eligibility for Early Retirement, the benefit payable to his Beneficiary shall be equal to the Actuarial Equivalent of the Pension, calculated as of the date the Participant would have become eligible for Early Retirement, which shall be derived from the following formula: Highest Average Compensation times the lesser of: i) two percent times Years of Service, or ii) sixty percent, the product of which is multiplied by the Participant's Vested Percentage (which shall be 100%), reduced by five percent times the number of years that the Participant's death precedes his eligibility for Normal Retirement, but no more than twenty-five percent, and then offset in all years by the sum of: i) the Base Contribution Benefit, ii) the Prior Pension Benefit, and iii) the Social Security Benefit, and which shall be discounted at an 6 interest rate equal to the average Applicable Interest Rate for the longer of (a) the period beginning on the Effective Date and ending upon the month preceding the Applicable Date or (b) the five-year period ending on the month preceding the Applicable Date (or some other prevailing interest rate selected by the Committee) for the number of years that such Participant's death precedes the date he would have become eligible for Early Retirement. Such death benefit shall be paid in a lump sum as soon as administratively feasible following the date of the Participant's death 4.6 POST-TERMINATION DEATH BENEFIT. In the event the Participant dies after his Termination but prior to receiving all benefit distributions to which he was entitled, the remaining benefit distributions shall be paid to his Beneficiary. 4.7 DISABILITY BENEFIT. In the event the Participant becomes disabled as defined under the terms of the long term disability program provided under the BJ Services Company, U.S.A. Welfare Benefits Program prior to eligibility for Normal Retirement, the benefit payable to the Participant shall be equal to the Actuarial Equivalent of the Pension, calculated as of the date the Participant would have become eligible for Normal Retirement using the Participant's age as of such date, which shall be derived from the following formula: Highest Average Compensation times the lesser of: i) two percent times Years of Service, or ii) sixty percent, the product of which is multiplied by the Participant's Vested Percentage (which shall be 100%), and then offset in all years by the sum of: i) the Base Contribution Benefit, ii) the Prior Pension Benefit, and iii) the Social Security Benefit. Payment of such disability benefit shall begin as of the date the Participant would have become eligible for Normal Retirement. At the request of the Participant, the Committee, in its sole discretion, may elect to pay the disability benefit in a lump sum after the Participant becomes disabled, but in such event, the benefit payable to the Participant shall be equal to the Actuarial Equivalent of the Pension derived above (in this Section 4.7), discounted at an interest rate equal to the average Applicable Interest Rate for the longer of (a) the period beginning on the Effective Date and ending upon the month preceding the Applicable Date or (b) the five-year period ending on the month preceding the Applicable Date (or some other prevailing interest rate selected by the Committee) for the number of years that the date of payment of the lump sum benefit precedes the date the participant would have become eligible for Normal Retirement. 4.8 CHANGE OF CONTROL BENEFIT. (a) In the event of a Termination with respect to which a Participant who has a Severance Agreement with the Company is eligible to receive benefits pursuant to his Severance Agreement, a Participant shall receive a Change of Control benefit that shall be equal to the benefit payable to the Participant pursuant to Sections 4.2, 4.3, 4.4 or this Section 4.8, as applicable, determined as if the Participant had continued to work for the Company for three (3) years following the date of his Termination, thereby resulting in an additional three (3) Years of Service and an additional three (3) years of age. If a Participant is not eligible for a benefit pursuant to Sections 4.2, 4.3 or 4.4, the Participant's Change of Control benefit shall be equal to the Actuarial Equivalent of the Pension, calculated as of the date the Participant would have become eligible for Early Retirement, which shall be derived from the following formula: Highest Average Compensation times the lesser of: i) two percent times Years of Service 7 (reflecting the three (3) year increase), or ii) sixty percent, the product of which is multiplied by the Participant's Vested Percentage (which shall be 100%), reduced by five percent times the number of years that the Termination (reflecting the three (3) year increase) precedes his eligibility for Normal Retirement, but no more than twenty-five percent, and then offset in all years by the sum of: i) the Base Contribution Benefit, ii) the Prior Pension Benefit, and iii) the Social Security Benefit, and which shall be discounted at an interest rate equal to the average Applicable Interest Rate for the longer of (a) the period beginning on the Effective Date and ending upon the month preceding the Applicable Date or (b) the five-year period ending on the month preceding the Applicable Date (or some other prevailing interest rate selected by the Committee) for the number of years that such Participant's Termination (reflecting the three (3) year increase) precedes the date he would have become eligible for Early Retirement. The Change of Control benefit shall be paid to such Participant in a lump sum immediately following the date of the Participant's Termination and, if necessary, shall be eligible for gross-up in accordance with the provisions of Exhibit A hereto. (b) Notwithstanding the foregoing, the Committee, in its sole discretion, may determine that it is in the best interest of all Participants to pay Change of Control benefits to all Participants immediately following the Change of Control. In such event a Participant's Change of Control benefit shall be equal to the benefit payable to the Participant pursuant to Sections 4.2, 4.3, 4.4 or this Section 4.8, as applicable, determined as if the Participant's Termination had occurred three (3) years after the date of the Change of Control, thereby resulting in an additional three (3) Years of Service and an additional three (3) years of age. Further, with respect to a Participant who has begun receiving benefit distributions pursuant to the Plan, the benefit in the event of a Change of Control shall be equal to the Actuarial Equivalent of the remaining benefit payable to the Participant. If the Committee decides to pay Change of Control benefits to all Participants pursuant to this Section, such Change of Control benefits shall be paid to the Participants in a lump sum immediately following the date of the Change of Control. 4.9 NON-COMPETITION AGREEMENT; FORFEITURE OF BENEFITS. In consideration for the acceptance of benefits under this Plan, the Participant agrees that he or she will not engage in or work for a business that competes with the Company or any of its subsidiaries, for a period which is the longer of (i) five (5) years after the Participant's employment with the Company is terminated or (ii) the period during which the Participant is receiving payments under the Plan. This prohibition shall not apply if the Participant is eligible to receive benefits under his Severance Agreement with respect to such Termination. Notwithstanding any other provisions of this Plan, a Participant's benefits under the Plan shall be forfeited if the Participant terminates his employment and during the period which is the longer of (i) five (5) years thereafter or (ii) the period during which the Participant is receiving payments under the Plan, the Participant engages in or is employed by a business that competes with the Company or any of its subsidiaries; provided, however, that no such forfeiture shall occur if, with respect to such Termination, the Participant is eligible to receive benefits under his Severance Agreement. It is a condition to receipt of benefits under the Plan that the Participant execute the acknowledgement of non-competition agreement attached to this Plan as Exhibit B. 8 ARTICLE V Vesting The Participant's Vested Percentage shall be zero percent prior to the later of (i) his fifty-fifth birthday or (ii) the date he completes five full Years of Service and one hundred percent on or after such date; provided, however, that in the event of the Participant's death or disability (as defined in Section 4.7) or a Change of Control, the Participant's Vested Percentage shall be one hundred percent. ARTICLE VI Payment of Benefits 6.1 PAYMENT OF BENEFITS. Subject to rules established by the Committee, the Participant may elect to receive the benefit to which he is entitled under the Plan in equal annual installments for a period of from five (5) to thirty (30) years. These installments shall be calculated by applying the average Applicable Interest Rate for the longer of (a) the period beginning on the Effective Date and ending upon the month preceding the Applicable Date or (b) the five-year period ending on the month preceding the Applicable Date (or some other prevailing interest rate selected by the Committee) to the Actuarial Equivalent of the Participant's benefit as determined under the appropriate section of Article IV herein so that the present value of the installments shall be equal to such Actuarial Equivalent. If no effective election is made, then payment of the benefit shall be made in ten (10) equal annual installments, or in the sole discretion of the Committee, in a lump sum. 6.2 BENEFIT DISTRIBUTION ELECTIONS. Subject to rules established by the Committee, a Participant may file a benefit distribution election directing how his benefit shall be paid following his Termination. Such benefit distribution election must be made on a form supplied by the Employer for that purpose. Such benefit distribution election must be filed either: i) at the time of enrollment in the Plan, or ii) at any subsequent time; provided, however, that such subsequent election shall not be effective until the date that is twelve months after the date such subsequent election is filed, except that no such limit shall apply in the event of death. In the event the Participant files more than one benefit distribution election, the last effective benefit distribution election shall control. Anything to the contrary notwithstanding, the Committee, in its sole discretion, has the right to pay the benefit to the Participant in a lump sum. 6.3 REEMPLOYMENT OF PARTICIPANTS. If a Participant who was to receive or had begun to receive payment of his benefit under the Plan is reemployed by the Employer on a full-time basis, the payment of his benefit shall be suspended during the period of such reemployment. Upon termination of any Participant's reemployment, the Participant's benefit shall be paid over the remainder of the period elected by the Participant; provided however, that if the Participant was selected to participate in the Plan pursuant to Article III during such period of reemployment, such Participant's benefit shall be recomputed pursuant to the applicable provisions of the Plan to include service completed during the Participant's period of reemployment, but the amount thereof shall be reduced by an amount which is the Actuarial 9 Equivalent of the accumulated value of the benefit payments, if any, such Participant received prior to his reemployment. ARTICLE VII Committee 7.1 AUTHORITY. The Committee shall have the authority, subject to the provisions of the Plan, to establish, adopt and revise such rules and regulations and to make all such determinations relating to the Plan as it may deem necessary or appropriate for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or any agreement or document related to this Plan in the manner and to the extent the Committee deems necessary or appropriate to carry this Plan into effect. The Committee's interpretation of the Plan, and all decisions and determinations by the Committee with respect to the Plan, shall be final and binding on all parties. 7.2 DELEGATION OF AUTHORITY. The Committee may delegate any of its powers or responsibilities to one or more members of the Committee or any other person or entity. 7.3 PROCEDURES. The Committee may establish procedures to conduct its operations and to carry out its rights and duties under the Plan. 7.4 COMPENSATION AND EXPENSES. The members of the Committee shall serve without compensation for their services, but all expenses of the Committee and all other expense incurred in administering the Plan shall be paid by the Company. 7.5 INDEMNIFICATION. (a) The Company shall indemnify the members of the Committee and/or any of their delegates against the reasonable expenses, including attorneys' fees, actually and appropriately incurred by them in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereto, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan (including any action or failure to act constituting negligence) and against all amounts paid by them in settlement thereof and against all amounts paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in a suit of final adjudication that such Committee member is liable for gross negligence, fraud, deliberate dishonesty or willful misconduct in the performance of his duties. (b) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 7.5, such person (the "Indemnified Party") shall promptly notify the Company in writing. No indemnification provided for in Section 7.5(a) shall be available to any party who shall fail to give notice as provided in this Section 7.5(b) if the Company was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the Company from any liability which it may have 10 to the Indemnified Party for contribution or otherwise than on account of the provisions of Section 7.5(a). In case any such proceeding shall be brought against any Indemnified Party and it shall notify the Company of the commencement thereof, the Company shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel satisfactory to such Indemnified Party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the Company shall pay as incurred the fees and expenses of the counsel retained by the Indemnified Party in the event (i) the Company and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Company shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses or more than one separate firm for all such Indemnified Parties. Such firm shall be designated in writing by the Company. The Company shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. ARTICLE VIII Amendment and Termination The Company retains the power to amend the Plan or to terminate the Plan at any time by action of the Board. Further, the Committee, in its sole discretion, may amend the Plan at any time No such amendment or termination shall adversely affect any Participant or Beneficiary with respect to his right to receive a benefit in accordance with Article IV, determined as of the later of the date that the Plan amendment or termination is adopted or the date such Plan amendment or termination is effective, unless the affected Participant or Beneficiary consents to such amendment or termination. Finally, the Company shall not enter into a transaction with another party that would constitute a Change of Control without securing the agreement of the other party to assume the Plan following the consummation of such transaction. ARTICLE IX Miscellaneous 9.1 PLAN DOES NOT AFFECT THE RIGHTS OF EMPLOYEE. Nothing contained in this Plan shall be deemed to give any Participant the right to be retained in the employment of the Employer, to interfere with the rights of the Employer to discharge any Participant at any time or to interfere with a Participant's right to terminate his employment at any time. 9.2 NONALIENATION AND NONASSIGNMENT. Except for debts owed the Employer by a Participant or Beneficiary, no amounts payable or to become payable under the Plan to a Participant or Beneficiary shall be subject in any manner to anticipation, alienation, sale, 11 transfer, assignment, pledge, encumbrance or charge, whether voluntary, involuntary, by operation of law or otherwise, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same by a Participant or Beneficiary prior to distribution as herein provided shall be null and void. 9.3 TAX WITHHOLDING. The Employer shall have the right to deduct from any payments to a Participant or Beneficiary under the Plan any taxes required by law to be withheld with respect to such payments. In addition, the Employer shall have the right to deduct from any Participant's base salary any applicable employment taxes or other required withholdings with respect to a Participant. 9.4 SETOFFS. As a condition to the receipt of any benefits hereunder, the Committee, in its sole discretion, may require a Participant or Beneficiary to first execute a written authorization, in the form established by the Committee, authorizing the Employer to offset from the benefits otherwise due hereunder any and all amounts, debts or other obligations, of any kind or nature, owed to the Employer by the Participant. Where such written authorization has been so executed by a Participant, benefits hereunder shall be reduced accordingly. The Committee shall have full discretion to determine the application of such offset and the manner in which such offset will reduce benefits under the Plan. 9.5 NUMBER AND GENDER. Wherever appropriate herein, words used in the singular shall be considered to include the plural and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. 9.6 HEADINGS. The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control. 9.7 APPLICABLE LAW. Except to the extent preempted by federal law, the terms and provisions of the Plan shall be construed in accordance with the laws of the State of Texas. 9.8 SUCCESSORS. The Plan shall be binding upon the Employer and its successors and assigns, in accordance with its terms. 9.9 CLAIMS PROCEDURE. A Participant or Beneficiary may make a claim for Plan benefits by filing a written application for benefits with the Committee. Such application shall set forth the nature of the claim and any other information that the Committee may reasonably request. The Committee shall notify the applicant of its determination with respect to such claim within a reasonable time after receipt of the claim, which shall not exceed 90 days unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the applicant prior to the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time, and the date by which a final decision is expected to be rendered. 12 Notice of a claim denial, in whole or in part, shall be set forth in a manner calculated to be understood by the applicant and shall contain the following: (a) The specific reason or reasons for the denial; and (b) A specific reference to the pertinent Plan provisions on which the denial is based; and (c) A description of any additional material or information necessary for the applicant to perfect the claim and an explanation of why such material or information is necessary; and (d) An explanation of the Plan's claims review procedure. Participants shall be given timely written notice of the time limits set forth herein for determinations on claims, appeal of claim denial and decisions on appeal. If notice of a claim determination is not provided within the applicable time frame described above, the claim shall be deemed denied and the applicant may appeal the denial as set forth below. If a written claim results in a claim denial, either in whole or in part, the Participant or Beneficiary has the right to appeal. The appeal must be in writing. The administrative process for appealing a claim is: Upon receipt of a claim denial, a Participant may file a written request, including any additional information supporting the claim, for reconsideration by the Committee within 60 days of receiving notification that the claim is denied. The Committee normally shall render a decision no later than 60 days following receipt of the request for review. Under special circumstances, the decision may be delayed up to 120 days following receipt of the request for review. If such an extension is required, the Participant will be advised in writing before the extension begins. The Committee will provide written notice of its final determination. The notice will include specific reasons for the decision, be written in a manner calculated to be understood by the Participant and make specific reference to the Plan provisions on which it is based. An appeal will not be considered if it is not filed within the applicable period of time. If a decision on an appeal is not provided within any applicable time frame described above, the claim shall be deemed denied on appeal. At any stage in the appeals process, the Participant or Beneficiary or his or her designated representative may review pertinent documents, including copies of the Plan document and information relating to the applicant's entitlement to such benefit, and submit issues and comments in writing. 9.10 ARBITRATION. (a) Except as otherwise provided in subparagraph (b) below, any dispute or controversy arising out of or in connection with this Plan as to the existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, 13 operation, breach, continuance or termination thereof shall be submitted to arbitration pursuant to the following procedure: (i) Either the Plan or the Participant may demand such arbitration in writing after the controversy arises, which demand shall include the name of the arbitrator appointed by the party demanding arbitration, together with a statement of the matter in controversy. (ii) Within 15 days after such demand, the other party shall name an arbitrator, or in default thereof, such arbitrator shall be named by the Arbitration Committee of the American Arbitration Association, and the two arbitrators so selected shall name a third arbitrator within 15 days or, in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, a third arbitrator shall be appointed by the Arbitration Committee of the American Arbitration Association. (iii) The Company shall bear all arbitration costs and expenses. (iv) The arbitration hearing shall be held at a site in Houston, Texas, to be agreed to by a majority of the arbitrators on 10 business days prior written notice to the parties. (v) The arbitration hearing shall be concluded within 10 days unless otherwise ordered by a majority of the arbitrators, and the award thereon shall be made within 10 days after the close of the submission of evidence. An award rendered by a majority of the arbitrators appointed pursuant to this Section 9.10 shall be final and binding on all parties to the proceeding, and judgment on such award may be entered by either party in the highest court, state or federal, having jurisdiction. (b) During the pendency of any dispute or controversy pursuant to this Section 9.10, any payments under the Plan shall be suspended until the dispute is finally resolved. Notwithstanding the foregoing, the Participant shall be entitled to be reimbursed on a current basis for any expenses reasonably incurred for attorneys' fees and disbursements in bringing such action and shall be entitled to specific performance of such right, and Participant may commence a legal action to enforce such right. The Company shall promptly (and in no event later than ten (10) business days after demand) reimburse the Participant for any expenses reasonably incurred for attorneys' fees and disbursements in bringing such action. Amounts paid under this Section 9.10 are in addition to benefits provided under this Plan and shall not be offset against or reduce any other benefits provided under this Plan. (c) Except as otherwise provided, the parties stipulate that the provisions hereof shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative tribunal with respect to any controversy or dispute arising during the period of this Agreement and which is arbitrable as herein set forth. The arbitration provisions hereof shall, with respect to such controversy or dispute, survive the termination of this Plan. 14 IN WITNESS WHEREOF, BJ Services Company has caused this Plan to be executed by its duly authorized officer, effective as provided herein. BJ SERVICES COMPANY By: ------------------------------------- Title: Date: 15 Exhibit A (a) Anything in the Plan to the contrary notwithstanding, if it shall be determined that any payment or distribution by the Company or any other person to or for the benefit of the Participant (whether paid or payable or distributed or distributable pursuant to the terms of the Plan or otherwise, but determined without regard to any additional payments required under this Exhibit A) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Participant with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay, in accordance with paragraph (b), an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Participant of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income or other taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of paragraph (c), all determinations required to be made under this Exhibit A, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an independent public accounting firm with a national reputation that is selected by the Participant (the "Accounting Firm") which shall provide detailed preliminary calculations both to the Company and to the Participant within 15 business days after the receipt of notice from the Company that there has been a Payment, or such earlier time as is requested by the Participant and shall provide the actual amount of the Gross-Up Payment each year. In the event that the Accounting firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control of the Company, the Participant shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. (The Company shall indemnify and hold harmless the Participant, on an after-tax basis, for any Excise Tax or income or other tax (including interest and penalties with respect thereto) imposed on the Participant as a result of such payment of fees and expenses.) Any Gross-Up Payment, as determined pursuant to this Exhibit A, shall be paid by the Company on behalf of the Participant to the applicable tax authorities prior to the time any such payments are due to be paid to the Internal Revenue Service. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish Employee with a written opinion that failure to report the Excise Tax on Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Participant provided, however, that such determination may be changed to reflect the outcome of a dispute under paragraph (c). As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. If the Company exhausts its remedies pursuant to paragraph (c) and the Participant thereafter is required to make a payment of any Excise Tax, the Accounting Firm 16 shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant. (c) The Participant shall notify the Company in writing of any claim (including any threatened tax lien related to or based upon any such claim) by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Participant shall not pay such claim prior to the expiration of the 30-day period following the date on which the Participant gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due or such tax lien would be imposed). If the Company notifies the Participant in writing prior to the expiration of such period that it desires to contest such claim (or threatened lien), the Participant shall: (1) give the Company any information reasonably requested by the Company relating to such claim (or threatened lien); (2) take such action in connection with contesting such claim (or threatened lien) as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (3) cooperate with the Company in good faith in order effectively to contest such claim (or threatened lien); and (4) permit the Company to participate in any proceedings relating to such claim (or threatened lien); provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Participant harmless, on an after-tax basis, for any Excise Tax or income or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine (but in no event shall the Company permit or direct the Participant to allow a tax lien to be imposed on the Participant's property); provided, further, that if the Company directs the Participant to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Participant, on an interest-free basis, and shall indemnify and hold the Participant harmless on an after-tax basis, from any Excise Tax or income or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such 17 advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Participant with respect to which such contested amount is claimed to be due is limited solely to such contested amount. In addition, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If after the receipt by the Participant of an amount advanced by the Company pursuant to paragraph (c), the Participant becomes entitled to receive any refund with respect to such claim, the Participant shall (subject to the Company's complying with the requirements of paragraph (c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by the Participant of an amount advanced by the Company pursuant to paragraph (c), a determination is made that the Participant shall not be entitled to any refund with respect to such claim and the Company does not notify the Participant in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) Any provision in the Plan, this Exhibit A, or any other plan or agreement to the contrary notwithstanding, if the Company is required to pay a Gross-Up Payment pursuant to the provisions of this Exhibit A and pursuant to the provisions of another plan or agreement, then the Company shall pay the greater of the amount determined pursuant to this Exhibit A or the amount determined pursuant to the provisions of such other plan or agreement, but in no event shall the Company pay amounts pursuant to both provisions. 18 Exhibit B Acknowledgement of Non-Compete Agreement The undersigned Participant acknowledges that it is a condition of receipt of benefits under the BJ Services Company Supplemental Executive Retirement Plan that the Participant agrees as follows. The Participant agrees that he or she will not engage in or work for a business that competes with BJ Services Company or any of its subsidiaries for a period that is the longer of (i) five (5) years after the Participant's employment with the Company is terminated or (ii) the period during which the Participant is receiving payments under the Plan. This prohibition shall not apply if the Participant is eligible to receive benefits under his or her Severance Agreement with respect to such Termination. --------------------------------- [Name of Participant] --------------------------------- [Date] 19 EX-21.1 4 0004.txt SUBSIDIARIES EXHIBIT 21.1 BJ SERVICES COMPANY SUBSIDIARIES
Percentage Owned By ------------------ Name of Entity/Jurisdiction of Organization Company Subsidiary - ------------------------------------------- ------- ---------- BJ SERVICES COMPANY (Delaware) BJ Services Company Middle East (Delaware)....................... 100% Gulf Well Services Company (Kuwait) (JV) ....................... 40% BJ Services Company, U.S.A. (Delaware) .......................... 100% BJ Process and Pipeline Services Company (Texas)................ 100% BJ-Rotary Petroleum Ltd. KFT (Hungary) (JV)..................... 64% BJ Services, L.L.C. (Delaware).................................. 100% BJ Services II, L.L.C. (Delaware)............................... 100% BJ Services Operating & Maintenance Company, L.L.C. (Delaware).. 100% BJ Services Operating & Maintenance Company II, L.L.C. (Dela- ware).......................................................... 100% CFC Holdings Inc. (Delaware).................................... 100% CFC Partner L.L.C. (Delaware)................................... 100% American Fracmaster L.P. (Texas)............................... 100% Fracmaster U.S.A. Inc. (Delaware)............................... 100% Western Oceanic, Inc. (Delaware)................................ 100% Western Oceanic International, Inc. (Panama)................... 100% Western Petroleum Services International Company (Delaware)..... 100% P.T. Western Petroleum Servindo (Indonesia).................... 100% BJ Service International, Inc. (Delaware)......................... 100% BJ International Holdings Company (Delaware)..................... 100% Rosaville Holdings Limited (Gibraltar)......................... 100% BJ Services Company Sarl (Luxembourg)......................... 100% BJ-Hughes C.I., Ltd. (Cayman Islands) (Inactive)............. 100% BJ Services Company Canada (Nova Scotia).................... 100% Biarritz Overseas Limited (Cyprus)......................... 100% ZAO BJ Services (Siberia)................................. 100% BJ Services Company (Vietnam) Ltd. (Vietnam)............... 100% NMS Oilfield Limited (Cyprus).............................. 100% Nowsco International Limited (Barbados).................... 100% Nowsco Well Service Company Limited (Barbados)............. 100% Nowsco Well Service (Cyprus) Limited (Cyprus).............. 100% BJNeft (Cyprus) Limited (Cyprus).......................... 100% Canadian Fracmaster Offshore (Cyprus) Ltd................ 100% Strezhevoy Services JE (Russia)......................... 50% Verinder Holdings Limited (Cyprus)...................... 100% ZAO Vasyugan Services (Russia).......................... 50% Chemfrac Trading Limited (Cyprus)........................ 100% Fracmaster Consultants Limited (Cyprus).................. 100% BJ Holdings (Russia) Limited (Cyprus).................... 100% ZAO Samotlor Fracmaster Services (Russia)............... 100% ZAO FracNeftGaz (Russia)................................ 50% Nowsco Fracmaster Technical Services Limited (Cyprus).... 100% Poseidon Treasury Services (Cyprus)...................... 100% Samotlor Holdings Limited (Cyprus)....................... 100% UFM Holdings Limited (Cyprus)............................ 100%
Percentage Owned By ------------------ Name of Entity/Jurisdiction of Organization Company Subsidiary - ------------------------------------------- ------- ---------- Tomsk Holdings Limited (Cyprus)......................... 100% ZAO Uganskfracmaster (Russia)........................... 50% ZAO FracmasterNeft (Russia).............................. 100% BJ Petroleum Services International Limited (Cyprus)...... 100% BJ Petroleum Services (China) Limited (Cyprus)........... 100% Nowsco Well Service (Vostok) Limited (Russia)............. 100% Nowsco Well Service (Ireland) Limited (Ireland)............ 100% P.T. Nowsco Well Service (Indonesia) ...................... 100% BJ Services International Sarl (Luxembourg).................... 100% BJ Process & Pipeline Services Pte. Ltd. (Singapore).......... 100% BJ Service International (Thailand) Ltd. (Thailand)........... 100% BJ Service International GmbH (Germany)....................... 100% BJ Services C.I., Ltd. (Cayman Islands)....................... 100% BJ Services Company B.V. (Netherlands)........................ 100% BJ Services AS (Norway)...................................... 100% BJ Services Company GmbH (Germany)........................... 100% BJ Services Company Italia S.r.L. (Italy).................... 100% BJ Services International B.V. (Netherlands)................. 100% Nowsco (Neth) Group B.V. (Netherlands)....................... 100% BJ Tubular Services B.V. (Netherlands)...................... 100% Nowsco (UAE) LLC (liquidation pending)...................... 100% BJ Services Company Limited (Scotland)........................ 100% BJ Petroleum Services Limited (UK)........................... 100% BJ Process & Pipeline Services Limited (UK).................. 100% BJ Process & Pipeline Services AS (Norway)................... 100% BJ Services Company Africa Limited (Scotland)................ 100% BJ Services Company (Australia) Pty. Ltd. (Australia)........ 100% BJ Process & Pipeline Services (Australia) Pty. Ltd. (Australia)................................................ 100% Challenge Pipeline Services Pty. Ltd. (Australia).......... 100% BJ Services Company Middle East Limited (Scotland)........... 100% BJ Services Company (UK) Limited (Scotland).................. 100% BJ Services (GB) Limited (Scotland).......................... 100% BJ Services International Ltd. (UK).......................... 100% McKenna & Sullivan Limited (UK) (liquidation pending)...... 100% Nowsco Well Service International Limited (Bermuda)........ 100% BJ Tubular Services Limited (Scotland)....................... 100% BJ Tubular Services A/S (Denmark).......................... 100% Colony Drilling Company Limited (Scotland).................... 100% BJ Services Company (Singapore) Pte. Ltd. (Singapore).......... 100% ASPAC Region Ltd. (Singapore)................................. 100% Nowsco-BJ Services Company (b) SDN BHD (Brunei) (JV)....... 60% Sarku Nowsco Well Services SDN BHD (Malaysia) ............. 100% BJ Services Company (Hong Kong) Limited (Hong Kong)........... 100% BJ Services Company (Mauritius) Ltd. (Mauritius).............. 100% Oilfield Chemicals Trading Limited (British Virgin Islands)... 100% BJ Services Do Brasil Ltda. (Brazil)........................... 100% SEBEP Quimica Industria e Comercio Ltda. (Brazil)............. 100% SEBEX Oil Well Service, S.A. (Brazil)......................... 100% Hughes Services Eastern Hemisphere S.A.R.L. (France) (Inactive).................................................... 100% Nowsco Norge AS (Norway)....................................... 100%
Percentage Owned By ------------------ Name of Entity/Jurisdiction of Organization Company Subsidiary - ------------------------------------------- ------- ---------- BJ Oilwell Services (M) Sdn. Bhd. (Malaysia) (JV)............ 65% BJ Service Arabia Ltd. (Saudi Arabia) (JV)................... 70% BJ Services Company Mexicana S.A. de C.V. (Mexico)........... 100% BJ Services Company (Nigeria) Limited (Nigeria).............. 60% BJ Services Company, S.A. (Panama)........................... 100% BJ Services Company (Sakhalin) Limited (Russia).............. 100% BJ Services de Venzuela, C.A. (Venezuela).................... 100% BJ Services de Venezuela III, C.A. (Venezuela).............. 100% BJ Services International, S.A. (Panama)..................... 100% BJ Pumping Services Company S.A. (Panama) (JV).............. 65% Compania de Servicios Petroleros BJ Boliviana S.A. (Bolivia).................................................. 100% International Chemical Specialities FZE (Jebel Ali)......... 100% BJ Servicios International S.A. de C.V. (Mexico)............. 100% BJ Services S.A. (Argentina)................................. 100% Nowsco Americas S.A. (Argentina)............................ 100% Nowsco Well Service SRL (Italy) (being liquidated)........... 100% P.T. BJ Services Indonesia (Indonesia)....................... 75% Societe Algerienne de Puits Producteurs d'Hydrocarbures (BJSP) (Algeria)............................................ 49%
EX-23.1 5 0005.txt INDEPENDENT AUDITORS CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-36754, 33-52506, 33-62098, 33-58637, 33-58639, 333-88151, and 333-88773 of BJ Services Company on Form S-8 and in Registration Statement No. 33-58017 of BJ Services Company on Form S-4 of our report dated November 16, 2000 appearing in this Annual Report on Form 10-K of BJ Services Company for the year ended September 30, 2000. DELOITTE & TOUCHE LLP Houston, Texas December 18, 2000 EX-27 6 0006.txt FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-2000 OCT-01-1999 SEP-30-2000 6,472 0 348,106 11,545 112,795 506,378 1,073,899 488,505 1,785,233 337,091 0 0 0 8,688 1,161,083 1,785,233 1,555,389 1,555,389 1,210,299 1,210,299 149,865 4,325 19,968 175,283 57,307 117,976 0 0 0 117,976 1.49 1.40
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