-----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, ASVCjBrR7Rs1/YYEjNJ57Fi8SP+8LBnukHf/ZMtidlFtXzqDmH+3+4wNhwnb6K7r 9Djbzd2qWzQ1oGv3yXamLQ== 0000950129-96-000656.txt : 19960424 0000950129-96-000656.hdr.sgml : 19960424 ACCESSION NUMBER: 0000950129-96-000656 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19960423 SROS: NYSE 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: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02731 FILM NUMBER: 96549467 BUSINESS ADDRESS: STREET 1: 5500 NW CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 713-462-4239 MAIL ADDRESS: STREET 1: 5500 NORTHWEST CENTRAL DR STREET 2: 5500 NORTHWEST CENTRAL DR CITY: HOUSTON STATE: TX ZIP: 77092 S-3 1 BJ SERVICES COMPANY 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION APRIL 23, 1996 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------------- BJ SERVICES COMPANY (Exact name of registrant as specified in its charter) ---------------------------- DELAWARE 1389 63-0084140 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
---------------------------- 5500 NORTHWEST CENTRAL DRIVE HOUSTON, TEXAS 77092 (713) 462-4239 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------------------- MARGARET BARRETT SHANNON, ESQ. VICE PRESIDENT - GENERAL COUNSEL 5500 NORTHWEST CENTRAL DRIVE HOUSTON, TEXAS 77092 (713) 462-4239 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------------------- COPIES TO: ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P. 4200 TEXAS COMMERCE TOWER 3000 ONE SHELL PLAZA 600 TRAVIS 910 LOUISIANA HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002 (713) 220-4200 (713) 229-1234 ATTENTION: G. MICHAEL O'LEARY ATTENTION: J. DAVID KIRKLAND, JR. ---------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. ---------------------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]__________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]_________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
========================================================================================================================= TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED OFFERING PRICE (1)(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.10 per share (3) $236,227,250 $81,458 - -------------------------------------------------------------------------------------------------------------------------
(1) Includes shares of Common Stock issuable upon exercise of the Underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). (3) Each share of Common Stock offered hereby includes an associated preferred share purchase right. ---------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 23, 1996 P R O S P E C T U S 5,869,000 SHARES BJ SERVICES COMPANY COMMON STOCK ---------------------------- The shares of Common Stock, par value $0.10 per share ("Common Stock"), offered hereby (the "Shares") are being sold by BJ Services Company (the "Company"). The Common Stock is listed on the New York Stock Exchange ("NYSE") under the trading symbol "BJS." On April 19, 1996, the last reported sales price of the Common Stock on the NYSE composite tape was $ 36 1/8 per share. See "Price Range of Common Stock and Warrants and Dividend Policy." ---------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=============================================================================================================== Price to Underwriting Proceeds to Public Discount(1) Company(2) - --------------------------------------------------------------------------------------------------------------- Per Share . . . . . . . . . . . $ $ $ - --------------------------------------------------------------------------------------------------------------- Total(3) . . . . . . . . . . . $ $ $ ===============================================================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted to the several Underwriters an option for 30 days to purchase up to an additional 880,350 shares of Common Stock at the Price to Public, less Underwriting Discount, solely to cover over- allotments, if any. If such option is exercised in full, the Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The Shares are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions, including the closing of the Company's proposed acquisition of Nowsco Well Service Ltd. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Shares will be made in New York, New York on or about , 1996. ------------------- MERRILL LYNCH & CO. ------------------- THE DATE OF THIS PROSPECTUS IS , 1996. 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. -2- 4 SUMMARY The following is a summary of certain information contained elsewhere in this Prospectus and does not purport to be complete. Reference is made to, and this Summary is qualified in its entirety by and should be read in conjunction with, the more detailed information contained elsewhere herein or incorporated by reference in this Prospectus. Unless otherwise defined herein, capitalized terms used in this Summary have the respective meanings ascribed to them elsewhere in this Prospectus. References in this Prospectus to "BJ Services" and the "Company," unless the context requires otherwise, are to BJ Services Company and its subsidiaries, which include former subsidiaries of The Western Company of North America ("Western") following the acquisition of Western by BJ Services on April 13, 1995 (the "Western Acquisition"). Financial and other information included in this Prospectus includes the Western operations since April 1, 1995. Information included in this Prospectus regarding Nowsco Well Service Ltd. ("Nowsco") has been taken from or is based upon Nowsco's Annual Report on Form 20-F for the fiscal year ended December 31, 1994, its Annual Report to shareholders for the fiscal year ended December 31, 1995, and its quarterly report to shareholders for the fiscal quarter ended December 31, 1995, and BJ Services has not independently verified the accuracy of any such information. Currency is expressed as U.S. dollars ("$") or Canadian dollars ("Cdn $"), and, except as otherwise indicated, U.S. dollar equivalents of Canadian dollars are calculated at an assumed exchange rate of Cdn $1.00 to $.72. THE COMPANY BJ Services is a leading provider of pressure pumping and other oilfield services for the petroleum industry worldwide. Pressure pumping services offered by BJ Services consist of well stimulation, cementing, sand control and coiled tubing services used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. The Company successfully strengthened its U.S. presence, expanded its presence in certain international markets and realized significant consolidation benefits through the Western Acquisition, which was completed on April 13, 1995. The Company is currently seeking to further expand and complement its existing pressure pumping operations through its offer to acquire all of the outstanding common shares of Nowsco Well Service Ltd., an Alberta, Canada corporation (the "Nowsco Acquisition"). The Company believes that as a result of the Western Acquisition and the proposed Nowsco Acquisition, it will be better positioned to take advantage of several trends in the industry. These trends include: (i) the demand for more technologically advanced services and products; (ii) the preference by certain customers for engaging larger oilfield service providers with worldwide operations; and (iii) the ability to provide cost effective solutions to the drilling, completion and workover of oil and gas wells. As a result of being better able to satisfy the demands of its customers, the Company believes it is well positioned to realize the growth opportunities presented by these trends. The Company's services are provided through domestic and international locations to customers in most of the major oil and natural gas producing regions of the United States, Latin America, Europe, Asia, Africa and the Middle East. The Company believes that it is the third largest provider of pressure pumping services worldwide, with a particularly strong presence in the Alaskan North Slope, the Gulf of Mexico, the North Sea, Indonesia and most of Latin America. The Company believes that it is also one of the largest suppliers of casing and tubular services in the U.K. North Sea, and it is continuing to expand these services in Latin America, the Middle East and Southeast Asia. The Company provides commissioning and leak detection services to offshore platforms and pipelines, primarily in the United Kingdom, and also provides specialty chemical services to the oil, gas, refining and petrochemical industries in the United States. BUSINESS STRATEGY The Company's business strategy consists of: (i) expanding both its geographic presence and service lines through internal capital investment in its existing operations and through strategic corporate acquisitions; (ii) maintaining its position as a technological leader in the industry; (iii) pursuing alliances with industry participants when necessary to meet customer requirements and (iv) continuing to improve internal efficiencies. -3- 5 Consistent with this strategy, the Company consummated the Western Acquisition in April 1995 for a total purchase price of approximately $511 million. The Western Acquisition provided the Company with a greater critical mass with which to compete in domestic and international markets and permitted it to realize significant consolidation benefits. The Western Acquisition increased the Company's existing total revenue base by approximately 75% and more than doubled the Company's domestic revenue base while eliminating approximately $40 million in annual overhead and redundant operating costs by combining the two companies. Furthering the Company's business strategy, on April 12, 1996, BJ Services announced a tender offer (the "Nowsco Tender Offer") to acquire all of the outstanding common shares of Nowsco for a price per share of Cdn $27.00 (approximately $19.50 per share). See "Summary - The Nowsco Tender Offer" and "Recent Developments - Proposed Acquisition of Nowsco." The Company expects the Nowsco Acquisition to provide BJ Services with: (i) opportunities to grow the earnings and cash flow of the combined companies, primarily by achieving complementary revenue enhancements, operating and service efficiencies and eliminating certain overhead and operating costs; (ii) opportunities to expand and further develop its existing business strengths, including service lines, technology and customer base; (iii) the addition of operations in Canada, an area which is complementary with the Company's existing North American operations, and in certain other key international business regions; and (iv) the opportunity to be a larger and more effective presence in the worldwide pressure pumping and coiled tubing markets. The Company believes that the Nowsco Acquisition will provide the Company with a strong established presence in Canada and will expand the Company's presence in the U.S. market and in certain international markets, including Europe, Southeast Asia, Argentina and Russia. The Nowsco Acquisition will also significantly expand the Company's coiled tubing services and commissioning and leak detection services. The Nowsco Acquisition is expected to increase the Company's total revenue base by approximately 42%, and the Company's North American and international revenue base by 42% and 43%, respectively. On a pro forma basis in fiscal 1995, the Company would have generated approximately 63% of its revenue from North American operations and 37% from international operations. BJ Services believes that Nowsco is recognized as the premier pumping service company and market share leader in pumping services in Canada. In the area of coiled tubing services, Nowsco is a recognized technological leader in developing applications and providing services for oil and gas wells. Based upon existing customer demand and new applications for coiled tubing technology identified by operators, BJ Services believes that coiled tubing represents an area with significant growth opportunities. The Nowsco Acquisition will permit the Company to package such coiled tubing services with the Company's existing pressure pumping services and to take advantage of such growth opportunities in the area of coiled tubing. The Company has entered into a number of alliances with other industry participants to offer a broader complement of products and services in response to customer demands. Such alliances take various forms, including packaged or integrated services, single source suppliers and turnkey agreements, and generated approximately 20% of the Company's revenue during 1995. The Company expects that the Nowsco Acquisition will increase the Company's participation in industry alliances, including the packaging of BJ Services' existing pressure pumping services with Nowsco's coiled tubing services. In response to customer demand for technological expertise, the Company has directed significant capital expenditures and other resources toward research and development. Such research and development commitments have enabled the Company to maintain or increase the overall competitiveness of its primary services lines by focusing on improvement of existing products and services, the design of new products and processes and the packaging of services to meet specific customer needs. The Company expects the Nowsco Acquisition to further strengthen BJ Services' position as a technological leader in the pressure pumping industry. -4- 6 THE NOWSCO TENDER OFFER On April 12, 1996, the Company announced the Nowsco Tender Offer to acquire all of the outstanding common shares of Nowsco for a price per share of Cdn $27.00 (approximately $19.50 per share). According to its certified shareholder listing, Nowsco had 20,855,936 shares issued and outstanding as of April 10, 1996. For the fiscal year ended December 31, 1995, Nowsco reported revenue of Cdn $480.1 million, net income of Cdn $16.2 million (Cdn $.78 per share) and total shareholders' equity of Cdn $286.5 million. The Nowsco Tender Offer is subject to certain conditions, including, without limitation, the waiver or invalidation of Nowsco's shareholders' rights plan, the tender of at least 66-2/3% of Nowsco's outstanding common shares and the receipt of regulatory approvals. No assurance can be given that the Company will be successful in the Nowsco Tender Offer or in its efforts to consummate a transaction with Nowsco or, if it is successful, on what terms. The closing of the offering of the Shares is conditioned upon the consummation of the Nowsco Tender Offer or upon the closing of the Nowsco Acquisition through negotiations with Nowsco or otherwise. In connection with the financing of the Nowsco Acquisition, the Company has received a letter of commitment from Bank of America National Trust and Savings Association ("Bank of America") to amend or replace its existing $400 million committed, unsecured bank credit facility (the "Existing Bank Credit Facility") with a $680 million committed, unsecured bank credit facility (the "New Bank Credit Facility"). A portion of the borrowings under the New Bank Credit Facility will be used to fund the Nowsco Acquisition. The New Bank Credit Facility includes a $200 million one-year bridge loan, a six-year $280 million term loan facility and a $200 million revolving credit facility. The Company will use the net proceeds from the offering to repay certain indebtedness to be incurred under the New Bank Credit Facility to fund the Nowsco Tender Offer or the Nowsco Acquisition, including all of the indebtedness under the bridge loan portion of such facility. See "Capitalization," "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Capital Resources and Liquidity." The Company's principal executive offices are located at 5500 Northwest Central Drive, Houston, Texas 77092, and its telephone number is (713) 462-4239. THE OFFERING COMMON STOCK OFFERED(1) . . . . . . . . . 5,869,000 shares COMMON STOCK OUTSTANDING BEFORE THE OFFERING(2) . . . . . . . 28,164,670 shares AFTER THE OFFERING(1)(2) . . . . . . 34,033,670 shares USE OF PROCEEDS . . . . . . . . . . . . . The net proceeds of approximately $202.9 million to be received by the Company from the Offering will be used to repay certain indebtedness to be incurred under the New Bank Credit Facility to fund the Nowsco Tender Offer or the Nowsco Acquisition, including all of the indebtedness under the bridge loan portion of such facility. See "Use of Proceeds." NEW YORK STOCK EXCHANGE SYMBOL . . . . . BJS
- ------------ (1) Excludes 880,350 shares of Common Stock subject to purchase upon exercise of the Underwriters' over-allotment option. (2) Based on shares outstanding as of March 31, 1996. Does not include (i) shares issuable upon the exercise of outstanding warrants to purchase Common Stock or (ii) shares of Common Stock reserved for issuance pursuant to outstanding stock options and other outstanding awards under the Company's employee benefit plans, of which were exercisable as of such date. -5- 7 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth summary consolidated financial data for the Company and its subsidiaries as of and for the five years ended September 30, 1995 and as of and for the three-month periods ended December 31, 1995 and 1994. The operations of Western and its subsidiaries are included since April 1, 1995. The summary consolidated financial data have been derived from the Company's consolidated financial statements. The financial information presented below as of and for the three-month periods ended December 31, 1995 and 1994, reflects all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the Company's consolidated results of operations and financial position for such periods. The information shown for the three-month periods is not necessarily indicative of full-year results. The following data should be read in conjunction with the Company's consolidated financial statements and notes thereto included herein. See the Consolidated Financial Statements included elsewhere herein.
THREE MONTHS ENDED DECEMBER 31, Year Ended September 30, -------------------- ------------------------------------------------------- 1995(1) 1994 1995(1) 1994 1993 1992 1991 --------- --------- --------- --------- --------- ---------- --------- (in thousands, except per share amounts) STATEMENT OF OPERATIONS DATA: Revenue . . . . . . . . . . . . . . . $ 206,501 $ 119,415 $ 633,660 $ 434,476 $ 394,363 $ 330,028 $ 390,296 Operating expenses, excluding unusual charges and goodwill amortization . . . . . . . . . . . . 187,602 111,710 592,905 414,493 73,934 316,305 358,475 Goodwill amortization . . . . . . . . 1,342 289 3,266 1,298 691 Unusual charges(2) . . . . . . . . . . 17,200 15,700 Operating income (loss) . . . . . . . 17,557 7,416 20,289 18,685 19,738 (1,977) 31,821 Interest expense . . . . . . . . . . . (5,538) (2,307) (15,164) (7,383) (5,414) (2,977) (3,135) Other income - net . . . . . . . . . . 600 836 2,734 877 2,014 297 1,736 Income tax expense (benefit) . . . . . 3,553 1,338 (1,102) 2,006 1,593 (3,657) 5,170 Income (loss) before cumulative effect of accounting change . . . 9,145 4,744 9,889 10,770 14,561 (1,104) 24,422 Cumulative effect of change in accounting principle, net of tax(3) (10,400) Net income (loss) . . . . . . . . . . 9,145 4,744 9,889 370 14,561 (1,104) 24,422 Net income (loss) per share . . . . . $ .33 $ .30 $ .46 .02 .94 $ (.08) $ 1.88 OTHER DATA: Depreciation and amortization(4) . . . $ 14,371 $ 6,675 $ 42,064 25,335 24,170 $12,742 $14,497 Capital expenditures(5) . . . . . . . 10,408 6,093 30,966 39,345 37,350 26,197 34,588 Operating income before depreciation and amortization and unusual charges(6) . . . . . . . . . . 31,928 14,091 79,553 44,020 43,908 26,465 46,318 FINANCIAL POSITION DATA (AT END OF PERIOD): Property - net . . . . . . . . . . . . $ 414,792 $ 195,192 $ 416,810 198,844 83,962 171,420 134,139 Total assets . . . . . . . . . . . . . 1,002,098 411,172 989,683 410,066 69,531 328,799 265,686 Long-term debt, including current maturities . . . . . . . . . . . . 291,581 98,400 295,166 105,900 90,500 56,500 32,396 Stockholders' equity . . . . . . . . . 478,271 195,287 466,795 189,927 87,132 134,794 135,307
- ------------ (1) Includes the effect of the Western Acquisition, which was accounted for as a purchase in accordance with generally accepted accounting principles. (2) Unusual charges for the fiscal year ended September 30, 1995 represent nonrecurring costs associated with the Western Acquisition, including a non-cash charge for impairment of facilities (approximately $3.6 million), and charges for severance of employees of BJ Services and other Western Acquisition related costs. Unusual charges for 1992, which primarily represent a provision for restructuring the Company's North American operations, include non- cash charges of approximately $10.6 million for asset writedowns. (3) In the year ended September 30, 1994, the Company changed its method of accounting for postretirement benefits other than pensions. (4) In October 1991, the Company revised the estimated salvage values and remaining useful lives of certain of its U.S. pumping services equipment to more closely reflect expected remaining lives. The effect of this change in accounting estimate resulted in a decrease of $2.9 million, or $.22 per share, in the Company's net loss for 1992. (5) Excluding acquisitions of businesses. (6) Operating income before depreciation and amortization and unusual charges is a supplemental financial measurement used by the Company in the evaluation of its business and presented solely as a supplemental disclosure, and should not be construed as an alternative to operating income or to cash flows from operating activities, or to any other measure of financial performance presented in accordance with generally accepted accounting principles. -6- 8 SUMMARY PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following tables set forth certain unaudited pro forma combined financial information giving effect to the Nowsco Acquisition accounted for as a purchase in accordance with generally accepted accounting principles. The information below may not be indicative of the results that actually would have occurred if the Nowsco Acquisition had been consummated on the dates indicated or which will be obtained in the future. The pro forma statements of operations were prepared as if the Nowsco Acquisition had occurred as of October 1, 1994 and do not include any estimate for loss of revenue from overlapping locations, any consolidation savings or the effect of any modifications in operations that might have occurred had BJ Services owned and operated the business during the periods presented, except as described in the Notes to the Pro Forma Financial Statements. Pro forma adjustments were also made to reflect the pro forma results of the Western Acquisition during the first six months of fiscal 1995 assuming the acquisition occurred on October 1, 1994. For a complete description of the assumptions and adjustments made in calculating such pro forma information, see the Pro Forma Financial Information (Unaudited) and the related notes thereto included elsewhere in this Prospectus. The historical financial information with respect to Nowsco has been taken from or is based upon Nowsco's Annual Report to shareholders for the fiscal year ended December 31, 1995 and its quarterly report to shareholders for the fiscal quarter ended December 31, 1995, and BJ Services has not independently verified the accuracy of any such information.
Three Months Ended December 31, 1995 Twelve Months Ended September 30, 1995 ------------------------------------- -------------------------------------- Historical Historical ----------------------- Pro ---------------------- Pro Company Nowsco Forma Company Nowsco Forma ------------ -------- ---------- ----------- -------- ---------- Operating Data: (in thousands, except per share amounts) Revenue . . . . . . . . . . . . . . . . . $ 206,501 $ 89,800 $ 296,301 $633,660 $339,269 $1,146,851 Cost of sales and services . . . . . . . 179,113 83,684 262,797 564,587 306,849 1,040,533 General and administrative . . . . . . . 8,489 4,111 12,600 28,318 16,133 49,484 Goodwill amortization . . . . . . . . . . 1,342 2,770 3,266 11,137 Unusual charges . . . . . . . . . . . . . 3,349 3,349 17,200 481 481 Operating income (loss) . . . . . . . . . 17,557 (1,344) 14,785 20,289 15,806 45,216 Interest expense . . . . . . . . . . . . (5,538) (38) (8,776) (15,164) (640) (37,403) Income tax expense (benefit) . . . . . . 3,553 (233) 2,064 (1,102) 2,007 3,802 Net income (loss) . . . . . . . . . . . . 9,145 (820) 4,953 9,889 16,248 11,124 Net income per share . . . . . . . . . . $ .33 $ .15 $ .46 $ .33 Average shares outstanding . . . . . . . 28,015 33,884 21,376 33,795 OTHER DATA: Depreciation and amortization . . . . . . $ 14,371 $ 9,330 $ 23,701 $ 42,064 $ 34,226 $ 90,153 Capital expenditures . . . . . . . . . . 10,408 11,996 22,404 30,966 36,499 67,465 Operating income before depreciation and amortization and unusual charges (1) . 31,928 11,335 41,835 79,553 50,513 135,850 FINANCIAL POSITION DATA (AT END OF PERIOD): Property, net . . . . . . . . . . . . . . $ 414,792 $139,901 $ 554,693 Total assets . . . . . . . . . . . . . . 1,002,098 261,624 1,475,871 Long-term debt, including current maturities . . . . . . . . . . . . . 291,581 482,038 Stockholders' equity . . . . . . . . . . 478,271 209,177 676,140
- ------------ (1) Operating income before depreciation and amortization and unusual charges is a supplemental financial measurement used by BJ Services in the evaluation of its business and is presented solely as a supplemental disclosure, and should not be construed as an alternative to operating income or to cash flows from operating activities or to any other measure of financial performance in accordance with generally accepted accounting principles. -7- 9 RECENT DEVELOPMENTS PROPOSED ACQUISITION OF NOWSCO On April 12, 1996, the Company announced the Nowsco Tender Offer to acquire all of the outstanding common shares of Nowsco for a price per share of Cdn $27.00 (approximately $19.50 per share). According to its certified shareholder listing, Nowsco had 20,855,936 shares issued and outstanding as of April 10, 1996. For the fiscal year ended December 31, 1995, Nowsco reported revenue of Cdn $480.1 million, net income of Cdn $16.2 million (Cdn $.78 per share) and total shareholders' equity of Cdn $286.5 million. Nowsco's operations are conducted in Canada, the United States, Europe, Southeast Asia, Argentina and Russia and include oil and gas pressure pumping, coiled tubing, commissioning and pipeline service businesses. The Nowsco Tender Offer is subject to certain conditions, including, without limitation, the waiver or invalidation of Nowsco's shareholders' rights plan, the tender of at least 66-2/3% of Nowsco's outstanding common shares and the receipt of regulatory approvals. No assurance can be given that the Company will be successful in the Nowsco Tender Offer or in its efforts to consummate a transaction with Nowsco or, if it is successful, on what terms. The Company expects the Nowsco Acquisition to provide BJ Services with: (i) opportunities to grow the earnings and cash flow of the combined companies, primarily by achieving certain financial and operating efficiencies; (ii) opportunities to expand and further develop the Company's business strengths through combining the strengths of Nowsco with the Company's existing strengths; (iii) opportunities to expand the Company's geographic presence in North America with the addition of Nowsco's Canadian and United States operations and in certain other key international business regions; and (iv) the opportunity to have a larger and more effective presence in the worldwide pressure pumping and coiled tubing markets. The closing of the offering of the Shares is conditioned upon the closing of the Nowsco Acquisition or, alternatively, upon the closing of the Nowsco Acquisition through negotiations with Nowsco or otherwise. Financial and Operating Efficiencies. The Company believes that the Nowsco Acquisition provides it with opportunities to improve its financial and operating efficiencies by growing the earnings and cash flow of the combined companies. The Company believes that these results can be achieved primarily by realizing complementary revenue enhancements, operating and service efficiencies and the elimination of certain overhead and operating costs. Integration of Relative Business Strengths. The management of the Company expects that the Nowsco Acquisition will expand and further develop its existing strengths, particularly with respect to service lines, technology and customer base. Through the Nowsco Acquisition, the Company expects to extend its presence in coiled tubing services and to combine those services with BJ Services' cementing and stimulation services. The Company believes that such a combination has significant growth opportunities based upon existing customer demand and new applications being identified by operators. In addition, operations to be acquired from Nowsco include industrial nitrogen services provided to refineries and process facilities, which will be combined with the existing leak detection and commissioning business conducted by BJ Services. Expansion of Geographic Presence. In geographical terms, the Nowsco Acquisition will provide a significant operating presence in Canada and will continue the expansion of the Company's service areas, both in the United States and internationally. In recent years, BJ Services has significantly increased its international presence, and the Nowsco Acquisition continues the expansion of the Company's operations to Canada and in other key international business regions. In the United States, the acquisition of Nowsco will also enable the Company to expand its stimulation business into the northeastern United States and add further operations in the midcontinent and the Gulf of Mexico. Larger and More Effective Competitor. The Company's management believes that the Nowsco Acquisition will enable the combined company to compete more effectively with its larger competitors, a division of Halliburton Company ("Halliburton") and a division of Schlumberger Limited ("Schlumberger"). In addition, the Company believes that the Nowsco Acquisition will permit BJ Services to remain a technological leader in its industry for the foreseeable -8- 10 future. Furthermore, the Company believes that its increased size resulting from the Nowsco Acquisition will permit it to realize certain economies of scale, which should enhance its ability to compete successfully with its competitors. The discussion of benefits from the Nowsco Acquisition set forth above and under the captions "Summary - Business Strategy" and "Summary - The Nowsco Tender Offer" is based upon analyses and beliefs of members of the Company's management with respect to the anticipated benefits of the Nowsco Acquisition to BJ Services. Because of the highly competitive nature of the oilfield service industry, the adverse impact on the industry resulting from oil and gas price fluctuations, the inherent uncertainties involved in combining two companies and the inability of BJ Services to conduct an in-depth due diligence review of the assets and operations of Nowsco, there can be no assurance that the combined company will be able to participate fully in the opportunities or to realize the benefits described herein. Information presented in this Prospectus includes forward-looking statements that are based upon numerous assumptions with respect to the Company's operations following the Nowsco Acquisition, including the benefits to be realized from the consolidation of the acquired operations and other factors affecting the Company's business that are beyond the Company's control. Many of such factors are discussed herein under the caption "Business." Any changes in such factors could produce significantly different results. CAPITALIZATION The following table sets forth the short-term borrowings and the capitalization of the Company at December 31, 1995 and as adjusted to reflect (i) the Nowsco Acquisition, including borrowings under the New Bank Credit Facility, (ii) the issuance of the Shares offered hereby and the application of the net proceeds therefrom (estimated to be $202.9 million) and (iii) the issuance on February 20, 1996, of $125 million of 7% Notes due 2006 (the "7% Notes") and the application of the net proceeds therefrom.
AS OF DECEMBER 31, 1995 ------------------------- Actual As Adjusted --------- ----------- (UNAUDITED) (IN THOUSANDS) Short-term borrowings: . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,281 $ 8,281 ======== ========== Long-term debt: 7% Notes due 2006, net of discount . . . . . . . . . . . . . . . . . . . $ $ 124,238 12 7/8% Senior Notes due 2002 . . . . . . . . . . . . . . . . . . . . . . 2,166 2,166 9.2% Notes due August 1998 . . . . . . . . . . . . . . . . . . . . . . . 18,000 18,000 Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . 271,415 338,572 -------- ---------- Total long-term debt, including current maturities . . . . . . . . 291,581 482,976 -------- ---------- Stockholders' equity: Preferred stock, $1.00 par value; 5,000,000 shares authorized; none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock, $.10 par value; 80,000,000 shares authorized; 28,046,264 and 33,915,264 shares issued, respectively (1) . . . . . . 2,805 3,392 Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . 417,224 619,506 Retained earnings, less cumulative translation adjustment . . . . . . . . 58,242 58,242 -------- ---------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 478,271 681,140 -------- ---------- Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $769,852 $1,164,116 ======== ==========
- ------------ (1) As of December 31, 1995, the Company had 4,792,402 outstanding warrants to purchase Common Stock (the "Warrants") at an exercise price of $30.00 per share. In addition, as of such date, 1,726,334 shares of Common Stock were reserved for issuance pursuant to outstanding stock options and other outstanding awards under the Company's employee benefit plans. -9- 11 In connection with the financing of the Nowsco Acquisition, the Company has received a letter of commitment from Bank of America to amend or replace the $400 million Existing Bank Credit Facility with the $680 million New Bank Credit Facility. Borrowings necessary to fund the total cash consideration of such acquisition (including estimated transaction costs of $7.0 million and net of cash and short-term investments on Nowsco's books of $19.4 million) are estimated to be $412.7 million. See Pro Forma Financial Information included elsewhere herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - - Requirements for Capital." The borrowers and guarantors under the Existing Bank Credit Facility (and the proposed borrowers and guarantors under the New Bank Credit Facility) are the Company and three of its subsidiaries, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East. As of December 31, 1995, the Company had approximately $271.0 million outstanding at a weighted average rate of 6.4% and $125.0 million in additional availability under the Existing Bank Credit Facility. On February 20, 1996, in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), the Company issued $125 million of 7% Notes due 2006. Three of the Company's subsidiaries that are obligors with respect to the Existing Bank Credit Facility and the Company's 9.2% Notes Due August 1, 1998 (the "9.2% Notes"), BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East, are guarantors of the 7% Notes. The Company has filed a registration statement with the Securities and Exchange Commission (the "Commission") with respect to up to $125 million of 7% Series B Notes due 2006 (the "7% Series B Notes") to be offered in exchange for the 7% Notes. The form and terms of the 7% Series B Notes are identical in all material respects to the form and terms of the 7% Notes except that the 7% Series B Notes will be issued in a transaction registered under the Securities Act. The net proceeds from the issuance of the 7% Notes ($123.3 million) were used by the Company to repay indebtedness outstanding under the term loan portion of the Existing Bank Credit Facility. As of December 31, 1995, pursuant to certain note agreements entered into in August 1991, the Company had $18.0 million aggregate principal amount outstanding under the 9.2% Notes. BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East are also borrowers under the 9.2% Notes. The principal amount of the 9.2% Notes is payable annually on August 1 in installments of $6.0 million until maturity on August 1, 1998. -10- 12 PRICE RANGE OF COMMON STOCK AND WARRANTS AND DIVIDEND POLICY Price Range of Common Stock and Warrants. The Common Stock and Warrants are traded on the NYSE under the symbols "BJS" and "BJSW," respectively. The following table sets forth the range of the high and low per share sales prices for the Common Stock and Warrants for the periods indicated, as reported on the NYSE Composite Trading Tape.
BJ SERVICES BJ SERVICES COMMON STOCK WARRANTS(1) -------------------------------- ----------------------------- HIGH LOW HIGH LOW ---- --- ---- --- FISCAL YEAR ENDED SEPTEMBER 30, 1993 Quarter ended December 31, 1992 $ 18.00 $ 14.25 Quarter ended March 31, 1993 . . . . . . 23.00 13.63 Quarter ended June 30, 1993 . . . . . . 31.63 21.00 Quarter ended September 30, 1993 . . . . 30.00 20.00 FISCAL YEAR ENDED SEPTEMBER 30, 1994 Quarter ended December 31, 1993 . . . . $ 26.50 $ 18.00 Quarter ended March 31, 1994 . . . . . . 22.50 17.50 Quarter ended June 30, 1994 . . . . . . 22.38 17.38 Quarter ended September 30, 1994 . . . . 22.13 18.25 FISCAL YEAR ENDED SEPTEMBER 30, 1995 Quarter ended December 31, 1994 . . . . $ 21.00 $ 16.25 Quarter ended March 31, 1995 . . . . . . 20.50 15.50 Quarter ended June 30, 1995 . . . . . . 26.00 20.38 $ 5.63 $ 3.63 Quarter ended September 30, 1995 . . . . 27.38 22.63 6.88 4.13 FISCAL YEAR ENDED SEPTEMBER 30, 1996 Quarter ended December 31, 1995 . . . . $ 29.00 $ 20.50 $ 7.88 $ 3.00 Quarter ended March 31, 1996 . . . . . . 33.63 25.13 11.50 5.38 Quarter through April 19, 1996 . . . . . 38.88 33.00 15.38 11.00
- ----------------- (1) The Warrants were issued in connection with the Western Acquisition, and regular way trading in the Warrants commenced in April 1995. BJ Services Dividend Policy. The Company does not currently intend to pay dividends on its outstanding shares of Common Stock, and there can be no assurance that it will pay dividends at any time in the future. It is anticipated that for the foreseeable future any earnings generated from operations will be retained for use in the Company's business. Any future determination as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend upon the Company's operating results, financial condition and capital requirements, and such other factors as the Board of Directors may deem relevant. The Company's Note Agreements governing its 9.2% Notes and the Existing Bank Credit Facility each restrict the payment of dividends unless certain financial tests are satisfied. The New Bank Credit Facility is expected to have similar restrictions on the payment of dividends. -11- 13 USE OF PROCEEDS The net proceeds to be received by the Company from the offering are estimated to be approximately $202.9 million (approximately $ million if the Underwriters' over-allotment option is exercised in full), after deducting the estimated underwriting discounts and commissions and offering expenses. The Company will use the net proceeds from the offering to repay certain indebtedness incurred under the New Bank Credit Facility to fund the Nowsco Tender Offer or the Nowsco Acquisition, including all of the indebtedness under the bridge loan portion of such facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Requirements for Capital." As of , 1996, $ million was outstanding under the New Bank Credit Facility at a weighted average interest rate of % per annum. The lenders' commitments under the bridge loan portion of the New Bank Credit Facility terminate on , 1997 (unless earlier terminated under certain circumstances). See "Capitalization." EXCHANGE RATES Nowsco's accounts are expressed in Canadian dollars. All dollar amounts provided in this Prospectus with respect to Nowsco are in Canadian dollars except where otherwise indicated. The ending, average, high and low exchange rates for each of the five years ended with December 31, 1995, are set forth in the following table (such rates, which are expressed in United States dollars, being the noon buying rates in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York). In each case, the table shows the amount of United States dollars which 1 Canadian dollar would buy.
Range of Rates for Year Rate at Average ------------------------- Year End for Year* Highest Lowest -------- --------- ------- ------ 1995 US$ .7329 US$ .7311 US$ .7533 US$ .7007 1994 .7129 .7300 .7632 .7105 1993 .7544 .7729 .9245 .7439 1992 .7858 .8275 .8650 .7777 1991 .8652 .8721 .8921 .8587
* The average rate means the average of the exchange rates on the last day of each month during the period. On April 18, 1996, the exchange rate was Cdn $1.00 - US $.7335. 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 gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. Drilling activity, in turn, is largely dependent on the price of oil and natural gas. This is especially true in the United States, where the Company generates approximately 60% of its revenues after giving effect to the Western Acquisition. Due to weak energy prices and lower-cost sources of oil internationally, drilling activity in the United States has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986 and 1992. As a result, pumping service companies have been unable to recapitalize their aging United States fleets due to the inability, under current market conditions, to generate adequate returns on new capital investments. The Company believes that it is important to operate with a greater critical mass in key U.S. markets to improve returns in this environment. This conclusion led to the decision to withdraw from certain low activity areas in the past several years -12- 14 and to consolidate its remaining operations with those acquired in April 1995 from Western, which had a larger presence in the United States. The rig count in the United States averaged 739 active drilling rigs during fiscal 1995, a 6% and 2% decline, compared with 1994 and 1993, respectively, and the second lowest count on record. The rig count in the United States averaged 765 active drilling rigs during the three months ended December 31, 1995, a 7% decline compared with the prior year's first fiscal quarter. Much of the activity decline was the result of a reduction in drilling for natural gas in the central United States. While international drilling activity (excluding Canada) has historically been less volatile than domestic drilling activity, the international active rig count had declined in each of the last four years prior to fiscal 1995 due to weak oil prices and economic and political instability in certain overseas countries. The most significant declines in international drilling activity occurred in the North Sea, Italy, Nigeria and Mexico. The activity decline has leveled off somewhat with the active rig count for 1995 up slightly from 1994. International drilling activity increased by 5% during the most recent quarter compared with the prior year's first fiscal quarter on the strength of development work in Latin America, especially Argentina and Venezuela, and renewed exploration programs in the U.K. North Sea. In both the United States and internationally, there has been a continuing trend by oil and gas companies toward "alliances" with the service companies. These alliances take various forms including packaged or integrated services, single source suppliers and turnkey agreements. Approximately 20% of the Company's revenues are generated under such alliances, or approximately $117 million of the Company's revenues during 1995. EXPANSIONS AND ACQUISITIONS Management believes the primary opportunities for geographic and product expansion remain in international markets. As a result, other than the Western Acquisition, the Company's capital spending and expansion efforts have been primarily focused outside of the United States. The Company's expansion efforts during the past three years have included expanding pumping services into several key international markets, including Saudi Arabia, Qatar and Vietnam; expanding tubular services and commissioning and leak detection services into geographic regions outside the North Sea; adding additional pumping service capacity in key Latin American markets; and acquiring Norsk Bronnservice A/S ("NBS") in April 1993, Italog S.p.A. ("SIAT") in July 1993, the remaining 50% ownership of its joint venture in Egypt in February 1994 and the remaining 60% of the Company's Brazilian joint venture in December 1995. On April 13, 1995, the Company completed the Western Acquisition for a total purchase price of $511.4 million (including transaction costs of $7.2 million), which was paid approximately half in cash and half in Common Stock and Warrants. The Western Acquisition provides the Company with a greater critical mass with which to compete in domestic and international markets and the opportunity to realize significant consolidation benefits. The Western Acquisition has increased the Company's existing total revenue base by approximately 75% and has more than doubled the Company's domestic revenue base beginning in the fiscal quarter ended June 30, 1995. In addition, approximately $40 million in overhead and redundant operating costs have been eliminated annually by combining the two companies. On April 12, 1996, BJ Services announced a tender offer by its wholly owned, indirect subsidiary, BJ Services Canada Inc., to acquire all of the outstanding shares of Nowsco for a price per share of Cdn $27.00 (approximately $19.50 per share). According to its certified shareholder listing, Nowsco had 20,855,936 shares issued and outstanding as of April 10, 1996. For the fiscal year ended December 31, 1995, Nowsco reported revenue of Cdn $480.1 million, net income of Cdn $16.2 million (Cdn $.78 per share) and total shareholders' equity of Cdn $286.5 million. Nowsco's operations are primarily conducted in Canada, the United States, Europe, Southeast Asia, Argentina and Russia and include oil and gas pressure pumping, coiled tubing, commissioning and pipeline service businesses. See "Summary - The Nowsco Tender Offer" and "Recent Developments - Proposed Acquisition of Nowsco." The Nowsco Acquisition is expected to increase the Company's total revenue base by approximately 42%, and the Company's North American and international revenue base by 42% and 43%, respectively. On a pro forma basis in fiscal 1995, the Company would have generated approximately 63% of its revenue from North American operations and 37% from international -13- 15 operations. The Company expects to fund the Nowsco Acquisition by borrowings under the New Bank Credit Facility and will use the net proceeds from the offering to repay a portion of such indebtedness, including all of the indebtedness under the bridge loan portion of such facility. See "Capitalization," "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Capital Resources and Liquidity." RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 Revenue. Revenue increased by 73% during the quarter as compared with the first quarter of the prior year, primarily as a result of the acquisition of Western and continued strong international operations. U.S. revenue more than doubled during the quarter as compared with the first quarter of the prior year as a result of adding the former Western operations. On a pro forma basis, however, U.S. revenue declined by 14%, primarily as a result of the significant activity reductions in natural gas drilling activity, especially by independent operators in the Rocky Mountain region, which comprised a significant portion of the former Western operations. In addition, weather-related disruptions in the Gulf of Mexico resulted in the loss of approximately 10 working days in that area. Management expects U.S. natural gas drilling activity to remain weak during at least the next fiscal quarter. The Company's international operations continue to show significant quarter-over-quarter revenue increases with a 25% increase from the prior year (18% on a pro forma basis). This represents the twelfth consecutive quarter of international revenue improvement. Each of the Company's international regions and service lines experienced revenue increases during the quarter. Much of the revenue improvement occurred in Latin America (up 46%) from strong activity increases in Argentina as well as revenue increases in Venezuela and Colombia from recent capital investments. Revenue from the Company's expansions into Vietnam, Saudi Arabia and Brazil, combined with improving activity in the U.K. and Nigeria, also contributed to the international revenue growth. Management expects the year-over-year international revenue increases to continue over the next several quarters, however, at a much lower growth rate. The Company recently decided to "warm stack" a stimulation vessel acquired from Western, the "Renaissance." The vessel's hull will ultimately be liquidated with the proceeds used to reduce outstanding debt, while the vessel's fracturing equipment will be redeployed to more profitable opportunities. The Company believes that the liquidation of the vessel, if consummated, will not have a material adverse impact on the Company's operating results. Operating Income. Operating income more than doubled as a result of the revenue increase and higher operating margins resulting from efficiencies derived from the combination of the Company's and former Western operations and the continued growth of the Company's international operations. The cost of sales and services as a percentage of revenue during the quarter was 2.5% lower than the prior year's first quarter primarily as a result of cost reduction efforts implemented after the acquisition of Western and the economies of scale in having a larger U.S. operation. Other operating expenses, excluding goodwill amortization, increased by 69% primarily as a result of additional overhead from the former Western operations, along with increased marketing expenses related to international expansions. Marketing expenses represent a higher percentage of revenue than previously due to the higher concentration of the additional revenues being in the United States, which requires a relatively greater marketing effort. The increase in goodwill amortization also resulted from the Western Acquisition, which was accounted for under the purchase method of accounting. Interest expense increased by $3.2 million from the prior year's first quarter due to increased borrowings to fund the Western Acquisition. See " - Financial Condition - Capital Resources and Liquidity." Other income was a net gain in both periods primarily as a result of royalty income from one of the Company's proprietary products. The effective tax rate increased to 28% from 22% in the prior year's first quarter primarily due to marginal tax rates on higher U.S. profitability. -14- 16 RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 The following table sets forth selected key operating statistics reflecting industry rig count and the Company's financial results:
YEAR ENDED SEPTEMBER 30, ----------------------------------- 1995 1994 1993 ------- ------- ------- Average active rigs: (1) U.S. . . . . . . . . . . . . . . . . . . . . . . . . . 739 784 755 International (excluding Canada) . . . . . . . . . . . 750 747 783 Revenue per rig (in thousands) . . . . . . . . . . . . . . . $425.6 $283.8 $256.4 Revenue per employee (in thousands) . . . . . . . . . . . . $168.3 $160.4 $151.4 Percentage of gross profit to revenue (2) . . . . . . . . . 15.1% 13.1% 14.3% Percentage of marketing expense to revenue . . . . . . . . . 4.2% 3.3% 3.3% Percentage of general and administrative expense to revenue 4.5% 5.2% 5.8%
- ----------------- (1) Industry estimate of average active rigs published by Baker Hughes Incorporated. (2) Gross profit represents revenue less cost of sales and services and research and engineering expenses. Revenue. Revenue increased by 10% in 1994 and 46% during 1995, the third consecutive yearly increase. The increase in 1994 was driven primarily by the Company's international expansion program and an increase in domestic natural gas drilling and stimulation activity. In 1995, the increase was due primarily to continued growth of the international expansion, increased activity in Latin America and the Western Acquisition. U.S. revenues increased by 6% and 67% in 1994 and 1995, respectively. The 1994 increase was due primarily to a 12% increase in the active rig count for gas-related drilling, partially offset by a 4% decline in the rig count for oil-related drilling. In addition, customer alliances contributed an additional $14.5 million in revenues during the year. During the first six months of 1995 (prior to the Western Acquisition), the Company's revenues increased 5% over the same period in 1994 due primarily to the increased placement of cementing units and the addition of a stimulation vessel in the Gulf of Mexico. With the Western Acquisition, the Company's U.S. revenues over the balance of the year more than doubled, accounting for the remainder of the 67% increase for 1995. In the last quarter of 1995, continued weak natural gas prices caused many of the Company's customers to significantly curtail their drilling activity. During this period, management believes it retained most of the key customers of both the Company and Western. However, since the former Western operations were more heavily concentrated in the natural gas regions of the United States, the decline in natural gas drilling activity significantly impacted the Company's operations. While pricing for the Company's U.S. pumping services remained relatively stable during 1995, pricing remains depressed compared to levels realized in the past. Management expects these competitive pricing conditions to remain until a significant increase in drilling activity occurs. International revenues increased by 14% and 27% during 1994 and 1995, respectively. The increases were primarily attributable to three factors: (a) continued geographic expansion of the Company's tubular services and commissioning and leak detection service lines, (b) significant increase in Latin America business and (c) acquisitions. The tubular services and commissioning and leak detection product lines have now been expanded into 13 countries, including parts of the Middle East, Africa, South America, Southeast Asia and Australia. Most of the revenue growth in Latin America (up 36% and 46% in 1994 and 1995, respectively) was a result of increased cementing and stimulation activity with both private and national oil and gas companies in Argentina and the addition of a stimulation vessel in 1994 and a coiled tubing barge in 1995 to service the Lake Maracaibo, Venezuela market. The acquisitions which contributed to the Company's revenue growth were NBS in April 1993, SIAT in July 1993, the former Egypt joint venture in February 1994 and Western in April 1995, which added international operations in Indonesia, Hungary and Nigeria. These acquisitions added approximately $14 million and $30 million in international revenue during 1994 and 1995, respectively, compared with 1993. -15- 17 Operating Income. Operating income decreased by $1.1 million in 1994 and increased by $1.6 million in 1995. In 1994, the decrease was due primarily to lower margins on the Company's North Sea stimulation business caused by lower activity and pricing, and a decline in U.S. pricing. In 1995, the increase was primarily due to the revenue increases described above, partially offset by a $17.2 million unusual charge incurred in 1995. The unusual charge was taken in conjunction with a consolidation program that is designed to improve efficiencies and reduce costs resulting from the Western Acquisition. Included in the unusual charge is an adjustment to the carrying value of duplicate operating facilities, severance and related benefit costs, benefits due under agreements covering the Company's executives which were triggered as a result of the Western Acquisition, and legal and other costs that would not have been incurred had the Western Acquisition not occurred. The cost of sales and services as a percentage of revenue decreased to 83.0% in 1995 as compared to 84.9% and 83.4% in 1994 and 1993, respectively. The increase from 1993 to 1994 was due primarily to a decline in U.S. pricing, which negatively impacted margins by $5.5 million, and lower margins on the Company's North Sea stimulation business caused by lower activity and pricing. The reduction in 1995 was primarily as a result of cost reduction efforts implemented after the Western Acquisition and the economies of scale by having a larger U.S. operation. Other operating expenses, excluding the unusual charge and goodwill amortization, increased by 1% and 47% in 1994 and 1995, respectively. The 1994 increase was attributable to higher marketing expenses from international expansion efforts and corporate marketing and alliance programs, partially offset by lower research and engineering and general and administrative expenses due to the Company's continued overhead reduction efforts. The 1995 increase was primarily attributable to overhead from the former Western operations, along with increased marketing expenses related to international expansions. Marketing expenses are expected to increase as a percentage of sales due to the higher concentration of Western's revenues earned in the United States, which requires a relatively greater marketing effort. The increase in goodwill amortization resulted from the aforementioned acquisitions, most significantly Western, which will result in annual goodwill amortization expense of $4.4 million. Other. Interest expense increased by $2.0 million and $7.8 million in 1994 and 1995, respectively. The 1994 increase resulted from higher interest rates and increased borrowings to fund the Company's international expansions and acquisitions. While interest rates continued to increase marginally during 1995, the additional interest expense is primarily attributed to borrowings incurred to finance the Western Acquisition. See "- Financial Condition - Capital Resources and Liquidity" and Notes 4 and 5 of the Notes to Consolidated Financial Statements. Other income was a net gain in both 1994 and 1995 due to nonrecurring gains on asset sales and, in 1995, $1.4 million of royalty income from one of the Company's proprietary products. Primarily as a result of profitability in international jurisdictions where the statutory rate is below the U.S. rate and the availability of tax benefits from the Company's reorganization pursuant to its initial public offering in 1990, the Company's effective tax rate remained below the U.S. statutory rate during 1995. Additionally, certain nonrecurring benefits have reduced the Company's effective tax rate, including $1.3 million in 1993 resulting from a change in the valuation reserve for net operating losses and from changes in tax laws in the United States and other countries, $1.9 million in 1994 from a change in the valuation reserve for net operating losses and $1.5 million in 1995 from the favorable settlement of a tax audit and from tax losses attributable to foreign exchange fluctuations in certain international jurisdictions. Minority interest expense declined in both 1994 and 1995, as a result of lower profitability of the Company's Southeast Asian joint ventures and losses by the Company's Nigerian joint venture. Results in 1994 include a $16.0 million ($10.4 million after tax) charge for the cumulative effect of an accounting change for retiree health benefits. See Note 9 of the Notes to Consolidated Financial Statements. -16- 18 FINANCIAL CONDITION Capital Resources and Liquidity. Net cash provided from operating activities for the three months ended December 31, 1995 increased by $3.6 million from the prior year's first quarter. Higher profitability and depreciation was partially offset by increased inventory levels from international expansions and the payment of merger-related and various other expenses previously accrued for. Cash flows from operating activities increased to $26.3 million in 1994 and $39.4 in 1995 as compared to cash used in operating activities of $.3 million in 1993. The 1994 improvement resulted primarily from a smaller increase in both receivables and other current assets and liabilities compared with 1993. In 1995, cash flows from operating activities increased primarily as a result of higher profitability and higher noncash expenses during the period. Management strives to maintain low cash balances while utilizing available credit facilities to meet the Company's capital needs. Excess cash generated is used to pay down outstanding borrowings. In April 1995, the Company replaced its then outstanding credit facility with the Existing Bank Credit Facility executed to accommodate the Western Acquisition. The Existing Bank Credit Facility consists of a five-year $175.0 million revolving credit facility and a six-year $225.0 million term loan, providing an aggregate of $400.0 million in available principal borrowings to the Company. At December 31, 1995, borrowings outstanding under the Existing Bank Credit Facility amounted to $271.0 million consisting of $221.0 million under the term loan and $50.0 million borrowed under the revolver. At December 31, 1995, principal reductions of term loans under the Existing Bank Credit Facility are due in aggregate installments of $25,600,000, $31,200,000, $43,200,000, $48,400,000, $48,400,000 and $24,200,000 in the years ending September 30, 1996, 1997, 1998, 1999, 2000 and 2001, respectively. On February 20, 1996, in a transaction exempt from the registration requirements of the Securities Act, the Company issued $125 million of 7% Notes. Three of the Company's subsidiaries that are obligors with respect to the Existing Bank Credit Facility and the 9.2% Notes, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East, are guarantors of the 7% Notes. The Company has filed a registration statement with the Commission with respect to up to $125 million of 7% Series B Notes due 2006 (the "7% Series B Notes") to be offered in exchange for the 7% Notes. The form and terms of the 7% Series B Notes are identical in all material respects to the form and terms of the 7% Notes except that the 7% Series B Notes will be issued in a transaction registered under the Securities Act. The net proceeds from the issuance of the 7% Notes ($123.3 million) were used by the Company to repay indebtedness outstanding under the term loan portion of the Existing Bank Credit Facility. The Company has received a commitment letter from Bank of America to amend or replace the Existing Bank Credit Facility with the New Bank Credit Facility, a $680 million committed, unsecured bank credit facility. A portion of the borrowings thereunder will be used to fund the Nowsco Acquisition. See "Summary - The Nowsco Tender Offer" and "Recent Developments - Proposed Acquisition of Nowsco." The Company and three of its subsidiaries, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East, will be borrowers and guarantors under the New Bank Credit Facility. The New Bank Credit Facility will include a one-year bridge loan of $200 million, a six-year term loan facility of $280 million and a revolving credit facility (including stand-by letters of credit) of $200 million and will contain covenants and other provisions that are substantially similar to those under the Existing Bank Credit Facility. Interest under the New Bank Credit Facility will be determined, at the Company's option, by reference to (i) the higher of the reference rate announced from time to time by Bank of America or the federal funds rate plus 1/2% per annum or (ii) the London interbank offered rate (LIBOR). The New Bank Credit Facility will contain certain mandatory prepayment obligations from certain proceeds of asset sales and free cash flow, and the net proceeds from the sale of the Shares offered hereby will be applied to repay all of the indebtedness under the bridge loan portion of such facility. The obligations of Bank of America to make loans under the New Bank Credit Facility are subject to certain conditions, including, without limitation, the consummation of the Nowsco Tender Offer or the consummation of the Nowsco Acquisition by negotiation or otherwise. The outstanding balance of the 9.2% Notes, issued in 1991, was $18.0 million at December 31, 1995. Principal reductions of $6.0 million are required annually each August until maturity on August 1, 1998. -17- 19 The Company's interest-bearing debt represented 38.5% of its total capitalization at December 31, 1995, a slight decrease from 38.9% at September 30, 1995. The Company's Existing Bank Credit Facility and 9.2% Notes contain various customary covenants, including the maintenance of certain profitability and solvency ratios and restrictions on dividend payments. Management believes that the Existing Bank Credit Facility, combined with other discretionary credit facilities and cash flow from operations, provide the Company with sufficient capital resources and liquidity to manage its routine operations and fund projected capital expenditures other than the Nowsco Acquisition, which will be funded through the New Bank Credit Facility. At December 31, 1995, the Company had approximately $512 million of U.S. tax net operating loss carryforwards expiring between 2000 and 2010. With the Western Acquisition, the Company acquired approximately $375 million of tax net operating loss carryforwards, subject to certain limitations, expiring between 2000 and 2008. Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), the Company is required to record a deferred tax asset for the future tax benefit of these tax net operating loss carryforwards, as well as other items, if realization is "more likely than not." As previously discussed, the Western Acquisition gives the Company a greater critical mass with which to compete in the United States as it has more than doubled the Company's U.S. revenue base. In addition, with the combination of the Company and Western, the Company has realized significant consolidation benefits. Management estimates that approximately $40 million of overhead and redundant operating costs have been eliminated annually as a result of the combination of the two companies. Management has concluded that the Company's future U.S. taxable income will be sufficient over the remaining carryforward periods to realize the tax benefits represented by approximately $332 million of tax net operating loss carryforwards acquired with Western and generated by the Company's operations prior to the Western Acquisition. The tax benefits resulting from the Western Acquisition have been included in the approximately $84 million net deferred tax asset recognized in the purchase price allocation at the acquisition date. Valuation allowances have been established for the benefits of the tax net operating loss carryforwards that are estimated to expire prior to their utilization. Requirements for Capital. Excluding acquisitions, capital expenditures during the three months ended December 31, 1995 were $10.4 million, or $4.3 million higher than the spending in the comparable quarter of the prior year. The current quarter's spending related primarily to international expansion opportunities, primarily in Latin America, and upgrades of the Company's information systems. Other investing activities included the acquisition of the remaining 60% interest in the Company's joint venture in Brazil for total consideration of $5.4 million consisting of $3.7 million of cash and $1.7 million of debt assumed by the Company. Excluding acquisitions, capital expenditures during 1995 were $31.0 million, or $8.4 million below 1994 spending. Spending for 1995 related primarily to offshore operations both in the United States and abroad, and international growth opportunities, including geographic expansions and expansions of services. The prior year's spending included approximately $11 million for the construction of two offshore stimulation vessels. Investing activities in the fiscal year ended September 30, 1995 included $5.4 million of proceeds from the sale of a duplicate facility and other disposals of assets. Capital expenditures for fiscal 1996 are projected to be approximately $45 million, excluding acquisitions, and are expected to include spending for continued geographic expansions of all service lines, construction or upgrading of at least two offshore vessels, additional capacity in certain high margin locations and normal levels of replacement capital. The actual amount of fiscal 1996 capital expenditures will be primarily dependent upon the availability of expansion opportunities and will be funded by cash flows from operating activities and available credit facilities. Management believes cash flows from operating activities and available lines of credit, if necessary, will be sufficient to fund projected capital expenditures. -18- 20 BUSINESS THE COMPANY GENERAL The Company, whose operations trace back to the Byron Jackson Company (which was founded in 1872), was organized in 1990 under the corporate laws of the State of Delaware. The Company is a leading provider of pressure pumping and other oilfield services serving the petroleum industry worldwide. The Company's pressure pumping services consist of well stimulation, cementing, sand control and coiled tubing services used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. Other oilfield services include casing and tubular services provided to the oil and gas exploration and production industry, commissioning and leak detection services provided to offshore platforms and pipelines, primarily in the United Kingdom, and specialty chemical services. On April 13, 1995, the Company completed the Western Acquisition for a total purchase price of $511.4 million (including transaction costs of $7.2 million), which was paid approximately half in cash and half in shares of the Company's common stock and warrants to purchase common stock. The Western Acquisition provides the Company with a greater critical mass with which to compete in both domestic and international markets and the opportunity to realize significant consolidation benefits. The Western Acquisition has increased the Company's existing total revenue base by approximately 75% and has more than doubled the Company's existing domestic revenue base. In addition, approximately $40 million in annual overhead and redundant operating costs have been eliminated by combining the two companies. During the year ended September 30, 1995, the Company generated approximately 39% of its revenue from cementing services, 47% from stimulation services and 14% from product and equipment sales and other oilfield services (37%, 48% and 15%, respectively, during the portion of the 1995 fiscal year since the Western Acquisition). Over the same period, the Company generated approximately 55% of its revenue from domestic operations and 45% from international operations (60% and 40%, respectively, since the Western Acquisition). On April 12, 1996, the Company announced the Nowsco Tender Offer at a price per share of Cdn $27.00 (approximately $19.50 per share). According to its certified shareholder listing, Nowsco had 20,855,936 shares issued and outstanding as of April 10, 1996. For the fiscal year ended December 31, 1995, Nowsco reported revenue of Cdn $480.1 million, net income of Cdn $16.2 million (Cdn $.78 per share) and total shareholders' equity of Cdn $286.5 million. Nowsco's operations are conducted in Canada, the United States, Europe, Southeast Asia, Argentina and Russia and include oil and gas pressure pumping, coiled tubing, commissioning and pipeline service businesses. The Nowsco Tender Offer is subject to certain conditions, including, without limitation, waiver or invalidation of Nowsco's shareholders' rights plan, the tender of at least 66-2/3% of Nowsco's outstanding common shares, the absence of certain transactions and changes affecting Nowsco and the receipt of regulatory approvals. No assurance can be given that the Company will be successful in the Nowsco Tender Offer or in its efforts to consummate a transaction with Nowsco or, if it is successful, on what terms. The closing of the offering of the Shares is conditioned upon the consummation of the Nowsco Tender Offer or upon the closing of the Nowsco Acquisition through negotiations with Nowsco or otherwise. CEMENTING SERVICES The Company's cementing services, which accounted for approximately 39% of the Company's total revenue during 1995, consist of blending cement and water with various solid and liquid additives to create a slurry that is pumped into a well between the casing and the wellbore. The additives and the properties of the slurry are designed to ensure the proper pump time, compressive strength and fluid loss control, and vary depending upon the well depth, downhole temperatures and pressures and formation characteristics. -19- 21 The Company provides regional laboratory testing services to evaluate slurry properties, which vary with cement supplier and local water properties. Job design recommendations are developed by the Company's field engineers to achieve desired porosity and bonding characteristics. There are a number of specific applications for cementing services used in oilfield operations. The principal application is the cementing behind 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 between the casing and productive formations and other formations which would damage the productivity of hydrocarbon producing zones or damage the quality of freshwater aquifers, (ii) seal the casing from corrosive 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 47% of the Company's total revenue during 1995, consist of fracturing, acidizing, sand control, nitrogen and coiled tubing services designed to improve the flow of oil and gas from producing formations and are summarized as follows: Fracturing. Fracturing services are performed to enhance the production of oil and gas from formations having such low permeability that the natural flow is restricted. The fracturing process consists of pumping a fluid gel into a cased well at sufficient pressure to "fracture" the formation. Sand, bauxite or synthetic proppant which is suspended in the gel is pumped into the fracture to prop it open. The size of a fracturing job is generally expressed in terms of the pounds of proppant. The main pieces of equipment used in the fracturing process are the blender, which blends the proppant and chemicals into the fracturing fluid, and the pumping unit, which is capable of pumping significant volumes at high pressures. The Company's fracturing pump units are capable of pumping slurries at pressures of up to 14,000 pounds per square inch at rates of up to four barrels per minute. In some cases, fracturing is performed by an acid solution pumped under pressure without a proppant or with small amounts of proppant. An important element of fracturing services is the design of the fracturing treatment, which includes determining the proper fracturing fluid, proppants and injection program to maximize results. The Company's field engineering staff provides technical evaluation and job design recommendations as an integral element of its fracturing service for the customer. Technological developments in the industry over the past three to four years have focused on proppant concentration control (i.e., proppant density), liquid gel concentrate capabilities, computer design and monitoring of jobs and cleanup properties for fracturing fluids. Over the past decade, the Company has successfully introduced equipment to respond to these technological advances. During 1991, the Company introduced a patented, borate-based fracturing fluid, Spectra Frac G(R). During 1993, the Company introduced two additional fracturing fluids, Medallion Frac(SM) and Spartan Frac(SM). These fracturing fluids are now used in most of the Company's fracturing treatments. During 1994, the Company commercialized a proprietary enzyme chemistry used in conjunction with the three fracturing fluids. These "enzyme breakers" can significantly enhance the production of oil and gas in a wide range of wells. Acidizing. Acidizing services are performed to enhance the flow rate of oil and gas from wells with reduced flow caused by formation damage due to drilling or completion fluids, or the buildup over time of various materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and gas. The Company maintains a fleet of mobile acid transport and pumping units to provide acidizing services for the onshore market. Sand Control. Sand control services involve the pumping of gravel to fill the cavity created around the wellbore during drilling. The gravel provides a filter for the exclusion of formation sand from the producing pathway. Oil and gas is then free to move through the gravel into the wellbore to be produced. These services are primarily provided in the Gulf of Mexico, the North Sea, Venezuela, Trinidad and Indonesia. -20- 22 Nitrogen. There are a number of uses for nitrogen, an inert gas, in pressure pumping operations. Used alone, it is effective in displacing fluids during drill stem testing. However, nitrogen services are used principally in applications which support the Company's cementing and fracturing services. Coiled Tubing. Coiled tubing services involve the injection of coiled tubing into wells to perform various applications and functions for use principally in well-servicing operations. The application of coiled tubing to drilling operations also has increased in recent years due to improvements in coiled tubing technology. Coiled tubing is a flexible steel pipe with a diameter of less than three inches manufactured in lengths of thousands of feet and wound or coiled along a large reel on a truck or skid-mounted unit. Due to the small diameter of coiled tubing, it can be inserted through production pipe and used to perform workovers without using a larger, more costly workover rig. The other principal advantages of employing coiled tubing in a workover include (i) not having to "shut-in" the well during such operations, thereby allowing production to continue and reducing the risk of formation damage to the well, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, which must be jointed and unjointed, (iii) the ability to direct fluids into a wellbore with more precision, allowing for localized stimulation treatments and providing a source of energy to power a downhole motor or manipulate downhole tools and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit. Recent technological improvements to coiled tubing have increased its dependability and durability, expanding coiled tubing's potential uses and markets. The Company participates in the offshore stimulation market through the use of skid-mounted pump units and through operation of several stimulation vessels including the "Vestfonn" in the North Sea, the "Sea Hero," "Tad Tide" and "Jan Tide" in the Gulf of Mexico and the "BJ003" and "BJ007" on Lake Maracaibo in Venezuela. The Jan Tide and BJ003 were commissioned in the spring of 1994 and the BJ007 in the summer of 1995. The "Renaissance," formerly used as a stimulation vessel in the North Sea, has been "warm stacked" and is currently being marketed for sale for use other than as a stimulation vessel. The Company believes that as production continues to decline in key producing fields of the United States and certain international regions, the demand for fracturing and stimulation services is likely to increase. The Company has recently increased its pressure pumping capabilities in certain international markets. OTHER 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 1995. Such product and equipment sales to customers are generally made in the course of providing cementing and stimulation services to certain customers and, other than the specialty chemical business, the Company generally does not sell proprietary products to other companies involved in well servicing. Casing and Tubular Services. Casing services principally consist of installing (or "running") pipe in a wellbore to protect the structural integrity of the wellbore and to seal various zones in the well. These services are primarily provided during the drilling and completion phases of a well. Tubular services, which consist of running pipe inside the casing to improve the flow of oil and gas, are principally provided during workovers. The Company expects that workover activity and the demand for tubular services in the North Sea should increase during at least the next several years as operators there attempt to mitigate the decline in production from the North Sea's mature fields. Commissioning and Leak Detection Services. Leak detection services, provided through the Company's Comtec division, involve the inspection and testing of the integrity of pipe connections in offshore drilling and production platforms, onshore and offshore pipelines and industrial plants, and are provided during the commissioning, decommissioning, installation or construction stages of these infrastructures, as well as during routine maintenance checks. -21- 23 Specialty Chemical Services. Specialty chemical services, provided through the Company's Unichem division acquired as part of Western, include corrosion and scale inhibitors, as well as process chemicals and paraffin control for the treatment of oil wells and for refining, gas processing plant and petrochemical facility maintenance and flow improvement. OPERATIONS The Company's cementing and stimulation services are used in the completion of new oil and gas wells and in remedial work on existing wells. These services are provided through domestic and international locations to customers in most of the major oil and natural gas producing regions of the United States, Latin America, Europe, Southeast Asia, Africa and the Middle East. The Company believes that it is the third largest provider of cementing and stimulation services worldwide, with a particularly strong presence in the Alaskan North Slope, the Gulf of Mexico, the North Sea, Indonesia and most of Latin America. Cementing and stimulation services are provided to both land-based and offshore customers on a 24-hour, on-call basis, through regional and district facilities in over 70 locations worldwide, utilizing complex, truck- or skid- mounted equipment designed and constructed for the particular 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 cementing and stimulation services to changing geographic areas. Management believes that the Company's cementing and stimulation equipment is adequate to service both current and projected levels of market activity in the near term. The Company maintains a fleet of mobile cement blending and pumping equipment for onshore operations. Offshore operations are performed with skid-mounted cement pumping units. The Company has successfully utilized its patented RAM (Recirculating Averaging Mixer) both for onshore applications and as an offshore skid. In 1991, the Company introduced a sand control blender, the Cyclone, which also has pressure pumping and fracturing applications. Responding to its customers' monitoring needs, in 1992 the Company introduced a computerized monitor which allows for real-time monitoring of the cementing process. Principal materials utilized in cementing and stimulation services include cement, fracturing proppants, acid and bulk chemical additives. Generally, these items are available from several suppliers, and the Company generally utilizes more than one supplier for each item. The Company also produces certain of its specialized products through Company-owned blending facilities in Germany and Singapore. Sufficient material inventories are maintained to allow the Company to provide on-call services to its customers to whom the materials are resold in the course of providing cementing and stimulation services. An inventory of repair parts and maintenance items for cementing and stimulation equipment is carried to ensure continued operations without significant downtime caused by parts shortages. The Company has not experienced significant difficulty in obtaining necessary supplies of these materials or replacing equipment parts and does not anticipate a shortage in the foreseeable future. The Company believes that coiled tubing and other materials utilized in performing coiled tubing services are and will continue to be widely available from a number of manufacturers. Although there are only two principal manufacturers of the reels around which the coiled tubing is wrapped, the Company is not aware of any difficulty in obtaining coiled tubing reels in the past, and the Company anticipates no such difficulty in the future. The Company's operations are subject to hazards inherent in the oil and gas industry, such as fire, explosion, blowouts and oil spills, which can cause personal injury or loss of life, damage to property, equipment, the environment and marine life, and suspension of operations. In addition, claims for loss of oil and gas production and damages to formations are incidental to the pressure pumping business. The Company maintains insurance coverage that it believes to be customary in the industry against these hazards and whenever possible obtains agreements from customers providing indemnification against liability to others. However, such insurance provides for substantial deductibles and premium adjustments based on claims experience and excludes coverage for damages resulting from breach of contract or based on alleged fraud or deceptive trade practices. Neither insurance nor indemnity agreements can provide complete protection against casualty losses. -22- 24 ENGINEERING AND SUPPORT SERVICES The Company maintains a manufacturing and research and development center near Houston, Texas. The Company's research and development organization is divided into three distinct areas - Petroleum Engineering, Instrumentation Engineering and Mechanical Engineering. Petroleum Engineering. The Petroleum Engineering laboratory specializes in designing fluids with enhanced performance characteristics in the fracturing, acidizing and cementing operations (i.e., "frac fluids" and "cement slurries"). As fluids must perform under a wide range of downhole pressures, temperatures and other conditions, this design process is a critical element in developing products to meet customer needs. In addition to fluids technology, the Company's Petroleum Engineering group develops and supports a wide range of proprietary software utilized in the monitoring of both cement and stimulation job parameters. This software, combined with the Company's internally developed monitoring hardware, allows for real-time job control as well as post-job analysis. Instrumentation Engineering. The pumping services industry utilizes an array of both monitoring and control instrumentation as an integral element of providing cementing and stimulation services. The Company's monitoring and control instrumentation, developed by its Instrumentation Engineering group, complements its products and equipment and provides customers with desired real-time monitoring of critical applications. Mechanical Engineering. Though similarities exist between the major competitors in the general design of their pumping equipment, the actual engine/transmission configurations as well as the mixing and blending systems differ significantly. Additionally, different approaches to the integrated control systems result in equipment designs which are usually distinct in performance characteristics for each competitor. The Company's Mechanical Engineering group is responsible for the design and manufacturing of virtually all of the Company's primary pumping and blending equipment. However, some peripheral support equipment that is generic to the industry is purchased externally. The Company's Mechanical Engineering group provides new product design as well as support to the rebuilding and field maintenance functions. MANUFACTURING In addition to the engineering facility, the Company's technology and research center houses its main equipment and instrumentation manufacturing facility. This operation currently occupies approximately 65,000 square feet and includes complete fabrication, engine and transmission rebuilding, pump manufacturing and assembly capabilities. As a result of the Western Acquisition, the Company acquired a research and engineering center located in The Woodlands, north of Houston, Texas. The Company also has ancillary manufacturing facilities in Singapore and Scotland. The Company employs outside vendors for some fabrication but is not dependent on any one source. COMPETITION Pressure Pumping Services. The Company competes with larger pumping service companies, in particular a division of Halliburton and a division of Schlumberger, in all areas of the United States in which the Company participates and in most international regions. Several smaller companies compete with the Company in certain areas of the United States and in certain foreign countries. The principal methods of competition which apply to the Company's business are its prices, service record and reputation in the industry. While Halliburton and Schlumberger are significantly larger in terms of overall revenues, the Company has a number one or a number two share position in several pumping service markets, including many regions in the United States, the North Sea and Latin America. Other Services. The Company believes that it is one of the largest suppliers of casing and tubular services in the U.K. North Sea and is expanding such services in Latin America. The largest provider of casing and tubular services in Europe is Weatherford Enterra, Inc. In the U.K., casing and tubular services are typically provided under long-term -23- 25 contracts which limit the opportunities to compete for business until the end of the contract term. In continental Europe, shorter-term contracts are typically available for bid by the provider of casing and tubular services. The Company believes it is one of the largest suppliers of commissioning and leak detection services in the U.K. North Sea. In specialty chemical services, there are several major chemical suppliers significantly larger than the Company's Unichem division. MARKETS AND CUSTOMERS General. Demand for the Company's services and products depends primarily upon the number of oil and gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. The Company's principal customers consist of major and independent oil and gas producing companies. During 1995, the Company provided oilfield services to over 2,500 customers, none of which accounted for more than 5% of consolidated revenues. While the loss of certain of the Company's largest customers could have a material adverse effect on Company revenues and operating results in the near term, management believes the Company would be able to obtain other customers for its services in the event it lost any of its largest customers. In both the United States and internationally, there has been a continuing trend by oil and gas companies toward "alliances" with the service companies. These alliances take various forms including packaged or integrated services, single source suppliers and turnkey agreements. Approximately 20% of the Company's revenues are generated under such alliances, or approximately $117 million of the Company's revenues during 1995. United States. The Company provides its pumping services to its U.S. customers through a network of over 40 locations, a majority of which offer both cementing and stimulation services. Demand for the Company's services in the United States is primarily driven by oil and natural gas drilling activity, which is affected by the current and anticipated prices of oil and natural gas. Due to weak energy prices and lower-cost sources of oil internationally, drilling activity in the United States has declined more than 75% from its peak in 1981. Record low drilling activity levels were experienced in 1986 and 1992. As a result, pumping service companies have been unable to recapitalize their aging U.S. fleets due to the inability, under current market conditions, to generate adequate returns on new capital investments. Management believes it is important to operate with a greater critical mass in key U.S. markets to improve returns in this environment. This conclusion led to the decision to withdraw from certain low activity areas in the past several years and to consolidate the Company's operations with those acquired from Western, which had a larger presence in the United States. International. The Company operates in more than 30 countries in the major international oil and natural gas producing areas of Latin America, Europe, Africa, Southeast Asia and the Middle East. The Company generally provides services to its international customers through wholly owned foreign subsidiaries. Additionally, the Company holds certain controlling and minority interests in joint venture companies, through which it conducts a portion of its international operations. For geographic information, see Note 8 of the Notes to Consolidated Financial Statements. The international market is somewhat less volatile than the U.S. market despite energy price fluctuations. Due to the significant investment and complexity in international projects, management believes drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and gas pricing. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating flexibility than the typical independent producer in the U.S. International activities have been increasingly important to the Company's results of operations since 1992, when it implemented a strategy to expand its international presence. In general, the Company operates in those international markets where it can achieve and maintain both a significant share position and an attractive return on its investment. The Company's major international revenue and income producing operations are in the North Sea in the European market; Indonesia and Malaysia in the Southeast -24- 26 Asian market; and Argentina, Venezuela, Ecuador and Colombia in the Latin American market. In Brazil, the Company recently completed the acquisition of the 60% interest of its local joint venture partner. Foreign operations are subject to special risks that can materially affect the sales and profits of the Company, including currency exchange rate fluctuations, the impact of inflation, governmental expropriation, exchange controls, political instability and other risks. EMPLOYEES At September 30, 1995, the Company had a total of 4,777 employees. Approximately 37% of the Company's employees are employed outside the United States. GOVERNMENTAL AND ENVIRONMENTAL REGULATION The Company's business is affected both directly and indirectly by governmental regulations relating to the oil and gas industry in general, as well as environmental and safety regulations which have specific application to the Company's business. The Company, through the routine course of providing its services, handles and stores bulk quantities of hazardous materials. In addition, leak detection services involve the inspection and testing of facilities for leaks of hazardous or volatile substances. If leaks or spills of hazardous materials handled, transported or stored by the Company occur, the Company may be responsible under applicable environmental laws for costs of remediating damage to the surface, sub-surface or aquifers incurred in connection with such occurrence. Accordingly, the Company has implemented and continues to implement various procedures for the handling and disposal of hazardous materials. Such procedures are designed to minimize the occurrence of spills or leaks of these materials. The Company has implemented and continues to implement various procedures to further assure its compliance with environmental regulations. Such procedures generally pertain to the operation of underground storage tanks, disposal of empty chemical drums, improvement to acid and wastewater handling facilities and cleaning of certain areas at the Company's facilities. The estimated cost for such procedures, including other environmental investigations and remedial actions, is approximately $14 million which will be distributed over a period of several years, for which the Company has provided appropriate reserves. In addition, the Company maintains insurance for certain environmental liabilities which the Company believes is reasonable based on its knowledge of the industry. The Comprehensive Environmental Response, Compensation and Liability Act, also known as "Superfund," imposes liability without regard to fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a "hazardous substance" into the environment. Certain disposal facilities used by the Company or its predecessors have been investigated under state and federal superfund statutes, and the Company has been named as a potentially responsible party for cleanup at 10 such sites. Although the Company's level of involvement varies at each site, in general, the Company is one of numerous parties named and will be obligated to pay an allocated share of the cleanup costs. While it is not feasible to predict the outcome of these matters with certainty, management is of the opinion that their ultimate resolution should not have a material effect on the Company's operations or financial position. RESEARCH AND DEVELOPMENT; PATENTS Research and development activities are directed primarily toward improvement of existing products and services and the design of new products and processes to meet specific customer needs. Research and development expenses for each of the three fiscal years ended September 30, 1995 were approximately $6.8 million, $6.4 million and $6.5 million, respectively. The Company currently holds numerous patents relating to products and equipment used in its pumping services business. While such patents, in the aggregate, are important to maintaining the Company's competitive position, no single patent is considered to be of a critical or essential nature. -25- 27 Additionally, the Company operates under various license arrangements, generally ranging from 10 to 20 years in duration, relating to certain products or techniques. None of these license arrangements is of a material nature. To remain competitive, the Company devotes significant resources to developing technological improvements to its products. In 1991, the Company introduced a borate-based fracturing fluid, Spectra Frac G(R), which is being widely used in the U.S. stimulation market and the North Sea. In 1993, this product was complemented with two additional fracturing fluids, Spartan Frac(SM) and Medallion Frac(SM), which have expanded the Company's service line offerings to cover a broader range of economic and downhole design variables. These products replaced several products previously made available to customers. During 1994, the Company commercialized a proprietary enzyme chemistry used in conjunction with the three fracturing fluids. These "enzyme breakers" significantly enhance the production of oil and gas in a wide range of wells. In 1991, the Company introduced its "Cyclone" blender which, along with Western's completion tool technology, have helped address the growing sand control and frac pack markets in the Gulf of Mexico and the North Sea. The Company believes that these products and equipment have enabled the Company to maintain or increase the overall competitiveness of its primary service lines in the United States, the Gulf of Mexico and the North Sea. In 1995, the Company developed Sandstone Acid(TM), a matrix acidizing chemistry used in sandstone formations. While still in the early stages of testing, management believes this product offers significant advantages over conventional acidizing methods in sandstone reservoirs. The Company intends to continue to devote significant resources to its research and development efforts. NOWSCO GENERAL Nowsco Well Service Ltd. is a corporation incorporated under The Companies Act (Alberta) on August 3, 1965 and continued under the Business Corporations Act (Alberta) by Certificate of Continuance dated April 19, 1985. Nowsco Well Service Ltd. has a number of wholly owned subsidiaries that conduct business internationally. Unless the context otherwise indicates, Nowsco Well Service Ltd. and its subsidiaries are collectively referred to herein as "Nowsco." Information provided in this Prospectus regarding Nowsco is taken from or based upon its Annual Report on Form 20-F for the year ended December 31, 1994, filed by Nowsco under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), its Annual Report to shareholders for the year ended December 31, 1995 and its quarterly report to shareholders for the fiscal quarter ended December 31, 1995, and BJ Services has not independently verified the accuracy of any such information. Nowsco commenced operations in 1962 in Red Deer, Alberta. Its initial activities involved the introduction of various applications for liquid nitrogen to the oil and gas industry in western Canada. Activities were subsequently expanded by adding specialized products and equipment including acidizing (in 1965), cementing (in 1966) and coiled tubing and hydraulic fracturing (in 1970). The common shares of Nowsco Well Service Ltd. were first listed on the Toronto Stock Exchange in April 1972. Nowsco made its first sale outside of Canada in 1967 and in 1973 established its first international base in England, providing specialized products, equipment and technology to the developing North Sea oil and gas industry. In 1975, Nowsco opened its first base in continental Europe (at Vechta, West Germany), with other international bases subsequently established in Southeast Asia (in 1977), the United States (in 1981) and the Middle East (in 1984). The Middle East operation was discontinued in 1988 but recommenced in January 1990, when a base in Syria was established. During 1992, Nowsco expanded its operations into Argentina with the acquisition of 49% of an Argentine well service company. Nowsco's recent acquisitions have included (i) a Texas-based pipeline service company, (ii) a well service company operating in North Texas, Kansas, Oklahoma and Colorado, (iii) businesses providing onshore stimulation -26- 28 services primarily in Texas and also in New Mexico and Louisiana and (iv) a business specializing in offshore coiled tubing services in the Louisiana Gulf Coast. Nowsco is headquartered in Calgary, Alberta, Canada and provides, on an international basis, specialized products, equipment and technology principally to owners and operators of oil and gas wells for use in the drilling, completion and reworking of such wells and to pipeline operators for testing, commissioning and maintenance services. Nowsco's specialized products, equipment and technology for oil and gas wells are applied primarily in the cementing and stimulation (including acidizing and fracturing) of wells, coiled tubing services and in related applications involving nitrogen and carbon dioxide. Nowsco also offers an industrial nitrogen service to refineries and process facilities, specializing in leak testing, the purging of existing plant facilities and the commissioning of new plant facilities. Services are provided by Nowsco to pipeline operators including engineering, commissioning and isolation services as well as pipeline monitoring technology that measures critical pipeline parameters. In Canada and the United States, Nowsco designs specialized equipment for its own worldwide use and for sale to third parties. Nowsco provides training to a variety of customers and conducts research and development activities that have resulted in technological advances in the areas of the oil and gas industry in which it operates. PRINCIPAL SERVICES AND PRODUCTS The specialized products, equipment and technology that Nowsco provides to its customers are used principally in the drilling and initial completion stages of oil and gas wells and, thereafter, from time to time during the operating life of such wells. Nowsco's customers consist primarily of oil and gas companies and their representatives in the Canadian, American and international markets described under "- Geographic Areas." Nowsco generally renders this service at the well site or downstream in the delivery pipeline, and the specialized products, equipment and technology sold outright by Nowsco are generally provided on a demand basis, as well as pursuant to both short-term and long-term contracts. Cementing Services. Nowsco provides specialized blends of cement and chemicals provided to meet the requirements of a particular project, which vary with geological and operating conditions and the depth of the well. For example, the oil in shallow, heavy-oil producing formations must be heated in order to enhance its flow. The result is that cement blends used in such wells must be able to withstand the high temperatures subjected by super heated steam or fire flood. Cement blends used in the foothills region of western Canada must be suited to deep, high temperature environments. By contrast, cement blends used in wells in the high Arctic must be capable of setting in permafrost and sub-zero temperature conditions. Nowsco uses testing and various chemical additives to produce cement blends for these diverse requirements. To address the variety of problems associated with cementing, Nowsco works with several cement manufacturing companies around the world. Nowsco's product studies at its Calgary laboratory facility provide technical information to the industry for particular cementing requirements. Nowsco also participated in the development of foamed cement for use in wells sensitive to conventional density slurry. Nowsco has also developed and is manufacturing portable cement- testing equipment. Nowsco operates a fleet of mobile processing units that are capable of mixing and pumping cement at the well site and also blends and delivers the bulk dry cement required for each job. Depending upon the requirements of the particular well, Nowsco may supply cement blend in amounts ranging from 1,000 to 500,000 kilograms (approximately 2,200 to 1,103,000 pounds) or more. Stimulation Services. Nowsco provides two principal forms of stimulation, acidizing and hydraulic fracturing, design of the latter being supported by hydraulic fracture computer simulation. Fracturing. Nowsco generally conducts fracturing by two or more mobile units coordinated at the job site by remote-controlled equipment. This equipment is used to transfer and blend mixtures of treating fluid and proppant and to pump such mixtures down the well and into the formation. A fracturing treatment may involve the sale of -27- 29 approximately 3,000 to 1,400,000 kilograms (approximately 6,600 to 3,000,000 pounds) or more proppant blended into 20,000 to 1,200,000 liters (approximately 5,200 to 320,000 gallons) or more of treating fluid. Assisted by computer modeling facilities located at Nowsco headquarters and field locations, Nowsco's engineers work together with customers in the planning of individual fracturing treatments. Nowsco has been involved in the development of new fracturing systems and fluids. Acidizing. Nowsco uses raw materials purchased from suppliers in its acid blends. Nowsco delivers the required acid blends to a site and introduces such blends into the oil or gas well, using mobile pumping units with permanently mounted high pressure pumps and mixing tanks. Acid is pumped, often at high pressure, down the well into the producing formation. The majority of wells drilled and completed are acidized in the course of completion. The amount of acid blend sold in respect of any particular application varies from 1,000 to 400,000 liters (approximately 260 to 110,000 gallons) or more. Nowsco's research staff tests chemical products, acids and formation core samples to identify blends that increase productivity while limiting detrimental effects to the producing formation and production facilities. OTHER OPERATIONS Nitrogen. The application of liquid nitrogen to well completions was introduced by Nowsco to the Canadian oil and gas industry in 1962. Since then the development of nitrogen technology has grown significantly, in certain instances supplanting products and procedures previously used. Liquid nitrogen is purchased and stored by Nowsco and later transferred to its mobile pumping units. At the well site, nitrogen is pumped in liquid form and converted through the application of heat to a gaseous state in which it is used in cementing, acidizing and fracturing. With respect to acidizing, the addition of nitrogen can enhance penetration of the producing formation and improve the recovery of spent acid from the well. In connection with fracturing, the addition of nitrogen to the treating fluid results in improved treating fluid recovery and proppant carrying characteristics. Other uses for nitrogen include displacing fluids from the wellbore, providing pressure when the well casing is being perforated, facilitating drill-stem testing, as a substitute for drilling mud in certain operations, purging, drying and testing various industrial systems and pipelines; inerting the environment to extinguish fires in mines and facilities and providing an inert atmosphere for various maintenance operations. Nowsco has also participated in the development of a system whereby nitrogen is used for the purpose of leak detection (see "- Leak Detection"). During 1995, Nowsco provided nitrogen services to the underbalanced drilling market using two types of membrane extraction units. Carbon Dioxide. Nowsco has used liquid carbon dioxide in many oil and gas industry applications since 1970. Carbon dioxide is used primarily as an aid to recovery of treating or formation fluids. It can in some cases be used as an initial cleanup fluid which may supplement or replace acid treatments or as a component of fracturing fluid to improve treating fluid recovery. Because it is pumped in liquid form, carbon dioxide has become a major component of certain fracturing fluids. Coiled Tubing. Mobile coiled tubing units were introduced to the Canadian oil and gas industry by Nowsco in 1971 and coiled tubing has since become an integral part of many well completion and maintenance operations, both onshore and offshore. Coiled tubing is continuous, jointless and high pressure rated steel tubing (from 1 inch up to 3 1/2 inches in diameter) that, except for the larger sizes, may be run into oil and gas wells to depths of up to 7,600 meters (approximately 25,000 feet). Coiled tubing is fed into the well, often while such wells are under pressure, to create either a temporary or permanent circulating system that can be used to introduce nitrogen or other fluids into the well for the purpose of removing unwanted liquids, proppant or other debris. On occasion, acids, chemicals or cement are pumped through the coiled tubing to repair or remedy a variety of downhole problems. Coiled tubing has been used with specialized equipment to drill out hard-fill or cement and to deepen the well under pressure control. It also has been used to place and retrieve downhole equipment and, in conjunction with electric wireline, has been used to log and perforate high angle and horizontal wells. Development work continues on coiled tubing directional drilling technology including directional underbalanced drilling. Nowsco 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. -28- 30 Nowsco reported its first installation, in January 1995, of insulated concentric coiled tubing string (ICCT, a stream injection medium). Leak Detection. Historically, hydrocarbon storage and production facilities have been tested for leaks using either water under pressure or a "live" system 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 it is not in widespread use, except in circumstances such as those that prevail in the North Sea, where environmental and safety concerns are particularly acute. Pipeline Servicing. Nowsco provides pipeline testing and commissioning services including filling, pressure testing, de-watering, purging and vacuum drying of pipelines. In 1996, Nowsco obtained a contract to pneumatically test and dry a large diameter pipeline in southern Colombia. Other services include grouting and insulating of pipeline bundles, abandonment of pipelines and tank desludging services for large storage tanks. Nowsco has been involved in the development of pipeline gels, both hydrocarbon and aqueous, for pipeline cleaning and transport as well as plugs used for isolation purposes. Nowsco has also developed and is using high friction pig trains and freezing techniques for the isolation of pipelines. 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 pipeline internal condition. In addition, the client can develop a structural analysis using the measured pipeline geometry information. The operator's planning is improved by the capability of efficiently analyzing 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 pigs can be routinely performed with maintenance monitoring programs implemented as a method for increasing safety for people, property and the environment. Pipeline packers provide a low pressure isolation device by braking and sealing against the wall of the pipeline. Used in tandem, these packers temporarily isolate a section of the pipeline that requires repair and maintenance. These sealing packers allow pipeline repairs to take place with less operational complexity and less operator downtime as a result of having to drain only the isolated section of the pipeline of oil or gas. OPERATIONS AND SOURCES OF RAW MATERIALS The liquid nitrogen, acids, chemicals, sand and cement required by Nowsco as raw materials are produced and sold by numerous suppliers. Nitrogen is available in western Canada from three major suppliers, one of which presently supplies Nowsco under a contract. This contract restricts the purchase of nitrogen from other sources unless the supplier cannot meet Nowsco's needs. Supply contracts for nitrogen also exist in other operating areas. Nowsco maintains short-term storage facilities for these materials and to date has been able to locate alternative sources when these materials have not been readily available from its primary suppliers. PROPERTIES AND FACILITIES Nowsco owns and leases operating bases worldwide, from which its specialized products, equipment and technology are provided and where inventory is stored. The original cost of Nowsco-owned locations at December 31, 1994 was $29.3 million, of which approximately $17.9 million related to bases located in Canada, the majority of which are in Alberta, Saskatchewan and British Columbia. In addition, Nowsco owns properties in the United Kingdom and Germany with a total cost of $7.4 million and in the United States with a cost of $4.0 million. During 1994, Nowsco completed construction of a new operations center in Aberdeen, Scotland to service the North Sea market. Nowsco has -29- 31 recently constructed a new operations center in Red Deer, Canada to service the central Alberta market. Nowsco also conducts operations from leased premises in various locations. The availability of premises in these areas is not restricted at comparable costs, and Nowsco does not report these to be a significant factor in its operations. Nowsco's Fabrication, Research and Development and Training Center in Calgary is a 45,000-square-foot complex located on a seven-acre site owned by Nowsco. Nowsco has invested a total of approximately $6.9 million in this facility, which opened in November 1979, and also has fabrication facilities in Texas. COMPETITION Nowsco's major competitors are multinational companies that are substantially larger than Nowsco. In certain regions Nowsco also competes with a number of small companies, some of which have competitive advantages, such as lower overhead costs. Nowsco has, to date, been adequately equipped and staffed to compete in all of its areas of operation, although there is no assurance that Nowsco will continue to be able to engage the staff it may require to respond to a rapid increase in demand for its products. Competition between Nowsco and its competitors is intense, particularly in the form of severe price discounting. Although price is an important factor in competition, to many customers technology and dependability are determinative. GEOGRAPHIC AREAS Canada and the United States. Nowsco maintains a total of 43 operating bases in Canada and the United States. Its most significant operations in Canada are currently conducted in Alberta, Saskatchewan and British Columbia. Nowsco's corporate head office and Canadian operations regional head office are located in Calgary, Alberta. Services provided in Canada include cementing, fracturing, nitrogen, underbalanced drilling, coiled tubing and acidizing services. In the United States, Nowsco conducts business through wholly owned subsidiaries and presently maintains operating bases in Texas, Louisiana, Pennsylvania, Michigan, West Virginia, Colorado, Kansas, Oklahoma, Utah and Iowa. Nowsco's U.S. regional head office is located in Houston, Texas. Services provided in the United States are primarily related to pressure pumping and coiled tubing and include fracturing, acidizing, cementing and nitrogen services. In 1995, Nowsco recorded a charge against income of $5.2 million relating to its U.S. operations, representing a writedown of assets and severance, relocation and reorganization costs. International. Nowsco's operations outside of North America are carried out in UK/Europe, Africa & Middle East, Asia Pacific and Russia with regional head offices located in Aberdeen, Scotland, Singapore and Nicosia, Cyprus. The majority of these operations are conducted through branches or wholly owned subsidiaries utilizing manpower and expertise available in the country of operation. Operations in Argentina are conducted through Nowsco's affiliate, Nowsco Americas S.A., and are headquartered in Buenos Aires. The business consists primarily of cementing and stimulation services. Nowsco maintains 15 international operating bases including those located in the United Kingdom, the Netherlands, Germany, Syria, Gabon, Abu Dhabi, Singapore, Australia, Indonesia, Malaysia, Thailand, Russia and Argentina and also maintains sales offices in Moscow, Russia, the Hague, Netherlands and Beijing, China. During the fourth quarter of 1994, Nowsco commenced well servicing operations in the Tyumen Region of Western Siberia for a Russian production association, Varyeganneftegaz. This two-year contract, under which Nowsco received a monthly minimum fee, is funded by the World Bank in U.S. dollars. Nowsco has also held interests in other operations in Russia. In 1995, Nowsco provided pumping services on a well blowout in Syria and entered into a contract to provide well services, including coiled tubing and fracturing services, in Holland. RESEARCH AND DEVELOPMENT; PATENTS The testing and development of new products and applications is an integral part of Nowsco's business. Recent developments reported by Nowsco include a prototype corrosion inspection tool, insulated concentric coiled tubing -30- 32 (ICCT, a stream injection medium, which has a patent pending), SandVac (a tool for use with concentric coiled tubing to remove sand from low pressure horizontal wells, Rotojet (a tool for use in wellbore scale removal) and drilling using coiled tubing (DUCT). Nowsco has also developed industry specific software products. Recent expenditures by Nowsco on product and equipment research and development have been as follows: 1994 - Cdn $6.1 million 1993 - Cdn $4.6 million 1992 - Cdn $3.5 million
Nowsco holds several patents and non-exclusive licenses which it uses in its operations including licenses relating to the technique of commingling nitrogen with acidizing and fracturing fluids, and licenses relating to a process that allows Nowsco to provide certain fracturing products. Other non-exclusive patent licenses have been obtained from various oil and gas companies. Many of the licenses held by Nowsco are subject to termination by the respective patent holder under certain circumstances. Nowsco maintains an exclusive patent relating to certain mechanical packer pig service technologies. A joint venture operation between Nowsco and a third party holds United Kingdom, United States and Canadian patents for the string leak testing process and equipment described under "- Other Operations - Leak Detection." MANAGEMENT The executive officers and directors of the Company are as follows:
NAME AGE POSITION ---- --- -------- J. W. Stewart 52 Director, Chairman of the Board, President and Chief Executive Officer Michael McShane 41 Director, Vice President - Finance and Chief Financial Officer David D. Dunlap 34 Vice President - International Operations Thomas H. Koops 49 Vice President - Technology and Logistics Margaret B. Shannon 46 Vice President - General Counsel Kenneth A. Williams 45 Vice President - North American Operations Matthew D. Fitzgerald 38 Controller Taylor M. Whichard 37 Treasurer Stephen A. Wright 48 Director of Human Resources L. William Heiligbrodt 54 Director John R. Huff 50 Director William J. Johnson 61 Director Don D. Jordan 63 Director R. A. LeBlanc 66 Director James E. McCormick 68 Director Michael E. Patrick 52 Director
Mr. Stewart, director (Class III) of the Company since 1990, joined Hughes Tool Company in 1969 as Project Engineer. He served as Vice President - Legal and Secretary of Hughes Tool Company and as Vice President - Operations for a predecessor of the Company prior to being named President of the Company in 1986. Mr. McShane, director (Class II) of the Company since 1990, joined the Company in 1987 from Reed Tool Company, an oilfield tool company, where he was employed for seven years. At Reed Tool Company he held various financial management positions, including Corporate Controller and Regional Controller of Far East Operations. -31- 33 Mr. Dunlap joined the Company in 1984 as a District Engineer and was named Vice President - International Operations in 1995. He has previously served as Vice President - Sales for the Coastal Division of North America and U.S. Sales and Marketing Manager. Mr. Koops joined the Company as Manager - Products and Technical Services in 1976. He was named Vice President-Manufacturing and Logistics of the Company in 1988 and began serving in his current position in 1992. Ms. Shannon joined the Company in February 1994 as Vice President - General Counsel from the law firm of Andrews & Kurth L.L.P., where she had been a partner since 1984. Mr. Williams joined the Company in 1973 and has since held various positions in the U.S. operations. Prior to being named Vice President - North American Operations in 1991, he served as Region Manager - Western U.S. and Canada. Mr. Fitzgerald joined the Company as Controller in 1989 from Baker Hughes Incorporated, where he was the Director of Corporate Audit. Prior to that, he was a Senior Manager with the certified public accounting firm of Ernst & Whinney. Mr. Whichard joined the Company as Tax and Treasury Manager in 1989 from Weatherford International, where he was the Tax Manager. Prior to being named Treasurer in 1992, he served in various positions, including Tax Director and Assistant Treasurer. Mr. Wright joined the Company as Manager of Compensation and Benefits in 1985 from Global Marine Inc., an offshore drilling company, and was named to his current position with the Company in 1987. Mr. Heiligbrodt, director (Class III) of the Company since 1992, is President, Chief Operating Officer and a director of Service Corporation International, a funeral services corporation ("SCI"). He has served in various management positions with SCI since February 1990. Prior to joining SCI, Mr. Heiligbrodt served as President of Provident Services, Inc. from March 1988 to February 1990. Prior to that, he served for five years as Vice Chairman and Chief Executive Officer of WEDGE Group, Incorporated, a multi-industry holding company. He is Chairman of the Nominating Committee and a member of the Executive Compensation Committee. Mr. Huff, director (Class I) of the Company since 1992, is Chairman, President and Chief Executive Officer of Oceaneering International, Inc., an oilfield services corporation. Mr. Huff has been President, Chief Executive Officer and a director of Oceaneering since 1986 and Chairman of the Board of Oceaneering since 1990. Mr. Huff is also a director of Production Operators Corp. He is a member of the Audit Committee and the Executive Compensation Committee. Mr. Johnson, director (Class II) of the Company since April 1995, has been an independent oil and natural gas producer and consultant since May 1994; President and Chief Operating Officer and a director of Apache Corporation, an independent oil and gas exploration and production company, from 1991 to 1994; and President, Chief Executive Officer and a director of TEX/CON Oil & Gas Company, a subsidiary of British Petroleum P.L.C., from 1989 to 1991. Mr. Johnson also serves as a director of Camco International, Inc., a provider of oil and natural gas production equipment and services, and of Snyder Oil Corporation, an independent oil and gas exploration and production company, and as an advisory member of the board of directors of Texas Commerce Bank National Association. He is a member of the Nominating Committee. Mr. Jordan, director (Class II) of the Company since 1990, is Chairman, Chief Executive Officer and a director of Houston Industries Incorporated, a public utility holding company with interests in domestic and international electric utility companies and projects. Mr. Jordan has been employed by various subsidiaries of Houston Industries Incorporated since 1956. He currently serves as a director of Texas Commerce Bancshares, UTECH Joint Venture and -32- 34 AEGIS Insurance Services. He is Chairman of the Executive Compensation Committee and a member of the Audit Committee. Mr. LeBlanc, director (Class I) of the Company since 1994, served in various executive positions with Keystone International, Inc., a manufacturer of flow control products, including Chairman of the Board, Chief Executive Officer and a director, from 1959 until his retirement in July 1995. Mr. LeBlanc also serves as an advisory member of the board of directors of Texas Commerce Bank National Association. He is a member of the Audit Committee and the Nominating Committee. Mr. McCormick, director (Class III) of the Company since 1990, served in various executive positions with ORYX Energy Company, a diversified energy company, including President and Chief Operating Officer and a director, from 1977 until his retirement on March 1, 1992. Mr. McCormick currently serves on the board of directors of Lone Star Technology, Snyder Oil Company and Texas Commerce Bank National Association. He is Chairman of the Audit Committee and a member of the Executive Compensation Committee and the Nominating Committee. Mr. Patrick, director (Class I) of the Company since April 1995, Chief Investment Officer of the Meadows Foundation since December 1, 1995; consultant from 1994 to 1995; President of Lomas Information Systems, Inc., a subsidiary of Lomas Financial Corporation, from 1993 to 1994; Executive Vice President, Chief Financial Officer and a director of Lomas Financial Corporation and President and Chief Operating Officer of its Lomas Mortgage USA subsidiary, both of which are engaged in mortgage banking, real estate and information services, from 1992 until 1994; and Executive Vice Chancellor for Asset Management of the University of Texas System, where he was responsible for the investment of all endowment funds, from 1984 to 1991. He is a member of the Executive Compensation Committee. The terms of the Class I, Class II and Class III directors expire in 1997, 1998 and 1996, respectively. A Special Committee of the Board of Directors is responsible for administering certain employee arrangements related to the acquisition of Western. The Special Committee is composed of Messrs. McCormick (Chairman), LeBlanc, Johnson and Patrick. DESCRIPTION OF CAPITAL STOCK The authorized capital stock of BJ Services consists of 80,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $1.00 per share, including 400,000 currently authorized shares of Series Two Junior Participating Preferred Stock, par value $1.00 per share (the "Preferred Stock"), issuable upon exercise of the Company's preferred share purchase rights (the "Rights"). The following description of the capital stock of BJ Services does not purport to be complete or to give full effect to the provisions of statutory or common law and is subject in all respects to the applicable provisions of the Certificate of Incorporation (the "Charter") and Bylaws (the "Bylaws") of the Company, the Certificate of Designation for the Preferred Stock, the stockholder rights agreement between BJ Services and First Chicago Trust Company of New York, as rights agent (the "Rights Agreement") and the Warrant Agreement dated April 13, 1995, between BJ Services and First Chicago Trust Company of New York, as warrant agent (the "Warrant Agreement"), each as amended, which are incorporated by reference into the registration statement of which this Prospectus is a part. The information herein is qualified in its entirety by this reference. COMMON STOCK BJ Services is authorized by its Charter to issue 80,000,000 shares of Common Stock, of which 28,164,670 shares were issued and outstanding as of March 31, 1996. Each outstanding share of Common Stock includes an associated Right. The holders of shares of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of common stockholders. The Bylaws provide that, in general, when a quorum is present at any meeting of -33- 35 stockholders, 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 questions brought before such meeting (except as otherwise required by statute or the Charter or Bylaws). See "- Certain Anti-takeover Provisions." The Common Stock does not have cumulative voting rights. Each share of Common Stock is entitled to participate equally in dividends, if, as and when declared by BJ Services' Board of Directors, and in the distribution of any assets in the event of liquidation, subject in all cases to any prior claims and prior rights of outstanding shares of preferred stock. The shares of Common Stock have no preemptive or conversion rights, redemption provisions or sinking fund provisions. The outstanding shares of Common Stock are duly and validly issued, fully paid and nonassessable. PREFERRED SHARE PURCHASE RIGHTS On January 5, 1994, the Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of Common Stock. Each Right entitles the registered holder to purchase from BJ Services one one-hundredth of a share of Preferred Stock, at a price of $75.00 per one one-hundredth of a share (the "Purchase Price"), subject to adjustment under certain circumstances. The Rights attach to all certificates representing outstanding shares of Common Stock, and no separate Rights certificates have been distributed. The Rights are not exercisable until the earlier to occur of (i) 30 days following a public announcement that a person or group of affiliated or associated persons has acquired or obtained the right to acquire beneficial ownership or 20% or more of the outstanding shares of Common Stock (an "Acquiring Person") or (ii) 30 days following the commencement or announcement of an intention to make a tender offer or exchange offer that would result in a person or group beneficially owning 30% or more of such outstanding shares (the earlier of such dates being called the "Distribution Date"). The Rights will expire at the close of business on January 17, 2004, unless such date is extended or the Rights are earlier redeemed by the Company. With certain exceptions, in the event (i) BJ Services is acquired in a merger or other business combination transaction or (ii) more than 50% of BJ Services' consolidated assets or earning power is sold, each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price of the Right, that number of shares of common stock of the acquiring person that, at the time of such transaction, would have a market price (as defined in the Rights Agreement) of two times the Purchase Price of the Right. In the event (i) BJ Services is the surviving corporation in certain mergers and the outstanding Common Stock is not changed or exchanged, or (ii) any person acquires 30% or more of the outstanding Common Stock, each holder of a Right, other than Rights that were or are beneficially owned by the Acquiring Person on or after the earlier of the Distribution Date or the date an Acquiring Person acquires 20% or more of the Common Stock (which Rights will thereafter be void), will thereafter have the right to receive upon exercise that number of shares of Common Stock (or cash, other securities or property) having a market price (as defined in the Rights Agreement) of two times the Purchase Price of the Right. At any time prior to 30 days after such time as any person or group has become an Acquiring Person (or a longer period if BJ Services' Board of Directors extends such period), BJ Services may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the "Redemption Price"). In certain circumstances, the decision to redeem the Rights requires the concurrence of a majority of the Continuing Directors (as defined in the Rights Agreement). Immediately upon the action of the Board of Directors of BJ Services electing to redeem the Rights, a holder's right to exercise the Rights will terminate and he or she will only be entitled to receive the Redemption Price. PREFERRED STOCK Pursuant to the Charter, BJ Services is authorized to issue 5,000,000 shares of preferred stock, and BJ Services' Board of Directors by resolution may establish one or more series of preferred stock having such number of shares, designation, relative voting rights, dividend rates, liquidation and other rights, preferences and limitations as may be fixed by the Board of Directors without any further stockholder approval. A Certificate of Designation has been filed -34- 36 with the Secretary of State of the State of Delaware with respect to the Preferred Stock authorized by the Board of Directors. The Preferred Stock, which is issuable under certain circumstances upon exercise of the Rights, includes dividend, liquidation and voting rights that would limit or qualify the rights of the holders of the Common Stock. WARRANTS The Warrants were issued under the Warrant Agreement in connection with the Western Acquisition. Each Warrant will entitle the registered holder thereof (the "holder"), subject to and upon compliance with the provisions thereof and of the Warrant Agreement, at such holder's option, prior to the close of business on April 13, 2000, to purchase the number of shares of Common Stock set forth therein at an initial exercise price of $30.00 per share (the "Exercise Price"), with the number of such shares and the Exercise Price to be subject to adjustment under certain circumstances. Holders of Warrants will not be entitled to vote, receive dividends or distributions on, or be deemed for any purpose the holder of, Common Stock or any other securities of BJ Services which may at any time be issuable on the exercise or conversion of the Warrants. Nothing contained in the Warrant Agreement or in any Warrant Certificate shall be construed to confer upon the holder of any Warrant Certificate any rights of a stockholder of BJ Services or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders, or to receive dividends or distributions or subscription rights, or otherwise, until the Warrant or Warrants evidenced by such Warrant Certificate shall have been exercised in accordance with the provisions of the Warrant Agreement. CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Charter and Bylaws, as well as the Rights Agreement, may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider to be in such stockholder's best interest, including those attempts that might result in a payment of a premium over the market price for the shares held by stockholders. Such provisions include a classified board of directors and the preferred stock authorized pursuant to the Charter. The Charter further provides that (i) stockholders may act only at an annual or special meeting of stockholders and may not act by written consent; (ii) special meetings of stockholders can be called only by BJ Services' Board of Directors; (iii) a 75% vote of the outstanding voting stock is required for the stockholders to amend the Bylaws; and (iv) a 75% vote of the outstanding voting stock is required to amend the Charter with respect to certain matters, including, without limitation, the matters set forth in clauses (i) and (iii) above and a 75% voting requirement required for certain business combinations. UNDERWRITING Subject to the terms and conditions set forth in a Purchase Agreement (the "Purchase Agreement") between the Company and each of the underwriters named below (the "Underwriters"), the Company has agreed to sell to each of the Underwriters, and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") is acting as representative (the "Representative"), has severally agreed to purchase, the number of shares of Common Stock set forth below opposite their respective names. The Underwriters are committed to purchase all of such shares if any are purchased. Under certain circumstances, the commitments of non-defaulting Underwriters may be increased as set forth in the Purchase Agreement. -35- 37
NUMBER UNDERWRITERS OF SHARES ------------ --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated --------- Total 5,869,000 =========
The Representative has advised the Company that the Underwriters propose to offer the shares of Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share on sales to certain other dealers. After the public offering, the public offering price, concession and discount may be changed. The Company has granted the Underwriters an option, exercisable by the Representative, to purchase up to 880,350 additional shares of Common Stock initially at the public offering price, less the underwriting discount. Such option, which expires 30 days after the date of this Prospectus, may be exercised solely to cover over-allotments. To the extent that the Representative exercises such option, each of the Underwriters will be obligated, subject to certain conditions, to purchase approximately the same percentage of the option shares that the number of shares to be purchased initially by that Underwriter bears to the total number of shares to be purchased initially by the Underwriters. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. In connection with the Offering, the Company, its directors and executive officers have agreed that they will not, for a period of 90 days from the date of this Prospectus, without the prior written consent of Merrill Lynch, offer, sell or otherwise dispose of any shares of Common Stock or any securities convertible into shares of Common Stock, except, in the case of the Company, (i) for sales to the Underwriters pursuant to the Purchase Agreement, (ii) for the issuance of shares upon exercise of the Company's outstanding warrants to purchase Common Stock, (iii) for private placements of Common Stock to purchasers who agree to be bound by similar restrictions, (iv) for the issuance of shares upon the exercise of options granted pursuant to the Company's employee benefit plans prior to the date hereof and (v) subject to certain limitations, the grant of options, restricted shares, restricted stock units, stock unit awards payable in the form of Common Stock or performance shares issued or granted pursuant to the Company's employee benefit plans. Merrill Lynch has acted from time to time as financial advisor to the Company and has received customary fees for such services and is acting as U.S. dealer manager and financial advisor to the Company in connection with the Nowsco Tender Offer. LEGAL MATTERS The validity of the Common Stock being offered hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas. Certain legal matters in connection with the Common Stock offered hereby will be passed upon for the Underwriters by Baker & Botts, L.L.P., Houston, Texas. EXPERTS The consolidated financial statements and the related financial statement schedule of the Company as of September 30, 1995 and 1994 and for each of the three years in the period ended September 30, 1995, included or incorporated by reference in this Registration Statement, have been audited by Deloitte & Touche LLP, independent accountants, as stated in their reports, which are included or incorporated by reference herein, and have been so included -36- 38 or incorporated by reference in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of The Western Company of North America as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994 incorporated by reference in this Registration Statement have been so incorporated by reference in reliance on the report of Price Waterhouse LLP, independent accountants, and have been so incorporated by reference in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-3 (the "Registration Statement," which term shall include all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the shares of Common Stock being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission and to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Exchange Act and the rules and regulations promulgated thereunder and, in accordance therewith, files reports, proxy statements and other information with the Commission. All such information and items or information omitted from this Prospectus but contained or incorporated by reference in the Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following Regional Offices of the Commission: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and New York Regional Office, 7 World Trade Center, New York, New York 10048. Copies of such material may also be obtained at prescribed rates from the Public Reference Section of the Commission at its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and such information may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. In addition, the Common Stock, the Warrants and the Company's 12-7/8% Senior Notes due 2002 are listed for trading on the NYSE. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company incorporates herein by reference the following documents (File No. 1-10570): (a) Annual Report on Form 10-K for the fiscal year ended September 30, 1995; (b) Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1995; (c) Current Report on Form 8-K filed April 28, 1995, as amended by Form 8-K/A filed May 31, 1995, Current Reports on Form 8-K filed February 6, 1996, and April 16, 1996; (d) The description of the Common Stock, contained in the Registration Statement on Form 8-A/A dated January 9, 1996 (Registration No. 1-10570) filed by the Company under the Exchange Act; the description of the Company's preferred share purchase rights included in the Company's Registration Statement on Form 8-A dated January 12, 1994, and the Company's Registration Statements on Form 8-A/A dated August 26, 1994 and September 30, 1994; and the description of the Series Two Junior Participating Preferred Stock of the Company included in the Company's Registration Statement on Form 8-A dated January 12, 1994 and the Company's Registration Statements on Form 8-A/A dated August 26, 1994 and September 30, 1994; and -37- 39 (e) All other documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to termination of the offering made hereby. Any statement contained herein or in a document all or a portion of which is incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. As used herein, the terms "Prospectus" and "herein" mean this Prospectus, including the documents incorporated or deemed to be incorporated herein by reference, as the same may be amended, supplemented or otherwise modified from time to time. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document, copies of which are available from the Company as described below, each such statement being qualified in all respects by such reference. THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH ARE INCORPORATED IN THIS PROSPECTUS BY REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED TO BJ SERVICES COMPANY, 5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092, ATTENTION: CORPORATE COMMUNICATIONS MANAGER, TELEPHONE NUMBER (713) 462-4239. -38- 40 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statement of Operations for the Years Ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-3 Consolidated Statement of Financial Position as of September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statement of Stockholders' Equity for the Years Ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-5 Consolidated Statement of Cash Flows for the Years Ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-7 Consolidated Condensed Statement of Operations (Unaudited) - Three months ended December 31, 1995 and 1994 . . . . . . . . . . . . F-31 Consolidated Condensed Statement of Financial Position - December 31, 1995 (Unaudited) and September 30, 1995 . . . . . . . . F-32 Consolidated Condensed Statement of Cash Flows (Unaudited) - Three months ended December 31, 1995 and 1994 . . . . . . . . . . . . F-33 Notes to Unaudited Consolidated Condensed Financial Statements . . . . . . F-34 Pro Forma Financial Information (Unaudited) . . . . . . . . . . . . . . . F-43
F-1 41 REPORT OF INDEPENDENT ACCOUNTANTS Stockholders of BJ Services Company: We have audited the accompanying consolidated statements of financial position of BJ Services Company and its subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BJ Services Company and its subsidiaries at September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. As described in Note 9 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions effective October 1, 1993 to conform with Statement of Financial Accounting Standards No. 106. DELOITTE & TOUCHE LLP Houston, Texas November 21, 1995 (March 28, 1996 as to Note 15) F-2 42 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue.................................................... $633,660 $434,476 $394,363 Operating Expenses: Cost of sales and services............................... 525,859 368,994 329,042 Research and engineering................................. 12,299 8,621 9,098 Marketing................................................ 26,429 14,169 12,969 General and administrative............................... 28,318 22,709 22,825 Goodwill amortization.................................... 3,266 1,298 691 Unusual charge........................................... 17,200 -------- -------- -------- Total operating expenses................................. 613,371 415,791 374,625 -------- -------- -------- Operating income........................................... 20,289 18,685 19,738 Interest expense........................................... (15,164) (7,383) (5,414) Interest income............................................ 899 729 500 Other income -- net........................................ 2,734 877 2,014 -------- -------- -------- Income before income taxes, minority interest and cumulative effect of accounting change................... 8,758 12,908 16,838 Income tax expense (benefit)............................... (1,102) 2,006 1,593 -------- -------- -------- Income before minority interest and cumulative effect of accounting change........................................ 9,860 10,902 15,245 Minority interest.......................................... (29) 132 684 -------- -------- -------- Income before cumulative effect of accounting change....... 9,889 10,770 14,561 Cumulative effect of change in accounting principle, net of tax benefit of $5,600,000................................ (10,400) -------- -------- -------- Net income....................................... $ 9,889 $ 370 $ 14,561 ======== ======== ======== Net Income Per Share: Income per share before cumulative effect of accounting change................................................ $ .46 $ .69 $ .94 Cumulative effect of change in accounting principle, net of tax................................................ (.67) -------- -------- -------- Net income per share............................. $ .46 $ .02 $ .94 ======== ======== ======== Weighted average shares outstanding.............. 21,376 15,665 15,456 ======== ======== ========
See Notes to Consolidated Financial Statements F-3 43 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, --------------------- 1995 1994 -------- -------- (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents...................................................... $ 1,842 $ 3,218 Receivables, less allowance for doubtful accounts: 1995, $7,483,000; 1994, $2,184,000................................................................... 168,771 103,754 Inventories: Finished goods............................................................... 46,242 30,970 Work in process.............................................................. 2,392 1,118 Raw materials................................................................ 18,217 6,591 -------- -------- Total inventories....................................................... 66,851 38,679 Deferred income taxes.......................................................... 9,370 4,478 Other current assets........................................................... 10,101 8,230 -------- -------- Total current assets.................................................... 256,935 158,359 Property: Land........................................................................... 13,031 12,031 Buildings...................................................................... 83,205 47,042 Machinery and equipment........................................................ 634,692 446,739 -------- -------- Total property.......................................................... 730,928 505,812 Less accumulated depreciation.................................................. 314,118 306,968 -------- -------- Property -- net.............................................................. 416,810 198,844 Goodwill, net of amortization.................................................... 193,263 20,998 Deferred income taxes............................................................ 107,889 20,607 Investments and other assets..................................................... 14,786 11,258 -------- -------- $989,683 $410,066 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable -- trade...................................................... $ 85,675 $ 54,609 Short-term borrowings.......................................................... 2,000 2,250 Current portion of long-term debt.............................................. 35,600 31,200 Accrued employee compensation and benefits..................................... 24,885 10,521 Income taxes................................................................... 5,915 7,719 Taxes other than income........................................................ 5,460 2,751 Accrued insurance.............................................................. 12,867 2,637 Other accrued liabilities...................................................... 31,869 9,162 -------- -------- Total current liabilities............................................... 204,271 120,849 Long-term debt................................................................... 259,566 74,700 Deferred income taxes............................................................ 11,496 7,194 Accrued postretirement benefits.................................................. 25,146 15,834 Minority interest and other long-term liabilities................................ 22,409 1,562 Commitments and contingencies Stockholders' Equity: Preferred stock (authorized 5,000,000 shares) Common stock, $.10 par value (authorized 80,000,000 shares; issued and outstanding 1995 -- 27,951,784 shares, 1994 -- 15,670,903 shares)............ 2,795 1,567 Capital in excess of par....................................................... 415,242 151,340 Retained earnings.............................................................. 53,505 43,616 Cumulative translation adjustment.............................................. (4,747) (4,133) Unearned compensation.......................................................... (2,463) -------- -------- Total stockholders' equity.............................................. 466,795 189,927 -------- -------- $989,683 $410,066 ========= =========
See Notes to Consolidated Financial Statements F-4 44 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL CUMULATIVE COMMON IN EXCESS UNEARNED RETAINED TRANSLATION STOCK OF PAR COMPENSATION EARNINGS ADJUSTMENT TOTAL ------ --------- ------------ -------- ----------- -------- (IN THOUSANDS) Balance, September 30, 1992........ $1,304 $ 105,374 $ $ 28,685 $ (569) $134,794 Net income....................... 14,561 14,561 Issuance of stock for: Business acquisition.......... 250 40,537 40,787 Stock options................. 3 504 507 Stock purchase plan........... 4 619 623 Stock performance awards...... 2,855 (2,855) Amortization of unearned compensation.................. 500 500 Cumulative translation adjustment.................... (4,640) (4,640) ------ --------- -------- -------- ------- -------- Balance, September 30, 1993........ 1,561 149,889 (2,355) 43,246 (5,209) 187,132 Net income....................... 370 370 Issuance of stock for: Stock options................. 2 294 296 Stock purchase plan........... 4 680 684 Stock performance awards...... 944 (944) Buyback of stock rights.......... (155) (155) Amortization of unearned compensation.................. 524 524 Revaluation of stock performance awards........................ (312) 312 Cumulative translation adjustment.................... 1,076 1,076 ------ --------- -------- -------- ------- -------- Balance, September 30, 1994........ 1,567 151,340 (2,463) 43,616 (4,133) 189,927 Net income....................... 9,889 9,889 Issuance of stock for: Business acquisition.......... 1,204 262,347 263,551 Stock options................. 2 535 537 Stock purchase plan........... 5 733 738 Stock performance awards...... 17 287 1,803 2,107 Amortization of unearned compensation.................. 660 660 Cumulative translation adjustment.................... (614) (614) ------ --------- -------- -------- ------- -------- Balance, September 30, 1995........ $2,795 $ 415,242 $ $ 53,505 $(4,747) $466,795 ====== ======== ========== ======= ======== ========
See Notes to Consolidated Financial Statements F-5 45 BJ SERVICES COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1995 1994 1993 -------- ------- ------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................... $ 9,889 $ 370 $14,561 Adjustments to reconcile net income to cash provided from (used for) operating activities: Cumulative effect of accounting change................ 10,400 Depreciation and amortization......................... 42,064 25,335 24,170 Net (gain) loss on disposal of assets................. (830) (346) 62 Recognition of unearned compensation.................. 2,463 524 500 Deferred income tax benefit........................... (8,861) (4,959) (4,877) Unusual charge (noncash).............................. 3,646 Minority interest..................................... (29) 132 684 Changes in: Receivables........................................... (1,091) (9,235) (17,550) Accounts payable-trade................................ 7,707 8,417 6,687 Inventories........................................... (8,078) (621) (572) Other current assets and liabilities.................. (1,170) (1,960) (16,481) Other, net............................................ (6,326) (1,802) (7,499) --------- -------- -------- Net cash flows provided from (used for) operating activities............................................... 39,384 26,255 (315) CASH FLOWS FROM INVESTING ACTIVITIES: Property additions......................................... (30,966) (39,345) (37,350) Proceeds from disposal of assets........................... 5,393 2,588 3,982 Acquisitions of businesses, net of cash acquired........... (203,313) (2,000) (7,400) --------- -------- -------- Net cash used for investing activities..................... (228,886) (38,757) (40,768) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock..................... 40,787 Proceeds from exercise of stock options and stock purchase grants................................................... 1,275 980 1,130 Proceeds from (reduction of) borrowings-net................ 192,851 19,120 (689) Principal payment on long-term notes....................... (6,000) (6,000) --------- -------- -------- Net cash flows provided from financing activities.......... 188,126 14,100 41,228 Increase (decrease) in cash and cash equivalents........... (1,376) 1,598 145 Cash and cash equivalents at beginning of year............. 3,218 1,620 1,475 --------- -------- -------- Cash and cash equivalents at end of year................... $ 1,842 $ 3,218 $ 1,620 ========= ======== ========
See Notes to Consolidated Financial Statements F-6 46 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION BJ Services Company is a leading provider of pressure pumping and other oilfield services to the petroleum industry. The consolidated financial statements include the accounts of BJ Services Company and its majority-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts for 1994 and 1993 have been reclassified in the accompanying consolidated financial statements to conform to the current year presentation. The amounts changed were foreign exchange gains and losses, previously classified as other income -- net and now classified in cost of sales and services, and goodwill amortization previously classified as other income -- net and now classified as a separate component of operating expenses. Net income was not affected by these changes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Net income per share: Net income per share has been computed by dividing net income by the weighted average number of outstanding common shares. Common stock equivalents had no material dilutive effect on the computation of net income per share for each year presented. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Cash and cash equivalents: The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Inventories: Inventories, which consist principally of (a) products which are consumed in the Company's services provided to customers, (b) spare parts for equipment used in providing these services and (c) manufactured components and attachments for equipment used in providing services, are stated primarily at the lower of average cost or market. Property: Property is stated at cost less amounts provided for permanent impairments and includes capitalized interest of $216,000, $541,000 and $167,000 for the years ended September 30, 1995, 1994 and 1993, respectively, on funds borrowed to finance the construction of capital additions. Depreciation is generally provided using the straight-line method over the estimated useful lives of individual items. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life or the lease term. Goodwill: Goodwill represents the excess of cost over the fair value of the net assets of companies acquired in purchase transactions. Goodwill is being amortized on a straight-line method over periods ranging from 5 to 40 years. Accumulated amortization at September 30, 1995 and 1994 was $5,174,000 and $1,880,000, respectively. The Company utilizes undiscounted cash flows of acquired operations to evaluate any possible impairment of the related goodwill. Investments: Investments in companies in which the Company's ownership interest ranges from 20 to 50 percent and the Company exercises significant influence over operating and financial policies are accounted for using the equity method. Other investments are accounted for using the cost method. Foreign currency translation: Gains and losses resulting from financial statement translation of foreign operations where the U.S. dollar is the functional currency are included in the consolidated statement of operations. Gains and losses resulting from financial statement translation of foreign operations where a F-7 47 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) foreign currency is the functional currency are included as a separate component of stockholders' equity. The Company's foreign operations primarily use the U.S. dollar as the functional currency. Foreign exchange contracts: From time to time, the Company enters into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. Changes in market value are offset against foreign exchange gains or losses on the related assets or liabilities and are included in cost of sales and services. There were no foreign exchange contracts outstanding at September 30, 1995. Environmental remediation and compliance: Environmental remediation and compliance costs are accrued based on estimates of known environmental exposures. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. 3. UNUSUAL CHARGE During 1995, the Company recorded an unusual charge of $17.2 million ($.52 per share after-tax) for costs incurred in connection with the acquisition of The Western Company of North America ("Western"). The components of the unusual charge are as follows:
BALANCE AT 1995 1995 SEPTEMBER 30, PROVISION EXPENDITURES 1995 --------- -------------- ------------- (IN THOUSANDS) Facility closings.............................. $ 5,596(1) $ (5,003)(1) $ 593 Change in control costs........................ 5,381 (4,081) 1,300 Legal and other................................ 4,047 (3,570) 477 Severance costs................................ 2,176 (1,976) 200 ------ -------- ------ Total................................ $ 17,200 $(14,630) $ 2,570 ====== ======== ======
- --------------- (1) Includes $3.6 million noncash impairment of facilities. The Company and Western both operated facilities in many of the same locations. Management has made the decision to close the duplicate facilities previously operated by BJ Services and retain those operated by Western. A provision was recorded to adjust the carrying value of these duplicate facilities to estimated net realizable value and accruals were recorded for the estimated costs associated with their closings, including maintenance of the facilities until their ultimate sale and relocation of assets. Substantially all of the duplicate facilities were closed as of September 30, 1995. The consummation of the Western acquisition triggered the change in control provision under the Company's 1990 Stock Incentive Plan. As a result, 168,547 performance units previously granted to the Company's executive officers became fully vested and 168,547 shares of common stock were subsequently issued. The unusual charge includes an amount for the excess of the value of the performance units on the date of issuance over the estimated amount which otherwise was earned had the acquisition not occurred. The unusual charge also includes legal, severance of BJ employees and other merger-related costs that would not have been incurred had the acquisition of Western not occurred. F-8 48 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACQUISITIONS OF BUSINESSES In April 1995, the Company acquired Western for total consideration, including transaction costs, of $511.4 million in cash, Company common stock and warrants to purchase common stock. The transaction may be summarized as follows:
(IN THOUSANDS) -------------- Cash................................................... $247,880 Stock issued (12,036,393 shares)....................... 239,551 Warrants issued (4,800,037 warrants)................... 24,000 ----------- Total consideration............................... 511,431 Net assets acquired.................................... 335,891(1) ----------- Goodwill.......................................... $175,540 ===========
- --------------- (1) Includes cash acquired of $44.5 million. This acquisition was accounted for using the purchase method of accounting. Accordingly, the results of Western are included in the financial statements beginning April 1, 1995. The assets and liabilities of Western have been recorded on the Company's books at estimated fair market value on April 1, 1995 with the remaining purchase price reflected as goodwill, which is being amortized on a straight-line basis over 40 years. The following unaudited pro forma summary presents the consolidated results of operations, excluding estimated consolidation savings, of the Company for the two years ended September 30, 1995 and 1994 as if the acquisition had occurred at the beginning of each fiscal year:
1995 1994 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue........................................................ $807,582 $763,313 Net income (loss) from continuing operations before cumulative effect of accounting change.................................. 2,308 (15,330) Net income (loss).............................................. 2,308 (25,730) Net income (loss) per share from continuing operations before cumulative effect of accounting change....................... .08 (.55) Net income (loss) per share.................................... .08 (.92)
On February 9, 1994, the Company acquired the remaining 50% ownership of its joint venture in Egypt, Hughes Services C.I., Ltd., for $2.0 million. Prior to the acquisition, this joint venture was accounted for using the equity method of accounting. On April 1, 1993, the Company completed a transaction to acquire the assets, including existing service contracts, of Norsk Bronnservice A/S, a subsidiary of Odfjell Drilling & Consulting A/S, for $5.4 million. These operations provide cementing, gravel packing and completion fluids services to the Norwegian oil and gas industry. On July 30, 1993 the Company acquired the coiled tubing operations of Italog, S.p.A. for $2.0 million. Italog is based in Milan, Italy and provides coiled tubing and nitrogen pumping services in Italy and Nigeria, under the name of SIAT. The acquisition included the assets and existing contracts of SIAT. The 1993 and 1994 acquisitions have been accounted for as purchases and accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The excess of the consideration paid over the estimated fair value of net assets acquired has been recorded as goodwill and is being amortized over periods ranging from 5 to 40 years. F-9 49 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT AND BANK CREDIT FACILITIES Long-term debt at September 30, 1995 and 1994 consisted of the following:
1995 1994 -------- -------- (IN THOUSANDS) Notes payable, banks........................................... $275,000 $ 81,900 9.2% notes due August 1998..................................... 18,000 24,000 Other.......................................................... 2,166 -------- -------- 295,166 105,900 Less current maturities of long-term debt...................... 35,600 31,200 -------- -------- Long-term debt................................................. $259,566 $ 74,700 ======== ========
On April 15, 1995, the Company canceled its existing credit facility and the outstanding borrowings were repaid with funds from a committed, unsecured credit facility ("Bank Credit Facility") executed to accommodate the acquisition of Western. The Bank Credit Facility consists of a five-year $175.0 million revolver and a six-year $225.0 million term loan, providing an aggregate of $400.0 million in available principal borrowings to the Company. The Company is charged various fees in connection with this Bank Credit Facility, including a commitment fee based on the average daily unused portion of the commitment. Borrowings outstanding under the Bank Credit Facility at September 30, 1995 amounted to $275.0 million, which is comprised of $225.0 million under the term loan and $50.0 million under the revolver. Interest is charged on outstanding borrowings based on current market rates. The weighted average interest rate for such outstanding borrowings was 6.4% at September 30, 1995. The Bank Credit Facility incorporates a swingline facility allowing the Company to borrow up to $20.0 million for up to seven days in minimum advances of $1.0 million. In addition, standby letters of credit are available in an amount not to exceed $20.0 million. No such borrowings were outstanding at September 30, 1995. At September 30, 1995, long-term debt was due in aggregate annual installments of $35,600,000, $37,200,000, $49,200,000, $48,400,000 and $98,400,000 in the years ending September 30, 1996, 1997, 1998, 1999 and 2000, respectively, and an aggregate of $26,366,000 thereafter. Commitment fees under the Company's credit facilities were $207,206, $16,223 and $63,679 for 1995, 1994 and 1993, respectively. In addition to the committed facility, the Company had $50.0 million in various unsecured, discretionary lines of credit at September 30, 1995 which expire at various dates in 1996. There are no requirements for commitment fees or compensating balances in connection with these lines of credit. Interest on borrowings is based on prevailing market rates. At September 30, 1995, there were $2.0 million in outstanding borrowings under these lines of credit (none at September 30, 1994). In August 1991, the Company placed $30.0 million of unsecured notes (the "Notes") with private investors. The Notes bear interest at a fixed rate of 9.2% with principal payments due in five equal annual installments the first of which was paid in August 1994. From October 1991 to May 1995, the Company entered into interest rate swap agreements which effectively converted the Notes from fixed rate debt with an interest rate of 9.2% to floating rate debt. The swap agreement was liquidated in May 1995 at a loss of $679,000. The agreements resulted in an average annual effective interest rate of 11.5% (excluding the loss) and 9.3% on the Notes for 1995 and 1994, respectively. F-10 50 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At September 30, 1995, the Company had outstanding letters of credit and performance related bonds totaling $16.6 million and $14.8 million, respectively. The letters of credit are issued to guarantee various trade and insurance activities. The Company's debt agreements contain various customary covenants including maintenance of certain profitability and solvency ratios and restrictions on dividend payments, as defined in the Bank Credit Facility. At September 30, 1995, the Company's debt to capitalization ratio exceeded 35%. As a result, the Company is prohibited, under its Bank Credit Facility from making any dividend payments until such time as the ratio drops below 35%. The Company is also required to make mandatory prepayments from free cash flow (as defined in the Bank Credit Facility) subject to certain ratios as calculated at the end of each fiscal year. At September 30, 1995, an estimate of $4 million of such prepayments has been classified as current maturities of long-term debt. 6. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Cash Equivalents, Trade Receivables and Trade Payables: The carrying amount approximates fair value because of the short maturity of those instruments. Long-term Debt: Based on the rates currently available to the Company for debt with similar terms and average maturities, the fair value of the Company's Notes is $19.1 million. Other long-term debt consists of borrowings under the Company's Bank Credit Facility. The carrying amount of such borrowings approximates fair value as the individual borrowings bear interest at current market rates. 7. INCOME TAXES The geographical sources of income (loss) before income taxes, minority interest and cumulative effect of accounting change for the three years ended September 30, 1995, were as follows:
1995 1994 1993 -------- -------- ------- (IN THOUSANDS) United States....................................... $(31,879) $(12,793) $(8,540) Foreign............................................. 40,637 25,701 25,378 -------- -------- ------- Income before income taxes, minority interest and cumulative effect of accounting change............ $ 8,758 $ 12,908 $16,838 ======== ======== =======
The provision (benefit) for income taxes for the three years ended September 30, 1995 is summarized as follows:
1995 1994 1993 -------- -------- ------- (IN THOUSANDS) Current: United States Foreign........................................... $ 7,759 $ 6,965 $ 6,470 -------- -------- ------- Total current............................. 7,759 6,965 6,470 Deferred: United States..................................... (8,336) (2,831) (4,414) Foreign........................................... (525) (2,128) (463) -------- -------- ------- Total deferred............................ (8,861) (4,959) (4,877) -------- -------- ------- Income tax expense (benefit)........................ $ (1,102) $ 2,006 $ 1,593 ======== ======== =======
F-11 51 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The consolidated effective income tax rates (as a percent of income before income taxes, minority interest and cumulative effect of accounting change) for the three years ended September 30, 1995 varied from the United States statutory income tax rate for the reasons set forth below:
1995 1994 1993 ----- ----- ----- (IN THOUSANDS) Statutory rate............................................ 35.0% 35.0% 35.0% Foreign earnings at varying tax rates..................... (79.8) (17.4) (11.9) Amortization of excess tax basis over book basis resulting from separation from former parent...................... (20.4) (13.8) (10.6) Changes in valuation reserve.............................. (14.5) (3.7) Foreign income recognized domestically.................... 37.2 25.6 4.3 Goodwill amortization..................................... 10.3 1.3 .9 Nondeductible expenses.................................... 6.1 1.0 .7 Other -- net.............................................. (1.0) (1.6) (5.2) ===== ===== ===== Effective income tax rate (benefit)....................... (12.6)% 15.6% 9.5% ===== ===== =====
The income tax provisions for 1994 and 1993 included $1,867,000 and $620,000 of deferred foreign tax benefits related to the recognition of foreign net loss carryforwards which were reserved for in the valuation account at September 30, 1993 and September 30, 1992, respectively. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which the Company has operations. Generally, deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. The estimated deferred tax effect of temporary differences and carryforwards at September 30, 1995 and 1994 were as follows:
1995 1994 -------- -------- (IN THOUSANDS) Deferred assets: Expenses accrued for financial reporting, not yet deducted for tax................................................... $ 45,469 $ 7,956 Net operating loss carryforwards............................. 181,400 44,621 Valuation allowance.......................................... (54,420) (11,164) -------- -------- Total deferred tax asset....................................... 172,449 41,413 Deferred liabilities: Differences in depreciable basis of property................. (60,520) (16,838) Income accrued for financial reporting, not yet reported for tax....................................................... (6,166) (6,684) -------- -------- Total deferred tax liability................................... (66,686) (23,522) -------- -------- Deferred tax asset -- net...................................... $105,763 $ 17,891 ======== ========
The net change in the deferred tax asset valuation allowance reflects purchase accounting adjustments made to properly state the anticipated future benefit of the combined net operating loss carryforwards of BJ Services and Western. The entire deferred tax asset valuation allowance, if realized, will be recorded as a reduction to goodwill. At September 30, 1995, the Company had approximately $512 million of U.S. tax net operating loss carryforwards expiring in varying amounts between 2000 and 2010. As a result of Western having experienced changes in control as defined in Internal Revenue Code Section 382 in prior years, and in the current year due F-12 52 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to the merger with BJ Services, the usage of approximately $375 million of the tax net operating loss carryforwards is subject to an annual limitation. The potential impact that the annual limitation may have on the usage of tax net operating loss carryforwards has been reflected in the deferred tax asset valuation allowance. The Company also has foreign tax net operating loss carryovers of $6.7 million as of September 30, 1995. The foreign tax net operating loss carryforwards are not subject to an annual limitation and will carry forward indefinitely. The Company does not provide federal income taxes on the undistributed earnings of its foreign subsidiaries that the Company considers to be permanently reinvested in foreign operations. The cumulative amount of such undistributed earnings was approximately $147 million at September 30, 1995. If these earnings were to be remitted to the Company, any U.S. income taxes payable would be substantially reduced by foreign tax credits generated by the repatriation of the earnings. 8. GEOGRAPHIC INFORMATION The Company operates exclusively in one business segment -- the oilfield services industry. Summarized information concerning geographic areas in which the Company operated at September 30, 1995, 1994 and 1993 and for each of the years then ended is shown as follows:
WESTERN HEMISPHERE -------------------------- EASTERN HEMISPHERE UNITED LATIN AMERICA -------------------- STATES AND CANADA EUROPE OTHER TOTAL -------- ------------- -------- ------- -------- (IN THOUSANDS) 1995: Revenue................ $345,922 $ 111,447 $104,840 $71,451 $633,660 Operating income (loss).............. (13,683) 22,095 4,942 6,935 20,289 Identifiable assets.... 627,545 88,655 201,838 71,645 989,683 1994: Revenue................ $208,279 $ 75,745 $ 95,181 $55,271 $434,476 Operating income (loss).............. (2,634) 9,590 4,560 7,169 18,685 Identifiable assets.... 127,561 72,558 156,594 53,353 410,066 1993: Revenue................ $196,674 $ 60,560 $ 83,553 $53,576 $394,363 Operating income....... 1,694 2,477 6,217 9,350 19,738 Identifiable assets.... 117,543 54,950 150,612 46,426 369,531
Export sales totaled $2,807,000, $1,392,000 and $1,861,000 for the years ended September 30, 1995, 1994 and 1993, respectively. Corporate general and administrative expense, research and engineering expense and certain other expenses related to worldwide manufacturing and other support functions benefit both domestic and international operations. An allocation of these expenses has been made to foreign areas based on total revenues. The expenses allocated totaled $8,357,000, $6,847,000 and $8,390,000 for the years ended September 30, 1995, 1994 and 1993, respectively. 9. EMPLOYEE BENEFIT PLANS The Company has a thrift plan whereby eligible employees elect to contribute from 2% to 12% of their base salaries to an employee benefit trust. Employee contributions are matched by the Company at the rate of $.50 per $1.00 up to 6% of the employee's base salary. In addition, the Company contributes between 2% and 5% of each employee's base salary depending on his age as of January 1 each year as a base contribution. F-13 53 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company matching contributions vest immediately while base contributions become fully vested after five years of employment. The Company's U.S. employees formerly employed by Western are covered under a thrift plan which is being merged into the Company's thrift plan effective December 31, 1995. During the period since the acquisition, the Company intends to match employee contributions at the same rate as the Company's existing thrift plan. The Company's contributions to these thrift plans amounted to $2,862,000, $2,551,000 and $2,324,000 in 1995, 1994 and 1993, respectively. The Company's U.S. employees formerly employed by Western with at least one year of service are also covered under a defined benefit pension plan as a carryover from the Western acquisition. Pension benefits are based on years of service and average compensation for each employee's five consecutive highest paid years during the last ten years worked. Pension benefits are fully vested after five years of service. Management intends to freeze benefits under this plan effective December 31, 1995 and merge all employees under the thrift plan. Management has not yet made a decision on when to terminate the plan and therefore will fund the amounts necessary to meet minimum funding requirements under the Employees' Retirement Income Security Act, as amended. Because management intends to freeze the plan effective December 31, 1995, the accrued pension liability as of the acquisition date and the net pension expense since the acquisition date have been reflected under that assumption. The funded status of this plan as of September 30, 1995 was as follows (in thousands): Vested benefit obligation........................................ $39,669 ======= Accumulated benefit obligation................................... $40,701 Plan assets at fair value........................................ 34,394 ------- Benefit obligation in excess of plan assets...................... 6,307 Unrecognized gain................................................ 71 ------- Net pension liability.................................. $ 6,378 =======
Assumptions used in accounting for the Company's U.S. defined benefit plan are as follows: Weighted average discount rate...................................... 7.3% Weighted average rate of increase in future compensation............ 5.0% Weighted average expected long-term rate of return on assets........ 9.0%
Costs for the period from April 1, 1995 to September 30, 1995 for the Company's U.S. defined benefit plan were as follows (in thousands): Service cost for benefits earned................................. $ 586 Interest cost on projected benefit obligation.................... 1,382 Actual return on plan assets..................................... (3,267) Net amortization and deferral.................................... 1,916 ------- Net pension cost....................................... $ 617 =======
F-14 54 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition, the Company sponsors defined benefit plans for foreign operations which cover substantially all employees in the United Kingdom and Venezuela. Due to differences in foreign pension laws and economics, the defined benefit plans are at least partially unfunded. The funded status of these plans at September 30, 1995 and 1994 was as follows (in thousands):
1995 1994 ------- ------- Actuarial present value of: Vested benefit obligation...................................... $ 5,357 $ 4,789 ======= ======= Accumulated benefit obligation................................. $ 6,474 $ 5,292 ======= ======= Projected benefit obligation..................................... 9,846 7,155 Plan assets at fair value........................................ (6,718) (5,531) ------- ------- Projected benefit obligation in excess of plan assets............ 3,128 1,624 Unrecognized gain (loss)......................................... (1,093) 248 Unrecognized transition asset, net of amortization............... 155 166 Unrecognized prior service cost.................................. (253) (281) ------- ------- Net pension liability............................................ $ 1,937 $ 1,757 ======= =======
Assumptions used in accounting for the Company's international defined benefit pension plans are as follows: Weighted average discount rate....................................... 6-9% Weighted average rate of increase in future compensation............. 5-7% Weighted average expected long-term rate of return on assets......... 9%
Combined costs for the Company's international defined benefit plans for the two years ended September 30, 1995 were as follows (in thousands):
1995 1994 ------ ----- Net periodic foreign pension cost: Service cost for benefits earned................................. $1,090 $ 830 Interest cost on projected benefit obligation.................... 660 497 Actual return on plan assets..................................... (617) (45) Net amortization and deferral.................................... 158 (391) ------ ----- Net pension cost................................................... $1,291 $ 891 ====== =====
The Company also sponsors a plan whereby certain health care and life insurance benefits are provided for retired employees (primarily U.S.) and their eligible dependents if the employee meets specified age and service requirements. These plans are unfunded and the Company retains the right, subject to existing agreements, to modify or eliminate these plans. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"). In accordance with the requirements of SFAS 106, the Company changed its accounting for postretirement benefits from a cash basis to an accrual basis over an employee's period of service. On October 1, 1993, the Company elected to immediately recognize the cumulative effect of the change in accounting principle of $16.0 million ($10.4 million after tax, or $.67 per share). Effective January 1, 1994, the Company amended its postretirement medical benefit plan to provide credits based on years of service which could be used to purchase coverage under the active employee plans. F-15 55 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) This change effectively caps the Company's health care inflation rate at a 4% increase per year. The reduction of approximately $5.7 million in the accumulated postretirement benefit obligation due to this amendment is being amortized over the average period of future service to the date of full eligibility for such postretirement benefits of the active employees. Postretirement medical benefit costs were $946,000, $639,000 and $590,000 in 1995, 1994 and 1993, respectively. Net periodic postretirement benefit costs for the two years ended September 30, 1995 included the following components (in thousands):
1995 1994 ------ ----- Service cost -- benefits attributed to service during the period... $ 807 $ 512 Interest cost on accumulated postretirement benefit obligation..... 1,033 798 Amortization of prior service costs................................ (894) (671) ----- Net periodic postretirement benefit cost........................... $ 946 $ 639 =====
The actuarial and recorded liabilities for these postretirement benefits were as follows at September 30, 1995 and 1994 (in thousands):
1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees....................................................... $ 7,680 $ 5,312 Fully eligible active plan participants........................ 3,525 1,569 Other active plan participants................................. 8,988 3,881 ------- ------- 20,193 10,762 Unrecognized cumulative net gain................................. 776 Unrecognized prior service cost.................................. 4,177 5,072 ------- ------- Accrued postretirement benefit liability......................... $25,146 $15,834 ======= =======
The accumulated postretirement benefit obligation was determined using a discount rate of 7% and a health care cost trend rate of 13%, decreasing ratably to 5.2% in the year 2020 and thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would not have a material impact on the accumulated postretirement benefit obligation or the net periodic postretirement benefit cost because these benefits are effectively "capped" by the Company's 1994 plan amendment. 10. COMMITMENTS AND CONTINGENCIES The Company through performance of its service operations is sometimes named as a defendant in litigation, usually relating to claims for bodily injuries or property damage (including claims for well or reservoir damage). The Company maintains insurance coverage against such claims to the extent deemed prudent by management. The Company believes that there are no existing claims of a potentially material adverse nature for which it has not already provided appropriate accruals. Federal, state and local laws and regulations govern the Company's operation of underground fuel storage tanks. Rather than incur additional costs to restore and upgrade tanks as required by regulations, management has opted to remove the existing tanks. The Company is in the process of removing these tanks and has identified certain tanks with leaks which will require remedial cleanups. In addition, the Company is conducting a number of environmental investigations and remedial actions at current and former company locations and, along with other companies, has been named a potentially responsible party at 10 waste disposal sites. The Company has established an accrual of $13,986,000 for such environmental matters, which management believes to be its best estimate of the Company's portion of future costs to be incurred. The F-16 56 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company also maintains insurance for environmental liabilities which the Company believes is reasonable based on its knowledge of its industry. Lease Commitments: At September 30, 1995, the Company had long-term operating leases covering certain facilities and equipment with varying expiration dates. Minimum annual rental commitments for the years ended September 30, 1996, 1997, 1998, 1999 and 2000 are $16,198,000, $12,132,000, $10,023,000, $6,866,000 and $5,674,000, respectively, and $35,732,000 in the aggregate thereafter. 11. SUPPLEMENTAL FINANCIAL INFORMATION Supplemental financial information for the three years ended September 30, 1995 is as follows:
1995 1994 1993 -------- ------- ------- (IN THOUSANDS) Consolidated Statement of Operations: Research and development expense................... $ 6,801 $ 6,421 $ 6,500 Rent expense....................................... 16,759 15,580 11,020 Net foreign exchange gain (loss)................... 1,537 (762) 228 Consolidated Statement of Cash Flows: Income taxes paid.................................. $ 5,980 $ 6,233 $ 7,168 Interest paid...................................... 12,798 10,330 5,112 Details of acquisitions: Fair value of assets acquired................... 447,622 1,808 4,483 Liabilities assumed............................. 111,731 501 Goodwill........................................ 175,540 693 2,917 Cash paid for acquisitions, net of cash acquired...................................... 203,313 2,000 7,400
In connection with the Acquisition, the Company issued $263,551,000 of common stock and warrants to Western stockholders. Other income -- net for the three years ended September 30, 1995 is summarized as follows:
1995 1994 1993 -------- ------- ------- (IN THOUSANDS) Gain (loss) on sales of assets -- net................ $ 830 $ 346 $ (62) Gain on Argentine bonds.............................. 400 800 Royalty income....................................... 1,385 Dividend income...................................... 430 Other -- net......................................... 89 131 1,276 -------- ------- ------- Other income -- net.................................. $ 2,734 $ 877 $ 2,014 ======== ======= =======
12. EMPLOYEE STOCK PLANS Stock Option Plans: The Company's 1990 Stock Incentive Plan and 1995 Incentive Plan (the "Plans") provide for the granting of options for the purchase of the Company's common stock ("Common Stock") and other performance based awards to officers, key employees and nonemployee directors of the Company. Such options vest over a three year period and are exercisable for periods ranging from one to ten years. An aggregate of 3,000,000 shares of Common Stock have been reserved for grants, of which 1,324,386 were available at September 30, 1995. F-17 57 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock option activity under the Company's Plans is summarized below:
NUMBER OF SHARES 1995 1994 1993 ----------------------------------------------------------------- ----- --- --- (IN THOUSANDS) Stock options outstanding, beginning of year..................... 767 621 451 Changes during the year: Granted (per share): 1995, $16.89 to $21.62...................................... 697 1994, $19.63 to $22.75...................................... 188 1993, $16.28................................................ 195 Exercised/surrendered (per share): 1995, $16.28 to $21.62...................................... (29) 1994, $13.63 to $23.25...................................... (42) 1993, $19.38 to $23.25...................................... (25) ----- --- --- Stock options outstanding, end of year (per share: $12.00 to $23.25)........................................................ 1,435 767 621 ===== === === Stock options exercisable, end of year (per share: $12.00 to $23.25)........................................................ 630 417 250 ===== === ===
Pursuant to the terms of the 1990 Stock Incentive Plan, during 1993 and 1994 the Company also issued a total of 220,316 Performance Units ("Units") to officers of the Company. Each Unit represented the right to receive from the Company at the end of a stipulated period an unrestricted share of Common Stock, contingent upon achievement of certain financial performance goals over the stipulated period. Should the Company have failed to achieve the specific financial goals as set by the Executive Compensation Committee of the Board of Directors, the Units would have been canceled and the related shares reverted to the Company for reissuance under the plan. The aggregate fair market value of the underlying shares granted under this plan was considered unearned compensation at the time of grant and was adjusted annually based on the current market price for the Company's Common Stock. Compensation expense was determined based on management's current estimate of the likelihood of meeting the specific financial goals and charged ratably over the stipulated period. In connection with the acquisition of Western, which triggered certain change of control provisions in the Company's 1990 Stock Incentive Plan, a total of 168,547 Units were converted into Common Stock and issued to officers, with the remaining 51,769 Units canceled. The difference between the amount accrued as of the acquisition date and the value of the shares issued has been reflected as an unusual charge in the accompanying financial statements (see Note 3). As of September 30, 1995 there were no Units outstanding. Stock Purchase Plan: The Company's 1990 Employee Stock Purchase Plan (the "Purchase Plan") is a plan under which all employees may purchase shares of the Company's Common Stock at 85% of market value on the first or last business day of the twelve-month plan period beginning each October, whichever is lower. Such purchases are limited to 10% of the employee's regular pay. A maximum aggregate of 750,000 shares has been reserved under the Purchase Plan, 576,826 of which were available for future purchase at September 30, 1995. In October 1995, 55,440 shares were purchased at $16.68 per share. 13. STOCKHOLDERS' EQUITY Stockholder Rights Plan: The Company has a Stockholder Rights Plan designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. Under this plan, each outstanding share of the Company's Common Stock includes one F-18 58 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) preferred share purchase right ("Right") which becomes exercisable under certain circumstances, including when beneficial ownership of the Company's Common Stock by any person, or group, equals or exceeds 20% of the Company's outstanding Common Stock. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series Two Junior Participating Preferred Stock, at a price of $75, subject to adjustment under certain circumstances. Upon the occurrence of certain events specified in the Stockholder Rights Plan, each holder of a Right (other than an Acquiring Person) will have the right, upon exercise of such Right, to receive that number of shares of common stock of the Company (or the surviving corporation) that, at the time of such transaction, would have a market price of two times the purchase price of the Right. No shares of Series Two Junior Participating Preferred Stock have been issued by the Company at September 30, 1995. In January 1994, the former Stockholder Rights Plan was triggered and the Company redeemed all of the preferred share purchase rights issued under its Stockholder Rights agreement to acquire Series One Junior Participating Preferred Stock. The Rights were redeemed at a price of $.01 per Right, a total cost to the Company of $155,000. Stock Purchase Warrants: In connection with the acquisition of Western (see Note 4), the Company issued 4,800,037 stock purchase warrants ("Warrants"). The Warrants were issued on April 14, 1995 at an initial value of $5.00 per Warrant. Each Warrant represents the right to purchase one share of the Company's common stock at an exercise price of $30, until the expiration date of April 13, 2000. As of September 30, 1995, no Warrants had been exercised. F-19 59 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL FIRST SECOND THIRD FOURTH YEAR QUARTER QUARTER QUARTER QUARTER TOTAL -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Fiscal Year 1995: Revenue............................ $119,415 $106,668 $199,542 $208,035 $633,660 Gross profit(a).................... 17,753 13,788 28,782 35,179 95,502 Net income (loss).................. 4,744 1,378 (5,848)(b) 9,615(c)(d) 9,889 Net income (loss) per share........ .30 .09 (.22)(b) .34(c)(d) .46 Fiscal Year 1994: Revenue............................ $104,757 $ 98,451 $106,318 $124,950 $434,476 Gross profit(a).................... 15,071 10,325 13,327 18,138 56,861 Income before cumulative effect of accounting change................ 3,572 445 2,067 4,686(e) 10,770 Cumulative effect of change in accounting principle, net of tax benefit of $5,600,000............ (10,400) (10,400) Net income (loss).................. (6,828) 445 2,067 4,686(e) 370 Net income (loss) per share: Before cumulative effect of accounting change............. .23 .03 .13 .30(e) .69 Cumulative effect of change in accounting principle, net of tax........................... (.67) (.67) Net income (loss) per share........ (.44) .03 .13 .30(e) .02
- --------------- (a) Represents revenue less cost of sales and services and research and engineering expenses. (b) Includes $16.0 million ($10.4 million after tax or $.40 per share) unusual charge resulting from the acquisition of Western. See Note 3. (c) Includes $1.2 million ($.8 million after tax or $.03 per share) unusual charge resulting from the acquisition of Western. See Note 3. (d) Includes $1.5 million ($.05 per share) of nonrecurring tax benefits. (e) Includes $1.3 million ($.08 per share) of nonrecurring tax benefits. 15. SUPPLEMENTAL GUARANTOR INFORMATION On February 20, 1996, BJ Services Company ("Parent") issued $125 million of 7% notes due 2006 ("Notes") as to which its direct subsidiaries BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East (collectively "Guarantor Subsidiaries" and individually "Guarantor") have guaranteed, on a joint and several basis, its obligation to pay principal and interest with respect to the Notes. Each of the guarantees is an unsecured obligation of the Guarantor and ranks pari passu with the guarantees provided by and the obligations of such Guarantor Subsidiaries under the Bank Credit Facility and the obligations of such Guarantor Subsidiaries under the 9.2% Notes and with all existing and future unsecured indebtedness of such Guarantor for borrowed money that is not, by its terms, expressly subordinated in right of payment to such guarantee. Substantially all of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's F-20 60 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantors, and such subsidiaries will not be obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the Notes. The following supplemental consolidating condensed financial statements present: 1. Consolidating condensed statements of financial position as of September 30, 1995 and 1994 and consolidating condensed statements of operations and cash flows for each of the three years in the period ended September 30, 1995. 2. The Parent and combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. The Company does not believe that separate financial statements of the Guarantors of the Notes are material to investors in the Notes. F-21 61 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue.............................. $ $392,207 $267,755 $(26,302) $633,660 Operating Expenses: Cost of sales and services......... 345,937 206,224 (26,302) 525,859 Research and engineering........... 11,505 794 12,299 Marketing.......................... 19,146 7,283 26,429 General and administrative......... 16,055 12,263 28,318 Goodwill amortization.............. 2,573 693 3,266 Unusual charge..................... 17,200 17,200 ------ -------- -------- -------- -------- Total operating expenses... 412,416 227,257 (26,302) 613,371 ------ -------- -------- -------- -------- Operating income (loss).............. (20,209) 40,498 20,289 Interest income...................... 1,384 672 (1,157) 899 Interest expense..................... (12,090) (4,231) 1,157 (15,164) Income from equity investees......... 9,889 29,373 (39,262) Other income -- net.................. 2,683 80 2,763 ------ -------- -------- -------- -------- Income (loss) before income taxes.... 9,889 1,141 37,019 (39,262) 8,787 Income tax expense (benefit)......... (8,748) 7,646 (1,102) ------ -------- -------- -------- -------- Net income........................... $9,889 $ 9,889 $ 29,373 $(39,262) $ 9,889 ====== ======== ======== ======== ========
F-22 62 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue............................... $ $249,716 $209,909 $(25,149) $434,476 Operating Expenses: Cost of sales and services.......... 228,071 166,072 (25,149) 368,994 Research and engineering............ 7,671 950 8,621 Marketing........................... 8,608 5,561 14,169 General and administrative.......... 12,025 10,684 22,709 Goodwill amortization............... 1,274 24 1,298 ---- -------- -------- -------- -------- Total operating expenses.... 257,649 183,291 (25,149) 415,791 ---- -------- -------- -------- -------- Operating income (loss)............... (7,933) 26,618 18,685 Interest income....................... 2,869 (2,140) 729 Interest expense...................... (6,685) (2,838) 2,140 (7,383) Income from equity investees.......... 370 17,504 (17,874) Other income (expense) -- net......... 1,830 (1,085) 745 ---- -------- -------- -------- -------- Income before income taxes and cumulative effect of accounting change.............................. 370 7,585 22,695 (17,874) 12,776 Income tax expense (benefit).......... (3,185) 5,191 2,006 ---- -------- -------- -------- -------- Income before cumulative effect of accounting change................... 370 10,770 17,504 (17,874) 10,770 Cumulative effect of change in accounting principle, net of tax.... (10,400) (10,400) ---- -------- -------- -------- -------- Net income............................ $370 $ 370 $ 17,504 $(17,874) $ 370 ==== ======== ======== ======== ========
F-23 63 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1993
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ Revenue............................. $ $228,682 $184,431 $(18,750) $394,363 Operating Expenses: Cost of sales and services........ 205,971 141,821 (18,750) 329,042 Research and engineering.......... 8,035 1,063 9,098 Marketing......................... 8,854 4,115 12,969 General and administrative........ 11,879 10,946 22,825 Goodwill amortization............. 691 691 ------ -------- -------- -------- -------- Total operating expenses................ 235,430 157,945 (18,750) 374,625 ------ -------- -------- -------- -------- Operating income (loss)............. (6,748) 26,486 19,738 Interest income..................... 3,081 (1,099) (1,482) 500 Interest expense.................... (6,268) (628) 1,482 (5,414) Income from equity investees........ 14,561 17,566 (32,127) Other income (expense) -- net....... 1,359 (29) 1,330 ------ -------- -------- -------- -------- Income before income taxes.......... 14,561 8,990 24,730 (32,127) 16,154 Income tax expense (benefit)........ (5,571) 7,164 1,593 ------ -------- -------- -------- -------- Net income.......................... $14,561 $ 14,561 $ 17,566 $(32,127) $ 14,561 ====== ======== ======== ======== ========
F-24 64 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1995 ASSETS
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents........ $ $ 1,842 $ $ $ 1,842 Receivables -- net............... 87,118 81,653 168,771 Inventories -- net............... 38,463 28,388 66,851 Deferred income taxes............ 9,370 9,370 Other current assets............. 3,163 6,938 10,101 -------- -------- -------- --------- -------- Total current assets..... 139,956 116,979 256,935 Investment in subsidiaries....... 171,612 107,653 (279,265) Intercompany advances -- net..... 296,156 (296,156) Property -- net.................. 261,713 155,097 416,810 Deferred income taxes............ 92,447 15,442 107,889 Goodwill and other assets........ 205,403 2,646 208,049 -------- -------- -------- --------- -------- Total assets............. $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 60,677 $ 24,998 $ $ 85,675 Short-term borrowings and current portion of long-term debt..... 37,600 37,600 Accrued employee compensation and benefits...................... 16,277 8,608 24,885 Income and other taxes........... 7 4,097 7,271 11,375 Other accrued liabilities........ 966 29,959 16,648 (2,837) 44,736 -------- -------- -------- --------- -------- Total current liabilities............ 973 148,610 57,525 (2,837) 204,271 Long-term debt..................... 222,566 37,000 259,566 Deferred income taxes.............. 2,248 9,248 11,496 Accrued post retirement benefits and other........................ 46,902 653 47,555 Intercompany advances -- net....... 215,234 78,085 (293,319) Stockholders' equity............... 466,795 171,612 107,653 (279,265) 466,795 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity... $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ========
F-25 65 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1994 ASSETS
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents........ $ $ 3,218 $ $ $ 3,218 Receivables -- net............... 45,086 58,668 103,754 Inventories -- net............... 18,452 20,227 38,679 Deferred income taxes............ 4,478 4,478 Other current assets............. 2,751 5,479 8,230 -------- -------- -------- --------- -------- Total current assets..... 73,985 84,374 158,359 Investment in subsidiaries......... 159,260 84,008 (243,268) Intercompany advances -- net....... 30,674 (30,674) Property -- net.................... 91,270 107,574 198,844 Deferred income taxes.............. 16,365 4,242 20,607 Goodwill and other assets.......... 28,816 3,440 32,256 -------- -------- -------- --------- -------- Total assets............. $189,934 $294,444 $199,630 $ (273,942) $410,066 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 33,812 $ 20,797 $ $ 54,609 Short-term borrowings and current portion of long-term debt..... 31,200 2,250 33,450 Accrued employee compensation and benefits...................... 4,023 6,498 10,521 Income and other taxes........... 7 2,133 8,330 10,470 Other accrued liabilities........ 6,484 6,041 (726) 11,799 -------- -------- -------- --------- -------- Total current liabilities............ 7 77,652 43,916 (726) 120,849 Long-term debt..................... 37,639 37,061 74,700 Deferred income taxes.............. 2,248 4,946 7,194 Accrued post retirement benefits and other........................ 15,895 1,501 17,396 Intercompany advance -- net........ 1,750 28,198 (29,948) Stockholders' equity............... 189,927 159,260 84,008 (243,268) 189,927 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity... $189,934 $294,444 $199,630 $ (273,942) $410,066 ======== ======== ======== ========= ========
F-26 66 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................... $ 9,889 $ 9,889 $ 29,373 $(39,262) $ 9,889 Adjustments to reconcile net income to cash provided by operating activities: Unusual charge (noncash)......... 3,646 3,646 Depreciation and amortization.... 22,688 19,376 42,064 Net gain on disposal of assets... (27) (803) (830) Recognition of unearned compensation.................. 2,463 2,463 Deferred income taxes (benefit)..................... (8,336) (525) (8,861) Income of equity investees....... (9,889) (29,373) 39,262 Changes in: Receivables...................... 21,894 (22,985) (1,091) Accounts payable................. 3,506 4,201 7,707 Inventories...................... 83 (8,161) (8,078) Other current assets and liabilities................... 966 (10,224) 10,199 (2,111) (1,170) Other, net....................... (2,241) 2,167 (8,392) 2,111 (6,355) ------- -------- -------- -------- --------- Net cash provided by (used for) operating activities............. (1,275) 18,376 22,283 39,384 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions............... (8,263) (22,703) (30,966) Proceeds from disposal of assets........................ 2,662 2,731 5,393 Acquisition of business, net of cash acquired................. (203,313) (203,313) ------- -------- -------- -------- --------- Net cash used for investing activities... (208,914) (19,972) (228,886) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock......................... 1,275 1,275 Proceeds from (reduction of) borrowings -- net............. 189,162 (2,311) 186,851 ------- -------- -------- -------- --------- Net cash provided by (used for) financing activities............. 1,275 189,162 (2,311) 188,126 Decrease in cash and cash equivalents...................... (1,376) (1,376) Cash and cash equivalents at beginning of period.............. 3,218 3,218 ------- -------- -------- -------- --------- Cash and cash equivalents at end of period........................... $ $ 1,842 $ $ $ 1,842 ======= ======== ======== ======== =========
F-27 67 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................ $ 370 $ 370 $ 17,504 $(17,874) $ 370 Adjustments to reconcile net income to cash provided by operating activities: Cumulative effect of accounting change............................... 10,400 10,400 Depreciation and amortization........... 9,988 15,347 25,335 Net gain on disposal of assets.......... (148) (198) (346) Recognition of unearned compensation.... 524 524 Deferred income taxes (benefit)......... (2,831) (2,128) (4,959) Income of equity investees.............. (370) (17,504) 17,874 Changes in: Receivables............................. (2,666) (6,569) (9,235) Accounts payable........................ 5,165 3,252 8,417 Inventories............................. 57 (678) (621) Other current assets and liabilities.... (2,786) 1,298 (472) (1,960) Other, net.............................. (980) 2,975 (4,137) 472 (1,670) ----- -------- -------- -------- -------- Net cash provided by (used for) operating activities.......... (980) 3,544 23,691 26,255 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions...................... (13,343) (26,002) (39,345) Proceeds from disposal of assets........ 1,059 1,529 2,588 Acquisition of business, net of cash acquired............................. (2,000) (2,000) ----- -------- -------- -------- -------- Net cash used for investing activities.................... (12,284) (26,473) (38,757) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock......... 980 980 Proceeds from borrowings -- net......... 10,338 2,782 13,120 ----- -------- -------- -------- -------- Net cash provided by financing activities.................... 980 10,338 2,782 14,100 Increase in cash and cash equivalents..... 1,598 1,598 Cash and cash equivalents at beginning of period.................................. 1,620 1,620 ----- -------- -------- -------- -------- Cash and cash equivalents at end of period.................................. $ $ 3,218 $ $ $ 3,218 ===== ======== ======== ======== ========
F-28 68 BJ SERVICES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1993
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................... $ 14,561 $ 14,561 $ 17,566 $(32,127) $ 14,561 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization.... 9,352 14,818 24,170 Net loss on disposal of assets... 62 62 Recognition of unearned compensation.................. 500 500 Deferred income taxes (benefit)..................... (4,414) (463) (4,877) Income of equity investees....... (14,561) (17,566) 32,127 Changes in: Receivables...................... (5,812) (11,738) (17,550) Accounts payable................. 2,240 4,447 6,687 Inventories...................... 2,476 (3,048) (572) Other current assets and liabilities................... (180) (4,949) (11,088) (264) (16,481) Other, net....................... (15,618) (5,468) 14,007 264 (6,815) -------- -------- -------- -------- -------- Net cash provided by (used for) operating activities............. (15,798) (9,018) 24,501 (315) CASH FLOWS FROM INVESTING ACTIVITIES: Property additions............... (6,809) (30,541) (37,350) Proceeds from disposal of assets........................ 2,043 1,939 3,982 Acquisition of business, net of cash acquired................. (7,400) (7,400) -------- -------- -------- -------- -------- Net cash used for investing activities... (4,766) (36,002) (40,768) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock......................... 41,917 41,917 Proceeds from (reduction of) borrowings -- net............. (26,119) 13,929 11,501 (689) -------- -------- -------- -------- -------- Net cash provided by financing activities... 15,798 13,929 11,501 41,228 Increase in cash and cash equivalents...................... 145 145 Cash and cash equivalents at beginning of period.............. 1,475 1,475 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period........................... $ $ 1,620 $ $ $ 1,620 ======== ======== ======== ======== ========
F-29 69 [THIS PAGE INTENTIONALLY LEFT BLANK] F-30 70 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED DECEMBER 31, --------------------- 1995 1994 -------- -------- Revenue................................................................ $206,501 $119,415 Operating expenses: Cost of sales and services........................................... 167,086 99,599 Research and engineering............................................. 3,744 2,063 Marketing............................................................ 8,283 3,944 General and administrative........................................... 8,489 6,104 Goodwill amortization................................................ 1,342 289 -------- -------- Total operating expenses..................................... 188,944 111,999 -------- -------- Operating income....................................................... 17,557 7,416 Interest expense....................................................... (5,538) (2,307) Interest income........................................................ 79 137 Other income -- net.................................................... 600 836 -------- -------- Income before income taxes............................................. 12,698 6,082 Income taxes........................................................... 3,553 1,338 -------- -------- Net income............................................................. $ 9,145 $ 4,744 ======== ======== Net income per share................................................... $ .33 $ .30 ======== ======== Average shares outstanding............................................. 28,015 15,716 ======== ========
See Notes to Unaudited Consolidated Condensed Financial Statements F-31 71 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30, 1995 1995 ---------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................ $ 3,799 $ 1,842 Receivables -- net............................................... 173,633 168,771 Inventories: Finished goods................................................ 56,949 50,665 Work in process............................................... 2,543 2,394 Raw materials................................................. 13,348 13,792 ---------- -------- Total inventories........................................ 72,840 66,851 Deferred income taxes............................................ 11,135 9,370 Other current assets............................................. 11,591 10,101 ---------- -------- Total current assets..................................... 272,998 256,935 Property -- net.................................................... 414,792 416,810 Deferred income taxes.............................................. 106,800 107,889 Goodwill and other assets.......................................... 207,508 208,049 ---------- -------- $1,002,098 $ 989,683 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................. $ 90,534 $ 85,675 Short-term borrowings and current portion of long-term debt...... 47,681 37,600 Accrued employee compensation and benefits....................... 21,169 24,885 Income and other taxes........................................... 13,481 11,375 Accrued insurance................................................ 10,755 12,867 Other accrued liabilities........................................ 29,674 31,869 ---------- -------- Total current liabilities................................ 213,294 204,271 Long-term debt..................................................... 252,181 259,566 Deferred income taxes.............................................. 11,877 11,496 Accrued post retirement benefits and other......................... 46,475 47,555 Stockholders' equity............................................... 478,271 466,795 ---------- -------- $1,002,098 $ 989,683 ========== ========
See Notes to Unaudited Consolidated Condensed Financial Statements F-32 72 BJ SERVICES COMPANY CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, -------------------- 1995 1994 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................................................. $ 9,145 $ 4,744 Adjustments to reconcile net income to cash provided by operating activities: Amortization of unearned compensation................................. 330 330 Depreciation and amortization......................................... 14,371 6,675 Deferred income taxes (benefit)....................................... 571 (1,057) Net (gain) loss on disposal of property............................... 16 (687) Changes in: Receivables........................................................... (1,918) 844 Inventories........................................................... (3,958) (166) Accounts payable...................................................... 4,002 (8,881) Other current assets and liabilities.................................. (9,860) 5,744 Other, net............................................................ 398 1,923 -------- ------- Net cash provided by operating activities..................... 13,097 9,469 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions.................................................... (10,408) (6,093) Proceeds from disposal of assets...................................... 319 3,328 Acquisition of business, net of cash acquired......................... (3,700) -------- ------- Net cash used for investing activities........................ (13,789) (2,765) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (reduction of) borrowings............................... 987 (3,737) Proceeds from issuance of stock....................................... 1,662 749 -------- ------- Net cash provided by (used for) financing activities.......... 2,649 (2,988) Increase in cash and cash equivalents................................... 1,957 3,716 Cash and cash equivalents at beginning of period........................ 1,842 3,218 -------- ------- Cash and cash equivalents at end of period.............................. $ 3,799 $ 6,934 ======== =======
See Notes to Unaudited Consolidated Condensed Financial Statements F-33 73 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. GENERAL In the opinion of management, the unaudited consolidated condensed financial statements for BJ Services Company (the "Company") include all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial position as of December 31, 1995, and the results of operations and cash flows for each of the three month periods ended December 31, 1995 and 1994. The consolidated condensed statement of financial position at September 30, 1995 is derived from the September 30, 1995 audited consolidated financial statements. Although management believes the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and the cash flows for the three-month period ended December 31, 1995 are not necessarily indicative of the results to be expected for the full year. Certain amounts for fiscal 1995 have been reclassified in the accompanying consolidated condensed financial statements to conform to the current year presentation. 2. ACQUISITION OF BUSINESS Effective December 1, 1995, the Company acquired the remaining 60% ownership of its previously unconsolidated joint venture in Brazil, for total consideration of $5.4 million consisting of $3.7 million in cash and $1.7 million in debt assumed by the Company. This acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The consolidated statement of operations includes operating results of the subsidiary acquired since the date of acquisition. This acquisition is not material to the Company's financial statements and therefore pro forma information is not presented. 3. SUPPLEMENTAL GUARANTOR INFORMATION On February 20, 1996, BJ Services Company ("Parent") issued $125 million of 7% notes due 2006 ("Notes") as to which its direct subsidiaries BJ Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company Middle East (collectively "Guarantor Subsidiaries" and individually "Guarantor") have guaranteed, on a joint and several basis, its obligation to pay principal and interest with respect to the Notes. Each of the guarantees is an unsecured obligation of the Guarantor and ranks pari passu with the guarantees provided by and the obligation of such Guarantor Subsidiaries under the Bank Credit Facility and the obligations of such Guarantor Subsidiaries under the 9.2% Notes and with all existing and future unsecured indebtedness of such Guarantor for borrowed money that is not, by its terms, expressly subordinated in right of payment to such guarantee. Substantially all of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantors, and such subsidiaries will not be obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the Notes. F-34 74 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) The following supplemental consolidating condensed financial statements present: 1. Consolidating condensed statements of financial position as of December 31, 1995 and September 30, 1995 and consolidating condensed statements of operations and cash flows for each of the three-month periods ended December 31, 1995 and 1994. 2. The Parent and combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. The Company does not believe that separate financial statements of the Guarantors of the Notes are material to investors in the Notes. F-35 75 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ ------------ ------------ ------------ ------------ Revenue.............................. $ $140,027 $ 75,027 $ (8,553) $206,501 Operating Expenses: Cost of sales and services......... 118,296 57,343 (8,553) 167,086 Research and engineering........... 3,558 186 3,744 Marketing.......................... 6,542 1,741 8,283 General and administrative......... 5,177 3,312 8,489 Goodwill amortization.............. 1,167 175 1,342 ------ -------- ------- -------- -------- Total operating expenses... 134,740 62,757 (8,553) 188,944 ------ -------- ------- -------- -------- Operating income..................... 5,287 12,270 17,557 Interest income...................... 363 78 (362) 79 Interest expense..................... (4,808) (1,092) 362 (5,538) Income from equity investees......... 9,145 7,769 (16,914) Other income (expense) -- net........ 623 (23) 600 ------ -------- ------- -------- -------- Income before income taxes........... 9,145 9,234 11,233 (16,914) 12,698 Income tax expense................... 89 3,464 3,553 ------ -------- ------- -------- -------- Net income........................... $9,145 $ 9,145 $ 7,769 $(16,914) $ 9,145 ====== ======== ======= ======== ========
F-36 76 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ Revenue............................. $ $ 68,101 $ 56,468 $ (5,154) $119,415 Operating Expenses: Cost of sales and services........ 60,376 44,377 (5,154) 99,599 Research and engineering.......... 1,754 309 2,063 Marketing......................... 2,316 1,628 3,944 General and administrative........ 3,224 2,880 6,104 Goodwill amortization............. 117 172 289 ------ ------- ------- ------- -------- Total operating expenses................ 67,787 49,366 (5,154) 111,999 ------ ------- ------- ------- -------- Operating income.................... 314 7,102 7,416 Interest income..................... 348 137 (348) 137 Interest expense.................... (757) (1,898) 348 (2,307) Income from equity investees........ 4,744 3,284 (8,028) Other income -- net................. 620 216 836 ------ ------- ------- ------- -------- Income before income taxes.......... 4,744 3,809 5,557 (8,028) 6,082 Income tax expense (benefit)........ (935) 2,273 1,338 ------ ------- ------- ------- -------- Net income.......................... $ 4,744 $ 4,744 $ 3,284 $ (8,028) $ 4,744 ====== ======= ======= ======= ========
F-37 77 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) DECEMBER 31, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents........ $ $ 3,799 $ $ $ 3,799 Receivables -- net............... 93,965 79,668 173,633 Inventories -- net............... 41,410 31,430 72,840 Deferred income taxes............ 11,135 11,135 Other current assets............. 4,437 7,154 11,591 -------- -------- -------- --------- ---------- Total current assets..... 154,746 118,252 272,998 Investment in subsidiaries....... 181,088 115,749 (296,837) Intercompany advances -- net..... 297,975 (297,975) Property -- net.................. 255,697 159,196 (101) 414,792 Deferred income taxes............ 90,546 16,254 106,800 Goodwill and other assets........ 206,028 1,480 207,508 -------- -------- -------- --------- ---------- Total assets............. $479,063 $822,766 $295,182 $ (594,913) $ 1,002,098 ======== ======== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 62,206 $ 28,328 $ $ 90,534 Short-term borrowings and current portion of long-term debt..... 46,385 1,296 47,681 Accrued employee compensation and benefits...................... 12,486 8,683 21,169 Income and other taxes........... 7 5,005 8,469 13,481 Other accrued liabilities........ 785 29,673 17,387 (7,416) 40,429 -------- -------- -------- --------- ---------- Total current liabilities............ 792 155,755 64,163 (7,416) 213,294 Long-term debt..................... 214,768 37,413 252,181 Deferred income taxes.............. 2,248 9,629 11,877 Accrued post retirement benefits and other........................ 45,765 710 46,475 Intercompany advances -- net....... 223,142 67,518 (290,660) Stockholders' equity............... 478,271 181,088 115,749 (296,837) 478,271 -------- -------- -------- --------- ---------- Total liabilities and stockholders' equity... $479,063 $822,766 $295,182 ($ 594,913) $ 1,002,098 ======== ======== ======== ========= ==========
F-38 78 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (IN THOUSANDS) SEPTEMBER 30, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents........ $ $ 1,842 $ $ $ 1,842 Receivables -- net............... 87,118 81,653 168,771 Inventories -- net............... 38,463 28,388 66,851 Deferred income taxes............ 9,370 9,370 Other current assets............. 3,163 6,938 10,101 -------- -------- -------- --------- -------- Total current assets..... 139,956 116,979 256,935 Investment in subsidiaries......... 171,612 107,653 (279,265) Intercompany advances -- net....... 296,156 (296,156) Property -- net.................... 261,713 155,097 416,810 Deferred income taxes.............. 92,447 15,442 107,889 Goodwill and other assets.......... 205,403 2,646 208,049 -------- -------- -------- --------- -------- Total assets............. $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ $ 60,677 $ 24,998 $ $ 85,675 Short-term borrowings and current portion of long-term debt..... 37,600 37,600 Accrued employee compensation and benefits...................... 16,277 8,608 24,885 Income and other taxes........... 7 4,097 7,271 11,375 Other accrued liabilities........ 966 29,959 16,648 (2,837) 44,736 -------- -------- -------- --------- -------- Total current liabilities............ 973 148,610 57,525 (2,837) 204,271 Long-term debt..................... 222,566 37,000 259,566 Deferred income taxes.............. 2,248 9,248 11,496 Accrued post retirement benefits and other........................ 46,902 653 47,555 Intercompany advances -- net....... 215,234 78,085 (293,319) Stockholders' equity............... 466,795 171,612 107,653 (279,265) 466,795 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity... $467,768 $807,172 $290,164 $ (575,421) $989,683 ======== ======== ======== ========= ========
F-39 79 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1995
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $ 9,145 $ 9,145 $ 7,769 $(16,914) $ 9,145 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization..... 8,801 5,570 14,371 Net loss on disposal of assets.... 16 16 Recognition of unearned compensation................... 330 330 Deferred income taxes............. 136 435 571 Income of equity investees........ (9,145) (7,769) 16,914 Changes in: Receivables....................... (6,847) 4,929 (1,918) Accounts payable.................. 1,529 2,473 4,002 Inventories....................... (2,947) (1,011) (3,958) Other current assets and liabilities.................... (181) (6,208) 1,108 (4,579) (9,860) Other, net........................ (1,481) 9,229 (11,929) 4,579 398 ------- ------- -------- -------- -------- Net cash provided by (used for) operating activities.............. (1,662) 5,399 9,360 13,097 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions................ (4,429) (5,979) (10,408) Proceeds from disposal of assets......................... 319 319 Acquisition of business, net of cash acquired.................. (3,700) (3,700) ------- ------- -------- -------- -------- Net cash used for investing activities.... (4,429) (9,360) (13,789) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock... 1,662 1,662 Proceeds from borrowings -- net... 987 987 ------- ------- -------- -------- -------- Net cash provided by financing activities.... 1,662 987 2,649 Increase in cash and cash equivalents....................... 1,957 1,957 Cash and cash equivalents at beginning of period............... 1,842 1,842 ------- ------- -------- -------- -------- Cash and cash equivalents at end of period............................ $ $ 3,799 $ $ $ 3,799 ======= ======= ======== ======== ========
F-40 80 BJ SERVICES COMPANY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS) THREE MONTHS ENDED DECEMBER 31, 1994
COMBINED COMBINED GUARANTOR NONGUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $ 4,744 $ 4,744 $ 3,284 $ (8,028) $ 4,744 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization..... 2,494 4,181 6,675 Net gain on disposal of assets.... (687) (687) Recognition of unearned compensation................... 330 330 Deferred income taxes (benefit)... (1,057) (1,057) Income of equity investees........ (4,744) (3,284) 8,028 Changes in: Receivables....................... (3,178) 4,022 844 Accounts payable.................. (1,707) (7,174) (8,881) Inventories....................... 17 (183) (166) Other current assets and liabilities.................... 4,365 2,186 (807) 5,744 Other, net........................ (749) 3,714 (1,849) 807 1,923 ------- ------- ------- ------- ------- Net cash provided by (used for) operating activities.............. (749) 6,438 3,780 9,469 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions................ (2,140) (3,953) (6,093) Proceeds from disposal of assets......................... 1,373 1,955 3,328 ------- ------- ------- ------- ------- Net cash used for investing activities.... (767) (1,998) (2,765) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock... 749 749 Proceeds from (reduction of) borrowings -- net.............. (1,955) (1,782) (3,737) ------- ------- ------- ------- ------- Net cash provided by (used for) financing activities.............. 749 (1,955) (1,782) (2,988) Increase in cash and cash equivalents....................... 3,716 3,716 Cash and cash equivalents at beginning of period............... 3,218 3,218 ------- ------- ------- ------- ------- Cash and cash equivalents at end of period............................ $ $ 6,934 $ $ $ 6,934 ======= ======= ======= ======= =======
F-41 81 [THIS PAGE INTENTIONALLY LEFT BLANK] F-42 82 PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following pro forma financial statements are based on the historical financial information of BJ Services, Nowsco and Western giving effect to the acquisition of 100% of the common shares of Nowsco (under the terms of the Nowsco Tender Offer) by BJ Services and the Western Acquisition under the purchase method of accounting, the issuance of 5.9 million shares of Common Stock in the offering made hereby, the application of the net proceeds therefrom and the other adjustments described in the accompanying Notes to Pro Forma Financial Statements. For purposes of the pro forma financial statements, Nowsco's statement of operations has been translated from Canadian dollars into U.S. dollars using the average exchange rates prevailing during the respective periods, and Nowsco's statement of financial position has been translated using the exchange rate as of December 31, 1995. The exchange rates used to translate Nowsco's financial information from Canadian dollars to U.S. dollars are as follows: December 31, 1995 U.S.$ .73 Three months ended December 31, 1995 .74 Twelve months ended September 30, 1995 .72
The pro forma financial statements are derived from BJ Services, Nowsco's and Western's historical consolidated financial statements for the indicated periods which, in the case of the statements of operations of Nowsco, differ from the period used for presentation of Nowsco's financial statements. The historical financial information with respect to Nowsco has been taken from or based upon Nowsco's Annual Report to shareholders for the fiscal year ended December 31, 1995, and its quarterly report to shareholders for the fiscal quarter ended December 31, 1995. In the case of Nowsco, the statement of operations for the year ended September 30, 1995 was derived by combining the last three months of its fiscal year ended December 31, 1994 with the first nine months of its fiscal 1995. The pro forma statement of financial position was prepared as if the Nowsco Acquisition had occurred on December 31, 1995. The pro forma statements of operations were prepared as if the Nowsco Acquisition had occurred as of October 1, 1994 and do not include any estimate for loss of revenue from overlapping locations, any consolidation savings or the effect of any modifications in operations that might have occurred had BJ Services owned and operated the businesses during the periods presented except as described in the Notes to the Pro Forma Financial Statements. In the case of Western, pro forma adjustments were made to the pro forma statement of operations for the twelve months ended September 30, 1995 to reflect the pro forma results of the Western Acquisition during the first six months of fiscal 1995 assuming the Western Acquisition occurred on October 1, 1994. The adjustments were derived from Western's historical financial statements and from pro forma financial information filed in conjunction with the Western Acquisition on Form 8-K dated February 6, 1996. Actual results of Western's operations were included with BJ Services' results beginning April 1, 1995. A supplemental pro forma presentation of operating results for each period presented was also made to reflect the effects of eliminating certain nonrecurring charges so that the results would, in management's opinion, be more reflective of normal operations. The pro forma financial statements do not reflect the issuance of $125 million aggregate principal amount of the 7% Notes and the application of the net proceeds from such issuance to repay indebtedness outstanding under the term loan portion of the Existing Bank Credit Facility. The pro forma financial statements should be read in conjunction with the Notes to Pro Forma Financial Statements and with the Consolidated Financial Statements of BJ Services and the related notes thereto included elsewhere in this Prospectus. The historical financial information with respect to Nowsco has been taken from or is based upon Nowsco's Annual Report to shareholders for the fiscal year ended December 31, 1995 and its quarterly report to shareholders for the fiscal quarter ended December 31, 1995, and BJ Services has not independently verified the accuracy of any such information. The pro forma financial statements have been prepared based upon assumptions deemed appropriate by management of BJ Services. This information is prepared for informational purposes only and is not necessarily indicative of the actual results that would have been achieved had the Nowsco Acquisition and related financing occurred on these dates, or of future results. Actual results of Nowsco's operations will be included with BJ Services' results only from the date on which the Nowsco Acquisition is consummated. F-43 83 PRO FORMA STATEMENT OF FINANCIAL POSITION (UNAUDITED) DECEMBER 31, 1995 (IN THOUSANDS)
Historical Pro Forma --------------------------- --------------------------- ASSETS BJ Services Nowsco Adjustments Combined ------------ ---------- ----------- ---------- Current assets: Cash and cash equivalents . . . . . $ 3,799 $ 10,809 $ (10,809)(1) $ 3,799 Investments . . . . . . . . . . . . 8,602 (8,602)(1) Receivables, net . . . . . . . . . 173,633 70,234 243,867 Inventories . . . . . . . . . . . . 72,840 15,853 88,693 Deferred income taxes and other . . 22,726 22,726 Total current assets . . . . . . 272,998 105,498 (19,411) 359,085 Property, net . . . . . . . . . . . . 414,792 139,901 554,693 Deferred income taxes . . . . . . . . 106,800 3,000 (1) 109,800 Goodwill and other assets . . . . . . 207,508 16,225 228,560 (1) 452,293 ------------ ---------- --------- ---------- $ 1,002,098 $ 261,624 $ 212,149 $1,475,871 ============ ========== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . $ 90,534 $ 50,726 $ $ 141,260 Short-term borrowings and current 47,681 47,681 portion of long-term debt . . . Accrued liabilities . . . . . . . . 75,079 28,000 (1) 5,000 (8) 108,079 ------------ ---------- --------- ---------- Total current liabilities . . . 213,294 50,726 33,000 297,020 Long-term debt . . . . . . . . . . . 252,181 190,457 (2) 442,638 Stockholders'requityil.t.e. . . . . . 478,271 209,177 (209,177)(1) 60,073 202,869 (2) (5,000)(8) 676,140 ------------ ---------- --------- ---------- $ 1,002,098 $ 261,624 $ 212,149 $1,475,871 ============ ========== ========= ==========
See Notes to Pro Forma Financial Statements F-44 84 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS)
Historical Pro Forma Supplemental Pro Forma --------------------- ------------------------- -------------------------- BJ Nowsco Services Nowsco Adjustments Combined Adjustments As Adjusted ---------- -------- ----------- -------- ----------- ----------- Revenue . . . . . . . . . $ 206,501 $ 89,800 $ $296,301 $ $296,301 Operating Expenses: Cost of sales and services 179,113 83,684 262,797 262,797 General and administrative 8,489 4,111 12,600 12,600 Goodwill amortization . . 1,342 1,428 (3) 2,770 2,770 Unusual charge . . . . . 3,349 3,349 (3,349)(7) ---------- -------- -------- -------- --------- -------- 188,944 91,144 1,428 281,516 (3,349) 278,167 ---------- -------- -------- -------- --------- -------- Operating income (loss) . . 17,557 (1,344) (1,428) 14,785 3,349 18,134 Other Income (Expense): Interest expense . . . . (5,538) (38) (3,200)(4) (8,776) (8,776) Interest and other income 679 329 1,008 1,008 ---------- -------- -------- -------- --------- -------- Income (loss) before income taxes . . . . . . . . . 12,698 (1,053) (4,628) 7,017 3,349 10,366 Income tax expense (benefit) 3,553 (233) (1,256)(5) 2,064 1,172 (5) 3,236 ---------- -------- -------- -------- --------- -------- Net income (loss) . . . . . $ 9,145 $ (820) $ (3,372) $ 4,953 $ 2,177 $ 7,130 ========== ======== ======== ======== ========= ======== Weighted average shares outstanding . . . . . . 28,015 5,869 (2) 33,884 33,884 ========== ======== ======== ========= ======== Net income per share . . . $ .33 $ .15 $ .21 ========== ======== ========
See Notes to Pro Forma Financial Statements F-45 85 PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) TWELVE MONTHS ENDED SEPTEMBER 30, 1995 (IN THOUSANDS)
Historical Pro Forma Supplemental Pro Forma ------------------- ----------------------------------------- ------------------------- BJ Western Nowsco As Services Nowsco Adjustments Adjustments Combined Adjustments Adjusted -------- -------- ----------- ----------- ---------- ----------- ---------- Revenue . . . . . . . . . . . $633,660 $339,269 $173,922 (6) $ $1,146,851 $1,146,851 Operating Expenses: Cost of sales and services. . 564,587 306,849 169,097 (6) 1,040,533 1,040,533 General and administrative. . 28,318 16,133 5,033 (6) 49,484 49,484 Goodwill amortization . . . . 3,266 2,157 (6) 5,714 (3) 11,137 11,137 Unusual charge . . . . . . . 17,200 481 (17,200) (7) 481 (481) (7) -------- -------- -------- -------- ---------- ------- ---------- 613,371 323,463 159,087 5,714 1,101,635 (481) 1,101,154 -------- -------- -------- -------- ---------- ------- ---------- Operating income (loss) . . . . 20,289 15,806 14,835 (5,714) 45,216 481 45,697 Other Income (Expense): Interest expense . . . . . . (15,164) (640) (8,499) (6) (13,100) (4) (37,403) (37,403) Interest and other income . . 3,662 3,089 362 (6) 7,113 7,113 -------- -------- -------- -------- ---------- ------- ---------- Income (loss) before income taxes . . . . . . . . 8,787 18,255 6,698 (18,814) 14,926 481 15,407 Income tax expense (benefit) (1,102) 2,007 3,100 (5) (203) (5) 3,802 168 (5) 3,970 -------- -------- -------- -------- ---------- ------- ---------- Net income (loss) . . . . . . . $ 9,889 $ 16,248 3,598 $(18,611) $ 11,124 $ 313 $ 11,437 ======== ======== ======== ======== ========== ======= ========== Weighted average shares outstanding . . . . . . . . 21,376 6,550 (6) 5,869 (2) 33,795 33,795 ======== ======== ======== ========== ========== Net income per share . . . . . $ .46 $ .33 $ .34 ======== ========== ==========
See Notes to Pro Forma Financial Statements F-46 86 NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) The pro forma financial statements reflect the purchase of 100% of the outstanding shares of Nowsco common stock at a price of Cdn $27.00, or approximately $19.50, per share. In accordance with purchase accounting, the assets and liabilities of Nowsco will be recorded on BJ Services' books at estimated fair market value with the remaining purchase price reflected as goodwill. Valuation and other studies which will be used to determine the fair market value of Nowsco's assets and liabilities are not yet available. Accordingly, for purposes of these pro forma financial statements, the allocation of the purchase price has been made based on the historical book value of Nowsco. Such allocation of the purchase price is, therefore, preliminary and the final allocation may be substantially different. The following reflects management's estimates of the necessary adjustments to Nowsco's historical statement of financial position: BJ Consideration Paid: Cash to Nowsco stockholders $405,737 Transaction costs 7,000 -------- Total consideration 412,737 Less: Nowsco's stockholders' equity 209,177 -------- Net adjustment $203,560 ======== Allocation of Adjustment: Deferred tax asset - net operating loss carryforward $ 3,000 Accrual for buyout of stock options (13,000) Accrual for severance, facility closings and other nonrecurring costs associated with the acquisition (15,000) Goodwill 228,560 -------- $203,560 ========
(2) Assumes one-half of the acquisition price will be financed through the issuance of 5,869,000 shares of Common Stock at a net price of approximately $35.00 per share, and after utilizing the available cash from Nowsco, the Company will utilize the New Bank Credit Facility to retire its borrowings under its Existing Bank Credit Facility and to finance the remaining portion of the cash consideration. The financing of the total consideration is summarized as follows: Cash from New Bank Credit Facility $190,457 Cash and short-term investments on Nowsco's books 19,411 Net proceeds from the offering of the Shares hereby 202,869 -------- $412,737 ========
(3) Reflects amortization of the increase to goodwill over a 40-year period. (4) Reflects interest expense on the borrowings to finance the Nowsco Acquisition at an average assumed rate of 6.8% for the fiscal year and 6.5% for the three-month period. The effect of each .125% change in the assumed rate would change interest expense by $588 per annum. F-47 87 (5) Adjustment to reflect a 35% assumed tax rate for the acquired operations and the tax effect of the pro forma adjustments, with the exception of goodwill amortization. (6) Adjustments to reflect the pro forma results of the Western Acquisition for the first six months of the fiscal year, assuming that the Western Acquisition occurred on October 1, 1994. (7) Adjustments to eliminate the following nonrecurring items included in BJ Services' and Nowsco's historical financial statements of operations as an unusual charge:
Twelve Months Three Months Ended September 30, 1995 December 31, 1995 ------------------ ------------------ BJ Services merger-related costs of acquiring Western $ 17,200 Restructuring of Nowsco's U.S. well service operations $ 481 $3,349
(8) The pro forma statement of operations has not been adjusted for the following nonrecurring charges which are estimated and are expected to be incurred by BJ Services within the 12-month period following the Nowsco Acquisition. Writeoff of unamortized bank fees $2,000 Legal, accounting and other 3,000 ------ $5,000 ======
These items have been reflected in the pro forma statement of financial position as an addition to accrued liabilities and a reduction to stockholders' equity. F-48 88 ================================================================================ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. -------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary . . . . . . . . . . Recent Developments . . . . . . . . . . Capitalization . . . . . . . . . . . . Price Range of Common Stock and Warrants and Dividend Policy . . . . Use of Proceeds . . . . . . . . . . . . Exchange Rates . . . . . . . . . . . . Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . Business . . . . . . . . . . . . . . . Management . . . . . . . . . . . . . . Description of Capital Stock . . . . . Underwriting . . . . . . . . . . . . . Legal Matters . . . . . . . . . . . . . Experts . . . . . . . . . . . . . . . . Available Information . . . . . . . . . Incorporation of Certain Documents by Reference . . . . . . . . . . . . Index to Consolidated Financial Statements . . . . . . . . . . . . . F-1
================================================================================ ================================================================================ 5,869,000 SHARES [LOGO] BJ SERVICES COMPANY COMMON STOCK _________________________________ P R O S P E C T U S _________________________________ MERRILL LYNCH & CO. , 1996 ================================================================================ 89 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission filing fees, the amounts set forth below are estimates. Securities and Exchange Commission Filing Fee . . . . . . . . . . . . . . . . . . $81,458 New York Stock Exchange Listing Fee . . . . . . . . . . . . . . . . . . . . . . . * Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . . . . . . * Accountants' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . * Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . * Transfer Agent Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . * Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ * =======
- -------- * To be filed by Amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS BJ Services Company (the "Company") is governed by Section 145 of the Delaware General Corporation Law (the "DGCL") which permits a corporation to indemnify certain persons, including officers and directors, who are (or are threatened to be made) parties to any threatened, pending or completed action or suit (other than an action by or in the right of the corporation) by reason of their being directors, officers or other agents of the corporation. The Company's Certificate of Incorporation provides that no director of the Company shall be held personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Certificate of Incorporation also provides that if the DGCL is amended to authorize further limitation or elimination of the personal liability of directors, then the liability of the Company's directors shall be limited or eliminated to the full extent permitted by the DGCL. Section 16 of Article III of the Company's Bylaws provides as follows: (a) the Company 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 Company or any of its direct or indirect wholly-owned subsidiaries or, while a director, officer, employee or agent of the Company or any of its direct or indirect wholly-owned subsidiaries, is or was serving at the request of the Company 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 Company shall not be obligated to indemnify any such person against any such action, suit or proceeding which is brought by such person against the Company or any of its direct or indirect wholly owned subsidiaries or the directors of the Company 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 Company shall have previously approved the bringing of such action, suit or proceeding. The Company 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 II-1 90 (including an employee who is or was an officer) of the Company 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 Company 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 Company shall not be obligated to indemnify any 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 Company 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 Company 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 Company 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 Company's Certificate of Incorporation, the Certificate of Incorporation or Bylaws or other governing documents of any direct or indirect wholly-owned subsidiary of the Company, 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. ITEM 16. EXHIBITS (a) The following is a complete list of Exhibits filed as part of this Registration Statement: Exhibit **1.1 Form of Underwriting Agreement. 4.1 Certificate of Incorporation of the Registrant, as amended (filed as Exhibit 3.1 to Form 8-K filed April 18, 1995, and incorporated herein by reference). 4.2 Certificate of Designation of Series Two Junior Participating Preferred Stock (filed as Exhibit 3.1 to Registration Statement on Form 8-A dated January 12, 1994 and incorporated herein by reference). 4.3 Bylaws of the Registrant, as amended (filed as Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1995 and incorporated herein by reference). 4.4 Specimen form of certificate for the Common Stock (filed as Exhibit 4.1 to Registration Statement on Form S-1 (Reg. No. 33-35187) and incorporated herein by reference). 4.5 Stockholder Rights Agreement dated as of January 12, 1994, between the Company and First Chicago Trust Company of New York, as Rights Agent (filed as Exhibit 3.1 to Registration Statement on Form 8-A dated January 12, 1994 and incorporated herein by reference). 4.6 First Amendment to Stockholders Rights Agreement dated as of June 22, 1994 (filed as Exhibit 2 to Registration Statement on Form 8-A/A dated August 26, 1994 and incorporated herein by reference) .
II-2 91 4.7 Second Amendment to Stockholder Rights Agreement dated as of September 22, 1994 (filed as Exhibit 3 to Registration Statement on Form 8-A/A dated September 30, 1994 and incorporated herein by reference). 4.8 Warrant Agreement between BJ Services Company and First Chicago Trust Company of New York, including form of warrant certificate (filed as Exhibit 4.6 to Form 10-K for the year ended September 30, 1995, and incorporated herein by reference). 4.9 Indenture between The Western Company of North America ("Western") and United States Trust Company of New York, Trustee, dated as of November 15, 1992 (the "Note Indenture"), which includes the form of 12 7/8% Senior Note due 2002 as Exhibit thereto (filed as Exhibit to Registration Statement of Western on Form S-2 (Reg. No. 33-51852) and incorporated herein by reference). 4.10 First Supplemental Indenture, dated March 2, 1994, to the Note Indenture between The Western Company of North America and United States Trust Company of New York, Trustee (filed as Exhibit to Form 10-K of Western for the year ended December 31, 1993, and incorporated herein by reference). 4.11 Second Supplemental Indenture to the Note Indenture, dated as of April 13, 1995, between The Western Company of North America, BJ Services Company and United States Trust Company of New York, Trustee (filed as Exhibit 10.5 to Post-Effective Amendment No. 1 to Registration Statement on Form S-4 (Reg. No. 33-58017), and incorporated herein by reference). 4.12 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% Series A Notes due 2006 as Exhibit thereto (filed as Exhibit 4.1 to Registration Statement on Form S-4 (Reg. No. 333-02287), and incorporated herein by reference. **5.1 Opinion of Andrews & Kurth L.L.P. as to the legality of the securities being registered. *23.1 Consent of Deloitte & Touche LLP. *23.2 Consent of Price Waterhouse LLP. *23.3 Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1). *24.1 Powers of Attorney (included in Part II of the Registration Statement).
- ----------------- * Filed herewith. ** To be filed by amendment. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 92 The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 93 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 23RD DAY OF APRIL , 1996. BJ SERVICES COMPANY By: J.W. Stewart ------------------------------------- J. W. Stewart President and Chief Executive Officer POWER OF ATTORNEY EACH PERSON WHOSE SIGNATURE APPEARS BELOW APPOINTS J. W. STEWART, MICHAEL MCSHANE AND MARGARET BARRETT SHANNON, AND EACH OF THEM ACTING ALONE, AS HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY REGISTRATION STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND ALL OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, AND GRANTS UNTO SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR WOULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT AND AGENT, OR HIS OR HER SUBSTITUTE AND SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- J. W. Stewart Chairman of the Board, President April 23, 1996 - -------------------------------------- and Chief Executive Officer; Director J. W. Stewart (Principal Executive Officer) Michael McShane Vice President-Finance April 23, 1996 - -------------------------------------- and Chief Financial Officer; Director Michael McShane (Principal Financial Officer) Matthew D. Fitzgerald Controller April 23, 1996 - -------------------------------------- (Principal Accounting Officer) Matthew D. Fitzgerald L. William Heiligbrodt Director April 23, 1996 - -------------------------------------- L. William Heiligbrodt
94 John R. Huff Director April 23, 1996 - -------------------------------------- John R. Huff William J. Johnson Director April 23, 1996 - -------------------------------------- William J. Johnson Director - -------------------------------------- Don D. Jordan R. A. LeBlanc Director April 23, 1996 - -------------------------------------- R. A. LeBlanc James E. McCormick Director April 23, 1996 - -------------------------------------- James E. McCormick Michael E. Patrick Director April 23, 1996 - -------------------------------------- Michael E. Patrick
95 INDEX TO EXHIBITS 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Price Waterhouse LLP. 24.1 Powers of Attorney (included in Part II of the Registration Statement). EX-23.1 2 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of BJ Services Company on Form S-3 of our report dated November 21, 1995 (March 28, 1996 as to Note 15) appearing in the Prospectus, which is part of this Registration Statement, and to the incorporation by reference in this Registration Statement of our report dated November 21, 1995, appearing in the Annual Report on Form 10-K of BJ Services Company for the year ended September 30, 1995. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Houston, Texas April 22, 1996 EX-23.2 3 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 of BJ Services Company of our report dated February 22, 1995 relating to the financial statements of The Western Company of North America, which appears in the Current Report on Form 8-K/A of BJ Services Company dated April 13, 1995. We also consent to the reference to us under the heading "Experts" in such Form S-3. PRICE WATERHOUSE LLP Houston, Texas April 19, 1996 -----END PRIVACY-ENHANCED MESSAGE-----