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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ----------------

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended September 30, 2000
                                       OR
               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Transition Period From    to    .

                               ----------------

                         Commission file number 1-10570

                               ----------------

                              BJ SERVICES COMPANY
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
  <S>                                            <C>
                   Delaware                                      63-0084140
        (State or other jurisdiction of             (I.R.S. Employer Identification No.)
        incorporation or organization)

  5500 Northwest Central Drive, Houston, Texas                      77092
<CAPTION>
    (Address of principal executive offices)                     (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (713) 462-4239

                               ----------------

          Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
            Title of each class       Name of each exchange on which registered
            -------------------       -----------------------------------------
  <S>                                            <C>
        Common Stock $.10 par value            New York Stock Exchange
      Preferred Share Purchase Rights          New York Stock Exchange
        7% Series B Notes due 2006             New York Stock Exchange
</TABLE>

        Securities Registered Pursuant to Section 12(g) of the Act: None

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES  [X]   NO  [_].

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K  [_].

   At December 1, 2000, the registrant had outstanding 82,108,985 shares of
Common Stock, $.10 par value per share. The aggregate market value of the
Common Stock on such date (based on the closing prices in the daily composite
list for transactions on the New York Stock Exchange) held by nonaffiliates of
the registrant was approximately $4,446,792,188.

                      DOCUMENTS INCORPORATED BY REFERENCE:

   Portions of Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held January 25, 2001 are incorporated by reference into
Part III.

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                                     PART I

ITEM 1. Business

General

   BJ Services Company (the "Company"), whose operations trace back to the
Byron Jackson Company (which was founded in 1872), was organized in 1990 under
the corporate laws of the state of Delaware. The Company is a leading provider
of pressure pumping and other oilfield services serving the petroleum industry
worldwide. The Company's pressure pumping services consist of cementing and
stimulation services used in the completion of new oil and natural gas wells
and in remedial work on existing wells, both onshore and offshore. Other
oilfield services include product and equipment sales for pressure pumping
services, tubular services provided to the oil and natural gas exploration and
production industry, commissioning and inspection services provided to
refineries, pipelines and offshore platforms and specialty chemical services.

   In April 1995, the Company completed the acquisition of The Western Company
of North America ("Western" and the "Western Acquisition") which provided the
Company with a greater critical mass with which to compete in both domestic and
international markets and the realization of significant consolidation
benefits. The Western Acquisition increased the Company's then existing total
revenue base by approximately 75% and more than doubled the Company's then
existing domestic revenue base. In addition, in excess of $40 million in annual
overhead and redundant operating costs were eliminated annually by combining
the two companies.

   In June 1996, the Company completed the acquisition of Nowsco Well Service
Ltd. ("Nowsco" and the "Nowsco Acquisition") for a total purchase price of
$582.6 million (including transaction costs of $6.2 million). Nowsco's
operations were conducted primarily in Canada, the United States, Europe,
Southeast Asia and Argentina and included pressure pumping and commissioning
and inspection services businesses. The Nowsco Acquisition added approximately
40% to the Company's then existing revenue base.

   During the year ended September 30, 2000, the Company generated
approximately 86% of its revenue from pressure pumping services and 14% from
product and equipment sales and other oilfield services. Over the same period,
the Company generated approximately 52% of its revenue from U.S. operations and
48% from international operations.

Pressure Pumping Services

 Cementing Services

   The Company's cementing services, which accounted for approximately 32% of
the Company's total revenue during 2000, consist of blending high-grade cement
and water with various solid and liquid additives to create a slurry that is
pumped into a well between the casing and the wellbore. The additives and the
properties of the slurry are designed to achieve the proper cement set up time,
compressive strength and fluid loss control, and vary depending upon the well
depth, downhole temperatures and pressures, and formation characteristics.

   The Company provides central, regional and district laboratory testing
services to evaluate slurry properties, which vary with cement supplier and
local water sources. Job design recommendations are developed by the Company's
field engineers to achieve desired comprehensive strength and bonding
characteristics.

   There are a number of specific applications for cementing services used in
oilfield operations. The principal application is the cementing between the
casing pipe and the wellbore during the drilling and completion phase of a well
("primary cementing"). Primary cementing is performed to (i) isolate fluids
behind the casing between productive formations and other formations that would
damage the productivity of hydrocarbon producing zones or damage the quality of
freshwater aquifers, (ii) seal the casing from corrosive

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<PAGE>

formation fluids, and (iii) provide structural support for the casing string.
Cementing services are also utilized when recompleting wells from one producing
zone to another and when plugging and abandoning wells.

 Stimulation Services

   The Company's stimulation services, which accounted for approximately 54% of
the Company's total revenue during 2000, consist of fracturing, acidizing, sand
control, nitrogen, coiled tubing and downhole tool services. These services are
designed to improve the flow of oil and natural gas from producing formations
and are summarized as follows:

   Fracturing. Fracturing services are performed to enhance the production of
oil and natural gas from formations having such permeability that the natural
flow is restricted. The fracturing process consists of pumping a fluid gel into
a cased well at sufficient pressure to "fracture" the formation. Sand, bauxite
or synthetic proppant which is suspended in the gel is pumped into the fracture
to prop it open. The size of a fracturing job is generally expressed in terms
of the pounds of proppant, which can exceed 200,000 lbs. The main pieces of
equipment used in the fracturing process are the blender, which blends the
proppant and chemicals into the fracturing fluid, the pumping unit, which is
capable of pumping significant volumes at high pressures, and a monitoring van
loaded with real time monitoring equipment and computers used to control the
fracturing process. The Company's fracturing pump units are capable of pumping
slurries at pressures of up to 15,000 pounds per square inch at rates of up to
four barrels per minute. During 2000, the Company introduced and successfully
field tested the Gorilla(TM) pumping unit, a 2700 hydraulic horsepower frac
trailer. This unit provides the most efficient, highest horsepower pump
available in the service industry. In some cases, fracturing is performed by an
acid solution pumped under pressure without a proppant or with small amounts of
proppant.

   An important element of fracturing services is the design of the fracturing
treatment, which includes determining the proper fracturing fluid, proppants
and injection program to maximize results. The Company's field engineering
staff provides technical evaluation and job design recommendations as an
integral element of its fracturing service for the customer. Technological
developments in the industry over the past several years have focused on
proppant concentration control (i.e., proppant density), liquid gel concentrate
capabilities, computer design and monitoring of jobs and cleanup properties for
fracturing fluids. The Company also introduced equipment to respond to these
technological advances. In 1998, the Company introduced a low polymer
fracturing fluid (Vistar(TM)) designed to provide greater fracture length with
minimal polymer residue. Vistar(TM) was commercialized in 1999 and is now used
in over 50% of the Company's U.S. frac treatments.

   Acidizing. Acidizing services are performed to enhance the flow rate of oil
and natural gas from wells with reduced flow caused by formation damage due to
drilling or completion fluids, or the buildup over time of various materials
that block the formation. Acidizing entails pumping large volumes of specially
formulated acids into reservoirs to dissolve barriers and enlarge crevices in
the formation, thereby eliminating obstacles to the flow of oil and natural
gas. The Company maintains a fleet of mobile acid transport and pumping units
to provide acidizing services for the onshore market, and maintains acid
storage and pumping equipment on most of its offshore stimulation vessels.

   Sand Control. Sand control services involve the pumping of gravel to fill
the cavity created around the wellbore during drilling. The gravel provides a
filter for the exclusion of formation sand from the producing pathway. Oil and
natural gas are then free to move through the gravel into the wellbore to be
produced. These services are utilized primarily in unconsolidated reservoirs
and are primarily provided in the Gulf of Mexico, the North Sea, Venezuela,
Trinidad and Indonesia.

   Nitrogen. There are a number of uses for nitrogen, an inert gas, in pressure
pumping operations. Used alone, it is effective in displacing fluids in various
oilfield applications, including underbalanced drilling. However, nitrogen
services are used principally in applications which support the Company's
coiled tubing and fracturing services.

                                       3
<PAGE>

   Coiled Tubing. Coiled tubing services involve the injection of coiled tubing
into wells to perform various applications and functions for use principally in
well-servicing operations. The application of coiled tubing to drilling
operations has increased in recent years due to improvements in coiled tubing
technology. Coiled tubing is a flexible steel pipe with a diameter of less than
five inches manufactured in continuous lengths of thousands of feet and wound
or coiled along a large reel on a truck or skid-mounted unit. Due to the small
diameter of coiled tubing, it can be inserted through existing production
tubing and used to perform workovers without using a larger, more costly
workover rig. The other principal advantages of employing coiled tubing in a
workover include (i) not having to "shut-in" the well during such operations,
thereby allowing production to continue and reducing the risk of formation
damage to the well, (ii) the ability to reel continuous coiled tubing in and
out of a well significantly faster than conventional pipe, which must be
jointed and unjointed, (iii) the ability to direct fluids into a wellbore with
more precision, allowing for localized stimulation treatments and providing a
source of energy to power a downhole motor or manipulate downhole tools and
(iv) enhanced access to remote or offshore fields due to the smaller size and
mobility of a coiled tubing unit. Recent technological improvements to coiled
tubing have increased its dependability and durability, expanding coiled
tubing's potential uses and markets.

   Downhole Tools. The Company provides downhole tools and technical personnel
for gravel pack and frac pack completions, reservoir flow testing, well
stimulation and well servicing applications, operating from key service bases
on the U.S. Gulf Coast. The Company's downhole tool capabilities fall into two
categories--completion tools and service tools. Completion tools, which are
used after a well is drilled to bring the well into production, generally are
sold and remain in the well. Service tools, which are used to perform a wide
range of downhole operations to maintain or improve a well, generally are
rented by customers from nearby tool inventories of the Company. While marketed
separately, downhole tool sales and services are provided primarily during the
course of providing other pressure pumping services.

   The Company participates in the offshore stimulation market through the use
of skid-mounted pumping units and through operation of several stimulation
vessels including one in the North Sea, three in the Gulf of Mexico and four in
South America.

   The Company believes that as production continues to decline in key
producing fields of the U.S. and certain international regions, the demand for
fracturing and other stimulation services is likely to increase. The Company
has been increasing its pressure pumping capabilities in certain international
markets over the past several years.

Other Services

   The Company's other services, including product and equipment sales for
cementing and stimulation services, as well as the following services,
accounted for approximately 14% of the Company's total revenue in 2000. Such
products and equipment sales to customers are generally made in areas where
pressure pumping services are primarily provided by local service companies.
Other than in its specialty chemical business, the Company generally does not
sell proprietary products to other companies involved in well servicing.

   Tubular Services. Tubular services principally consist of installing (or
"running") casing and production tubing into a wellbore. Casing is run to
protect the structural integrity of the wellbore and to seal various zones in
the well. These services are primarily provided during the drilling and
completion phases of a well. Production tubing is run inside the casing. Oil
and natural gas are produced through the tubing. These services are provided
during the completion and workover phases.

   Process and Pipeline Services. Process and pipeline services involve the
inspection and testing of the integrity of pipe connections in offshore
drilling and production platforms, onshore and offshore pipelines and
industrial plants, and are provided during the commissioning, decommissioning,
installation or construction stages of these infrastructures, as well as during
routine maintenance checks. Historically, hydrocarbon storage and production
facilities have been tested for leaks using either water under pressure or a
"live" system

                                       4
<PAGE>

whereby oil, gas or water was introduced at operating pressure. At remote
locations such as offshore facilities, the volume of fresh water required to
test the facility made its use impractical and the use of flammable or toxic
fluids created a risk of explosion or other health hazards. Commission leak
testing, or CLT, uses a nitrogen and helium gas mixture in conjunction with
certain specialized equipment to detect very small leaks in joints, instruments
and valves that form the components of such facilities. Although the process is
safer and more practical than traditional leak detection methods, it may in
some instances be more expensive. Accordingly its use is restricted to those
instances where environmental and safety concerns are particularly acute.

   Pipeline testing and commissioning services include filling, pressure
testing, de-watering, purging and vacuum drying of pipelines. Other pipeline
services include grouting and insulating of pipeline bundles. Recent technical
innovations include the development of pipeline gels, both hydrocarbon and
aqueous, for pipeline cleaning and transport as well as plugs used for
isolation purposes. The Company has also developed high friction pig trains and
freezing techniques for the isolation of sections of pipelines.

   In conducting its pipeline inspection business, the Company uses
"intelligent pigs." Intelligent pigs are pipeline monitoring vehicles which,
together with interpretational software, offer to pipeline operators,
constructors and regulators measurement of pipeline geometry, determination of
pipeline location and orientation and examination of the pipeline's internal
condition. In addition, the customer can develop a structural analysis using
the measured pipeline geometry information. The operator's planning is improved
through the utilization of the data to determine the pipeline's status,
estimate current and future reliability and provide recommendations on remedial
or maintenance requirements which consider the severity of the problem
identified. Analysis work using intelligent pigs can be routinely performed
with maintenance monitoring programs implemented as a method for increasing
safety for people, property and the environment.

   Specialty Chemical Services. Specialty chemical services are provided to
customers in the upstream and downstream oil and natural gas businesses through
the Company's Unichem division. These services involve the design of treatments
and the sale of products to reduce the negative effects of corrosion, scale,
paraffin, bacteria, and other contaminants in the production and processing of
oil and natural gas. Unichem's products are used by customers engaged in crude
oil production, natural gas processing, raw and finished oil and natural gas
product transportation, refining, fuel additizing and petrochemical
manufacturing. Unichem's services address two principal priorities of such
customers: (1) the protection of the customer's capital investment in metal
goods, such as downhole casing and tubing, pipelines and process vessels, and
(2) the treatment of fluids to allow the fluid to meet the specifications of
the particular operation, such as production transferred to a pipeline, water
discharged overboard from a platform, or fuel sold at a marketing terminal.

 Operations

   Pressure pumping services are provided to both land-based and offshore
customers on a 24-hour, on-call basis, through regional and district facilities
in over 100 locations worldwide, utilizing complex, truck- or skid-mounted
equipment designed and constructed for the particular pressure pumping service
furnished. After such equipment is moved to a well location, it is configured
with appropriate connections to perform the specific services required. The
mobility of this equipment permits the Company to provide pressure pumping
services to changing geographic areas. Management believes that the Company's
pressure pumping equipment is adequate to service both current and projected
levels of market activity in the near term.

   The Company maintains a fleet of mobile cement pumping equipment for onshore
operations. Offshore operations are performed with skid-mounted cement pumping
units primarily using the Company's patented Recirculating Averaging Mixer
("RAM"). Most cementing units are equipped with computerized systems which
allow for real-time monitoring and control of the cementing processes.

   Principal materials utilized in the pressure pumping business include
cement, fracturing proppants, acid and bulk chemical additives. Generally these
items are available from several suppliers and the Company

                                       5
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utilizes more than one supplier for each item. The Company also produces
certain of its specialized pressure pumping products through company-owned
blending facilities in Germany, Singapore and Canada. Sufficient material
inventories are maintained to allow the Company to provide on-call services to
its customers to whom the materials are resold in the course of providing
pressure pumping services. Repair parts and maintenance items for pressure
pumping equipment are carried in inventory to ensure continued operations
without significant downtime caused by parts shortages. The Company has
experienced only intermittent tightness in supply or extended lead times in
obtaining necessary supplies of these materials or replacing equipment parts
and does not anticipate any chronic shortage of any of these items in the
foreseeable future.

   The Company believes that coiled tubing and other materials utilized in
performing coiled tubing services are and will continue to be widely available
from a number of manufacturers. Although there are only three principal
manufacturers of the reels around which the coiled tubing is wrapped, the
Company is not aware of any difficulty in obtaining coiled tubing reels in the
past, and the Company anticipates no such difficulty in the future.

Engineering and Support Services

   The Company maintains two primary research and development centers--one in
Tomball, Texas (near Houston) and the other in Calgary, Alberta. The Company's
research and development organization is divided into five distinct areas--
Petroleum Engineering, Software Applications, Instrumentation Engineering,
Mechanical Engineering and Coiled Tubing Engineering.

   Petroleum Engineering. The petroleum engineering laboratory specializes in
designing fluids with enhanced performance characteristics in the fracturing,
acidizing and cementing operations (i.e., "frac fluids" and "cement slurries").
As fluids must perform under a wide range of downhole pressures, temperatures
and other conditions, this design process is a critical element in developing
products to meet customer needs.

   Software Applications. The Company's software applications group develops
and supports a wide range of proprietary software utilized in the monitoring of
both cement and stimulation job parameters. This software, combined with the
Company's internally developed monitoring hardware, allows for real-time job
control as well as post-job analysis.

   Instrumentation Engineering. The pressure pumping industry utilizes an array
of monitoring and control instrumentation as an integral element of providing
cementing and stimulation services. The Company's monitoring and control
instrumentation, developed by its instrumentation engineering group,
complements its products and equipment and provides customers with desired
real-time monitoring of critical applications.

   Mechanical Engineering. Though similarities exist between the major
competitors in the general design of their pumping equipment, the actual
engine/transmission configurations as well as the mixing and blending systems
differ significantly. Additionally, different approaches to the integrated
control systems result in equipment designs which are usually distinct in
performance characteristics for each competitor. The Company's mechanical
engineering group is responsible for the design and manufacturing of virtually
all of the Company's primary pumping and blending equipment. However, some
primary pumping equipment and certain peripheral support equipment which is
generic to the industry is purchased externally. The Company's mechanical
engineering group provides new product design as well as support to the
rebuilding and field maintenance functions.

   Coiled Tubing Engineering. The coiled tubing engineering group is located in
Calgary, Alberta. This group provides most of the support and research and
development activities for the Company's coiled tubing services. Development
work for drilling applications (DUCT(TM)) involves using coiled tubing
directional drilling technology for completions and directional underbalanced
drilling. The Company is also actively involved in the ongoing development of
downhole tools that may be run on coiled tubing, including rotary jetting
equipment and through-tubing inflatable packer systems. The Company's
SandVac(TM) system is a licensed jet

                                       6
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pump system used with concentric coiled tubing to clean unwanted sand from
horizontal wells. The tool and coiled tubing configuration allow sand to be
drawn into the system and brought to surface through a cleaning process
analogous to a vacuum.

Manufacturing

   In addition to the engineering facility, the Company's research and
technology center near Houston also houses its main equipment and
instrumentation manufacturing facility. This operation currently occupies
approximately 345,000 square feet and includes complete fabrication, engine and
transmission rebuilding, pump manufacturing, assembly, warehousing, laboratory,
training and engineering capabilities. The Company also has smaller
manufacturing capabilities in several international locations. The Company
employs outside vendors for manufacturing of its coiled tubing units and
certain fabrication work, but is not dependent on any one source.

Competition

   Pressure Pumping Services. There are two primary companies with which the
Company competes in pressure pumping services, Halliburton Energy Services, a
division of Halliburton Company, and Dowell, a division of Schlumberger Ltd.
These companies have operations in most areas of the U.S. in which the Company
participates and in most international regions. It is estimated that, exclusive
of "captive" service companies, these two competitors, along with the Company,
provide over 90% of pressure pumping services to the industry. Several smaller
companies compete with the Company in certain areas of the U.S. and in certain
international locations. The principal methods of competition which apply to
the Company's business are its prices, service record and reputation in the
industry. While Halliburton Energy Services and Dowell are larger in terms of
overall pressure pumping revenues, the Company has a number one or a number two
share position in several markets throughout the world.

   Other Services. The Company believes that it is one of the largest suppliers
of tubular services in the U.K. North Sea and has expanded such services into
other international markets in the past several years. The largest provider of
tubular services is Weatherford International, Inc. In the U.K., tubular
services are typically provided under long-term contracts which limit the
opportunities to compete for business until the end of the contract term. In
continental Europe, shorter-term contracts are typically available for bid by
the provider of tubular services. The Company believes it is the largest
provider of commissioning and leak detection services and one of the largest
providers of pipeline inspection services. In specialty chemical services,
there are several competitors significantly larger than the Company's Unichem
division.

Markets and Customers

   Demand for the Company's services and products depends primarily upon the
number of oil and natural gas wells being drilled, the depth and drilling
conditions of such wells, the number of well completions and the level of
workover activity worldwide.

   The Company's principal customers consist of major and independent oil and
natural gas producing companies. During 2000, the Company provided oilfield
services to several thousand customers, none of which accounted for more than
5% of consolidated revenues. While the loss of certain of the Company's largest
customers could have a material adverse effect on Company revenues and
operating results in the near term, management believes the Company would be
able to obtain other customers for its services in the event of a loss of any
of its largest customers.

   United States. The United States represents the largest single oilfield
services market in the world. The Company provides its pressure pumping
services to its U.S. customers through a network of over 50 locations
throughout the U.S., a majority of which offer both cementing and stimulation
services. Demand for the Company's pressure pumping services in the U.S. is
primarily driven by oil and natural gas drilling activity, which tends to be
extremely volatile depending on the current and anticipated prices of oil and
natural gas. Due

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to aging oilfields and lower-cost sources of oil internationally, drilling
activity in the U.S. has declined more than 75% from its peak in 1981. Record
low drilling activity levels were experienced in 1986 and 1992 and again in
1999. During most of the 1990's, excess capacity among pumping service
companies has generally resulted in the inability to generate adequate returns
on new capital investments. To improve returns in this environment, management
believes it is important to operate with a greater "critical mass" in the key
U.S. markets. This conclusion led to the decision to consolidate the Company's
operations with those acquired from Western, which had a larger presence in the
U.S., and with operations acquired from Nowsco. Despite a recovery in the
latter half of fiscal 1999, the U.S. average fiscal 1999 active rig count
represented the lowest in history and was down 34% from the previous fiscal
year. The recovery in U.S. drilling continued in fiscal 2000 as the active rig
count averaged 842 rigs, a 40% increase over fiscal 1999. Most of the increase
occurred in the number of rigs drilling for gas, which increased 48% over the
previous year, while the average number of rigs drilling for oil increased 16%.
This recovery has continued into fiscal 2001 due to exceptionally strong oil
and natural gas prices.

   International. The Company operates in over 40 countries in the major
international oil and natural gas producing areas of Latin America, Europe,
Africa, Southeast Asia, Canada and the Middle East. The Company generally
provides services to its international customers through wholly-owned foreign
subsidiaries. Additionally, the Company holds certain controlling and minority
interests in several joint venture companies, through which it conducts a
portion of its international operations. With the acquisition of Fracmaster
Ltd. in June 1999, the Company's Canadian operations now represent its largest
international operation with over 14% of consolidated revenue in fiscal 2000.

   Other than Canada, the international market is somewhat less volatile than
the U.S. market. Due to the significant investment and complexity in
international projects, management believes drilling decisions relating to such
projects tend to be evaluated and monitored with a longer-term perspective with
regard to oil and natural gas pricing. Additionally, the international market
is dominated by major oil companies and national oil companies which tend to
have different objectives and more operating stability than the typical
independent producer in the U.S. International activities have been
increasingly important to the Company's results of operations since 1992, when
the Company implemented a strategy to expand its international presence.

   The Company now operates in most of the major oil and natural gas producing
regions of the world. International operations are subject to special risks
that can materially affect the sales and profits of the Company, including
currency exchange rate fluctuations, the impact of inflation, governmental
expropriation, exchange controls, political instability and other risks.
Certain international locations bill their services in local currency, however,
the majority of the Company's international services are billed in U.S.
dollars.

Employees

   At September 30, 2000, the Company had a total of 9,265 employees.
Approximately 58% of the Company's employees were employed outside the United
States.

Governmental and Environmental Regulation

   The Company's business is affected both directly and indirectly by
governmental regulations relating to the oil and natural gas industry in
general, as well as environmental and safety regulations which have specific
application to the Company's business.

   The Company, through the routine course of providing its services, handles
and stores bulk quantities of hazardous materials. In addition, leak detection
services involve the inspection and testing of facilities for leaks of
hazardous or volatile substances. If leaks or spills of hazardous materials
handled, transported or stored by the Company occur, the Company may be
responsible under applicable environmental laws for costs of remediating damage
to the surface, sub-surface or aquifers incurred in connection with such
occurrence. Accordingly, the Company has implemented and continues to implement
various procedures for the handling

                                       8
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and disposal of hazardous materials. Such procedures are designed to minimize
the occurrence of spills or leaks of these materials.

   The Company has implemented and continues to implement various procedures to
further assure its compliance with environmental regulations. Such procedures
generally pertain to the operation of underground storage tanks, disposal of
empty chemical drums, improvement to acid and wastewater handling facilities
and cleaning of certain areas at the Company's facilities. The estimated future
cost for such procedures is $7.0 million which will be incurred over a period
of several years, and for which the Company has provided appropriate reserves.
In addition, the Company maintains insurance for certain environmental
liabilities which the Company believes is reasonable based on its knowledge of
the industry.

   The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," imposes liability without regard to fault or the
legality of the original conduct, on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
Certain third-party owned disposal facilities used by the Company or its
predecessors have been investigated under state and federal Superfund statutes,
and the Company is currently named as a potentially responsible party for
cleanup at five such sites. Although the Company's level of involvement varies
at each site, in general, the Company is one of numerous parties named and will
be obligated to pay an allocated share of the cleanup costs. While it is not
feasible to predict the outcome of these matters with certainty, management is
of the opinion that their ultimate resolution should not have a material effect
on the Company's operations or financial position.

Research and Development; Patents

   Research and development activities for pressure pumping services are
directed primarily toward improvement of existing products and services and the
design of new products and processes to meet specific customer needs. The
Company currently holds numerous patents relating to products and equipment
used in its pumping services business. While such patents, in the aggregate,
are important to maintaining the Company's competitive position, no single
patent is considered to be of a critical or essential nature.

   To remain competitive, the Company devotes significant resources to
developing technological improvements to its pumping services products. Many of
these improvements have centered on improving products in fracturing systems
and, more recently, in deepwater cementing applications.

   In 1991, the Company introduced a borate-based fracturing fluid, Spectra
Frac(R) G, which is being widely used in the U.S. stimulation market and the
North Sea. In 1993, this product was complemented with two additional
fracturing fluids, Spartan Frac(R) and Medallion Frac(R), which have expanded
the Company's services line offering to cover a broader range of economic and
downhole design variables. During 1994, the Company commercialized a
proprietary enzyme process used in conjunction with the three fracturing
fluids. These "enzyme breakers" significantly enhance the production of oil and
natural gas in a wide range of wells. During 1998, the Company introduced a low
polymer fracturing fluid (Vistar(TM)) designed to provide greater fracture
length with minimal polymer residue. This product has been successfully
utilized in a wide variety of applications since 1998. During 1999 and 2000,
the Company successfully introduced and field tested a low and mid stress range
deformable particle (FlexSand(TM)) designed to prevent proppant flowback and
extend the life of the fracturing treatment.

   During 2000, the Company developed and successfully field tested a
continually mixed, crosslinked hydrochloric acid system, XL Acid(R). XL Acid(R)
provides deep penetration of live acid to effectively etch large areas of the
formation.

   To address the trend towards more deepwater completions, the Company has
developed DeepSet(TM), a cementing system designed to handle low sea floor
temperatures, and new automated foam cementing equipment designed to address
shallow water flows typically found in deepwater environments.

                                       9
<PAGE>

   During 2000, the Company successfully field tested the TST-3(TM) service
packer. This packer provides the latest in service tool technology and
operational efficiency.

   The testing and development of new products is an integral part of the
Company's pipeline inspection and coiled tubing businesses. Developments also
include a MFL corrosion inspection tool; ROTO-JET(R), a tool for use in
wellbore scale removal; SandVac(TM), a licensed jet pump system used to clean
unwanted sand from horizontal wells, and various downhole tools and other
technologies used in directional drilling applications using coiled tubing.
Additionally, the Company operates under various license arrangements,
generally ranging from 10 to 20 years in duration, relating to certain products
or techniques. None of these license arrangements is material.

   The Company intends to continue to devote significant resources to its
research and development efforts. For information regarding the amounts of
research and development expenses for each of the three fiscal years ended
September 30, 2000, see Note 12 of the Notes to Consolidated Financial
Statements.

Risk Factors

   This document contains "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. The forward-looking
statements discuss the Company's prospects, expected revenues, expenses and
profits, strategies for its operations and other subjects. All of these areas
are subject to risks and uncertainties. The forward-looking statements are
based on assumptions which may not prove to be accurate. Actual results could
differ significantly from the results expected, as a result of the risk factors
discussed below.

   The Company's operations are subject to hazards present in the oil and
natural gas industry, such as fire, explosion, blowouts and oil spills. These
incidents as well as accidents or problems in normal operations can cause
personal injury or death and damage to property or the environment. The
customer's operations can also be interrupted. From time to time, customers
seek to recover from the Company for damage to their equipment or property that
occurred while the Company was performing work. In the pressure pumping
business, these include customer claims for loss of oil and natural gas
production and damage to underground reservoir formations. In the specialty
chemical business, some products are sold for use in refineries. In the process
and pipeline business, work is done on petrochemical plants as well as
pipelines. Damage to the customer's property could be extensive if a major
problem occurred.

   The Company has insurance coverage that it believes is customary in the
industry against these hazards. However, such insurance has large deductibles
and certain exclusions. The Company's insurance premiums can be increased or
decreased based on the claims made by the Company under its insurance policies.
The insurance does not cover damages from breach of contract by the Company or
based on alleged fraud or deceptive trade practices. Whenever possible, the
Company obtains agreements from customers that limit the Company's liability.
Insurance and customer agreements do not provide complete protection against
the losses and risks described above.

   The Company's international operations are subject to special risks that can
significantly affect the Company's sales and profits. These risks include
changes in currency exchange rates, the impact of inflation, governmental
expropriation of assets, exchange controls, political instability and other
risks.

   Other risk factors that could cause actual results to be different from
those expected include: general economic and business conditions; the business
opportunities that may be presented to and pursued by the Company; lower prices
and decreased drilling for oil and natural gas; weather conditions that affect
conditions in the oil and natural gas industry; higher prices for products used
by the Company in its operations; lower spending on exploration and development
by customers in the oil and natural gas industry; and changes in environmental
laws and other governmental regulations. Most of these risks are beyond the
control of the Company.

                                       10
<PAGE>

Executive Officers of the Registrant

   The current executive officers of the Company and their positions and ages
are as follows:

<TABLE>
<CAPTION>
                                                                              Office
                                                                               Held
Name                     Age            Position with the Company             Since
----                     ---            -------------------------             ------
<S>                      <C> <C>                                              <C>
J. W. Stewart...........  56 Chairman of the Board, President and Chief        1990
                              Executive Officer
Michael McShane.........  46 Senior Vice President--Finance and Chief          1998
                              Financial Officer
David Dunlap............  39 Vice President and President--International       1995
                              Division
Matthew D. Fitzgerald...  43 Vice President and Controller                     1998
Thomas H. Koops.........  54 Vice President--Technology and Logistics          1992
Margaret B. Shannon.....  51 Vice President--General Counsel                   1994
T. M. Whichard..........  42 Vice President and Treasurer                      1998
Kenneth A. Williams.....  50 Vice President and President--U.S. Division       1991
Stephen A. Wright.......  53 Director of Human Resources                       1987
</TABLE>

   Mr. Stewart joined Hughes Tool Company in 1969 as Project Engineer. He
served as Vice President--Legal and Secretary of Hughes Tool Company and as
Vice President--Operations for a predecessor of the Company prior to being
named President of the Company in 1986. In 1990, he was also named Chairman and
Chief Executive Officer of the Company.

   Mr. McShane joined the Company from Reed Tool Company in 1987 as Vice
President--Finance and was named Senior Vice President--Finance in 1998. At
Reed Tool Company he held various financial management positions including
Corporate Controller and Regional Controller of Far East Operations.

   Mr. Dunlap joined the Company in 1984 as a District Engineer and was named
Vice President--International Operations in December 1995. He has previously
served as Vice President--Sales for the Coastal Division of North America and
U.S. Sales and Marketing Manager.

   Mr. Fitzgerald joined the Company as Controller in 1989 from Baker Hughes
Incorporated and was named Vice President in 1998. Prior thereto, he was a
Senior Manager with the certified public accounting firm of Ernst & Whinney.

   Mr. Koops joined the Company as Manager--Products and Technical Services in
1976, prior to being named Vice President--Manufacturing and Logistics of the
Company in 1988 and to his current position in 1992.

   Ms. Shannon joined the Company in 1994 as Vice President--General Counsel
from the law firm of Andrews & Kurth L.L.P. where she had been a partner since
1984.

   Mr. Whichard joined the Company as Tax and Treasury Manager in 1989 from
Weatherford International and was named Treasurer in 1992 and Vice President in
1998. Prior to being named Treasurer in 1992, he served in various positions
including Tax Director and Assistant Treasurer.

   Mr. Williams joined the Company in 1973 and has since held various positions
in the U.S. operations. Prior to being named Vice President--North American
Operations in 1991, he served as Region Manager--Western U.S. and Canada.

   Mr. Wright joined the Company as Manager of Compensation and Benefits in
1985 from Global Marine Inc., an offshore drilling company, and assumed his
current position with the Company in 1987.

                                       11
<PAGE>

ITEM 2. Properties

   The Company's properties consist primarily of pressure pumping and blending
units and related support equipment such as bulk storage and transport units.
Although a portion of the Company's U.S. pressure pumping and blending fleet is
being utilized through a servicing agreement with an outside party, the
majority of its worldwide fleet is owned and unencumbered. The Company's
tractor fleet, most of which in the U.S. is leased, is used to transport the
pumping and blending units. The Company's domestic light duty truck fleet is
also leased, whereas a majority of vehicles used in its international
operations are owned by the Company.

   The Company both owns and leases regional and district facilities from which
pressure pumping services and other oilfield services are provided to land-
based and offshore customers. The Company's principal executive offices in
Houston, Texas are leased. The technology and research centers located near
Houston, Texas and Calgary, Alberta are owned by the Company, as are blending
facilities located in Germany, Singapore and Canada. The Company operates
several stimulation vessels, including one in the North Sea and four in South
America which are owned, and three in the Gulf of Mexico on which the hulls are
leased. The Company believes that its facilities are adequate for its current
operations. For additional information with respect to the Company's lease
commitments, see Note 11 of the Notes to Consolidated Financial Statements.

ITEM 3. Legal Proceedings

   The Company, through performance of its service operations, is sometimes
named as a defendant in litigation, usually relating to claims for bodily
injuries or property damage (including claims for well or reservoir damage).
The Company maintains insurance coverage against such claims to the extent
deemed prudent by management. The Company believes that there are no existing
claims that are likely to have a materially adverse effect on the Company for
which it has not already provided.

   As a result of the Western Acquisition and the Nowsco Acquisition, the
Company assumed responsibility for certain claims and proceedings made against
Western and Nowsco in connection with their businesses. Some, but not all, of
such claims and proceedings will continue to be covered under insurance
policies of the Company's predecessors that were in place at the time of the
acquisitions. Although the outcome of the claims and proceedings against the
Company (including Western and Nowsco) cannot be predicted with certainty,
management believes that there are no existing claims or proceedings that are
likely to have a materially adverse effect on the Company.

ITEM 4. Submission of Matters to a Vote of Security Holders

   No matters were submitted for stockholders' vote during the fourth quarter
of the fiscal year ended September 30, 2000.

                                       12
<PAGE>

                                    PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

   The Common Stock of the Company began trading on The New York Stock Exchange
in July 1990 under the symbol "BJS". Warrants to purchase common stock
("Warrants") were issued in April 1995 and traded under the symbol "BJSW". At
December 1, 2000 there were approximately 2,028 holders of record of the
Company's Common Stock. The Warrants expired on April 13, 2000.

   The following table sets forth for the periods indicated the high and low
sales prices per share for the Company's Common Stock and Warrants reported on
the NYSE composite tape.

<TABLE>
<CAPTION>
                                                   Common Stock  Warrant Price
                                                    Price Range      Range
                                                   ------------- --------------
                                                    High   Low    High    Low
                                                   ------ ------ ------- ------
<S>                                                <C>    <C>    <C>     <C>
Fiscal 1999
  1st Quarter..................................... $22.19 $13.25 $ 18.13 $ 6.88
  2nd Quarter.....................................  24.13  13.50  20 .75   7.00
  3rd Quarter.....................................  31.75  19.75  35 .00  13.50
  4th Quarter.....................................  39.00  26.81  49 .06  25.88
Fiscal 2000
  1st Quarter..................................... $43.44 $26.69 $ 57.00 $25.00
  2nd Quarter.....................................  76.75  38.13 12 2.69  46.75
  3rd Quarter.....................................  75.63  53.38  119.00  83.25
  4th Quarter.....................................  70.75  53.00
Fiscal 2001
  1st Quarter (through December 1, 2000)..........  63.06  48.00
</TABLE>

   Since its initial public offering in 1990, BJ Services has not paid any cash
dividends to its stockholders. The Company expects that, for the foreseeable
future, any earnings will be retained for the development of the Company's
business or used for the share repurchase program discussed below and,
accordingly, no cash dividends are expected to be declared on the Common Stock.
At September 30, 2000, there were 86,877,662 shares of Common Stock issued and
82,648,214 shares outstanding. On December 19, 1997, the Company's Board of
Directors authorized a stock repurchase program of up to $150 million
(subsequently increased to $300 million in May 1998 and again to $450 million
in September 2000). Repurchases are made at the discretion of the Company's
management and the program will remain in effect until terminated by the
Company's Board of Directors. The Company purchased 5,996,400 shares at a cost
of $196.6 million during fiscal 1998, none during 1999 and 400,000 shares at a
cost of $22.8 million during fiscal 2000. Subsequent to the end of the fiscal
year, the Company has purchased an additional 1,413,400 shares at a cost of
$81.0 million. In October 1999, the Company reissued 4,027,972 shares of
treasury stock through a private placement with certain financial institutions.
The proceeds from the private placement of $144.0 million were used to pay down
outstanding debt. The Company also entered into privately negotiated option
agreements pursuant to which it repurchased an equivalent number of shares in
April 2000 for a total of $149.0 million. The Company utilized proceeds of
$143.5 million from the exercise of outstanding warrants, combined with
borrowings under existing credit facilities, to fund the repurchase. A total of
4,787,852 warrants, at an exercise price of $15 per share (each warrant
represented the right to purchase two shares), were exercised before their
expiration date of April 13, 2000. The exercise of warrants resulted in the
issuance of 9,575,704 shares of Common Stock.

   The Company's Bank Credit Facility prohibits any dividend payments when the
Company's debt to capitalization ratio exceeds 35% immediately prior to and
after giving effect to the declaration of any dividend, except that the Company
may declare and make dividend payments solely in its capital stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity" and Note 6 of the Notes to
Consolidated Financial Statements.

                                       13
<PAGE>

   The Company has a Stockholder Rights Plan (the "Rights Plan") designed to
deter coercive takeover tactics and to prevent an acquirer from gaining control
of the Company without offering a fair price to all of the Company's
stockholders. Under this plan, each outstanding share of the Company's Common
Stock includes one-half of a preferred share purchase right ("Right") which
becomes exercisable under certain circumstances, including when beneficial
ownership of the Company's Common Stock by any person, or group, equals or
exceeds 15% of the Company's outstanding Common Stock. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock at a price of $150, subject to
adjustment under certain circumstances. Upon the occurrence of certain events
specified in the Rights Plan, each holder of a Right (other than an Acquiring
Person) will have the right, upon exercise of such Right, to receive that
number of shares of common stock of the Company (or the surviving corporation)
that, at the time of such transaction, would have a market price of two times
the purchase price of the Right. No shares of Series A Junior Participating
Preferred Stock have been issued by the Company.

ITEM 6. Selected Financial Data

   The following table sets forth certain selected historical financial data of
the Company. The selected operating and financial position data as of and for
each of the five years in the period ended September 30, 2000 have been derived
from the audited consolidated financial statements of the Company, some of
which appear elsewhere in this Annual Report. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto which are included elsewhere herein.

<TABLE>
<CAPTION>
                               As of and For the Year Ended September 30,
                          ---------------------------------------------------------
                             2000      1999(1)       1998        1997      1996(1)
                          ----------  ----------  ----------  ----------  ---------
                                (in thousands, except per share amounts)
<S>                       <C>         <C>         <C>         <C>         <C>
Operating Data:
  Revenue...............  $1,555,389  $1,131,334  $1,527,468  $1,466,573  $ 965,261
  Operating expenses,
   excluding unusual
   charges and goodwill
   amortization.........   1,346,667   1,092,879   1,289,295   1,269,731    875,022
  Goodwill
   amortization.........      13,497      13,525      13,824      14,435      7,910
  Unusual charges(2)....                  39,695      26,586                  7,425
  Operating income
   (loss)...............     195,225     (14,765)    197,763     182,407     74,904
  Interest expense......     (19,968)    (31,365)    (25,685)    (30,715)   (26,948)
  Other income
   (expense)--net.......      (1,550)        613        (772)      1,727      3,321
  Income tax expense
   (benefit)............      57,307     (15,221)     54,654      46,462     12,105
  Net income (loss).....     117,976     (29,688)    117,400     107,906     40,486
  Earnings (loss) per
   share:
   Basic................        1.49        (.42)       1.58        1.40        .66
   Diluted..............        1.40        (.42)       1.44        1.31        .65
  Depreciation and
   amortization.........     102,018      99,800      91,497      90,376     66,050
  Capital
   expenditures(3)......      80,518     110,566     167,961     102,198     54,158
Financial Position Data
 (at end of period):
  Property--net.........  $  585,394  $  659,717  $  602,028  $  540,356  $ 558,156
  Total assets..........   1,785,233   1,824,764   1,743,701   1,726,768  1,709,160
  Long-term debt,
   excluding current
   maturities...........     141,981     422,764     241,869     298,634    523,004
  Stockholders' equity..   1,169,771     877,089     900,064     960,227    841,703
</TABLE>
--------
(1) Includes the effect of the acquisitions of Fracmaster in 1999 and Nowsco in
    1996, both of which were accounted for as purchases in accordance with
    generally accepted accounting principles. For further details of the
    Fracmaster acquisition, see Note 3 of the Notes to Consolidated Financial
    Statements.
(2) Unusual charges represent nonrecurring costs associated with the downturn
    in oilfield drilling activity in 1999 and 1998 and the acquisition of
    Nowsco in 1996. For further details of the 1999 and 1998 unusual charges,
    see Note 4 of the Notes to Consolidated Financial Statements.
(3) Excluding acquisitions of businesses.

                                       14
<PAGE>

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

General

   The Company's operations are primarily driven by the number of oil and
natural gas wells being drilled, the depth and drilling conditions of such
wells, the number of well completions and the level of workover activity
worldwide. Drilling activity, in turn, is largely dependent on the price of oil
and natural gas. This situation often leads to volatility in the Company's
revenues and profitability, especially in the United States and Canada, where
the Company historically has generated in excess of 50% of its revenues.

   Due to "aging" oilfields and lower-cost sources of oil internationally,
drilling activity in the United States has declined more than 75% from its peak
in 1981. Record low drilling activity levels were experienced in 1986, 1992 and
again in early 1999. Despite a recovery in the latter half of fiscal 1999, the
U.S. average fiscal 1999 active rig count represented the lowest in history and
was down 34% from the previous fiscal year. The recovery in U.S. drilling
continued in fiscal 2000 as the active U.S. rig count averaged 842 rigs, a 40%
increase over fiscal 1999. Most of the increase occurred in the number of rigs
drilling for gas, which increased 48% over the previous fiscal year, while the
average number of rigs drilling for oil increased 16%. This recovery has
continued into fiscal 2001 due to exceptionally strong oil and natural gas
prices.

   Drilling activity outside North America has historically been less volatile
than domestic drilling activity. Due to low oil prices during most of the year,
international drilling activity also reached record low levels during 1999.
While Canadian drilling activity began to recover during the latter part of
fiscal 1999, activity in most of the other international regions is not
expected to significantly recover until at least the middle of fiscal 2001.
Active international drilling rigs (excluding Canada) averaged 617 rigs during
fiscal 2000, little changed from fiscal 1999. Due primarily to the improvement
in oil and natural gas prices, however, Canadian drilling activity continued
the recovery begun in late 1999, averaging 335 active drilling rigs during
fiscal 2000 and up 58% from the previous fiscal year.

Acquisition

   On June 28, 1999, the Company completed the acquisition of selected assets
and subsidiaries of Fracmaster Ltd. ("Fracmaster"), an oilfield services
company based in Calgary, Alberta with operations in Canada, the United States,
Russia and China. The acquisition was completed for a total purchase price of
$78.4 million. Fracmaster generated worldwide revenue of $209.1 million during
its fiscal year ended December 31, 1998. The acquisition of Fracmaster has
primarily impacted the Company's operations in Canada and Russia.

Results of Operations

   The following table sets forth selected key operating statistics reflecting
industry rig count and the Company's financial results:

<TABLE>
<CAPTION>
                                                       Year Ended September
                                                               30,
                                                       ----------------------
                                                        2000    1999    1998
                                                       ------  ------  ------
<S>                                                    <C>     <C>     <C>
Rig Count: (1)
  U.S.................................................    842     601     906
  International.......................................    952     828   1,109
Revenue per rig (in thousands)........................ $867.0  $791.7  $758.0
Revenue per employee (in thousands)................... $187.0  $152.7  $173.0
Percentage of gross profit to revenue (2).............   22.2%   13.9%   24.4%
Percentage of research and engineering expense to
 revenue..............................................    1.7%    2.1%    2.0%
Percentage of marketing expense to revenue............    3.4%    4.4%    3.5%
Percentage of general and administrative expense to
 revenue..............................................    3.6%    4.1%    3.3%
</TABLE>
--------
(1) Industry estimate of drilling activity as measured by average active rigs.
(2) Gross profit represents revenue less cost of sales and services.

                                       15
<PAGE>

   Revenue: Due primarily to increased North American drilling and workover
activity, as well as benefits from the acquisition of Fracmaster in June 1999,
the Company's revenue for fiscal 2000 reached a record level of $1.56 billion,
an increase of 38% over fiscal 1999. Such revenues reflect a strong recovery
over 1999 when, after six consecutive years of revenue growth, the Company's
revenue declined by 26%. Each of the Company's service lines--pressure pumping,
process and pipeline services, tubular services and specialty chemicals--
experienced revenue decreases in fiscal 1999. Management expects the Company's
revenues in fiscal 2001 to increase by in excess of 15% over 2000, as the North
American drilling market remains strong and the Company has begun to see signs
of an international recovery with several new contracts being awarded or
pending.

   Operating Income (Loss): For the year ended September 30, 2000, the
Company's operating income was $195.2 million, compared to an operating loss of
$14.8 million in fiscal 1999. The Company's gross profit margins for fiscal
2000 increased to 22.2% from 13.9% in fiscal 1999. The margin improvement was
primarily a result of increased North American drilling and workover activity,
pricing improvement in the U.S. and the impact of cost reduction programs
implemented during 1999. These efficiencies are reflected in the increase in
both revenue per rig and revenue per employee in fiscal 2000. Partially
offsetting the improved margins were increases in research and engineering,
marketing and general and administrative expenses totaling $17.4 million due
primarily to higher accruals for incentive plans, which are based upon the
Company's earnings and stock price and from overhead resulting from the
Fracmaster acquisition. Each of these operating expenses, however, declined as
a percentage of revenues.

   The 1999 operating loss was primarily a result of the Company recording a
pretax unusual charge of $39.7 million ($.36 per diluted share after-tax),
comprised of $12.8 million of severance costs, $23.1 million of asset
writedowns and $3.8 million of other costs associated with the downturn in the
oilfield services industry. In addition, the 1999 operating loss included $16.7
million for costs resulting from the acquisition of Fracmaster, and additional
severance costs and asset writedowns primarily associated with the Company's
international operations, all of which were included in cost of sales.
Excluding these items, the 1999 operating income decline was primarily a result
of the decline in North and Latin American drilling and workover activity, and
lower pricing. Research and engineering, marketing and general and
administrative expenses in total decreased by $13.8 million in 1999 compared to
1998 due to the implementation of three phases of cost reduction programs
beginning in July 1998, and a lower incentive provision during the year.

   In addition to the 1999 writedown, the Company also recorded a $26.6 million
($.22 per diluted share after-tax) unusual charge in 1998 to reflect employee
severance, asset writedowns and other costs associated with the downturn in the
industry which began during the later part of 1998.

   Other: Interest expense in 2000 decreased by $11.4 million compared to the
previous year due to lower borrowings resulting from improved cash flow from
operations, as well as proceeds from an equipment refinancing transaction and a
private placement of common stock, both of which were completed in the
Company's first fiscal quarter (see also Capital Resources and Liquidity).
Interest expense increased by $5.7 million in 1999 compared to 1998 due
primarily to additional borrowings to finance the Company's stock repurchase
program implemented in December 1997. The Company had repurchased shares at a
cost totaling $196.6 million under this program as of September 30, 1999 and
purchased an additional $22.8 million near the end of fiscal 2000. Management
expects to continue its share repurchases during fiscal 2001. Despite these
share repurchases, interest expense is expected to continue to decrease in 2001
due to reduced outstanding borrowings as a result of continued strong cash flow
from operations.

   Income Taxes: The Company's effective tax rate has remained below the U.S.
statutory rate during each of the past three years primarily as a result of
profitability in international jurisdictions where the statutory tax rate is
below the U.S. rate, the availability of certain nonrecurring tax benefits and
the availability of tax benefits from the Company's reorganization pursuant to
its initial public offering in 1990. The effective tax rate decreased to 32.7%
in 2000 from 33.9% in 1999, following an increase from 31.8% in 1998.

                                       16
<PAGE>

 U.S./Mexico Pressure Pumping Segment

   The Company's U.S./Mexico pressure pumping revenues in fiscal 2000 reached a
record $743.8 million, a 64% increase over 1999. The increase is primarily due
to increased drilling and workover activity, which increased 40% and 25%,
respectively over the prior year, along with an improvement in U.S. revenue per
active rig. This improvement occurred because independent oil companies, with
whom the Company has a strong market position, contributed most of the increase
in U.S. drilling activity and also from larger fracturing treatments. Also
contributing to the increased U.S. revenues in 2000 was an increase in prices
of approximately 16%, as the Company implemented new price books in November
1999 and again in September 2000. The Company's U.S./Mexico pressure pumping
revenues declined by 38% in 1999 compared to 1998 as a result of lower activity
and pricing caused by the record low drilling levels. The fiscal 1999 average
active rig count, down 34% from the previous year, was the lowest in recorded
history. Workover activity in 1999 was also weak, down 32% during the year.
Excluding Mexico, each of the Company's U.S. regions experienced revenue
declines in 1999, with the oil producing regions of Texas and Oklahoma being
the most severely impacted. In addition, 1999 pricing declined by approximately
16% compared to the previous year. Revenue in the Company's Mexico operations
increased as a result of a new contract and the expansion of operations in
Northeast Mexico. As a result of the price increases in fiscal 2000 and the
expected continuation of strong drilling and workover activity levels,
management believes that fiscal 2001 revenue generated by its U.S./Mexico
pressure pumping operations will exceed that of fiscal 2000 by in excess of
25%.

   Operating income for the Company's U.S./Mexico pressure pumping operations
was $141.8 million in fiscal 2000 compared to an operating loss of $3.9 million
in fiscal 1999. The improvement was due primarily to increased drilling and
workover business, better utilization of personnel and equipment as a result of
cost reduction measures implemented in fiscal 1999 and better pricing. On a
year-over-year basis, pricing improved approximately 16% as a result of the
aforementioned price book increases implemented during November 1999 and again
in September 2000. The operating loss in fiscal 1999 was primarily caused by
deceased revenues resulting from the severe decline in drilling and workover
activity and corresponding lower prices for the Company's products and services
as the market contracted.

 International Pressure Pumping Segment

   Revenue for the Company's international pressure pumping operations was
$629.2 million in fiscal 2000, an increase of 24% compared with the previous
fiscal year. This increase was due mostly to the addition of the former
Fracmaster operations in Canada and Russia and a 58% increase in drilling
activity in Canada. Excluding Canada, where revenues increased 93%, fiscal 2000
international pressure pumping revenues increased 6% despite average drilling
activity being flat with the prior year levels. Increased revenues in the
Company's Latin America region were mostly offset by the impact of continued
weakness in drilling activity in other international areas, most significantly
in the Company's Asia Pacific operations. As a result of new contracts and
improving activity in selected locations, management expects each of its
international regions to show revenue increases in fiscal 2001 compared to
fiscal 2000. Revenue for the Company's international pressure pumping
operations was $505.6 million in fiscal 1999, a decrease of 17% compared to
fiscal 1998. With the exception of its Russia operations, each of the Company's
international regions experienced revenue declines during 1999, with its
Canadian and Latin American operations showing the largest declines. The
revenue declines were a result of lower drilling activity and pricing in each
of these regions.

   Operating income for the Company's international pressure pumping operations
was $68.5 million in fiscal 2000 compared to $39.8 million in fiscal 1999. The
improvement was primarily due to improved Canadian business and a non-recurring
charge relating primarily to asset writedowns that reduced operating margins
for the Company's international pressure pumping operations by $9.5 million in
the third quarter of fiscal 1999. Operating income in Canada increased as a
result of efficiencies gained through better equipment and personnel
utilization throughout the year, and from having a full year of the former
Fracmaster operations. These gains, however, were partially offset by lower
pricing outside North America, margin decreases in the Company's Europe/Africa
region due to reduced North Sea activity (where the Company's operations have a
relatively high

                                       17
<PAGE>

fixed cost base), and shutdown costs incurred in closing a facility in Germany
in early 2000. Additionally, the operating income margins for the Company's
Middle East region were negatively impacted by startup costs incurred for
delayed projects. Operating income in fiscal 1999 declined by $57.7 million
from the $97.5 million generated by the Company's international pressure
pumping operations in fiscal 1998. Such decrease was primarily a result of
lower drilling activity and lower pricing in each of the Company's
international regions, combined with the $9.5 million non-recurring charge made
in the third quarter of fiscal 1999.

 Other Services Segment

   Revenue for each of the Company's other service lines, which consist of
specialty chemicals, tubular services and process and pipeline services,
increased 7% in fiscal 2000 compared to the prior year due primarily to the
recovery in drilling activity levels. Revenue for these service lines had
declined 8% in 1999 from 1998 after increasing in the previous two years. The
1999 decrease was due primarily to drilling activity declines, which were
mostly offset by expansions into new markets and these service lines' greater
concentration of revenues from nondrilling oilfield activities, which are not
as greatly impacted by the decline in the active rig count.

   Operating income for these service lines declined to $17.9 million (9.8% of
revenue) in fiscal 2000 compared to $19.0 million (11.1% of revenue) in 1999.
Operating income margins in the Company's tubular services line suffered from
the drop in drilling activity in the North Sea as it was unable to make a
corresponding reduction in its fixed cost base. Also contributing to the
operating income decline were job delays and higher startup costs in the
process and pipeline services group for new projects that began late in the
fiscal year. Operating income in 1999 had declined from $27.6 million (14.9% of
revenue) in 1998 primarily as a result of startup costs incurred in expanding
these service lines geographically which replaced revenues lost due to reduced
drilling activity.

Capital Resources and Liquidity

   Net cash provided from operating activities for fiscal 2000 was $204.7
million, an increase of $140.3 million from the prior year, due primarily to
higher profitability and non-cash U.S. tax expense due to loss carryforwards.
This was partially offset by increases in working capital, particularly
accounts receivable and inventories, as a result of the rapid revenue growth in
North America. Net cash provided from operating activities was $64.4 million in
1999, a decrease of $219.9 million from 1998, primarily as a result of the
lower profitability. In addition, the tax benefit from 1999 U.S. operating
losses was non-cash due to the Company's cumulative net operating loss
position. This was partially offset by the additional liquidation of working
capital balances from the reduction in activity and the non-cash portion of the
unusual charge.

   Net cash provided by investing activities in fiscal 2000 was $43.7 million,
compared to net cash used for investing activities in 1999 of $176.7 million.
The increase is due primarily to proceeds received from a transaction involving
the transfer of certain pumping service equipment assets in the first quarter
of fiscal 2000. Subsequent to the transfer of equipment, the Company received
$120.0 million, which was used to repay outstanding bank debt. The equipment is
being used to provide services to the Company for its customers for which the
Company is paying a service fee for a period of at least six, but not more than
thirteen, years. The transaction generated a deferred gain for book purposes of
approximately $63 million, which is carried in "Other long-term liabilities",
and is being amortized over a thirteen-year period. The taxable gain of $79.7
million was completely offset with net operating loss carryforwards. Excluding
this transaction, cash used for investing activities declined by $100.5 million
due to the curtailment of capital spending beginning in mid-year 1999 and
because 1999's investing activities included the acquisition of Fracmaster. The
2000 capital spending related primarily to maintenance capital and U.S.
offshore and international expansion. The 1999 increase in cash used for
investing activities of $15.7 million was due primarily to the acquisition of
Fracmaster in June 1999 for net cash consideration of $73.4 million. Excluding
this acquisition, investing activities in 1999 declined by $57.8 million,
primarily due to a curtailment of capital spending caused by the depressed
business environment. The 1999 capital spending related primarily to upgrades
to the Company's U.S. fracturing fleet

                                       18
<PAGE>

and expansion of the Tomball Manufacturing and Research and Development
facility. The 1998 capital spending related primarily to additional fracturing
and coiled tubing capacity for the Company's international growth initiatives,
upgrades to the Company's U.S. pumping fleet and upgrades to the Company's
information systems.

   Projected capital expenditures for fiscal 2001 are expected to increase
significantly from 2000 and are currently expected to be approximately $150-165
million. The 2001 capital program is expected to be used primarily for
replacement and enhancement of U.S. fracturing equipment and stimulation
expansion internationally. The actual amount of 2001 capital expenditures will
be primarily dependent on the availability of external manufacturing capacity
and is expected to be funded by cash flows from operating activities and
available credit facilities. Management believes cash flows from operating
activities and available lines of credit, if necessary, will be sufficient to
fund projected capital expenditures.

   Cash flows used for financing activities for fiscal 2000 was $245.9 million,
compared to cash flows provided by financing activities in fiscal 1999 of
$114.6 million. Financing activities in fiscal 2000 included a private
placement of 4.0 million shares of common stock in October 1999 that generated
proceeds of $144.0 million, which was used to pay down outstanding debt. In
connection with the private placement, the Company also entered into privately
negotiated option agreements pursuant to which it repurchased an equivalent
number of shares in April 2000 for a total of $149.0 million. In April 2000,
the Company utilized proceeds of $143.5 million from the exercise of
outstanding warrants, combined with borrowings under existing credit
facilities, to fund the repurchase. A total of 4,787,852 warrants, at an
exercise price of $15 per share (each warrant represented the right to purchase
two shares), were exercised before their expiration date of April 13, 2000. The
exercise of the warrants resulted in the issuance of 9,575,704 shares of common
stock. In September 2000, the Company also repurchased 400,000 shares of its
common stock at a cost of $22.8 million under a share repurchase program
initially approved by the Company's Board of Directors in December 1997. The
share repurchase program initially authorized purchases up to $150 million and
was subsequently increased to $300 million in May 1998 and to $450 million in
September 2000. Subsequent to the end of fiscal 2000, the Company has purchased
an additional 1,413,400 shares of its common stock at a cost of $81.0 million.
These financing activities, along with proceeds from the exercise of stock
options and cash provided by operating and investing activities, allowed the
Company to reduce 2000 outstanding borrowings by $397.1 million. Cash flows
provided by financing activities in 1999 were $114.6 million, compared to a
usage of cash for financing activities in 1998 of $125.6 million. The 1999
proceeds from borrowings were used to fund the Fracmaster acquisition and the
Company's capital spending program. In 1998, the Company used $196.6 million to
purchase its common stock under a stock repurchase program approved by the
Company's Board of Directors in December 1997. Due to reduced profitability and
the resulting reduction in cash flows from operating activities, the Company
did not repurchase any of its common stock during 1999.

   Management strives to maintain low cash balances while utilizing available
credit facilities to meet the Company's capital needs. Any excess cash
generated has historically been used to pay down outstanding borrowings or fund
the Company's stock repurchase program. The Company has a committed, unsecured
bank credit facility (the "Bank Credit Facility") which consists of a six-year
term loan of approximately $46.8 million (currently drawn in Canadian dollars
under a provision which is renewable annually at the option of the banks),
which is repayable in 22 quarterly installments that began in March 1997, and a
five year U.S. $225.0 million revolving facility available through June 2001.
At September 30, 2000, borrowings outstanding under the Bank Credit Facility
totaled $46.8 million, consisting solely of borrowings under the term loan.
Principal reductions of term loans under the Bank Credit Facility are due in
aggregate annual installments of $30.4 million and $16.4 million in the years
ending September 30, 2001 and 2002, respectively.

   In addition to the committed facility, the Company had $149.4 million in
various unsecured, discretionary lines of credit at September 30, 2000, which
expire at various dates in 2001. There are no requirements for commitment fees
or compensating balances in connection with these lines of credit. Interest on
borrowings is based on prevailing market rates. At September 30, 2000, there
was $3.4 million in outstanding borrowings under these lines of credit.

                                       19
<PAGE>

   The Company's total interest-bearing debt decreased to 13.1% of its total
capitalization at September 30, 2000, compared to 39.5% at September 30, 1999,
due to repayment of borrowings from cash flows from operations, the proceeds
received from the equipment transfer, the private placement of common stock,
warrant exercises and stock option exercises. The Bank Credit Facility includes
various customary covenants and other provisions including the maintenance of
certain profitability and solvency ratios and restrictions on dividend payments
under certain circumstances, none of which materially restrict the Company's
activities. Management believes that the Bank Credit Facility, combined with
other discretionary credit facilities and cash flows from operations, provides
the Company with sufficient capital resources and liquidity to manage its
routine operations, meet debt service obligations and fund projected capital
expenditures. If the discretionary lines of credit are not renewed, or if
borrowings under these lines of credit otherwise become unavailable, the
Company expects to refinance this debt by arranging additional committed bank
facilities or through other long-term borrowing alternatives.

Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. This statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000 and therefore was not used in preparing the Company's 2000 financial
statements. The adoption of SFAS 133 at the beginning of fiscal year 2001 did
not have a material impact on the Company's financial position or results of
operations.

Forward Looking Statements

   This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934 concerning, among other things, the Company's
prospects, expected revenues, expenses and profits, developments and business
strategies for its operations all of which are subject to certain risks,
uncertainties and assumptions. These forward-looking statements are identified
by their use of terms and phrases such as "expect," "estimate," "project,"
"believe," "achievable" and similar terms and phrases. These statements are
based on certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes are appropriate
under the circumstances. Such statements are subject to general economic and
business conditions, conditions in the oil and natural gas industry, weather
conditions that affect conditions in the oil and natural gas industry, the
business opportunities that may be presented to and pursued by the Company,
changes in law or regulations and other factors, many of which are beyond the
control of the Company. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those expected, estimated or projected.

                                       20
<PAGE>

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

   The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates, primarily in
the United States and Canada. The Company's policy is to manage interest rates
through use of a combination of fixed and floating rate debt. A portion of the
Company's borrowings are denominated in foreign currencies which exposes the
Company to market risk associated with exchange rate movements. When necessary,
the Company enters into forward foreign exchange contracts to hedge the impact
of foreign currency fluctuations. There was one material foreign exchange
contract outstanding at September 30, 2000 in the amount of $50.6 million. This
contract was settled on October 1, 2000 with no gain or loss. All items
described are non-trading and are stated in U.S. dollars.

<TABLE>
<CAPTION>
                            Expected Maturity Dates                        Fair Value
                          ---------------------------                     September 30,
                           2001    2002   2003  2004  Thereafter  Total       2000
                          ------- ------- ----- ----- ---------- -------- -------------
                                                 (in thousands)
<S>                       <C>     <C>     <C>   <C>   <C>        <C>      <C>
SHORT TERM BORROWINGS
Bank borrowings; US $
 denominated............  $ 2,547                                $  2,547   $  2,547
Average variable
 interest rate--10.50%
 at September 30, 2000..
Bank borrowings;
 Deutsche mark
 denominated............  $   902                                $    902   $    902
Average variable
 interest rate--5.01% at
 September 30, 2000.....

LONG TERM BORROWINGS
Current-term loan;
 Canadian $
 denominated............  $30,333                                $ 30,333   $ 30,333
Variable interest rate--
 6.25% at September 30,
 2000...................
Current Leases; US $
 denominated............  $   318                                $    318   $    318
Variable interest rate--
 6.18% at September 30,
 2000...................
Non-current-term loan;
 Canadian $
 denominated............          $16,430                        $ 16,430   $ 16,430
Variable interest rate--
 6.25% at September 30,
 2000...................
Non-current leases; US $
 denominated............          $   575 $ 383                  $    958   $    958
Variable interest rate--
 6.18% at September 30,
 2000...................
7% Series B Notes--US $
 denominated............                               $124,593  $124,593   $120,946
Fixed interest rate--7%
</TABLE>

                                       21
<PAGE>

ITEM 8. Financial Statements and Supplementary Data

                          INDEPENDENT AUDITORS' REPORT

Stockholders of BJ Services Company:

   We have audited the accompanying consolidated statements of financial
position of BJ Services Company and subsidiaries as of September 30, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
September 30, 2000. Our audits also included the financial statement schedule
listed at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

   In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of BJ Services Company and
subsidiaries at September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Houston, Texas
November 16, 2000

                                       22
<PAGE>

                              BJ SERVICES COMPANY

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                 Year Ended September 30,
                                             ----------------------------------
                                                2000        1999        1998
                                             ----------  ----------  ----------
                                             (in thousands, except per share
                                                         amounts)
<S>                                          <C>         <C>         <C>
Revenue..................................... $1,555,389  $1,131,334  $1,527,468
Operating Expenses:
  Cost of sales and services................  1,210,299     973,931   1,155,356
  Research and engineering..................     27,078      23,269      30,308
  Marketing.................................     53,011      49,312      53,803
  General and administrative................     56,279      46,367      49,828
  Goodwill amortization.....................     13,497      13,525      13,824
  Unusual charges...........................                 39,695      26,586
                                             ----------  ----------  ----------
    Total operating expenses................  1,360,164   1,146,099   1,329,705
                                             ----------  ----------  ----------
Operating income (loss).....................    195,225     (14,765)    197,763
Interest expense............................    (19,968)    (31,365)    (25,685)
Interest income.............................      1,576         608         748
Other income (expense)--net.................     (1,550)        613        (772)
                                             ----------  ----------  ----------
Income (loss) before income taxes...........    175,283     (44,909)    172,054
Income tax expense (benefit)................     57,307     (15,221)     54,654
                                             ----------  ----------  ----------
Net income (loss)........................... $  117,976  $  (29,688) $  117,400
                                             ==========  ==========  ==========
Earnings (Loss) Per Share:
  Basic..................................... $     1.49  $     (.42) $     1.58
  Diluted................................... $     1.40  $     (.42) $     1.44
Weighted-Average Shares Outstanding:
  Basic.....................................     79,254      70,789      74,482
  Diluted...................................     84,350      70,789      81,263
</TABLE>


                 See Notes to Consolidated Financial Statements

                                       23
<PAGE>

                              BJ SERVICES COMPANY

                  CONSOLIDATED STATEMENT OF FINANCIAL POSITION

<TABLE>
<CAPTION>
                                                            September 30,
                                                        ----------------------
                                                           2000        1999
                        ASSETS                          ----------  ----------
                                                           (in thousands)
<S>                                                     <C>         <C>
Current Assets:
 Cash and cash equivalents............................. $    6,472  $    3,924
 Receivables, less allowance for doubtful accounts:
  2000, $11,545,000; 1999, $20,572,000.................    348,106     297,975
 Inventories:
  Products.............................................     57,988      43,632
  Work in process......................................      1,408       2,116
  Parts................................................     53,399      51,539
                                                        ----------  ----------
    Total inventories..................................    112,795      97,287
 Deferred income taxes.................................     15,632      15,668
 Other current assets..................................     23,373      24,109
                                                        ----------  ----------
    Total current assets...............................    506,378     438,963
Property:
 Land..................................................     12,619      12,410
 Buildings and other...................................    198,066     170,111
 Machinery and equipment...............................    863,214     957,314
                                                        ----------  ----------
    Total property.....................................  1,073,899   1,139,835
 Less accumulated depreciation.........................    488,505     480,118
                                                        ----------  ----------
    Property--net......................................    585,394     659,717
Goodwill, net of amortization..........................    476,237     489,736
Deferred income taxes..................................    199,795     201,774
Investments and other assets...........................     17,429      34,574
                                                        ----------  ----------
                                                        $1,785,233  $1,824,764
                                                        ==========  ==========

<CAPTION>
         LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                     <C>         <C>
Current Liabilities:
 Accounts payable--trade............................... $  147,581  $  128,422
 Short-term borrowings.................................      3,449     105,965
 Current portion of long-term debt.....................     30,651      44,487
 Accrued employee compensation and benefits............     48,536      37,749
 Income taxes..........................................     15,754      15,641
 Taxes other than income...............................      7,017       9,798
 Accrued insurance.....................................     11,557      12,041
 Other accrued liabilities.............................     72,546      91,043
                                                        ----------  ----------
    Total current liabilities..........................    337,091     445,146
Long-term debt.........................................    141,981     422,764
Deferred income taxes..................................      7,966       6,578
Accrued postretirement benefits........................     30,149      29,932
Other long-term liabilities............................     98,275      43,255
Commitments and contingencies
Stockholders' Equity:
 Preferred stock (authorized 5,000,000 shares)
 Common stock, $.10 par value (authorized 160,000,000
  shares; 86,877,662 shares issued and 82,648,214
  shares outstanding in 2000; 76,382,162 shares issued
  and 71,177,549 shares outstanding in 1999)...........      8,688       7,638
 Capital in excess of par..............................    948,859     765,866
 Retained earnings.....................................    376,270     269,797
 Accumulated other comprehensive income................      4,541       4,924
 Unearned compensation.................................     (3,433)       (614)
 Treasury stock at cost (2000--4,229,448 shares;
 1999--5,204,613 shares)...............................   (165,154)   (170,522)
                                                        ----------  ----------
    Total stockholders' equity.........................  1,169,771     877,089
                                                        ----------  ----------
                                                        $1,785,233  $1,824,764
                                                        ==========  ==========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       24
<PAGE>

                              BJ SERVICES COMPANY

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                Capital                                      Accumulated
                                   In                                           Other
                         Common  Excess   Treasury     Unearned   Retained  Comprehensive
                         Stock   Of Par     Stock    Compensation Earnings     Income       Total
                         ------ --------  ---------  ------------ --------  ------------- ----------
<S>                      <C>    <C>       <C>        <C>          <C>       <C>           <C>
Balance, September 30,
 1997................... $3,853 $763,063               $(7,075)   $201,897     $(1,511)   $  960,227
Comprehensive income:
 Net income.............                                           117,400
 Other comprehensive
  income, net of tax
  Cumulative translation
  adjustments...........                                                        12,855
 Minimum pension
  liability adjustment..                                                        (3,925)
Comprehensive income....                                                                     126,330
Issuance of stock for:
 Stock options..........      7    1,873                                                       1,880
 Stock purchase plan....      9    2,861                                                       2,870
 Warrants surrendered...              39                                                          39
 Stock performance
  awards................           1,068                (1,068)
 Stock split............  3,769                                     (3,769)
Treasury stock
 purchased..............                  $(196,608)                                        (196,608)
Treasury stock
 reissued...............                      2,804                 (1,899)                      905
Recognition of unearned
 compensation...........                                 1,850                                 1,850
Revaluation of stock
 performance............          (7,790)                5,928                                (1,862)
Tax benefit from
 exercise of options....           4,433                                                       4,433
                         ------ --------  ---------    -------    --------     -------    ----------
Balance, September 30,
 1998...................  7,638  765,547   (193,804)      (365)    313,629       7,419       900,064
Comprehensive income:
 Net income.............                                           (29,688)
 Other comprehensive
  income, net of tax
  Cumulative translation
  adjustments...........                                                        (5,585)
 Minimum pension
  liability adjustment..                                                         3,090
Comprehensive income....                                                                     (32,183)
Issuance of stock for:
 Warrants surrendered...              70                                                          70
Reissuance of treasury
 stock for:
 Stock options..........                     14,796                 (9,750)                    5,046
 Stock purchase plan....                      4,144                 (2,172)                    1,972
 Stock performance
  awards................          (2,235)     4,342        115      (2,222)
Recognition of unearned
 compensation...........                                 1,140                                 1,140
Revaluation of stock
 performance awards.....           1,504                (1,504)
Tax benefit from
 exercise of options....             980                                                         980
                         ------ --------  ---------    -------    --------     -------    ----------
Balance, September 30,
 1999...................  7,638  765,866   (170,522)      (614)    269,797       4,924       877,089
Comprehensive income:
 Net income.............                                           117,976
 Other comprehensive
  income, net of tax
  Cumulative translation
  adjustments...........                                                          (888)
 Minimum pension
  liability adjustment..                                                           505
Comprehensive income....                                                                     117,593
Issuance of stock for:
 Warrants surrendered...    956  142,570                                                     143,526
 Stock options..........     94   15,058                                                      15,152
Treasury stock
 purchased..............                   (171,796)                                        (171,796)
Reissuance of treasury
 stock for:
 Stock options..........                     32,629                (17,058)                   15,571
 Stock purchase plan....                     10,959                 (6,171)                    4,788
 Stock performance
  awards................          (1,302)     1,579                   (277)
 Stock private
  placement.............                    131,997                 12,003                   144,000
Recognition of unearned
 compensation...........                                 3,390                                 3,390
Stock performance
 award..................           3,651                (3,651)
Revaluation of stock
 performance............           2,557                (2,558)                                   (1)
Tax benefit from
 exercise of options....          20,459                                                      20,459
                         ------ --------  ---------    -------    --------     -------    ----------
Balance, September 30,
 2000................... $8,688 $948,859  $(165,154)   $(3,433)   $376,270     $ 4,541    $1,169,771
                         ====== ========  =========    =======    ========     =======    ==========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       25
<PAGE>

                              BJ SERVICES COMPANY

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                  Year Ended September 30,
                                                ------------------------------
                                                  2000       1999      1998
                                                ---------  --------  ---------
                                                       (in thousands)
<S>                                             <C>        <C>       <C>
Cash flows from operating activities:
Net income (loss..............................  $ 117,976  $(29,688) $ 117,400
Adjustments to reconcile net income to cash
 provided from operating activities:
 Depreciation and amortization................    102,018    99,800     91,497
 Net (gain) loss on disposal of assets........      1,451       147         89
 Recognition of unearned compensation.........      3,390     1,140      1,850
 Deferred income tax expense (benefit)........     39,037   (32,866)    31,426
 Unusual charge (noncash).....................               23,051     15,278
 Minority interest............................      3,263     2,585      3,206
Changes in:
 Receivables..................................    (47,808)   19,191     28,689
 Accounts payable--trade......................     19,125   (22,444)   (22,248)
 Inventories..................................    (16,928)   19,921    (5, 750)
 Other current assets and liabilities.........    (18,028)   (5,837)    13,580
 Other, net...................................      1,213   (10,571)     9,325
                                                ---------  --------  ---------
Net cash flows provided from operating
 activities...................................    204,709    64,429    284,342

Cash flows from investing activities:
Property additions............................    (80,518) (110,566)  (167,961)
Proceeds from disposal of assets..............    127,492     7,270      9,372
Acquisitions of businesses, net of cash
 acquired.....................................     (3,240)  (73,442)    (2,459)
                                                ---------  --------  ---------
Net cash provided from (used for) investing
 activities...................................     43,734  (176,738)  (161,048)

Cash flows from financing activities:
Proceeds from exercise of stock options and
 stock purchase plan..........................     35,511     7,997      5,696
Proceeds from stock private placement.........    144,000
Proceeds from warrant exercise................    143,526        70
Purchase of treasury stock....................   (171,796)            (196,608)
Proceeds from (repayment of) bank borrowings--
 net..........................................   (397,136)  106,541     71,343
Principal payment on other long-term notes....                          (6,000)
                                                ---------  --------  ---------
Net cash flows provided from (used for)
 financing activities.........................   (245,895)  114,608   (125,569)
Increase (decrease) in cash and cash
 equivalents..................................      2,548     2,299     (2,275)
Cash and cash equivalents at beginning of
 year.........................................      3,924     1,625      3,900
                                                ---------  --------  ---------
Cash and cash equivalents at end of year......  $   6,472  $  3,924  $   1,625
                                                =========  ========  =========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       26
<PAGE>

                              BJ SERVICES COMPANY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

   BJ Services Company is a leading provider of pressure pumping and other
oilfield services to the petroleum industry. The consolidated financial
statements include the accounts of BJ Services Company and its majority-owned
subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.

   Certain amounts for 1999 and 1998 have been reclassified in the accompanying
consolidated financial statements to conform to the current year presentation.

2. Summary of Significant Accounting Policies

   Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from these estimates.

   Cash and cash equivalents: The Company considers all highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.

   Inventories: Inventories, which consist principally of (i) products which
are consumed in the Company's services provided to customers, (ii) spare parts
for equipment used in providing these services and (iii) manufactured
components and attachments for equipment used in providing services, are stated
primarily at the lower of weighted-average cost or market.

   Property: Property is stated at cost less amounts provided for permanent
impairments and includes capitalized interest of $1,557,000, $2,317,000, and
$1,665,000 for the years ended September 30, 2000, 1999, and 1998,
respectively, on funds borrowed to finance the construction of capital
additions. Depreciation is generally provided using the straight-line method
over the estimated useful lives of individual items. Leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated useful
life or the lease term.

   Intangible assets: Goodwill represents the excess of cost over the fair
value of the net assets of companies acquired in purchase transactions.
Goodwill is being amortized on a straight-line method over periods ranging from
5 to 40 years. Patents are being amortized on a straight line basis over their
estimated useful lives, not to exceed 17 years. Accumulated amortization on
intangible assets at September 30, 2000 and 1999 was $70,557,000 and
$51,934,000 respectively. The Company utilizes undiscounted estimated cash
flows to evaluate any possible impairment of intangible assets. If such cash
flows are less than the net carrying value of the intangible assets, the
Company records an impairment charge equal to the difference in discounted
estimated cash flows and the net carrying value. The discount rate utilized is
based on market factors at the time the charge is determined.

   Investments: Investments in companies in which the Company's ownership
interest ranges from 20 to 50 percent and the Company exercises significant
influence over operating and financial policies are accounted for using the
equity method. Other investments are accounted for using the cost method.

   Revenue Recognition: The Company recognizes revenue as services are rendered
or products are delivered. Certain revenues from the Company's process and
pipeline services are reported on the percentage of completion method of
accounting using measurements of progress towards completion appropriate for
the work performed.

                                       27
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Foreign currency translation: Gains and losses resulting from financial
statement translation of foreign operations where the U.S. dollar is the
functional currency are included in the consolidated statement of operations as
cost of sales. Gains and losses resulting from financial statement translation
of foreign operations where a foreign currency is the functional currency are
included as a separate component of stockholders' equity. Except in Canada, the
Company's foreign operations use the U.S. dollar as the functional currency.

   Foreign exchange contracts: From time to time, the Company enters into
forward foreign exchange contracts to hedge the impact of foreign currency
fluctuations on certain assets and liabilities denominated in foreign
currencies. Changes in market value are offset against foreign exchange gains
or losses on the related assets or liabilities and are included in cost of
sales and services. There was one foreign exchange contract outstanding at
September 30, 2000 in the amount of $50.6 million and none in 1999. This
contract was settled on October 1, 2000 with no gain or loss.

   Environmental remediation and compliance: Environmental remediation and
compliance costs are accrued based on estimates of known environmental
exposures. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably estimated.

   Impairment of long-lived assets: In accordance with Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company
recognizes impairment losses for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. In
the years ended September 30, 1999 and 1998, the Company recorded an impairment
of $23.1 million and $12.3 million, respectively, against certain long-lived
assets based on a decrease in the undiscounted cash flows expected to be
generated by these assets as a result of the downturn in oilfield drilling
activity. See Note 4.

   Employee stock-based compensation: In fiscal 1997, the Company adopted
Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"). Under SFAS 123, the Company is permitted to
either record expenses for stock options and other stock-based employee
compensation plans based on their fair value at the date of grant or to
continue to apply Accounting Principles Board Opinion No. 25 ("APB 25") and
recognize compensation expense, if any, based on the intrinsic value of the
equity instrument at the measurement date. The Company elected to continue
following APB 25; therefore, no compensation expense has been recognized
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant.

   New accounting pronouncements: In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. This statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000 and therefore was not
used in preparing the Company's 2000 financial statements. The adoption of this
Standard at the beginning of fiscal year 2001 did not have a material impact on
the Company's financial position or results of operations.

                                       28
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3. Acquisitions of Businesses

   Effective June 28, 1999, the Company acquired selected assets and
subsidiaries of Fracmaster Ltd. for total consideration of $78.4 million.

   This acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of Fracmaster Ltd.'s operations were included in the
Company's statement of operations beginning July 1, 1999. The assets and
liabilities of Fracmaster Ltd. have been recorded in the Company's statement of
financial position at estimated fair market value of $78.4 million at September
30, 1999. The allocation of the purchase price may be summarized as follows (in
millions):

<TABLE>
   <S>                                                                   <C>
   Fair value of assets acquired(1)..................................... $129.6
   Debt assumed.........................................................   (1.7)
   Liabilities assumed..................................................  (37.1)
   Excess of fair value over cost.......................................  (12.4)
                                                                         ------
                                                                         $ 78.4
                                                                         ======
</TABLE>
--------
(1) Includes cash acquired of $4.9 million.

   Pro forma financial information is not presented as this acquisition is not
material to the Company's consolidated financial statements.

   Other: Effective June 1, 2000, the Company acquired the remaining 60%
ownership of its previously unconsolidated joint venture in Malaysia for total
consideration of $3.2 million in cash.

   Effective September 30, 1998, the Company acquired the remaining 51%
ownership of its previously unconsolidated joint venture in Bolivia for total
consideration of $2.6 million in cash.

   Each of these "other" acquisitions have been accounted for using the
purchase method of accounting and, accordingly, any excess of the total
consideration over the estimated fair value of the net assets acquired has been
recorded as goodwill and is being amortized over 40 years. These acquisitions
are not material to the Company's financial statements and therefore pro forma
information is not presented.

4. Unusual Charges

   During fiscal 1999, the Company recorded pretax unusual charges totaling
$39.7 million ($26.0 million after tax, or $.36 per diluted share) to reflect
changes in its operations as a result of the downturn in oilfield drilling
activity. The components of the unusual charge are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    Balance at
                                                 1999    Incurred  September 30,
                                               Provision to Date       2000
                                               --------- --------  -------------
   <S>                                         <C>       <C>       <C>
   Asset impairments (noncash)................  $23,051  $(23,051)
   Severance and related benefits.............   12,798   (12,798)
   Facility closures and other................    3,846    (3,730)    $  116
                                                -------  --------     ------
                                                $39,695  $(39,579)    $  116
                                                =======  ========     ======
</TABLE>

   The 1999 asset impairment losses of $23.1 million primarily relate to
certain equipment previously utilized in the Company's U.S. operations, which
were sold or decommissioned and salvaged for spare parts. The

                                       29
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

severance and related benefits relate to the cost of the involuntary
termination of approximately 1,100 employees worldwide. The facility closures
and other costs primarily represent remaining lease obligations related to the
closure of several locations in the oil producing regions of the U.S. and also
one location in Latin America, and costs incurred during the first six months
of fiscal 1999 for the relocation of equipment and personnel resulting from the
closing of these facilities. Except for the remaining lease obligations of $.5
million related to the closure of locations, all expenditures for this
provision were made as of September 30, 1999. The unexpended provision for
remaining lease obligations related to the closure of locations was $.1 million
at September 30, 2000.

   During the fourth quarter of fiscal 1998, the Company recorded a pretax
unusual charge of $26.6 million ($17.6 million after tax, or $.22 per diluted
share) to reflect changes in its operations as a result of the downturn in
oilfield drilling activity. The components of the unusual charge were as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                         1998
                                                                       Provision
                                                                       ---------
   <S>                                                                 <C>
   Asset impairments (noncash)........................................  $12,218
   Severance and related benefits.....................................    7,830
   Bad debt expense (noncash).........................................    3,005
   Facility closure (1)...............................................    2,455
   Other..............................................................    1,078
                                                                        -------
                                                                        $26,586
                                                                        =======
</TABLE>
--------
(1) Includes $55 noncash impairment of facilities.

   The 1998 asset impairment losses of $12.2 million consist principally of the
write-down of certain non-productive facilities and equipment in the U.S., and
result from the evaluation of the Company's ability to recover asset costs
given the downturn in oilfield drilling activity. The severance and related
benefits costs relate to the involuntary termination of approximately 850
permanent and contracted personnel worldwide, substantially all of which had
been notified as of September 30, 1998. The bad debt expense relates to the
write-off of uncollectible receivables resulting from certain customers'
inability to pay their obligations due to reduced production revenue as a
result of the lower prices for oil and natural gas. The facility closure costs
relate to the closing of certain marginal operating locations which were most
impacted by the drilling downturn and also cancellation costs related to a
proposed new office building. The other costs relate primarily to legal
expenses resulting from the employee terminations and cancellation costs
related to certain proposed equipment purchases. All expenditures for the 1998
provision were made as of September 30, 1999.

5. Earnings Per Share

   In October 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("EPS"). In accordance with this
standard the Company has replaced the presentation of primary EPS and fully
diluted EPS with the presentation of basic EPS and diluted EPS for all periods
presented. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is based on the weighted-average
number of shares outstanding during each period and the assumed exercise of
dilutive stock options and warrants less the number of treasury shares assumed
to be purchased from the proceeds using the average market price of the
Company's common stock for each of the periods presented.

   At the annual meeting of stockholders on January 22, 1998, the Company's
stockholders approved an amendment to the Company's charter increasing the
number of authorized shares of common stock from 80

                                       30
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

million to 160 million shares. A 2 for 1 stock split approved by the Board of
Directors on December 11, 1997 (effected in the form of a stock dividend) was
distributed on February 20, 1998 to stockholders of record as of January 30,
1998. Accordingly, all references in the financial statements to number of
shares outstanding and earnings per share amounts have been retroactively
restated for all periods presented to reflect the increased number of common
shares outstanding resulting from the stock split.

   The following table presents information necessary to calculate earnings per
share for the three years ended September 30, 2000 (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                     2000     1999      1998
                                                   -------- --------  --------
   <S>                                             <C>      <C>       <C>
   Net income (loss).............................. $117,976 $(29,688) $117,400
   Average common shares outstanding..............   79,254   70,789    74,482
                                                   -------- --------  --------
   Basic earnings (loss) per share................ $   1.49 $   (.42) $   1.58
                                                   ======== ========  ========
   Average common and dilutive potential common
    shares outstanding:
     Average common shares outstanding............   79,254   70,789    74,482
     Assumed exercise of stock options............    2,176       (1)    1,780
     Assumed exercise of warrants(2)..............    2,920       (1)    5,001
                                                   -------- --------  --------
                                                     84,350   70,789    81,263
                                                   -------- --------  --------
   Diluted earnings (loss) per share.............. $   1.40 $   (.42) $   1.44
                                                   ======== ========  ========
</TABLE>
--------
(1) Antidilutive because the Company incurred a net loss in this period.
(2) Includes dilutive impact of warrants for the periods they were outstanding
    through April 2000.

6. Long-Term Debt and Bank Credit Facilities

   Long-term debt at September 30, 2000 and 1999 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                2000     1999
                                                              -------- --------
   <S>                                                        <C>      <C>
   Notes payable, banks...................................... $ 46,763 $341,064
   7% Series B Notes due 2006, net of discount...............  124,593  124,517
   Other.....................................................    1,276    1,670
                                                              -------- --------
                                                               172,632  467,251
   Less current maturities of long-term debt.................   30,651   44,487
                                                              -------- --------
   Long-term debt............................................ $141,981 $422,764
                                                              ======== ========
</TABLE>

   The Company has a committed, unsecured bank credit facility (the "Bank
Credit Facility") consisting of a six-year term loan of approximately $46.8
million (currently drawn in Canadian dollars under a provision which is
renewable annually at the option of the banks), which is repayable in 22
quarterly installments that began in March 1997, and a five year U.S. $225.0
million revolving facility available through June 2001. Interest on outstanding
borrowings is charged based on prevailing market rates. Interest rates were
6.25% and 5.65% at September 30, 2000 and 1999, respectively. The Company is
charged various fees in connection with the Bank Credit Facility, including a
commitment fee based on the average daily unused portion of the commitment.
Commitment fees under the Company's credit facilities were $290,000, $155,000,
and $355,000 for 2000, 1999 and 1998, respectively. At September 30, 2000,
borrowings outstanding under the Bank Credit

                                       31
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Facility totaled $46.8 million, consisting solely of borrowings under the term
loan. Principal reductions of term loans under the Bank Credit Facility are due
in aggregate annual installments of $30.4 million and $16.4 million in the
years ending September 30, 2001 and 2002, respectively.

   In addition to the committed facility, the Company had $149.4 million in
various unsecured, discretionary lines of credit at September 30, 2000, which
expire at various dates in 2001. There are no requirements for commitment fees
or compensating balances in connection with these lines of credit. Interest on
borrowings is based on prevailing market rates. At September 30, 2000, there
were $3.4 million in outstanding borrowings under these lines of credit. At
September 30, 1999, there were $106.0 million in outstanding borrowings under
these lines of credit. The weighted average interest rates on short-term
borrowings outstanding as of September 30, 2000 and 1999 were 9.1% and 5.6%,
respectively.

   The Company has issued and outstanding $125.0 million of unsecured 7% Notes
due 2006. The net proceeds from the issuance of the 7% Notes ($123.3 million)
in August 1996 were used by the Company to repay indebtedness outstanding under
the term loan portion of the Company's then existing bank credit facility.

   At September 30, 2000, the Company had outstanding letters of credit and
performance related bonds totaling $18.9 million and $46.2 million,
respectively. The letters of credit are issued to guarantee various trade
activities.

   The Company's debt agreements contain various customary covenants including
maintenance of certain profitability and solvency ratios and restrictions on
dividend payments, as defined in the Bank Credit Facility, none of which
materially restrict the Company's activities.

7. Financial Instruments

   The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.

   Cash and Cash Equivalents, Trade Receivables, Trade Payables and Short-Term
Borrowings: The carrying amount approximates fair value because of the short
maturity of those instruments.

   Long-term Debt: Fair value is based on the rates currently available to the
Company for debt with similar terms and average maturities. Other long-term
debt consists of borrowings under the Company's Bank Credit Facility. The
carrying amount of such borrowings approximates fair value as the individual
borrowings bear interest at current market rates.

   The fair value of financial instruments which differed from their carrying
value at September 30, 2000 and 1999 was as follows (in thousands):

<TABLE>
<CAPTION>
                                                   2000              1999
                                             ----------------- -----------------
                                             Carrying   Fair   Carrying   Fair
                                              Amount   Value    Amount   Value
                                             -------- -------- -------- --------
   <S>                                       <C>      <C>      <C>      <C>
   7.0% Series B Notes...................... $124,593 $120,946 $124,517 $121,936
</TABLE>

                                       32
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8. Income Taxes

   The geographical sources of income (loss) before income taxes for the three
years ended September 30, 2000 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                      2000     1999      1998
                                                    -------- --------  --------
   <S>                                              <C>      <C>       <C>
   United States................................... $100,576 $(67,887) $ 72,120
   Foreign.........................................   74,707   22,978    99,934
                                                    -------- --------  --------
   Income (loss) before income taxes............... $175,283 $(44,909) $172,054
                                                    ======== ========  ========
</TABLE>

   The provision (benefit) for income taxes for the three years ended September
30, 2000 is summarized below (in thousands):

<TABLE>
<CAPTION>
                                                       2000     1999     1998
                                                      ------- --------  -------
   <S>                                                <C>     <C>       <C>
   Current:
     United States................................... $ 1,081           $   379
     Foreign.........................................  17,189 $ 17,645   22,849
                                                      ------- --------  -------
       Total current.................................  18,270   17,645   23,228
   Deferred:
     United States...................................  38,635  (26,501)  28,353
     Foreign.........................................     402   (6,365)   3,073
                                                      ------- --------  -------
       Total deferred................................  39,037  (32,866)  31,426
                                                      ------- --------  -------
   Income tax (benefit) expense...................... $57,307 $(15,221) $54,654
                                                      ======= ========  =======
</TABLE>

   The consolidated effective income tax rates (as a percent of income before
income taxes) for the three years ended September 30, 2000 varied from the
United States statutory income tax rate for the reasons set forth below:

<TABLE>
<CAPTION>
                                                             2000  1999    1998
                                                             ----  -----   ----
   <S>                                                       <C>   <C>     <C>
   Statutory rate........................................... 35.0% (35.0)% 35.0%
   Foreign earnings at varying rates........................ (5.4) (10.4)  (7.2)
   Foreign income recognized domestically...................   .3   (4.8)    .6
   Goodwill amortization....................................  2.1   10.5    2.8
   Nondeductible expenses...................................  1.1    5.6     .8
   Other--net...............................................  (.4)    .2    (.2)
                                                             ----  -----   ----
                                                             32.7% (33.9)% 31.8%
                                                             ====  =====   ====
</TABLE>

                                       33
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions in which the Company has
operations. Generally, deferred tax assets and liabilities are classified as
current or noncurrent according to the classification of the related asset or
liability for financial reporting. The estimated deferred tax effect of
temporary differences and carryforwards as of September 30, 2000 and 1999 were
as follows (in thousands):

<TABLE>
<CAPTION>
                                                             2000      1999
                                                           --------  --------
   <S>                                                     <C>       <C>
   Assets:
     Expenses accrued for financial reporting purposes,
      not yet deducted for tax............................ $ 74,425  $ 50,590
     Net operating loss carryforwards.....................  195,639   233,314
     Valuation allowance..................................  (39,140)  (34,920)
                                                           --------  --------
       Total deferred tax asset...........................  230,924   248,984
   Liabilities:
     Differences in depreciable basis of property.........  (20,994)  (33,723)
     Income accrued for financial reporting purposes, not
      yet reported for tax................................   (2,469)   (4,397)
                                                           --------  --------
       Total deferred tax liability.......................  (23,463) (38,120 )
                                                           --------  --------
   Net deferred tax asset................................. $207,461  $210,864
                                                           ========  ========
</TABLE>

   At September 30, 2000, the Company had approximately $421 million of U.S.
tax net operating loss carryforwards expiring in varying amounts between 2002
and 2014. The Company also had approximately $80 million of foreign tax net
operating loss carryforwards and approximately $11 million of foreign research
and development tax credit carryforwards as of September 30, 2000. Of the
foreign tax net operating loss carryforwards, approximately $54 million is not
subject to an annual limitation and will carryforward indefinitely. The foreign
research and development tax credit carryforward and the remaining loss
carryforward, if not used, will expire in varying amounts beginning in 2001.
The potential impact of the expiration of net operating loss and research and
development tax credit carryforwards has been reflected in the deferred tax
asset valuation allowance balance as of September 30, 2000 and 1999. In 2000,
the deferred tax valuation allowance was increased by $1.1 million as a result
of final adjustments to the Fracmaster purchase price allocation. The allowance
was increased by $3.9 million related to net operating losses recognized in
Venezuela, which are expected to expire prior to utilization. The allowance was
reduced by $.8 million as a result of foreign exchange movements.

   The Company does not provide federal income taxes on the undistributed
earnings of its foreign subsidiaries that the Company considers to be
permanently reinvested in foreign operations. The cumulative amount of such
undistributed earnings was approximately $446 million at September 30, 2000. If
these earnings were to be remitted to the Company, any U.S. income taxes
payable would be substantially reduced by foreign tax credits generated by the
repatriation of the earnings.

                                       34
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


9. Segment Information

   The Company has three business segments: U.S./Mexico Pressure Pumping,
International Pressure Pumping and Other Oilfield Services. The U.S./Mexico
Pressure Pumping Services segment includes cementing services and stimulation
services (consisting of fracturing, acidizing, sand control, nitrogen, coiled
tubing and downhole tools services) which are provided throughout the United
States and Mexico. The International Pressure Pumping Services segment also
includes cementing and stimulation services which are provided to over 40
countries in the major international oil and natural gas producing areas of
Latin America, Europe, Africa, Southeast Asia, Canada and the Middle East. The
Other Oilfield Services segment consists of specialty chemicals, tubular
services and process and pipeline services, both throughout the U.S. and
internationally.

   The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates the
performance of its operating segments based on operating income excluding
goodwill amortization and unusual charges. Intersegment sales and transfers are
not significant.

   Summarized financial information concerning the Company's segments is shown
in the following table. The "Corporate" column includes corporate general and
administrative expenses, goodwill amortization and unusual charges.

Business Segments

<TABLE>
<CAPTION>
                         U.S./Mexico International  Other
                          Pressure     Pressure    Oilfield
                           Pumping      Pumping    Services Corporate    Total
                         ----------- ------------- -------- ---------  ----------
                                             (in thousands)
<S>                      <C>         <C>           <C>      <C>        <C>
2000
Revenues................  $743,788     $629,218    $182,354 $     29   $1,555,389
Operating income
 (loss).................   141,816       68,536      17,940  (33,067)     195,225
Identifiable assets.....   351,269      573,414     119,105  741,445    1,785,233
Capital expenditures....    31,656       36,150       7,863    4,849       80,518
Depreciation and
 amortization...........    38,791       52,258      11,112     (143)     102,018

1999
Revenues................  $453,912     $505,613    $171,184 $    625   $1,131,334
Operating income
 (loss).................    (3,889)      39,791      18,973  (69,640)     (14,765)
Identifiable assets.....   356,794      584,936     122,121  760,913    1,824,764
Capital expenditures....    42,460       36,515      12,607   18,984      110,566
Depreciation and
 amortization...........    36,532       44,951      10,677    7,640       99,800

1998
Revenues................  $726,729     $612,672    $185,329 $  2,738   $1,527,468
Operating income
 (loss).................   117,604       97,494      27,611  (44,946)     197,763
Identifiable assets.....   359,349      530,848     123,613  729,891    1,743,701
Capital expenditures....    58,070       89,924      14,853    5,114      167,961
Depreciation and
 amortization...........    34,280       40,822      10,145    6,250       91,497
</TABLE>

                                       35
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Geographic Information

<TABLE>
<CAPTION>
                                                                      Long-Lived
                                                            Revenues    Assets
                                                           ---------- ----------
                                                              (in thousands)
   <S>                                                     <C>        <C>
   2000
   United States.......................................... $  801,431 $  693,860
   Canada.................................................    223,227    105,174
   Other foreign countries................................    530,731    280,026
                                                           ---------- ----------
     Consolidated total................................... $1,555,389 $1,079,060
                                                           ========== ==========
   1999
   United States.......................................... $  488,566 $  769,492
   Canada.................................................    118,996    114,159
   Other foreign countries................................    523,772    300,376
                                                           ---------- ----------
     Consolidated total................................... $1,131,334 $1,184,027
                                                           ========== ==========
   1998
   United States.......................................... $  779,715 $  780,029
   Canada.................................................    153,611     68,582
   Other foreign countries................................    594,142    272,130
                                                           ---------- ----------
     Consolidated total................................... $1,527,468 $1,120,741
                                                           ========== ==========
</TABLE>

Revenues by Product Line

<TABLE>
<CAPTION>
                                                   2000       1999       1998
                                                ---------- ---------- ----------
                                                         (in thousands)
   <S>                                          <C>        <C>        <C>
   Cementing................................... $  492,159 $  356,762 $  499,789
   Stimulation.................................    846,796    577,077    797,578
   Other.......................................    216,434    197,495    230,101
                                                ---------- ---------- ----------
     Total revenue............................. $1,555,389 $1,131,334 $1,527,468
                                                ========== ========== ==========
</TABLE>

   A reconciliation from the segment information to consolidated income (loss)
before income taxes is set forth below (in thousands):

<TABLE>
<CAPTION>
                                                   2000      1999      1998
                                                 --------  --------  --------
   <S>                                           <C>       <C>       <C>
   Total operating profit (loss) for reportable
    segments...................................  $195,225  $(14,765) $197,763
   Interest income (expense)--net..............   (18,392)  (30,757)  (24,937)
   Other income (expense)--net.................    (1,550)      613      (772)
                                                 --------  --------  --------
   Income (loss) before income taxes...........  $175,283  $(44,909) $172,054
                                                 ========  ========  ========
</TABLE>

                                       36
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


10. Employee Benefit Plans

U.S. Benefit Plans

   The Company administers a thrift plan for U.S. based employees whereby
eligible employees elect to contribute from 2% to 12% of their base salaries to
an employee benefit trust. Employee contributions are matched by the Company at
the rate of $.50 per $1.00 up to 6% of the employee's base salary. In addition,
the Company contributes between 2% and 5% of each employee's base salary
depending on their age as of January 1 each year as a base contribution.
Company matching contributions vest immediately while base contributions become
fully vested after five years of employment. The Company's contributions to
these thrift plans amounted to $7,614,000, $7,365,000 and $7,916,000 in 2000,
1999 and 1998, respectively.

   Effective October 1, 2000, the Company established a supplemental executive
retirement plan. The unfunded defined benefit plan will provide Company
executives with supplemental retirement benefits. The supplemental retirement
benefits are based on the highest consecutive three years compensation out of
the final ten years and become vested at age 55.

   The Company's U.S. employees formerly employed by The Western Company of
North America ("Western") with at least one year of service are covered under a
defined benefit pension plan as a carryover from the Western acquisition.
Pension benefits are based on years of service and average compensation for
each employee's five consecutive highest paid years during the last ten years
worked. Benefits under the Western plan were frozen effective December 31,
1995, at which time all earned benefits were vested. Management has not yet
made a decision on whether to terminate the plan and therefore will fund the
amounts necessary to meet minimum funding requirements under the Employees'
Retirement Income Security Act, as amended. The funded status of this plan at
September 30, 2000 and 1999 was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                2000     1999
                                                               -------  -------
   <S>                                                         <C>      <C>
   Vested benefit obligation.................................. $52,221  $53,383
                                                               =======  =======
   Accumulated benefit obligation............................. $52,221  $53,383
   Plan assets at fair value..................................  51,396   48,970
                                                               -------  -------
   Benefit obligation in excess of plan assets................     825    4,413
   Unrecognized loss..........................................  (3,663)  (4,440)
   Adjustment required to recognize minimum liability.........   3,663    4,440
                                                               -------  -------
   Net pension liability...................................... $   825  $ 4,413
                                                               =======  =======
</TABLE>

   The following provides a reconciliation of the benefit obligation and plan
assets:

<TABLE>
<CAPTION>
                                                                2000     1999
                                                               -------  -------
   <S>                                                         <C>      <C>
   Change in benefit obligation
   Defined benefit plan obligation, beginning of year......... $53,383  $56,577
   Interest cost..............................................   3,756    3,589
   Actuarial (gain)/loss......................................  (1,758)  (3,617)
   Benefits paid from plan assets.............................  (3,160)  (3,166)
                                                               -------  -------
   Defined benefit plan obligation, end of year............... $52,221  $53,383
                                                               =======  =======
   Change in plan assets
   Fair value of plan assets, beginning of year............... $48,970  $47,377
   Company contributions......................................   2,300
   Actual return on plan assets...............................   3,286    4,759
   Benefits paid from plan assets.............................  (3,160)  (3,166)
                                                               -------  -------
   Fair value of plan assets, end of year..................... $51,396  $48,970
                                                               =======  =======
</TABLE>

                                       37
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions," the Company recorded in other
noncurrent liabilities a minimum pension liability adjustment of $3.7 million
and $4.4 million as of September 30, 2000 and 1999, respectively. As there were
no previously unrecognized prior service costs at September 30, 2000 and 1999,
the full amount of the adjustments, net of related deferred tax benefit, are
reflected as a reduction of stockholders' equity. See Note 12 for disclosure of
the amounts included in other comprehensive income.

   Assumptions used in accounting for the Company's U.S. defined benefit plan
were as follows:

<TABLE>
<CAPTION>
                                                             2000  1999  1998
                                                             ----  ----  ----
   <S>                                                       <C>   <C>   <C>
   Weighted-average discount rate........................... 7.70% 7.25% 6.50%
   Weighted-average expected long-term rate of return on
    assets.................................................. 9.00% 9.00% 9.00%
</TABLE>

   Costs for each of the three years ended September 30, 2000 for the Company's
U.S. defined benefit plan were as follows (in thousands):

<TABLE>
<CAPTION>
                                                     2000     1999     1998
                                                    -------  -------  -------
   <S>                                              <C>      <C>      <C>
   Interest cost on projected benefit obligation... $ 3,756  $ 3,589  $ 3,571
   Expected return on plan assets..................  (4,268)  (4,142)  (4,044)
   Net amortization and deferral...................              520
                                                    -------  -------  -------
   Net pension cost (benefit)...................... $  (512) $   (33) $  (473)
                                                    =======  =======  =======
</TABLE>

Foreign Benefit Plans

   In addition, the Company sponsors defined benefit plans for foreign
operations, which cover substantially all employees in Canada and the United
Kingdom. Effective July 1, 2000, a defined contribution component was added to
the Canadian pension plan and active members were permitted to elect whether to
participate in the defined benefit or defined contribution component of the
plan. The plan conversion resulted in a settlement of the projected benefit
obligation with respect to members who elected to transfer their benefits
entitlement to the defined contribution component of the plan. A settlement
gain of $1.5 million was recognized in other income for the year ended
September 30, 2000. The Company also sponsored a defined benefit plan in
Venezuela until 1998. During fiscal year 1998, a new labor law was enacted in
Venezuela which resulted in termination of the plan. The new labor law in
essence prospectively requires employers to fund stipulated amounts based on
employees' salaries into a trust fund. After making the contribution, the
Company has no further obligation. Therefore, no obligation is included for
Venezuela in the figures below. The funded status of the Company's
international plans at September 30, 2000 and 1999 was as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              2000     1999
                                                             -------  -------
   <S>                                                       <C>      <C>
   Actuarial present value of:
     Vested benefit obligation.............................. $48,788  $53,998
                                                             =======  =======
     Accumulated benefit obligation......................... $48,850  $55,327
                                                             =======  =======
   Projected benefit obligation............................. $54,622  $61,519
   Plan assets at fair value................................  64,776   65,311
                                                             -------  -------
   Plan assets in (excess of) less than projected benefit
    obligation.............................................. (10,154)  (3,792)
   Unrecognized gain (loss).................................  10,198    5,344
   Unrecognized transition asset, net of amortization.......      19       26
   Unrecognized prior service cost..........................    (130)    (170)
                                                             -------  -------
   Net pension (asset) liability............................ $   (67) $ 1,408
                                                             =======  =======
</TABLE>

                                       38
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following provides a reconciliation of the benefit obligation and plan
assets of the Company's international defined benefit plans (in thousands):

<TABLE>
<CAPTION>
                                                                2000     1999
                                                               -------  -------
   <S>                                                         <C>      <C>
   Change in benefit obligation
   Defined benefit obligation, beginning of year.............. $61,519  $58,667
   Service cost...............................................   4,700    5,478
   Interest cost..............................................   3,844    3,860
   Actuarial (gain)/loss......................................  (1,762)  (3,894)
   Benefits paid from plan assets.............................  (2,039)  (3,658)
   Contributions by plan participants.........................     847    1,045
   Settlement on conversion...................................  (8,075)
   Foreign currency exchange rate change......................  (4,412)      21
                                                               -------  -------
   Defined benefit obligation, end of year.................... $54,622  $61,519
                                                               =======  =======
   Change in plan assets
   Fair value of plan assets, beginning of year............... $65,311  $52,668
   Actual return on plan assets...............................  10,219   11,286
   Company contributions......................................   2,552    2,783
   Contributions by plan participants.........................   1,720    1,981
   Benefits paid from plan assets.............................  (2,039)  (3,658)
   Settlement of assets on conversion.........................  (8,257)
   Foreign currency exchange rate change......................  (4,730)     251
                                                               -------  -------
   Fair value of plan assets, end of year..................... $64,776  $65,311
                                                               =======  =======
</TABLE>

   Assumptions used in accounting for the Company's international defined
benefit pension plans were as follows:

<TABLE>
   <S>                                                                      <C>
   Weighted-average discount rate.......................................... 6-7%
   Weighted-average rate of increase in future compensation................ 2-5%
   Weighted-average expected long-term rate of return on assets............ 2-9%
</TABLE>

   Combined costs for the Company's international defined benefit plans for the
three years ended September 30, 2000 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                        2000    1999     1998
                                                       ------  -------  ------
   <S>                                                 <C>     <C>      <C>
   Net periodic foreign pension cost:
     Service cost for benefits earned................. $4,700  $ 5,478  $5,492
     Interest cost on projected benefit obligation....  3,844    3,860   4,112
     Expected return on plan assets................... (7,459) (11,387)  3,335
     Recognized gain on settlement.................... (1,454)
     Net amortization and deferral....................  2,423    7,309  (7,615)
                                                       ------  -------  ------
   Net pension cost................................... $2,054  $ 5,260  $5,324
                                                       ======  =======  ======
</TABLE>

   In addition, the Company expensed $130,000, $780,000 and $910,000 during
2000, 1999 and 1998, respectively, relating to the settlement of the pension
liability resulting from the enactment of the new labor law in Venezuela.

                                       39
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Postretirement Benefit Plans

   The Company also sponsors plans whereby certain health care and life
insurance benefits are provided for retired employees (primarily U.S.) and
their eligible dependents if the employee meets specified age and service
requirements. These plans are unfunded and the Company retains the right,
subject to existing agreements, to modify or eliminate these plans.

   The Company's postretirement medical benefit plan provides credits based on
years of service which can be used to purchase coverage under the active
employee plans. This plan effectively caps the Company's health care inflation
rate at a 4% increase per year. The 1995 reduction in the accumulated
postretirement benefit obligation of approximately $5.7 million due to this cap
is being amortized over the average period of future service to the date of
full eligibility for such postretirement benefits of the active employees.

   Net periodic postretirement benefit costs for the three years ended
September 30, 2000 included the following components (in thousands):

<TABLE>
<CAPTION>
                                                        2000    1999    1998
                                                       ------  ------  ------
   <S>                                                 <C>     <C>     <C>
   Service cost for benefits attributed to service
    during the period................................  $1,392  $1,786  $1,563
   Interest cost on accumulated postretirement
    benefit obligation...............................   1,615   1,532   1,513
   Amortization of prior service costs...............    (599)   (894)   (894)
   Amortization of cumulative unrecognized net gain..    (546)            (65)
                                                       ------  ------  ------
   Net periodic postretirement benefit cost..........  $1,862  $2,424  $2,117
                                                       ======  ======  ======
</TABLE>

   The actuarial and recorded liabilities for these postretirement benefits
were as follows at September 30, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                 2000    1999
                                                                ------- -------
   <S>                                                          <C>     <C>
   Accumulated postretirement benefit obligation:
     Retirees.................................................. $ 6,687 $7 ,420
     Fully eligible active plan participants...................   2,681   2,072
     Other active plan participants............................  14,345  13,330
                                                                ------- -------
                                                                 23,713  22,822
   Unrecognized cumulative net gain............................   6,436   6,511
   Unrecognized prior service cost.............................             599
                                                                ------- -------
   Accrued postretirement benefit liability.................... $30,149 $29,932
                                                                ======= =======
</TABLE>

   The following provides a reconciliation of the benefit obligation and plan
assets (in thousands):

<TABLE>
<CAPTION>
                                                                2000     1999
                                                               -------  -------
   <S>                                                         <C>      <C>
   Change in benefit obligation
   Postretirement benefit obligation, beginning of year....... $22,822  $25,017
   Service cost...............................................   1,392    1,786
   Interest cost..............................................   1,615    1,532
   Actuarial (gain)/loss......................................    (472)  (4,667)
   Benefits paid..............................................  (1,644)    (846)
                                                               -------  -------
   Postretirement benefit obligation, end of year............. $23,713  $22,822
                                                               =======  =======
</TABLE>

   The accumulated postretirement benefit obligation at September 30, 2000 and
1999 was determined using a discount rate of 7.70% and 7.25%, respectively, and
a health care cost trend rate of 4%, reflecting the cap

                                       40
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

discussed above. Increasing the assumed health care cost trend rates by one
percentage point would not have a material impact on the accumulated
postretirement benefit obligation or the net periodic postretirement benefit
cost because these benefits are effectively capped by the Company.

11. Commitments and Contingencies

   The Company, through performance of its service operations, is sometimes
named as a defendant in litigation, usually relating to claims for bodily
injuries or property damage (including claims for well or reservoir damage).
The Company maintains insurance coverage against such claims to the extent
deemed prudent by management. The Company believes that there are no existing
claims of a potentially material adverse nature for which it has not already
provided appropriate accruals.

   Federal, state and local laws and regulations govern the Company's operation
of underground fuel storage tanks. Rather than incur additional costs to
restore and upgrade tanks as required by regulations, management has opted to
remove the existing tanks. The Company has completed the removal of these tanks
and has remedial cleanups in progress related to the tank removals. In
addition, the Company is conducting environmental investigations and remedial
actions at current and former company locations and, along with other
companies, is currently named as a potentially responsible party at five,
third-party owned waste disposal sites. The Company has established an accrual
of approximately $7 million for such environmental matters, which is
management's best estimate of the Company's portion of future costs to be
incurred. The Company also maintains insurance for environmental liabilities in
amounts which the Company believes are reasonable based on its knowledge of
potential exposures.

   In December 1999, the Company completed a transaction involving the transfer
of certain pumping service equipment assets. The Company received $120.0
million, which was used to pay outstanding bank debt. The equipment will be
used to provide services to the Company's customers for which the Company will
pay a service fee over a period of at least six, but not more than 13 years.
The transaction generated a deferred gain for book purposes, included in other
long-term liabilities, of approximately $63 million, which is being amortized
over 13 years. The balance of the deferred gain was $57.4 million as of
September 30, 2000.

   In 1997, the Company completed a transaction involving the transfer of
certain pumping service equipment assets. The Company received $100.0 million,
which was used to pay outstanding bank debt. The equipment will be used to
provide services to the Company's customers for which the Company will pay a
service fee over a period of at least eight, but not more than 14 years. The
transaction generated a deferred gain for book purposes of approximately $38
million, which will be amortized over 12 years. The balance of the deferred
gain was $25.4 million and $28.3 million as of September 30, 2000 and 1999,
respectively.

   Lease and Other Long-Term Commitments: At September 30, 2000, the Company
had long-term operating leases and service fee commitments covering certain
facilities and equipment, as well as other long-term commitments, with varying
expiration dates. Minimum annual commitments for the years ended September 30,
2001, 2002, 2003, 2004 and 2005 are $47,141,000, $40,889,000, $35,155,000,
$33,198,000 and $33,788,000, respectively and $134,205,000 in the aggregate
thereafter.

                                       41
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


12. Supplemental Financial Information

   Supplemental financial information for the three years ended September 30,
2000 is as follows (in thousands):
<TABLE>
<CAPTION>
                                                     2000     1999     1998
                                                    -------  -------  -------
   <S>                                              <C>      <C>      <C>
   Consolidated Statement of Operations:
    Research and development expense............... $10,943  $10,573  $11,908
    Rent expense...................................  56,235   46,871   46,153
    Net foreign exchange gain (loss)...............  (1,625)     (68)    (896)
   Consolidated Statement of Cash Flows:
    Income taxes paid.............................. $23,725  $15,571  $23,953
    Interest paid..................................  20,368   31,835   25,595
    Details of acquisitions:
     Fair value of assets acquired.................   3,711  112,276    3,855
     Liabilities assumed...........................     471   38,834    2,949
     Goodwill......................................                     1,553
     Cash paid for acquisitions, net of cash
      acquired.....................................   3,240   73,442    2,459
</TABLE>

   Other income (expense)--net for the three years ended September 30, 2000 is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                        2000     1999    1998
                                                       -------  ------  ------
   <S>                                                 <C>      <C>     <C>
   Rental income...................................... $ 1,395  $  114  $  384
   Gain (loss) on sales of assets--net................  (1,451)   (147)    (89)
   Minority interest..................................  (3,263) (2,585) (3,206)
   Non-operating net foreign exchange gain (loss).....     (26)     35   1,110
   Dividend income....................................           2,197
   Gain on pension settlement.........................   1,454
   Other--net.........................................     341     999   1,029
                                                       -------  ------  ------
   Other income (expense)--net........................ $(1,550) $  613  $ (772)
                                                       =======  ======  ======
</TABLE>

   Accumulated other comprehensive income consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                 Minimum
                                                 Pension   Cumulative
                                                Liability  Translation
                                                Adjustment Adjustment   Total
                                                ---------- ----------- -------
   <S>                                          <C>        <C>         <C>
   Balance, September 30, 1997.................  $(2,051)    $   540   $(1,511)
   Changes.....................................   (3,925)     12,855     8,930
                                                 -------     -------   -------
   Balance, September 30, 1998.................   (5,976)     13,395     7,419
   Changes.....................................    3,090      (5,585)   (2,495)
                                                 -------     -------   -------
   Balance, September 30, 1999.................   (2,886)      7,810     4,924
   Changes.....................................      505        (888)     (383)
                                                 -------     -------   -------
   Balance, September 30, 2000.................  $(2,381)    $ 6,922   $ 4,541
                                                 =======     =======   =======
</TABLE>

                                       42
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The tax effects allocated to each component of other comprehensive income
may be summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                              Tax
                                                Before-Tax (Expense) Net-of-Tax
                                                  Amount    Benefit    Amount
                                                ---------- --------- ----------
   <S>                                          <C>        <C>       <C>
   Year Ended September 30, 1998:
     Foreign currency translation adjustment...  $12,855              $12,855
     Minimum pension liability adjustment......   (6,038)   $ 2,113    (3,925)
                                                 -------    -------   -------
     Other comprehensive income................  $ 6,817    $ 2,113   $ 8,930
                                                 =======    =======   =======
   Year Ended September 30, 1999:
     Foreign currency translation adjustment...  $(5,585)             $(5,585)
     Minimum pension liability adjustment......    4,754    $(1,664)    3,090
                                                 -------    -------   -------
     Other comprehensive income................  $  (831)   $(1,664)  $(2,495)
                                                 =======    =======   =======
   Year Ended September 30, 2000:
     Foreign currency translation adjustment...  $  (888)             $  (888)
     Minimum pension liability adjustment......      777    $  (272)      505
                                                 -------    -------   -------
     Other comprehensive income................  $  (111)   $  (272)  $  (383)
                                                 =======    =======   =======
</TABLE>

13. Employee Stock Plans

   Stock Option Plans: The Company's 1990 Stock Incentive Plan, 1995 Incentive
Plan and 1997 Incentive Plan (the "Plans") provide for the granting of options
for the purchase of the Company's common stock ("Common Stock") and other
performance based awards to officers, key employees and nonemployee directors
of the Company. Such options vest over a three or four-year period and are
exercisable for periods ranging from one to ten years. An aggregate of
9,000,000 shares of Common Stock has been reserved for grants, of which
1,826,937 were available for future grants at September 30, 2000.

   A summary of the status of the Company's stock option activity, and related
information for the years ended September 30, 2000, 1999 and 1998 is presented
below (in thousands, except per share prices):

<TABLE>
<CAPTION>
                                  2000                   1999                   1998
                          ---------------------- ---------------------- ----------------------
                                  Weighted-Avg.          Weighted-Avg.          Weighted-Avg.
                          Shares  Exercise Price Shares  Exercise Price Shares  Exercise Price
                          ------  -------------- ------  -------------- ------  --------------
<S>                       <C>     <C>            <C>     <C>            <C>     <C>
Outstanding at beginning
 of year................   4,388      $16.34     2,888       $16.64     2,582       $13.14
Granted.................      76       35.55     2,023        14.73       503        35.22
Exercised...............  (1,932)      16.52      (468)       10.78      (164)       16.92
Forfeited...............     (56)      17.57       (55)       18.01       (33)       30.31
                          ------                 -----                  -----
Outstanding at end of
 year...................   2,476       16.77     4,388        16.36     2,888        16.64
                          ======                 =====                  =====
Options exercisable at
 year-end...............     905      $16.66     2,143       $15.41     2,260       $12.94
Weighted-average fair
 value of options
 granted during the
 year...................              $20.40                 $11.16                 $26.30
</TABLE>

                                       43
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes information about stock options outstanding
as of September 30, 2000 (in thousands, except per share prices):

<TABLE>
<CAPTION>
                                      Options Outstanding          Options Exercisable
                             ------------------------------------- --------------------
                                     Weighted-Avg.   Weighted-Avg.        Weighted-Avg.
                                       Remaining       Exercise             Exercise
   Range of Exercise Price   Shares Contractual Life     Price     Shares     Price
   -----------------------   ------ ---------------- ------------- ------ -------------
   <S>                       <C>    <C>              <C>           <C>    <C>
   $6.00 to 10.78..........    313        4.2            $8.74      313       $8.74
   10.79 to 21.56..........  1,677        7.7            14.03      327       13.65
   21.57 to 36.38..........    486        6.9            31.36      265       29.73
                             -----                                  ---
                             2,476        7.1            16.77      905       16.66
                             =====                                  ===
</TABLE>

   SFAS 123 encourages, but does not require, companies to record compensation
cost for employee stock-based compensation plans at fair value as determined by
generally recognized option pricing models such as the Black-Scholes model or
the binomial model. Because of the inexact and subjective nature of deriving
stock option values using these methods, the Company has adopted the
disclosure-only provisions of SFAS 123 and continues to account for stock-based
compensation as it has in the past using the intrinsic value method prescribed
in APB 25. Accordingly, no compensation expense has been recognized for the
Company's employee stock option plans. Had compensation cost for the Company's
employee stock option plans been determined based on the fair value at the
grant date for awards issued in 2000, 1999 and 1998 consistent with the
provisions of SFAS 123, the Company's net earnings and diluted earnings per
share would have been reduced by $6.4 million or $.08 per share, $6.0 million
or $.08 per share and $4.4 million or $.05 per share in 2000, 1999 and 1998,
respectively. As this calculation does not consider the effect of awards issued
prior to 1996, it may not be representative of the effects on pro forma net
income in future years. The pro forma fair value of options at the date of
grant was estimated using the Black-Scholes model and the following
assumptions:

<TABLE>
<CAPTION>
                                                        2000    1999    1998
                                                       ------  ------  ------
   <S>                                                 <C>     <C>     <C>
   Expected life (years)..............................    5.0     7.9     7.7
   Interest rate......................................    5.8%    6.2%    4.9%
   Volatility.........................................   64.2%   65.4%   66.2%
   Dividend yield.....................................      0       0       0
   Weighted-average fair value per share at grant
    date.............................................. $20.40  $11.16  $26.30
</TABLE>

   Stock Purchase Plan: The Company's 1990 Employee Stock Purchase Plan and the
Company's 1999 Employee Stock Purchase Plan (together, the "Purchase Plan") are
plans under which all employees may purchase shares of the Common Stock at 85%
of market value on the first or last business day of the twelve-month plan
period beginning each October, whichever is lower. Such purchases are limited
to 10% of the employee's regular pay. A maximum aggregate of 4,500,000 shares
has been reserved under the Purchase Plan, 3,220,938 of which were available
for future purchase at September 30, 2000. In October 2000, 196,922 shares were
purchased at $27.04 per share and in October 1999, 347,316 shares were
purchased at $13.81 per share. Had compensation cost for the Company's stock
purchase plan been determined consistent with the provisions of SFAS 123, the
Company's net earnings and diluted earnings per share would have been reduced
by $1.6 million or $.02 per share, $1.4 million or $.02 per share and $.6
million or $.01 per share in 2000, 1999 and 1998, respectively. The pro forma
value of the employees' purchase rights was estimated using the Black-Scholes
model with the following assumptions; no dividend yield; an expected life of 1
year; expected volatility of 64.2% in 2000, 65.4% in 1999 and 66.2% in 1998;
and a risk free interest rate of 6.16% in 2000, 4.99% in 1999 and 4.68% in
1998. The weighted-average fair value per share of these purchase rights
granted in 2000, 1999 and 1998 was $12.21, $6.23 and $6.81, respectively.

                                       44
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Stock Incentive Plan: Pursuant to the terms of the 1990 Stock Incentive
Plan, during 1993 through 1999 the Company also issued a total of 643,686
Performance Units ("Units") to officers of the Company. Each Unit represents
the right to receive from the Company at the end of a stipulated period one
unrestricted share of Common Stock, contingent upon achievement of certain
financial performance goals over the stipulated period. Should the Company fail
to achieve the specific financial goals as set by the Executive Compensation
Committee of the Board of Directors, the Units are canceled and the related
shares revert to the Company for reissuance under the plan. The aggregate fair
market value of the underlying shares granted under this plan is considered
unearned compensation at the time of grant and is adjusted annually based on
the current market price for the Common Stock. Compensation expense is
determined based on management's current estimate of the likelihood of meeting
the specific financial goals and charged ratably over the stipulated period. On
October 12, 1998, the Executive Compensation Committee of the Board of
Directors reviewed the Company's performance for the three-year period ending
September 30, 1998 for purposes of determining the performance criteria
achievement level for the Unit awards made in November 1995. Based on various
performance factors including comparison of the Company's stock price to the
peer group established at the time of grant (which has changed significantly
due to mergers and acquisitions in the oilfield sector), earnings growth,
return on equity growth and return on assets growth, the Compensation Committee
decided that the 1995 Units should vest at the level of 66% of the maximum
level. Therefore, a total of 123,145 Units were converted into Common Stock and
issued to officers, 25,495 Units were deferred for later issuance and 76,572
Units were cancelled. Of the 25,495 deferred units, all but 5,705 were
converted into Common Stock as of September 30, 2000. On November 23, 1999, the
Executive Compensation Committee of the Board of Directors reviewed the
Company's performance for the three-year period ending September 30, 1999 and
determined that the highest level of performance criteria was achieved for the
Unit awards made in December 1996. Therefore, a total of 40,924 Units were
converted into Common Stock and issued to officers. As of September 30, 2000,
there were 122,733 Units outstanding. On November 16, 2000, the Executive
Compensation Committee of the Board of Directors reviewed the Company's
performance for the three-year period ending September 30, 2000 and determined
that the highest level of performance criteria was achieved for the Unit awards
made in December 1997. Therefore, a total of 29,702 Units were converted into
Stock and issued to officers.

14. Stockholders' Equity

   Stockholder Rights Plan: The Company has a Stockholder Rights Plan (the
"Rights Plan") designed to deter coercive takeover tactics and to prevent an
acquirer from gaining control of the Company without offering a fair price to
all of the Company's stockholders. Under this plan, each outstanding share of
the Common Stock includes one preferred share purchase right ("Right") which
becomes exercisable under certain circumstances, including when beneficial
ownership of the Common Stock by any person, or group, equals or exceeds 15% of
the Company's outstanding Common Stock. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock at a price of $150, subject to adjustment
under certain circumstances. Upon the occurrence of certain events specified in
the Rights Plan, each holder of a Right (other than an Acquiring Person) will
have the right, upon exercise of such Right, to receive that number of shares
of common stock of the Company (or the surviving corporation) that, at the time
of such transaction, would have a market price of two times the purchase price
of the Right. No shares of Series A Junior Participating Preferred Stock has
been issued by the Company at September 30, 2000. The Rights were
proportionately adjusted as of the stock split record date to reflect the
effect of the February 1998 stock split.

   Stock Purchase Warrants: In connection with the acquisition of Western in
1995, the Company issued 4,800,037 stock purchase warrants ("Warrants"). The
Warrants were issued on April 14, 1995 at an initial value of $5.00 per
Warrant. Subsequent to the February 1998 stock split, each Warrant represented
the right to purchase two shares of the Common Stock at an exercise price of
$15 per share, until the expiration date of

                                       45
<PAGE>

                              BJ SERVICES COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

April 13, 2000. A total of 4,787,852 Warrants were exercised before their
expiration date, leaving only 8,224 issued and outstanding Warrants which
expired unexercised. The exercise of the Warrants resulted in the issuance of
9,575,704 shares of Common Stock.

   Stock Split: At the annual meeting of stockholders on January 22, 1998, the
Company's stockholders approved an amendment to the Company's charter
increasing the number of authorized shares of common stock from 80 million to
160 million shares. This allowed the Company to effect a 2 for 1 stock split
(in the form of a dividend) previously authorized by the Board of Directors on
December 11, 1997. The distribution on February 20, 1998 increased the number
of shares outstanding from 37,694,427 to 75,388,854 (net of treasury shares of
986,000, which did not split). All share and per share data, including stock
option and stock purchase plan information have been restated to reflect the
stock split.

   Treasury Stock: In December 1997, the Board of Directors approved a share
repurchase program authorizing purchases of up to $150 million of Common Stock
at the discretion of the Company's management. In May 1998, the Board approved
an increase in the authorized amount of up to $300 million and in September
2000, the Board approved an additional increase of up to $150 million. Under
this program, the Company repurchased 5,996,400 shares at a cost of $196.6
million during fiscal 1998, none during fiscal 1999 and 400,000 shares at a
cost of $22.8 million during fiscal 2000. In October 1999, the Company reissued
4,027,972 shares of treasury stock through a private placement with certain
financial institutions. The proceeds from the private placement of $144.0
million were used to pay down outstanding debt. The Company also entered into
privately negotiated option agreements pursuant to which it repurchased an
equivalent number of shares in April 2000 for a total of $149.0 million. The
Company utilized proceeds of $143.5 million from the exercise of Warrants to
fund the purchase.

15. Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                         First        Second       Third     Fourth    Fiscal
                        Quarter      Quarter      Quarter   Quarter  Year Total
                        --------     --------     --------  -------- ----------
                           (in thousands, except per share amounts)
   <S>                  <C>          <C>          <C>       <C>      <C>
   Fiscal Year 2000:
   Revenue............  $354,820     $390,755     $371,294  $438,520 $1,555,389
   Gross profit(1)....    67,325       80,517       71,883    98,287    318,012
   Net income.........    20,462       29,324       25,908    42,282    117,976
   Earnings per share:
     Basic............       .27          .38          .31       .51       1.49
     Diluted..........       .25          .35          .31       .50       1.40
   Fiscal Year 1999:
   Revenue............  $294,435     $269,601     $253,093  $314,205 $1,131,334
   Gross profit(1)....    43,769       36,492       10,689    43,184    134,134
   Net income (loss)..    (7,026)(2)  (11,387)(3)  (16,095)    4,820    (29,688)
   Earnings per share:
     Basic............      (.10)        (.16)        (.23)      .07       (.42)
     Diluted..........      (.10)        (.16)        (.23)      .06       (.42)
</TABLE>
--------
(1) Represents revenue less cost of sales and services and research and
    engineering expenses.
(2) Includes $21.6 million ($14.0 million after tax, or $.19 per diluted share)
    unusual charge resulting from the restructuring of worldwide operations due
    to the downturn in oilfield drilling activity. See Note 4.
(3) Includes $18.1 million ($12.1 million after tax, or $.17 per diluted share)
    unusual charge resulting from the restructuring of worldwide operations due
    to the downturn in oilfield drilling activity. See Note 4.

                                       46
<PAGE>

ITEM 9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure

   None.

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

   Information concerning the directors of the Company is set forth in the
section entitled "Election of Directors" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 25, 2001 which
section is incorporated herein by reference. For information regarding
executive officers of the Company, see page 11 hereof. Information concerning
compliance with Section 16(a) of the Exchange Act is set forth in the section
entitled "Compliance with Section 16(a) of the Exchange Act" in the Proxy
Statement of the Company for the Annual Meeting of Stockholders to be held
January 25, 2001, which section is incorporated herein by reference.

ITEM 11. Executive Compensation

   Information for this item is set forth in the sections entitled "Executive
Compensation" and "Severance Agreements" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 25, 2001, which
sections are incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

   Information for this item is set forth in the sections entitled "Voting
Securities" and "Election of Directors" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 25, 2001, which
sections are incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions

   None.

                                       47
<PAGE>

                                    PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (a) List of documents filed as part of this report or incorporated herein by
reference:

     (1) Financial Statements:

       The following financial statements of the Registrant as set forth
    under Part II, Item 8 of this report on Form 10-K on the pages
    indicated.

<TABLE>
<CAPTION>
                                                                      Page in
                                                                       this
                                                                     Form 10-K
                                                                     ---------
<S>                                                                  <C>
Report of Independent Auditors......................................     22
Consolidated Statement of Operations for the years ended September
 30, 1998, 1999 and 2000............................................     23
Consolidated Statement of Financial Position as of September 30,
 1999 and 2000......................................................     24
Consolidated Statement of Stockholders' Equity for the years ended
 September 30, 1998, 1999 and 2000..................................     25
Consolidated Statement of Cash Flows for the years ended September
 30, 1998, 1999 and 2000............................................     26
Notes to Consolidated Financial Statements..........................     27
</TABLE>

     (2) Financial Statement Schedules:

<TABLE>
<CAPTION>
      Schedule                                      Page
       Number       Description of Schedule        Number
      --------      -----------------------        ------
      <C>      <S>                                 <C>
         II    Valuation and Qualifying Accounts     53
</TABLE>

     All other financial statement schedules are omitted because of the
  absence of conditions under which they are required or because all material
  information required to be reported is included in the consolidated
  financial statements and notes thereto.

   (b) The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 2000.

     (3) Exhibits:

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Exhibit
 -------                         ----------------------
 <C>     <S>
   2.1   Agreement and Plan of Merger dated as of November 17, 1994 ("Merger
         Agreement"), among BJ Services Company, WCNA Acquisition Corp. and The
         Western Company of North America (filed as Exhibit 2.1 to the
         Company's Annual Report on Form 10-K for the year ended September 30,
         1995, and incorporated herein by reference).

   2.2   First Amendment to Agreement and Plan of Merger dated March 7, 1995,
         among BJ Services Company, WCNA Acquisition Corp. and The Western
         Company of North America (filed as Exhibit 2.2 to the Company's Annual
         Report on Form 10-K for the year ended September 30, 1995, and
         incorporated herein by reference).

   3.1   Certificate of Incorporation, as amended as of April 13, 1995 (filed
         as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
         year ended September 30, 1999 and incorporated herein by reference).

   3.2   Certificate of Amendment to Certificate of Incorporation, dated
         January 22, 1998 (filed as Exhibit 3.2 to the Company's Annual Report
         on Form 10-K for the year ended September 30, 1999 and incorporated
         herein by reference).

   3.3   Certificate of Designation of Series A Junior Participating Preferred
         Stock, as amended (filed as Exhibit 3.2 to the Company's Annual Report
         on Form 10-K for the year ended September 30, 1996 and incorporated
         herein by reference).
</TABLE>


                                       48
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Exhibit
 -------                         ----------------------
 <C>     <S>
  *3.4   Bylaws of the Company, as amended as of December 7, 2000.

   4.1   Specimen form of certificate for the Common Stock (filed as Exhibit
         4.1 to the Company's Registration Statement on Form S-1 (Reg. No. 33-
         35187) and incorporated herein by reference).

   4.2   Amended and Restated Rights Agreement dated September 26, 1996,
         between the Company and First Chicago Trust Company of New York, as
         Rights Agent (filed as Exhibit 4.1 to the Company's Form 8-K dated
         October 21, 1996 and incorporated herein by reference).

   4.3   First Amendment to Amended and Restated Rights Agreement and
         Appointment of Rights Agent, dated March 31, 1997, among the Company,
         First Chicago Trust Company of New York and The Bank of New York
         (filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for
         the year ended September 30, 1997 and incorporated herein by
         reference).

   4.6   Indenture among BJ Services Company, BJ Services Company, U.S.A., BJ
         Services Company Middle East, BJ Service International, Inc. and Bank
         of Montreal Trust Company, Trustee, dated as of February 1, 1996,
         which includes the form of 7% Notes due 2006 and Exhibits thereto
         (filed as Exhibit 4.1 to the Company's Registration Statement on Form
         S-4 (Reg. No. 333-02287) and incorporated herein by reference).

  10.1   Relationship Agreement dated as of July 20, 1990, between the Company
         and Baker Hughes Incorporated (filed as Exhibit 10.1 to the Company's
         Registration Statement on Form S-1
         (Reg. No. 33-35187) and incorporated herein by reference).

  10.2   Tax Allocation Agreement dated as of July 20, 1990, between the
         Company and Baker Hughes Incorporated (included as Exhibit A to
         Exhibit 10.1) (filed as Exhibit 10.2 to the Company's Registration
         Statement on Form S-1 (Reg. No. 33-35187) and incorporated herein by
         reference).

  10.3   1990 Stock Incentive Plan, as amended and restated (filed as Exhibit
         10.1 to the Company's Registration Statement on Form S-8 (Reg. No. 33-
         62098) and incorporated herein by reference).

  10.4   Amendment effective December 12, 1996, to 1990 Stock Incentive Plan,
         as amended and restated (filed as Exhibit 10.4 to the Company's Annual
         Report on Form 10-K for the year ended September 30, 1996, and
         incorporated herein by reference).

  10.5   Amendment effective July 22, 1999 to 1990 Stock Incentive Plan (filed
         as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the
         year ended September 30, 1999, and incorporated herein by reference).

  10.6   Amendment effective January 27, 2000 to 1990 Stock Incentive Plan
         (filed as Appendix A to the Company's Proxy Statement dated December
         20, 1999 and incorporated herein by reference).

  10.7   BJ Services Company 1995 Incentive Plan (filed as Exhibit 4.5 to the
         Company's Registration Statement on Form S-8 (Reg. No. 33-58637) and
         incorporated herein by reference).

  10.8   Amendments effective January 25, 1996, and December 12, 1996, to BJ
         Services Company 1995 Incentive Plan (filed as Exhibit 10.9 to the
         Company's Annual Report on form 10-K for the year ended September 30,
         1996, and incorporated herein by reference).

  10.9   Amendment effective July 22, 1999 to BJ Services Company 1995
         Incentive Plan (filed as Exhibit 10.25 to the Company's Annual Report
         on Form 10-K for the year ended September 30, 1999, and incorporated
         herein by reference).

  10.10  Amendment effective January 27, 2000 to BJ Services Company 1995
         Incentive Plan (filed as Appendix B to the Company's Proxy Statement
         dated December 20, 1999 and incorporated herein by reference).

  10.11  1997 Incentive Plan (filed as Appendix B to the Company's Proxy
         Statement dated December 22, 1997 and incorporated herein by
         reference).
</TABLE>


                                       49
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Exhibit
 -------                         ----------------------
 <C>     <S>
  10.12  Amendment effective July 22, 1999 to 1997 Incentive Plan (filed as
         Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year
         ended September 30, 1999, and incorporated herein by reference).

  10.13  Amendment effective January 27, 2000 to 1997 Incentive Plan (filed as
         Appendix C to the Company's Proxy Statement dated December 20, 1999
         and incorporated herein by reference).

  10.14  1999 Employee Stock Purchase Plan (filed as Appendix A to the
         Company's Proxy Statement dated December 21, 1998 and incorporated
         herein by reference).

 *10.15  BJ Services Supplemental Executive Retirement Plan effective October
         1, 2000.

  10.16  Key Employee Security Option Plan (filed as Exhibit 10.14 to the
         Company's Annual Report on Form 10-K for the year ended September 30,
         1997 and incorporated herein by reference).

  10.17  Form of Amended and Restated Executive Severance Agreement between BJ
         Services Company and certain executive officers (filed as Exhibit
         10.28 to the Company's Form 10-Q for the quarter ended March 31, 2000
         and incorporated herein by reference).

  10.18  Amended and Restated Credit Agreement dated as of August 7, 1996,
         among the Company, BJ Services Company U.S.A., BJ Service
         International, Inc., and BJ Services Company Middle East, Nowsco Well
         Service, Ltd., and Bank of America National Trust and Savings
         Association and Bank of America Canada, as agents, and the other
         financial institutions parties thereto (the "Credit Agreement") (filed
         as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June
         30, 1996, and incorporated herein by reference).

  10.19  First Amendment to Amended and Restated Credit Agreement dated as of
         November 14, 1997 among the Company, BJ Services Company, U.S.A., BJ
         Service International, Inc., BJ Services Company Middle East, Nowsco
         Well Service Ltd., Bank of America National Trust and Savings
         Association, Bank of America Canada, The Chase Manhattan Bank, Bank of
         Montreal, Royal Bank of Canada, Toronto Dominion (Texas), Inc., Credit
         Lyonnais New York Branch, and Wells Fargo Bank (Texas), National
         Association (filed as Exhibit 10.18 to the Company's Annual Report on
         Form 10-K for the year ended September 30, 1997 and incorporated
         herein by reference).

  10.20  Second Amendment to Amended and Restated Credit Agreement dated as of
         October 30, 1998 among the Company, BJ Services Company, U.S.A., BJ
         Service International, Inc., BJ Services Company Middle East, Nowsco
         Well Service Ltd., Bank of America National Trust and Savings
         Association, Bank of America Canada, The Chase Manhattan Bank, Bank of
         Montreal, Royal Bank of Canada, Toronto Dominion (Texas), Inc. and
         Wells Fargo Bank (Texas), National Association (filed as Exhibit 10.19
         to the Company's Annual Report on Form 10-K for the year ended
         September 30, 1998 and incorporated herein by reference).

  10.21  Form of Revolving Note, U.S. Term Note, Prime Rate Note and Swing Loan
         Note pursuant to the Credit Agreement (filed as Exhibit 10.15 to the
         Company's Annual Report on Form 10-K for the year ended September 30,
         1996 and incorporated herein by reference).

  10.22  Parent Guaranty Agreement dated as of August 7, 1996, by the Company
         under the Credit Agreement (filed as Exhibit 10.16 to the Company's
         Annual Report on Form 10-K for the year ended September 30, 1996 and
         incorporated herein by reference).

  10.23  Trust Indenture and Security Agreement dated as of August 7, 1997
         among First Security Bank, National Association, BJ Services
         Equipment, L.P. and State Street Bank and Trust Company, as Indenture
         Trustee (filed as Exhibit 10.15 to the Company's Annual Report on Form
         10-K for the year ended September 30, 1997 and incorporated herein by
         reference).

  10.24  Indenture Supplement No. 1 dated as of August 8, 1997 between First
         Security Bank, as Nonaffiliated Partner Trustee, and BJ Services
         Equipment, L.P., and State Street Bank and Trust Company, as Indenture
         Trustee (filed as Exhibit 10.17 to the Company's Annual Report on Form
         10-K for the year ended September 30, 1997 and incorporated herein by
         reference).
</TABLE>


                                       50
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Exhibit
 -------                         ----------------------
 <C>     <S>
  10.25  Amended and Restated Agreement of Limited Partnership dated as of
         August 7, 1997 of BJ Services Equipment, L.P (filed as Exhibit 10.16
         to the Company's Annual Report on Form 10-K for the year ended
         September 30, 1997 and incorporated herein by reference).

  10.26  Trust Indenture and Security Agreement dated as of December 15, 1999
         among First Security Trust Company of Nevada, BJ Services Equipment
         II, L.P. and State Street Bank and Trust Company, as Indenture Trustee
         (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K
         dated December 15, 1999 and incorporated herein by reference).

  10.27  Amended and Restated Agreement of Agreement of Limited Partnership
         dated as of December 15, 1999 of BJ Services Equipment II, L.P. (filed
         as Exhibit 10.2 to the Company's Current Report on Form 8-K dated
         December 15, 1999 and incorporated herein by reference).

 *21.1   Subsidiaries of the Company.

 *23.1   Consent of Deloitte & Touche LLP.

 *27.1   Financial data schedule.
</TABLE>
--------
* Filed herewith.


                                       51
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                          BJ SERVICES COMPANY

                                                    /s/ J.W. Stewart
                                          By __________________________________
                                                      J.W. Stewart
                                              President and Chief Executive
                                                         Officer

Date: December 18, 2000

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
         /s/ J.W. Stewart              Chairman of the Board,      December 18, 2000
______________________________________  President, and Chief
             J.W. Stewart               Executive Officer
                                        (Principal Executive
                                        Officer)

       /s/ Michael McShane             Senior Vice President--     December 18, 2000
______________________________________  Finance, Chief Financial
           Michael McShane              Officer and Director
                                        (Principal Financial
                                        Officer)

    /s/ Matthew D. Fitzgerald          Vice President and          December 18, 2000
______________________________________  Controller (Principal
        Matthew D. Fitzgerald           Accounting Officer)

    /s/ L. William Heiligbrodt         Director                    December 18, 2000
______________________________________
        L. William Heiligbrodt

         /s/ John R. Huff              Director                    December 18, 2000
______________________________________
             John R. Huff

        /s/ Don D. Jordan              Director                    December 18, 2000
______________________________________
            Don D. Jordan

         /s/ R.A. LeBlanc              Director                    December 18, 2000
______________________________________
             R.A. LeBlanc

      /s/ Michael E. Patrick           Director                    December 18, 2000
______________________________________
          Michael E. Patrick

        /s/ James L. Payne             Director                    December 18, 2000
______________________________________
            James L. Payne
</TABLE>

                                       52
<PAGE>

                              BJ SERVICES COMPANY

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
             For the Years Ended September 30, 1998, 1999 and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                           Additions
                                     ---------------------
                          Balance at            Charged to
                          Beginning  Charged to   Other                    Balance at
                          of Period   Expense    Accounts    Deductions   End of Period
                          ---------- ---------- ----------   ----------   -------------
<S>                       <C>        <C>        <C>          <C>          <C>
YEAR ENDED SEPTEMBER 30,
 1998
Allowance for doubtful
 accounts receivable....   $ 6,194     $4,140                 $  1,244(1)    $ 9,090
Reserve for inventory
 obsolescence and
 adjustment.............     9,537        893    $   479(3)      2,458(2)      8,451
YEAR ENDED SEPTEMBER 30,
 1999
Allowance for doubtful
 accounts receivable....   $ 9,090     $3,301    $10,344(3)   $ 2,16 3(1)    $20,572
Reserve for inventory
 obsolescence and
 adjustment.............     8,451      1,749    $ 1,831(3)      2,356(2)     9 ,675
YEAR ENDED SEPTEMBER 30,
 2000
Allowance for doubtful
 accounts receivable....   $20,572     $4,325    $ 1,154(3)   $14,5 06(1)    $11,545
Reserve for inventory
 obsolescence and
 adjustment.............     9,675      1,107        215(3)      1,776(2)      9,221
</TABLE>
--------
(1) Deductions in the allowance for doubtful accounts principally reflect the
    write-off of previously reserved accounts.
(2) Deductions in the reserve for inventory obsolescence and adjustment
    principally reflect the sale or disposal of related inventory.
(3) Additions to the reserve principally resulting from acquisitions of
    businesses.

                                       53