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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998 Commission File No. 1-2960
NEWPARK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1123385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3850 N. CAUSEWAY, SUITE 1770
METAIRIE, LOUISIANA 70002
(Address of principal executive offices) (Zip Code)
(504) 838-8222
(Registrant's telephone number)
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $0.01 par value: 68,579,239 shares at November 11, 1998.
Page 1 of 26
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE NINE MONTH PERIOD ENDED
September 30, 1998
<TABLE>
<CAPTION>
Item Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets -
September 30, 1998 and December 31, 1997 .....................................3
Statements of Income for the Three and Nine Month
Periods Ended September 30, 1998 and 1997.....................................4
Statements of Cash Flows for the
Nine Month Periods Ended September 30, 1998
and 1997......................................................................5
Notes to Unaudited Consolidated Financial Statements ..............................6
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................................12
PART II
2 Changes in Securities and Use of Proceeds.............................................24
6 Exhibits and Reports on Form 8-K......................................................25
</TABLE>
2
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<TABLE>
<CAPTION>
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and December 31, 1997
(Unaudited) September 30, December 31,
- --------------------------------------------------------------------------------------------
(In thousands, except share data) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,114 $ 20,715
Accounts and notes receivable, less allowance
of $7,397 in 1998 and $2,171 in 1997 75,996 73,385
Inventories 22,574 21,147
Current taxes receivable 1,325 --
Deferred tax asset 5,495 3,974
Other current assets 3,601 1,685
--------- ---------
TOTAL CURRENT ASSETS 119,105 120,906
Property, plant and equipment, at cost, net of
accumulated depreciation 247,906 188,752
Cost in excess of net assets of purchased businesses and
identifiable intangibles, net of accumulated amortization 124,755 97,542
Other assets 35,966 39,380
--------- ---------
$ 527,732 $ 446,580
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 54 $ 145
Current maturities of long-term debt 1,176 1,200
Accounts payable 21,271 17,376
Accrued liabilities 17,485 10,074
Current taxes payable -- 1,899
--------- ---------
TOTAL CURRENT LIABILITIES 39,986 30,694
Long-term debt 184,435 127,235
Other non-current liabilities 2,261 1,314
Deferred taxes payable 10,168 17,568
Commitments and contingencies (See Note 9) -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding -- --
Common Stock, $.01 par value, 100,000,000 shares
authorized, 68,395,564 shares outstanding in 1998
and 64,061,289 in 1997 682 640
Paid-in capital 317,817 283,281
Retained earnings (deficit) (27,617) (14,152)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 290,882 269,769
--------- ---------
$ 527,732 $ 446,580
========= =========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Month Periods Ended September 30,
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
- -------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 64,899 $ 57,908 $ 204,322 $ 148,782
Operating costs and expenses:
Cost of services provided 45,778 34,661 123,100 89,769
Operating costs 26,738 5,491 46,832 13,763
--------- --------- --------- ---------
72,516 40,152 169,932 103,532
General and administrative expenses 2,081 883 3,968 2,465
Provision for uncollectible accounts 4,000 -- 4,000 --
Impairment of long-lived assets 20,420 -- 20,420 --
Arbitration settlement 9,050 -- 9,050 --
Equity in net (earnings) loss of
unconsolidated affiliates 768 -- (402) --
--------- --------- --------- ---------
Operating income (loss) (43,936) 16,873 (2,646) 42,785
Interest income (348) (59) (1,157) (154)
Interest expense 2,797 858 8,059 2,703
--------- --------- --------- ---------
Income (loss) before income taxes (46,385) 16,074 (9,548) 40,236
Provision for income taxes (benefit) (14,316) 5,945 (959) 14,723
--------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change (32,069) 10,129 (8,589) 25,513
Cumulative effect of accounting
change (net of income tax effect) (1,326) -- (1,326) --
--------- --------- --------- ---------
Net income (loss) $ (33,395) $ 10,129 $ (9,915) $ 25,513
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding:
Basic 67,605 63,588 66,479 62,272
========= ========= ========= =========
Diluted 68,071 65,122 67,535 63,700
========= ========= ========= =========
Net income per common and
common equivalent share:
Basic $ (0.49) $ 0.16 $ (0.15) $ 0.41
========= ========= ========= =========
Diluted $ (0.49) $ 0.16 $ (0.15) $ 0.40
========= ========= ========= =========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
4
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<TABLE>
<CAPTION>
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30,
(Unaudited)
- -----------------------------------------------------------------------------------------------
(In thousands ) 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,915) $ 25,513
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 27,083 18,514
(Benefit) provision for deferred income taxes (8,159) 10,460
Net earnings of unconsolidated affiliates (402) --
Provision for bad debt reserve 4,000 --
Impairment of long-lived assets 20,420 --
Write-down of assets, including intangibles 9,563 --
Other 463 169
Change in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts and notes receivable 8,955 (5,289)
Decrease (increase) in inventories 915 (10,667)
Increase in other assets (1,563) (1,141)
Decrease in accounts payable (6,805) (2,497)
Increase (decrease) in accrued liabilities and other 2,105 (6,786)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 46,660 28,276
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (95,751) (58,413)
Proceeds from disposal of property, plant and equipment 196 95
Payments received on notes receivable 2,853 --
Advances on notes receivable (2,139) --
Acquisitions, net of cash acquired (13,644) 2,411
Investment in joint venture -- (376)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (108,485) (56,283)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on lines of credit 57,150 40,103
Principal payments on notes payable and long-term debt (9,458) (11,694)
Proceeds from exercise of stock options 3,532 3,832
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51,224 32,241
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,601) 4,234
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,715 1,945
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 10,114 $ 6,179
========= =========
</TABLE>
Included in accounts payable and accrued liabilities at September 30, 1998 and
1997 were equipment purchases of $2.3 million and $3.5 million, respectively.
Also included are notes payable for equipment purchases in the amount of
$434,000 and $83,000 at September 30, 1998 and 1997, respectively.
Interest of $6.0 million and $3.3 million was paid during the nine months ending
September 30, 1998 and 1997, respectively. Income taxes of $9.6 million and $4.2
million were paid during the nine months ending September 30, 1998 and 1997,
respectively.
During the nine month period ended September 30, 1997, noncash transactions
included the transfer of $1.1 million from fixed assets to a note receivable,
representing the Company's investment in a manufacturing venture.
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
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NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments
necessary to present fairly the financial position of Newpark
Resources, Inc. ("Newpark" or the "Company") as of September 30,
1998, the results of its operations for the three and nine month
periods ended September 30, 1998 and 1997 and its cash flows for
the nine month periods ended September 30, 1998 and 1997. All such
adjustments are of a normal recurring nature. These interim
financial statements should be read in conjunction with the
December 31, 1997 audited financial statements and related notes
filed on Form 10-K.
Note 2 The consolidated financial statements include the accounts of
Newpark and its wholly-owned subsidiaries. All material
intercompany transactions are eliminated in consolidation.
The accompanying unaudited consolidated financial statements for
the period ended September 30, 1998 include the effects of three
acquisitions that were accounted for as poolings of interests. The
Southwestern Universal Corp. combination was completed on March
19, 1998, in exchange for 450,000 shares of Newpark common stock.
The Optimum Fluids, Inc. and Optimum Fluids (Sask.), Inc.
combinations were completed on May 28, 1998 in exchange for
281,000 shares of Newpark common stock. The Houston Prime Pipe &
Supply, Inc. transaction was completed on May 29, 1998, in
exchange for 420,000 shares of Newpark common stock. Prior year
financial statements have not been restated because the financial
information related to these entities were not considered
significant in relation to the financial reporting requirements of
Newpark.
Operating results prior to the combination of the separate
companies and the combined amounts presented in the unaudited
consolidated financial statements for the nine months ended
September 30, 1998 are summarized below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
(In thousands)
-------------------------------------------------------------------------------
Revenues:
<S> <C>
Newpark $ 199,998
Southwestern Universal Corp. 1,031
Optimum Fluids, Inc. and
Optimum Fluids (Sask.), Inc. 943
Houston Prime Pipe & Supply, Inc. 2,350
-------------
Combined $ 204,322
=============
Net Earnings (Loss):
Newpark $ (10,465)
Southwestern Universal Corp. 192
Optimum Fluids, Inc. and
Optimum Fluids (Sask.), Inc. 40
Houston Prime Pipe & Supply, Inc. 318
-------------
Combined $ (9,915)
=============
</TABLE>
6
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The accompanying unaudited consolidated financial statements also
include the results of operations of eight acquisitions that were
accounted for by the purchase method. Names of companies and
consideration given for each are summarized below. Goodwill of
$36.6 million was recorded with the acquisition of these entities
and will be amortized over 25 years on a straight line basis. The
historical results of the operations related to these acquisitions
were not considered significant in relation to the financial
reporting requirements of Newpark.
<TABLE>
<CAPTION>
Consideration
Date of -----------------------
Acquisition Selling Entity Shares Cash
----------- -------------- ------ ----
<S> <C> <C> <C>
March 1998 Protec Mud Service, Ltd. 385,418 $ 4,200,000
April 1998 Qualitex, Inc. 21,816 $ 12,000
May 1998 Chem-Drill, Inc. 48,800 $ --
June 1998 Mid-Continent Completion
Fluids, Inc. 345,000 $ 3,700,000
June 1998 Red Hill Disposal, Inc. - $ 600,000
June 1998 Cajun Oilfield Services, Inc. 85,600 $ 200,000
August 1998 Shamrock Drilling Fluids, Inc. 673,773 $ 8,900,000
August 1998 ProActa Environmental
Services, Inc. 550,000 $ 1,300,000
</TABLE>
The following unaudited pro forma information presents a summary
of consolidated results of operations of the Company and these
eight acquired companies as if the acquisition had occurred
January 1, 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
(In thousands except per share data)
------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 66,409 $ 70,140 $227,010 $181,548
Net income (loss) (33,464) 10,791 (8,347) 29,077
Net income per common
and common equivalent share
Basic $ (.49) $ .16 $ (.12) $ .45
Diluted (.49) .16 (.12) .44
</TABLE>
Certain reclassifications of prior period amounts have been made
to conform to the current period presentation.
Note 3 The results of operations for the three and nine month periods
ended September 30, 1998 are not necessarily indicative of the
results to be expected for the entire year.
Note 4 In accordance with Statement of Financial Accounting Standards
Number 128, "Earnings Per Share", the Company changed its method
of calculating earnings per share ("EPS") during 1997. The
differences between "basic" and "diluted" weighted average shares
outstanding of
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466,000 and 1,534,000 for the three months ended September 30,
1998 and 1997 respectively, and 1,056,000 and 1,428,000 for the
nine months ended September, 1998 and 1997, respectively, relate
to stock options.
Note 5 Included in accounts and notes receivable at September 30, 1998
and December 31, 1997 (in thousands) are:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Trade receivables $ 75,991 $ 66,161
Unbilled revenues 4,268 7,509
---------- ---------
Gross trade receivables 80,259 73,670
Allowance for doubtful accounts (7,397) (2,171)
---------- ---------
Net trade receivables 72,862 71,499
Notes and other receivables 3,134 1,886
---------- ---------
Total $ 75,996 $ 73,385
========== =========
</TABLE>
Note 6 The Company's inventories consisted of the following items at
September 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(In thousands) 1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
Drilling fluids raw materials
and components $ 12,036 $ 5,956
Logs 6,227 8,546
Board road lumber 1,248 5,017
Supplies 1,391 686
Other 1,672 942
---------- -----------
Total $ 22,574 $ 21,147
========== ===========
</TABLE>
Note 7 The Company recorded impairments on certain of its capital assets
during the quarter of $20.4 million. These impairments were caused
primarily by two factors which occurred in the quarter. The first
factor was the introduction of new technology by the Company in
several areas, which obsoleted assets in service. The second
factor was a change in market conditions which was driven by a
reduction in oil prices. It is anticipated that an additional $27
million of impairments will be recorded in a subsequent quarter on
the same assets as additional new assets are fully placed into
service.
Note 8 Interest of $893,000 and $496,000 was capitalized during the three
months ended September 30, 1998 and 1997, respectively. For the
nine months ended September 30, 1998 and 1997, interest of
$1,723,000 and $758,000 was capitalized, respectively.
Note 9 On December 17, 1997, the Company issued $125 million of unsecured
senior subordinated notes (the "Notes"), which mature on December
15, 2007. Interest on the Notes accrues at the rate of 8-5/8% per
annum and is payable semi-annually on each June 15 and December
15, commencing June 15, 1998. The Notes may be redeemed, in whole
or in part, at a premium commencing after December 15, 2002. Up to
35% of the Notes may be redeemed from proceeds of an equity
offering at a premium at any
8
<PAGE> 9
time up to and including December 1, 2000. The Notes are
subordinated to all senior indebtedness, as defined in the
subordinated debt indenture, including the Company's bank
revolving credit facility.
The Notes are guaranteed by substantially all U. S. operating
subsidiaries of the Company (the "Subsidiary Guarantors"). The
guarantee obligations of the Subsidiary Guarantors (which are all
direct or indirect wholly owned U. S. subsidiaries of the Company)
are full, unconditional and joint and several. The aggregate
assets, liabilities, earnings, and equity of the Subsidiary
Guarantors are substantially equivalent to the total assets,
liabilities, earnings, and equity of Newpark Resources, Inc. and
its subsidiaries on a consolidated basis. Separate financial
statements of the Subsidiary Guarantors are not included in the
accompanying financial statements because management of the
Company has determined that the additional information provided by
separate financial statements of the Subsidiary Guarantors would
not be of material value to investors.
As of September 30, 1998, the Company maintained a $100.0 million
bank facility in the form of a revolving line of credit
commitment. The facility is unsecured. It bears interest at either
a specified prime rate or the LIBOR rate plus a spread which is
determined quarterly based upon the ratio of the Company's funded
debt to cash flow. The line of credit requires monthly interest
payments and matures on June 30, 2001. At September 30, 1998,
$17.0 million of letters of credit were issued and outstanding and
$57.2 million was advanced under the facility, leaving a net of
$25.8 million available for cash advances under the line of
credit.
The Credit Facility requires that the Company maintain certain
specified financial ratios and comply with other usual and
customary requirements. The Company was in compliance at September
30, 1998.
Note 10 Newpark and its subsidiaries are involved in litigation and
other claims or assessments on matters arising in the normal
course of business. In the opinion of management, any recovery or
liability in these matters will not have a material adverse effect
on Newpark's consolidated financial statements.
In the normal course of business, in conjunction with its
insurance programs, the Company has established letters of credit
in favor of certain insurance companies in the amount of $1.0
million at September 30, 1998. At September 30, 1998 the Company
had outstanding guaranty obligations totaling $1.5 million in
connection with facility closure obligations.
In conjunction with the acquisition of the marine related E&P
collection operations of Campbell Wells ("Campbell"), the Company
acquired Disposeco, thereby assuming the obligations provided in
the "NOW Disposal Agreement" between Disposeco and Campbell. This
agreement was recently amended such that the Company is not
contractually
9
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committed to deliver waste to the U. S. Liquids (owner of
Campbell) disposal facilities. Under terms of the settlement,
Newpark will pay U.S. Liquids $30 million over the next three
years, an amount slightly less than it might have paid for a
similar period under the original agreement. Additionally, the
final 20 years of the original contract have been eliminated.
During the settlement term, Newpark will have the right, but not
the obligation, to deliver specified volumes of waste to the
facilities without additional cost. In addition, Newpark has the
option, subject to certain provisions, to extend the arrangement
for two additional one-year terms at an additional cost of
approximately $8 million per year. U.S. Liquids has agreed not to
compete in the marine-related waste disposal business with Newpark
for the three-year period. During the quarter ended September 30,
1998 the Company recorded $9.1 million of charges relating to the
settlement. This $9.1 represents $3 million paid to date for the
settlement and $6.1 million of reduction in the value of the
non-compete with U. S. Liquids.
Note 11 The Company has adopted Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" ("SFAS 130") which
provides guidance for the presentation and display of
comprehensive income. Management believes this statement did not
have a significant effect on the Company's financial statement
presentation.
During 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for disclosure of operating
segments, products, services, geographic areas and major
customers. The Company is required to adopt this standard for its
fiscal year ended December 31, 1998. Management believes that the
implementation of SFAS 131 will not have a material impact on the
presentation of the Company's financial statements, but may
require additional disclosure.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132
revises the standards for disclosure of pension and other
postretirement benefit plans by standardizing the disclosure
requirements, requiring additional information on changes in the
benefit obligations and fair values of plan assets, and
eliminating certain disclosure requirements no longer considered
to be useful. These new disclosure requirements are designed to
improve the understandability of benefit disclosures for financial
analysis. The Company is required to adopt this standard for
fiscal 1999. Management believes that the implementation of SFAS
132 will not have a material impact on the Company's financial
statements and disclosures.
10
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Effective July 1, 1998 the Company elected early adoption of SOP
98-5 "Reporting on Costs of Start-Up Activities." The cumulative
affect of this change in accounting, net of income taxes, was $1.3
million. Start-up costs incurred since adoption of 98-5 were not
significant.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's financial condition, results
of operations, liquidity and capital resources should be read in conjunction
with the accompanying "Unaudited Consolidated Financial Statements" and "Notes
to Unaudited Consolidated Financial Statement" as well as the Company's annual
report on Form 10-K for the year ended December 31, 1997.
RECENT DEVELOPMENTS
Continued weakness in oil prices has produced a continuing decline in
market activity as measured by the rig count in the markets which Newpark
serves. In addition, Newpark has experienced a geographical shift of activity
away from the Austin Chalk area of Western Louisiana and Eastern Texas, as a
result of weak oil prices and disappointing drilling results in this area. The
table below, based on the Baker-Hughes Rotary Rig Count, indicates the recent
downward trend in Newpark's primary market areas, including (i) South Louisiana
Land; (ii) Texas Railroad Commission Districts 2 and 3; (iii) Louisiana and
Texas Inland Waters; and (iv) Offshore Gulf of Mexico:
<TABLE>
<CAPTION>
1Q97 2Q97 3Q97 4Q97 1Q98 2Q98 3Q98
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Rig Count 853 933 989 997 968 864 796
Newpark's market 229 251 258 273 283 266 219
Newpark's market to total 26.8% 26.9% 26.1% 27.4% 29.2% 30.8% 27.5%
</TABLE>
As of the week ended November 6, 1998, the U.S. rig count was 696,
with 208 rigs, or 29.9 %, within Newpark's primary market. Rig counts are down
from a first quarter average of 283, with a peak of 297 achieved during the week
ended February 20, 1998.
- ---------------
Source: Baker Hughes Incorporated
The recent decline in rig activity is affecting the Company's revenue
and is expected to continue to affect future period revenues until oil prices
recover.
The percentage of rigs in Newpark's primary market, as compared to the
total domestic rig count, reflects the importance of natural gas drilling
relative to oil in that market. Natural gas production accounts for the majority
of activity in the Gulf Coast region. However, low oil prices reduce the cash
flow available for all exploration and production activity. Lower oil prices in
the first and second quarters of 1998 slowed drilling in markets more oriented
toward oil, such as the Austin Chalk region, West Texas and areas which produce
primarily heavy oil, such as Canada and Venezuela.
During this period of market and geographic shifts, Newpark has
continued to work toward bringing proprietary innovative solutions to the
markets which it serves. These innovations primarily include:
12
<PAGE> 13
o Composite mats
o Proprietary environmentally friendly drilling fluids
o Drilling fluids processing and recycling
o Minimization Management
As a result of these innovations, which were partially or fully
implemented in the third quarter of 1998, Newpark has displaced, and will
continue to displace some of its current operations and operating assets. The
most significant displacement is associated with the introduction of Newpark's
composite mat, which is expected to substantially replace the wooden mat fleet
over the next three years.
Because of the continued weakness in the markets it serves and the
displacement of products and services, Newpark determined that valuation and
asset impairment adjustments of $20.4 million were necessary to reflect the
proper carrying value of its assets. In a subsequent quarter, pretax charges
totaling approximately $27 million are anticipated in connection with the
expected further impairment of Newpark's wooden mats. In the third quarter, the
Company also recorded a $4 million pretax increase in the Company's allowance
for doubtful accounts.
In the third quarter, the Company also settled its arbitration related
to the NOW Disposal Agreement with U.S. Liquids, Inc. Total pretax charges
associated with the settlement recorded in the third quarter were $9.1 million.
This $9.1 million represents $3 million paid to date for the settlement and $6.1
million of reduction of the value of the non-compete with U. S. Liquids. Pretax
charges related to the settlement totaling approximately $21 million are
anticipated in the fourth quarter of 1998.
The Company also recorded a $2.1 million charge ($1.3 million after
tax) in the third quarter reflecting the cumulative effect of a change in
accounting for certain start-up costs, resulting from the early adoption of SOP
98-5. Start-up costs since the date of adoption (July 1, 1998) have not been
significant.
During the third quarter of 1998, two tropical storms and two
hurricanes significantly disrupted drilling activities in the Gulf of Mexico and
surrounding areas. When severe weather enters the Gulf, drilling operations are
stopped and rigs are evacuated. These evacuation proceedings usually take place
several days in advance of the storm. The rigs are then shut-in for the duration
of the storm and drilling activities do not resume for several days following
the storm. As a result, operations in the Gulf area were disrupted during the
quarter for more than 20 days.
RECENT ACQUISITIONS
During the nine months ended September 30, 1998, the Company completed
eight separate acquisitions in the drilling fluids industry and three
acquisitions in the solids control, processing and disposal industry. The
consideration paid for these acquisitions aggregated 3,261,407 shares of Newpark
common stock and $18.8
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million in cash. Eight transactions were accounted for as purchases. The other
three acquisitions were accounted for as poolings of interests effective as of
January 1, 1998. Prior year financial statements have not been restated because
the financial information related to these entities was not significant in
relation to the financial reporting requirements of the Company. These
acquisitions provided the Company entry into the drilling fluids markets in the
Canadian provinces of Alberta and Saskatchewan, the Permian Basin of West Texas
and New Mexico, and the Anadarko Basin in Western Oklahoma. The acquisitions
also provided the Company entry into the onsite fluids processing market, which
is a key additional component of the Company's "Minimization Management" ("MM")
strategy. The Company has no current plans to make additional acquisitions.
BUSINESS DEVELOPMENT
The majority of the growth in revenue in 1998 as compared to 1997
resulted from the continuing rapid development of the Company's drilling fluids
business. With the Company's increased participation in the drilling fluids
market, the Company began to introduce its MM approach to meeting the needs of
its customers. MM refers to the integration of drilling fluids sales and
engineering, on-site services (processing, solids control, and recycling), and
off-site recycling and disposal.
The objective of MM is to improve the productivity of the drilling
process and minimize the cost to the operator. MM draws upon the proprietary
services historically offered by the Company and combines them with new
capabilities developed in conjunction with its drilling fluids and processing
unit to achieve this goal. The engineering, selection and application of
drilling fluids to a particular geologic formation, the onsite processing and
recycling of those fluids, application of solids control methods to segregate
waste from the drilling fluids, and the availability and use of disposal methods
both onsite and offsite are key elements of MM. Newpark has the internal
capability to provide these services as a coordinated product offering that can
reduce the customer's cost of drilling. Factors that would encourage the use of
MM by a customer include the opportunity of improved drilling economics,
increasing regulatory and compliance issues, and the continuing trend toward
downsizing corporate staffs, which encourages the outsourcing of many services.
The Company is currently working on the following projects, which are
all complimentary to its core business activities:
o The Company has recently obtained exclusive rights to equipment
to recycle products from spent drilling fluids, which were
previously treated as part of the E&P waste stream. Such recycling
will reduce the volume of fluids required to drill the well and
the volume of E&P waste generated on a drill site. This equipment
will give the Company access to new markets and is an important
link in its MM process and onsite fluids processing.
o Newpark has developed new and proprietary drilling fluids
designed to avoid two major sources of environmental contamination
typically created
14
<PAGE> 15
by conventional drilling fluids. Conventional drilling fluids may
contain high concentrations of salt and oil, which have been
identified as harmful to the environment. The Company is currently
marketing two patented, proprietary products that avoid the use of
these materials, thereby reducing the potential for damage to the
environment.
o Through a 49% owned joint venture, the Company has begun
production of a new composite molded mat. It is anticipated that
these new mats will reduce trucking and handling cost,
substantially eliminate mat repair cost, improve margins in the
Company's mat rental business and open new markets for sale of
mats.
o Permits to operate non-hazardous industrial waste disposal wells
on properties recently acquired for that purpose are in process in
Louisiana and Texas. The initial Texas permit has been received
and the initial Louisiana permit is expected to follow in the next
few weeks. Public notices and hearings on these licenses will be
scheduled soon. It is anticipated that this process will be
completed during the fourth quarter or early in the first quarter
of 1999. Newpark expects to enter this new market during 1999.
o The Company has implemented a washwater recycling system to
reduce the amount of waste created at its facilities in the
cleaning of customers' vessels and containers, thereby reducing
the customer's long term liability exposure. This will reduce the
volume of waste transferred to the Company's injection facilities
for disposal by up to 33% and reduce its operating costs.
RESULTS OF OPERATIONS
The following table represents revenue by product line, for the three
month and nine month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Month Periods ended September 30,
(Dollars in thousands)
1998 1997
------------------ -------------------
<S> <C> <C> <C> <C>
Revenues by product line:
Fluids management services:
E&P waste and NORM disposal $12,330 19.0 $16,208 28.0%
Fluids sales & engineering 29,741 45.8 16,021 27.7
------- ------ ------- ------
Fluids management services 42,071 64.8 32,229 55.7
Mat services 10,121 15.6 13,690 23.6
Support services 12,707 19.6 11,989 20.7
------- ------ ------- ------
Total revenues $64,899 100.0% $57,908 100.0%
======= ====== ======= ======
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Nine Month Periods ended September 30,
(Dollars in thousands)
1998 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Revenues by product line:
Fluids management services:
E&P waste and NORM disposal $ 45,862 22.4% $ 45,328 30.5%
Fluids sales & engineering 80,011 39.2 34,641 23.3
-------- ------ -------- ------
Fluids management services 125,873 61.6 79,969 53.8
Mat services 40,056 19.6 37,588 25.2
Support services 38,393 18.8 31,225 21.0
-------- ------ -------- ------
Total revenues $204,322 100.0% $148,782 100.0%
======== ====== ======== ======
</TABLE>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1997
Revenues
Total revenues increased to $64.9 million in 1998, from $57.9 million
in 1997, an increase of $7.0 million, or 12.1%. The components of the increase
in revenues were a $13.7 million increase in drilling fluids sales and a $.7
million increase in support services, partially offset by a $3.9 million
decrease in waste disposal and a $3.6 million decrease in mat services.
Drilling fluids sales increased $13.7 million, or 85.6%, as a result of
a series of purchase acquisitions made during 1997 and 1998, and the expansion
of the businesses acquired. The decline in drilling activity has reduced the
size of the market for drilling fluids; however, the Company has increased its
sales of drilling fluids by obtaining a larger share of the market.
Support services revenue grew from $12.0 million in 1997 to $12.7
million in 1998. This increase in revenues is attributable to an increase in
site maintenance work and environmental cleanup and site restoration work.
E&P waste accounted for 93% and 91% of disposal revenue in 1998 and
1997, respectively. During 1998, the Company received 1.1 million barrels of E&P
waste for disposal, generating revenue of $11.5 million at an average price of
$10.51 per barrel. This compares to volume of 1.4 million barrels in the 1997
period, and average pricing of $10.34 per barrel, which generated revenue of
$14.8 million. Volume has declined due to lower drilling activity and as a
result of the Company's waste minimization efforts to reduce the volume of wash
water created at transfer facilities in the vessel and container cleaning
process. In addition, volumes were lower due to the effect of unusual weather
conditions encountered in the quarter.
The decrease of $3.6 million in mat rental revenue reflects the general
decline in drilling activity, as well as the effect of unusual weather
conditions on drilling activity in the area surrounding the Gulf of Mexico. Mat
rental revenues include revenues earned on the initial mat installation, which
typically includes the first 60 days of rental, and rerentals earned beyond the
initial installation term. In 1998, the initial rentals accounted for
approximately 65.8% of mat service revenues
16
<PAGE> 17
with rerentals accounting for approximately 34.2%. In 1997, initial rentals
accounted for 71.7% of the total mat service revenues and rerentals accounted
for approximately 28.3%.
Operating Costs and Expenses
Costs of services provided increased to $45.8 million in 1998 as
compared to $34.7 million in 1997, and operating costs increased to $26.7
million in 1998 as compared to $5.5 million in 1997. The increase in costs
during the quarter can be attributed primarily to the protracted downward trend
in market conditions and a geographical shift in drilling activity in the
markets Newpark serves. These events caused Newpark to incur additional charges
for displacement of operations, obsolescence of inventories and write-off of
other prepaid services. Operating costs and expenses on a comparable basis were
higher due to an increase in business activities and due to the introduction of
new products and services during the quarter. The Company also accrued personnel
costs in the quarter in anticipation of performance bonuses and severance costs
relating to displacement of workers caused by market shifts.
General and Administrative Expenses
General and administrative expenses during 1998 were $2.1 million as
compared to $.9 million in 1997. The increase is attributable to the accrual of
anticipated performance bonuses and an increase in costs attributable to current
market conditions.
Provision for Uncollectible Accounts
The Company recorded $4.0 million in bad debt reserves during the
quarter due to the continued downward pressure on oil prices. This downturn in
oil prices has caused a strain on customers' cash flow, which has in turn
affected the collectibility of certain receivables from customers. The Company
has identified two specific customer balances where the risk of such financial
concern merits this additional reserve.
Impairment of Long Lived Assets
The Company recorded impairments on certain of its capital assets
during the quarter in the amount of $20.4 million. These impairments were caused
primarily by two factors which arose in the quarter. The first factor was the
introduction of new technology by the Company in several areas, which rendered
obsolete certain assets in service. The largest new technology driven item is
the change to composite mats from wooden mats and management's decision to
discontinue maintenance of its older wooden mats and to take them out of
service. The second factor was a change in market conditions which was driven by
a reduction in oil prices. It is anticipated that approximately $27 million of
additional impairment cost will be recorded in a subsequent quarter on the same
assets as this new class of assets replaces the current technology.
17
<PAGE> 18
Arbitration Settlement
During the third quarter of 1998, the Company settled a contract
dispute with U. S. Liquids, which resulted in a charge against earnings in the
current quarter of $9.1 million. It is anticipated that an additional charge of
up to $21 million will be recorded in the fourth quarter relating to this
settlement. The full charge was not recorded in the third quarter due to certain
contractual requirements.
Equity Earnings of Unconsolidated Affiliate
Included in the loss from unconsolidated affiliates are charges of $1.8
million that include recognition of joint venture losses related to the start-up
period of the mat manufacturing facility and a reserve for accounts receivable
at the Mexican joint venture.
Interest Income and Interest Expense
Net interest expense was $2.4 million in 1998 as compared to $799,000
in 1997. The increase in net interest cost is due to an increase of $102.3
million in average outstanding borrowings and an increase in average effective
interest rates from 7.56% in 1997 to 8.49% in 1998. The increase in average
outstanding borrowings and average effective interest rates is due to the
issuance of $125 million of ten year, 8-5/8% senior subordinated notes in
December 1997 and additional borrowings under the Credit Facility. The proceeds
from the senior subordinated notes and the Credit Facility were used to fund
acquisitions, capital expenditures and working capital for growth.
Provision for Income Taxes
For the 1998 and 1997 periods, Newpark recorded income tax (benefits)
provisions of ($14.3) million and $5.9 million, equal to 30.9% and 37.0% of
pre-tax (loss) income, respectively.
Cumulative Effect of Accounting Charge
On July 1, 1998 Newpark elected early adoption of SOP 98-5 "Reporting
on Costs of Start-up Activities." Newpark was required to adopt this SOP
beginning January 1, 1999. The cumulative effect of this charge in accounting,
net of income taxes, was $1.3 million. Start-up costs since the date of adoption
have not been significant.
18
<PAGE> 19
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997
Revenues
Total revenues increased to $204.3 million in 1998, from $148.8 million
in 1997, an increase of $55.5 million, or 37.3%. The components of the increase
in revenue were a $.5 million increase in waste disposal revenues, a $45.4
million increase in drilling fluids sales, a $2.5 million increase in mat
services, and a $7.2 million increase in support services.
The increase in waste disposal revenues resulted from higher pricing,
partially offset by lower volumes of waste. The average price per barrel
increased to $11.07 from $9.91. The volume of waste was lower in 1998 due to
reduced drilling activity, waste minimization efforts to reduce washwater
through recycling and severe weather conditions in the Gulf of Mexico in the
third quarter. E&P waste revenues, which constitute 96% of 1998 waste disposal
revenues and 93% of 1997 waste disposal revenues, increased to $43.9 million in
1998, compared to $42.2 million in 1997. The volume of E&P waste received was
approximately 3.8 million barrels in 1998 compared to 4.1 million barrels in
1997.
Drilling fluids sales increased $45.4 million, or 131.0%, as a result
of a series of acquisitions made during 1997 and 1998, and the rapid expansion
of the businesses acquired. The overall market for drilling fluids has declined
due to lower drilling activity. However, Newpark has increased its total sales
during this period through an increase in market share.
Mat rental revenue increased $2.5 million from 1997 to 1998 due
primarily to stronger drilling activity in the first six months of 1998. In
1998, initial rentals accounted for approximately 59.5% of mat service revenues
with rerentals accounting for approximately 49.5%. In 1997, initial rentals
accounted for 60.8% of the total mat service revenues and rerentals accounted
for approximately 39.2%.
Support services revenue grew from $31.2 million in 1997 to $38.4
million in 1998, which represents an increase of $7.2 million, or 23.0%. This
increase in revenues is attributable to increased installation of production
equipment and facilities as well as end-of-drilling cleanup and site restoration
at drilling locations, coupled with increased lease maintenance activities.
Operating Costs and Expenses
Costs of services provided increased to $123.1 million in 1998 as
compared to $89.8 million in 1997, and operating costs increased to $46.8
million in 1998 as compared to $13.8 million in 1997. The increase in costs can
be attributed primarily to the protracted downward trend in market conditions
and a geographical shift in drilling activity in the markets Newpark serves.
These events caused Newpark to incur additional charges during the third quarter
for displacement of operations, obsolescence of inventories and write-off of
other prepaid services. Operating costs and expenses on a comparable basis were
higher due to an increase in business activities and due to the introduction of
new products and services during the third
19
<PAGE> 20
quarter. The Company also accrued personnel costs in the third quarter in
anticipation of performance bonuses and severance costs relating to displacement
of workers caused by market shifts.
General and Administrative Expenses
General and administrative expenses during 1998 were $4.0 million as
compared to $2.5 million in 1997. The increase is attributable to the accrual of
anticipated performance bonuses and an increase in costs attributable to current
market conditions.
Interest Income and Interest Expense
Net interest expense was $6.9 million in 1998 as compared to $ 2.5
million in 1997. The increase in net interest cost is due to an increase in
average outstanding borrowings of $94.5 million and an increase in average
effective interest rates from 7.36% in 1997 to 8.30% in 1998. The increase in
average outstanding borrowings and average effective interest rates is due to
the issuance of $125 million of ten year, 8-5/8% senior subordinated notes in
December 1997 and additional borrowings under the Credit Facility. The proceeds
from the senior subordinated notes and the Credit Facility were used to fund
acquisitions, capital expenditures and working capital for growth.
Provision for Income Taxes
For the 1998 and 1997 periods, Newpark recorded income tax (benefits)
provisions of ($1.0) million and $14.7 million, respectively, equal to 10.0% and
36.6% of pretax (loss) income in each period.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130") which provides guidance for
the presentation and display of comprehensive income. Management believes this
statement did not have a significant effect on the financial statement
presentation.
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for disclosure of operating segments, products, services, geographic areas and
major customers. The Company is required to adopt this standard for its fiscal
year ended December 31, 1998. Management believes that the implementation of
SFAS 131 will not have a material impact on the presentation of the Company's
financial statements, but may require additional disclosure.
The Company has elected early adoption of SOP 98-5 "Reporting Costs of
Start-Up Activities" which provides standards for recording costs related to
start-up activities. The cumulative effect of this charge, net of income taxes,
was $1.3 million.
20
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position decreased by $11.1 million
during the nine months ended September 30, 1998. Key working capital data is
provided below:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Working Capital (000's) $ 79,119 $ 90,212
Current Ratio 2.97 3.94
</TABLE>
The decrease in working capital was used primarily to fund long term
assets acquired during the period.
For the nine months ended September 30, 1998, Newpark's working capital
needs were met primarily from operating cash flow, cash on hand and borrowings
under the Company's Credit Facility. Cash on hand, along with cash generated
from operations of $46.7 million, was supplemented by $51.2 million from
financing activities to provide for a total of $108.5 million used in investing
activities, including the purchase of drilling fluids and barite grinding
assets, the purchase of mats and supporting equipment, the expansion of waste
disposal facilities and the development of future waste disposal sites and
facilities.
Newpark maintains a $100.0 million revolving bank Credit Facility,
which matures on June 30, 2001, including up to $20.0 million in standby letters
of credit. At September 30, 1998, $17.0 million in letters of credit were issued
and outstanding under the Credit Facility, and $57.2 million was outstanding
under the revolving facility. Advances under the Credit Facility bear interest
at either (i) a specified prime rate or (ii) the LIBOR rate plus a spread which
is determined quarterly based on the terms of the Credit Facility. The Credit
Facility requires that Newpark maintain certain specified financial ratios and
comply with other usual and customary requirements. Newpark was in compliance
with all requirements of the Credit Facility at September 30, 1998.
For the remainder of 1998, Newpark anticipates capital expenditures of
approximately $8 to $10 million, including: (i) funds to acquire and develop
additional injection well sites; (ii) funds to expand drilling fluids
operations, including the purchase of equipment associated with fluids
processing and recycling and infrastructure expansions; (iii) funds to expand
barite milling capacity; (iv) funds for the purchase of new composite mats: (v)
funds for the upgrade and purchase of equipment; and (vi) funds for expansion
into industrial waste disposal markets.
Potential sources of additional funds, if required by the Company,
would include additional borrowings and the sale of equity securities. The
Company presently has no commitments beyond its working capital and bank lines
of credit by which it could obtain additional funds for current operations;
however, it regularly evaluates potential borrowing arrangements which may be
utilized to fund future expansion. Newpark believes that its current source of
capital, coupled with internally generated funds, will be sufficient to support
its working capital,
21
<PAGE> 22
capital expenditure and debt service requirements for the foreseeable future.
Except as described in the preceding paragraph, Newpark is not aware of any
material expenditures, significant balloon payments or other payments on long
term obligations or any other demands or commitments, including off-balance
sheet items, to be incurred beyond the next 12 months.
Inflation has not materially impacted the Company's revenues or income.
YEAR 2000
The Company relies heavily on computers in its internal and external
financial reporting systems. In addition, computers are used extensively
throughout the Company to perform critical operating activities including the
processing of payroll, accounts receivable and accounts payable and to perform
critical analyses such as well reports for drilling fluids customers and testing
of E&P waste streams received from customers. The Company also makes use of
computers for efficient communications with employees and customers, including
extensive use of e-mail systems and the Internet, and is expected to expand its
use of such technology in the future. Finally, embedded technology such as
microcontrollers are commonly found in equipment used throughout the Company's
operations. The complete failure of these systems could have a material negative
impact on the operations of the Company. In addition, most of the Company's
major suppliers and customers rely heavily on similar computer systems and
failures in such systems could disrupt their operations.
The Company is substantially complete in assessing and addressing Year
2000 issues in its major computer systems. Most of the Company's major systems
have been updated in the normal course of business or replaced with applications
that are Year 2000 compliant. No system replacements were made or accelerated to
comply with Year 2000 issues, but rather were made to address other operating
issues.
In addition to substantially addressing Year 2000 issues in its own
critical computer systems, the Company is in the process of contacting its major
customers and vendors to assess their progress in addressing their Year 2000
issues. Included with these contacts is a request to address imbedded technology
as it relates to their own operations and to products supplied to the Company.
The Company expects to have responses from these customers and vendors by the
first quarter of 1999. The Company believes that in making these contacts it can
minimize the risks associated with Year 2000 failures of such vendors and
customers. The Company can give no assurance that the systems of other companies
on which the Company's systems rely will be converted or otherwise addressed on
time, or that a failure to convert by another company would not have a material
adverse effect on the Company.
While the Company has and will continue to make efforts to address Year
2000 issues, the Company could experience disruptions in its operations as a
result of failures in its own systems and those of its major vendors or
customers. Accordingly, the Company will develop contingency plans by the end of
the second quarter of 1999 to help mitigate the effects of failures, if any.
22
<PAGE> 23
To date, the total amount spent on Year 2000 issues has been less than
$100,000 and has not been material to the Company's operations or financial
condition. Based on current assessments, the Company expects to incur less than
$100,000 in additional expenditures to address Year 2000 issues. However, these
estimates are subject to revisions based on future assessments and responses
from vendors and customers.
Estimates of the costs or consequences of incomplete or untimely
resolution of Year 2000 issues would be speculative. The Company will continue
to assess and address Year 2000 issues and expects to fund such efforts through
operating cash flows.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains `forward-looking statements' within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. There are risks and
uncertainties that could cause future events and results to differ materially
from those anticipated by management in the forward-looking statements included
in this report. Among these risks and uncertainties are (a) the level of
exploration for and production of oil and gas and the industry's willingness to
spend capital on environmental and oilfield services; (b) oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the discovery rate of new oil and gas reserves and the
ability of oil and gas companies to raise capital; (c) domestic and
international political, military, regulatory and economic conditions; (d) other
risks and uncertainties generally applicable to the oil and gas exploration and
production industry; (e) any rescission or relaxation of existing regulations
affecting the disposal of E&P waste and NORM, failure of governmental
authorities to enforce such regulations or the ability of industry participants
to avoid or delay compliance with such regulations; (f) future technological
change and innovation, which could result in a reduction in the amount of waste
being generated or alternative methods of disposal being developed; (g)
increased competition in the Company's product lines; (h) the Company's success
in integrating acquisitions and (i), the Company's success in replacing its
wooden mat fleet with its new composite mats; (j) the Company's ability to
obtain the necessary permits to operate its non-hazardous waste disposal wells
and its ability to successfully compete in this market; (k) the Company's
ability to successfully compete in the drilling fluids markets in the Canadian
provinces of Alberta and Saskatchewan, the Permian Basin of West Texas and New
Mexico and the Anadarko Basin in Western Oklahoma, where it has only recently
entered the market and (l) adverse weather conditions, which could disrupt
drilling operations.
23
<PAGE> 24
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On August 21, 1998, Newpark acquired Shamrock Drilling Fluids, Inc., an
Oklahoma corporation, Perry Trucking, Inc., an Oklahoma corporation, and Fiber
Products, Inc., an Oklahoma corporation (collectively, the "Shamrock
Companies"), from their stockholders, John M. Ireland and Michele L. Ireland, as
trustees and beneficial owners under their respective family trusts. In the
acquisition, all of the issued and outstanding shares of capital stock of the
Shamrock Companies were exchanged for $4,685,000 in cash and an aggregate of
673,773 shares of Newpark Common Stock, and the Shamrock Companies were merged
into a wholly owned subsidiary of Newpark.
The shares of Newpark Common Stock issued in connection with the
acquisition of the Shamrock Companies were not registered under the Securities
Act of 1933, as amended (the "Act"), in reliance on the exemption provided by
Rule 506 of Regulation D under the Act. The acquisition of the Shamrock
Companies was accomplished without any form of general solicitation or general
advertisement, and Newpark provided each acquiring party with the information
required by Rule 502(b) of Regulation D. Each acquiring party also agreed that
the shares of Common Stock acquired will be held for investment purposes and
that the representative certificates may bear restrictive legends indicating
that the securities may not be freely transferred. In each transaction, Newpark
had reasonable grounds to believe that each purchaser was capable of evaluating
the merits and risks of the investment and acquired the Common Stock for
investment purposes only. Accordingly, Newpark believes that the foregoing
transaction was exempt from the registration provisions of the Act pursuant to
the exemption provided by Rule 506 of Regulation D, by reason of such
transaction being by an issuer and not involving any public offering within the
meaning of Section 4(2) of the Act.
24
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. 1 Financial Data Schedule
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on August 28, 1998
relating to the private placement under Regulation S of
550,000 shares of Newpark common stock issued in connection
with the acquisition of ProActa Environmental Services, Inc.
The registrant filed one other report on Form 8-K on September
22, 1998 to announce that it had settled a previously
disclosed dispute concerning obligations under a disposal
agreement.
25
<PAGE> 26
NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements 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.
Date: November 11, 1998
NEWPARK RESOURCES, INC.
By: /s/Matthew W. Hardey
-------------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
26
<PAGE> 27
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,114
<SECURITIES> 0
<RECEIVABLES> 83,393
<ALLOWANCES> (7,397)
<INVENTORY> 22,574
<CURRENT-ASSETS> 119,105
<PP&E> 317,614
<DEPRECIATION> (69,708)
<TOTAL-ASSETS> 527,732
<CURRENT-LIABILITIES> (39,986)
<BONDS> 0
0
0
<COMMON> (682)
<OTHER-SE> (317,817)
<TOTAL-LIABILITY-AND-EQUITY> (527,732)
<SALES> 204,322
<TOTAL-REVENUES> 204,322
<CGS> 123,100
<TOTAL-COSTS> 169,932
<OTHER-EXPENSES> 33,036
<LOSS-PROVISION> 4,000
<INTEREST-EXPENSE> 6,902
<INCOME-PRETAX> (9,548)
<INCOME-TAX> (959)
<INCOME-CONTINUING> (8,589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,326)
<NET-INCOME> (9,915)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
