<PAGE> 1
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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, 1999 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: 69,044,359 shares at November 12, 1999.
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<PAGE> 2
NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
September 30, 1999
<TABLE>
<CAPTION>
Item Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets
September 30, 1999 and December 31, 1998 ......................3
Statements of Operations for the Three and Nine Month
Periods Ended September 30, 1999 and 1998......................4
Statements of Comprehensive Income for the Nine Month
Periods Ended September 30, 1999 and 1998......................5
Statements of Cash Flows for the Nine Month
Periods Ended September 30, 1999 and 1998......................6
Notes to Unaudited Consolidated Financial Statements ...............7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................16
PART II
5 Other Information......................................................27
6 Exhibits and Reports on Form 8-K.......................................27
</TABLE>
2
<PAGE> 3
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except share data) 1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,946 $ 6,618
Accounts and notes receivable, less allowance
of $10,367 in 1999 and $10,808 in 1998 59,588 61,163
Inventories 21,798 18,663
Current taxes receivable 4,762 10,593
Deferred tax asset 13,566 13,776
Other current assets 4,429 3,259
Net current assets of discontinued operations 3,545 --
----------- -----------
TOTAL CURRENT ASSETS 110,634 114,072
Property, plant and equipment, at cost, net of
accumulated depreciation 223,597 203,381
Cost in excess of net assets of purchased businesses and
identifiable intangibles, net of accumulated amortization 121,043 123,539
Deferred tax asset 83 1,735
Other assets 39,913 41,557
Net property, plant, and equipment and other long-term
assets of discontinued operations 6,049 14,939
----------- -----------
$ 501,319 $ 499,223
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,041 $ 72
Current maturities of long-term debt 1,062 1,195
Accounts payable 16,855 16,432
Accrued liabilities 16,240 11,070
Arbitration settlement payable 6,026 7,176
Net current liabilities of discontinued operations -- 2,190
----------- -----------
TOTAL CURRENT LIABILITIES 41,224 38,135
Long-term debt 207,195 208,057
Arbitration settlement payable 3,644 8,080
Long-term deferred tax liability -- --
Other non-current liabilities 1,534 2,454
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, 150,000 shares outstanding in 1999, 12,709 --
and none in 1998, $100 face value
Common Stock, $.01 par value, 100,000,000 shares
authorized, 69,034,956 shares outstanding in 1999
and 68,839,672 in 1998 689 688
Paid-in capital 323,178 319,833
Accumulated other comprehensive income (loss) (182) (1,033)
Retained earnings (deficit) (88,672) (76,991)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 247,722 242,497
----------- -----------
$ 501,319 $ 499,223
=========== ===========
</TABLE>
See accompanying Notes to Unaudited
Consolidated Financial Statements
3
<PAGE> 4
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Month Periods Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(In thousands, except per share data) 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 48,873 $ 59,218 $ 138,916 $ 195,574
Operating costs and expenses:
Cost of services provided 32,954 39,960 93,614 120,705
Operating costs 13,792 25,069 42,490 44,922
---------- ---------- ---------- ----------
46,746 65,029 136,104 165,627
General and administrative expenses 738 2,081 1,899 3,968
Terminated merger expenses 2,400 -- 2,400 --
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 of unconsolidated affiliates -- 768 -- (402)
---------- ---------- ---------- ----------
Operating income (loss) (1,011) (42,130) (1,487) (7,089)
Interest income (241) (348) (771) (1,157)
Interest expense 4,171 2,797 12,190 8,059
---------- ---------- ---------- ----------
Income (loss) from continuing operations before income
taxes and cumulative effect of accounting change (4,941) (44,579) (12,906) (13,991)
Provision (benefit) for income taxes 1,661 (13,632) (3,040) (2,570)
---------- ---------- ---------- ----------
Income (loss) from continuing operations
before cumulative effect of accounting change (6,602) (30,947) (9,866) (11,421)
Discontinued operations of solids control business:
Income (loss) from discontinued operations,
(less applicable income taxes) (878) (609) (2,298) 201
Loss on disposal, (less applicable income taxes) (438) -- (438) --
---------- ---------- ---------- ----------
Income (loss) before cumulative effect
(7,918) (31,556) (12,602) (11,220)
Cumulative effect of accounting change,
(net of income tax effect) -- (1,326) 1,471 (1,326)
---------- ---------- ---------- ----------
Net income (loss) (7,918) (32,882) (11,131) (12,546)
Less:
Preferred stock dividends 188 -- 344 --
Accretion of discount on preferred stock 112 -- 206 --
---------- ---------- ---------- ----------
Net income (loss) applicable to common
and common equivalent shares $ (8,218) $ (32,882) $ (11,681) $ (12,546)
========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding
Basic 68,986 67,605 68,917 66,479
========== ========== ========== ==========
Diluted 68,986 67,605 68,917 66,479
========== ========== ========== ==========
Income (loss) per common and common equivalent share:
Basic:
Continuing operations $ (0.10) $ (0.46) $ (0.15) $ (0.17)
Discontinued operations (0.02) (0.01) (0.04) --
Cumulative effect of accounting change -- (0.02) 0.02 (0.02)
---------- ---------- ---------- ----------
Net income (loss) $ (0.12) $ (0.49) $ (0.17) $ (0.19)
========== ========== ========== ==========
Diluted:
Continuing operations $ (0.10) $ (0.46) $ (0.15) $ (0.17)
Discontinued operations (0.02) (0.01) (0.04) --
Cumulative effect of accounting change -- (0.02) 0.02 (0.02)
---------- ---------- ---------- ----------
Net income (loss) $ (0.12) $ (0.49) $ (0.17) $ (0.19)
========== ========== ========== ==========
</TABLE>
4
See accompanying Notes to Unadudited Consolidated Financial Statements.
<PAGE> 5
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Month Periods Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) 1999 1998
---------- ----------
<S> <C> <C>
Net income (loss) $ (11,131) $ (12,546)
Other comprehensive income (loss):
Foreign currency translation adjustments 851 (1,075)
---------- ----------
Comprehensive income (loss) $ (10,280) $ (13,621)
========== ==========
</TABLE>
See accompanying Notes to Unaudited
Consolidated Financial Statements
5
<PAGE> 6
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) 1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (11,131) $ (12,546)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 21,011 27,083
Cumulative effects of accounting changes (net of taxes) (1,471) 1,326
Benefit for income taxes (4,819) (9,639)
Net earnings of unconsolidated affiliate -- (402)
Provision for bad debt reserve -- 4,000
Impairment of long-lived assets -- 20,420
Write-down of assets, including intangibles -- 9,563
Other (65) 463
Change in assets and liabilities, net of effects of acquisitions:
Decrease in accounts and notes receivable 1,584 6,140
(Increase) decrease in inventories (3,135) 256
Decrease (increase) in other assets 9,807 (2,160)
Increase in accounts payable (1,784) (4,245)
(Increase) decrease in accrued liabilities and other (1,086) 1,983
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,911 42,242
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,832) (96,799)
Proceeds from disposal of property, plant and equipment 386 196
Advances on notes receivable -- (2,139)
Payments received on notes receivable 1,415 2,853
Decrease in net assets of discontinued operations 3,155 6,484
Acquisitions, net of cash acquired -- (13,644)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (27,876) (103,049)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on lines of credit 1,091 57,150
Principal payments on notes payable and long-term debt (1,318) (10,388)
Proceeds from equipment leasing 243 --
Net proceeds from preferred stock issue 14,750 --
Proceeds from exercise of stock options 512 3,532
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,278 50,294
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES IN CASH 15 --
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,672) (10,513)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,618 20,693
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 2,946 $ 10,180
=========== ===========
</TABLE>
Included in accounts payable and accrued liabilities at September 30, 1999 and
1998 were equipment purchases of $2.4 million and $2.3 million, respectively.
Also included are notes payable for equipment purchases in the amount of
$434,000 at September 30, 1998.
Interest of $10.7 million and $6.0 million was paid during the nine months
ending September 30, 1999 and 1998, respectively. Income tax refunds, net of
payments, totaled $11.8 million for the nine months ended September 30, 1999.
Income taxes of $9.6 million were paid during the nine months ending September
30, 1998.
See accompanying Notes to Unaudited Consolidated Financial Statements.
6
<PAGE> 7
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
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,
1999, and the results of its operations and its cash flows for the
three and nine month periods ended September 30, 1999 and 1998.
All such adjustments are of a normal recurring nature. These
interim financial statements should be read in conjunction with
the December 31, 1998 audited financial statements and related
notes filed on Form 10-K. The results of operations for the three
and nine month periods ended September 30, 1999 are not
necessarily indicative of the results to be expected for the
entire year. Certain reclassifications of prior period amounts
have been made to conform to the current period presentation.
NOTE 2 - TERMINATION OF PROPOSED MERGER WITH TUBOSCOPE, INC.
On November 10, 1999, the Company and Tuboscope, Inc.
announced that they had jointly elected to form operational
alliances in key market areas rather than proceed with the
proposed merger announced on June 24, 1999. The decision was made
because recent market conditions in the oilfield service market
and the resulting uncertainty in the capital markets made it
difficult to obtain the type of credit facility believed necessary
for the combined companies. Each company has agreed to pay its
respective transaction expenses relating to the proposed merger,
which for Newpark are estimated to be $2.4 million.
NOTE 3 - DISCONTINUED OPERATIONS
In September, 1999, the Company's management adopted a plan to
discontinue operations of its solids control business and
simultaneously entered into an alliance agreement with a division
of Tuboscope, Inc. (Tuboscope), which is now providing those
services. Accordingly, the operating results of the solids control
business have been segregated from continuing operations and
reported as a separate line item on the statement of operations.
Also segregated from continuing operations is the provision for
employee termination costs, employee benefits and losses during
the phase-out period of approximately $724,000 ($438,000 net of
taxes).
7
<PAGE> 8
Operating results (exclusive of income taxes, any corporate
charges or interest expense and the aforementioned provisions)
from discontinued operations are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
---------- ----------
<S> <C> <C>
Three months ended September 30:
Revenues $ 2,048 $ 3,681
Operating costs and expenses 3,497 4,686
---------- ----------
Income (loss) from discontinued operations $ (1,449) $ (1,005)
========== ==========
Nine months ended September 30:
Revenues $ 5,308 $ 6,748
Operating costs and expenses 9,100 6,416
---------- ----------
Income (loss) from discontinued operations $ (3,792) $ 332
========== ==========
</TABLE>
The Company has restated its prior financial statements to
present the operating results of the solids control business as a
discontinued operation. The assets and liabilities of such
operations at December 31, 1998 and September 30,1999 have been
reflected as net current or non-current assets or liabilities
based substantially on the original classification of such assets
and liabilities. The Company has agreed in principal to sell the
property, plant and equipment of the solids control business to
Tuboscope.
The components of net assets or liabilities of discontinued
operations included in the Company's consolidated balance sheets
at December 31, 1998 and September 30, 1999, are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
---------- ----------
<S> <C> <C>
Accounts and notes receivable, net $ 5,872 $ 4,512
Inventories, and other current assets 1,017 744
Property, plant and equipment, net 5,530 14,607
Other assets 519 332
Accounts payable and other current
liabilities (3,344) (7,446)
---------- ----------
Total $ 9,594 $ 12,749
========== ==========
</TABLE>
NOTE 4 - CHANGE IN METHOD OF ACCOUNTING FOR DEPRECIATION
The Company computes the provision for depreciation on certain
of its E&P waste and NORM disposal assets ("the waste disposal
assets") and its barite grinding mills using the
unit-of-production method. In applying this method, the Company
has considered certain factors which affect the expected
production units (lives) of these assets. These factors include
obsolescence, periods of nonuse for normal maintenance and
economic
8
<PAGE> 9
slowdowns and other events which are reasonably predictable. The
unit-of-production method of providing for depreciation on these
assets was adopted in the second quarter of 1999, effective
January 1, 1999. Prior to 1999, the Company computed the provision
for depreciation of these assets on a straight-line basis.
The original useful lives for the waste disposal assets were
developed assuming a relatively constant annual volume of the
expected waste streams. However, the actual volume of waste
disposed by the Company has been more volatile than expected in
the markets which Newpark serves, and the volatility in
utilization rates is expected to continue. Because the utility of
disposal assets is diminished by volume of waste disposed rather
than time, the Company believes the unit-of-production method
provides a better measure of loss of utility of the disposal
assets. In addition, a review of major competitors in the
industrial waste business indicates that the unit-of-production
method is a commonly used method of depreciation for surface
disposal assets utilized in this industry.
The original useful life for the barite mills was developed
based on maximum utilization rates which considered non-utilized
time only for scheduled repair periods. The Company's actual
utilization rates closely followed this pattern from inception of
operations (1997) through July 1998. The significant declines in
drilling activity since that time has resulted in a drastic
reduction in utilization rates for the barite mills. The life of a
barite grinding mill is affected primarily by the volume of barite
material ground in the mill, not the passage of time. As a result,
consistent with the method of depreciation used for the waste
disposal assets, the Company believes the unit-of-production
method provides a better measure of diminution of utility of these
assets.
In applying the unit-of-production method of depreciation, the
Company makes estimates of certain factors which are involved in
determining the expected productive units for its waste disposal
assets and barite grinding mill assets. The capacity of the waste
disposal assets was determined based primarily on seismic and
geological studies, while the capacity for the barite grinding
mill assets was based primarily on manufacturer's certifications
and the capacity of similar assets. These factors also include
consideration of obsolescence and periods of non-use.
The reported loss from operations for the nine months ended
September 30, 1999 was reduced by $1,471,000 (related per share
amounts of $.02 basic and diluted) reflecting the cumulative
effect (net of income taxes) on years prior to 1999 for the change
in accounting for depreciation. In addition, the effect of the
change in 1999 is to reduce the net loss from operations for the
nine months ended September 30, 1999 by $453,000 (related per
share amounts of $.01 basic and diluted).
9
<PAGE> 10
Consolidated net income (loss) that would have been reported
for the three months and nine months ended September 30, 1998 had
the change been applied retroactively would be as follows:
<TABLE>
<CAPTION>
(In thousands except per share data)
<S> <C>
Three months:
Net loss $ (32,760)
Loss per common and common equivalent share:
Basic $ (.48)
Diluted $ (.48)
Nine months:
Net loss $ (12,098)
Loss per common and common equivalent share:
Basic $ (.18)
Diluted $ (.18)
</TABLE>
NOTE 5 - CHANGE IN METHOD OF ACCOUNTING FOR START-UP ACTIVITIES
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 (related per share amount of $.02 basic
and diluted) and was reported in the results for the three month
and nine month periods ended September 30, 1998.
NOTE 6 - ACQUISITIONS
The accompanying unaudited consolidated financial statements
include the effects of several acquisitions completed during 1998
that were accounted for as poolings of interests. These
acquisitions included the following companies:
<TABLE>
<CAPTION>
Company Name Acquisition Date Location Shares
------------ ---------------- -------- ----------
<S> <C> <C> <C>
Southwestern Universal Corp March 19, 1998 West Texas 450,000
Optimum Fluids, Inc. May 28, 1998 Canada 281,000
Houston Prime Pipe & Supply May 29, 1998 Gulf Coast 420,000
---------
1,151,000
=========
</TABLE>
Information for the three and nine month periods ended
September 30, 1998 have been restated to reflect the effects of
these transactions and to reflect certain adjustments in the
Fluids Sales & Engineering segment for expensing certain
previously capitalized costs. Operating results prior to the
combinations 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 (in
thousands):
10
<PAGE> 11
<TABLE>
<S> <C>
Revenues:
Newpark $ 191,250
Southwestern 1,031
Optimum 943
Houston Prime 2,350
Combined $ 195,574
============
Net Income:
Newpark $ (13,096)
Southwestern 192
Optimum 40
Houston Prime 318
Combined $ (12,546)
============
</TABLE>
The accompanying consolidated financial statements also
include the results of operations of ten acquisitions that were
accounted for by the purchase method. Names of the acquired
companies and consideration given for each are summarized below.
Goodwill of $34.1 million was recorded with the acquisition of
these entities and is being amortized over 20 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 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 $ 4,163,000
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 673,773 $ 8,885,000
August 1998 ProActa Environmental,
Services, Inc. 550,000 $ 1,278,000
October 1998 Sonnex, Inc. -- $ 2,650,000
October 1998 OGS Laboratories, Inc. 236,364 $ 1,165,000
</TABLE>
The following unaudited pro forma information presents a
summary of consolidated results of operations of the Company and
these ten acquired companies as if the acquisitions had occurred
January 1, 1998:
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ -------------------
<S> <C> <C>
Revenues $ 60,728 $ 218,262
Net loss (32,951) (10,978)
Net loss per common share $ (.49) $ (.16)
</TABLE>
11
<PAGE> 12
NOTE 7 - LOSS PER SHARE
Basic and diluted loss per common and common equivalent share
for the three and nine months ended September 30, 1999 and 1998
were calculated by dividing loss available to common shareholders
by the weighted average number of common shares outstanding during
the period. Options and warrants to purchase 7,529,000 and
4,373,000 shares of common stock were outstanding at September 30,
1999 and 1998, respectively, and were not included in the
computation of diluted loss per common and common equivalent share
because to do so would be antidilutive.
NOTE 8 - ACCOUNTS AND NOTES RECEIVABLE
Included in current accounts and notes receivable at September
30, 1999 and December 31, 1998 are:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
----------- -----------
<S> <C> <C>
Trade receivables $ 58,416 $ 64,248
Unbilled revenues 5,296 3,663
----------- -----------
Gross trade receivables 63,712 67,911
Allowance for doubtful accounts (10,367) (10,808)
----------- -----------
Net trade receivables 53,345 57,103
Notes and other receivables 6,243 4,060
----------- -----------
Total $ 59,588 $ 61,163
=========== ===========
</TABLE>
NOTE 9 - INVENTORY
The Company's inventory consisted of the following items at
September 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
---------- ----------
<S> <C> <C>
Drilling fluids raw materials
and components $ 12,999 $ 11,385
Logs 4,122 4,835
Board road lumber 2,141 1,276
Supplies 891 567
Other 1,645 600
---------- ----------
Total $ 21,798 $ 18,663
========== ==========
</TABLE>
NOTE 10 - CAPITALIZED INTEREST
Interest of $451,000 and $893,000 was capitalized during the
three months ended September 30, 1999 and 1998, respectively.
Interest of $1,259,000 and $1,723,000 was capitalized during the
nine months ended September 30, 1999 and 1998, respectively.
12
<PAGE> 13
NOTE 11 - LONG-TERM DEBT
As of September 30, 1999, the Company had outstanding $125
million of unsecured senior subordinated notes (the "Notes") and
maintained a $100.0 million bank credit facility (the "Credit
Facility") in the form of a revolving line of credit commitment.
At September 30, 1999 the Credit Facility was unsecured, except
for the pledge of certain capital stock of two foreign
subsidiaries. It bears interest at either a specified prime rate
(8.25% at September 30, 1999) or the LIBOR rate (6.08% at
September 30, 1999) 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, 1999, $17.6 million of letters
of credit were issued and outstanding, leaving a net of $82.4
million available for cash advances under the line of credit, of
which $81.0 million was borrowed.
The Credit Facility requires that the Company maintain certain
specified financial ratios and comply with other usual and
customary requirements. During 1999, the lenders amended the
Credit Facility to provide for covenants that are consistent with
the Company's financial condition and market outlook. At September
30, 1999, the Company was in compliance with all requirements of
the respective agreements, as amended. In conjunction with a
recent amendment to the credit facility, the Company has agreed to
secure the facility with a pledge of substantially all of the
Company's accounts receivable, inventory and property, plant and
equipment. In addition, the Notes and the Credit Facility contain
covenants that significantly limit the payment of dividends on the
common stock of the Company.
NOTE 12 - SEGMENT DATA
Summarized financial information concerning the Company's
reportable segments is shown in the following table (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Three Months Ended September 30:
Revenues by segment:
E&P waste disposal $ 9,856 20.2% $ 12,330 20.8%
Fluids sales & engineering 23,884 48.9 24,061 40.6
Mat & integrated services 15,133 30.9 22,827 38.6
--------- ----- --------- -----
Total $ 48,873 100.0% $ 59,218 100.0%
========= ===== ========= =====
Operating income (loss) by segment:
E&P waste disposal $ 1,796 $ 1,418
Fluids sales & engineering (258) (6,186)
Mat & integrated services 589 (1,043)
--------- ---------
Total $ 2,127 $ (5,811)
========= =========
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
1999 1998
---------------------- --------------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30:
Revenues by segment:
E&P waste disposal $ 30,624 22.0% $ 45,861 23.4%
Fluids sales & engineering 62,972 45.3 71,264 36.6
Mat & integrated services 45,320 32.7 78,449 40.0
---------- ----- ---------- -----
Total $ 138,916 100.0% $ 195,574 100.0%
========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Operating income (loss) by segment:
E&P waste disposal $ 7,788 $14,868
Fluids sales & engineering (6,713) 120
Mat & integrated services 1,737 14,959
------- -------
Total $ 2,812 $29,947
======= =======
</TABLE>
The figures above are shown net of intersegment transfers.
NOTE 13 - PREFERRED STOCK
On April 16, 1999, the Company, issued to SCF-IV, L.P., a
Delaware limited partnership managed by SCF Partners (the
"Purchaser"), 150,000 shares of Series A Cumulative Perpetual
Preferred Stock, $0.01 par value per share (the "Series A
Preferred Stock"), and a warrant (the "Warrant") to purchase up to
2,400,000 shares of the Common Stock of the Company at an exercise
price of $8.50 per share, subject to anti-dilution adjustments.
The aggregate purchase price for these instruments was $15.0
million, of which approximately $12.8 million was allocated to the
Series A Preferred Stock and approximately $2.2 million to the
Warrant. The difference between the carrying value and the
redemption value for the Series A Preferred Stock is being
amortized to retained earnings over a period of five years and
affects the earnings per share of common stock. The net proceeds
from the sale were used to repay indebtedness. No underwriting
discounts, commissions or similar fees were paid in connection
with the sale of the securities.
Cumulative dividends are payable on the Series A Preferred
Stock quarterly in arrears at the initial dividend rate of 5% per
annum, based on the stated value of $100 per share of Series A
Preferred Stock. Dividends for the first three years are payable
in Newpark Common Stock. The dividend rate is subject to
adjustment three, five and seven years after the date of issuance.
The agreement does not restrict common stock dividends or
repurchases of common stock by the Company as long as all
accumulated dividends on the Series A Preferred Stock have been
paid in full.
14
<PAGE> 15
NOTE 14 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. The Statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 is required to be adopted in fiscal years
beginning after June 15, 2000. Given that the Company historically
has not used these types of instruments, the Company does not
expect a material impact on its statements from adoption of SFAS
No. 133.
15
<PAGE> 16
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 Statements" as well as the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
On November 10, 1999, the Company and Tuboscope, Inc. announced that
they had jointly elected to form operational alliances in key market areas
rather than proceed with the proposed merger announced on June 24, 1999. The
decision was made because recent market conditions in the oilfield service
market and the resulting uncertainty in the capital markets made it difficult to
obtain the type of credit facility believed necessary for the combined
companies. Each company has agreed to pay its respective transaction expenses
relating to the proposed merger, which for Newpark are estimated to be $2.4
million.
RESULTS OF OPERATIONS
Weakness in oil and gas commodity prices in 1998 and the early part of
1999 produced a significant decline in market activity as measured by the rig
count in the markets that Newpark serves. The operators responsible for most of
the drilling activity in the U.S. Gulf Coast, Newpark's primary market, tend to
be independent oil companies who generally are not integrated with downstream
refinery operations. The sustained weakness in commodity prices during 1998
significantly affected the cash flows of these operators, most of which tend to
have less access to capital resources than the major fully-integrated oil and
gas companies. Accordingly, the recovery in the Gulf Coast market to this point
in the cycle has been slower than for other markets.
<TABLE>
<CAPTION>
1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Rig Count 968 864 796 690 551 521 637
</TABLE>
During April 1999, the U.S. rig count declined to 488 rigs, the lowest
count ever recorded in the history of the indicator. As of the week ended
November 5, 1999, the U.S. rig count had recovered to 763. However, the recovery
was primarily shallow drilling which requires less service than deeper wells.
- ------------
Source: Baker Hughes Incorporated
Natural gas production accounts for the majority of activity in the
Gulf Coast region. Gas prices began to improve during March 1999 and have
continued to recover. High depletion rates for gas wells are expected to provide
support to commodity gas pricing.
Beginning in 1998, lower oil prices slowed drilling in markets more
oriented toward oil, such as the Austin Chauk region, West Texas and areas which
produce
16
<PAGE> 17
primarily heavy oil, such as Canada and Venezuela. Oil prices have recovered
during 1999 as a result of voluntary production curtailment by OPEC member
countries.
Operating results for the quarter and nine months ended September 30,
1998 have been restated to give effect to several pooling of interests
transactions that took place during 1998 and the reallocation of certain 1998
charges that affected these results. Summarized financial information concerning
the Company's reportable segments for the three month and nine month periods
ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Three Months Ended September 30:
Revenues by segment:
E&P waste disposal $ 9,856 20.2% $ 12,330 20.8%
Fluids sales & engineering 23,884 48.9 24,061 40.6
Mat & integrated services 15,133 30.9 22,827 38.6
---------- ---------- ---------- ----------
Total $ 48,873 100.0% $ 59,218 100.0%
========== ========== ========== ==========
Operating income (loss) by segment:
E&P waste disposal $ 1,796 $ 1,418
Fluids sales & engineering (258) (6,186)
Mat & integrated services 589 (1,043)
---------- ----------
Total $ 2,127 $ (5,811)
========== ==========
Nine Months Ended September 30:
Revenues by segment:
E&P waste disposal $ 30,624 22.0% $ 45,861 23.4%
Fluids sales & engineering 62,972 45.3 71,264 36.6
Mat & integrated services 45,320 32.7 78,449 40.0
---------- ---------- ---------- ----------
Total $ 138,916 100.0% $ 195,574 100.0%
========== ========== ========== ==========
Operating income (loss) by segment:
E&P waste disposal $ 7,788 $ 14,868
Fluids sales & engineering (6,713) 120
Mat & integrated services 1,737 14,959
---------- ----------
Total $ 2,812 $ 29,947
========== ==========
</TABLE>
The figures above are shown net of intersegment transfers.
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1998
Revenues
Total revenues for the three months ended September 30, 1999 declined
to $48.9 million, from $59.2 million in 1998, a decrease of $10.3 million, or
17%. The
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<PAGE> 18
components of the decrease in revenues were a $2.4 million decrease in waste
disposal revenues, a $0.2 million decrease in drilling fluids sales and
engineering revenues and a $7.7 million decrease in mat and integrated services
revenues.
The $2.4 million, or 20%, decrease in waste disposal revenue is
attributable to the decline in waste volumes received as a result of a 20%
decline in the average U.S. drilling rig count. During the third quarter of
1999, Newpark received approximately 854,000 barrels of E&P waste compared to
approximately 1,173,000 barrels in the comparable quarter of 1998, a 27%
decline. Contributing to the decline in barrels received was the continued
expansion of the Company's wash water recycling program which reduced the total
barrels disposed of during the third quarter of 1999 by 129,000 barrels.
Drilling fluids revenue was relatively unchanged, declining only $0.2
million, or 1%, in spite of the decline in drilling activity noted above and
commodity pricing, particularly for barite. Drilling fluids revenues benefited
from the inclusion for the full period in 1999 of several acquisitions in 1998
which, among other things, expanded operations into the Oklahoma Anadarko Basin
and Western Canada. In addition, the drilling fluids segment continued to
penetrate the markets that it serves and gain market share. While the mix of rig
activity and commodity pricing has put downward pressure on both revenues and
margins in this segment, the Company continues to be pleased with its customers'
reception to its DeepDrill(TM) fluids system and its Minimization Management
concept. As these product and service offerings gain greater market acceptance,
they are expected to enhance both revenues and margins for this segment.
The decrease of $7.7 million, or 34%, in mat and integrated services
revenue reflects both low activity and competitive pressure. Record low rig
activity and, in particular, a shift by customers away from transition zone and
major wetlands projects were the primary reasons for the revenue decline in this
segment. In addition, the Company and many of its competitors had increased
their capacity during 1997 and the first half of 1998 in response to increasing
industry activity. The sharp decline in drilling activity created significant
overcapacity in this market. The resulting overcapacity contributed further to
the pricing decline.
Roll-out of the new composite mats is continuing and the anticipated
lower operating cost for the new mats is expected to help the Company to better
compete in the future competitive pricing environment. The Company also
continues to develop its mat service business in Canada and anticipates
expansion of this market as its mat systems become more widely accepted. The
Company continues to monitor the carrying value of its wooden mat fleet, in
light of the progress of the composite mat system. Further impairment in the
value of the wooden mat fleet is contingent upon several factors, including the
speed of recovery in drilling activity, the period of time needed to replace the
wooden mat fleet with the composite mat, the level of sales of the composite mat
to other markets and the need or ability to use the wooden mat fleet in other
markets.
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<PAGE> 19
Operating Income
The Company reported segment operating income of $2.1 million for the
three months ended September 30, 1999, as compared to a segment operating loss
of $5.8 million in 1998. The components of the increase in segment operating
income were a $.4 million increase in E&P waste disposal operating income, a
$5.9 million increase in fluids sales and engineering operating income and a
$1.6 million increase in mat and integrated services operating income. The
increase in segment operating income in 1999, in spite of the decline in
revenues, is primarily attributable to certain costs being included in segment
operating costs in the third quarter of 1998 in response 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, closure of certain
facilities, obsolescence of inventories and write-off of other prepaid services.
The Company also accrued personnel costs in 1998 in anticipation of performance
bonuses and severance costs relating to displacement of workers caused by market
shifts. The Company continues to monitor its level of operating costs in
relation to revenues, while ensuring that customer service is not impaired.
While Newpark has recently made significant cost cuts, it has attempted to
maintain a level of operating capacity which will allow it to meet demand as
drilling activity and the depth of drilling increase.
While the Company has made significant changes in the operations of its
operating segments in response to market shifts and declines in drilling
activity, during 1998 and 1999, it has continued to introduce new products and
services including:
o Industrial non-hazardous waste disposal
o The DeepDrill(TM) fluids system
o The Minimization Management concept
o Composite mats
o Wooden mats in Canada
These new product and service introductions have required the Company
to incur additional costs which have not been fully offset by revenue increases
during the startup phase. These new product offerings continue to gain market
acceptance and are expected to enhance both revenues and operating margins as
the market recovers.
Provision for Uncollectible Accounts
The Company recorded $4.0 million in bad debt reserves during the third
quarter of 1998 due to the continued downward pressure on oil prices. This
downturn in oil prices caused a strain on customers' cash flow, which in turn
19
<PAGE> 20
identified two specific customer balances where the risk of such financial
concern merited this additional reserve. The Company has continued to monitor
the collectibility of its accounts receivable and believes that the current
reserve for uncollectible accounts is adequate.
Impairment of Long Lived Assets
The Company recorded impairments on certain of its capital assets
during the third quarter of 1998 in the amount of $20.4 million. These
impairments were caused primarily by two factors which arose in that quarter.
The first factor was the introduction of new technology by the Company in
several areas, as discussed above, which rendered obsolete certain assets in
service. The largest new technology driven item was 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.
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 that
quarter of $9.1 million. An additional charge of $18.4 million was recorded in
the fourth quarter of 1998 relating to this settlement. The full charge was not
recorded in the third quarter due to certain contractual requirements.
Equity Earnings of Unconsolidated Affiliates
Included in the loss from unconsolidated affiliates for the third
quarter of 1998 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 Company's Mexican joint venture.
Interest Income/Expense
Net interest expense was $3.9 million for the third quarter of 1999, an
increase of $1.5 million, or 60%, as compared to $2.4 million for the third
quarter of 1998. The increase in net interest cost is due to an increase of
$28.0 million, or 16%, in average outstanding borrowings and an increase in the
average interest rate, after consideration of capitalized interest, from 8.49%
to 8.96%.
Provision for Income Taxes
For the quarter ended September 30, 1999, the Company recorded an
income tax provision of $1.7 million on a pretax loss from operations of $4.9
million. Included in this provision is approximately $2.7 million of adjustments
associated with changes in the Company's estimated annual effective rate. The
change in the estimated rate is primarily due to a lowering of projected annual
taxable income as a result of a slower than expected recovery in drilling
activity. Absent this adjustment, the Company would have recorded an income tax
benefit of
20
<PAGE> 21
approximately $1.0 million, representing an effective tax benefit rate of
approximately 20%. For the quarter ended September 30, 1998, the Company
recorded an income tax benefit of $13.6 million, reflecting an income tax
benefit rate of 30%. This low effective benefit rate for both periods results
primarily from the effect of non-deductible goodwill.
Cumulative Effect of Accounting Change
In the third quarter of 1998, the Company elected early adoption of SOP
98-5 "Reporting Costs of Start-Up Activities" which provided standards for
recording costs related to start-up activities. The cumulative effect of this
charge, net of income taxes, was $1.3 million (related per share amounts of $.02
basic and diluted).
Preferred Stock Dividends and Accretion of Discount
Dividends paid on preferred stock and accretion of the discount on the
preferred stock for the quarter ended September 30, 1999 were $188,000 and
$112,000, respectively. The preferred stock was not outstanding in the prior
year.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1998
Revenues
Total revenues for the nine months ended September 30, 1999 declined to
$138.9 million, from $195.6 million in 1998, a decrease of $56.7 million, or
29%. The components of the decrease in revenues were a $15.3 million decrease in
waste disposal revenues, an $8.3 million decrease in drilling fluids sales and
engineering revenues and a $33.1 million decrease in mat and integrated services
revenues.
The $15.3 million, or 33%, decrease in waste disposal revenue is
attributable to the decline in waste volumes received as a result of lower
drilling activity. During the first nine months of 1999 Newpark received
approximately 2.4 million barrels of E&P waste compared to approximately 3.9
million barrels in the comparable period of 1998, a 38% decline, while pricing
remained stable during the comparable periods.
The $8.3 million, or 12%, decline in drilling fluids revenue is
attributable to the decline in drilling activity and commodity pricing as noted
above. Drilling fluids revenues were benefited in 1999 by the inclusion of
several 1998 acquisitions for the full nine months in 1999.
The decrease of $33.1 million, or 42%, in mat and integrated services
revenue reflects both low activity and competitive pressure that reduced average
pricing as noted above.
Operating Income
The Company reported segment operating income of $2.8 million for the
nine months ended September 30, 1999 as compared to segment operating income of
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<PAGE> 22
$29.9 million in 1998. The components of the decrease were a $7.1 million
decrease in E&P waste disposal operating income, a $6.8 million decrease in
fluids sales and engineering operating income and a $13.2 million decrease in
mat and integrated services operating income. The decline in segment operating
income is primarily attributable to the decline in revenues and reflects the
relatively high incremental operating margin of the Company's segments.
Partially offsetting the effects of the revenue decline were certain costs
included in segment operating costs in the third quarter of 1998 in response to
the protracted downward trend in market conditions and a geographical shift in
drilling activity in the markets Newpark serves as previously noted.
Interest Income/Expense
Net interest expense was $11.4 million for the nine months ended
September 30, 1999, an increase of $4.5 million, or 65%, as compared to $6.9
million for the second quarter of 1998. The increase in net interest cost is due
to an increase of $51.1 million, or 32%, in average outstanding borrowings and
an increase in the average interest rate, after consideration of capitalized
interest, from 8.27% to 8.59%.
Provision for Income Taxes
For the nine months ended September 30, 1999, the Company recorded an
income tax benefit of $3.0 million, reflecting an income tax benefit rate of
23.6%. For the nine months ended September 30, 1998, the Company recorded an
income tax provision of $2.6 million, reflecting an income tax benefit rate of
18.4%. This low effective benefit rate for both periods results primarily from
the effect of non-deductible goodwill.
Cumulative Effects of Accounting Changes
The unit-of-production method of providing for depreciation on certain
assets used in the Company's barite grinding activity and in the E&P waste
disposal business segment was adopted in the second quarter of 1999, effective
January 1, 1999. Prior to this change, the Company had depreciated these assets
using the straight-line method. The reported loss from operations for the nine
months ended September 30, 1999 was reduced by $1,471,000 (related per share
amounts of $.02 basic and diluted) reflecting the cumulative effect (net of
income taxes) on years prior to 1999 for the change in accounting for
depreciation.
In the third quarter of 1998, the Company elected early adoption of SOP
98-5 "Reporting Costs of Start-Up Activities" which provided standards for
recording costs related to start-up activities. The cumulative effect of this
charge, net of income taxes, was $1.3 million (related per share amounts of $.02
basic and diluted).
Preferred Stock Dividends and Accretion of Discount
Dividends paid on preferred stock and accretion of the discount on the
preferred stock for the nine months ended September 30, 1999 were $344,000 and
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<PAGE> 23
$206,000, respectively. These amounts reflect dividends and accretion for the
period of April 16, 1999 (the issuance date of the preferred stock) through
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position decreased by $6.5 million during
the nine months ended September 30, 1999. Key working capital data is provided
below:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Working Capital (000's) $ 69,410 $ 75,937
Current Ratio 2.68 2.99
</TABLE>
The Company's long term capitalization was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Long-term debt
(including current maturities):
Credit facility $ 80,950 $ 80,900
Subordinated debt 125,000 125,000
Other 2,307 3,352
---------- ----------
Total long-term debt 208,257 209,252
Stockholders' equity 249,225 242,497
---------- ----------
Total capitalization $ 457,482 $ 451,749
========== ==========
</TABLE>
For the nine months ended September 30, 1999, Newpark's working capital
needs were met primarily from operating cash flow and the net proceeds from a
preferred stock offering. Total net cash generated from operations and financing
activities of $8.9 million and $15.3 million, respectively, helped provide for
$27.9 million used in investing activities.
During the first nine months of 1999, the Company entered into an
operating lease transaction, under which it received $9.3 million in
reimbursement of expenditures previously incurred by the Company for the
purchase of a portion of the underlying equipment. Additionally, the Company
received income tax refunds totaling $13.3 million during this same period.
Newpark's current bank credit facility provides for a $100.0 million
revolving credit facility maturing on June 30, 2001, including up to $20.0
million in standby letters of credit. At September 30, 1999, $17.6 million in
letters of credit were issued and outstanding under the credit facility, leaving
a net of $82.4 million available for cash advances, of which $81.0 million
borrowed. Advances under the credit facility bear interest at either (i) a
specified prime rate or (ii) the LIBOR rate
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<PAGE> 24
plus a spread which is determined quarterly based on 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 other requirements of the credit facility, as amended, at
September 30, 1999. During the current quarter, the Company expects to have the
facility revised to resolve recurring financial ratio compliance issues and
Newpark has agreed to secure the modified facility.
In April 1999 the Company sold to SCF-IV, L.P., a Delaware limited
partnership managed by SCF Partners, 150,000 shares of Series A Cumulative
Perpetual Preferred Stock, $0.01 par value per share (the "Series A Preferred
Stock"), and a warrant (the "Warrant") to purchase up to 2,400,000 shares of the
Common Stock of the Company at an exercise price of $8.50 per share, subject to
anti-dilution adjustments. The aggregate purchase price for the Series A
Preferred Stock and the Warrant was $15.0 million, and the net proceeds from the
sale have been used to repay indebtedness.
For 1999, Newpark anticipates total capital expenditures of
approximately $37 million, including: (i) $4 million to develop non-hazardous
industrial waste injection well sites, (ii) $6 million for expansion of drilling
fluids operations, including the purchase of equipment associated with fluids
processing and recycling and infrastructure expansions; (iii) $3 million to
complete an enlarged joint operational offshore facility; (iv) $18 million for
the purchase of synthetic mats and additional hardwood mats; and (v) $6 million
for maintenance capital. Of these projected amounts, $33 million was expended
during the nine month period ended September 30, 1999.
Potential sources of additional funds, if required by the Company,
would include operating leases for equipment purchases, the sale of certain
operating an non-operating assets 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 sources of capital,
coupled with internally generated funds, will be sufficient to support its
working capital, capital expenditure and debt service requirements for the
foreseeable future provided that market conditions stabilize or improve from
current levels. Any further protracted downturn in market conditions could have
an adverse affect on the Company's future available capital and would likely
result in reductions in planned capital expenditures. 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
within the next 12 months. Inflation has not materially impacted the Company's
revenues or income.
24
<PAGE> 25
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. 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 has completed a process of contacting its
major customers and vendors to assess their progress in addressing their Year
2000 issues. Included with these contacts was a request to address embedded
technology as it relates to their own operations and to products supplied to the
Company. 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 its
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
Newpark.
While the Company has made and will continue to make efforts to address
Year 2000 issues, it 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 has developed contingency plans to help mitigate the
effects of failures, if any.
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.
25
<PAGE> 26
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. Words such as "believes",
"expects", "anticipates", "intends", "plans", "estimates", "should", "likely",
or similar expressions indicate that the statement is a forward-looking
statement. 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 introducing new products and integrating potential future
acquisitions; and (i) any disruptions in its operations as a result of failures
in its own computer systems and those of its major vendors or customers
resulting from Year 2000 issues.
26
<PAGE> 27
PART II
ITEM 5. OTHER INFORMATION
On November 10, 1999, the Company and Tuboscope, Inc. announced that
they had jointly elected to form operational alliances in key market areas
rather than proceed with the proposed merger announced on June 24, 1999. The
decision was made because recent market conditions in the oilfield service
market and the resulting uncertainty in the capital markets made it difficult to
obtain the type of credit facility believed necessary for the combined
companies. Each company has agreed to pay its respective transaction expenses
relating to the proposed merger, which for Newpark are estimated to be $2.4
million.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule for 1999
27.3 Restated Financial Data Schedule for 1998
99 Press release announcing termination of merger agreement
with Tuboscope
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the
quarter ended September 30, 1999.
27
<PAGE> 28
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 12, 1999
NEWPARK RESOURCES, INC.
By: /s/ Matthew W. Hardey
-----------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule for 1999
27.3 Restated Financial Data Schedule for 1998
99 Press release announcing termination of merger agreement
with Tuboscope
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,946
<SECURITIES> 0
<RECEIVABLES> 69,955
<ALLOWANCES> 10,367
<INVENTORY> 21,798
<CURRENT-ASSETS> 110,634
<PP&E> 292,405
<DEPRECIATION> 68,808
<TOTAL-ASSETS> 501,319
<CURRENT-LIABILITIES> 41,224
<BONDS> 0
0
12,709
<COMMON> 689
<OTHER-SE> 234,324
<TOTAL-LIABILITY-AND-EQUITY> 501,319
<SALES> 138,916
<TOTAL-REVENUES> 138,916
<CGS> 93,614
<TOTAL-COSTS> 136,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,419
<INCOME-PRETAX> (12,906)
<INCOME-TAX> (3,040)
<INCOME-CONTINUING> (9,866)
<DISCONTINUED> (2,736)
<EXTRAORDINARY> 0
<CHANGES> 1,471
<NET-INCOME> (11,131)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999
<CASH> 4,568 5,887
<SECURITIES> 0 0
<RECEIVABLES> 66,159 58,580
<ALLOWANCES> 10,406 40,402
<INVENTORY> 17,074 17,943
<CURRENT-ASSETS> 99,869 94,400
<PP&E> 266,665 282,355
<DEPRECIATION> 58,065 63,339
<TOTAL-ASSETS> 474,514 475,090
<CURRENT-LIABILITIES> 32,758 27,724
<BONDS> 0 0
0 0
0 12,597
<COMMON> 688 688
<OTHER-SE> 244,644 241,891
<TOTAL-LIABILITY-AND-EQUITY> 474,514 475,090
<SALES> 50,775 90,043
<TOTAL-REVENUES> 50,775 90,043
<CGS> 32,564 60,660
<TOTAL-COSTS> 45,182 89,358
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,977 8,019
<INCOME-PRETAX> 1,424 (7,965)
<INCOME-TAX> 528 (4,701)
<INCOME-CONTINUING> 896 (3,264)
<DISCONTINUED> (338) (1,420)
<EXTRAORDINARY> 0 0
<CHANGES> 1,471 1,471
<NET-INCOME> 2,029 (3,213)
<EPS-BASIC> 0.03 (0.05)
<EPS-DILUTED> 0.03 (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998 DEC-31-1998
<CASH> 16,310 12,354 10,004 6,618
<SECURITIES> 0 0 0 0
<RECEIVABLES> 92,999 89,866 77,056 71,971
<ALLOWANCES> 2,262 2,017 7,198 10,808
<INVENTORY> 20,496 25,861 22,033 18,663
<CURRENT-ASSETS> 133,272 131,234 112,308 101,380
<PP&E> 271,664 312,768 313,263 258,786
<DEPRECIATION> 69,599 81,270 68,650 55,405
<TOTAL-ASSETS> 482,200 520,872 517,253 484,284
<CURRENT-LIABILITIES> 43,922 32,424 37,301 35,945
<BONDS> 127,064 160,267 184,435 208,057
0 0 0 0
0 0 0 0
<COMMON> 658 670 682 688
<OTHER-SE> 290,979 313,000 290,713 241,809
<TOTAL-LIABILITY-AND-EQUITY> 482,200 520,872 517,253 484,284
<SALES> 70,870 136,356 195,574 245,458
<TOTAL-REVENUES> 70,870 136,356 195,574 245,458
<CGS> 41,974 80,745 120,705 168,364
<TOTAL-COSTS> 51,511 100,598 165,627 232,257
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 4,000 9,180
<INTEREST-EXPENSE> 2,638 5,262 8,059 11,516
<INCOME-PRETAX> 16,745 30,588 (13,991) (93,784)
<INCOME-TAX> 5,923 11,062 (2,570) (30,753)
<INCOME-CONTINUING> 10,822 19,526 (11,421) (61,647)
<DISCONTINUED> 405 810 201 (642)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 (1,326) (1,326)
<NET-INCOME> 11,227 20,336 (12,546) (63,615)
<EPS-BASIC> 0.17 0.31 (0.19) (0.95)
<EPS-DILUTED> 0.17 0.30 (0.19) (0.95)
</TABLE>
<PAGE> 1
EXHIBIT 99
[NEWPARK RESOURCES, INC. LETTERHEAD]
NEWPARK RESOURCES, INC. AND TUBOSCOPE, INC. FORM KEY
BUSINESS ALLIANCES; EXIT MERGER AGREEMENT
Houston, Texas, November 10, 1999...Newpark Resources, Inc. (NYSE:NR) and
Tuboscope, Inc. (NYSE:TBI) announced that they have jointly elected to form
operational alliances in key market areas rather than proceed with the proposed
merger agreement announced on June 24. Tuboscope President and CEO John F.
Lauletta stated that "The trough of the oilfield service market and the
uncertainty of the capital markets were making it difficult to obtain the type
of credit facility we believed was necessary for the combined companies. This
uncertainty, anticipated restrictive terms, and resulting delays have convinced
us that the termination of the agreement is in the best interest of both
companies."
Notwithstanding the termination, the companies plan to continue to work closely
together. James D. Cole, Newpark President and CEO stated, "The companies are
already working in alliance arrangements in several areas to benefit both
parties, and in this way we expect to realize most of the benefits contemplated
in the proposed transaction. In finalizing the recently announced solids
control and processing alliance between the companies, Tuboscope has agreed to
purchase the assets of Newpark's solids control and processing business." He
continued, "Newpark has already begun providing oilfield waste disposal
services for Tuboscope, and we anticipate that other areas of joint operation
will be developed in the near future."
The companies indicated that each will pay its respective transaction expenses.
<PAGE> 2
Newpark Resources, Inc. provides integrated fluids management, environmental
and oilfield services to the exploration and production industry.
For further information contact:
<TABLE>
<CAPTION>
Company New York
------- --------
<S> <C>
Matthew W. Hardey Ron Hengen
Vice President of Finance R. F. Hengen, Inc.
Newpark Resources, Inc. 253 Southgate Road
3850 N. Causeway, Suite 1770 Murray Hill, New Jersey 07974
Metairie, Louisiana 70002 (908) 508-9000
(504) 838-8222
</TABLE>
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 press release. For further information regarding these and other
factors, risks and uncertainties affecting the Company, reference is made to
the section entitled "Cautionary Statements Regarding Forward-Looking
Statements," on page iv of the Prospectus dated February 20, 1998, included in
the Company's Registration Statement on Form S-4 (File No. 333-45197), and the
other factors referred to in that section.
