<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, 2000 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: 69,521,125 shares at November 10, 2000.
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
September 30, 2000
<TABLE>
<CAPTION>
Item Page
Number Description Number
------ ----------- ------
<S> <C> <C>
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets as of September 30, 2000 and
December 31, 1999 ............................................................3
Statements of Operations for the Three Month and Nine
Month Periods Ended September 30, 2000 and 1999...............................4
Statements of Comprehensive Income for the Nine Month
Periods Ended September 30, 2000 and 1999.....................................5
Statements of Cash Flows for the Nine Month Periods
Ended September 30, 2000 and 1999.............................................6
Notes to Unaudited Consolidated Financial Statements ..............................7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................................12
PART II
6 Exhibits and Reports on Form 8-K......................................................23
Signatures ...........................................................................24
</TABLE>
2
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Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except share data) 2000 1999
--------------------------------- -------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,273 $ 4,517
Accounts and notes receivable, less allowance
of $4,133 in 2000 and $10,836 in 1999 69,207 57,906
Inventories 24,524 17,524
Deferred tax asset 13,071 10,463
Other current assets 5,458 8,767
-------------- --------------
TOTAL CURRENT ASSETS 114,533 99,177
Property, plant and equipment, at cost, net of
accumulated depreciation 181,892 166,603
Cost in excess of net assets of purchased businesses,
net of accumulated amortization 112,558 116,465
Deferred tax asset 26,206 33,595
Other assets 34,627 34,701
-------------- --------------
$ 469,816 $ 450,541
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 627
Current maturities of long-term debt 407 991
Accounts payable 24,067 29,232
Accrued liabilities 16,446 14,453
Arbitration settlement payable 3,641 5,630
-------------- --------------
TOTAL CURRENT LIABILITIES 44,561 50,933
Long-term debt 199,960 209,210
Arbitration settlement payable -- 2,451
Other non-current liabilities 1,622 1,608
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, 270,000 shares outstanding 43,410 13,009
Common Stock, $.01 par value, 100,000,000 shares
authorized, 69,519,487 shares outstanding in 2000
and 69,079,243 in 1999 695 690
Paid-in capital 328,582 322,724
Unearned restricted stock compensation (3,163) (3,838)
Accumulated other comprehensive income (loss) (942) 250
Accumulated deficit (144,909) (146,496)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 223,673 186,339
-------------- --------------
$ 469,816 $ 450,541
============== ==============
</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) 2000 1999 2000 1999
------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 68,987 $ 50,921 $ 186,466 $ 144,224
Operating costs and expenses:
Cost of services provided 40,415 35,967 112,045 99,423
Operating costs 15,744 13,802 44,314 42,774
--------- --------- --------- ---------
56,159 49,769 156,359 142,197
General and administrative expenses 587 738 2,238 1,899
Goodwill amortization 1,243 1,197 3,733 3,730
Terminated merger expenses -- 2,400 -- 2,400
--------- --------- --------- ---------
Operating income (loss) 10,998 (3,183) 24,136 (6,002)
Interest income (178) (241) (636) (771)
Interest expense 4,576 4,171 13,926 12,190
--------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of accounting change 6,600 (7,113) 10,846 (17,421)
Provision for income taxes (benefit) 2,670 805 4,380 (4,819)
--------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change 3,930 (7,918) 6,466 (12,602)
Cumulative effect of accounting change,
(less applicable income taxes) -- -- -- 1,471
--------- --------- --------- ---------
Net income (loss) before effects of preferred stock 3,930 (7,918) 6,466 (11,131)
Less:
Preferred stock dividends and accretion 637 300 1,350 550
Non-cash conversion feature at preferred stock issuance -- -- 3,529 --
--------- --------- --------- ---------
Net income (loss) applicable to common and common
equivalent shares $ 3,293 $ (8,218) $ 1,587 $ (11,681)
========= ========= ========= =========
Weighted average common and common equivalent shares outstanding:
Basic 69,299 68,986 69,174 68,917
========= ========= ========= =========
Diluted 70,315 68,986 69,940 68,917
========= ========= ========= =========
Income (loss) per common share:
BASIC:
Income (loss) before cumulative effect of accounting
change and effects of preferred stock $ 0.06 $ (0.11) $ 0.09 $ (0.18)
Preferred stock dividends and accretion (0.01) (0.00) (0.02) (0.01)
Non-cash conversion feature at preferred stock issuance -- -- (0.05) --
--------- --------- --------- ---------
Income (loss) before cumulative effect 0.05 (0.12) 0.02 (0.19)
Cumulative effect of accounting change -- -- -- 0.02
--------- --------- --------- ---------
Net income (loss) $ 0.05 $ (0.12) $ 0.02 $ (0.17)
========= ========= ========= =========
DILUTED:
Income (loss) before cumulative effect of accounting
change and effects of preferred stock $ 0.06 $ (0.11) $ 0.09 $ (0.18)
Preferred stock dividends and accretion (0.01) (0.00) (0.02) (0.01)
Non-cash conversion feature at preferred stock issuance -- -- (0.05) --
--------- --------- --------- ---------
Income (loss) before cumulative effect 0.05 (0.12) 0.02 (0.19)
Cumulative effect of accounting change -- -- -- 0.02
--------- --------- --------- ---------
Net income (loss) $ 0.05 $ (0.12) $ 0.02 $ (0.17)
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Month Periods Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) 2000 1999
-------------- -------- --------
<S> <C> <C>
Net income (loss) $ 6,466 $(11,131)
Other comprehensive income (loss):
Foreign currency translation adjustments (1,192) 851
-------- --------
Comprehensive income (loss) $ 5,274 $(10,280)
======== ========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) 2000 1999
--------------- -------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,466 $(11,131)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 17,099 21,011
Provision for deferred income taxes (benefits) 4,781 (4,819)
Cumulative effect of accounting change -- (1,471)
Other (674) (50)
Change in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts and notes receivable (12,615) 224
Increase in inventories (7,000) (3,389)
Decrease in other assets 396 9,631
Decrease in accounts payable (5,384) (5,440)
Decrease in accrued liabilities and other (2,490) (1,532)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 579 3,034
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,732) (32,832)
Proceeds from disposal of property, plant and equipment 974 386
Payments received on notes receivable 558 1,415
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (23,200) (31,031)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock offering 29,725 14,750
Net borrowings on lines of credit 817 1,091
Proceeds from equipment leasing 63 9,320
Principal payments on notes payable and long-term debt (11,341) (1,318)
Proceeds from exercise of stock options 1,113 512
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,377 24,355
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,244) (3,642)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,517 6,611
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 2,273 $ 2,969
======== ========
</TABLE>
Included in accounts payable and accrued liabilities at September 30, 2000 and
1999 were equipment purchases of approximately $1.5 million and $2.4 million,
respectively.
Interest of $11.2 million and $10.7 million was paid during the nine months
ending September 30, 2000 and 1999, respectively. There were no income taxes
paid during the nine months ending September 30, 2000. Income tax refunds, net
of payments, totaled $11.8 million for the nine months ending September 30,
1999.
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. 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, 2000, and the results of its operations and its cash flows for the
three month and nine month periods ended September 30, 2000 and 1999. All such
adjustments are of a normal recurring nature. These interim financial statements
should be read in conjunction with the December 31, 1999 audited financial
statements and related notes filed on Form 10-K, as amended. The results of
operations for the three month and nine month periods ended September 30, 2000
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.
B. SALE OF SOLIDS CONTROL OPERATIONS
In September 1999, management adopted a plan to discontinue its solids
control operations and simultaneously entered into an alliance agreement with a
division of Tuboscope, which is now providing some of these services to
Newpark's customers. The operating results for the solids control operations are
included in the results for the fluids sales and engineering segment. All solids
control contracts were completed during the second quarter of 2000. Revenues
from the solids control operations totaled $2.0 million in the third quarter of
1999. Revenues from the solids control operations totaled approximately $883,000
for the first nine months of 2000 and $5.3 million for the first nine months of
1999. These operations were at break even for the third quarter and first nine
months of 2000, and generated operating losses of approximately $2.2 million in
the third quarter of 1999 and $4.5 million for the first nine months of 1999.
The 1999 results for the solids control operations had previously been
reported as discontinued operations in the financial statements. The previously
filed financial statements have been restated to reflect the inclusion of the
results for the solids control operations as part of continuing operations of
the fluids sales and engineering segment.
The following table shows the previously reported and restated amounts:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1999
--------------------- ---------------------
<S> <C> <C>
As previously reported-
Loss from continuing operations before
cumulative effect of accounting changes $ (6,602) $ (9,866)
Net loss $ (7,918) $ (11,131)
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1999
------------------- -------------------
<S> <C> <C>
Loss per common and common equivalent share:
Basic:
Continuing operations $ (.10) $ (.15)
Net loss $ (.12) $ (.17)
Diluted:
Continuing operations $ (.10) $ (.15)
Net loss $ (.12) $ (.17)
As restated-
Loss before cumulative effect of accounting
changes $ (7,918) $ (12,602)
Net loss $ (7,918) $ (11,131)
Loss per common and common equivalent share:
Basic:
Loss before cumulative effect of accounting
changes $ (.11) $ (.18)
Net loss $ (.12) $ (.17)
Diluted:
Loss before cumulative effect of accounting
changes $ (.11) $ (.18)
Net loss $ (.12) $ (.17)
</TABLE>
C. EARNINGS PER SHARE
Basic net income (loss) per share was calculated by dividing net income
by the weighted-average number of common shares outstanding during the period.
Diluted net income per share for the quarter and nine months ended September 30,
2000 were calculated by dividing net income by the weighted-average number of
common shares outstanding during the period plus the weighted-average number of
dilutive stock options and warrants, which totaled 1,016,000 shares and 766,000
shares for the respective periods. Options and warrants which were considered
antidilutive because the exercise prices exceeded the average price for the
applicable period totaled approximately 1.6 million shares and 2.7 million
shares during the quarter and nine months ended September 30, 2000,
respectively.
Since the Company incurred a loss per share for the quarter and nine
months ended September 30, 1999, all effects of options and warrants were
excluded from the calculations of diluted loss per share for these periods.
Options and warrants excluded from the
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<PAGE> 9
computation of diluted loss per share for these periods that could potentially
dilute basic EPS in the future totaled 7,529,000 shares.
D. ACCOUNTS AND NOTES RECEIVABLE
Included in current accounts and notes receivable at September 30, 2000
and December 31, 1999 are:
<TABLE>
<CAPTION>
(In thousands)
2000 1999
-------- --------
<S> <C> <C>
Trade receivables $ 68,209 $ 62,051
Unbilled revenues 840 2,874
-------- --------
Gross trade receivables 69,049 64,925
Allowance for doubtful accounts (4,133) (10,836)
-------- --------
Net trade receivables 64,916 54,089
Notes and other receivables 4,291 3,817
-------- --------
Total $ 69,207 $ 57,906
======== ========
</TABLE>
During the quarter ended September 30, 2000, previously reserved
receivables of approximately $6.7 million were written off against the allowance
balance upon settlement of all claims.
E. INVENTORY
The Company's inventory consisted of the following items at September
30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
(In thousands) 2000 1999
------- -------
<S> <C> <C>
Drilling fluids raw materials
and components $18,010 $13,062
Composite mats 223 --
Logs 5,074 3,338
Supplies 407 724
Other 810 400
------- -------
Total $24,524 $17,524
======= =======
</TABLE>
F. LONG-TERM DEBT
As of September 30, 2000, the Company has outstanding $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 June 15 and December 15.
As of September 30, 2000, the Company also maintained a $100.0 million
bank credit facility, including up to $20.0 million in standby letters of
credit, in the form of a revolving line of credit commitment, which expires
December 31, 2001. At September 30, 2000, $15.8 million in letters of credit
were issued and outstanding under the credit facility and $73.5 million was
outstanding under the revolving facility, leaving $10.7 million of availability
under this facility at September 30, 2000. The facility bears interest at either
a specified prime rate (9.5% at September 30, 2000) or the LIBOR rate (6.68% at
September
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<PAGE> 10
30, 2000) plus a spread determined quarterly based on the ratio of the
Company's funded debt to cash flow. The current interest rate under the credit
facility is prime plus .75% (10.25% at November 3, 2000) or LIBOR plus 3.25%
(9.85% at November 3, 2000). The Company was in compliance with all financial
covenants of the credit facility as of September 30, 2000.
G. SEGMENT DATA
Summarized financial information concerning the Company's reportable
segments is shown in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30, Change
--------------------- ----------------------
2000 1999 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 15,409 $ 9,856 $ 5,553 56%
Fluids sales & engineering 33,806 25,932 7,874 30
Mat & integrated services 19,772 15,133 4,639 31
--------- --------- ---------
Total $ 68,987 $ 50,921 $ 18,066 35%
========= ========= =========
Operating income (loss) by segment:
E&P waste disposal $ 5,297 $ 2,353 $ 2,944 125%
Fluids sales & engineering 2,140 (1,921) 4,061 NM
Mat & integrated services 5,391 720 4,671 649
--------- --------- ---------
Total by segment 12,828 1,152 11,676 1,014
General and administrative expenses 587 738 (151) (20)
Goodwill amortization 1,243 1,197 46 4
Terminated merger expenses -- 2,400 (2,400) NM
--------- --------- ---------
Total operating income (loss) $ 10,998 $ (3,183) $ 14,181 NM%
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
--------------------- ----------------------
2000 1999 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 41,647 $ 30,623 $ 11,024 36%
Fluids sales & engineering 93,538 68,281 25,257 37
Mat & integrated services 51,281 45,320 5,961 13
--------- --------- ---------
Total $ 186,466 $ 144,224 $ 42,242 29%
========= ========= =========
Operating income (loss) by segment:
E&P waste disposal $ 13,408 $ 9,459 $ 3,949 42%
Fluids sales & engineering 6,069 (9,562) 15,631 NM
Mat & integrated services 10,630 2,130 8,500 399
--------- --------- ---------
Total by segment 2,027 1,385
General and administrative expenses 2,238 1,899 339 18
Goodwill amortization 3,733 3,730 3 0
Terminated merger expenses -- 2,400 (2,400) NM
--------- --------- ---------
Total operating income (loss) $ 24,136 $ (6,002) $ 30,138 NM%
========= ========= =========
</TABLE>
The figures above are shown net of intersegment transfers.
10
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H. 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 and its barite grinding mills using the
unit-of-production method. 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 reported income for the nine months ended September 30, 1999 was
increased 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition, results of
operations, liquidity and capital resources should be read together with our
"Unaudited Consolidated Financial Statements" and "Notes to Unaudited
Consolidated Financial Statements" as well as our annual report on form 10-K for
the year ended December 31, 1999, as amended.
RESULTS OF OPERATIONS
Our operating results depend primarily on the level of oil and gas
drilling activity in the markets we serve. These levels in turn depend, to a
great extent, on oil and gas commodities pricing, inventory levels and product
demand. Key average rig count data for the last several quarters is listed in
the following table:
<TABLE>
<CAPTION>
1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Rig Count 551 521 637 773 770 845 982
Gulf Coast market 185 172 183 213 223 240 270
Gulf Coast market to total 33.6% 33.0% 28.7% 27.6% 29.0% 28.4% 27.5%
Canadian Rig Count 290 104 253 337 480 212 314
</TABLE>
---------
Source: Baker Hughes Incorporated
The Gulf Coast market, our primary market, accounted for
approximately 75% of revenues for the first nine months of 2000 and includes:
(1) South Louisiana Land; (2) Texas Railroad Commission Districts 2 and 3; (3)
Louisiana and Texas Inland Waters; and (4) Offshore Gulf of Mexico. According to
Baker Hughes Incorporated, as of the week ended November 3, 2000, the U.S. rig
count was 1,078, with 283 rigs, or 26.3%, within our primary market. The
quarterly fluctuations in the Canadian rig count generally reflect the seasonal
nature of drilling activity related to drilling site access. As of the week
ended November 3, 2000, the Canadian rig count was 362.
Average crude oil and natural gas prices for the last several quarters
is listed in the following table:
<TABLE>
<CAPTION>
1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
West Texas Inter. Crude ($/bbl) $13.17 $17.66 $21.72 $24.52 $28.91 $28.95 $31.70
U.S. Spot Natural Gas ($/mcf) $ 1.80 $ 2.24 $ 2.55 $ 2.48 $ 2.63 $ 3.67 $ 4.49
</TABLE>
---------
Source: Wall Street Journal
Since the first quarter of 1999, we have seen steady improvement in
crude oil and natural gas prices, which continued into the third quarter of
2000. With the improvement in oil and gas prices in the second half of 1999, the
average rig activity increased for the first time in six quarters during the
third quarter of 1999. The increase in rig activity has continued through the
third quarter of 2000, but has trailed the recovery in oil and gas prices.
During 2000, gas storage levels reached their lowest point in over
three years, and current industry forecasts reflect a stable to growing demand
for natural gas. In addition, current productive gas reserves are being depleted
at a rate faster than current
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<PAGE> 13
replacement through drilling activities. Accordingly, we believe that gas
drilling activity will increase over current levels. Because many shallow fields
in the Gulf Coast market have been exploited, producers are expected to increase
the depth of drilling to reach larger gas reserves. As such, we expect gas
drilling activity to be increasingly associated with deeper, more costly wells.
In September 1999, we decided to discontinue our solids control
operations and simultaneously entered into an alliance agreement with a division
of Tuboscope, which is now providing some of these services to our customers.
Prior year results for these solids control operations were previously reported
as discontinued operations. Operating results for the prior year have been
restated to give effect to the reclassification of these results from a
presentation as discontinued operations to a presentation as part of continuing
operations of our fluids sales and engineering segment. Operating results for
the quarter and nine months ended September 30, 1999 have also been restated to
reflect the cumulative effect of an accounting change effective January 1, 1999.
Summarized financial information concerning our reportable segments for the
three month and nine month periods ended September 30, 2000 and 1999 is shown
below:
<TABLE>
<CAPTION>
Three Months Ended
September 30, Change
--------------------- ----------------------
2000 1999 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 15,409 $ 9,856 $ 5,553 56%
Fluids sales & engineering 33,806 25,932 7,874 30
Mat & integrated services 19,772 15,133 4,639 31
--------- --------- ---------
Total $ 68,987 $ 50,921 $ 18,066 35%
========= ========= =========
Operating income (loss) by segment:
E&P waste disposal $ 5,297 $ 2,353 $ 2,944 125%
Fluids sales & engineering 2,140 (1,921) 4,061 NM
Mat & integrated services 5,391 720 4,671 649
--------- --------- ---------
Total by segment 12,828 1,152 11,676 1,014
General and administrative expenses 587 738 (151) (20)
Goodwill amortization 1,243 1,197 46 4
Terminated merger expenses -- 2,400 (2,400) NM
--------- --------- ---------
Total operating income (loss) $ 10,998 $ (3,183) $ 14,181 NM%
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
--------------------- ----------------------
2000 1999 $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 41,647 $ 30,623 $ 11,024 36%
Fluids sales & engineering 93,538 68,281 25,257 37
Mat & integrated services 51,281 45,320 5,961 13
--------- --------- ---------
Total $ 186,466 $ 144,224 $ 42,242 29%
========= ========= =========
Operating income (loss) by segment:
E&P waste disposal $ 13,408 $ 9,459 $ 3,949 42%
Fluids sales & engineering 6,069 (9,562) 15,631 NM
Mat & integrated services 10,630 2,130 8,500 399
--------- --------- ---------
Total by segment 30,107 2,027 28,080 1,385
General and administrative expenses 2,238 1,899 339 18
Goodwill amortization 3,733 3,730 3 0
Terminated merger expenses -- 2,400 (2,400) NM
--------- --------- ---------
Total operating income (loss) $ 24,136 $ (6,002) $ 30,138 NM%
========= ========= =========
</TABLE>
The figures above are shown net of intersegment transfers.
13
<PAGE> 14
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
Revenues
E&P Waste Disposal: The $5.6 million, or 56%, increase in waste
disposal revenue is attributable to the increases in drilling activity and the
resulting increase in waste volumes received. Drilling rig activity in our
primary gulf coast market increased 48% during the third quarter of 2000
compared to the same period in 1999. During the third quarter of 2000, we
received 1,091,000 barrels of E&P waste compared to 784,000 barrels in the
comparable quarter of 1999, a 39% increase. Average revenue per barrel increased
from $10.60 per barrel in 1999 to $11.51 per barrel in 2000. Revenues for the
quarter ended September 30, 2000 included $574,000 from nonhazardous industrial
disposal operations, which began in August 1999. Revenues from these operations
were $176,000 in the comparable period of 1999. NORM revenues were $1.5 million
in 2000, as compared to $600,000 in 1999.
Recently, we have seen an increase in activity in the environmentally
sensitive South Louisiana Transition Zone, which should translate into future
revenue growth if the trend continues. This development is important, since a
Transition Zone drilling rig generates five to six times the waste volume of
other, less tightly regulated markets. In addition, we are continuing to work
with our customers to implement a 4% price increase, which we expect to be fully
implemented by the end of the fourth quarter. This price increase is in response
to increases in certain operating costs.
New offshore regulations regarding the limitation of discharges of
synthetic fluids and drill cuttings containing synthetic fluids have recently
been announced and are expected to be effective in early 2001. These
regulations, as proposed, would eliminate the discharge of synthetic fluids and
would reduce the allowable percentage of drill cuttings containing synthetic
fluids to 6.9% of total discharges by volume. We expect to experience some
increase in waste volumes as a result of these new regulations once they become
effective.
Fluids Sales and Engineering: Fluids sales and engineering revenues
increased $7.9 million, or 30%. During the third quarter of 2000, we serviced an
average of 152 rigs, compared to 94 rigs in the third quarter of 1999. The
average annualized revenue per rig was approximately $890,000 in the third
quarter of 2000, compared to $881,000 for the third quarter of 1999. We are
continuing to work with our customers to implement an average price increase of
5%-6%, which we expect to be fully implemented by the end of the fourth quarter.
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<PAGE> 15
Revenues of this segment include revenues from solids control
operations of approximately $2.0 million in the third quarter of 1999. There
were no solids control revenues in the third quarter of 2000. These operations
were discontinued in September 1999. Certain solids control contracts that
remained in progress as of December 31, 1999 were completed by June 2000. The
average annualized revenue per rig, excluding solids control revenues, was
$791,000 for the third quarter of 1999.
Many of our drilling fluids customers are independent operators that
are active in the inland waters and the shelf of the Gulf of Mexico markets.
Recently these areas have seen an increase in activity. Drilling in these
markets usually involves more complicated drilling programs resulting in greater
amounts of drilling fluids sales and engineering services as compared to other
land drilling markets.
Mat and Integrated Services: The $4.6 million, or 31%, increase in mat
and integrated services revenues is due to both an increase in pricing and an
increase in volume of mat locations associated with increases in drilling
activity and expansion of Canadian operations. The average price per square foot
for mat locations installed was $0.99 in the third quarter of 2000, compared to
$0.59 in the third quarter of 1999 and $.71 in the second quarter of 2000. The
average pricing in the prior year was negatively impacted by weak demand and the
lack of Transition Zone work, which tends to earn a premium in pricing for mat
locations due to the complexity and size of the projects. Beginning late in the
third quarter of 2000, we have seen a significant increase in mat locations for
drilling in the Transition Zone market, and we have indications from our
customers that this market will continue to be active for the remainder of the
year and into 2001. Should the activity in this market continue to increase, we
believe it would have a positive impact on both revenues and operating margins
for this segment.
Canadian mat revenues were $2.3 million in the third quarter of 2000,
compared to $700,000 for the third quarter of 1999. Canadian mat revenues for
2000 include rental charges associated with a pending sale of 1,000 mats to a
Canadian E&P company, subject to a 60-day evaluation period. This customer has
recently accepted these mats, for which additional sales revenues will be
recorded in the fourth quarter. This customer has also agreed to purchase an
additional 500 mats in the fourth quarter and is evaluating the purchase of more
mats for projects planned during the spring of 2001 when site access problems
traditionally begin to increase. We are continuing to pursue the military,
governmental and commercial markets for sales of our composite mat system. We
continue to believe that our efforts in this new market should begin to show
positive results in the near future.
Operating Income
E&P Waste Disposal: The $2.9 million increase in waste disposal
operating income represents a 125% increase from the prior year period and an
incremental margin (the increase in operating income divided by the increase in
revenue) of 53%. Increases in certain operating costs, including barge rental,
maintenance (in particular at our west Texas operations), personnel, fuel and
utility costs, negatively impacted the incremental margin for this segment.
Offsetting these increases in operating costs for the quarter was an increase in
higher-margin NORM revenues from $600,000 in 1999 to $1.5 million in 2000.
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<PAGE> 16
As noted above, we are continuing to implement a 4% price increase.
This price increase, along with moderating costs, are expected to improve the
incremental margins for this segment over the remainder of the year.
Fluids Sales and Engineering: Fluids sales and engineering operating
income increased $4.1 million on a $7.9 million increase in revenues. Operating
income for this segment includes the results of our solids control operations,
which were discontinued in September 1999. Included in the operating loss for
the fluids sales and engineering segment for the quarter ended September 30,
1999 is an operating loss of $2.2 million associated with solids control
operations. Excluding the effects of the solids control operations in the prior
year, operating income in this segment increased $1.9 million, representing an
incremental margin of 19%.
The operating margin of the drilling fluids segment is affected by the
mix of products sold. There is a significant difference in the gross margins
recognized on commodity products, primarily barite, and those recognized for
specialty products. We expect to recognize the benefits of newly introduced
products such as DeepDrill(TM) and other specialty products as these products
gain wider customer acceptance. We expect to obtain better margins on commodity
products as market activity increases, which should improve pricing and lower
product costs. In addition, as noted above, we are continuing to implement a
5%-6% price increase over the remainder of 2000. The positive effects of these
price increases and increases in the mix of higher margin products are expected
to be partially offset by increases in certain operating costs, including fuel,
personnel and infrastructure costs of expanded offshore base operations.
Mat and Integrated Services: Mat and integrated services operating
income increased $4.7 million on a $4.6 million increase in revenues. The high
incremental margin is attributable to reductions in operating costs and improved
pricing due to favorable changes in mix; however, we do not anticipate that
incremental margins will be as high in the future. During 1998 and 1999, we
disposed of a significant portion of our domestic wooden mat fleet. In 1999, we
also recorded an impairment charge for our remaining domestic wooden mat fleet,
in response to both changing market conditions and our introduction of the new
composite mat. This reduction in basis significantly lowered depreciation
expense for the mat fleet. In addition, the significantly lower maintenance,
transportation, and other associated costs, and substantially longer useful life
of the composite mat system as compared to the wooden mat system are expected to
enhance future operating margins for this segment. These benefits of the
composite mat system are also expected to better position the segment to compete
against competitive pricing pressures.
Interest Income/Expense
Net interest expense was $4.4 million for the third quarter of 2000, an
increase of $468,000, or 11.9%, as compared to $3.9 million for the third
quarter of 1999. The increase in net interest cost is due to an increase in the
average effective interest rate from 8.94% in 1999 to 9.48% in 2000. This
increase in the effective interest rate was partially offset by a reduction in
average borrowings outstanding of $2.6 million. In addition, interest
capitalization decreased from $451,000 in the third quarter of 1999 to $220,000
in the third quarter of 2000. As noted below, in June 2000, we issued $30
million of preferred stock and warrants, the proceeds of which were used for the
repayment of debt. During the third
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<PAGE> 17
quarter of 2000, the interest rate on the credit facility was reduced from Prime
plus 1.25% or LIBOR plus 4% to prime plus .75% or LIBOR plus 3.25% as financial
ratios improved the variable grid pricing on our credit facility.
Provision for Income Taxes
For the quarter ended September 30, 2000, we recorded an income tax
provision of $2.7 million, reflecting an income tax rate of 40.5%. For the
quarter ended September 30, 1999, we recorded an income tax provision of $805
million, on a pretax loss of $7.1 million. The effective tax rate for 2000 is
higher than statutory rates primarily due to effects of non-deductible goodwill
and the comparatively low projected annual income from operations for 2000.
Preferred Stock Dividends and Accretion of Discount
As discussed in Liquidity and Capital Resources below, in June 2000, we
sold 120,000 shares of Series B Preferred Stock. In April 1999, we sold 150,000
shares of Series A Preferred Stock. The Series B Preferred Stock is not
redeemable. The Series A Preferred Stock is redeemable at our option anytime
after April 16, 2004. For the quarter ended September 30, 2000, dividends
totaling $525,000 were paid or accrued on preferred stock. This compares to
$188,000 of dividends for the quarter ended September 30, 1999. The accretion of
the discount on the Series A Preferred Stock was $112,000 for the quarter ended
September 30, 2000 and 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues
E&P Waste Disposal: The $11.0 million, or 36%, increase in waste
disposal revenue is attributable to the increases in drilling activity and the
resulting increase in waste volumes received. In these same periods, drilling
rig activity in the Gulf Coast market, our primary market, increased 36%. During
the first nine months of 2000, we received 3,094,000 barrels of E&P waste,
compared to 2,361,000 barrels in the comparable period of 1999, a 31% increase.
Average revenue per barrel increased slightly during the comparable periods. The
nine months ended September 30, 2000 included $1.2 million of revenue from
nonhazardous industrial disposal operations, which began in August 1999,
compared to approximately $200,000 in 1999.
Fluids Sales and Engineering: Fluids sales and engineering revenues
increased $25.3 million, or 37%. During the first nine months of 2000, we
serviced an average of 138 rigs, compared to 82 rigs in the first nine months of
1999. The annualized average revenue per rig was approximately $892,000 in the
first nine months of 2000 compared to $1,024,000 for the first nine months of
1999. The decline in the annualized revenue per rig is due to the mix of rig
locations, with a lower percentage of rigs serviced in 2000 in the Gulf Coast
market, which generates a larger volume of drilling fluids revenue per rig
serviced. In addition, the annualized revenue per rig was impacted by the
decision to discontinue operations of the solids control operations. Revenues
from solids control operations were $883,000 for the first nine months of 2000
and $5.3 million for the first nine months of 1999. The average revenue per rig
excluding solids control revenues was $884,000 for the first nine months of 2000
and $938,000 for the first nine months of 1999.
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<PAGE> 18
Mat and Integrated Services: The $6.0 million, or 13%, increase in mat
and integrated services revenue is significantly lower than the increase in rig
activity, primarily due to weakness in the wetlands and Transition Zone market
in the first half of 2000. This weakness was partially offset by improvement in
pricing and expansion of Canadian operations. The average price per square foot
was $0.83 in the first nine months of 2000, compared to $0.64 in the first nine
months of 1999. Canadian mat revenues were $5.2 million for the first nine
months of 2000, compared to $1.3 million for the first nine months of 1999.
Operating Income
E&P Waste Disposal: The $3.9 million increase in waste disposal
operating income represents a 42% increase from the prior year period and an
incremental margin of 36%. As noted above, increases in certain operating costs,
including barge rental, maintenance, personnel, fuel and utility costs,
negatively impacted the incremental margin for this segment. In addition, as
noted previously, the mix of waste received during the first six months of 2000
included a greater percentage of products that required special handling and
processing costs that were unusual in nature, resulting in a lower than expected
incremental margin.
Fluids Sales and Engineering: Fluids sales and engineering operating
income increased $15.6 million on an increase in revenue of $25.3 million. The
operating margin for the nine months ended September 30, 1999 included site
closure and related costs of approximately $2.6 million. In addition, operating
income for this segment includes the results of our solids control operations,
which were discontinued in September 1999. Included in the operating loss for
the fluids sales and engineering segment for the nine months ended September 30,
1999 is an operating loss of $3.8 million associated with solids control
operations. Excluding the effects of solids control operations and site closure
costs in the prior year, operating income in this segment increased $9.2
million, representing an incremental margin of 31%.
Mat and Integrated Services: The $8.5 million increase in mat and
integrated services operating income is attributable to several factors. These
include the $6.0 million increase in revenues, improved per unit pricing and
reductions in operating costs, particularly depreciation, associated with
resizing our domestic wooden mat fleet and introducing our new composite mat
system, as noted above.
Interest Income/Expense
Net interest expense was $13.3 million for 2000, an increase of $1.8
million, or 16.4%, as compared to $11.4 million for 1999. The increase in net
interest cost is due to an increase of $6.9 million in average outstanding
borrowings and an increase in the average effective interest rate from 8.88% in
1999 to 9.50% in 2000. In addition, interest capitalization decreased from $1.3
million in the first nine months of 1999 to $740,000 in the first nine months of
2000. The increase in average outstanding borrowings under our bank credit
facility was primarily used to fund capital expenditures. As noted below, in
June 2000, the Company issued $30 million of preferred stock, the proceeds of
which where used to repay debt.
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Provision for Income Taxes
For the nine months ended September 30, 2000, we recorded an income tax
provision of $4.4 million, reflecting an income tax rate of 40.4%. For the nine
months ended September 30, 1999, we recorded an income tax benefit of $4.8
million, reflecting an income tax benefit rate of 27.7%. The effective tax rate
for 2000 is higher than statutory rates primarily due to effects of
non-deductible goodwill and the comparatively low projected annual income from
operations for 2000.
Cumulative Effect of Accounting Change
Results for the nine months ended September 30, 1999 includes the
cumulative effect, net of income taxes, of a change in accounting for
depreciation on certain assets used in our barite grinding activity and in our
waste disposal business. As a result of this change in accounting for
depreciation, the reported income from operations for the nine months ended
September 30, 1999 was increased by $1,471,000, with related per share amounts
of $.02 basic and diluted. This reflects the cumulative effect, net of income
taxes, of the change on years prior to 1999.
Preferred Stock Dividends and Accretion of Discount
For the nine months ended September 30, 2000, dividends totaling $1.0
million were paid or accrued on preferred stock. This compares to $344,000 of
dividends for the first nine months of 1999. The accretion of the discount on
the Series A Preferred Stock was $336,000 for the nine months ended September
30, 2000. This compares to $206,000 for the nine months ended September 30,
1999.
As required by EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios",
during the nine months ended September 30, 2000, we recorded a one-time
adjustment of $3.5 million ($.05 per share) to our equity accounts to reflect
the value assigned to the conversion feature of the Series B Preferred Stock at
the date of issuance. This adjustment did not have any effect on our operating
results or total equity, and we issued no additional shares or cash.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased by $21.7 million
during the first nine months of 2000. Key working capital data is provided below
(dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Working Capital (000's) $ 69,972 $ 48,244
Current Ratio 2.57 1.95
</TABLE>
Our long term capitalization was as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Long-term debt
(including current maturities):
Credit facility $ 73,450 $ 83,250
Subordinated debt 125,000 125,000
Other 1,917 1,951
--------------- ---------------
Total long-term debt 200,367 210,201
Stockholders' equity 223,673 186,339
--------------- ---------------
Total capitalization $ 424,040 $ 396,540
=============== ===============
</TABLE>
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For the nine months ended September 30, 2000, our working capital needs
were met primarily from the preferred stock offering discussed below. The net
cash provided by financing activities of $20.5 million and net cash provided by
operating activities of $504,000 helped to provide for total cash of $23.2
million used in investing activities.
As of September 30, 2000, we also maintained a $100.0 million bank
credit facility, including up to $20.0 million in standby letters of credit, in
the form of a revolving line of credit commitment, which expires December 31,
2001. We are currently in discussions with the banks to enter into a new $125
million credit facility. This new facility is anticipated to have terms similar
to the existing credit facility. These discussions are expected to be completed
by December 31, 2000.
At September 30, 2000, $15.8 million in letters of credit were issued
and outstanding under the credit facility and $73.5 million was outstanding
under the revolving facility, leaving $10.7 million of availability under this
facility at September 30, 2000. The facility bears interest at either a
specified prime rate (9.5% at September 30, 2000) or the LIBOR rate (6.68% at
September 30, 2000) plus a spread determined quarterly based on the ratio of our
funded debt to cash flow. The current interest rate under the credit facility is
prime plus .75% (10.25% at November 3, 2000) or LIBOR plus 3.25% (9.85% at
November 3, 2000). We were in compliance with all financial covenants of the
credit facility as of September 30, 2000.
Our Senior Subordinated Notes do not contain any financial covenants.
However, if we do not meet the financial covenants of the Credit Facility and
are unable to obtain an amendment from the banks, we would be in default under
the Credit Facility, which would cause the Notes to be in default. The Notes and
the Credit Facility also contain covenants that significantly limit the payment
of dividends on our Common Stock.
On June 1, 2000, we completed the sale to Fletcher International
Limited of 120,000 shares of Series B Convertible Preferred Stock, $0.01 par
value per share (the "Series B Preferred Stock"), and a warrant (the "Warrant")
to purchase up to 1,900,000 shares of our Common Stock at an exercise price of
$10.075 per share, subject to anti-dilution adjustments. The Warrant has a term
of seven years, expiring June 1, 2007. There are no redemption features to the
Series B Preferred Stock. The aggregate purchase price for these instruments was
$30.0 million, of which approximately $26.5 million was allocated to the Series
B Preferred Stock and approximately $3.5 million to the Warrant. The net
proceeds from the sale were used to repay indebtedness.
For the next twelve months, we anticipate total capital expenditures of
approximately $26 million, primarily associated with the purchase of composite
mats.
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Approximately $7 million of operating lease funding was obtained in
2000 for the leasing of new composite mats. We have also obtained a commitment
for up to $5 million of additional operating lease financing for new composite
mats, which we expect to utilize in the fourth quarter of 2000. We are in the
process of selling our office building in Lafayette, Louisiana that should yield
approximately $3.2 million. We plan to subsequently lease this facility from the
new owner under an operating lease.
Potential sources of additional funds, if required, would include
additional operating leases for equipment, selling certain assets and selling
equity securities or subordinated debt securities. Other than as discussed
above, we presently have no commitments beyond our working capital and bank
lines of credit by which we could obtain additional funds for current
operations. However, we regularly evaluate potential borrowing arrangements
which we may utilize to fund future expansion. We believe that our current
sources of capital, coupled with internally generated funds, will be sufficient
to support our working capital, capital expenditures and debt service
requirements for the foreseeable future provided that market conditions
stabilize or continue to improve from current levels. Any long-term downturn in
market conditions could have an adverse affect on our financial position,
results of operations and future available capital. Such a downturn would likely
result in reductions in planned capital expenditures and reassessment of our
operations and business strategy in light of these market conditions.
Except as described in the preceding paragraphs, we are 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 our revenues or income.
YEAR 2000 UPDATE
In prior years, we have disclosed the nature and progress of our plans
to address the year 2000 issue. By the end of 1999, we completed our remediation
and testing of our critical information technology and non-information
technology systems. As a result of those efforts, we experienced no significant
disruptions in those systems and believe those systems successfully responded to
the year 2000 date change. We expended less than $100,000 during 1998 and 1999
in connection with remediating our systems. We are not aware of any material
problems resulting from year 2000 issues, either with our product or service
offerings, our internal systems or the products and services of third parties.
We will continue to monitor our critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent year
2000 matters that may arise are addressed promptly.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. There are risks and uncertainties that could
cause future events and results to differ materially from those anticipated by
us in the forward-looking statements included in this report. Among these risks
and uncertainties are the following:
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o oil and gas exploration and production levels and the industry's
willingness to spend capital on environmental and oilfield services;
o 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;
o domestic and international political, military, regulatory and
economic conditions;
o other risks and uncertainties generally applicable to the oil and gas
exploration and production industry;
o existing regulations affecting E&P and NORM waste disposal being
rescinded or relaxed, governmental authorities failing to enforce
these regulations or industry participants being able to avoid or
delay compliance with these regulations;
o 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;
o increased competition in our product lines;
o our success in integrating acquisitions;
o our success in replacing our wooden mat fleet with our new composite
mats;
o our ability to obtain the necessary permits to operate our
non-hazardous waste disposal wells and our ability to successfully
compete in this market;
o our 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 we have only recently entered the market; and
o adverse weather conditions, which could disrupt drilling operations.
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PART II
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
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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 10, 2000
NEWPARK RESOURCES, INC.
By: /s/Matthew W. Hardey
----------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
24
