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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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<S> <C>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
</TABLE>
(504) 838-8222
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $.01 par value New York Stock Exchange
8-5/8% Senior Subordinated Notes due 2007, Series B New York Stock Exchange
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in I of this Form 10-K or any
amendment to this Form 10-K [X].
At March 27, 2000 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $484,368,995. The aggregate market value
has been computed by reference to the closing sales price on such date, as
reported by The New York Stock Exchange.
As of March 27, 2000, a total of 69,100,811 shares of Common Stock, $.01
par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G(3) to this form, the information required
by I (Items 10, 11, 12 and 13 hereof) is incorporated by reference from
the registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders scheduled to be held on June 14, 2000.
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
PART II
6 Selected Financial Data 3
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
8 Financial Statements and Supplementary Data 23
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 56
Signatures 59
</TABLE>
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PART II
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated historical financial data presented below for
the five years ended December 31, 1999, are derived from our audited
consolidated financial statements. This financial data has been restated to
reflect: (i) several acquisitions made during 1997 and 1998 which were accounted
for as poolings of interests; (ii) a two-for-one split of our common stock
effective May 1997; (iii) a 100% stock dividend issued by us in November 1997;
and (iv) to give effect to the reclassification of results for the Company's
solids control operations from a presentation as discontinued operations to a
presentation as part of continuing operations of the fluids sales and
engineering segment (see Note D) to our Consolidated Financial Statements. The
following data should be read in conjunction with our Consolidated Financial
Statements and the Notes thereto, which are included elsewhere in this Form
10-K, and with the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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1999 1998(1) 1997(1) 1996(2) 1995
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(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS:
Revenues $ 198,225 $ 256,808 $ 233,245 $ 153,679 $ 123,676
Cost of services provided 139,954 176,551 138,392 100,627 84,328
Operating costs 60,566 63,037 25,043 14,285 14,824
General and administrative expenses 2,589 4,305 3,185 2,920 2,658
Goodwill amortization 4,996 5,206 2,683 856 63
Provision for uncollectible accounts 2,853 9,180 -- -- --
Write-down of abandoned and disposed assets 44,870 52,266 -- -- --
Impairment of long-lived assets 23,363 -- -- -- --
Terminated merger expenses 2,957 -- -- -- --
Arbitration settlement -- 27,463 -- -- --
Equity in net loss of unconsolidated affiliates -- 1,293 -- -- --
Restructure expense -- -- -- 2,432 --
---------- ---------- ---------- ---------- ----------
Operating income (loss) (83,923) (82,493) 63,942 32,559 21,803
Interest income (987) (1,488) (310) (273) (245)
Interest expense 16,651 11,554 4,265 3,996 3,883
Other -- -- -- -- 183
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes &
cumulative effect of accounting changes (99,587) (92,559) 59,987 28,836 17,982
Provision (benefit) for income taxes (29,461) (30,270) 22,246 9,884 5,102
---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
accounting changes (70,126) (62,289) 37,741 18,952 12,880
Cumulative effect of accounting changes
(net of income tax effect) 1,471 (1,326) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (68,655) $ (63,615) $ 37,741 $ 18,952 $ 12,880
========== ========== ========== ========== ==========
Net income (loss) per common and common
equivalent shares:
Basic $ (1.01) $ (0.95) $ 0.59 $ 0.36 $ 0.28
========== ========== ========== ========== ==========
Diluted $ (1.01) $ (0.95) $ 0.58 $ 0.34 $ 0.27
========== ========== ========== ========== ==========
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31,
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(IN THOUSANDS) 1999 1998(1) 1997(1) 1996 1995
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<S> <C> <C> <C> <C> <C>
Weighted average common and common
equivalent shares outstanding:
Basic 68,949 67,058 64,158 53,197 46,640
========== ========== ========== ========== ==========
Diluted 68,949 67,058 65,630 54,956 47,706
----------------------- ========== ========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 48,244 $ 75,937 $ 88,882 $ 28,301 $ 31,832
Total assets 450,541 498,861 451,623 299,071 160,755
Short-term debt 1,618 1,267 1,774 13,831 8,515
Long-term debt 209,210 208,057 127,996 35,677 47,395
Stockholders' equity 186,339 236,879 269,442 206,362 80,227
</TABLE>
(1) 1998 includes the effects of eight acquisitions and 1997 includes the
effects of seven acquisitions, primarily in the fluids sales and
engineering segment. These were accounted for by the purchase method of
accounting (See Note B to Consolidated Financial Statements).
(2) 1996 includes the effects of the purchase of substantially all of the
non-landfarm assets and certain leases from Campbell Wells, Ltd. (See Note
B to Consolidated Financial Statements).
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ITEM 7. 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
"Consolidated Financial Statements" and the "Notes to Consolidated Financial
Statements" included elsewhere in this report.
OPERATING ENVIRONMENT AND RECENT DEVELOPMENTS
Our operating results depend primarily on oil and gas drilling activity
levels in the markets we serve. These levels, in turn, depend on oil and gas
commodities pricing, inventory levels and product demand. Key average rig count
data for the last three years is listed in the following table:
<TABLE>
<CAPTION>
1999 1998 1997 1Q99 2Q99 3Q99 4Q99
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Rig Count 625 831 943 551 521 637 773
Newpark's primary Gulf Coast market 189 243 252 185 172 183 213
Newpark's primary market to total 30.2% 29.2% 26.7% 33.6% 33.0% 28.7% 27.6%
Canadian Rig Count 246 261 375 290 104 253 337
</TABLE>
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Source: Baker Hughes Incorporated
Our primary Gulf Coast market, which accounted for approximately 75% of
1999 revenues, 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 March
10, 2000, the U.S. rig count was 768, with 224 rigs, or 29.2%, within our
primary market.
The Canadian "muskeg" presents much of the same soil stability and
access problems as does the marsh area of the U.S. Gulf Coast region. Most
drilling activity in the muskeg has historically been conducted when winter
temperatures freeze the soil and stabilize it, allowing safe access. The
quarterly fluctuations in the Canadian rig count generally reflect the seasonal
nature of drilling activity related to these access issues. As of the week ended
March 10, 2000, the Canadian rig count was 441.
The table below shows the average crude oil and natural gas prices for
1999, 1998 and 1997:
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<CAPTION>
1999 1998 1997
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<S> <C> <C> <C>
West Texas Intermediate Crude ($/bbl) 19.20 14.39 20.63
U.S. Spot Natural Gas ($/mcf) 2.33 2.09 2.49
</TABLE>
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Source: Wall Street Journal
Oil prices declined throughout 1998 and remained low through the first
quarter of 1999. Oil prices began to recover in the second quarter of 1999 and
improved throughout the remainder of 1999 and into the first quarter of 2000.
During the first quarter of 2000, the pricing for West Texas intermediate crude
approached $30.00/bbl, and the U.S. spot price for natural gas approached
$2.75/mcf. In spite of the recent recovery, the decline in oil and gas prices
had a major negative impact on average rig counts during 1998 and 1999
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in the markets we serve. During this time, the U.S. rig count reached the lowest
level ever recorded in the history of the indicator. 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 first quarter of 2000, but
has trailed the recovery in oil and gas prices as our independent oil and gas
exploration customers repair their balance sheets and replenish their cash
position.
Natural gas production accounts for the majority of activity in the
Gulf Coast region. The relative concentration of rigs in our primary market, as
compared to the total domestic rig count, reflects the importance of natural gas
drilling relative to oil in that market. Low oil prices reduce the cash flow
available for all exploration and production activity. In addition, gas storage
levels and demand for natural gas have a significant impact on gas drilling
requirements, as gas suppliers need to maintain adequate storage for peak demand
levels and insure adequate supplies for anticipated future demand.
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 replacement through drilling activities.
Accordingly, we believe that gas drilling activity will increase over current
levels in order to avoid a shortage in gas supply during peak demand periods in
the coming months. Because most shallow fields in the Gulf Coast market have
been exploited, producers are increasing the depth of drilling to reach the
larger gas reserves. As such, we expect gas drilling activity to be increasingly
associated with deeper, more costly wells.
According to industry forecasts, increases in gas supplies resulting
from the new Canadian pipeline may help to abate some of the anticipated gas
supply problem. However, these increased supplies are not expected to be
sufficient to avoid the need for increases in Gulf Coast gas drilling activity.
In the third quarter of 1998, we began to reshape our company in
response to the downturn in industry activity and to accommodate our
introduction of new products and services. Our employment peaked late in 1998 at
1,325 employees, with direct payroll costs representing almost 28% of revenue.
By the fourth quarter of 1999, we had reduced employment by 25%, to 991, with
direct payroll costs representing less than 19% of revenue. Despite the adverse
market, we continued to develop new products and services, and provide existing
products and services to new geographic regions, to meet new opportunities that
we expect to arise with increased industry activity. These include:
o The DuraBase(TM) composite mat system
o The DeepDrill(TM) fluid system
o Minimization Management(TM)
o Wooden mats in the western Canadian market
o Composting in the eastern Canadian and U.S. Rocky Mountain market
o The Tornado Dryer(TM) in the western Canadian market
o Industrial non-hazardous waste processing and disposal
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In 1998 and 1999, these new products and services accounted for the
majority of capital expenditures. In addition, the costs associated with
introducing these new products and services negatively impacted operating
segment income, exclusive of the charges discussed below. These new products and
services, together with our operational restructuring, are expected to enhance
our ability to take advantage of the market recovery that appears to be
underway. However, no assurances can be made that our market will recover to
previous levels or that these new products and services will be successful.
As a result of these new products and services and other market shifts,
we have displaced some of our operations and operating assets and during 1998
and 1999 recorded several significant charges as discussed below.
RESULTS OF OPERATIONS
Operating results for 1997 have been restated to give effect to a
series of pooling of interests transactions which took place during 1997 and
1998.
As noted above, due to a significant decrease in the price of oil and
gas and the resultant impact on drilling activity, we experienced a sharp
decline in demand for our products and services during the third and fourth
quarters of 1998, which continued in 1999. This decline in customer demand
materialized quickly from the previous growth period and, when coupled with our
continued efforts to bring certain proprietary innovations to our customers,
caused us to reassess our overall operations. This change in our market and the
reassessment of our operations, as well as the settlement of an arbitration
dispute in 1998, resulted in our recording the following pretax charges during
1999 and 1998:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
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<S> <C> <C>
Provision for uncollectible accounts $ 2,853 $ 9,180
Write-down of abandoned and disposed assets 44,870 52,266
Impairment of long-lived assets 23,363 --
Terminated merger expense 2,957 --
Arbitration settlement -- 27,463
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Total $ 74,043 $ 88,909
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</TABLE>
The provision for uncollectible accounts in 1998 was made due to the
financial weakness of certain customers, which resulted from continued downward
pressure on oil and gas prices. This, in turn, caused a strain on customer cash
flows. We had by then identified three specific customer balances where the
financial concern merited the majority of the additional reserve in 1998. Most
of these customers have now filed for bankruptcy protection. For 1999, the
additional provision relates primarily to a decrease in the recovery we expect
to receive from pre-bankruptcy receivables for these same customers, as
indicated in their approved or proposed plans of reorganization.
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The write-down of abandoned and disposed assets includes the following
amounts for 1998 and 1999:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
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<S> <C> <C>
Mat and integrated services segment:
Domestic wooden mats $ 30.4 $ 43.0
Venezuela operations 11.6 --
Other .4 1.3
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Total mat and integrated services segment 42.4 44.3
Fluids sales and engineering segment:
Investment in Mexican joint venture 2.5 --
Austin Chaulk assets -- 4.7
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Total fluids sales and engineering segment 2.5 4.7
E&P waste disposal segment:
Barge disposal -- 1.3
Write-down of proposed disposal sites -- 2.0
------- -------
Total E&P waste disposal segment -- 3.3
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Total write-down for abandoned and disposed assets $ 44.9 $ 52.3
======= =======
</TABLE>
The $43.0 million write-down of our domestic wooden mat fleet in 1998
is primarily due to a significant excess capacity in the fleet resulting from
the sharp decline in drilling activity. In addition, in late 1998, we began
converting a portion of our domestic rental fleet to the new composite mat. The
write-down represents the net book value associated only with mats that were
abandoned or destroyed.
In the fourth quarter of 1999, after we completed our evaluation of our
wooden mat inventory and after further indication that the Gulf Coast mat market
would likely stabilize below its peak in 1997, we recorded a charge of $30.4
million. Included in the write-down cost for wooden mats are disposal costs of
approximately $1.1 million. As of December 31, 1999, the accrual for mat
disposal costs to be incurred was approximately $500,000. Also included in this
amount is $3.0 million of charges for the write-down of our board road lumber
inventory. We recorded this write-down because loose lumber is not generally
required in the laying of composite mats.
In addition to the disposals in our wooden mat fleet, in the fourth
quarter of 1999, we recorded a charge of $11.6 million associated with closing
down our mat business in Venezuela. Our decision to close these operations was
due to poor market conditions and continued political instability in the area.
Our estimate of the amount recoverable for the Venezuelan operations is based on
our judgement of the most likely value to be received on the sale of assets,
less the costs to sell these assets. This estimate is subject to change in 2000
as actual amounts from the sale or recovery of these assets are realized.
The other charges for write-down of assets in the mat and integrated
services segment were $0.4 million in 1999 and $1.3 million in 1998. For 1999,
this charge
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represents the net book value of various equipment we deemed obsolete. This
equipment has since been sold or abandoned. In 1998, this charge represents the
net book value of a machine previously used in remediation operations that was
abandoned after it was rendered obsolete by other new, technologically superior
equipment.
The $2.5 million write-down charge recorded in our fluids sales and
engineering segment in 1999 relates to the decision to withdraw from our Mexican
joint venture in order to focus management's attention on our U.S. and Canadian
markets. Our measurement of the amount recoverable for the Mexican operations is
based on our judgement of the most likely amount to be received from our joint
venture partner. This estimate is subject to change in 2000 as actual payments
from our joint venture partner are received. In 1998, the write-down charge of
$4.7 million recorded in this segment relates to assets that were either
abandoned or disposed (primarily warehouses and mixing plants located in the
Austin Chauk region). These assets were abandoned or disposed due to market
shifts or due to excess capacity created by a downturn in our operations. The
disposal value for these assets was received in 1999 with no significant
differences from estimated amounts being realized.
Included in the write-down charges for the E&P waste disposal segment
in 1998 was $1.3 million to write-down barges to their disposal value, which
value was received in 1999. These barges were previously used in this segment
but were no longer required due to decreased volumes of waste being handled.
Also included in the write-down for 1998 in this segment is a charge of $2.0
million relating to our abandoning additional disposal sites being developed for
future use. Due to the downturn in the oilfield waste market created by reduced
oilfield drilling, we decided not to pursue bringing this additional capacity
on-line.
In addition to the charges for the write-down of assets to be disposed
or abandoned, in the fourth quarter of 1999, we recorded an impairment charge of
$23.4 million in our mat and integrated services segment on our remaining
domestic wooden mat fleet, which we will continue to use in the short-term. This
charge reflects the reduced recoverability of these mats over their estimated
service life, which result from our plan to replace them with composite mats
over the next two to three years. This reduced the domestic wooden mat fleet to
a total carrying value of $4.5 million as of the date of the impairment charge.
This carrying value was determined based on an estimate of the net discounted
cash flows expected to be received for the wooden mats remaining in service
until their expected replacement by composite mats. In connection with this
impairment, we also adjusted the remaining depreciable life on the domestic
wooden mats in anticipation of our plan to displace these mats in two to three
years.
On November 10, 1999, we announced that we had jointly elected with
Tuboscope to form operational alliances in key market areas rather than proceed
with our proposed merger, which had been announced on June 24, 1999. The
decision not to proceed with the merger was made because recent market
conditions in the oilfield services market and the resulting uncertainty in the
capital markets made it difficult to obtain the type of credit facility both we
and Tuboscope believed necessary for the combined company. Both Tuboscope and we
agreed to pay our respective transaction expenses relating to the proposed
merger, which for us were approximately $3.0 million.
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The $27.5 million of charges relating to the arbitration settlement
stems from the settlement during the third quarter of 1998 (with final
modifications during the fourth quarter of 1998) between our E&P waste disposal
segment and U. S. Liquids, Inc. The arbitration was over a contract dispute
discussed more fully in Note N of the Notes to Consolidated Financial
Statements. The total settlement was $30 million, of which $6 million and $11
million was paid in 1998 and 1999, respectively, and $9 million and $4 million
is to be paid in 2000 and 2001, respectively. The settlement provides for, among
other things, (1) terminating our original contractual commitment to provide
waste to U.S. Liquids' disposal facilities for twenty-five years, and (2) the
right, but not the obligation, to deliver specified volumes of E&P waste to U.S.
Liquids' facilities until June 30, 2001 without additional cost. The right to
deliver waste was valued at its estimated fair market value of $8 million based
on the volumes that can be delivered and the market price for disposing the
waste. This amount is being recorded as a charge to operations over the disposal
period. The termination feature was valued at $22 million, which represented the
balance of the total settlement. This obligation was recorded based on the
present value of the contractual payments assigned to the termination feature.
The recorded amount of the obligation was $8.1 million at December 31, 1999 and
$15.3 million at December 31, 1998. Total pretax charges associated with the
$27.5 million settlement included a $6.1 million write down to the estimated
fair value of the remaining non-compete with U.S. Liquids. The remaining $21.4
million represents the portion of the settlement associated with the termination
feature.
The following summarized financial information concerning the Company's
reportable segments has been restated to give effect to the reclassification of
results for the Company's solids control operations from a presentation as
discontinued operations to a presentation as part of continuing operations of
the fluids sales and engineering segment (see Note D).
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands)
1999 1998 1997
---------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 42,954 21.7% $ 57,588 22.4% $ 62,301 26.7%
Fluids sales & engineering 100,377 50.6 103,053 40.1 69,227 29.7
Mat & integrated services 54,894 27.7 96,167 37.5 101,717 43.6
--------- --------- --------- ------ --------- ------
Total $ 198,225 100.0% $ 256,808 100.0% $ 233,245 100.0%
========= ========= ========= ====== ========= ======
Operating income (loss) by segment:
E&P waste disposal $ 13,068 $ 19,014 $ 28,768
Fluids sales & engineering (14,237) (11,853) 12,688
Mat & integrated services (1,126) 10,059 28,354
--------- --------- ---------
Total by segment (2,295) 17,220 69,810
General and administrative expenses 2,589 4,305 3,185
Goodwill amortization 4,996 5,206 2,683
Provision for uncollectible accounts 2,853 9,180 --
Write-down of abandoned and
Disposed assets 44,870 52,266 --
Impairment of long-lived assets 23,363 -- --
Terminated merger expenses 2,957 -- --
Arbitration settlement -- 27,463 --
Equity in net loss of
unconsolidated affiliate -- 1,293 --
--------- --------- ---------
Total operating income (loss) $ (83,923) $ (82,493) $ 63,942
========= ========= =========
</TABLE>
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Figures shown above are net of intersegment transfers.
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YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Total revenues declined to $198.2 million in 1999, from $256.8 million
in 1998, a decrease of $58.6 million, or 22.8%. The components of the decrease
in revenues were a $14.6 million decrease in E&P waste disposal revenue, a $2.7
million decrease in fluids sales and engineering revenues and a $41.3 million
decrease in mat and integrated services revenue.
The E&P waste disposal revenue decline of $14.6 million, or 25.3%, is
consistent with the 22.2% decline in average rig activity in our primary market
for 1999 as compared to 1998. During 1999, we received approximately 3.3 million
barrels of E&P waste. This compares to approximately 5.0 million barrels in
1998, a decline of 34.0%. Contributing to the decline in barrels received was
continued expansion of our wash water recycling program, which reduced the total
barrels we disposed during 1999 and 1998. The average revenue per barrel of E&P
waste remained relatively unchanged at just over $11. During 1999, we began
operating our industrial, non-hazardous waste disposal facility. Only minimal
revenues were recorded in 1999 during this facility's start-up phase of
operations.
Fluids sales and engineering revenue declined only $2.7 million, or
2.6%, in spite of the significant decline in average rig activity. Fluids
revenues benefited from the inclusion for the full period in 1999 of several
acquisitions made in 1998 which, among other things, expanded operations into
the Oklahoma Anadarko Basin and into western Canada. In addition, our drilling
fluids segment continued to penetrate the markets that we serve and to gain
market share. While the mix of rig activity and commodity oil and gas pricing
has put downward pressure on both revenues and margins in this segment, we
continue to see progress in the acceptance of our DeepDrill(TM) fluids system
and our Minimization Management(TM) concept. As these product and service
offerings gain greater market acceptance, we expect enhancement of revenues and
margins for this segment.
Revenues for the fluids sales and engineering segment include revenues
from solids control operations of approximately $7.4 million in 1999 and $11.4
million in 1998. In September 1999, we adopted a plan to discontinue these
operations and simultaneously entered into an alliance agreement with a
division of Tuboscope to provide these services.
The mat and integrated services revenue decline of $41.3 million, or
42.9%, reflects lower rig activity, reductions in location size and competitive
pricing. Record low rig activity due to falling oil and gas prices and a shift
by customers away from higher cost transition zone and major wetlands projects
to lower cost inland drilling projects were the primary reasons for the activity
decline and the reduction in location size in this segment. In addition, we,
along with many of our competitors, had increased capacity through 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 further contributed to the revenue decline because of pricing
pressure.
Expansion of the new composite mats into our rental fleet is continuing
and the anticipated lower operating costs for the new mats is expected to help
us better compete in the future competitive pricing environment. We also
continue to develop our wooden mat service business in western Canada, and we
are currently expanding our Canadian mat operations to meet the growing demand
for this service. At present, our entire mat fleet in Canada is utilized and we
are in discussions with several customers to keep the current fleet utilized for
all of 2000. We believe that continued acceptance of our mat system in Canada,
along with the need to keep rigs in Canada functioning in the spring and summer
season, could eventually result in the Canadian mat market approaching the size
of the U.S. Gulf Coast market.
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Operating Income (Loss)
We reported an operating loss of $83.9 million in 1999, compared to an
operating loss of $82.5 million in 1998. The primary factors contributing to the
operating losses were charges totaling $74.0 million in 1999 and $88.9 million
in 1998, as discussed above. Segment operating loss, excluding these charges,
was $2.3 in 1999, as compared to segment operating income of $17.2 million in
1998, a decrease of $19.5 million. The components of the decrease were a $5.9
million decrease in E&P waste disposal operating income, a $2.4 million decrease
in fluids sales and engineering operating income and an $11.2 million decrease
in mat and integrated services operating income.
The $5.9 million decrease in E&P waste disposal operating income is
primarily due to the $14.6 million decline in segment revenue, as well as the
high operating leverage of this segment. In response to the decline in disposal
volumes resulting from reduced drilling activity, we began to reduce operating
costs for this segment in late 1998 and early 1999. The cost reductions included
selling or disposing barges, closing facilities and reducing staffing levels.
While these cost reductions helped to abate some of the effects of the revenue
decline, we were not able to further reduce our operating costs without
significantly affecting the required level of current and future customer
service. The high level of operating leverage in this operating segment, which
has now been enhanced by cost containment measures in 1998 and 1999, should have
a significant effect on operating income as revenues increase in response to the
market recovery. Operating profit for this segment also was negatively impacted
by the start-up of our industrial waste business. The break-even level of
revenues for our industrial waste business was not reached until early 2000.
Fluids sales and engineering operating loss increased by $2.4 million
on a decline of $2.7 million in revenues. Throughout late 1998 and 1999, in
response to market shifts and the significant downturn in drilling activity, we
closed certain facilities and made other cost reductions, primarily in staffing
levels. In addition, lower commodity pricing, in particular for the sale of
barite, a key component of most drilling fluids, resulted in reduced margins on
product sales beginning in late 1998 and continuing throughout 1999. During this
time, we continued to introduce several products, including our DeepDrill(TM)
fluids system and our Minimization Management(TM) concept. These new product and
service offerings have resulted in certain product introduction costs during
1998 and 1999. We expect to recognize the benefits of these products in 2000 and
beyond as they gain wider customer acceptance.
As discussed above, in September 1999 we adopted a plan to discontinue
our solids control operations which were a part of our fluids sales and
engineering segment. In 1999, we received approximately $5.5 million for the
sale of solids control assets, which resulted in a loss of approximately $50,000
included in the operating loss for the fluids sales and engineering segment. In
addition, the operating loss for this segment in 1999 includes severance and
related costs of approximately $723,000. The operating loss for the solids
control operations, excluding severance costs and the loss on sale of assets was
$4.8 million in 1999 and $1.2 million in 1998.
The mat and integrated services operating loss of $1.1 million for 1999
compares to operating income of $10.1 million in 1998, a change of $11.2
million. This change is primarily associated with the decline in revenue
resulting from record low drilling activity, reductions in mat location size and
competitive pricing due to overcapacity. As in other operating business
segments, we reduced operating costs in our mat and integrated services segment
beginning in late 1998 in response to the significant declines in rig activity
in the Gulf Coast market. As discussed above, 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
12
<PAGE> 13
changing market conditions and our introducing the new composite mat. The
significantly lower maintenance, transportation and other associated operating
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 and better position the segment to compete against
competitive pricing pressures.
General and Administrative Expenses
General and administrative expenses during 1999 were $2.6 million, or
1.4% of revenues, compared to $4.3 million, or 1.8% of revenues, in 1998. In
response to the market downturn, beginning in late 1998 and continuing
throughout 1999, we took steps to reduce our general and administrative
expenses.
Goodwill Amortization
Goodwill amortization for 1999 was $5.0 million, as compared to $5.2
million for 1998. There were no significant changes in 1999 to the carrying
value of assets acquired in 1998 purchase transactions.
Equity Earnings of Unconsolidated Affiliate
Included in the loss from unconsolidated affiliates for 1998 are
charges of $1.3 million. This includes recognition of our share of joint venture
losses related to the start-up period of the composite mat manufacturing
facility.
Interest Income and Interest Expense
Net interest expense was $15.7 million in 1999, as compared to $10.1
million in 1998. The increase in net interest cost is due to an increase of
$40.5 million in average outstanding borrowings, which was slightly offset by a
decrease in average effective interest rates from 8.32% in 1998 to 8.10% in
1999. The increase in average outstanding borrowings is due primarily to funding
of capital expenditures in 1998.
Provision for Income Taxes
We recorded income tax benefits of $29.5 million in 1999 and $30.3
million in 1998. This equates to 29.6% of pre-tax loss in 1999 and 32.7% of
pre-tax loss in 1998. In 1999, we provided a valuation allowance for any
benefits arising from state net operating loss carryforwards and any federal net
operating loss carryforwards that expire prior to 2005 and are subject to
various limitations. This valuation allowance was recorded due to the
uncertainty of ultimately recovering these amounts. The majority of our
remaining federal net operating loss carryforwards were generated in 1998 and
1999 and don't expire until 2018 and beyond. Given our history of generating
taxable income sufficient to fully utilize these remaining net operating loss
carryforwards and our expectations of future profitable operations, further
valuation allowances on these amounts were not considered necessary.
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<PAGE> 14
Cumulative Effect of Accounting Change
The unit-of-production method of providing for depreciation on certain
assets used in our barite grinding activity and in our waste disposal business
was adopted in the second quarter of 1999, effective January 1, 1999. Prior to
this change, we had depreciated these assets using the straight-line method. As
a result of this change in accounting for depreciation, the reported loss from
operations for the year ended December 31, 1999 was reduced 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
In April 1999, we sold 150,000 shares of preferred stock, as discussed
below. For the year ended December 31, 1999, dividends of $532,000 were paid on
preferred stock, and the accretion of the discount on the preferred stock was
$318,000. These amounts reflect dividends and accretion for the period of April
16, 1999 (the issuance date of the preferred stock) through December 31, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Total revenues increased to $256.8 million in 1998, from $233.2 million
in 1997. This is an increase of $23.6 million, or 10.1%. The components of this
increase were a $33.8 million increase in drilling fluids sales and engineering,
partially offset by a $4.7 million decrease in waste disposal and a $5.5 million
decrease in mat and integrated services.
The E&P waste disposal revenue decline of $4.7 million, or 7.6%, in
1998 is partly due to the 3.6% decline in average rig activity in our primary
market for 1998 as compared to 1997. During 1998, we received approximately 5.0
million barrels of E&P waste compared to approximately 5.4 million barrels in
1997, a decline of 7.4%. The average revenue per barrel of E&P waste increased
by approximately 10% to just over $11 in 1998. In the first quarter of 1998, E&P
waste volume increased due to increased regulations, which banned waste
discharges in the state territorial waters of the Gulf of Mexico. This increase
was offset by declines in drilling activity, particularly in the territorial
waters, beginning in the second quarter of 1998. In the latter half of 1998,
volume declined due to lower drilling activity and as a result of our waste
minimization efforts to reduce the volume of wash water created at transfer
facilities in the vessel and container cleaning
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<PAGE> 15
process. In addition, volumes were lower due to the effect of unusual weather
conditions encountered in the third quarter of 1998.
Drilling fluids sales increased $33.8 million, or 48.9%, as a result of
a series of acquisitions made during 1997 and 1998, and the expansion of the
businesses acquired. The decline in drilling activity has reduced the size of
the market for drilling fluids; however, we have increased our sales of drilling
fluids by obtaining a larger share of the market. The growth in sales volume
during 1998 masked the softness in commodity oil and gas prices experienced
throughout the drilling fluids industry in the latter part of 1998, especially
during the fourth quarter, which continued during 1999. In particular, the
selling price for barite, which is a key component in most drilling fluids,
declined significantly during the fourth quarter of 1998. This decline continued
during 1999 due to competitive pressures. Revenues for the fluids sales and
engineering segment included revenues from solid control operations of
approximately $11.4 million in 1998 and $6.0 million in 1997. These operations
were sold in 1999.
The decrease of $5.5 million in mat and integrated services revenue
reflects the general decline in drilling activity, as well as the effect of
unusual weather conditions on drilling activity in the area surrounding the Gulf
of Mexico. Mat rental revenues include revenues earned on the initial mat
installation, which typically includes the first 60 days of rental, and
re-rentals earned beyond the initial installation term. The price received for
mat rentals and re-rentals declined significantly during the latter part of 1998
and the first quarter of 1999. This decline in pricing was caused by competitive
pressure and low activity relative to industry capacity. We, together with many
of our competitors, had increased inventories of mats during 1997 and the first
part of 1998 in response to increasing industry activity.
Operating Income (Loss)
We reported an operating loss of $82.5 million in 1998, as compared to
operating income of $63.9 million in 1997. The primary factors contributing to
the operating loss in 1998 were the charges noted above. The total of these
charges in 1998 was $88.9 million.
Segment operating income, excluding these charges, declined to $17.2
million in 1998, from $69.8 million in 1997, a decrease of $52.6 million, or
75.4%. The components of the decrease were a $9.8 million decrease in E&P waste
disposal operating income, a $24.5 million decrease in fluids sales and
engineering operating income and a $18.3 million decrease in mat and integrated
services operating income.
The $9.8 million decrease in waste disposal operating income can be
attributed to the $4.7 million decrease in revenues discussed above coupled with
a decline in operating margins. Since completing the 1996 acquisition of U.S.
Liquids' marine waste business, we have expanded our overall capacity to handle
volumes of waste through increased underground disposal, barge and transfer
station capacities. While this capacity was necessary for the increase in
business we experienced in 1997 as compared to 1996, this capacity added
significantly to the cost of the waste disposal operations. When the sharp
decline hit in 1998, we reacted to the situation by disposing barges, closing
facilities and reducing staffing levels. We were not able to reduce the costs of
these operations as fast as the decline in revenues, and we continued to reduce
costs in this segment during 1999.
While revenues for the fluids sales and engineering segment increased
by $33.8 million in 1998 as compared to 1997, operating income decreased by
$24.5 million. The
15
<PAGE> 16
increase in revenue can be attributed to the rapid growth in this business
segment due to a series of acquisitions, our expanding the facilities acquired
and our establishing new distribution facilities. In particular, we saw a rapid
growth in business in the Austin Chauk region. In order to service this growing
market, we expanded our facilities capacity in this region. With the downturn in
oil prices, and disappointing drilling results in the Austin Chauk region, this
market fell quickly and dramatically. We have since closed our facilities in the
Austin Chauk area and downsized our operations. This downsizing included
disposing assets that did not serve our other markets effectively, and reducing
staffing levels. We continued to make cost reductions in this business segment
during 1999. We also saw profits from this business segment decline as a result
of falling sales prices for many products used in drilling fluids. The operating
results of this segment include an operating loss of $1.2 million in 1998 and
operating income of $1.4 million in 1997 associated with solids control
operations which were sold in 1999.
Operating income in the mat and integrated services segment decreased
$18.3 million in 1998 as compared to 1997. This decline in operating income can
be attributed in part to the $5.5 million decrease in revenues in this segment
along with declining margins and costs associated with disposing mats during the
third and fourth quarters of 1998. Mat disposal operations during 1998 were
conducted for the most part with internal labor and assets. There were some
continuing costs for mat disposal in the first and second quarters of 1999, but
to a lesser degree than in 1998. We have significantly cut costs in this segment
in response to the decline in demand for our services by reducing staffing
levels, closing facilities and disposing excess assets. Further cost cuts were
implemented in this segment in 1999.
General and Administrative Expenses
General and administrative expenses during 1998 were $4.3 million, as
compared to $3.2 million in 1997. The increase is attributable to a growth in
revenues, acquisitions and growth in new product offerings. We took steps to
reduce our general and administrative costs in the latter part of 1998 and
during 1999.
Goodwill Amortization
Goodwill amortization for 1998 was $5.2 million, as compared to $2.7
million for 1997. The primary reason for the increase in goodwill from 1997 to
1998 is related to purchase acquisitions in 1998 and the effects of full year
amortization for 1997 acquisitions.
Equity Earnings of Unconsolidated Affiliate
Included in the loss from unconsolidated affiliates for 1998 are
charges of $1.3 million. This includes recognition of our share of joint venture
losses related to the start-up period of the composite mat manufacturing
facility.
Interest Income and Interest Expense
Net interest expense was $10.1 million in 1998, as compared to $4.0 in
1997. The increase in net interest cost is due to an increase of $81.0 million
in average outstanding borrowings and an increase in average effective interest
rates from 6.07% in 1997 to 8.32% in 1998. The increase in average outstanding
borrowings and average effective interest rates is due to the issuance of $125
million of ten year, 8-5/8% senior subordinated notes in
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<PAGE> 17
December 1997 and additional borrowings under the Credit Facility. The proceeds
from the senior subordinated notes and the Credit Facility were used to fund
acquisitions, capital expenditures and working capital for operations growth.
Provision for Income Taxes
For 1998, we recorded income tax benefits of $30.3 million, which is
equal to 32.7% of pre-tax loss. For 1997, we recorded income tax provisions of
$22.2 million, which is equal to 37.1% of pre-tax income.
Cumulative Effect of Accounting Change
On July 1, 1998, we elected early adoption of Statement of Position
98-5 "Reporting on Costs of Start-up Activities", which provided standards for
recording costs related to start-up activities. The cumulative effect of this
change in accounting, net of income taxes, was $1,326,000, with related per
share amounts of $.02 basic and diluted.
LIQUIDITY AND CAPITAL RESOURCES
As compared to 1998, our working capital position decreased by $27.3
million, or 36%, during the year ended December 31, 1999. Key working capital
data is provided below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
------- -------
<S> <C> <C>
Working Capital (000's) $48,244 $75,937
Current Ratio 1.95 2.75
</TABLE>
Working capital was consumed during 1999 to fund acquisitions of
long-lived assets in excess of the amount of financing arranged during the
period for that purpose. Because current operations were unprofitable, this
reduction of working capital was not offset from operations.
Our long term capitalization as of December 31, 1999, 1998 and 1997 was
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Long-term debt (including current maturities):
Credit facility $ 83,250 $ 80,900 $ --
Subordinated debt 125,000 125,000 125,000
Other 1,951 3,352 4,495
-------- -------- --------
Total long-term debt 210,201 209,252 129,495
Stockholders' equity 186,339 236,879 269,442
-------- -------- --------
Total capitalization $396,540 $446,131 $398,937
======== ======== ========
</TABLE>
For the year ended December 31, 1999, our working capital needs were
met primarily from operating cash flow and proceeds from a preferred stock
offering. Total cash generated from operations of $2.2 million was supplemented
by $16.6 million from
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<PAGE> 18
financing activities. This helped provide for a total of $20.9 million used in
investing activities.
During 1999, we entered into several lease transactions being accounted
for as operating leases. In one series of leases, we leased approximately $9.8
million of equipment, a portion of which we had previously acquired. In
conjunction with terminating the merger with Tuboscope and forming the alliance
agreement, Tuboscope acquired the majority of the assets used in our solids
control operations. Tuboscope made the acquisition by paying us cash and
assuming a portion of these leases. Under another operating lease transaction in
1999, we leased $3.0 million of composite mats. In 1999, we also sold some of
our non-core assets and entered into sale-leaseback transactions which yielded
$2.5 million. We also received income tax refunds totaling $13.3 million in
1999.
As of December 31, 1999, we 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 June 30, 2001. At
December 31, 1999, $16.7 million in letters of credit were issued and
outstanding under the Credit Facility and $83.3 million was outstanding under
the revolving facility. Based on these outstanding amounts and the outstanding
letters of credit, we had no availability under this facility at December 31,
1999. The facility bears interest at either a specified prime rate (8.5% at
December 31, 1999) or the LIBOR rate (6.18% at December 31, 1999) plus a spread
determined quarterly based on the ratio of our funded debt to cash flow. The
weighted average interest rate on the outstanding balance under the Credit
Facility was 7.85% in 1999 and 5.87% in 1998.
On March 27, 2000 the banks agreed to amend the Credit Facility to
provide for the following: 1) the facility will be secured by substantially all
of our accounts receivable, inventory and property plant and equipment 2) the
financial covenants as of December 31, 1999 and going forward will provide for
covenants that are consistent with our current financial condition and
anticipated outlook, 3) the variable interest rate will be increased based on
our Debt to EBITDA ratio, as defined, to a range of a) prime plus 0% to prime
plus
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<PAGE> 19
1.25% or b) LIBOR plus 1.25% to LIBOR plus 4%, and 4) we will pay an amendment
fee of $250,000. Under the amended agreement, the expected interest rate for
early 2000 is prime plus 1.25% (10.25% at March 27, 2000) or LIBOR plus 4%
(10.25% at March 27, 2000). Several of the financial covenants under the amended
credit facility are at or near their limit. For example, the facility requires
us to maintain consolidated tangible net worth, as defined as consolidated
stockholders' equity less certain intangible assets such as goodwill,
unamortized debt discount and patents, of $69 million. Our consolidated tangible
net worth, as defined, was $69.9 million at December 31, 1999. Any losses
sustained in future quarters may cause us to not be in compliance with the
financial covenants unless waivers or amendments can be obtained from the banks.
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 of the
Credit Facility which would cause the Notes to be in default and immediately
due. The Notes and the Credit Facility also contain covenants that significantly
limit the payment of dividends on our Common Stock.
In April 1999, we sold to SCF-IV, L.P., a Delaware limited partnership
managed by SCF Partners, 150,000 shares of Series A Cumulative Perpetual
Preferred Stock and a warrant to purchase up to 2,400,000 shares of our common
stock 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 2000, we anticipate total capital expenditures of approximately
$14.0 million. This amount includes: (1) $7.5 million to purchase synthetic
mats; (2) $1.7 million to complete an enlarged joint operational offshore
facility; (3) $0.7 million to develop industrial NORM disposal and expand
industrial nonhazardous waste disposal; and (4) $4.1 million for other new
capacities and routine capital expenditures.
We have obtained a commitment for an additional $7 million of lease
funding, which we applied in the first quarter of 2000 towards the lease of new
composite mats. We are in the process of selling our office building in
Lafayette, Louisiana in a sale-leaseback transaction that should yield
approximately $2.9 million. The LOMA Company, LLC, which produces composite mats
and in which we hold a 49% joint venture interest, is attempting to refinance
its debt. We currently supply a letter of credit to secure this debt. The
contemplated transaction could potentially restore approximately $15.2 million
of availability under the Credit Facility.
Potential sources of additional funds, if required, would include
additional operating leases for equipment, selling certain operating assets and
selling equity 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
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<PAGE> 20
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 such 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.
NEW ACCOUNTING STANDARDS.
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Changes in a derivative's fair value are to be recognized
currently in earnings unless specific hedge accounting criteria are met. We will
be required to adopt SFAS No. 133, as amended by SFAS No. 137, which defers the
effective date, on January 1, 2001. We do not believe that adopting the
statement will have a material effect on our consolidated financial statements
since we do not currently use derivative instruments or hedging activities in
our business.
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<PAGE> 21
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:
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;
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<PAGE> 22
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.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Newpark Resources, Inc.
We have audited the accompanying consolidated balance sheet of Newpark
Resources, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
1999, and the related consolidated statements of operations, comprehensive
income, stockholders' equity, and cash flows for the year then ended (as
restated -- see Note D). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Newpark
Resources, Inc. and subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As explained in Note A to the financial statements, effective January
1, 1999, the Company, changed its method of accounting for depreciation on
certain of its waste disposal assets and its barite grinding mills from the
straight-line method to the units-of-production method.
Arthur Andersen LLP
New Orleans, Louisiana
March 27, 2000
(Except with respect to the matter discussed in Note D, as to which the date is
August 24, 2000)
23
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Newpark Resources, Inc.
We have audited the accompanying consolidated balance sheet of Newpark
Resources, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows, for each of the two years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Newpark Resources, Inc. and
subsidiaries at December 31, 1998, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note A of the Notes to Consolidated Financial
Statements, effective July 1, 1998, the Company changed its method of accounting
for costs of start-up activities.
As discussed in Note D of the Notes to Consolidated Financial
Statements, the consolidated financial statements as of December 31, 1998 and
for each of the two years in the period ended December 31, 1998 have been
restated.
Deloitte & Touche LLP
New Orleans, Louisiana
March 26, 1999
(August 24, 2000 as to Note D)
24
<PAGE> 25
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
--------------------------------------------------------------------------------------
(In thousands, except share data) 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,517 $ 6,611
Accounts and notes receivable, less allowance
of $10,836 in 1999 and $11,008 in 1998 57,906 65,675
Inventories 17,524 19,381
Current taxes receivable 165 10,593
Deferred tax asset 10,463 13,776
Other current assets 8,602 3,292
--------- ---------
TOTAL CURRENT ASSETS 99,177 119,328
Property, plant and equipment, at cost, net of
accumulated depreciation 166,603 217,988
Cost in excess of net assets of purchased businesses,
net of accumulated amortization 116,465 123,539
Deferred tax asset 33,595 1,735
Other assets 34,701 36,271
--------- ---------
$ 450,541 $ 498,861
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 627 $ 72
Current maturities of long-term debt 991 1,195
Accounts payable 29,232 23,237
Accrued liabilities 14,453 11,711
Arbitration settlement payable 5,630 7,176
--------- ---------
TOTAL CURRENT LIABILITIES 50,933 43,391
Long-term debt 209,210 208,057
Arbitration settlement payable 2,451 8,080
Other non-current liabilities 1,608 2,454
Commitments and contingencies (See Note N) -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, 150,000 shares outstanding 13,009 --
Common Stock, $.01 par value, 100,000,000 shares
authorized, 69,079,243 shares outstanding in 1999
and 68,839,672 in 1998 690 688
Paid-in capital 322,724 319,833
Unearned restricted stock compensation (3,838) (5,618)
Accumulated other comprehensive income 250 (1,033)
Retained deficit (146,496) (76,991)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 186,339 236,879
--------- ---------
$ 450,541 $ 498,861
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
25
<PAGE> 26
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 198,225 $ 256,808 $ 233,245
Operating costs and expenses:
Cost of services provided 139,954 176,551 138,392
Operating costs 60,566 63,037 25,043
--------- --------- ---------
200,520 239,588 163,435
General and administrative expenses 2,589 4,305 3,185
Goodwill amortization 4,996 5,206 2,683
Provision for uncollectible accounts 2,853 9,180 --
Write-down of abandoned and disposed assets 44,870 52,266 --
Impairment of long-lived assets 23,363 -- --
Terminated merger expenses 2,957 -- --
Arbitration settlement -- 27,463 --
Equity in net loss of
unconsolidated affiliates -- 1,293 --
--------- --------- ---------
Operating income (loss) (83,923) (82,493) 63,942
Interest income (987) (1,488) (310)
Interest expense 16,651 11,554 4,265
--------- --------- ---------
Income (loss) before income
taxes & cumulative effect of accounting changes (99,587) (92,559) 59,987
Provision (benefit) for income taxes (29,461) (30,270) 22,246
--------- --------- ---------
Income (loss) before cumulative effect
of accounting changes (70,126) (62,289) 37,741
Cumulative effect of accounting
changes (net of income tax effect) 1,471 (1,326) --
--------- --------- ---------
Net income (loss) (68,655) (63,615) 37,741
Less:
Preferred stock dividends 532 -- --
Accretion of discount on preferred stock 318 -- --
--------- --------- ---------
Net income (loss) applicable to common
and common equivalent shares $ (69,505) $ (63,615) $ 37,741
========= ========= =========
Weighted average number of common and common equivalent shares outstanding:
Basic 68,949 67,058 64,158
========= ========= =========
Diluted 68,949 67,058 65,630
========= ========= =========
Income (loss) per common and common equivalent share:
Basic:
Income (loss) before cumulative effect $ (1.03) $ (0.93) $ 0.59
Cumulative effect of accounting changes 0.02 (0.02) --
--------- --------- ---------
Net income (loss) $ (1.01) $ (0.95) $ 0.59
========= ========= =========
Diluted:
Income (loss) before cumulative effect $ (1.03) $ (0.93) $ 0.58
Cumulative effect of accounting changes 0.02 (0.02) --
--------- --------- ---------
Net income (loss) $ (1.01) $ (0.95) $ 0.58
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
26
<PAGE> 27
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $(68,655) $(63,615) $ 37,741
Other comprehensive income (loss):
Foreign currency translation adjustments 1,283 (1,033) --
-------- -------- --------
Comprehensive income (loss) $(67,372) $(64,648) $ 37,741
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
27
<PAGE> 28
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1998 and 1999
----------------------------------------------------------------------------------------------------------------------------
Unearned Accumulated
Restricted Other
Preferred Common Paid-In Stock Comprehensive Retained
(In thousands) Stock Stock Capital Compensation Income Deficit Total
--------- ------ ------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ -- $ 624 $256,785 $ -- $ -- $ (51,047) $206,362
Employee stock options -- 13 9,090 -- -- (7) 9,096
Acquisitions -- 15 16,728 -- -- -- 16,743
Issuance of restricted stock -- -- 668 (668) -- -- --
Amortization of restricted stock -- -- -- 125 -- -- 125
Results of operations of pooled entity -- -- -- -- -- -- --
due to different year end -- -- -- -- -- (625) (625)
Net income -- -- -- -- -- 37,741 37,741
--------- ------ ------- ------------ ------------- --------- --------
BALANCE, DECEMBER 31, 1997 -- 652 283,271 (543) -- (13,938) 269,442
Employee stock options -- 9 6,757 -- -- (1) 6,765
Acquisitions -- 23 23,337 -- -- -- 23,360
Issuance of restricted stock -- 4 6,468 (6,472) -- -- --
Amortization of restricted stock -- -- -- 1,397 -- -- 1,397
Foreign currency translation -- -- -- -- (1,033) -- (1,033)
Results of operations of pooled entities -- -- -- -- -- -- --
due to different year ends -- -- -- -- -- 563 563
Net loss -- -- -- -- -- (63,615) (63,615)
--------- ------ ------- ------------ ------------- --------- --------
BALANCE, DECEMBER 31, 1998 -- 688 319,833 (5,618) (1,033) (76,991) 236,879
Employee stock options -- 2 119 -- -- -- 121
Issuance of restricted stock -- -- 181 (181) -- -- --
Amortization of restricted stock -- -- -- 1,961 -- -- 1,961
Foreign currency translation -- -- -- -- 1,283 -- 1,283
Preferred stock and warrants issuance 12,597 -- 2,153 -- -- -- 14,750
Preferred stock dividends & accretion 412 -- 438 -- -- (850) --
Net loss -- -- -- -- -- (68,655) (68,655)
--------- ------ ------- ------------ ------------- --------- --------
BALANCE, DECEMBER 31, 1999 $ 13,009 $ 690 $322,724 $ (3,838) $ 250 $(146,496) $186,339
========= ====== ======= ============ ============= ========= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
28
<PAGE> 29
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------------------------
(In thousands ) 1999 1998 1997
--------------- --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (68,655) $ (63,615) $ 37,741
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 26,881 37,901 26,393
(Benefit) provision for deferred income taxes (29,298) (25,965) 15,880
(Gain) loss on sale of assets (81) 45 147
Provision for doubtful accounts 2,853 9,180 --
Write-down of abandoned and disposed assets 44,870 52,266 --
Cumulative effect of accounting changes (1,471) 1,326 --
Impairment of long-lived assets 23,363 -- --
Arbitration settlement -- 22,056 --
Net loss in unconsolidated affiliates -- 1,293 --
Change in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts and notes receivable 2,405 11,434 (21,221)
(Increase) decrease in inventories (6,545) 3,605 (12,195)
Decrease (increase) in other assets 1,511 (9,554) (6,814)
Increase (decrease) in accounts payable 2,704 (6,920) (3,685)
Increase (decrease) in accrued liabilities and other 3,705 (3,813) (4,571)
--------- --------- ---------
NET CASH PROVIDED BY OPERATIONS 2,242 29,239 31,675
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (40,497) (104,660) (79,476)
Proceeds from sale of property, plant and equipment 17,399 382 40
Investment in joint ventures -- -- (4,833)
Acquisitions, net of cash acquired -- (15,809) (7,679)
Payments received on notes receivable 2,173 2,456 70
Advances on notes receivable -- (1,734) (3,000)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (20,925) (119,365) (94,878)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 2,978 80,900 --
Principal payments on notes payable and long-term debt (1,675) (10,001) (46,777)
Proceeds from issuance of debt -- 452 125,122
Proceeds from exercise of stock options 536 3,687 4,114
Net proceeds from preferred stock issue 14,750 -- --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,589 75,038 82,459
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,094) (15,088) 19,256
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,611 21,699 2,443
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,517 $ 6,611 $ 21,699
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
29
<PAGE> 30
NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION. Newpark Resources, Inc., a
Delaware corporation, ("Newpark" or the "Company") provides integrated fluids
management, environmental and oilfield services to the exploration and
production industry principally in the Louisiana and Texas Gulf Coast region. In
addition, the Company provides some or all of its services to the U.S.
Mid-continent region and Canada. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Investments in
which the Company owns 20 percent to 50 percent and exercises significant
influence over operating and financial policies are accounted for using the
equity method. All material intercompany transactions are eliminated in
consolidation.
USE OF ESTIMATES AND MARKET RISKS. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company receives substantially all of its revenues from customers
in the oil and gas industry. During 1998 and continuing in 1999, oil and gas
prices and related activities decreased to new lows, for the past several
decades, on an inflation adjusted basis. During the mid 1990's through the first
half of 1998, the Company experienced significant growth through a series of
strategic acquisitions and mergers and increasing demand for its products and
services. The Company completed ten and eleven acquisitions in 1998 and 1997,
respectively, which allowed the Company to enter into new markets and expand its
product lines. With significant decreases in the price of oil and gas and the
resultant impact on drilling activity, the Company experienced a sharp decline
in the demand for its products and services during the latter half of 1998 and
continuing through 1999. This decline in demand materialized quickly from the
previous growth period and at a time when the Company was developing and
introducing new and proprietary products and services to its customers.
In the third quarter of 1998 the Company began to reassess its
operations in response to the downturn in industry activity and to evaluate the
need for the introduction of new products and services. During 1998, in addition
to the settlement of an arbitration dispute, the Company implemented several
operational changes including the abandonment of several markets and products
and the reduction of employees and assets. The Company also decided to continue
the development and introduction of new products and services such as the
composite mats discussed in Note C. During 1999 the Company continued to review
its operations and product offerings and implemented plans to further reduce
operating costs and improve operating efficiencies while also continuing to
develop and introduce new products and services. During 1998 and 1999, the
Company expended $104.7 million and $40.5 million, respectively, for capital
assets, a significant portion of which was related to the new products and
services. As a result of these changes in the Company's market and operations,
significant charges were recorded (see Note C) and the Company has incurred
significant losses in both 1998 and 1999.
These conditions have had a negative impact on the Company's cash flows
and liquidity. In April 1999, the Company issued $15 million of preferred stock
(see Note I.) and in early 2000, the Company amended its bank credit facility
and agreed to secure the facility with substantially all of the Company's
accounts receivables, inventory and property and equipment. The banks agreed to
30
<PAGE> 31
restructure the financial covenant requirements to be consistent with the
Company's current financial position (see Note G). As of March 27, 2000, the
Company had no borrowing availability on this credit facility, as amended.
The Company believes that given 1) the current outlook for oil and gas
prices and related activity, 2) the changes that have been made to the Company's
operations, including its investments in the new products and services, and 3)
the Company's current financial position, the Company will be able to continue
its current business strategy for 2000 and the foreseeable future. However, the
Company believes that a prolonged depression in oil and gas drilling activity
would have a material adverse affect on the Company's financial position and
results of operations and would require the company to further reassess its
business strategies.
CASH EQUIVALENTS. All highly liquid investments with a remaining maturity of
three months or less at the date of acquisition are classified as cash
equivalents.
FAIR VALUE DISCLOSURES. Statement of Financial Accounting Standards ("SFAS") No.
107, "Disclosures about Fair Value of Financial Instruments", requires the
disclosure of the fair value of all significant financial instruments. The
Company's significant financial instruments consist of cash and cash
equivalents, receivables, payables and long-term debt. The estimated fair value
amounts have been developed based on available market information and
appropriate valuation methodologies. However, considerable judgment is required
in developing the estimates of fair value. Therefore, such estimates are not
necessarily indicative of the amounts that could be realized in a current market
exchange. After such analysis, except as described below, management believes
the carrying values of these instruments approximate fair values at December 31,
1999 and 1998.
The estimated fair value of the Company's senior subordinated notes
payable at December 31, 1999 and 1998, based upon available market information,
was $116.3 million and $118.8 million, respectively, as compared to the carrying
amount of $125.0 million on those dates.
INVENTORIES. Inventories are stated at the lower of cost (principally average
and first-in, first-out) or market. Such inventories consist of logs, supplies,
processed barite, other specialty chemicals used in drilling fluids, and, until
its write-down in 1999, board road lumber (See Note C). Until the write-down,
board road lumber was amortized on the straight-line method over its estimated
useful life of approximately one year.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are recorded at
cost. Additions and improvements are capitalized. Maintenance and repair
expenses are charged to income as incurred. The cost of property, plant and
equipment sold or otherwise disposed of and the accumulated depreciation thereon
are eliminated from the property and related accumulated depreciation accounts,
and any gain or loss is credited or charged to income.
For financial reporting purposes, except as described below,
depreciation is provided by utilizing the straight-line method over the
following estimated useful service lives:
<TABLE>
<S> <C>
Computers, autos and light trucks 2-5 years
Wooden mats 2-4 years
Composite mats 15 years
Tractors and trailers 10-15 years
Machinery and heavy equipment 10-15 years
Owned buildings 20-35 years
Leasehold improvements lease term, including all renewal options
</TABLE>
31
<PAGE> 32
As described in Note C, in connection with the impairment of the
domestic wooden mat fleet, in 1999 the Company adjusted the remaining
depreciable life on these mats in anticipation of the eventual displacement of
such mats to an approximate average of two years.
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 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 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 providing 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 year ended December 31, 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 year ended
December 31, 1999 by $717,000 (related per share amounts of $.01 basic and
diluted).
32
<PAGE> 33
Consolidated net income (loss) that would have been reported for the
years ended December 31, 1998 and 1997 had the change been applied retroactively
would be as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Year Ended
(In thousands of dollars) December 31,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (63,166) $ 38,182
Income (loss) per common and common equivalent share:
Basic (.94) .60
Diluted (.94) .58
</TABLE>
COST IN EXCESS OF NET ASSETS OF PURCHASED BUSINESSES AND IDENTIFIABLE
INTANGIBLES. The cost in excess of net assets of purchased businesses ("excess
cost") and identifiable intangibles are being amortized on a straight-line basis
over fifteen to thirty-five years, except for $2,211,000 relating to
acquisitions prior to 1971 that is not being amortized. Management of the
Company periodically reviews the carrying value of the excess cost in relation
to the current and expected undiscounted cash flows of the businesses which
benefit therefrom in order to assess whether there has been a permanent
impairment of the excess cost of the net purchased assets. Accumulated
amortization on excess cost was $13,879,000 and $9,004,000 at December 31, 1999
and 1998, respectively.
REVENUE RECOGNITION. In substantially all of its operating segments, Newpark
recognizes revenue on a units of delivery basis. E&P waste and NORM disposal
revenues are generally recognized upon receipt of waste for processing, while
drilling fluids sales and engineering revenues are generally recognized upon
delivery of products or services. Revenues from certain mat rental and
integrated service projects, which are typically of short duration, are
recognized as projects progress based upon sales values agreed to by the
customer for specific units delivered or project milestones completed. Included
in accounts receivable are unbilled revenues for projects in progress in the
amounts of $2,874,000 and $2,635,000 at December 31, 1999 and 1998,
respectively, all of which are due within one year.
INCOME TAXES. Income taxes are provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred
income taxes are recorded based upon differences between the financial reporting
and income tax basis of assets and liabilities and are measured using the
enacted income tax rates and laws that will be in effect when the differences
are expected to reverse.
INVESTMENT IN UNCONSOLIDATED JOINT VENTURE. The Company owns a 49% interest in
the LOMA Company, LLC, the manufacturer of composite mats. During the start up
phase of operations for LOMA, the Company recorded its 49% interest in the
cumulative operating losses of the joint venture ($1,293,000) as a separate item
in the Consolidated Statements of Operations. In 1999, full production began at
the LOMA manufacturing facility. Given that all production from the facility is
for Newpark and all of LOMA's operations are production of composite mats, the
Company began recording its 49% interest in the income/(loss) of LOMA as a
reduction/(increase) to its cost of the composite mats included in property,
plant and equipment of the Company. During 1999, the carrying value of property,
plant and equipment was reduced by $520,000, reflecting the Company's 49%
interest in the earnings of LOMA for 1999.
33
<PAGE> 34
INTEREST CAPITALIZATION. For the years ended December 31, 1999, 1998 and 1997
the Company incurred interest cost of $18,381,000, $14,114,000, and $5,372,000,
respectively, of which $1,730,000, $2,560,000, and $1,107,000, respectively, was
capitalized on qualifying construction projects.
STOCK-BASED COMPENSATION. SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, and has
adopted the disclosure-only provisions of SFAS 123.
FOREIGN CURRENCY TRANSACTIONS. The Company's Canadian subsidiary maintains its
accounting records in its local currency. This currency is converted to U.S.
dollars with the effect of the foreign currency translation reflected in
"accumulated other comprehensive income," a component of stockholders' equity,
in accordance with SFAS No. 52 and SFAS No. 130, "Reporting Comprehensive
Income." Foreign currency transaction gains or losses, if any, are credited or
charged to income. There were no transaction gains or losses incurred in 1999,
1998, or 1997. Cumulative foreign currency translation adjustments related to
the Canadian subsidiary reflected in stockholders' equity amounted to $669,000
and ($1,033,000) at December 31, 1999 and 1998, respectively. At December 31,
1999 and 1998, the Company's Canadian subsidiary had net assets of approximately
$31.3 million and $25.5 million, respectively.
RECLASSIFICATIONS. Certain reclassifications of amounts reported in prior years
have been made to conform to the current year presentation.
NEW ACCOUNTING STANDARDS During 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The statement establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Changes in a
derivative's fair value are to be recognized currently in earnings unless
specific hedge accounting criteria are met. The Company will be required to
adopt SFAS No. 133, as amended by SFAS No. 137, which defers the effective date,
on January 1, 2001. The Company does not believe that adoption of the statement
will have a material effect on the Company's consolidated financial statements
since the Company does not currently use derivative instruments or hedging
activities in its business.
During 1998, the American Institute of Certified Pubic Accountants
promulgated Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 broadly defines start-up activities as those
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. SOP 98-5 requires that companies
expense start-up activities as incurred. The Company adopted SOP 98-5 effective
July 1, 1998. Thus, in accordance with SOP 98-5, the Company recorded the
after-tax charge as a cumulative effect of accounting change within the
Company's 1998 Consolidated Statement of Operations. The effect of this change
in accounting principle was to decrease net income by $1,326,000 (net of related
income tax benefits of $778,000) or $.02 per basic and diluted share.
34
<PAGE> 35
B. ACQUISITIONS AND DISPOSITIONS
During 1998 and 1997, Newpark issued an aggregate of 1,151,000 shares
and 3,496,668 shares, respectively, of its common stock in exchange for all of
the outstanding common stock of the following six companies:
<TABLE>
<CAPTION>
Company Name Type of Company Location Shares
------------ --------------- -------- ------
<S> <C> <C> <C>
1998 acquisitions:
Southwestern Universal Corp Drilling Fluids West Texas 450,000
Optimum Fluids, Inc. Drilling Fluids Western Canada 281,000
Houston Prime Pipe & Supply Solids Control Gulf Coast 420,000
---------
1,151,000
1997 acquisitions:
Sampey, Bilbo, Meschi Drilling
Fluids Management, Inc. Drilling Fluids Gulf Coast 2,328,000
Excalibur Minerals, Inc. Barite Grinding Gulf Coast 666,668
Bockmon Construction Company Site Preparation Gulf Coast 502,000
---------
3,496,668
</TABLE>
These business combinations have been accounted for as poolings of
interests, and accordingly, the consolidated financial statements for periods
prior to the combinations have been restated to include the accounts and results
of operations of these entities.
Prior to the combinations, the year end for two of the entities was
September 30 and the year end for one of the entities was October 31. Newpark's
fiscal year is December 31. In applying pooling of interests accounting, the
December 31, 1997 Newpark consolidated statements of operations were combined
with the statements of operations for the corresponding year end of each pooled
entity. Retained earnings (deficit) of the combined entities were adjusted by
$563,000 and ($625,000) as of the beginning of Newpark's fiscal 1998 and 1997
years, respectively, to include net income/(losses) of the pooled entities for
the periods October 1, 1997 to December 31, 1997 and November 1, 1996 to
December 31, 1996. During these periods, the revenues of the pooled entities
which were excluded from the consolidated statements of operations were $3.9
million for 1997. Amounts included in the accompanying consolidated statements
of operations for the years ended December 31, 1997 include the results of these
entities for the year ended September 30, 1997.
In September, 1999, the Company's management adopted a plan to
discontinue operations of its solids control business (see Note D). The
discontinued solids control business includes all of the remaining assets and
operations from the acquisition of Houston Prime Pipe and Supply.
Operating results prior to the combination of the separate companies
and the combined amounts presented in the consolidated financial statements are
summarized below.
35
<PAGE> 36
<TABLE>
<CAPTION>
-------------------------------------------------------
Year Ended
(In thousands of dollars) December 31,
-------------------------------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues:
Newpark $ 249,313 $ 210,277
Houston Prime 4,448 6,022
Optimum 2,016 1,813
Southwestern 1,031 6,882
Bockmon -- 3,174
Excalibur -- 5,077
SBM -- --
--------- ---------
Combined $ 256,808 $ 233,245
--------- ---------
Net Income (Loss):
Newpark $ (64,590) $ 36,909
Houston Prime 789 805
Optimum (6) (354)
Southwestern 192 162
Bockmon -- 12
Excalibur -- 207
SBM -- --
--------- ---------
Combined $ (63,615) $ 37,741
--------- ---------
</TABLE>
In addition to these transactions, Newpark acquired, in the aggregate,
eight other companies in 1998 and seven other companies in 1997. These
acquisitions have been accounted for by the purchase method and include the
results of operations of the acquired companies since their respective
acquisition dates. These acquisitions were completed in exchange for an
aggregate of 2,346,771 shares of Newpark common stock and $22,652,000 in cash
during 1998 and 1,193,332 shares of Newpark common stock and $9,186,000 in cash
during 1997. The purchase prices were allocated based on preliminary estimates
of fair values at the dates of acquisition. The final purchase price allocation
did not differ significantly from the preliminary purchase price allocation.
This resulted in an excess of purchase price over assets acquired of
$51,671,000, which is being amortized on a straight-line basis over 15 to 20
years.
The purchase price was allocated to the net assets acquired based on
their fair values at the date of acquisition, as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current assets $ 15,078 $ 3,240
Property, Plant & Equipment 6,579 10,848
Liabilities assumed (17,729) (6,096)
Goodwill 35,241 16,430
-------- --------
Total purchase price, net of cash acquired 39,169 24,422
Less value of common stock issued (23,360) (16,743)
-------- --------
Cash purchase price, net of cash acquired $ 15,809 $ 7,679
======== ========
</TABLE>
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the above purchase acquisitions had
occurred on January 1, 1997:
36
<PAGE> 37
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(In thousands, except per share amounts) 1998 1997
---------------------------------------- ----------- -----------
<S> <C> <C>
Revenues $ 279,496 $ 276,476
Net income (loss) (62,047) 37,777
Net income (loss) per common and
common equivalent share:
Basic $ (.90) $ 0.58
Diluted (.90) 0.56
=========== ===========
</TABLE>
The above unaudited proforma amounts have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill, additional depreciation expense for assets
recorded at fair market value at the date of acquisition, additional interest
expense for borrowings, and the net impact of the above adjustments on income
tax expense. They do not purport to be indicative of the results of operations
which actually would have resulted had the combination been in effect on January
1, 1997, or of future results of operations of the consolidated entities.
On August 12, 1996, the Company acquired from Campbell Wells, Ltd.
("Campbell") substantially all of the non-landfarm assets and certain leases
associated with five transfer stations located along the Gulf Coast and three
receiving docks at the landfarm facilities operated by Campbell for cash
consideration of $70.5 million. This acquisition was accounted for under the
purchase method, and resulted in an excess of purchase price over assets
acquired of $77.1 million, of which $68.6 million is being amortized on a
straight-line basis over 35 years, $7.5 million, attributable to a non-compete
agreement, was being amortized on a straight-line basis over 25 years and $1.0
million, attributable to dock leases, which is being amortized over the
respective lease terms. As a result of the signing of a Settlement Agreement
with U.S. Liquids, Inc. (see Notes C and N), the remaining unamortized value of
the non-compete agreement was reduced to $900,000, (the estimated fair market
value) and is being amortized over the revised non-compete period of three
years. The adjustment to the unamortized balance of the non-compete agreement of
$6.1 million was included in arbitration settlement charged to operations in
1998.
On August 29, 1996, the Company sold the land, buildings and certain
equipment comprising substantially all of the assets of its former marine repair
operation to the operator of the facility and refinanced certain advances
previously made to the operator. The sales price of approximately $16.0 million
represents the net book value of the assets sold and refinanced. The
consideration received included $1.2 million in cash, $7.2 million in notes
receivable and $7.6 million in debt obligations which were assumed by the
operator. The notes receivable are included in other assets and have been
recorded at their estimated fair value, which approximates the amount at which
they can be prepaid at the operator's option during the term of the notes. The
notes receivable include two notes, one of which is in the face amount of
$8,534,000, bears simple interest at 5.0% per annum, with interest and principal
payable at September 30, 2003. The second note, in the amount of $600,000,
bearing interest at 8% per annum, was subsequently paid off during the first
quarter of 1998. The remaining note is secured by a second lien on the assets
sold as well as certain guarantees of the operator.
C. SIGNIFICANT 1999 AND 1998 CHARGES
During the mid 1990's through the first half of 1998, the Company
experienced significant growth through a series of strategic acquisitions and
mergers, and increasing demand for its related products and services. Due to a
significant decrease in the price of oil and gas and the resultant impact on
drilling activity, the Company experienced a sharp decline in the demand for its
products and
37
<PAGE> 38
services during the third and fourth quarters of 1998 which continued in 1999.
This decline in customer demand materialized quickly from the previous growth
period and, coupled with the timing of the Company's continued efforts to bring
certain proprietary innovations to its customers, caused the Company to reassess
its overall operations. This change in the Company's market and reassessment of
operations, as well as the settlement of an arbitration dispute in 1998,
resulted in the Company recording the following pretax charges during 1999 and
1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------
(In thousands) 1999 1998
-------------- ------- -------
<S> <C> <C>
Provision for uncollectible accounts $ 2,853 $ 9,180
Write-down of abandoned and disposed assets 44,870 52,266
Impairment of long-lived assets 23,363 --
Terminated merger expense 2,957 --
Arbitration settlement -- 27,463
------- -------
Total $74,043 $88,909
======= =======
</TABLE>
The provision for uncollectible accounts in 1998 was made due to the
financial weakness of certain customers resulting from continued downward
pressure on oil prices, which caused a strain on customer cash flows. The
Company had then identified three specific customer balances where the risk of
financial concern merited the majority of the additional reserve in 1998. Most
of these customers have filed for bankruptcy protection. In 1999, the additional
provision is primarily related to a decrease in the expected recovery of
pre-bankruptcy receivables for these same customers as indicated in their
approved or proposed plans of reorganization.
The write-down of abandoned and disposed assets includes the following
amounts for 1998 and 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------
(In millions) 1999 1998
------------- ----- -----
<S> <C> <C>
Mat and integrated services segment:
Domestic wooden mats $30.4 $43.0
Venezuela operations 11.6 --
Other .4 1.3
----- -----
Total mat and integrated services segment 42.4 44.3
Fluids sales and engineering segment:
Investment in Mexican joint venture 2.5 --
Austin Chaulk assets -- 4.7
----- -----
Total fluids sales and engineering segment 2.5 4.7
E&P waste disposal segment:
Barge disposal -- 1.3
Write-down of proposed disposal sites -- 2.0
----- -----
Total E&P waste disposal segment -- 3.3
----- -----
Total write-down for abandoned and disposed assets $44.9 $52.3
===== =====
</TABLE>
The $43.0 million write-down of the Company's domestic wooden mat
fleet in 1998 is primarily due to a significant excess capacity in the fleet
resulting from the sharp decline in drilling activity. In addition, in late
1998, the Company began the process of converting a portion of its domestic
rental
38
<PAGE> 39
fleet to the new composite mat. The write-down represents the net book value
associated only with mats that were abandoned or destroyed.
In the fourth quarter of 1999, after the Company completed its
evaluation of the composite mat and its advantages over the wooden mat system
and further indication that the Gulf Coast mat market would likely stabilize
below its peak in 1997, the Company removed an additional amount of the
remaining wooden mats from service and began the process of destroying these
mats, recording a charge of $30.4 million. Included in the write-down cost for
wooden mats in 1999 are disposal costs of approximately $1.1 million. As of
December 31, 1999, the accrual for mat disposal costs to be incurred was
approximately $500,000. Also included in this amount is $3.0 million of charges
for the write-down of the Company's board road lumber inventory, since this
loose lumber is generally not required in the laying of composite mats.
In addition to the disposals of the wooden mat fleet, in the fourth
quarter of 1999, the Company made the decision to close down its mat business in
Venezuela, due to poor market conditions and continued political instability in
that area, recording a charge of $11.6 million. The measurement of the
recoverable amount for the Venezuelan operations is based on management's
judgement of the most likely value to be received on the sale of assets, less
costs to sell. This estimate is subject to change in 2000 as actual amounts from
the sale or recovery of these assets are realized.
The other charges for write-down of assets in the mat and integrated
services segment were $0.4 million and $1.3 million in 1999 and 1998,
respectively. In 1999, this charge represents the net book value of various
equipment deemed obsolete which has been sold or abandoned. In 1998, this charge
represents the net book value of a machine previously used in remediation
operations that was abandoned after it was rendered obsolete by other new
equipment introduced by the Company, which was technologically superior.
The $2.5 million write-down charge recorded in the Company's fluids
sales and engineering segment in 1999 relates to the decision to withdraw from
its Mexican joint venture in order to focus management's attention on the U.S.
and Canadian markets it serves. The measurement of the recoverable amount for
the Mexican operations is based on management's judgement of the most likely
value to be received from its joint venture partner. This estimate is subject to
change in 2000 as actual payments from the joint venture partner are received.
In 1998, the write-down charge of $4.7 million recorded in this segment relates
to assets that were either abandoned or disposed (primarily warehouses and
mixing plants located in the Austin Chauk region). These assets were abandoned
or disposed due to market shifts or due to excess capacity created by a downturn
in the Company's operations. The disposal value for these assets was received in
1999 with no significant differences from estimated amounts being realized.
Included in the write-down charges for the E&P waste disposal segment
in 1998 was $1.3 million to write-down barges to their disposal value, which
value was received in 1999. These barges were previously used in this segment
and were no longer required due to decreased volumes of waste being handled.
Also included in the write-down in this segment for 1998 is a charge of $2.0
million relating to the abandonment of additional disposal sites being developed
for future use. Due to the downturn in the oilfield waste market created by
reduced oilfield drilling, the Company decided not to pursue bringing this
additional capacity on-line.
39
<PAGE> 40
In addition to the charges for the write-down of assets to be disposed
or abandoned, in the fourth quarter of 1999, the Company recorded an impairment
charge of $23.4 million in the mat and integrated services segment on the
remaining domestic wooden mat fleet which the Company will continue to use in
the short-term. This charge reflects the reduction in the recoverability of
these mats over their estimated service life which was reduced due to their
planned replacement with composite mats over the next two to three years. This
reduced the domestic wooden mat fleet to a total carrying value of $4.5 million
as of the date of the impairment charge. This carrying value was determined
based on an estimation of the net discounted cash flows expected to be received
for the wooden mats remaining in service until their expected replacement by
composite mats. In connection with this impairment, the Company also adjusted
the remaining depreciable life on the domestic wooden mats in anticipation of
the planned displacement of such mats to an approximate average of two years.
On June 24, 1999, the Company entered into a definitive agreement to
merge with Tuboscope, Inc. (Tuboscope). On November 10, 1999, the Company and
Tuboscope announced that they had jointly elected to form operational alliances
in key market areas rather than proceed with the proposed merger. The decision
was made because recent market conditions in the oilfield services 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 agreed to pay its respective transaction expenses relating to the
proposed merger, which for Newpark are approximately $3.0 million. Under the
alliance agreement, Tuboscope will provide solids control services to Newpark's
Minimization Management(TM) customers, while Newpark will provide E&P waste
disposal services to Tuboscope.
The $27.5 million of charges relating to the arbitration settlement
stems from the settlement during the third quarter of 1998 (with final
modifications during the fourth quarter 1998) between the Company's E&P waste
disposal segment and U. S. Liquids, Inc. ("USL") over a contract dispute which
is discussed more fully in Note N. The total settlement was $30 million, of
which $6 million and $11 million was paid in 1998 and 1999, and $9 million and
$4 million will be paid in 2000 and 2001, respectively. The settlement provided
for, among other things, 1) the termination of Newpark's original contractual
commitment to provide waste to USL's disposal facilities for twenty-five years
and 2) the right, but not the obligation, to deliver specified volumes of E&P
waste to USL's facilities until June 30, 2001 without additional cost. The right
to deliver waste was valued at its estimated fair market value of $8 million
based on the volumes that can be delivered and the market price to dispose of
such waste. This amount is being recorded as a charge to operations over the
disposal period. The termination feature was valued at $22 million, which
represented the balance of the total settlement, and an obligation was recorded
based on the present value of the contractual payments assigned to the
termination feature. At December 31, 1999 and 1998, the recorded amount of the
obligation was $8.1 million and $15.3 million, respectively. Total pretax
charges associated with the settlement of $27.5 million included a $6.1 million
write down to the estimated fair value of the remaining non-compete with U.S.
Liquids, with the remaining $21.4 million representing the portion of the
settlement associated with the termination feature.
D. SALE OF SOLIDS CONTROL OPERATIONS
In September, 1999, the Company's 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 these
services to Newpark's customers. The Company realized approximately $5.5 million
of proceeds for the sale of its interest in the assets used in these operations,
which resulted in a net loss on the disposal of approximately $50,000. The
operating results for the solids control operations are included in the results
for the fluids sales and engineering segment. Revenues from the solids control
operations totaled approximately $7.4 million in 1999, $11.4 million in 1998 and
$6.0 million in 1997. These operations generated an operating loss of
approximately $5.5 million in 1999 and $1.2 million in 1998 and operating income
of approximately $1.4 million in 1997. Included in the operating loss for 1999
are severance and related costs of approximately $723,000.
The 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>
1999 1998 1997
<S> <C> <C> <C>
As previously reported-
Income (loss) from continuing
operations before cumulative effect
of accounting changes $ (66,720) $ (61,547) $ 36,936
Net income (loss) $ (68,655) $ (63,615) $ 37,741
Income (loss) per common and
common equivalent share:
Basic:
Continuing operations $ (0.98) $ (0.92) $ 0.58
Net income (loss) $ (1.01) $ (0.95) $ 0.59
Diluted:
Continuing operations $ (0.98) $ (0.92) $ 0.56
Net income (loss) $ (1.01) $ (0.95) $ 0.58
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
As restated-
Income (loss) before cumulative effect
of accounting changes $ (70,126) $ (62,289) $ 37,741
Net income (loss) $ (68,655) $ (63,615) $ 37,741
Income (loss) per common and
common equivalent share:
Basic:
Income before cumulative effect of
accounting changes $ (1.03) $ (0.93) $ 0.59
Net income (loss) $ (1.01) $ (0.95) $ 0.59
Diluted:
Income before cumulative effect of
accounting changes $ (1.03) $ (0.93) $ 0.58
Net income (loss) $ (1.01) $ (0.95) $ 0.58
</TABLE>
40
<PAGE> 41
E. INVENTORY
The Company's inventory consisted of the following items at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
----------------------------------------------------------------
(In thousands) 1999 1998
-------------- ------- -------
<S> <C> <C>
Board road lumber $ -- $ 1,276
Logs 3,338 4,835
Drilling fluids raw materials and components 13,062 11,385
Supplies 724 1,285
Other 400 600
------- -------
Total $17,524 $19,381
======= =======
</TABLE>
F. PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment at December
31, 1999 and 1998 is summarized as follows:
<TABLE>
-----------------------------------------------------------------
(In thousands) 1999 1998
-------------- --------- ---------
<S> <C> <C>
Land $ 9,183 $ 9,770
Buildings and improvements 43,476 33,753
Machinery and equipment 147,087 152,304
Composite and wooden mats 15,111 71,660
Other 5,439 6,111
--------- ---------
220,296 273,598
Less accumulated depreciation (53,693) (55,610)
--------- ---------
$ 166,603 $ 217,988
========= =========
</TABLE>
G. CREDIT ARRANGEMENTS AND LONG-TERM DEBT
Credit arrangements and long-term debt consisted of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
(In thousands) 1999 1998
-------------- --------- ---------
<S> <C> <C>
Senior subordinated notes $ 125,000 $ 125,000
Bank line of credit 83,250 80,900
Building loan 809 1,335
Other, principally installment notes secured by
machinery and equipment, payable through
2002 with interest at 2.0% to 13.5% 1,142 2,017
--------- ---------
210,201 209,252
Less: current maturities of long-term debt (991) (1,195)
--------- ---------
Long-term portion $ 209,210 $ 208,057
========= =========
</TABLE>
41
<PAGE> 42
On December 17, 1997 the Company issued $125 million of unsecured
senior subordinated notes (the "Notes"), which mature on December 15, 2007.
Interest on the Notes accrues at the rate of 8-5/8% per annum and is payable
semi-annually on each June 15 and December 15, commencing June 15, 1998. The
Notes may be redeemed by Newpark, in whole or in part, at a premium commencing
after December 15, 2002. Up to 35% of the Notes may be redeemed from proceeds of
an equity offering, at a premium at any time up to and including December 1,
2000. The Notes are subordinated to all senior indebtedness, as defined in the
subordinated debt indenture, including the Company's bank revolving credit
facility.
The Notes are guaranteed by substantially all operating subsidiaries of
the Company (the "Subsidiary Guarantors"). The guarantee obligations of the
Subsidiary Guarantors (which are all direct or indirect wholly owned
subsidiaries of the Company) are full, unconditional and joint and several. The
aggregate assets, liabilities, earnings, and equity of the Subsidiary Guarantors
are substantially equivalent to the total assets, liabilities, earnings, and
equity of Newpark Resources, Inc. and its subsidiaries on a consolidated basis.
Separate financial statements of the Subsidiary Guarantors are not included in
the accompanying financial statements because management of the Company has
determined that the additional information provided by separate financial
statements of the Subsidiary Guarantors would not be of material value to
investors.
As of December 31, 1999, the Company 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 June 30, 2001.
At December 31, 1999, $16.7 million in letters of credit were issued and
outstanding under the credit facility and $83.3 million was outstanding under
the revolving facility. Based on these outstanding amounts and the outstanding
letters of credit, the Company had no availability under this facility at
December 31, 1999. The facility bears interest at either a specified prime rate
(8.5% at December 31, 1999) or the LIBOR rate (6.18% at December 31, 1999) plus
a spread determined quarterly based on the ratio of the Company's funded debt to
cash flow. The weighted average interest rate on the outstanding balance under
the credit facility in 1999 and 1998 was 7.85% and 5.87%, respectively.
On March 27, 2000 the Company and the banks agreed to an amendment to
the Credit Facility which provided for the following: 1) the facility will be
secured by substantially all of the accounts receivable, inventory and property
plant and equipment of the Company; 2) the financial covenants as of December
31, 1999 and going forward will provide for covenants that are consistent with
the Company's current financial condition and anticipated outlook, 3) the
variable interest rate will be increased based on the Company's Debt to EBITDA
ratio, as defined, to a range of a) prime plus 0% to prime plus 1.25% or b)
LIBOR plus 1.25% to LIBOR plus 4%, and 4) the Company will pay an amendment fee
of $250,000. Under the amended agreement, the expected interest rate for early
2000 is prime plus 1.25% (10.25% at March 27, 2000) or LIBOR plus 4% (10.25% at
March 27, 2000). Several of the financial covenants under the amended credit
facility are at or near their limit. For example, the facility requires the
company to maintain consolidated tangible net worth, as defined as consolidated
stockholders' equity less certain intangible assets such as goodwill,
unamortized debt discount and patents, of $69 million. The Company's
consolidated tangible net worth, as defined, was $69.9 million at December 31,
1999. Any losses sustained in future quarters may cause the Company to not be in
compliance with the financial covenants unless waivers or amendments can be
obtained from the banks.
The Notes do not contain any financial covenants; however, in the event
that the Company does not meet the financial covenants of the credit facility
and is unable to obtain an amendment from the
42
<PAGE> 43
banks, the Company would be in default of the credit facility which would cause
the Notes to be in default and immediately due. The Notes and the credit
facility also contain covenants that significantly limit the payment of
dividends on the common stock of the Company.
Maturities of long-term debt, exclusive of the credit facility which
expires September 30, 2001, are $991,000 in 2000, $382,000 in 2001, $214,000 in
2002, $172,000 in 2003, $128,000 in 2004 and $125,063,000 thereafter.
H. INCOME TAXES
The provision (benefit) for income taxes charged to operations is
principally U. S. Federal tax as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
(In thousands) 1999 1998 1997
-------------- -------- -------- --------
<S> <C> <C> <C>
Current tax expense (benefit) $ 611 $ (5,083) $ 6,366
Deferred tax expense (benefit) (29,298) (25,965) 15,880
-------- -------- --------
Total provision (benefit) $(28,687) $(31,048) $ 22,246
======== ======== ========
</TABLE>
The total provision (benefit) was allocated to the following components
of income (loss):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
(In thousands) 1999 1998 1997
-------------- -------- -------- --------
<S> <C> <C> <C>
Income (loss) from operations $(29,461) $(30,270) $ 22,246
Cumulative effect of accounting change 774 (778) --
-------- -------- --------
Total provision (benefit) $(28,687) $(31,048) $ 22,246
======== ======== ========
</TABLE>
The effective income tax rate is reconciled to the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate (35.0%) (35.0%) 35.0%
Non-deductible expenses 1.5 1.4 1.5
Increase in valuation allowance 2.2 -- .4
Other 1.9 .8 .2
----- ----- -----
Total income tax expense (benefit) (29.4%) (32.8%) 37.1%
===== ===== =====
</TABLE>
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
(In thousands) 1999 1998
-------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 57,533 $ 25,640
Accruals not currently deductible 2,432 3,103
Bad debts 3,469 3,411
Deferred payments under settlement agreement 3,652 6,164
Alternative minimum tax credits 2,341 2,341
All other 965 962
-------- --------
Total deferred tax assets 70,392 41,621
Valuation allowance (9,060) (1,326)
-------- --------
Total deferred tax assets, net of allowances $ 61,332 $ 40,295
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
(In thousands) 1999 1998
-------------- ------- -------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation and amortization $14,399 $21,033
Inventory costs capitalized for financial reporting -- 943
All other 2,875 2,808
------- -------
Total deferred tax liabilities 17,274 24,784
------- -------
Total net deferred tax assets $44,058 $15,511
======= =======
</TABLE>
For federal income tax purposes, the Company has net operating loss
carryforwards ("NOLs") of approximately $141 million (net of amounts disallowed
pursuant to IRC Section 382) that, if not used, will expire in 2001 through
2019. The Company also has approximately $2.3 million of alternative minimum tax
credit carryforwards, which are not subject to expiration and are available to
offset future regular income taxes subject to certain limitations. Additionally,
for state income tax purposes, the Company has NOLs of approximately $156
million available to reduce future state taxable income. These NOLs expire in
varying amounts beginning in year 2000 through 2014.
Under SFAS No. 109, a valuation allowance must be established to offset
a deferred tax asset if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. At December 31, 1999 and 1998, the Company recorded a valuation
allowance for all state NOLs and the portion of federal NOLs that the Company
believes may not be fully utilized in the future. At December 31, 1999, the
Company has recognized a net deferred tax asset of $44.1 million, the
realization of which is dependent on the Company's ability to generate taxable
income in future periods. The Company believes that its estimate of future
earnings based on contracts in place and its earnings trend from recent prior
years supports recognition of this amount.
Deferred tax expense includes an increase in the valuation allowance
for deferred tax assets of ($7,734,000) and ($1,326,000) for 1999 and 1997,
respectively.
I. EQUITY SECURITIES
The Company has been authorized to issue up to 1,000,000 shares of
Preferred Stock, $.01 par value, of which 150,000 were outstanding at December
31, 1999.
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
44
<PAGE> 45
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, based on the average
closing price of Newpark's Common Stock for the five business days preceding the
record date. 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.
Dividends paid on preferred stock and accretion of the discount on the preferred
stock for the year ended December 31, 1999 were $532,000 and $318,000,
respectively. These amounts reflect dividends and accretion for the period of
April 16, 1999 (the issuance date of the preferred stock) through December 31,
1999.
On May 13, 1998, the stockholders of the Company approved an increase
in the number of authorized shares of common stock to 100,000,000.
Changes in outstanding Common Stock for the years ended December 31,
1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
(In thousands of shares) 1999 1998 1997
------------------------ ------ ------ ------
<S> <C> <C> <C>
Outstanding, beginning of year 68,840 65,212 62,758
Shares issued for acquisitions -- 2,347 1,193
Shares issued for deferred compensation plan 46 535 59
Other -- 17 --
Shares issued for preferred stock dividend 71 -- --
Shares issued upon exercise of options 122 729 1,202
------ ------ ------
Outstanding, end-of-year 69,079 68,840 65,212
====== ====== ======
</TABLE>
J. EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), the Company changed its method of calculating
earnings per share during the fourth quarter of 1997. Per share and weighted
average share amounts for all years presented have been restated to conform to
the requirements of SFAS No. 128, and to give effect for all 1998 and 1997
transactions accounted for as poolings of interest (see Note B).
The following table presents the reconciliation of the numerator and
denominator for calculating earnings per share in accordance with the disclosure
requirements of SFAS 128 as follows (in thousands, except per share data):
45
<PAGE> 46
<TABLE>
<CAPTION>
For the Years Ended
------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- ------------------------------- --------------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
(Num) (Den) Amount (Num) (Den) Amount (Num) (Den) Amount
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss)
available to
common
stockholders
$(69,505) 68,949 $ (1.01) $(63,615) 67,058 $ (0.95) $37,741 64,158 $ .59
======= ======= =====
EFFECT OF
DILUTIVE
SECURITIES
Stock options -- -- 1,472
-------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended
------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- ------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DILUTED EPS
Income (loss)
available to
common
stockholders $(69,505) 68,949 $ (1.01) $(63,615) 67,058 $ (0.95) $37,741 65,630 $ .58
========= ====== ======= ======== ======= ======== ======= ======= =====
</TABLE>
Options and warrants excluded from the computation of diluted EPS for
the years ended December 31, 1999 and 1998 that could potentially dilute basic
EPS in the future were 7,426,455 shares and 4,435,664 shares, respectively.
Since the Company incurred a loss per share for 1999 and 1998, such dilutive
options were excluded, as they would be antidilutive to basic EPS.
Options to purchase 12,000 and 16,000 shares of common stock, at
exercise prices of $20.84 and $19.53 per share, respectively, were outstanding
during the fourth quarter of 1997, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire during the fourth
quarter of 2002, were still outstanding at the end of 1997.
K. STOCK OPTION PLANS
At December 31, 1999, the Company had three stock-based compensation
plans, which are described below. The Company applies Accounting Principles
Board Opinion 25 ("APB 25") and related Interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its stock
option plans as the exercise price of all stock options granted thereunder is
equal to the fair value at the date of grant. Had compensation costs for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
Financial Accounting Standards Board Statement No. 123, the Company's net income
(loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997
------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) As reported $ (69,505) $ (63,615) $ 37,741
Pro forma (76,210) (68,977) 35,245
Basic earnings (loss) per share As reported (1.01) (0.95) 0.59
Pro forma (1.11) (1.03) 0.55
Diluted earnings (loss) As reported (1.01) (0.95) 0.58
=========== ========== ========== ==========
per share Pro forma (1.11) (1.03) 0.54
=========== ========== ========== ==========
</TABLE>
46
<PAGE> 47
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model, with the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Risk free interest rate 6.5% 5.2% 6.3%
Expected years until exercise 4 4 4
Expected stock volatility 259.1% 56.9% 64.3%
Dividend yield 0% 0% 0%
===== ===== =====
</TABLE>
A summary of the status of the Company's stock option plans as of
December 31, 1999, 1998 and changes during the periods ending on those
dates is presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------- ------------------------ ------------------------
W-A W-A W-A
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 4,435,664 $ 8.02 4,070,557 $ 7.59 4,110,132 $ 4.90
Granted 1,057,600 5.35 1,254,000 11.35 1,254,000 12.59
Exercised (122,238) 4.43 (726,222) 4.92 (1,153,315) 3.50
Canceled (344,571) 9.17 (162,671) 13.45 (140,260) 6.69
---------- ---------- ----------
Outstanding at end of year 5,026,455 $ 7.46 4,435,664 $ 8.02 4,070,557 $ 7.59
========== ========== ==========
Weighted-average fair
value of options granted
during the year $ 5.23 $ 6.51 $ 6.80
</TABLE>
The following table summarizes information about all stock options
outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------ --------------------------------
Range of Weighted-Average Weighted- Weighted-
Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life (Years) Exercise Price Exercisable Exercise Price
---------------- ----------- ------------------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.90 to $4.11 1,030,400 2.98 $ 3.61 1,017,800 $ 3.61
$4.28 to $6.25 1,040,696 5.94 $ 5.09 94,334 $ 5.59
$6.50 to $8.31 1,155,388 4.33 $ 8.11 971,724 $ 8.25
$8.62 to $9.94 63,667 5.33 $ 9.17 30,001 $ 9.38
$10.00 to $21.00 1,736,304 4.76 $10.69 861,006 $10.46
--------- ---- ------ ------------ ------
5,026,455 4.55 $ 7.46 2,974,865 $ 7.23
</TABLE>
47
<PAGE> 48
On December 15, 1998 a total of 1,729,306 options, none of which were for
the benefit of executive officers, were amended to reflect a reduction of the
exercise price to $10.00 per share. On the date of the amendment, the price of
Newpark's common stock was $5.63 per share.
The Amended and Restated Newpark Resources, Inc. 1988 Incentive Stock
Option Plan (the "1988 Plan") was adopted by the Board of Directors on June 22,
1988 and thereafter was approved by the stockholders. The 1988 Plan was amended
several times and provided for approximately 4,000,000 shares to be issuable
thereunder. Under the terms of the 1988 Plan, an option could not be granted for
an exercise price less than the fair market value on the date of grant and could
have a term of up to ten years. No future grants are available under the 1988
Plan.
The 1993 Non-Employee Directors' Stock Option Plan (the "1993
Non-Employee Directors' Plan") was adopted on September 1, 1993 by the Board of
Directors and, thereafter, was approved by the stockholders in 1994.
Non-employee directors are not eligible to participate in any other stock option
or similar plans currently maintained by the Company. The purpose of the 1993
Non-Employee Directors' Plan is to promote an increased incentive and personal
interest in the welfare of Newpark by those individuals who are primarily
responsible for shaping the long-range plans of Newpark, to assist Newpark in
attracting and retaining on the Board persons of exceptional competence and to
provide additional incentives to serve as a director of Newpark.
Prior to January 29, 1998, the 1993 Non-Employee Directors' Stock
Option Plan (the "Non-Employee Directors' Plan") provided that each non-employee
director who was serving on the Board of Directors on September 1, 1993, and
each new non-employee director who was first elected to the Board of Directors
after September 1, 1993, would be granted a stock option to purchase, at an
exercise price equal to the fair market value of the Common Stock on the date of
grant, 63,000 shares of common stock. The Non-Employee Directors' Plan also
provided that each time a non-employee director had served on the Board for a
period of five consecutive years, such director automatically would be granted a
stock option to purchase 42,000 shares of Common Stock, at an exercise price
equal to the fair market value of the Common Stock on the date of grant.
Effective January 29, 1998, the Non-Employee Directors' Plan was amended to
reduce the number of shares of Common Stock for which a stock option will be
granted to each non-employee director who is first elected a director after that
date from 63,000 shares to 10,000 shares of Common Stock. The Non-Employee
Directors' Plan also was amended to delete the provisions for the automatic
grant of additional stock options at five-year intervals and to provide instead
for automatic additional grants to each Non-Employee Director of stock options
to purchase 10,000 shares of Common Stock on January 29, 1998, and each time the
Non-Employee director is re-elected to the Board of Directors. These amendments
were approved by the stockholders on May 13, 1998.
On November 2, 1995, the Board of Directors adopted, and on June 12,
1996 the stockholders approved, the Newpark Resources, Inc. 1995 Incentive Stock
Option Plan (the "1995 Plan"), pursuant to which the Compensation Committee may
grant incentive stock options and nonstatutory stock options to designated
employees of Newpark. Initially, a maximum of 2,100,000 shares of Common Stock
were issuable under the 1995 Plan, with such maximum number increasing on the
last business day of each fiscal year of Newpark, commencing with the last
business day of the fiscal year ending December 31, 1996, by a number equal to
1.25% of the number of shares of Common Stock issued and outstanding on the
close of business on such date, with a maximum number of shares of Common Stock
that may be issued upon exercise of options granted under the 1995 Plan being
limited to 5,250,000.
48
<PAGE> 49
L. DEFERRED COMPENSATION PLAN
In March of 1997, the Company established a Long-Term Stock and Cash
Incentive Plan (the "Plan"). By policy, the Company has limited participation in
the Plan to certain key employees of companies acquired subsequent to inception
of the Plan. The intent of the Plan is to increase the value of the
stockholders' investment in the Company by improving the Company's performance
and profitability and to retain, attract and motivate key employees who are not
directors or officers of Newpark but whose judgment, initiative and efforts are
expected to contribute to the continued success, growth and profitability of the
Company.
Subject to the provisions of the Plan, a committee may (i) grant awards
pursuant to the Plan, (ii) determine the number of shares of stock or the amount
of cash or both subject to each award, (iii) determine the terms and conditions
(which need not be identical) of each award, provided that stock shall be issued
without the payment of cash consideration other than an amount equal to the par
value of the stock, (iv) establish and modify performance criteria for awards,
and (v) make all of the determinations necessary or advisable with respect to
awards under the Plan.
Each award under the Plan will consist of a grant of shares of stock or
an amount of cash (to be paid on a deferred basis) subject to a restriction
period (after which the restrictions shall lapse), which shall mean a period
commencing on the date the award is granted and ending on such date as the
committee shall determine (the "Restriction Period"). The committee may provide
for the lapse of restrictions in installments, for acceleration of the lapse of
restrictions upon the satisfaction of such performance or other criteria or upon
the occurrence of such events as the committee shall determine, and for the
early expiration of the Restriction Period upon a participant's death,
disability, retirement at or after normal retirement age or the termination of
the participant's employment with the Company by the Company without cause.
The maximum number of shares of common stock of Newpark that may be
issued pursuant to the Plan is 676,909, subject to adjustment pursuant to
certain provisions of the Plan. The maximum amount of cash that may be awarded
pursuant to the Plan is $1,500,000, and each such amount may be increased by the
Board of Directors. If shares of stock or the right to receive cash awarded or
issued under the Plan are reacquired by Newpark due to a forfeiture or for any
other reason, such shares or right to receive cash will be cancelled and
thereafter will again be available for purposes of the Plan. At December 31,
1999, 640,136 shares of common stock had been issued under the Plan and
$1,418,000 had been awarded.
M. SUPPLEMENTAL CASH FLOW INFORMATION
Included in accounts payable and accrued liabilities at December 31,
1999, 1998 and 1997, were equipment purchases of $1,326,000, $5,186,000, and
$3,632,000, respectively. Also included are notes payable for equipment
purchases in the amount of $434,000 and $83,000 for 1998 and 1997, respectively.
Interest of $18,063,000, $13,144,000 and $4,801,000, was paid in 1999,
1998 and 1997, respectively. Income tax refunds, net of payments, totaled
$11,191,000 for the year ended December 31, 1999. Income taxes of $9,991,000,
and $4,751,000 were paid in 1998 and 1997, respectively.
49
<PAGE> 50
N. COMMITMENTS AND CONTINGENCIES
Newpark and its subsidiaries are involved in litigation and other
claims or assessments on matters arising in the normal course of business. In
the opinion of management, any recovery or liability in these matters will not
have a material adverse effect on Newpark's consolidated financial statements.
In conjunction with the 1996 acquisition of Campbell Wells Ltd.
("Campbell"), Newpark became a party to a "NOW Disposal Agreement", pursuant to
which Newpark was required, for a period of 25 years following the acquisition,
to deliver to Campbell for disposal at its landfarm facilities an agreed annual
quantity of E&P Waste, and Campbell executed a Noncompetition Agreement under
which it agreed not to compete with Newpark in the marine-related E&P Waste
disposal business for five years. The landfarms are now operated by U.S.
Liquids, Inc. ("USL"), which also assumed Campbell's obligations under the
Noncompetition Agreement. During 1998, a dispute arose between the parties
concerning Newpark's obligations under the NOW Disposal Agreement. In September
1998, Newpark and USL settled their dispute by executing a Settlement Agreement
and a "Payment Agreement" under which, among other things, Newpark's contractual
commitment to deliver waste to USL's disposal facilities was terminated
immediately, and Newpark agreed to pay USL $30 million, $6 million of which was
paid in 1998, $11 million of which was paid in 1999, $9 million of which is to
be paid in 2000 and $4 million of which is to be paid in 2001. The payments to
be made in 2000 and 2001 are subject to increase based on the increase, if any,
in the Consumer Price Index between July 1, 1998 and January 3, 2000. As a
result of the change in the Consumer Price Index, in 2000 Newpark will pay a
total of $9.2 million to USL. Under the Payment Agreement, Newpark has the
right, but not the obligation, to deliver specified volumes of E&P Waste to
USL's facilities until June 30, 2001 without additional cost, and subject to
certain conditions, Newpark may extend this arrangement for two additional
one-year terms at an additional annual cost of $8 million, which is also subject
to increase based on increases in the Consumer Price Index. As part of the
settlement, Newpark agreed that USL may engage in the business of cleaning
tanks, barges, vessels, containers and similar structures used in the
transportation and storage of E&P Waste, and USL purchased from Newpark certain
equipment used by Newpark in such cleaning activities.
The Company is currently involved in proceedings with the Texas State
Comptroller of Public Accounts related to sales tax audits for the periods of
April 1988 through September 1995. The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on its
consolidated financial statements.
In the normal course of business, in conjunction with its insurance
programs, the Company has established letters of credit in favor of certain
insurance companies in the amount of $1,250,000 and $1,000,000 at December 31,
1999 and 1998, respectively. At December 31, 1999 and 1998, the Company had
outstanding guaranty obligations totaling $1,494,000 and $1,526,000,
respectively, in connection with facility closure bonds issued by an insurance
company.
Since May 1988, the Company has held the exclusive right to use a
patented prefabricated wooden mat system with respect to the oil and gas
exploration and production industry within the State of Louisiana. On June 20,
1994, the Company entered into a new license agreement by which it obtained the
exclusive right to use the same patented prefabricated mat system, without
industry restriction, throughout the continental United States. The license
agreement requires, among other things, that the Company purchase a minimum of
5,000 mats annually through 2003. The Company has met this annual mat purchase
requirement since the inception of the agreement. Any purchases in excess of
that level may be applied to future annual requirements. The Company's annual
commitment to maintain the agreement in force, absent any reductions resulting
from excess purchases, is currently estimated to be $3.7 million.
50
<PAGE> 51
Since July 1995, Newpark has held the exclusive worldwide right to use
a patented composite mat system. Production of these mats did not commence until
1998. The license agreement requires, among other things, that the Company
purchase a minimum of 5,000 mats annually. Any purchases in excess of that level
may be applied to future annual requirements. Newpark's annual commitment to
maintain the agreement in force is currently estimated to be $3,500,000.
The Company has guaranteed certain debt obligations of a joint venture
in which it holds a 49% interest, through the issuance of a letter of credit.
The guarantee is limited to $15 million, plus accrued interest. The joint
venture partner has obtained a commitment for the refinancing of its debt. The
pending transaction would not require a guarantee from the Company.
The Company leases various manufacturing facilities, warehouses, office
space, machinery and equipment, including transportation equipment and composite
mats, under operating leases with remaining terms ranging from one to ten years,
with various renewal options. Substantially all leases require payment of taxes,
insurance and maintenance costs in addition to rental payments. Total rental
expenses for all operating leases were $9,173,000, $10,731,000, and $5,993,000,
in 1999, 1998 and 1997, respectively.
Future minimum payments under noncancellable operating leases and
future minimum receipts under noncancellable subleases, with initial or
remaining terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
---------------------------------------------------
Net
Operating Operating Operating
Lease Sublease Lease
Payments Receipts Payments
------------------------------ --------- ---------
<S> <C> <C> <C>
2000 $10,854 $ 175 $10,679
2001 9,968 466 9,502
2002 9,407 466 8,941
2003 8,636 475 8,161
2004 8,113 498 7,615
2005 and thereafter 22,776 314 22,462
------- ------- -------
$69,754 $ 2,394 $67,360
======= ======= =======
</TABLE>
The Company is self-insured for health claims up to a certain policy
limit. Claims in excess of $100,000 per incident and approximately $4.8 million
in the aggregate per year are insured by third-party reinsurers. At December 31,
1999, the Company had accrued a liability of $900,000 for outstanding and
incurred, but not reported, claims based on historical experience.
O. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and trade accounts and notes receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located throughout the Company's
trade area and company policy is designed to limit exposure to any one
institution. As part of the Company's investment strategy, the Company performs
periodic evaluations of the relative credit standing of these financial
institutions.
51
<PAGE> 52
Concentrations of credit risk with respect to trade accounts and notes
receivable are generally limited due to the large number of entities comprising
the Company's customer base, and for notes receivable the required collateral.
The Company maintains an allowance for losses based upon the expected
collectibility of accounts and notes receivable.
P. SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarized financial information concerning the Company's
reportable segments has been restated to give effect to the reclassification of
results for the Company's solids control operations from a presentation as
discontinued operations to a presentation as part of continuing operations of
the fluids sales and engineering segment (see Note D).
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------
(In thousands, except per share amounts)
============================================================================================
<S> <C> <C> <C> <C>
FISCAL YEAR 1999 (AS RESTATED)
Revenues $ 52,779 $ 40,524 $ 50,921 $ 54,001
Operating income (loss) 4,546 (7,365) (2,460) (78,644)
Net income (loss) 2,029 (5,492) (8,218) (57,824)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
(In thousands, except per share amounts)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) per share
Basic:
Income (loss) before cumulative effects 0.01 (0.08) (0.12) (0.84)
Cumulative effect of accounting change 0.02 -- -- --
---------- ---------- ---------- ----------
Net income (loss) 0.03 (0.08) (0.12) (0.84)
Diluted:
Income (loss) before cumulative effects 0.01 (0.08) (0.12) (0.84)
Cumulative effect of accounting change 0.02 -- -- --
---------- ---------- ---------- ----------
Net income (loss) 0.03 (0.08) (0.12) (0.84)
Weighted average common and common
equivalent shares outstanding:
Basic 68,872 68,893 68,986 69,044
Diluted 69,185 68,893 68,986 69,044
FISCAL YEAR 1998 (AS RESTATED)
Revenues $ 72,404 $ 67,019 $ 62,899 $ 54,486
Operating income (loss) 19,571 16,807 (43,135) (75,736)
Net income (loss) 11,227 9,109 (32,882) (51,069)
Net income (loss) per share
Basic:
Income (loss) before cumulative effects 0.17 0.14 (0.47) (0.74)
Cumulative effect of accounting change -- -- (0.02) --
---------- ---------- ---------- ----------
Net income (loss) 0.17 0.14 (0.49) (0.74)
Diluted:
Income (loss) before cumulative effects 0.17 0.13 (0.47) (0.74)
Cumulative effect of accounting change -- -- (0.02) --
---------- ---------- ---------- ----------
Net income (loss) 0.17 0.13 (0.49) (0.74)
Weighted average common and common
equivalent shares outstanding:
Basic 65,364 66,448 67,605 68,775
Diluted 66,784 67,731 67,605 68,775
</TABLE>
52
<PAGE> 53
As further discussed in Note C, during the fourth quarter of 1999 and
the third and fourth quarters of 1998, the Company recorded significant charges
associated with asset write-downs and impairments, arbitration settlement, and
increases in the provision for uncollectible accounts. Also, included in the
fourth quarter of 1998 are charges to adjust certain inventories to physical
amounts and to account for differences in gross margins, primarily in the Fluids
Sales & Engineering segment, which were estimated during the interim periods of
1998. The total of these charges was $4,381,000 and is included in costs of
services provided.
Q. SEGMENT AND RELATED INFORMATION
The Company's three business units have separate management teams and
infrastructures that offer different products and services to a homogenous
customer base. The business units form the three reportable segments of E&P
Waste Disposal, Fluids Sales & Engineering and Mat & Integrated Services.
E&P Waste Disposal: This segment provides disposal services for both
oilfield exploration and production ("E&P") waste and E&P waste contaminated
with naturally occurring radioactive material. The primary method used for
disposal is low pressure injection into environmentally secure geologic
formations deep underground. The primary operations for this segment are in the
Gulf Coast market and customers include major multinational and independent oil
companies. This segment began operations of its non-hazardous industrial waste
disposal facility in 1999. Disposal of this type of waste could lead to an
expansion of Newpark's customer base and geographic service points for this
segment.
Fluids Sales & Engineering: This segment provides drilling fluids sales
and engineering services and onsite drilling fluids processing services. The
primary operation for this segment are in the Gulf Coast market. However, other
markets served by this segment include Oklahoma, Canada, and the Permian Basin.
Customers include major multinational, independent and national oil companies.
Mat & Integrated Services: This segment provides prefabricated
interlocking mat systems for the construction of drilling and work sites. In
addition, the segment provides fully-integrated onsite and offsite environmental
services, including site assessment, pit design, construction and drilling waste
management, and regulatory compliance services. The primary markets served
include the Gulf Coast market and Canada. The principal customers are major
national, independent and national oil companies. In addition, this segment
provides temporary work site services to the pipeline, electrical utility and
highway construction industries principally in the Southeastern portion of the
United States.
Newpark does not believe it is dependent on any one customer. During
the years ended December 31, 1999 and 1998 there were no sales to one customer
in excess of 10%. During the year ended December 31, 1997, one customer
accounted for approximately 10% of total revenues. This customer is a customer
of the Mat & Integrated Services segment. Export sales are not significant.
The following summarized financial information concerning the Company's
reportable segments has been restated to give effect to the reclassification of
results for the Company's solids control operations from a presentation as
discontinued operations to a presentation as part of continuing operations of
the fluids sales and engineering segment (see Note D).
53
<PAGE> 54
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
REVENUES (1)
E&P Waste Disposal $ 42,954 $ 58,457 $ 62,681
Fluids Sales & Engineering 100,467 104,142 69,227
Mat & Integrated Services 60,560 111,513 103,216
Eliminations (5,756) (17,304) (1,879)
--------- --------- ---------
Total Revenues $ 198,225 $ 256,808 $ 233,245
========= ========= =========
(1) Segment revenues include the following intersegment transfers:
E&P Waste Disposal $ -- $ 869 $ 380
Fluids Sales & Engineering 89 1,089 --
Mat & Integrated Services 5,667 15,346 1,499
--------- --------- ---------
Total Intersegment Transfers $ 5,756 $ 17,304 $ 1,879
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
OPERATING INCOME (LOSS):
Segment Operating Income (Loss)
E&P Waste Disposal $ 13,068 $ 19,014 $ 28,768
Fluids Sales & Engineering (14,237) (11,853) 12,688
Mat & Integrated Services (1,126) 10,059 28,354
--------- --------- ---------
Total Segment Operating Income $ (2,295) $ 17,220 $ 69,810
========= ========= =========
General and administrative expenses (2,589) (4,305) (3,185)
Goodwill amortization (4,996) (5,206) (2,683)
Provision for uncollectible accounts (2,853) (9,180) --
Write-down of abandoned and disposed assets (44,870) (52,266) --
Impairment of long-lived assets (23,363) -- --
Terminated merger expense (2,957) --
Arbitration settlement -- (27,463) --
Equity in net loss of unconsolidated affiliate -- (1,293) --
--------- --------- ---------
Total Operating Income (Loss) $(83,923) $ (82,493) $ 63,942
========= ========= =========
SEGMENT ASSETS
E&P Waste Disposal $ 154,097 $ 156,047 $ 149,746
Fluids Sales & Engineering 153,446 160,428 73,793
Mat & Integrated Services 77,292 136,737 173,303
Other 65,706 45,649 54,781
--------- --------- ---------
Total Assets $ 450,541 $ 498,861 $ 451,623
========= ========= =========
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C> <C> <C>
DEPRECIATION & AMORTIZATION
E&P Waste Disposal $ 5,452 $ 6,258 $ 5,371
Fluids Sales & Engineering 7,019 5,791 1,331
Mat & Integrated Services 14,305 25,822 19,617
Other 105 30 74
--------- --------- ---------
Total Depreciation & Amortization $ 26,881 $ 37,901 $ 26,393
========= ========= =========
CAPITAL EXPENDITURES
E&P Waste Disposal $ 14,241 $ 30,621 $ 20,816
Fluids Sales & Engineering 6,961 26,689 16,249
Mat & Integrated Services 19,295 47,335 42,296
Other -- 15 115
--------- --------- ---------
Total Capital Expenditures $ 40,497 $ 104,660 $ 79,476
========= ========= =========
</TABLE>
The following table sets forth information about the Company's
operations by geographic area:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
REVENUE
Domestic $ 176,033 $ 239,309 $ 230,684
International 22,192 17,499 2,561
--------- --------- ---------
Total Revenue $ 198,225 $ 256,808 $ 233,245
--------- --------- ---------
OPERATING INCOME (LOSS)
Domestic $ (76,660) $ (84,499) $ 63,949
International (7,263) 2,006 (7)
--------- --------- ---------
Total Operating Income (Loss) $ (83,923) $ (82,493) $ 63,942
========= ========= =========
ASSETS
Domestic $ 416,280 $ 465,237 $ 442,117
International 34,261 33,624 9,506
--------- --------- ---------
Total Assets $ 450,541 $ 498,861 $ 451,623
========= ========= =========
</TABLE>
55
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Reports of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997. Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997.
Consolidated Statement of Cash Flows for the years ended December 31,
1999, 1998 and 1997. Consolidated Statements of Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
3. EXHIBITS
3.1 Restated Certificate of Incorporation.(9)
3.2 Bylaws.(1)
4.1 Indenture, dated as of December 17, 1997, among the
registrant, each of the Guarantors identified therein and
State Street Bank and Trust Company, as Trustee.(2)
4.2 Form of the Newpark Resources, Inc. 8 5/8% Senior Subordinated
Notes due 2007, Series B.(2)
4.3 Form of Guarantees of the Newpark Resources, Inc. 8 % Senior
Subordinated Notes due 2007. (2)
10.1 Employment Agreement, dated as of October 23, 1990, between
the registrant and James D. Cole.(1)*
10.2 Lease Agreement, dated as of May 17, 1990, by and between
Harold F. Bean Jr. and Newpark Environmental Services, Inc.
("NESI").(1)
10.3 Lease Agreement, dated as of July 29, 1994, by and between
Harold F. Bean Jr. and NESI.(3)
56
<PAGE> 57
10.4 Building Lease Agreement, dated April 10, 1992, between the
registrant and The Traveler's Insurance Company.(4)
10.5 Building Lease Agreement, dated May 14, 1992, between State
Farm Life Insurance Company, and SOLOCO, Inc.(4)
10.6 Operating Agreement, dated June 30, 1993, between Goldrus
Environmental Services, Inc. and NESI.(3)
10.7 Amended and Restated 1993 Non-Employee Directors' Stock Option
Plan.(9)*
10.8 1995 Incentive Stock Option Plan.(5)*
10.9 Exclusive License Agreement, dated June 20, 1994, between
SOLOCO, Inc. and Quality Mat Company.(3)
10.10 Restated Credit Agreement, dated June 30, 1997, among the
registrant, as borrower, the subsidiaries of the registrant
named therein, as guarantors, and BankOne, Louisiana, National
Association, Deutsche Bank A.G., New York Branch and/or Cayman
Islands Branch and Hibernia National Bank, as banks (the
"Banks").(6)
10.11 First Amendment to Restated Credit Agreement, dated November
7, 1997, among the registrant, the subsidiaries of the
registrant named therein and the Banks.(7)
10.12 Second Amendment to Restated Credit Agreement, dated December
10, 1997, among the registrant, the subsidiaries of the
registrant named therein and the Banks.(7)
10.13 Third, Fourth, Fifth and Sixth Amendment to Restated Credit
Agreement, dated December 10, 1997, among the registrant, the
subsidiaries of the registrant named therein and the
Banks.(7)(9)
10.14 Credit Agreement, dated December 1, 1995, between SOLOCO,
Inc., and Hibernia National Bank.(5)
10.15 Now Disposal Agreement, dated June 4, 1996, among Sanifill,
Inc., Now Disposal Operating Co. and Campbell Wells, Ltd.(8)
10.16 Settlement of Arbitration and Release, dated July 22, 1998,
among the registrant and U.S. Liquids, Inc.(9)
10.17 Payment Agreement, dated December 31, 1998, among the
registrant, Newpark Environmental Services, Inc. and U.S.
Liquids, Inc.(9)
10.18 Option Agreement, dated December 31, 1998, among the
registrant, Newpark Environmental Services, Inc. and U.S.
Liquids, Inc.(9)
10.19 Asset Purchase Agreement, dated September 16, 1998 among
Newpark Environmental Services, Inc. and U.S. Liquids, Inc.(9)
10.20 Amendment to Asset Purchase Agreement, dated September 22,
1998 among Newpark Environmental Services, Inc. and U.S.
Liquids, Inc.(9)
10.21 Noncompetition Agreement of September 16, 1998, among the
registrant and U.S. Liquids, Inc.(9)
10.22 Miscellaneous Agreement, dated September 16, 1998, among the
registrant and U.S. Liquids, Inc.(9)
10.23 Operating Agreement of The Loma Company L.L.C.(9)
57
<PAGE> 58
10.24 Termination and Release Agreement, dated November 10, 1999,
between Tuboscope Inc. and the registrant. +
10.25 Asset Purchase Agreement, dated as of November 12, 1999, among
Tuboscope Inc., the registrant, Newpark Drilling Fluids, Inc.,
and Newpark Holdings, Inc., as amended on December 8, 1999. +
10.26 Alliance Agreement, dated as of February 3, 2000, among
Tuboscope Inc., Tuboscope Vetco International, Inc., the
registrant, Newpark Drilling Fluids, L.L.C., and Newpark
Environmental Services, L.L.C. +
10.27 Newpark Resources, Inc. 1999 Employee Stock Purchase Plan. +*
21.1 Subsidiaries of the Registrant+
23.1 Consent of Arthur Andersen LLP++
23.2 Consent of Deloitte & Touche LLP++
24.1 Powers of Attorney+
27.1 Financial Data Schedule++
--------------
+ Previously filed.
++ Filed herewith.
* Management Compensation Plan or Agreement.
(1) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-1 (File No. 33-40716) and incorporated by reference
herein.
(2) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-4 (File No. 333-45197) and incorporated by
reference herein.
(3) Previously filed in the exhibits to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1994, and incorporated by
reference herein.
(4) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-8 (File No. 33-83680) and incorporated by reference
herein.
(5) Previously filed in the exhibits to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein.
(6) Previously filed in the exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1997.
(7) Previously filed in the exhibits to the registrants Annual Report on
Form 10-K for the year ended December 31, 1997, and incorporated by
reference herein.
(8) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-3 (File No. 333-05805), and incorporated by
reference herein.
(9) Previously filed in the exhibits to the registrants Annual Report on
Form 10-K for the year ended December 31, 1997, and incorporated by
reference herein.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 24, 2000
NEWPARK RESOURCES, INC.
By: /s/ James D. Cole
-------------------------------------
James D. Cole, Chairman of the Board,
President and Chief Executive Officer
59
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation.(9)
3.2 Bylaws.(1)
4.1 Indenture, dated as of December 17, 1997, among the
registrant, each of the Guarantors identified therein and
State Street Bank and Trust Company, as Trustee.(2)
4.2 Form of the Newpark Resources, Inc. 8 5/8% Senior Subordinated
Notes due 2007, Series B.(2)
4.3 Form of Guarantees of the Newpark Resources, Inc. 8 % Senior
Subordinated Notes due 2007. (2)
10.1 Employment Agreement, dated as of October 23, 1990, between
the registrant and James D. Cole.(1)*
10.2 Lease Agreement, dated as of May 17, 1990, by and between
Harold F. Bean Jr. and Newpark Environmental Services, Inc.
("NESI").(1)
10.3 Lease Agreement, dated as of July 29, 1994, by and between
Harold F. Bean Jr. and NESI.(3)
</TABLE>
<PAGE> 61
<TABLE>
<S> <C>
10.4 Building Lease Agreement, dated April 10, 1992, between the
registrant and The Traveler's Insurance Company.(4)
10.5 Building Lease Agreement, dated May 14, 1992, between State
Farm Life Insurance Company, and SOLOCO, Inc.(4)
10.6 Operating Agreement, dated June 30, 1993, between Goldrus
Environmental Services, Inc. and NESI.(3)
10.7 Amended and Restated 1993 Non-Employee Directors' Stock Option
Plan.(9)*
10.8 1995 Incentive Stock Option Plan.(5)*
10.9 Exclusive License Agreement, dated June 20, 1994, between
SOLOCO, Inc. and Quality Mat Company.(3)
10.10 Restated Credit Agreement, dated June 30, 1997, among the
registrant, as borrower, the subsidiaries of the registrant
named therein, as guarantors, and BankOne, Louisiana, National
Association, Deutsche Bank A.G., New York Branch and/or Cayman
Islands Branch and Hibernia National Bank, as banks (the
"Banks").(6)
10.11 First Amendment to Restated Credit Agreement, dated November
7, 1997, among the registrant, the subsidiaries of the
registrant named therein and the Banks.(7)
10.12 Second Amendment to Restated Credit Agreement, dated December
10, 1997, among the registrant, the subsidiaries of the
registrant named therein and the Banks.(7)
10.13 Third, Fourth, Fifth and Sixth Amendment to Restated Credit
Agreement, dated December 10, 1997, among the registrant, the
subsidiaries of the registrant named therein and the
Banks.(7)(9)
10.14 Credit Agreement, dated December 1, 1995, between SOLOCO,
Inc., and Hibernia National Bank.(5)
10.15 Now Disposal Agreement, dated June 4, 1996, among Sanifill,
Inc., Now Disposal Operating Co. and Campbell Wells, Ltd.(8)
10.16 Settlement of Arbitration and Release, dated July 22, 1998,
among the registrant and U.S. Liquids, Inc.(9)
10.17 Payment Agreement, dated December 31, 1998, among the
registrant, Newpark Environmental Services, Inc. and U.S.
Liquids, Inc.(9)
10.18 Option Agreement, dated December 31, 1998, among the
registrant, Newpark Environmental Services, Inc. and U.S.
Liquids, Inc.(9)
10.19 Asset Purchase Agreement, dated September 16, 1998 among
Newpark Environmental Services, Inc. and U.S. Liquids, Inc.(9)
10.20 Amendment to Asset Purchase Agreement, dated September 22,
1998 among Newpark Environmental Services, Inc. and U.S.
Liquids, Inc.(9)
10.21 Noncompetition Agreement of September 16, 1998, among the
registrant and U.S. Liquids, Inc.(9)
10.22 Miscellaneous Agreement, dated September 16, 1998, among the
registrant and U.S. Liquids, Inc.(9)
10.23 Operating Agreement of The Loma Company L.L.C.(9)
</TABLE>
<PAGE> 62
<TABLE>
<S> <C>
10.24 Termination and Release Agreement, dated November 10, 1999,
between Tuboscope Inc. and the registrant. +
10.25 Asset Purchase Agreement, dated as of November 12, 1999, among
Tuboscope Inc., the registrant, Newpark Drilling Fluids, Inc.,
and Newpark Holdings, Inc., as amended on December 8, 1999. +
10.26 Alliance Agreement, dated as of February 3, 2000, among
Tuboscope Inc., Tuboscope Vetco International, Inc., the
registrant, Newpark Drilling Fluids, L.L.C., and Newpark
Environmental Services, L.L.C. +
10.27 Newpark Resources, Inc. 1999 Employee Stock Purchase Plan. +*
21.1 Subsidiaries of the Registrant+
23.1 Consent of Arthur Andersen LLP++
23.2 Consent of Deloitte & Touche LLP++
24.1 Powers of Attorney+
27.1 Financial Data Schedule++
</TABLE>
--------------
+ Previously filed.
++ Filed herewith.
* Management Compensation Plan or Agreement.
(1) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-1 (File No. 33-40716) and incorporated by reference
herein.
(2) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-4 (File No. 333-45197) and incorporated by
reference herein.
(3) Previously filed in the exhibits to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1994, and incorporated by
reference herein.
(4) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-8 (File No. 33-83680) and incorporated by reference
herein.
(5) Previously filed in the exhibits to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, and incorporated by
reference herein.
(6) Previously filed in the exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1997.
(7) Previously filed in the exhibits to the registrants Annual Report on
Form 10-K for the year ended December 31, 1997, and incorporated by
reference herein.
(8) Previously filed in the exhibits to the registrant's Registration
Statement on Form S-3 (File No. 333-05805), and incorporated by
reference herein.
(9) Previously filed in the exhibits to the registrants Annual Report on
Form 10-K for the year ended December 31, 1997, and incorporated by
reference herein.
