<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 Commission File No. 1-2960
NEWPARK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1123385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3850 N. CAUSEWAY, SUITE 1770
METAIRIE, LOUISIANA 70002
(Address of principal executive offices) (Zip Code)
(504) 838-8222
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $0.01 par value: 69,164,540 shares at August 4, 2000.
Page 1 of 25
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
June 30, 2000
<TABLE>
<CAPTION>
Item Page
Number Description Number
------ ----------- ------
<S> <C> <C>
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets as of June 30, 2000 and
December 31, 1999 ..................................... 3
Statements of Operations for the Three Month and Six Month
Periods Ended June 30, 2000 and 1999 .................. 4
Statements of Comprehensive Income for the Six Month
Periods Ended June 30, 2000 and 1999 .................. 5
Statements of Cash Flows for the Six Month Periods
Ended June 30, 2000 and 1999 .......................... 6
Notes to Unaudited Consolidated Financial Statements ........ 7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................12
PART II
6 Exhibits and Reports on Form 8-K .............................................24
</TABLE>
2
<PAGE> 3
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands, except share data) 2000 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,109 $ 4,517
Accounts and notes receivable, less allowance
of $9,148 in 2000 and $8,936 in 1999 58,191 54,447
Inventories 22,771 17,524
Current taxes receivable 199 165
Deferred tax asset 9,917 10,463
Net current assets of discontinued operations 1,092 3,109
Other current assets 8,758 8,602
------------- -------------
TOTAL CURRENT ASSETS 105,037 98,827
Property, plant and equipment, at cost, net of
accumulated depreciation 166,996 166,603
Cost in excess of net assets of purchased businesses,
net of accumulated amortization 113,630 116,465
Deferred tax asset 32,420 33,595
Other assets 35,159 34,701
------------- -------------
$ 453,242 $ 450,191
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 76 $ 627
Current maturities of long-term debt 497 991
Accounts payable 18,428 29,232
Accrued liabilities 12,345 14,103
Arbitration settlement payable 4,816 5,630
------------- -------------
TOTAL CURRENT LIABILITIES 36,162 50,583
Long-term debt 196,341 209,210
Arbitration settlement payable -- 2,451
Other non-current liabilities 1,452 1,608
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, 270,000 shares outstanding 39,769 13,009
Common Stock, $.01 par value, 100,000,000 shares
authorized, 69,162,859 shares outstanding in 2000
and 69,079,243 in 1999 692 690
Paid-in capital 330,315 322,724
Unearned restricted stock compensation (2,923) (3,838)
Accumulated other comprehensive income (loss) (365) 250
Retained deficit (148,201) (146,496)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 219,287 186,339
------------- -------------
$ 453,242 $ 450,191
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE> 4
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Month Periods Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
(In thousands, except per share data) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 60,202 $ 39,268 $ 116,766 $ 90,043
Operating costs and expenses:
Cost of services provided 36,200 28,096 70,917 60,660
Operating costs 14,606 14,718 28,570 26,165
--------- --------- --------- ---------
50,806 42,814 99,487 86,825
General and administrative expenses 696 671 1,651 1,161
Goodwill amortization 1,242 1,362 2,490 2,533
--------- --------- --------- ---------
Operating income (loss) 7,458 (5,579) 13,138 (476)
Interest income (236) (232) (458) (530)
Interest expense 4,757 4,042 9,350 8,019
--------- --------- --------- ---------
Income (loss) from continuing operations
income taxes and cumulative effect of
accounting change 2,937 (9,389) 4,246 (7,965)
Provision for income taxes (benefit) 1,175 (5,229) 1,710 (4,701)
--------- --------- --------- ---------
Income from continuing operations before
cumulative effect of accounting change 1,762 (4,160) 2,536 (3,264)
Loss from discontinued operations of solids
control business, (less applicable income taxes) -- (1,082) -- (1,420)
--------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change 1,762 (5,242) 2,536 (4,684)
Cumulative effect of accounting change,
(less applicable income taxes) -- -- -- 1,471
--------- --------- --------- ---------
Net income (loss) before effects of preferred stock 1,762 (5,242) 2,536 (3,213)
Less:
Preferred stock dividends and accretion 413 250 713 250
Non-cash conversion feature at preferred stock issuance 3,529 -- 3,529 --
--------- --------- --------- ---------
Net loss applicable to common and common
equivalent shares $ (2,180) $ (5,492) $ (1,706) $ (3,463)
========= ========= ========= =========
Weighted average common and common equivalent shares outstanding:
Basic 69,127 68,893 69,111 68,883
========= ========= ========= =========
Diluted 69,127 68,893 69,111 68,883
========= ========= ========= =========
Income (loss) per common and common equivalent share
BASIC:
Continuing operations before effects of preferred stock $ 0.03 $ (0.06) $ 0.04 $ (0.05)
Preferred stock dividends and accretion (0.01) (0.00) (0.01) (0.00)
Non-cash conversion feature at preferred stock issuance (0.05) 0.00 (0.05) 0.00
--------- --------- --------- ---------
Continuing operations (0.03) (0.06) (0.02) (0.05)
Discontinued operations 0.00 (0.02) 0.00 (0.02)
Cumulative effect of accounting change 0.00 0.00 0.00 0.02
--------- --------- --------- ---------
Net loss $ (0.03) $ (0.08) $ (0.02) $ (0.05)
========= ========= ========= =========
DILUTED:
Continuing operations before effects of preferred stock $ 0.03 $ (0.06) $ 0.04 $ (0.05)
Preferred stock dividends and accretion (0.01) (0.00) (0.01) (0.00)
Non-cash conversion feature at preferred stock issuance (0.05) 0.00 (0.05) 0.00
--------- --------- --------- ---------
Continuing operations (0.03) (0.06) (0.02) (0.05)
Discontinued operations 0.00 (0.02) 0.00 (0.02)
Cumulative effect of accounting change 0.00 0.00 0.00 0.02
--------- --------- --------- ---------
Net loss $ (0.03) $ (0.08) $ (0.02) $ (0.05)
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
<PAGE> 5
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Month Periods Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) 2000 1999
---------- ----------
<S> <C> <C>
Net income (loss) $ 2,536 $ (3,213)
Other comprehensive income (loss):
Foreign currency translation adjustments (615) 811
---------- ----------
Comprehensive income (loss) $ 1,921 $ (2,402)
========== ==========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE> 6
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
(In thousands ) 2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,536 $ (3,213)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 11,158 14,779
Provision for deferred income taxes 1,721 (5,624)
Cumulative effect of accounting change -- (1,471)
Other (227) (420)
Change in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts and notes receivable (5,067) 11,590
Decrease (increase) in inventories (5,247) 183
Decrease in other assets 1,628 11,384
Decrease in accounts payable (11,501) (10,385)
Decrease in accrued liabilities and other (5,291) (6,671)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (10,290) 10,152
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,723) (22,990)
Proceeds from disposal of property, plant and equipment 745 103
Payments received on notes receivable 540 1,203
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (6,438) (21,684)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock offering 29,800 15,000
Net payments on lines of credit (12,868) (12,650)
Proceeds from equipment leasing -- 9,320
Principal payments on notes payable and long-term debt (1,043) (970)
Proceeds from exercise of stock options 431 101
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,320 10,801
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (408) (731)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,517 6,618
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 4,109 $ 5,887
========== ==========
</TABLE>
Included in accounts payable and accrued liabilities at June 30, 2000 and 1999
were equipment purchases of approximately $2.0 million and $1.1 million,
respectively.
Interest of $9.6 million and $8.6 million was paid during the six months ending
June 30, 2000 and 1999, respectively. Income taxes paid, net of refunds, totaled
$145,000 for the six months ending June 30, 2000. Income tax refunds, net of
payments, totaled $12.2 million for the six months ending June 30, 1999.
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
<PAGE> 7
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to present fairly the
financial position of Newpark Resources, Inc. ("Newpark" or the "Company") as of
June 30, 2000, and the results of its operations and its cash flows for the
three month and six month periods ended June 30, 2000 and 1999. All such
adjustments are of a normal recurring nature. These interim financial statements
should be read in conjunction with the December 31, 1999 audited financial
statements and related notes filed on Form 10-K. The results of operations for
the three month and six month periods ended June 30, 2000 are not necessarily
indicative of the results to be expected for the entire year.
Results for the three month and six month periods ended June 30, 1999
have been restated to reflect the discontinuation of operations of the Company's
solids control business in September 1999. Certain reclassifications of prior
period amounts have been made to conform to the current period presentation.
B. PREFERRED STOCK OFFERING
On June 1, 2000, the Company completed the sale to Fletcher
International Limited, a Cayman Islands company affiliated with Fletcher Asset
Management, Inc. ("Purchaser"), of 120,000 shares of Series B Convertible
Preferred Stock, $0.01 par value per share (the "Series B Preferred Stock"), and
a warrant (the "Warrant") to purchase up to 1,900,000 shares of the Common Stock
of Newpark at an exercise price of $10.075 per share, subject to anti-dilution
adjustments. The Warrant has a term of seven years, expiring June 1, 2007. There
are no redemption features to the Series B Preferred Stock. The aggregate
purchase price for these instruments was $30.0 million, of which approximately
$17.9 million was allocated to the Series B Preferred Stock and approximately
$12.1 million to the Warrant. The net proceeds from the sale have been used to
repay indebtedness. No underwriting discounts or commissions were paid in
connection with the sale of the securities.
Cumulative dividends are payable on the Series B Preferred Stock
quarterly in arrears. The dividend rate is 4.5% per annum, based on the stated
value of $250 per share of Series B Preferred Stock. Dividends payable on the
Series B Preferred Stock may be paid at the option of Newpark either in cash or
by issuing shares of Newpark's Common Stock that have been registered under the
Securities Act of 1933, as amended (the "Act"). The number shares of Common
Stock of Newpark to be issued as dividends is determined by dividing the cash
amount of the dividend otherwise payable by the market value of the Common Stock
determined in accordance with the provisions of the certificate relating to the
Series B Preferred Stock. If Newpark fails to pay any dividends when due, these
dividends will accumulate and accrue additional dividends at the then existing
dividend rate. The dividend rights of the Series B Preferred Stock are junior to
the dividend rights of the holders of the 150,000 shares of Newpark's Series A
Cumulative Perpetual Preferred Stock (the "Series A Preferred Stock").
7
<PAGE> 8
So long as shares of the Series B Preferred Stock are outstanding, no
dividends may be paid on the Common Stock or any other securities of Newpark
ranking junior to the Series B Preferred Stock with respect to dividends and
distributions on liquidation ("Junior Securities"), except for dividends payable
solely in shares of Common Stock. Subject to certain exceptions, no shares of
Junior Securities or securities of Newpark having a priority equal to the Series
B Preferred Stock with respect to dividends and distributions on liquidation may
be purchased or otherwise redeemed by Newpark unless all accumulated dividends
on the Series B Preferred Stock have been paid in full.
The holders of the Series B Preferred Stock have the right to convert
all or any part of the Series B Preferred Stock into Common Stock at a
conversion rate based on the then current market value of the Common Stock, or
$10.075 per share of Common Stock, whichever is less. For purposes of any
conversion, each share of Series B Preferred Stock will have a value equal to
its stated value, plus any accrued and unpaid dividends.
The agreement pursuant to which the Series B Preferred Stock and the
Warrant were issued (the "Agreement") requires Newpark to use its best efforts
to register under the Act all of the shares of Common Stock issuable upon
exercise of the Warrant and 1.5 times the number of shares of Common Stock
issuable as of the effective date of the registration statement upon conversion
of the Series B Preferred Stock or as dividends on the Series B Preferred Stock.
Newpark will be required to increase the number of shares registered under the
registration statement if the total number of shares of Common Stock issued and
issuable under the Warrant and with respect to the Series B Preferred Stock
exceeds 80% of the number of shares then registered. The registration statement
will initially cover approximately 8,000,000 shares of Common Stock.
As required by EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios",
during the quarter the Company recorded a one-time adjustment of $3.5 million
($.05 per share) to the Company's equity accounts to reflect the value assigned
to the conversion feature of the preferred stock at the date of issuance. This
adjustment did not have any effect on the Company's operating results or total
equity. The affect of this adjustment is presented as a dividend in the
accompanying financial statements; however, the Company issued no additional
shares or cash.
C. EARNINGS PER SHARE
Basic net income (loss) per share was calculated by dividing net income
by the weighted-average number of common shares outstanding during the period.
Options and warrants excluded from the computation of diluted loss per share
for the quarters ended June 30, 2000 and 1999 that could potentially dilute
basic EPS in the future were 7,513,842 and 5,731,489, respectively. Options and
warrants excluded from the computation of diluted loss per common share for the
six months ended June 30, 2000 and 1999 were 7,435,564 and 4,403,218,
respectively.
Since the Company incurred a loss per share for the periods presented
all effects of options and warrants were excluded from the calculations of loss
per share for these periods.
D. ACCOUNTS AND NOTES RECEIVABLE
Included in current accounts and notes receivable at June 30, 2000 and
December 31, 1999 are:
8
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<TABLE>
<CAPTION>
(In thousands) 2000 1999
------------ ------------
<S> <C> <C>
Trade receivables $ 62,343 $ 56,692
Unbilled revenues 1,702 2,874
------------ ------------
Gross trade receivables 64,045 59,566
Allowance for doubtful accounts (9,148) (8,936)
------------ ------------
Net trade receivables 54,897 50,630
Notes and other receivables 3,294 3,817
------------ ------------
Total $ 58,191 $ 54,447
============ ============
</TABLE>
E. INVENTORY
The Company's inventory consisted of the following items at June 30,
2000 and December 31, 1999:
<TABLE>
<CAPTION>
(In thousands) 2000 1999
------------ ------------
<S> <C> <C>
Drilling fluids raw materials
and components $ 13,980 $ 13,062
Composite mats 4,354 --
Logs 3,149 3,338
Supplies 452 724
Other 836 400
------------ ------------
Total $ 22,771 $ 17,524
============ ============
</TABLE>
F. LONG-TERM DEBT
As of June 30, 2000, the Company has outstanding $125 million of
unsecured senior subordinated notes (the "Notes") which mature on December 15,
2007. Interest on the Notes accrues at the rate of 8-5/8% per annum and is
payable semi-annually on June 15 and December 15.
As of June 30, 2000, the Company also maintained a $100.0 million bank
credit facility, including up to $20.0 million in standby letters of credit, in
the form of a revolving line of credit commitment, which expires December 31,
2001. At June 30, 2000, $15.8 million in letters of credit were issued and
outstanding under the credit facility and $70.6 million was outstanding under
the revolving facility, leaving $13.9 million of availability under this
facility at June 30, 2000. The facility bears interest at either a specified
prime rate (9.5% at June 30, 2000) or the LIBOR rate (6.79% at June 30, 2000)
plus a spread determined quarterly based on the ratio of the Company's funded
debt to cash flow. The current interest rate under the credit facility is prime
plus .75% (10.25% at August 4, 2000) or LIBOR plus 3.25% (9.96% at August 4,
2000). The weighted average interest rate on the outstanding balance under the
credit facility for the second quarter of 2000 and 1999 was 9.57% and 7.76%,
respectively. The weighted average interest rate on the outstanding balance
under the credit facility for the first six months of 2000 and 1999 was 9.26%
and 7.44%, respectively. The Company was in compliance with all financial
covenants of the amended credit facility as of June 30, 2000.
The Notes do not contain any financial covenants; however, if the
Company does not meet the financial covenants of the credit facility and is
unable to obtain an amendment
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from the banks, the Company would be in default of the credit facility which
would cause the Notes to be in default. The Notes and the credit facility also
contain covenants that significantly limit the payment of dividends on the
common stock of the Company.
G. SEGMENT DATA
Summarized financial information concerning the Company's reportable
segments is shown in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30, Change
----------------------------- ------------------------------
2000 1999 $ %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 13,775 $ 9,933 $ 3,842 39%
Fluids sales & engineering 30,386 17,539 12,847 73
Mat & integrated services 16,041 11,796 4,245 36
------------ ------------ ------------
Total $ 60,202 $ 39,268 $ 20,934 53%
============ ============ ============
Operating income (loss) by segment:
E&P waste disposal $ 4,426 $ 3,064 $ 1,362 44%
Fluids sales & engineering 2,178 (5,184) 7,362 NM
Mat & integrated services 2,792 (1,426) 4,218 NM
------------ ------------ ------------
Total by segment 9,396 (3,546) 12,942 NM
General and administrative expenses 696 671 25 4
Goodwill amortization 1,242 1,362 (120) (9)
------------ ------------ ------------
Total operating income $ 7,458 $ (5,579) $ 13,037 NM%
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, Change
----------------------------- ------------------------------
2000 1999 $ %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 26,237 $ 20,767 $ 5,470 26%
Fluids sales & engineering 59,020 39,089 19,931 51
Mat & integrated services 31,509 30,187 1,322 4
------------ ------------ ------------
Total $ 116,766 $ 90,043 $ 26,723 30%
============ ============ ============
Operating income (loss) by segment:
E&P waste disposal $ 8,111 $ 6,881 $ 1,230 18%
Fluids sales & engineering 3,929 (5,073) 9,002 NM
Mat & integrated services 5,239 1,410 3,829 272
------------ ------------ ------------
Total by segment 17,279 3,218 14,061 437
General and administrative expenses 1,651 1,161 490 42
Goodwill amortization 2,490 2,533 (43) (2)
------------ ------------ ------------
Total operating income $ 13,138 $ (476) 13,614 NM%
============ ============ ============
</TABLE>
The figures above are shown net of intersegment transfers.
10
<PAGE> 11
H. ESTIMATES AND RESERVES FOR ASSETS DISPOSED OR ABANDONED
In the fourth quarter of 1999, the Company recorded charges associated
with the reassessment of its operations in response to changes in market
conditions and the introduction of new products and services. Included in these
charges were several estimates of amounts to be realized on the sale of certain
assets and accruals for mat disposal costs. There were no material adjustments
to the estimated recoverable amounts during the first six months of 2000. In
addition, approximately $463,000 of previously accrued mat disposal costs were
incurred during the first six months of 2000 in connection with the completion
of mat disposal activities.
I. CHANGE IN METHOD OF ACCOUNTING FOR DEPRECIATION
The Company computes the provision for depreciation on certain of its
E&P waste and NORM disposal assets and its barite grinding mills using the
unit-of-production method. The unit-of-production method of providing for
depreciation on these assets was adopted in the second quarter of 1999,
effective January 1, 1999. Prior to 1999, the Company computed the provision for
depreciation of these assets on a straight-line basis.
The reported income for the six months ended June 30, 1999 was
increased by $1,471,000 (related per share amounts of $.02 basic and diluted)
reflecting the cumulative effect (net of income taxes) on years prior to 1999
for the change in accounting for depreciation.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition, results of
operations, liquidity and capital resources should be read together with our
"Unaudited Consolidated Financial Statements" and "Notes to Unaudited
Consolidated Financial Statements" as well as our annual report on form 10-K for
the year ended December 31, 1999.
RESULTS OF OPERATIONS
Our operating results depend primarily on the level of oil and gas
drilling activity in the markets we serve. These levels in turn depend, to a
great extent, on oil and gas commodities pricing, inventory levels and product
demand. Key average rig count data for the last several quarters is listed in
the following table:
<TABLE>
<CAPTION>
1Q99 2Q99 3Q99 4Q99 1Q00 2Q00
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Rig Count 551 521 637 773 770 845
Newpark's primary Gulf Coast market 185 172 183 213 223 240
Newpark's primary market to total 33.6% 33.0% 28.7% 27.6% 29.0% 28.4%
Canadian Rig Count 290 104 253 337 480 245
</TABLE>
----------
Source: Baker Hughes Incorporated
Our primary Gulf Coast market, which accounted for approximately 75% of
revenues for the first six months of 2000, 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 August 4, 2000, the U.S. rig count was 981, with 279 rigs,
or 28.4%, within our primary market. The quarterly fluctuations in the Canadian
rig count generally reflect the seasonal nature of drilling activity related to
drilling site access issues. As of the week ended August 4, 2000, the Canadian
rig count was 335.
Average crude oil and natural gas prices for the last several quarters
is listed in the following table:
<TABLE>
<CAPTION>
1Q99 2Q99 3Q99 4Q99 1Q00 2Q00
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
West Texas Intermediate Crude ($/bbl) $ 13.17 $ 17.66 $ 21.72 $ 24.52 $ 28.91 $ 28.95
U.S. Spot Natural Gas ($/mcf) $ 1.80 $ 2.24 $ 2.55 $ 2.48 $ 2.63 $ 3.67
</TABLE>
----------
Source: Wall Street Journal
Since the first quarter of 1999, we have seen steady improvement in
crude oil and natural gas prices, which continued into the second quarter of
2000. With the improvement in oil and gas prices in the second half of 1999, the
average rig activity increased for the first time in six quarters during the
third quarter of 1999. The increase in rig activity has continued through the
second quarter of 2000, but has trailed the recovery in oil and gas prices.
During 2000, gas storage levels reached their lowest point in over
three years, and current industry forecasts reflect a stable to growing demand
for natural gas. In addition, current productive gas reserves are being depleted
at a rate faster than current
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<PAGE> 13
replacement through drilling activities. Accordingly, we believe that gas
drilling activity will increase over current levels. Because many shallow fields
in the Gulf Coast market have been exploited, producers are expected to increase
the depth of drilling to reach larger gas reserves. As such, we expect gas
drilling activity to be increasingly associated with deeper, more costly wells.
Operating results for the quarter and six months ended June 30, 1999
have been restated to give effect to our discontinuing the operations of our
solids control business effective September 1999 and to reflect the cumulative
effect of an accounting change effective January 1, 1999. Summarized financial
information concerning our reportable segments for the three month and six month
periods ended June 30, 2000 and 1999 is shown below:
<TABLE>
<CAPTION>
Three Months Ended
June 30, Change
----------------------------- ------------------------------
2000 1999 $ %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 13,775 $ 9,933 $ 3,842 39%
Fluids sales & engineering 30,386 17,539 12,847 73
Mat & integrated services 16,041 11,796 4,245 36
------------ ------------ ------------
Total $ 60,202 $ 39,268 $ 20,934 53%
============ ============ ============
Operating income (loss) by segment:
E&P waste disposal $ 4,426 $ 3,064 $ 1,362 44%
Fluids sales & engineering 2,178 (5,184) 7,362 NM
Mat & integrated services 2,792 (1,426) 4,218 NM
------------ ------------ ------------
Total by segment 9,396 (3,546) 12,942 NM
General and administrative expenses 696 671 25 4
Goodwill amortization 1,242 1,362 (120) (9)
------------ ------------ ------------
Total operating income $ 7,458 $ (5,579) $ 13,037 NM%
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, Change
----------------------------- ------------------------------
2000 1999 $ %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues by segment:
E&P waste disposal $ 26,237 $ 20,767 $ 5,470 26%
Fluids sales & engineering 59,020 39,089 19,931 51
Mat & integrated services 31,509 30,187 1,322 4
------------ ------------ ------------
Total $ 116,766 $ 90,043 $ 26,723 30%
============ ============ ============
Operating income (loss) by segment:
E&P waste disposal $ 8,111 $ 6,881 $ 1,230 18%
Fluids sales & engineering 3,929 (5,073) 9,002 NM
Mat & integrated services 5,239 1,410 3,829 272
------------ ------------ ------------
Total by segment 17,279 3,218 14,061 437
General and administrative expenses 1,651 1,161 490 42
Goodwill amortization 2,490 2,533 (43) (2)
------------ ------------ ------------
Total operating income $ 13,138 $ (476) $ 13,614 NM%
============ ============ ============
</TABLE>
The figures above are shown net of intersegment transfers
13
<PAGE> 14
QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999
Revenues
E&P Waste Disposal: The $3.8, million or 39%, increase in waste disposal revenue
is attributable to the increase in waste volumes received resulting from
increases in drilling activity. Drilling rig activity in our primary gulf coast
market increased 40% during the second quarter of 2000, compared to the same
period in 1999. During the second quarter of 2000, we received 1,062,000 barrels
of E&P waste, compared to 794,000 barrels in the comparable quarter of 1999, a
34% increase. Pricing increased slightly during the comparable periods. Revenues
for the quarter ended June 30, 2000 included $258,000 from nonhazardous
industrial disposal operations, which began in August 1999.
In recent weeks, we have seen an increase in activity in the
environmentally sensitive South Louisiana Transition Zone, which should
translate into future revenue growth if the trend continues. This development is
important to us, since a Transition Zone drilling rig generates five to six
times the waste volume of other, less tightly regulated markets. In addition, we
are presently working with our customers to implement a 4% price increase, which
we expect to be fully implemented by the end of the fourth quarter. This price
increase is in response to increases in certain operating costs.
Fluids Sales and Engineering: The $12.8 million, or 73%, increase in drilling
fluids revenue is primarily attributable to the increase in drilling activity.
In addition, the drilling fluids segment continued to gain market share in the
markets that it serves. During the second quarter of 2000, we serviced an
average of 129 rigs, compared to 76 rigs in the second quarter of 1999. The
average annualized revenue per rig was approximately $944,000 in the second
quarter of 2000, compared to $924,000 for the second quarter of 1999. We are
presently working with our customers to implement an average price increase of
5%-6%, which we expect to be fully implemented by the end of the fourth quarter.
Many of our drilling fluids customers are independent operators that
are active in the inland waters and the shelf of the Gulf of Mexico markets. In
recent weeks these areas have seen an increase in activity. Drilling in these
markets usually involves more complicated drilling programs resulting in greater
amounts of drilling fluids sales and engineering services as compared to other
land drilling markets.
Mat and Integrated Services: The $4.2 million, or 36%, increase in mat and
integrated services revenues is due to both an increase in pricing and an
increase in volume of mat locations, due to an increase in drilling activity and
expansion of Canadian operations. The average price per square foot was $0.72 in
the second quarter of 2000, compared to $0.56 in the second quarter of 1999. The
average pricing in both periods has been negatively impacted by the lack of
Transition Zone work, which tends to earn a premium in pricing for mat locations
as compared to other, more accessible locations. We have not yet seen a
significant increase in mat locations for drilling in the Transition Zone
market; however, we do have indication from our customers that this market will
be more active during the remainder of the year. Should this occur, it would
have a positive impact on both revenues and operating margins for this segment.
14
<PAGE> 15
Our mat system has experienced improved acceptance in Canada. Canadian
mat revenues were $1.8 million in the second quarter of 2000, compared to
$402,000 for the second quarter of 1999. In addition, we are continuing to
pursue the military, governmental and commercial markets for sales of our
composite mat system. We continue to believe that our efforts in this new market
should begin to show positive results later in the year and we have begun to
build an inventory of composite mats for sales.
Operating Income
E&P Waste Disposal: The $1.4 million increase in waste disposal operating income
represents a 44% increase from the prior year period and an incremental margin
of 35%. The incremental margin for this segment, exclusive of our industrial
disposal division, was 41%. Total segment results were impacted by a small loss
in our industrial disposal division, which reported revenues of $258,000 in the
second quarter of 2000 at slightly below a break-even level. Increases in
certain operating costs, including barge rental, maintenance (in particular at
our west Texas operations), personnel, fuel and utility costs, also negatively
impacted the incremental margin for this segment. In addition, the mix of waste
received during the quarter ended June 30, 2000 included a greater percentage of
products that required special handling and processing costs that were unusual
in nature, resulting in a lower than expected incremental margin.
As noted above, we are in the process of implementing a 4% price
increase. This price increase, along with the abatement of cost increases are
expected to improve the incremental margins for this segment over the remainder
of the year.
Fluids Sales and Engineering: The $7.4 million increase in fluids sales and
engineering operating income is due to the increase in revenue of $12.9 million
and an improvement in the mix of product sales. The operating margin for the
quarter ended June 30, 1999 was burdened by the inclusion of site closure and
related costs of approximately $2.6 million. Excluding the effects of these site
closure costs in the prior year, operating income in this segment increased $4.8
million, representing an incremental margin of 37%.
The operating margin of the drilling fluids segment is affected by the
mix of products sold. There is a significant difference in the gross margins
recognized on commodity products, primarily barite, and those recognized for
specialty products. We expect to recognize the benefits of newly introduced
products such as DeepDrill(TM) and other specialty products as these products
gain wider customer acceptance. We expect to obtain better margins on commodity
products as market activity increases due to improved pricing and lower product
costs. In addition, as noted above, we are working to implement a 5%-6% price
increase over the remainder of 2000. The positive effects of these price
increases and increases in the mix of higher margin products are expected to be
partially offset by increases in certain operating costs, including fuel,
personnel and infrastructure costs of expanded offshore base operations.
Mat and Integrated Services: Mat and integrated services operating income
increased $4.2 million on a $4.2 million increase in revenues. The high
incremental margin is attributable to reductions in operating costs and improved
pricing; however, we do not anticipate that incremental margins will be as high
in the future. During 1998 and 1999, we disposed of a significant portion of our
domestic wooden mat fleet. In 1999, we also recorded an impairment charge for
our remaining domestic wooden mat fleet, in response
15
<PAGE> 16
to both changing market conditions and our introduction of the new composite
mat. This reduction in basis significantly lowered depreciation expense for the
mat fleet. In addition, the significantly lower maintenance, transportation, and
other associated costs, and substantially longer useful life of the composite
mat system as compared to the wooden mat system are expected to enhance future
operating margins for this segment. In addition, these benefits of the composite
mat system are expected to better position the segment to compete against
competitive pricing pressures.
General and Administrative Expenses
General and administrative expenses for the second quarter of 2000 were
$696,000, or 1.2% of revenues, compared to $671,000, or 1.7% of revenues, in
1999.
Goodwill Amortization
Goodwill amortization for the second quarter of 2000 was $1.2 million,
or 2.1% of revenues, compared to $1.4 million, or 3.5% of revenues, in 1999.
There were no significant changes in 2000 or 1999 to the carrying value of
assets acquired in purchase transactions.
Interest Income/Expense
Net interest expense was $4.5 million for the second quarter of 2000,
an increase of $711,000, or 18.7%, as compared to $3.8 million for the second
quarter of 1999. The increase in net interest cost is due to an increase of
$14.8 million in average outstanding borrowings and an increase in the average
effective interest rate from 9.14% in 1999 to 9.63% in 2000. In addition,
interest capitalization decreased from $308,000 in the second quarter of 1999 to
$188,000 in the second quarter of 2000. The increase in average outstanding
borrowings under our bank credit facility was primarily used to fund capital
expenditures in 1999. As noted below, in June 2000, we issued $30 million of
preferred stock and warrants, the proceeds of which were used for the repayment
of debt. The repayment of debt under the credit facility is expected to reduce
interest expense in the third quarter as compared to the second quarter. In
addition, beginning in the third quarter, the interest rate on the credit
facility will be reduced from Prime plus 1.25% or LIBOR plus 4% to prime plus
.75% or LIBOR plus 3.25%.
Provision for Income Taxes
For the quarter ended June 30, 2000, we recorded an income tax
provision of $1.2 million, reflecting an income tax rate of 40.0%. For the
quarter ended June 30, 1999, we recorded an income tax benefit of $5.2 million,
reflecting an income tax benefit rate of 55.7%. The effective tax rates are
higher than statutory rates for both 2000 and 1999 primarily due to effects of
non-deductible goodwill and the low projected income from operations for these
periods.
Discontinued Operations of Solids Control Business
In September 1999, we adopted a plan to discontinue operations of our
solids control business and simultaneously entered into an alliance agreement to
provide these services. The operating results of our solids control business
have been classified as discontinued
16
<PAGE> 17
operations in the consolidated financial statements. Revenues of these
discontinued operations totaled approximately $171,000 in the second quarter of
2000 and $1.3 million in the second quarter of 1999.
Preferred Stock Dividends and Accretion of Discount
As discussed below, in June of 2000, we sold 120,000 shares of Series B
Preferred Stock. In April 1999, we sold 150,000 shares of Series A Preferred
Stock. The Series B Preferred Stock is not redeemable. The Series A Preferred
Stock is redeemable at our option anytime after April 16, 2004. For the quarter
ended June 30, 2000, dividends totaling $301,000 were paid or accrued on the
preferred stock, including $113,000 of dividends accrued on the Series B
Preferred Stock for the period this stock was outstanding in the quarter. This
compares to $156,000 of dividends for the quarter ended June 30, 1999, which
represents dividends on the Series A Preferred Stock for the period this stock
was outstanding in the quarter. The accretion of the discount on the Series A
Preferred Stock was $112,000 for the quarter ended June 30, 2000. This compares
to $94,000 for the quarter ended June 30, 1999, which represents the accretion
for the period that this stock was outstanding in the quarter.
As required by EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios",
during the quarter we recorded a one-time adjustment of $3.5 million ($.05 per
share) to our equity accounts to reflect the value assigned to the conversion
feature of the preferred stock at the date of issuance. This adjustment did not
have any effect on our operating results or total equity. The affect of this
adjustment is presented as a dividend in the accompanying financial statements;
however, we issued no additional shares or cash.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues
E&P Waste Disposal: The $5.5 million, or 26%, increase in waste disposal revenue
is attributable to an increase in the volume of waste received resulting from
increased drilling activity. In these same periods drilling rig activity in our
primary gulf coast market increased 30%. During the first six months of 2000, we
received 2,004,000 barrels of E&P waste, compared to 1,577,000 barrels in the
comparable quarter of 1999, a 27% increase. Pricing increased slightly during
the comparable periods. The six months ended June 30, 2000 included $493,000 of
revenue from nonhazardous industrial disposal operations, which began in August
1999. Also, included in revenues for the first six months of 1999 were revenues
from our interest in oil and gas properties of $794,000, at nearly 90% gross
margin, compared to only $118,000 of such revenues in 2000. Most of this
additional revenue from oil and gas properties was received in the first quarter
of 1999.
17
<PAGE> 18
Fluids Sales and Engineering: The $19.9 million, or 51%, increase in drilling
fluids revenue is attributable to the increase in drilling activity and market
share gains. During the first six months of 2000, we serviced an average of 130
rigs, compared to 90 rigs in the first six months of 1999. The annualized
average revenue per rig was approximately $908,000 in the first six months of
2000 compared to $868,000 for the first six months of 1999.
Mat and Integrated Services: The $1.3 million, or 4%, increase in mat and
integrated services revenue is significantly lower than the increase in rig
activity, primarily due to weakness in the wetlands and Transition Zone market
in the first quarter of 2000. The weakness in the first quarter in the number of
mat locations in our primary Transition Zone market was partially offset by
improvement in pricing and expansion of Canadian operations. The average price
per square foot was $0.75 in the first six months of 2000, compared to $0.69 in
the first six months of 1999. Canadian mat revenues were $2.9 million for the
first six months of 2000, compared to $577,000 for the first six months of 1999.
Operating Income
E&P Waste Disposal: The $1.2 million increase in waste disposal operating income
represents an 18% increase from the prior year period and an incremental margin
of 22%. Exclusive of revenue sources other than E&P disposal, the waste disposal
segment had an incremental margin of 34% for the first six months of 2000 as
compared to 1999. Total segment results were impacted by a small loss in
industrial disposal, which reported revenues of $493,000 for the first six
months of 2000 at slightly below a break-even level. Included in revenues for
the first six months of 1999 were revenues from our interest in oil and gas
properties of $794,000, at nearly 90% gross margin, compared to only $118,000 of
such revenues in 2000.
As noted above, increases in certain operating costs, including barge
rental, maintenance, personnel, fuel and utility costs, also negatively impacted
the incremental margin for this segment. In addition, the mix of waste received
during the six months ended June 30, 2000 included a greater percentage of
products that required special handling and processing costs that were unusual
in nature, resulting in a lower than expected incremental margin.
Fluids Sales and Engineering: The $9.0 million increase in fluids sales and
engineering operating income is partially due to the increase in revenue of
$19.9 million and an improvement in the mix of product sales. In addition, the
operating margin for the six months ended June 30, 1999 included site closure
and related costs of approximately $2.6 million. Excluding the effects of these
site closure costs in the prior year, operating income in this segment increased
$6.6 million, representing an incremental margin of 33%.
Mat and Integrated Services: The $3.8 million increase in mat and integrated
services operating income is attributable to several factors. These include the
$1.3 million increase in revenues, improved per unit pricing and reductions in
operating costs, particularly depreciation, associated with resizing our
domestic wooden mat fleet and introducing our new composite mat system, as noted
above.
18
<PAGE> 19
General and Administrative Expenses
General and administrative expenses of $1.7 million for 2000
represented 1.4% of revenues. General and administrative expenses of $1.2
million for 1999 represented 1.3% of revenues. Approximately $308,000 of the
increase in general and administrative expenses is associated with increases in
certain self-insured health and general liability insurance programs and a
reduction in the amount of these costs which are allocated to the operating
segments, primarily in the first quarter of 2000.
Goodwill Amortization
Goodwill amortization for 2000 of $2.5 million, represented 2.1% of
revenues. Goodwill amortization for 1999 of $2.5 million, represented 2.8% of
revenues. There were no significant changes in 2000 or 1999 to the carrying
value of assets acquired in purchase transactions.
Interest Income/Expense
Net interest expense was $8.9 million for 2000, an increase of $1.4
million, or 18.7%, as compared to $7.5 million for 1999. The increase in net
interest cost is due to an increase of $11.9 million in average outstanding
borrowings and an increase in the average effective interest rate from 9.03% in
1999 to 9.51% in 2000. In addition, interest capitalization decreased from
$808,000 in the first six months of 1999 to $520,000 in the first six months of
2000. The increase in average outstanding borrowings under our bank credit
facility was primarily used to fund capital expenditures in 1999. As noted
below, in June 2000, the Company issued $30 million of preferred stock, the
proceeds of which where used for the repayment of debt.
Provision for Income Taxes
For the six months ended June 30, 2000, we recorded an income tax
provision of $1.7 million, reflecting an income tax rate of 40.3%. For the six
months ended June 30, 1999, we recorded an income tax benefit of $4.7 million,
reflecting an income tax benefit rate of 59.0%. The effective tax rates are
higher than statutory rates for both 2000 and 1999 primarily due to effects of
non-deductible goodwill and the low projected income from operations for these
periods.
Discontinued Operations of Solids Control Business
In September 1999, we adopted a plan to discontinue operations of our
solids control business and simultaneously entered into an alliance agreement to
provide these services. The operating results of our solids control business
have been classified as discontinued operations in the consolidated financial
statements. Revenues of these discontinued operations totaled approximately
$924,000 for the first six months of 2000 and $3.3 million for the first six
months of 1999.
19
<PAGE> 20
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 income from
operations for the six months ended June 30, 1999 was increased by $1,471,000,
with related per share amounts of $.02 basic and diluted. This reflects the
cumulative effect, net of income taxes, of the change on years prior to 1999.
Preferred Stock Dividends and Accretion of Discount
For the six months ended June 30, 2000, dividends totaling $488,000
were paid or accrued on preferred stock, including $113,000 of dividends accrued
on the Series B Preferred Stock for the period this stock was outstanding. This
compares to $156,000 of dividends for the first six months of 1999, which
represents dividends on the Series A Preferred Stock for the period this stock
was outstanding in 1999. The accretion of the discount on the Series A Preferred
Stock was $225,000 for the six months ended June 30, 2000. This compares to
$94,000 for the quarter ended June 30, 1999, which represents the accretion for
the period that this stock was outstanding in the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased by $20.6 million
during the first six months of 2000. Key working capital data is provided below
(dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Working Capital (000's) $ 68,875 $ 48,244
Current Ratio 2.90 1.95
</TABLE>
The Company's long term capitalization was as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Long-term debt (including current maturities):
Credit facility $ 70,600 $ 83,250
Subordinated debt 125,000 125,000
Other 741 1,951
------------- -------------
Total long-term debt 196,341 210,201
Stockholders' equity 219,287 186,339
------------- -------------
Total capitalization $ 415,628 $ 396,540
============= =============
</TABLE>
For the six months ended June 30, 2000, Newpark's working capital needs
were met primarily from the preferred stock offering discussed below. The net
cash provided by
20
<PAGE> 21
financing activities of $16.3 million helped to provide for total cash used in
operations of $10.3 million and $6.4 million used in investing activities.
As of June 30, 2000, the Company also maintained a $100.0 million bank
credit facility, including up to $20.0 million in standby letters of credit, in
the form of a revolving line of credit commitment, which expires December 31,
2001. At June 30, 2000, $15.8 million in letters of credit were issued and
outstanding under the credit facility and $70.6 million was outstanding under
the revolving facility, leaving $13.9 million of availability under this
facility at June 30, 2000. The facility bears interest at either a specified
prime rate (9.5% at June 30, 2000) or the LIBOR rate (6.79% at June 30, 2000)
plus a spread determined quarterly based on the ratio of the Company's funded
debt to cash flow. The current interest rate under the credit facility is prime
plus .75% (10.25% at August 4, 2000) or LIBOR plus 3.25% (9.96% at August 4,
2000). The weighted average interest rate on the outstanding balance under the
credit facility for the second quarter of 2000 and 1999 was 9.57% and 7.76%,
respectively.
Any losses, before preferred stock dividends and accretion of discount
on preferred stock, 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. We were in compliance with all financial covenants of
the amended credit facility as of June 30, 2000.
Our Senior Subordinated Notes do not contain any financial covenants.
However, if we do not meet the financial covenants of the Credit Facility and
are unable to obtain an amendment from the banks, we would be in default of the
Credit Facility which would cause the Notes to be in default. The Notes and the
Credit Facility also contain covenants that significantly limit the payment of
dividends on our Common Stock.
On June 1, 2000, we completed the sale to Fletcher International
Limited of 120,000 shares of Series B Convertible Preferred Stock, $0.01 par
value per share (the "Series B Preferred Stock"), and a warrant (the "Warrant")
to purchase up to 1,900,000 shares of the Common Stock of Newpark at an exercise
price of $10.075 per share, subject to anti-dilution adjustments. The Warrant
has a term of seven years, expiring June 1, 2007. There are no redemption
features to the Series B Preferred Stock. The aggregate purchase price for these
instruments was $30.0 million, of which approximately $17.9 million was
allocated to the Series B Preferred Stock and approximately $12.1 million to the
Warrant. The net proceeds from the sale were used to repay indebtedness.
For 2000, we anticipate total capital expenditures of approximately
$14.0 million. Approximately 50% of the anticipated expenditures are for the
purchase of composite mats, 15% to complete an enlarged joint operational
offshore facility, and 35% for other new capacities and routine capital
expenditures.
We 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 that should yield approximately $3.2 million. We plan to subsequently
lease this facility from the new owner under an operating lease.
Potential sources of additional funds, if required, would include
additional operating leases for equipment, selling certain assets and selling
equity securities or subordinated
21
<PAGE> 22
debt securities. Other than as discussed above, we presently have no commitments
beyond our working capital and bank lines of credit by which we could obtain
additional funds for current operations. However, we regularly evaluate
potential borrowing arrangements which we may utilize to fund future expansion.
We believe that our current sources of capital, coupled with internally
generated funds, will be sufficient to support our working capital, capital
expenditures and debt service requirements for the foreseeable future provided
that market conditions stabilize or continue to improve from current levels. Any
long-term downturn in market conditions could have an adverse affect on our
financial position, results of operations and future available capital. Such a
downturn would likely result in reductions in planned capital expenditures and
reassessment of our operations and business strategy in light of these market
conditions.
Except as described in the preceding paragraphs, we are not aware of
any material expenditures, significant balloon payments or other payments on
long term obligations or any other demands or commitments, including off-balance
sheet items to be incurred within the next 12 months. Inflation has not
materially impacted our revenues or income.
YEAR 2000 UPDATE
In prior years, we have disclosed the nature and progress of our plans
to address the year 2000 issue. By the end of 1999, we completed our remediation
and testing of our critical information technology and non-information
technology systems. As a result of those efforts, we experienced no significant
disruptions in those systems and believe those systems successfully responded to
the year 2000 date change. We expended less than $100,000 during 1998 and 1999
in connection with remediating our systems. We are not aware of any material
problems resulting from year 2000 issues, either with our product or service
offerings, our internal systems or the products and services of third parties.
We will continue to monitor our critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent year
2000 matters that may arise are addressed promptly.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. There are risks and uncertainties that could
cause future events and results to differ materially from those anticipated by
us in the forward-looking statements included in this report. Among these risks
and uncertainties are the following:
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
22
<PAGE> 23
regulations or industry participants being able to avoid or
delay compliance with these regulations;
o future technological change and innovation, which could result
in a reduction in the amount of waste being generated or
alternative methods of disposal being developed;
o increased competition in our product lines;
o our success in integrating acquisitions;
o our success in replacing our wooden mat fleet with our new
composite mats;
o our ability to obtain the necessary permits to operate our
non-hazardous waste disposal wells and our ability to
successfully compete in this market;
o our ability to successfully compete in the drilling fluids
markets in the Canadian provinces of Alberta and Saskatchewan,
the Permian Basin of West Texas and New Mexico and the
Anadarko Basin in Western Oklahoma, where we have only
recently entered the market; and
o adverse weather conditions, which could disrupt drilling
operations.
23
<PAGE> 24
PART II
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated June 1, 2000 for the sale of 120,000 shares of
Series B Preferred Stock to Fletcher International Limited.
24
<PAGE> 25
NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 9, 2000
NEWPARK RESOURCES, INC.
By: /s/ Matthew W. Hardey
----------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
