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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 March 31, 1997 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: 15,207,309 shares at May 8, 1997
Page 1 of 15
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1997
Item Page
Number Description Number
- ------ ----------- ------
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets -
March 31, 1997 and December 31, 1996 ................... 3
Statements of Income for the
Three Month Periods Ended March 31, 1997 and 1996....... 4
Statements of Cash Flows for the
Three Month Periods Ended March 31, 1997 and 1996....... 5
Notes to Consolidated Financial Statements .................. 6
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................10
PART II
6 Exhibits and Reports on Form 8-K.................................14
2
3
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
As of March 31,1997 and December 31, 1996
(Unaudited) March 31, December 31,
- ------------------------------------------------------------------------------------------
(In thousands, except share data) 1997 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,138 $ 1,945
Accounts and notes receivable, less allowance
of $1,731 in 1997 and $1,695 in 1996 50,486 48,369
Inventories 6,280 7,470
Deferred tax asset 8,144 8,144
Other current assets 3,377 2,727
----------- -----------
TOTAL CURRENT ASSETS 71,425 68,655
Property, plant and equipment, at cost, net of
accumulated depreciation 124,655 114,670
Cost in excess of net assets of purchased businesses and
identifiable intangibles, net of accumulated amortization 82,917 83,512
Other assets 24,690 23,114
----------- -----------
$ 303,687 $ 289,951
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 444 $ 2,997
Current maturities of long-term debt 10,046 9,386
Accounts payable 11,903 15,091
Accrued liabilities 9,479 9,835
Current taxes payable 265 1,465
----------- -----------
TOTAL CURRENT LIABILITIES 32,137 38,774
Long-term debt 43,994 34,612
Other non-current liabilities 2,644 2,950
Deferred taxes payable 14,200 10,174
Commitments and contingencies (See Note 10) -- --
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding -- --
Common Stock, $.01 par value, 20,000,000 shares
authorized, 15,178,991 shares outstanding in 1997
and 15,109,616 in 1996 150 150
Paid-in capital 252,827 251,930
Retained earnings (deficit) (42,265) (48,639)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 210,712 203,441
----------- -----------
$ 303,687 $ 289,951
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
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4
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month Periods Ended March 31,
(Unaudited)
- --------------------------------------------------------------------------------
(In thousands, except per share data) 1997 1996
----------- -----------
Revenues $ 39,811 $ 28,373
Operating costs and expenses:
Cost of services provided 23,678 18,612
Operating costs 3,513 2,942
----------- -----------
27,191 21,554
General and administrative expenses 808 717
----------- -----------
Operating income 11,812 6,102
Interest income (39) (33)
Interest expense 824 919
----------- -----------
Income before income taxes 11,027 5,216
Provision for income taxes 4,027 1,899
----------- -----------
Net income $ 7,000 $ 3,317
=========== ===========
Weighted average common and common
equivalent shares outstanding:
Primary 15,679 11,633
=========== ===========
Fully diluted 15,679 11,762
=========== ===========
Net income per common and
common equivalent share:
Primary $ 0.45 $ 0.29
=========== ===========
Fully diluted 0.45 0.28
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31,
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands ) 1997 1996
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,000 $ 3,317
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,301 2,824
Provision for deferred income taxes 3,959 1,146
Gain on sales of assets -- (45)
Change in assets and liabilities, net of effects of acquisitions and dispositions:
Increase in accounts and notes receivable (2,639) (149)
Decrease in inventories 832 2,494
Increase in other assets (1,105) (411)
Decrease in accounts payable (3,923) (4,410)
Decrease in accrued liabilities and other (3,558) (375)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,867 4,391
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,030) (7,548)
Proceeds from disposal of property, plant and equipment -- 1,137
Investment in joint venture -- (515)
Payments received on notes receivable -- 75
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (13,030) (6,851)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on lines of credit 12,350 3,201
Principal payments on notes payable, capital lease
obligations and long-term debt (5,040) (2,550)
Proceeds from issuance of debt 1,358
Proceeds from conversion of stock options 896 610
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,206 2,619
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,043 159
NET INCREASE IN CASH FOR SBM FOR THE TWO MONTHS ENDED
DECEMBER 31, 1996 150 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,945 1,500
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,138 $ 1,659
======== ========
Included in accounts payable and accrued liabilities at March 31, 1997 and 1996
were equipment purchases of $2,622,000 and $1,040,000 respectively. Also
included are notes payable for equipment purchases in the amount of $83,000 and
$351,000 at March 31, 1997 and 1996 respectively.
Interest of $900,000 and $998,000 was paid during the three months ending March
31, 1997 and1996, respectively. Income taxes of $1,200,000 and $1,311,000 were
paid during the three months ending March 31, 1997 and 1996.
See accompanying Notes to Consolidated Financial Statements.
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NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 In the opinion of management the accompanying unaudited
consolidated financial statements reflect all adjustments
necessary to present fairly the financial position of Newpark
Resources, Inc. ("Newpark" or the "Company") as of March 31,
1997, and the results of operations for the three month periods
ended March 31, 1997 and 1996 and cash flows for the three month
periods ended March 31, 1997 and 1996. All such adjustments are
of a normal recurring nature. These interim financial statements
should be read in conjunction with the December 31, 1996 audited
financial statements and related notes filed on Form 10-K at
December 31, 1996.
Note 2 The consolidated financial statements include the accounts of
Newpark and its wholly-owned subsidiaries. All material
intercompany transactions are eliminated in consolidation.
Note 3 On February 28, 1997, Newpark issued 582,000 shares of its
common stock in exchange for all of the outstanding common stock
of SBM Drilling Fluids Management, Inc. ("SBM"). SBM is a full
service drilling fluids company serving the onshore and offshore
Louisiana and Texas Gulf Coast drilling markets.
This business combination has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements
for periods prior to the combination have been restated to
include the accounts and results of operations of SBM. Operating
results prior to the combination of the separate companies and
the combined amounts presented in the consolidated financial
statements are summarized below:
(In thousands of dollars)
Three Months
Ended Year Ended
March 31, December 31,
1996 1996 1995
-----------------------------------------------------------------------------------
Revenues:
Newpark $ 26,767 $ 121,542 $ 97,982
SBM 1,606 14,432 7,738
-----------------------------------------------------------------------------------
Combined $ 28,373 $ 135,974 $ 105,720
===================================================================================
Net Earnings:
Newpark $ 3,316 $ 18,453 $ 12,236
SBM 1 50 306
-----------------------------------------------------------------------------------
Combined $ 3,317 $ 18,503 $ 12,542
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Prior to the combination SBM's fiscal year end was October 31.
Newpark's fiscal year is December 31. In applying pooling of
interests accounting, the December 31, 1996 Newpark consolidated
statement of income was combined with the SBM statement of income
for the year ended October 31 , 1996. Retained earnings of the
combined entities was adjusted by $626,000 as of the beginning
of Newpark's fiscal 1997 year to include unaudited net losses of
SBM for the period November 1, 1996 to December 31, 1996. During
this period SBM's revenues were $3.0 million. Additionally, the
consolidated statement of cash flows for the three month period
ended March 31, 1997 was adjusted by $150,000 to reflect the net
increase in cash of SBM for the two months ended December 31,
1996. Amounts included in the accompanying statements of income
for the three month periods ended March 31, 1997 and 1996 include
the results of SBM for the three-months ended March 31, 1997 and
January 31, 1996, respectively.
Merger expenses of $316,000 include legal and accounting fees
related to the business combination. Merger expenses of $200,000
are included in operating costs and $116,000 are included in
general and administrative expenses in the consolidated statement
of income.
Note 4 The results of operations for the three month period ended March
31, 1997 are not necessarily indicative of the results to be
expected for the entire year.
Note 5 Primary and fully diluted income per common share is calculated
by dividing net income by the average shares of common stock of
the Company ("Common Stock") and Common Stock equivalents
outstanding during the period. When dilutive, stock options are
included as share equivalents using the treasury stock method.
Note 6 Included in accounts and notes receivable at March 31, 1997 and
December 31, 1996 (in thousands) are:
1997 1996
-------- --------
Trade receivables $ 36,518 $ 34,304
Unbilled revenues 7,005 6,616
-------- --------
Gross trade receivables 43,523 40,920
Allowance for doubtful accounts (1,731) (1,695)
-------- --------
Net trade receivables 41,792 39,225
Notes and other receivables 8,694 9,144
-------- --------
Total $ 50,486 $ 48,369
======== ========
Note 7 Inventories at March 31, 1997 and December 31, 1996 consisted
principally of raw materials.
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Note 8 Interest of $77,000 and $218,000 was capitalized during the three
months ended March 31, 1997 and 1996, respectively.
Note 9 The Company maintains a $70.0 million bank credit facility with
$30.0 million in the form of a revolving line of credit
commitment and the remaining $40.0 million in the form of two
term notes. The credit facility is secured by a pledge of
substantially all of the Company's accounts receivable, inventory
and property, plant and equipment. It bears interest at either a
specified prime rate (8.50% at March 31, 1997) or the LIBOR rate
(5.77% at March 31, 1997) plus a spread which is determined
quarterly based upon the ratio of the Company's funded debt to
cash flow. The line of credit requires monthly interest payments
and matures on December 31, 1998. At March 31, 1997, $1.7 million
of letters of credit were issued and outstanding, leaving a net
of $28.3 million available for cash advances under the line of
credit, against which $19.1 million had been borrowed. The term
loans were used to refinance existing debt and require monthly
interest installments and equal quarterly principal payments. The
term loans bear interest at the Company's option of either a
specified prime rate or LIBOR rate, plus a spread which is
determined quarterly based upon the ratio of the Company's funded
debt to cash flow. The credit facility requires that the Company
maintain certain specified financial ratios and comply with other
usual and customary requirements. The Company was in compliance
with the agreement at March 31, 1997.
Note 10 Newpark and its subsidiaries are involved in litigation and other
claims or assessments on matters arising in the normal course of
business. In the opinion of management, any recovery or liability
in these matters will not have a material adverse effect on
Newpark's consolidated financial statements.
During 1992, the State of Texas assessed additional sales taxes
for the years 1988-1991. The Company has filed a petition for
redetermination with the Comptroller of Public Accounts. The
Company believes that the ultimate resolution of this matter will
not have a material adverse effect on the 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
$1,650,000 at March 31, 1997. At March 31, 1997, the Company had
outstanding guaranty obligations totaling $865,000 in connection
with facility closure obligations.
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. These assets had previously been subject to an
operating lease to the same party, and
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the purchase was made under the terms of a purchase option
granted in the original lease. The Company has guaranteed certain
of the debt obligations of the operator, which is limited to a
maximum of $10 million and reduces proportionately with debt
repayments made by the operator.
In conjunction with the acquisition of certain assets from
Campbell Wells, Ltd. ("Campbell"), on August 12, 1996, the
Company assumed the obligation to deliver to Campbell, for each
of the next 25 years, for disposal at Campbell's landfarms the
lesser of one-third of the barrels of NOW collected by Newpark
from a defined market area or 1,850,000 barrels of NOW, subject
to certain adjustments. The initial price per barrel to be paid
by Newpark to Campbell is $5.50 per barrel and is subject to
adjustment in future years. Prior to any adjustments, Newpark's
obligation is $10,175,000 annually. In addition, the liability of
Newpark under the agreement is reduced by certain revenues earned
by Campbell or its affiliates.
Note 11 In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 128 "Earnings
per Share" ("SFAS 128") which changes the method of calculating
earnings per share (EPS). SFAS 128 requires the presentation of
"basic" EPS and "diluted" EPS on the face of the statement of
income. Basic EPS is computed by dividing the net income
available to common shareholders by the weighted average shares
of outstanding common stock. The calculation of diluted EPS is
similar to basic EPS except that the denominator includes
dilutive common stock equivalents such as stock options and
warrants. The statement is effective for financial statements for
periods ending after December 31, 1997. The Company will adopt
SFAS 128 in the fourth quarter of 1997, as early adoption is not
permitted. Management believes that the adoption of this standard
will not have a significant impact on the financial statements.
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10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
During the three months ended March 31, 1997, the Company completed
three separate transactions. The first transaction involved the purchase of SBM
Drilling Fluids Management, Inc. (SBM), a full service drilling fluids company
which serves customers in the Louisiana and Texas Gulf Coast. This transaction
involved the issuance of 582,000 shares of Newpark Common Stock and was
accounted for as a pooling of interests. The direct costs related to this
transaction, which are included in current operations, amounted to $316,000. In
conjunction with the SBM acquisition, the Company instituted a liquid mud
recycling program. The second transaction involved the acquisition of
approximately 120 acres of land from a major oil company. While the land has
marginal oil and gas production on it, the Company plans to develop the
facility into an industrial waste disposal facility. The third transaction
involved the acquisition of an additional injection facility which has two
active injection wells located on 37 acres of land. The two land acquisitions
are adjacent to the Company's current Big Hill facility.
RESULTS OF OPERATIONS
Results for the three months ended March 31, 1996 have been restated
to give effect to the acquisition of SBM on a pooling of interests basis. The
following table represents revenue by product line, for the three month periods
ended March 31, 1997 and 1996. The product line data has been reclassified from
prior periods' presentation in order to more effectively distinguish the fluids
management services and mat rental services, in which the Company maintains
certain proprietary advantages, from its other service offerings.
Three Month Periods Ended March 31,
(Dollars in thousands)
1997 1996
----------------- -----------------
Revenues by product line:
Fluids management services:
NOW & NORM Disposal $13,835 34.7% $ 7,833 27.6%
Product Sales & Engineering 3,847 9.7 1,606 5.7
------- ------- ------- -------
Total Fluids Management Services 17,682 44.4 9,439 33.3
Mat rental services 13,254 33.3 7,901 27.8
Integrated services 8,875 22.3 10,523 37.1
Other -- -- 510 1.8
------- ------- ------- -------
Total revenues $39,811 100.0% $28,373 100.0%
======= ======= ======= =======
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THREE MONTH PERIOD ENDED MARCH 31, 1997 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1996
Revenues
Total revenues increased to $39.8 million in the 1997 period from
$28.4 million in the 1996 period, an increase of $11.4 million or 40.1%. The
major components of the increase by product line included: (i) fluids
management service revenue which increased $8.2 million. Components of the
change included NOW revenue which increased $7.1 million and drilling fluids
sales and service revenue which increased $2.2 million. These increases were
partially offset by a $1.1 million decrease in NORM revenue. The volume of NOW
waste processed increased to 1.4 million barrels in 1997 compared to 745,000
barrels in 1996. This expanded volume is primarily attributable to the
acquisition of a competitor's marine-related collection operations in August
1996 and some increase in the domestic market rig count. The volume increase
accounts for approximately 90% of the revenue change, with the remainder of the
increase resulting from an increase in the average disposal price in the 1997
quarter. The volume of NORM waste processed was 5,382 barrels compared to
37,183 barrels in 1996. The volume decreased as remediation operations in the
Gulf Coast were hampered by unusually heavy rainfall during the 1997 quarter;
(ii) mat rental revenue increased $5.4 million which is reflective of
improvements in the domestic market rig count and increased utilization of the
Company's mat inventory; (iii) integrated services revenue decreased $1.7
million primarily due to the unusually low level of NOW remediation activity as
discussed above.
Operating Income
Operating income increased by $5.7 million or 93.6% to total $11.8
million in the 1997 period compared to $6.1 million in the 1996 period,
representing an improvement in operating margin to 29.7% in the 1997 period
compared to 21.5% in the 1996 period. The major components of the increase were
increased profitability from the NOW disposal operations and increased
utilization of the Company's mat inventory partially offset by lower NORM
revenue.
General and administrative expenses remained relatively unchanged
decreasing as a proportion of revenue to 2.0% from 2.5% in the 1996 period, and
increasing in absolute amount by $91,000.
Interest Expense
Interest expense was $824,000 for the three months ended March 31,
1997 as compared to $919,000 in 1996.
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Provision for Income Taxes
For the 1997 and 1996 periods, the Company recorded income tax
provisions of $4.0 million and $1.9 million equal to 36.5% and 36.4% of pre-tax
income.
Statement of Financial Accounting Standards Number 128
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 128 which changes the method
of calculating earnings per share. The statement is effective for financial
statements for periods ending after December 31, 1997. The Company will adopt
SFAS 128 in the fourth quarter of 1997, as early adoption is not permitted.
Management believes that the adoption of this standard will not have a
significant impact on the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position (as restated to give effect to
the acquisition of SBM on a pooling of interests basis) increased by $9.4
million during the three months ended March 31, 1997. Key working capital data
is provided below:
March 31, 1997 December 31, 1996
-------------- -----------------
Working Capital (000's) $ 39,288 $ 29,881
Current Ratio 2.22 1.77
To date during 1997, the Company's working capital needs have been met
primarily from borrowings under the Company's credit facility and operating
cash flow. Total cash generated from operations of $5.9 million was
supplemented by $8.2 million from financing activities to provide for cash of
$13.0 million used in investing activities.
During the three months ended March 31, 1997, Newpark amended its
credit agreement to provide for a total of $70 million of financing in the form
of two term loans totaling $40 million to be amortized over five years and a
$30 million revolving line of credit. These borrowings bear interest at either
a specified prime rate or LIBOR rate, plus a spread which is determined
quarterly based upon the ratio of Newpark's funded debt to cash flow. The
credit
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agreement requires that Newpark maintain certain specified financial ratios and
comply with other usual and customary requirements. Newpark was in compliance
with all of the covenants in the credit agreement at March 31, 1997.
The revolving line of credit matures December 31, 1998. At March 31,
1997, $1.7 million of letters of credit were issued and outstanding under the
line and an additional $19.1 million had been borrowed and was outstanding
thereunder.
Potential sources of additional funds, if required by the Company,
would include additional borrowings and the sale of equity securities. The
Company presently has no commitments beyond its bank lines of credit by which
it could obtain additional funds for current operations; however, it regularly
evaluates potential borrowing arrangements which may be utilized to fund future
expansion plans.
Inflation has not materially impacted the Company's revenues or income.
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PART II
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) The registrant did not file a report on Form 8-K for the
quarter ended March 31, 1997.
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NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 13, 1997
NEWPARK RESOURCES, INC.
By: /s/Matthew W. Hardey
---------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
3,138
0
52,217
(1,731)
6,280
71,425
168,475
(43,820)
303,687
(32,137)
0
0
0
(150)
42,265
(303,687)
39,811
39,811
27,191
27,191
808
0
785
11,027
4,027
7,000
0
0
0
7,000
0.45
0.45
