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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, 1998 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: 65,668,384 shares at May 11, 1998.
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
March 31, 1998
Item Page
Number Description Number
- ------ ----------- ------
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets -
March 31, 1998 and December 31, 1997 .........................................3
Statements of Income for the Three Month
Periods Ended March 31, 1998 and 1997.........................................4
Statements of Cash Flows for the
Three Month Periods Ended March 31, 1998 and 1997.............................5
Notes to Unaudited Consolidated Financial Statements ..............................6
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................................11
PART II
2 Changes in Securities and Use of Proceeds.............................................18
6 Exhibits and Reports on Form 8-K......................................................18
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Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
As of March 31, 1998 and December 31, 1997
(Unaudited)
March 31, December 31,
- ---------------------------------------------------------------------------------------------------------
(In thousands, except share data) 1998 1997
- ---------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,310 $ 20,715
Accounts and notes receivable, less allowance
of $2,262 in 1998 and $2,171 in 1997 90,153 73,385
Inventories 21,454 21,147
Deferred tax asset 2,645 3,974
Other current assets 3,084 1,685
----------- -----------
TOTAL CURRENT ASSETS 133,646 120,906
Property, plant and equipment, at cost, net of
accumulated depreciation 200,657 188,752
Cost in excess of net assets of purchased businesses and
identifiable intangibles, net of accumulated amortization 106,566 97,542
Other assets 40,297 39,380
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$ 481,166 $ 446,580
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 256 $ 145
Current maturities of long-term debt 1,204 1,200
Accounts payable 18,086 17,376
Accrued liabilities 19,944 10,074
Current taxes payable 4,432 1,899
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TOTAL CURRENT LIABILITIES 43,922 30,694
Long-term debt 127,064 127,235
Other non-current liabilities 1,249 1,314
Deferred taxes payable 18,328 17,568
Commitments and contingencies (See Note 10) -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding -- --
Common Stock, $.01 par value, 80,000,000 shares
authorized, 65,186,848 shares outstanding in 1998
and 64,061,289 in 1997 651 640
Paid-in capital 292,886 283,281
Retained earnings (deficit) (2,934) (14,152)
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TOTAL STOCKHOLDERS' EQUITY 290,603 269,769
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$ 481,166 $ 446,580
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See accompanying Notes to Unaudited Consolidated Financial Statements.
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month Periods Ended March 31,
(Unaudited)
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(In thousands, except per share data) 1998 1997
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Revenues $ 69,111 $ 42,915
Operating costs and expenses:
Cost of services provided 39,027 26,490
Operating costs 9,169 3,664
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48,196 30,154
General and administrative expenses 911 808
Equity in net (earnings) loss of
unconsolidated affiliate (455) --
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Operating income 20,459 11,953
Interest income (480) (44)
Interest expense 2,615 855
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Income before income taxes 18,324 11,142
Provision for income taxes 6,724 4,027
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Net income $ 11,600 $ 7,115
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Weighted average common and common
equivalent shares outstanding:
Basic 64,663 61,265
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Diluted 66,083 62,656
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Net income per common and
common equivalent share:
Basic $ 0.18 $ 0.12
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Diluted $ 0.18 $ 0.11
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See accompanying Notes to Unaudited Consolidated Financial Statements.
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31,
(Unaudited)
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(In thousands) 1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,600 $ 7,115
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,053 5,347
Provision for deferred income taxes 3,408 3,959
Net earnings of unconsolidated affiliate (455) --
Other (3) --
Change in assets and liabilities, net of effects of acquisitions:
Increase in accounts and notes receivable (12,310) (2,383)
Decrease in inventories 813 775
Increase in other assets (2,793) (1,105)
Decrease in accounts payable (5,753) (3,784)
Increase (decrease) in accrued liabilities and other 4,827 (3,493)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 7,387 6,431
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,557) (13,030)
Advances on notes receivable to joint venture (405) --
Payments received on notes receivable 1,176 --
Acquisitions, net of cash acquired 467 (102)
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NET CASH USED IN INVESTING ACTIVITIES (12,319) (13,132)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on lines of credit -- 12,330
Principal payments on notes payable and long-term debt (564) (5,040)
Proceeds from issuance of debt -- 250
Proceeds from exercise of stock options 1,091 896
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NET CASH PROVIDED BY FINANCING ACTIVITIES 527 8,436
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,405) 1,735
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,715 1,945
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CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 16,310 $ 3,680
========== ==========
Included in accounts payable and accrued liabilities at March 31, 1998 and 1997
were equipment purchases of $4.7 million and $2.6 million, respectively. Also
included are notes payable for equipment purchases in the amount of $234,000 and
$83,000 at March 31, 1998 and 1997, respectively. Included in accrued
liabilities at March 31, 1998 were $4.2 million of net assets related to
acquisitions.
Interest of $70,000 and $900,000 was paid during the three months ending March
31, 1998 and 1997, respectively. Income taxes of $1.9 million and $1.2 million
were paid during the three months ending March 31, 1998 and 1997, respectively.
See accompanying Notes to Unaudited 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, 1998,
the results of its operations for the three month periods ended
March 31, 1998 and 1997 and its cash flows for the three month
periods ended March 31, 1998 and 1997. All such adjustments are of
a normal recurring nature. These interim financial statements
should be read in conjunction with the December 31, 1997 audited
financial statements and related notes filed on Form 10-K.
Note 2 The consolidated financial statements include the accounts of
Newpark and its wholly-owned subsidiaries. All material
intercompany transactions are eliminated in consolidation.
The accompanying unaudited consolidated financial statements for
the period ended March 31, 1998, include the effects of the
Southwestern Universal Corp. acquisition that was accounted for as
a pooling of interests. This combination was completed on March
19, 1998, in exchange for 450,000 shares of Newpark common stock.
Prior year financial statements have not been restated because the
financial information related to this entity was not considered
significant in relation to the financial reporting requirements of
Newpark.
The accompanying consolidated financial statements also include
the results of operations of Protec Mud Services, Ltd. since its
acquisition by Newpark effective March 1, 1998, which was
accounted for by the purchase method. This acquisition was
completed in exchange for an aggregate of 385,418 shares of
Newpark common stock and $4.2 million. The historical results of
operations related to this acquisition were not considered
significant in relation to the financial reporting requirements of
Newpark.
Certain reclassifications of prior period amounts have been made
to conform to the current period presentation.
Note 3 The results of operations for the three month period ended March
31, 1998 are not necessarily indicative of the results to be
expected for the entire year.
Note 4 The following table presents the reconciliation of the numerator
and denominator for calculating earnings per share in accordance
with the
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disclosure requirements of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), as follows
(in thousands, except per share data):
For the Three Month Period Ended
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1998 1997
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Income Shares Per Share Income Shares Per Share
(Num) (Den) Amount (Num) (Den) Amount
----- ----- ------ ----- ----- ------
BASIC EPS
Income
available to
common
stockholders $ 11,600 64,663 $ .18 $ 7,115 61,265 $ .12
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EFFECT OF
DILUTIVE
SECURITIES
Stock options 1,420 1,391
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DILUTED EPS
Income
available to
common
stockholders $ 11,600 66,083 $ .18 $ 7,115 62,656 $ .11
========== ========== ========== ========== ========== ==========
Options to purchase 81,000 shares of common stock, at exercise
prices ranging from $17.75 to $20.84 per share, were outstanding
during the first quarter of 1998, but were not included in the
computation of diluted EPS because the option exercise prices were
greater than the average market price of the common shares.
Note 5 Included in accounts and notes receivable at March 31, 1998 and
December 31, 1997 (in thousands) are:
1998 1997
---- ----
Trade receivables $ 81,894 $ 66,161
Unbilled revenues 8,503 7,509
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Gross trade receivables 90,397 73,670
Allowance for doubtful accounts (2,262) (2,171)
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Net trade receivables 88,135 71,499
Notes and other receivables 2,018 1,886
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Total $ 90,153 $ 73,385
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Note 6 The Company's inventory consisted of the following items at
March 31, 1998 and December 31, 1997:
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(In thousands) 1998 1997
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Drilling fluids raw materials
and components $ 9,359 $ 5,956
Logs 5,650 8,546
Board road lumber 4,715 5,017
Supplies 1,089 686
Other 641 942
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Total $ 21,454 $ 21,147
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Note 7 Interest of $296,000 and $77,000 was capitalized during the
three months ended March 31, 1998 and 1997, respectively.
Note 8 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,
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 U. S. operating
subsidiaries of the Company (the "Subsidiary Guarantors"). The
guarantee obligations of the Subsidiary Guarantors (which are all
direct or indirect wholly owned U. S. 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 March 31, 1998, the Company maintained a $90.0 million bank
credit facility in the form of a revolving line of credit
commitment. The credit facility is unsecured. It bears interest at
either a specified prime rate or the LIBOR rate 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
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matures on June 30, 2000. At March 31, 1998, $1.9 million of
letters of credit were issued and outstanding, leaving a net of
$88.1 million available for cash advances under the line of
credit.
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
respective agreements at March 31, 1998.
Note 9 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 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 $1.0
million at March 31, 1998. At March 31, 1998, the Company had
outstanding guaranty obligations totaling $1.2 million in
connection with facility closure obligations.
In conjunction with the acquisition of the marine related E&P
collection operations of Campbell Wells ("Campbell"), the Company
acquired Disposeco, thereby assuming the obligations provided in
the "NOW Disposal Agreement" between Disposeco and Campbell. The
"NOW Disposal Agreement" provides that for each of the 25 years
following the closing, Newpark will deliver to Campbell for
disposal at its landfarms the lesser of one-third of the barrels
from a defined market area or 1,850,000 barrels of E&P waste,
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 $10.2 million annually. In addition, the liability
of Newpark under the agreement is reduced by certain prohibited
revenues earned by Campbell or its affiliates.
The Company has guaranteed certain debt obligations of a joint
venture in which it holds a 49% interest. The guarantee is limited
to $7.5 million plus accrued interest.
Note 10 The Company has adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130")
which provides guidance for the presentation and display of
comprehensive income. Management believes this statement did not
have a significant effect on the Company's financial statement
presentation.
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During 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 establishes standards for disclosure of operating
segments, products, services, geographic areas and major
customers. The Company is required to adopt this standard for its
fiscal year ended December 31, 1998. Management believes that the
implementation of SFAS 131 will not have a material impact on the
presentation of the Company's financial statements, but may
require additional disclosure.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results
of operations, liquidity and capital resources should be read in conjunction
with the accompanying "Unaudited Consolidated Financial Statements" and "Notes
to Unaudited Consolidated Financial Statement" as well as the Company's annual
report on form 10-K for the year ended December 31, 1997.
RECENT ACQUISITIONS
During the three months ended March 31, 1998, the Company completed two
separate acquisitions in the drilling fluids industry. The consideration paid
for these two acquisitions aggregated 835,418 shares of Newpark common stock and
$4.2 million in cash. One transaction was accounted for as a purchase which
resulted in an excess of purchase price over net assets acquired of $9.8
million. The other acquisition was accounted for as a pooling of interests
effective as of January 1, 1998. Prior year financial statements have not been
restated because the financial information related to this entity was not
considered significant in relation to the financial reporting requirements of
the Company. These two acquisitions provided the Company an entry into the
Alberta, Canada and Permian Basin drilling fluids markets.
BUSINESS DEVELOPMENT
The majority of the growth in revenue in the first quarter of 1998 as
compared to 1997 resulted from the rapid development of the Company's drilling
fluids business. With the Company's increased participation in the drilling
fluids market, the Company began to introduce its "Total Fluids Management"
approach to meeting the needs of its customers. "Total Fluids Management" refers
to the linking of drilling fluids sales and engineering with recycling, waste
management and disposal, as well as ongoing site services. The Company
anticipates that in the near term it will continue to make acquisitions which
are strategic to the Company's core operations and which will enhance its "Total
Fluids Management" strategy.
The Company is currently working on the following projects which are
all complimentary to its core business activities:
o Proprietary drilling fluids that are designed to avoid two major
sources of environmental problems currently created by
conventional drilling fluids. Conventional drilling fluids may
contain high concentrations of salt and oil, which have been
identified as harmful to the environment. The Company is currently
testing alternate products, which avoid the use of these materials
to avoid damage to the environment.
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o Through a 49% owned joint venture, the Company is currently
constructing a manufacturing facility for composite molded mats.
It is anticipated that, if the mats prove successful, these new
mats will reduce trucking and handling cost, substantially
eliminate mat repair cost and improve margins in the Company's mat
rental business.
o In 1997, the Company acquired several additional properties on a
portion of which it plans to establish non-hazardous industrial
waste disposal facilities. To date, permits have been applied for
in Texas and Louisiana for the establishment of industrial
disposal facilities.
OVERVIEW
The Baker-Hughes Rotary Rig Count has historically been viewed as the
most significant single indicator of oil and gas drilling activity in the
domestic market. Newpark's primary market area includes the following rig count
measurement areas: (i) South Louisiana Land; (ii) Texas Railroad Commission
Districts 2 and 3; (iii) Louisiana and Texas Inland Waters; and (iv) Offshore
Gulf of Mexico. The rig count trend in Newpark's primary markets have tracked
these national trends as set forth in the table below:
1Q97 2Q97 3Q97 4Q97 1Q98
---- ---- ---- ---- ----
U.S. Rig Count 853 933 989 997 968
Newpark's market 229 251 258 273 283
Newpark's market to total 26.8% 26.9% 26.1% 27.4% 29.2%
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Source: Baker Hughes Incorporated
As of the week ended April 24, 1998, the U.S. rig count was 880 with
278 rigs, or 31.6%, within Newpark's primary market. The increase in the
percentage of rigs in Newpark's primary market as compared to the total domestic
rig count, reflects the importance of natural gas drilling relative to oil in
that market. Natural gas production accounts for the majority of activity in the
Gulf Coast region. Lower oil prices in the first quarter of 1998 slowed drilling
in markets more oriented toward oil, such as the Austin Chalk region, West Texas
and areas which produce primarily heavy oil, such as Canada and Venezuela.
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RESULTS OF OPERATIONS
Results for the three months ended March 31, 1997, have been restated
to give effect to a drilling fluids acquisition on a pooling of interests basis.
The following table represents revenue by product line, for the three month
periods ended March 31, 1998 and 1997:
Three Month Periods ended March 31,
(Dollars in thousands)
1998 1997
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Revenues by product line:
Fluids management services:
E&P waste and NORM disposal $ 18,064 26.1% $ 13,835 32.2%
Fluids sales & engineering 22,049 31.9 6,950 16.2
---------- ---------- ---------- ----------
Total fluids management services 40,113 58.0 20,785 48.4
Mat services 15,057 21.8 13,254 30.9
Integrated services 13,941 20.2 8,876 20.7
---------- ---------- ---------- ----------
Total revenues $ 69,111 100.0% $ 42,915 100.0%
========== ========== ========== ==========
THREE MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1997
Revenues
Total revenues increased to $69.1 million in 1998, from $42.9 million
in 1997, an increase of $26.2 million, or 61.1%. Drilling fluids sales increased
$15.1 million as a result of a series of purchase acquisitions made during 1997
and in the first quarter of 1998, the expansion of the businesses acquired, and
an increase in drilling activity in Newpark's primary market. The increase in
waste disposal revenues resulted from increases in the domestic market rig
count, increased regulations as well as higher pricing. Effective December 4,
1997, discharges of waste from drilling operations in the state territorial
waters of the Gulf of Mexico were prohibited. These regulations have already
started to impact volumes of waste handled by the Company. Effective May 1,
1998, new temporary testing and reporting requirements became effective, which
will affect all waste generated in Louisiana. It is anticipated that permanent
regulations will be adopted later this year. E&P waste revenues, which
constitutes 97% of 1998 waste disposal revenues and 95% of 1997 waste disposal
revenues, increased to $17.6 million in 1998, compared to $13.2 million in 1997.
The volume of E&P waste received increased to 1.6 million barrels, from 1.4
million barrels. The increase in price accounted for approximately 51% of the
increase in revenues, while volume increases accounted for approximately 49% of
the increase in E&P waste revenues.
The increase of $1.8 million in mat rental revenue reflects the
year-over-year improvement in the domestic market rig count, increased pricing
for Newpark's mat inventory, and the completion of a purchase acquisition in
1997. Mat rental revenues include revenues earned on the initial mat
installation, which typically includes the first 60 days of rental and rerentals
earned beyond
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the initial installation term. In 1998, the initial rentals accounted for
approximately 62% of mat service revenues with rerentals accounting for
approximately 38%. In 1997, initial rentals accounted for 44% of the total mat
service revenues and rerentals accounted for approximately 56%.
Integrated services revenue grew from $8.9 million in 1997 to $13.9
million in 1998, which represents an increase of $5 million, or 57%. This
increase in revenues is directly attributable to increased drilling activity in
1998 as compared to 1997 and includes revenue from installation of production
equipment and facilities as well as end-of-drilling cleanup and site restoration
at drilling locations. Remediation of old sites and facilities activity was
immaterial in the first quarter of 1998.
Operating Costs and Expenses
Operating costs and expenses increased by $18.0 million in 1998 as
compared to 1997. This increase is due primarily to an increase in personnel and
operating assets, which were required to service and facilitate the growth in
revenue, coupled with an increase in variable costs associated with the increase
in revenue activity. While the dollar amount of expenses grew by 59.8%, expenses
as a percentage of revenues declined to 69.7% in 1998 as compared to 70.3% in
1997.
General and Administrative Expenses
General and administrative expenses increased by $103,000 from 1997 to
1998, but decreased as a percentage of revenues to 1.3% in 1998 from 1.9% in
1997.
Equity Earnings of Unconsolidated Affiliate
At the end of 1997 Newpark entered into a joint venture to provide
drilling fluids products and services to Mexico. The Company's share of profits
for the first quarter of 1998 were $455,000.
Operating Income
Operating income of $20.5 million in the 1998 period increased $8.5
million, or 71.2%, compared to $12.0 million in the 1997 period. Factors
contributing to the increase include increased contribution from rapid growth in
drilling fluids revenue, increased profitability from disposal operations, and
increased utilization and higher pricing for Newpark's mat inventory.
Interest Income and Interest Expense
Net interest expense was $2.1 million in 1998 as compared to $811,000
in 1997. The increase in net interest cost is due to an increase of $77.7
million in average outstanding borrowings and an increase in average effective
interest rates from 7.33% in 1997 to 9.06% in 1998. The increase in average
outstanding
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borrowings and average effective interest rates is due to the issuance of $125
million of ten year, 8-5/8% senior subordinated notes in December 1997.
Provision for Income Taxes
For the 1998 and 1997 periods, Newpark recorded income tax provisions
of $6.7 million and $4.0 million, equal to 36.7% and 36.1% of pre-tax income,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130") which provides guidance for
the presentation and display of comprehensive income. Management believes this
statement did not have a significant effect on the financial statement
presentation.
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for disclosure of operating segments, products, services, geographic areas and
major customers. The Company is required to adopt this standard for its fiscal
year ended December 31, 1998. Management believes that the implementation of
SFAS 131 will not have a material impact on the presentation of the Company's
financial statements, but may require additional disclosure.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position decreased by $488,000 during the
three months ended March 31, 1998. Key working capital data is provided below:
March 31, 1998 December 31, 1997
-------------- -----------------
Working Capital (000's) $ 89,724 $ 90,212
Current Ratio 3.04 3.94
The decrease in working capital is primarily attributable to the
acquisition of a drilling fluids company which utilized $4.2 million in working
capital, coupled with $13.6 million in additions to property, plant and
equipment.
For the three months ended March 31, 1998, Newpark's working capital
needs were met primarily from operating cash flow, and excess proceeds from the
subordinated debt issue. Cash on hand, along with cash generated from operations
of $7.4 million, was supplemented by $500,000 from financing activities to
provide for a total of $12.3 million used in investing activities, including the
purchase of drilling fluids and barite grinding assets, the purchase of mats and
supporting equipment, the expansion of waste disposal facilities and the
development of future waste disposal sites and facilities.
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Newpark has a Credit Facility, which provides for a $90.0 million
revolving credit facility, which matures on June 30, 2000, including up to $5.0
million in standby letters of credit. At March 31, 1998, $1.9 million in letters
of credit were issued and outstanding under the Credit Facility, and no
additional amounts were outstanding under the revolving facility. Advances under
the credit facility bear interest at either (i) a specified prime rate or (ii)
the LIBOR rate plus a spread which is determined quarterly based on the Credit
Facility. The Credit Facility requires that Newpark maintain certain specified
financial ratios and comply with other usual and customary requirements. Newpark
was in compliance with all requirements of the Credit Facility at March 31,
1998.
For 1998, Newpark anticipates capital expenditures of approximately $60
to $70 million, including: (i) funds to acquire and develop additional injection
well sites, (ii) funds to expand drilling fluids operations, including the
purchase of equipment associated with fluids processing and recycling and
infrastructure expansions; (iii) funds to expand barite milling capacity; (iv)
funds for the purchase of additional hardwood mats; (v) funds for Newpark's
synthetic mat system; (vi) funds for the upgrade and purchase of equipment; and
(vii) funds for expansion into industrial waste disposal markets.
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 working capital and bank lines
of credit by which it could obtain additional funds for current operations;
however, it regularly evaluates potential borrowing arrangements which may be
utilized to fund future expansion. Newpark believes that its current source of
capital, coupled with internally generated funds, will be sufficient to support
its working capital, capital expenditure and debt service requirements for the
foreseeable future. Except as described in the preceding paragraph, Newpark is
not aware of any material expenditures, significant balloon payments or other
payments on long term obligations or any other demands or commitments, including
off-balance sheet items, to be incurred beyond the next 12 months.
Inflation has not materially impacted the Company's revenues or income.
YEAR 2000
In accordance with the U.S. Securities and Exchange Commission's Staff
Legal Bulletin No. 5, the Company has assessed both the cost of addressing and
the costs or consequences of incomplete or untimely resolution of the Year 2000
issue. Most of the Company's major systems have already been updated or replaced
with applications, in the normal course of business, that are year 2000
compliant. Accordingly, the Company has determined that its estimated costs
related to the year 2000 issue are not anticipated to be material to the
Company's business, operations or financial condition.
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17
In addition, the Company is in the process of initiating formal
communications with its significant suppliers and large customers to determine
the extent to which the Company is vulnerable to those third parties failure to
remedy their own Year 2000 Issues. The Company can give no assurance that the
systems of other companies on which the Company's systems rely will be converted
on time or that a failure to convert by another company would not have a
material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains `forward-looking statements' within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. There are risks and
uncertainties that could cause future events and results to differ materially
from those anticipated by management in the forward-looking statements included
in this report. Among these risks and uncertainties are (a) the level of
exploration for and production of oil and gas and the industry's willingness to
spend capital on environmental and oilfield services; (b) oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the discovery rate of new oil and gas reserves and the
ability of oil and gas companies to raise capital; (c) domestic and
international political, military, regulatory and economic conditions; (d) other
risks and uncertainties generally applicable to the oil and gas exploration and
production industry; (e) any rescission or relaxation of existing regulations
affecting the disposal of E&P waste and NORM, failure of governmental
authorities to enforce such regulations or the ability of industry participants
to avoid or delay compliance with such regulations; (f) future technological
change and innovation, which could result in a reduction in the amount of waste
being generated or alternative methods of disposal being developed; (g)
increased competition in the Company's product lines; and (h) the Company's
success in introducing new products and integrating potential future
acquisitions.
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PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 25, 1998, Newpark acquired Protec Mud Service Ltd., an Alberta
corporation ("Protec"). In the acquisition, Newpark purchased all of the
outstanding shares of capital stock of Protec for $4,162,500 in cash and the
issuance of an aggregate of 385,418 shares of Newpark Common Stock to the two
former stockholders of Protec.
On March 26, 1998, Newpark acquired Southwestern Universal Corp., a
Texas corporation ("Southwestern") in which Joe R. Henderson was the sole
stockholder. In the acquisition, Southwestern was merged with and into Newpark
Drilling Fluids, Inc., and all of the issued and outstanding shares of capital
stock of Southwestern were converted into an aggregate of 450,000 shares of
Newpark Common Stock.
Neither of the foregoing transactions was accomplished by any form of
general solicitation or general advertisement, and Newpark provided each
acquiring party with the information required by Rule 502(b) of Regulation D
under the Securities Act of 1933, as amended (the "Act"). Each acquiring party
also agreed that the shares of Common Stock acquired will be held for investment
purposes and that the representative certificates may bear restrictive legends
indicating that the securities may not be freely transferred. In each
transaction, Newpark had reasonable grounds to believe that each purchaser was
capable of evaluating the merits and risks of the investment and acquired the
Common Stock for investment purposes only. Accordingly, Newpark believes that
the foregoing transactions were exempt from the registration provisions of the
Act pursuant to the exemption provided by Rule 506 of Regulation D, by reason of
such transaction being by an issuer and not involving any public offering within
the meaning of Section 4(2) of the Act.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) The registrant did not file any reports on Form 8-K for the
quarter ended March 31, 1998.
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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, 1998
NEWPARK RESOURCES, INC.
By: /s/Matthew W. Hardey
------------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
16,310
0
92,415
(2,262)
21,454
133,646
270,256
(69,599)
481,166
(43,922)
0
0
0
(651)
(289,952)
(290,603)
69,111
69,111
39,027
48,196
456
0
2,135
18,324
6,724
11,600
0
0
0
11,600
0.18
0.18
