1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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: 69,151,675 shares at May 5, 2000.
================================================================================
Page 1 of 20
2
NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q/A
FOR THE THREE MONTH PERIOD ENDED
March 31, 2000
Item Page
Number Description Number
- ------ ----------- ------
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets as of March 31, 2000 and
December 31, 1999 ...................................... 3
Statements of Income for the Three Month Periods
Ended March 31, 2000 and 1999........................... 4
Statements of Comprehensive Income for the Three Month
Periods Ended March 31, 2000 and 1999................... 5
Statements of Cash Flows for the Three Month Periods
Ended March 31, 2000 and 1999........................... 6
Notes to Unaudited Consolidated Financial Statements ..... 7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 11
PART II
6 Exhibits and Reports on Form 8-K............................. 19
Signatures................................................... 20
2
3
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited) March 31, December 31,
(In thousands, except share data) 2000 1999
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,290 $ 4,517
Accounts and notes receivable, less allowance
of $11,084 in 2000 and $10,836 in 1999 56,195 57,906
Inventories 18,044 17,524
Current taxes receivable 165 165
Deferred tax asset 9,927 10,463
Other current assets 6,971 8,602
------------- -------------
TOTAL CURRENT ASSETS 95,592 99,177
Property, plant and equipment, at cost, net of
accumulated depreciation 165,937 166,603
Cost in excess of net assets of purchased businesses,
net of accumulated amortization 115,133 116,465
Deferred tax asset 33,595 33,595
Other assets 33,670 34,701
------------- -------------
$ 443,927 $ 450,541
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,301 $ 627
Current maturities of long-term debt 776 991
Accounts payable 21,114 29,232
Accrued liabilities 16,145 14,453
Arbitration settlement payable 5,226 5,630
------------- -------------
TOTAL CURRENT LIABILITIES 44,562 50,933
Long-term debt 209,092 209,210
Arbitration settlement payable 1,236 2,451
Other non-current liabilities 1,511 1,608
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized,150,000 shares outstanding 13,121 13,009
Common Stock, $.01 par value, 100,000,000 shares
authorized, 69,131,430 shares outstanding in 2000
and 69,079,243 in 1999 690 690
Paid-in capital 323,055 322,724
Unearned restricted stock compensation (3,373) (3,838)
Accumulated other comprehensive income 55 250
Retained deficit (146,022) (146,496)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 187,526 186,339
------------- -------------
$ 443,927 $ 450,541
============= =============
See Accompanying Notes to Consolidated Financial Statements
3
4
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month Periods Ended March 31,
(Unaudited)
(In thousands, except per share data) 2000 1999
------------- -------------
Revenues $ 57,276 $ 52,779
Operating costs and expenses:
Cost of services provided 35,429 33,713
Operating costs 13,964 12,859
------------- -------------
49,393 46,572
General and administrative expenses 955 490
Goodwill amortization 1,248 1,171
------------- -------------
Operating income 5,680 4,546
Interest income (222) (298)
Interest expense 4,593 3,977
------------- -------------
Income before income taxes and cumulative effect
of accounting change 1,309 867
Provision for income taxes 535 309
------------- -------------
Income before cumulative effect of accounting change 774 558
Cumulative effect of accounting change,
(less applicable income taxes) -- 1,471
------------- -------------
Net income 774 2,029
Less:
Preferred stock dividends 188 --
Accretion of discount on preferred stock 112 --
------------- -------------
Net income applicable to common and common
equivalent shares $ 474 $ 2,029
============= =============
Weighted average common and common equivalent shares outstanding:
Basic 69,095 68,872
============= =============
Diluted 69,702 69,185
============= =============
Net income per common and common equivalent share:
Basic:
Income before cumulative effect of accounting change $ 0.01 $ 0.01
Cumulative effect of accounting change -- 0.02
------------- -------------
Net income $ 0.01 $ 0.03
============= =============
Diluted:
Income before cumulative effect of accounting change $ 0.01 $ 0.01
Cumulative effect of accounting change -- 0.02
------------- -------------
Net income $ 0.01 $ 0.03
============= =============
See Accompanying Notes to Consolidated Financial Statements
4
5
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Month Periods Ended March 31,
(Unaudited)
(In thousands) 2000 1999
------------- -------------
Net income $ 774 $ 2,029
Other comprehensive income (loss):
Foreign currency translation adjustments (195) 220
------------- -------------
Comprehensive income $ 579 $ 2,249
============= =============
See Accompanying Notes to Consolidated Financial Statements
5
6
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended March 31,
(Unaudited)
(In thousands ) 2000 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 774 $ 2,029
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 5,590 6,935
Provision for deferred income taxes 535 309
Cumulative effect of accounting change -- (1,471)
Other (56) (264)
Change in assets and liabilities, net of effects of acquisitions:
Decrease in accounts and notes receivable 1,585 4,812
Decrease (increase) in inventories (520) 1,000
Decrease in other assets 2,200 1,887
Decrease in accounts payable (8,488) (9,796)
Increase in accrued liabilities and other 1,058 611
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,678 6,052
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,252) (6,970)
Proceeds from disposal of property, plant and equipment 332 104
Payments received on notes receivable 270 758
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (2,650) (6,108)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit -- (10,400)
Proceeds from equipment leasing -- 9,320
Principal payments on notes payable and long-term debt (409) (576)
Proceeds from exercise of stock options 154 --
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (255) (1,656)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (227) (1,712)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,517 6,611
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 4,290 $ 4,899
============= =============
Included in accounts payable and accrued liabilities at March 31, 2000 and 1999
were equipment purchases of approximately $1.4 million.
Interest of $1.9 million and $1.6 million was paid during the three months
ending March 31, 2000 and 1999, respectively. Income taxes of $102,000 and
$217,000 were paid during the three months ending March 31, 2000 and 1999,
respectively.
See Accompanying Notes to Consolidated Financial Statements
6
7
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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 March 31, 2000, and the results of its operations and its
cash flows for the three month periods ended March 31, 2000 and 1999. All
such adjustments are of a normal recurring nature. These interim financial
statements should be read in conjunction with the December 31, 1999 audited
financial statements and related notes filed on Form 10-K, as amended. The
results of operations for the three month period ended March 31, 2000 are
not necessarily indicative of the results to be expected for the entire
year.
Certain reclassifications of prior period amounts have been made to
conform to the current period presentation.
NOTE 2 - SALE OF SOLIDS CONTROL OPERATIONS
In September, 1999, the Company's management adopted a plan to
discontinue its solids control operations and simultaneously entered into
an alliance agreement with a division of Tuboscope, which is now providing
these services to Newpark's customers. The operating results for the solids
control operations are included in the results for the fluids sales and
engineering segment. Revenues from the solids control operations totaled
approximately $712,000 in the first quarter of 2000 and $2.0 million in the
first quarter of 1999. These operations were at break even for the first
quarter of 2000 and generated an operating loss of approximately $557,000
in the first quarter of 1999.
The results for the solids control operations had previously been
reported as discontinued operations in the financial statements. The
previously filed financial statements have been restated to reflect the
inclusion of the results for the solids control operations as part of
continuing operations of the fluids sales and engineering segment.
The following table shows the previously reported and restated
amounts:
Three Months Ended March 31,
----------------------------
2000 1999
------- --------
As previously reported-
Income from continuing operations
before cumulative effect of
accounting changes $ 774 $ 896
Net income $ 774 $ 2,029
Income per common and common
equivalent share:
Basic:
Continuing operations $ .01 $ .01
Net income $ .01 $ .03
Diluted:
Continuing operations $ .01 $ .01
Net income $ .01 $ .03
Three Months Ended March 31,
----------------------------
2000 1999
-------- ---------
As restated-
Income before cumulative effect of
accounting changes $ 774 $ 558
Net income $ 774 $ 2,029
Income per common and common
equivalent share:
Basic:
Income before cumulative effect of
accounting changes $ .01 $ .01
Net income $ .01 $ .03
Diluted:
Income before cumulative effect of
accounting changes $ .01 $ .01
Net income $ .01 $ .03
NOTE 3 - 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 from operations for the three months ended March
31, 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. In
addition, the effect of the change in 1999 is to increase the net income
from operations for the three months ended March 31, 1999 by $212,000
(related per share amounts of $.00 basic and diluted).
NOTE 4 - EARNINGS PER SHARE
Basic net income per share was calculated by dividing net income by the
weighted-average number of common shares outstanding during the period.
Diluted net income per share was calculated by dividing net income by the
weighted-average number of common shares outstanding during the period plus
the weighted-average number of dilutive stock options granted to outside
directors and certain employees which totaled approximately 607,000 shares
and 313,000 shares during the three months ended March 31, 2000 and 1999,
respectively. Options and warrants which were considered antidilutive
because the exercise price of the options exceeded the average price for
the applicable
7
8
period totaled approximately 5,219,000 shares and 3,200,000 shares during
the three months ended March 31, 2000 and 1999, respectively.
NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE
Included in current accounts and notes receivable at March 31, 2000 and
December 31, 1999 are:
(In thousands) 2000 1999
------------- -------------
Trade receivables $ 63,378 $ 62,054
Unbilled revenues 1,644 2,874
------------- -------------
Gross trade receivables 65,022 64,928
Allowance for doubtful accounts (11,084) (10,836)
------------- -------------
Net trade receivables 53,938 54,092
Notes and other receivables 2,257 3,817
------------- -------------
Total $ 56,195 $ 57,909
============= =============
NOTE 6 - INVENTORY
The Company's inventory consisted of the following items at March 31,
2000 and December 31, 1999:
(In thousands) 2000 1999
------------- -------------
Drilling fluids raw materials
and components $ 13,788 $ 13,062
Logs 3,041 3,338
Supplies 713 724
Other 502 400
------------- -------------
Total $ 18,044 $ 17,524
============= =============
NOTE 7 - LONG-TERM DEBT
As of March 31, 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 March 31, 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
June 30, 2001. At March 31, 2000, $16.7 million in letters of credit were
issued and outstanding under the credit facility and $83.3 million was
outstanding under the revolving facility. Based on these outstanding
amounts and the outstanding letters of credit, the Company had no
availability under this facility at March 31, 2000. The facility bears
interest at either a specified prime rate (9.0% at March 31, 2000) or the
LIBOR rate (6.28% at March 31, 2000) plus a spread determined quarterly
based on the ratio of the Company's funded debt to cash flow. The weighted
average interest rate on the outstanding balance under the credit
8
9
facility for the first three months of 2000 and 1999 was 8.97% and 7.17%,
respectively.
On March 27, 2000 the Company and the banks agreed to an amendment to
the credit facility which provided for the following: (1) the facility will
be secured by substantially all of the accounts receivable, inventory and
property plant and equipment of the Company; (2) the financial covenants as
of December 31, 1999 and going forward will provide for covenants that are
consistent with the Company's current financial condition and anticipated
outlook, (3) the variable interest rate will be increased based on the
Company's Debt to EBITDA ratio, as defined, to a range of (a) prime plus 0%
to prime plus 1.25% or (b) LIBOR plus 1.25% to LIBOR plus 4%, and (4) the
Company will pay an amendment fee of $250,000. The initial expected
interest rate effective as of the amendment is prime plus 1.25% (10.25% at
May 1, 2000) or LIBOR plus 4% (10.50% at May 1, 2000). The Company was in
compliance with all financial covenants of the amended credit facility as
of March 31, 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 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.
NOTE 8 - SEGMENT DATA
Summarized financial information concerning the Company's reportable
segments is shown in the following table (dollars in thousands):
Three Months Ended March 31,
2000 1999
----------------------------- -----------------------------
Revenues by segment:
E&P waste disposal $ 12,462 21.8% $ 10,834 20.5%
Fluids sales & engineering 29,346 51.2 23,554 44.6
Mat & integrated services 15,468 27.0 18,391 34.9
------------- ------------- ------------- -------------
Total $ 57,276 100.0% $ 52,779 100.0%
============= ============= ============= =============
Three Months Ended March 31,
2000 1999
------------- -------------
Operating income (loss) by segment:
E&P waste disposal $ 3,685 $ 4,042
Fluids sales & engineering 1,751 (671)
Mat & integrated services 2,447 2,836
------------- -------------
Total by segment $ 7,883 $ 6,207
General and administrative expenses 955 490
Goodwill amortization 1,248 1,171
------------- -------------
Total operating income $ 5,680 $ 4,546
============= =============
The figures above are shown net of intersegment transfers.
9
10
NOTE 9 - 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
quarter of 2000. In addition, approximately $500,000 of previously accrued
mat disposal costs were incurred during the first quarter of 2000 in
connection with the completion of mat disposal activities.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition, results of
operations, liquidity and capital resources should be read together with our
"Unaudited Consolidated Financial Statements" and "Notes to Unaudited
Consolidated Financial Statements" as well as our annual report on form 10-K for
the year ended December 31, 1999, as amended.
Results of Operations
Our operating results depend primarily on oil and gas drilling activity
levels in the markets we serve. These levels, in turn, depend on oil and gas
commodities pricing, inventory levels and product demand. Key average rig count
data for the last several quarters is listed in the following table:
1Q99 2Q99 3Q99 4Q99 1Q00
------- ------- ------- ------- -------
U.S. Rig Count 551 521 637 773 770
Newpark's primary Gulf Coast market 185 172 183 213 223
Newpark's primary market to total 33.6% 33.0% 28.7% 27.6% 29.0%
Canadian Rig Count 290 104 253 337 480
- ----------
Source: Baker Hughes Incorporated
Our primary Gulf Coast market, which accounted for approximately 70% of
first quarter 2000 revenues, includes: (1) South Louisiana Land; (2) Texas
Railroad Commission Districts 2 and 3; (3) Louisiana and Texas Inland Waters;
and (4) Offshore Gulf of Mexico. According to Baker Hughes Incorporated, as of
the week ended May 5, 2000, the U.S. rig count was 833, with 245 rigs, or 29.4%,
within our primary market.
The Canadian "muskeg" presents much of the same soil stability and
access problems as does the marsh area of the U.S. Gulf Coast region. Most
drilling activity in the muskeg has historically been conducted when winter
temperatures freeze the soil and stabilize it, allowing safe access. The
quarterly fluctuations in the Canadian rig count generally reflect the seasonal
nature of drilling activity related to these access issues. As of the week ended
May 5, 2000, the Canadian rig count was 170.
The table below shows the average crude oil and natural gas prices for
the first quarters of 2000 and 1999:
2000 1999
--------- ---------
West Texas Intermediate Crude ($/bbl) $ 28.86 $ 13.17
U.S. Spot Natural Gas ($/mcf) $ 2.63 $ 1.80
- ----------
Source: Wall Street Journal
Oil prices declined throughout 1998 and remained low through the first
quarter of 1999. Oil prices began to recover in the second quarter of 1999 and
improved throughout the remainder of 1999 and into the first quarter of 2000.
With the improvement in oil and gas prices in the second half of 1999, the
average rig activity increased for the first time in
11
12
six quarters during the third quarter of 1999. The increase in rig activity has
continued through the first quarter of 2000, but has trailed the recovery in oil
and gas prices.
During 2000, gas storage levels reached their lowest point in over
three years, and current industry forecasts reflect a stable to growing demand
for natural gas. In addition, current productive gas reserves are being depleted
at a rate faster than current replacement through drilling activities.
Accordingly, we believe that gas drilling activity will increase over current
levels. Because most 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 periods presented have been restated to give
effect to the reclassification of results for our solids control operations from
a presentation as discontinued operations to a presentation as part of
continuing operations of our fluids sales and engineering segment. We decided to
discontinue our solids control operation in September 1999 and simultaneously
entered into an alliance agreement with a division of Tuboscope which is now
providing these services to our customers. Operating results for the quarter
ended March 31, 1999 have also been restated to reflect the cumulative effect of
an accounting change effective January 1, 1999. Summarized financial information
concerning our reportable segments for the three month periods ended March 31,
2000 and 1999 is shown below:
Three Months Ended March 31,
2000 1999
----------------------------- -----------------------------
Revenue by segment:
E&P waste disposal $ 12,462 21.8% $ 10,834 20.5%
Fluids sales & engineering 29,346 51.2 23,554 44.6
Mat & integrated services 15,468 27.0 18,391 34.9
------------- ------------- ------------- -------------
Total $ 57,276 100.0% $ 52,779 100.0%
============= ============= ============= =============
Three Months Ended March 31,
2000 1999
------------- -------------
Operating income (loss) by segment:
E&P waste disposal $ 3,685 $ 4,042
Fluids sales & engineering 1,751 (671)
Mat & integrated services 2,447 2,836
------------- -------------
Total by segment 7,883 6,207
General and administrative expenses 955 490
Goodwill amortization 1,248 1,171
------------- -------------
Total operating income $ 5,680 $ 4,546
============= =============
The figures above are shown net of intersegment transfers.
Revenues
Total revenues increased to $57.3 million in 2000, from $52.8 million
in 1999, an increase of $4.5 million, or 8.5%. The components of the increase
in revenues were a $1.6 million increase in waste disposal revenues and a $5.8
million increase in drilling fluids sales and engineering revenues. These
increases were partially offset by a $2.9 million decrease in mat and integrated
services revenues.
The $1.6 million or 15.0% increase in waste disposal revenue is
attributable to the increase in waste volumes received as a result of increases
in drilling activity. During the
12
13
first quarter of 2000, we received 942,000 barrels of E&P waste, compared to
783,000 barrels in the comparable quarter of 1999, a 20.3% increase. Pricing
remained stable during the comparable periods. The quarter ended March 31, 2000
included $235,000 of revenue from nonhazardous industrial disposal operations,
which began in August 1999. The quarter ended March 31, 1999 included $754,000
of revenues from our interest in oil and gas properties, as compared to $55,000
of such revenue in 2000. E&P waste disposal revenues, exclusive of these other
revenue sources, were $12.2 million in 2000 and $10.1 million in 1999,
representing a 20.8% increase.
The $5.8 million or 24.6% increase in drilling fluids revenue is
attributable to the increase in drilling activity, especially in Canada. In
addition, the drilling fluids segment continued to penetrate the markets that it
serves and gain market share. During the first quarter of 2000, we serviced an
average of 126 rigs, compared to 103 rigs in the first quarter of 1999. The
average annualized revenue per rig was approximately $932,000 in the first
quarter of 2000 compared to $915,000 for the first quarter of 1999.
Revenues for this segment include revenues from solids control
operations of approximately $712,000 in the first quarter of 2000 and $2.0
million in the first quarter of 1999. These operations were discontinued in
September 1999. Certain solids control contracts which remained in progress as
of December 31, 1999 were completed in 2000. The average annualized revenue per
rig excluding solids control revenues was approximately $909,000 in the first
quarter of 2000 and $836,000 in the first quarter of 1999.
The $2.9 million or 15.9% decrease in mat and integrated services is
primarily due to a lower volume of mat locations, which was partially offset by
an increase in pricing. The average price per square foot was $0.75 in the first
quarter of 2000, compared to $0.65 in the first quarter of 1999. In addition,
expansion of our Canadian mat operations helped to offset the decrease in
revenues in the Gulf Coast. For the first quarter of 2000, Canadian mat rental
revenues were $1.1 million, compared to $175,000 for the first quarter of 1999.
Our mat system has been well accepted in Canada. In addition, current
bidding activity for mat rental services is strengthening in our primary Gulf
Coast market. More importantly, the quality of the projects in this market is
improving in anticipation of deeper drilling and increased activity in the
transition zone of Louisiana and Texas. While there were no sales of composite
mats in the first quarter of 2000, the interest level, particularly with
numerous branches of the armed services and other governmental support agencies,
continues to grow.
Operating Income
Operating income of $5.7 million for the first quarter of 2000
increased $1.1 million, or 24.9%, compared to operating income of $4.5 million
in 1999. Segment operating income increased to $7.9 million in the first quarter
of 2000 from $6.2 million in 1999, an increase of $1.7 million, or 27.4%. The
components of the increase were a $2.4 million increase in fluids sales and
engineering operating income, which was partially offset by a $357,000 decrease
in E&P waste disposal operating income and a $389,000 decrease in mat and
integrated services operating income.
The $357,000 decrease in waste disposal operating income, in spite of
the $1.6 million increase in revenues, is primarily due to fluctuations in the
mix of revenues. Included in revenues for the first quarter of 1999 were
revenues from our interest in oil and gas properties of $754,000, at nearly 90%
gross margin, compared to only $55,000 of such revenues in 2000. First quarter
2000 revenues included $235,000 of industrial disposal revenues, representing
the break-even point for these operations. E&P waste operating income for the
first quarter of 2000, exclusive of these items, was approximately $3.7 million,
or a 30.3% operating margin. E&P waste operating income for the first
13
14
quarter of 1999, exclusive of these items, was approximately $3.4 million, or a
33.6% operating margin. The decline in operating margin from the first quarter
of 1999 to the first quarter of 2000 is primarily due to increased barge rental
costs, repairs and maintenance and trucking costs.
The $2.4 million increase in fluids sales and engineering operating
income is due primarily to the increase in revenue of $5.8 million, representing
an incremental margin of 41.4%. 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) as these products
gain wider customer acceptance. In addition, we expect to obtain better margins
on commodity products as market activity increases due to improved pricing and
lower product costs.
Operating income for this segment includes the results of our solids
control operations, which were discontinued in September 1999. Operating results
associated with 1999 solids control contracts which were in progress or
completed during the quarter ended March 31, 2000 were break even. Included
in the operating loss for the fluids sales and engineering segment for the
quarter ended March 31, 1999 is an operating loss of $557,000 associated with
solids control operations. Excluding the operating results of the solids
control operations, operating income in the segment increased $1.9 million,
representing an incremental margin of 26.3%.
Mat and integrated services operating income decreased $389,000 on a
$2.9 million decrease in revenues. The high incremental margin is attributable
to improved pricing and reductions in operating costs, particularly
depreciation, associated with resizing our domestic wooden mat fleet and
introducing our new composite mat system. During 1998 and 1999, we disposed of a
significant portion of our domestic wooden mat fleet. In 1999, we also recorded
an impairment charge for our remaining domestic wooden mat fleet, in response to
both changing market conditions and our introducing the new composite mat. 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 first quarter of 2000 were
$955,000 million, or 1.7% of revenues, compared to $490,000, or 0.9% of
revenues, in 1999. 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.
Goodwill Amortization
Goodwill amortization for the first quarter of 2000 was $1.3 million,
as compared to $1.2 million for 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 $4.4 million for the first quarter of 2000, an
increase of $692,000, or 18.8%, as compared to $3.7 million for the first
quarter of 1999. The increase in net interest cost is due to an increase of $7.2
million in average outstanding borrowings and an increase in the average
effective interest rate from 8.79% in 1999 to 9.34% in 2000. In addition,
interest capitalization decreased from $500,000 in the first quarter of 1999 to
14
15
$332,000 in the first 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, under the terms of an amendment to our
credit facility in March 2000, and as a result of recent increases in the prime
lending rate and LIBOR rate, we expect that the average interest rate on the
credit facility will be higher than the average rate experienced in the first
quarter of 2000.
Provision for Income Taxes
For the quarter ended March 31, 2000 we recorded an income tax
provision of $535,000, reflecting an income tax rate of 40.9%. For the quarter
ended March 31, 1999 we recorded an income tax provision of $309,000, reflecting
an income tax rate of 35.6%. The higher effective rate in 2000 is due to the
effects of non-deductible items such as goodwill in relation to the expected
level of pretax income for 2000.
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 quarter ended March 31, 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
In April 1999, we sold 150,000 shares of preferred stock, as discussed
below. For the quarter ended March 31, 2000, dividends of $187,500 were paid on
the preferred stock. These dividends were paid in the form of 25,952 shares of
our common stock. The accretion of the discount on the preferred stock was
$112,350 for the quarter ended March 31, 2000.
15
16
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased by $2.8 million during
the quarter ended March 31, 2000. Key working capital data is provided below
(dollars in thousands):
March 31, December 31,
2000 1999
------------- -------------
Working Capital (000's) $ 51,030 $ 48,244
Current Ratio 2.15 1.95
The Company's long term capitalization was as follows (in thousands):
March 31, December 31,
2000 1999
------------- -------------
Long-term debt (including current maturities):
Credit facility $ 83,250 $ 83,250
Subordinated debt 125,000 125,000
Other 1,618 1,951
------------- -------------
Total long-term debt 209,868 210,201
Stockholders' equity 187,526 186,339
------------- -------------
Total capitalization $ 397,394 $ 396,540
============= =============
For the quarter ended March 31, 2000, Newpark's working capital needs
were met primarily from operating cash flow. Total cash generated from
operations of $2.7 million helped provide for $2.7 million used in investing
activities and $255,000 used in financing activities.
As of March 31, 2000, we maintained a $100.0 million bank credit
facility, including up to $20.0 million in standby letters of credit, in the
form of a revolving line of credit commitment which expires June 30, 2001. At
March 31, 2000, $16.7 million in letters of credit were issued and outstanding
under the Credit Facility and $83.3 million was outstanding under the revolving
facility. Based on these outstanding amounts and the outstanding letters of
credit, we had no availability under this facility at March 31, 2000. The
weighted average interest rate on the outstanding balance under the Credit
Facility was 8.97% in the first quarter of 2000 and 7.17% in the first quarter
of 1999.
On March 27, 2000 the banks agreed to amend the Credit Facility to
provide for the following: (1) the facility will be secured by substantially all
of our accounts receivable, inventory and property plant and equipment; (2) the
financial covenants as of December 31, 1999 and going forward will provide for
covenants that are consistent with our current financial condition and
anticipated outlook, (3) the variable interest rate will be increased based on
our Debt to EBITDA ratio, as defined, to a range of (a) prime plus 0% to prime
plus 1.25% or (b) LIBOR plus 1.25% to LIBOR
16
17
plus 4%, and (4) we will pay an amendment fee of $250,000. Under the amended
agreement, the expected interest rate beginning after the effective date of the
amendment is prime plus 1.25% (10.25% at May 1, 2000) or LIBOR plus 4% (10.50%
at May 1, 2000). Several of the financial covenants under the amended credit
facility are at or near their limit. Any losses sustained in future quarters may
cause us to not be in compliance with the financial covenants unless waivers or
amendments can be obtained from the banks. We were in compliance with all
financial covenants of the amended credit facility as of March 31, 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.
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 $2.9 million. We plan to subsequently
lease this facility from the new owner under an operating lease. We continue to
seek alternate financing for the LOMA Company, LLC, which produces composite
mats and in which we hold a 49% joint venture interest. We currently supply a
letter of credit to secure this debt. Any contemplated transaction could
potentially release all or part of the letter of credit and restore availability
under the Credit Facility.
Potential sources of additional funds, if required, would include
additional operating leases for equipment, selling certain operating assets and
selling equity securities. Other than as discussed above, we presently have no
commitments beyond our working capital and bank lines of credit by which we
could obtain additional funds for current operations. However, we regularly
evaluate potential borrowing arrangements which we may utilize to fund future
expansion. We believe that our current sources of capital, coupled with
internally generated funds, will be sufficient to support our working 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
17
18
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 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.
18
19
PART II
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, 2000.
19
20
NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: August 24, 2000
NEWPARK RESOURCES, INC.
By: /s/Matthew W. Hardey
-----------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
20
21
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
5
1,000
3-MOS
DEC-31-2000
JAN-01-2000
MAR-31-2000
4,290
0
67,279
11,084
18,044
95,592
222,427
56,490
443,927
44,562
0
0
13,121
690
173,715
443,927
57,276
57,276
35,429
49,393
0
0
4,593
1,309
535
774
0
0
0
774
0.01
0.01
