1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001 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: 70,135,992 shares at August 3, 2001.
Page 1 of 23
================================================================================
2
NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
June 30, 2001
Item Page
Number Description Number
- ------ ----------- ------
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets as of June 30, 2001 and
December 31, 2000 .................................. 3
Statements of Income for the Three Month and Six Month
Periods Ended June 30, 2001 and 2000 ............... 4
Statements of Comprehensive Income for the Six Month
Periods Ended June 30, 2001 and 2000................ 5
Statements of Cash Flows for the Six Month Periods
Ended June 30, 2001 and 2000........................ 6
Notes to Unaudited Consolidated Financial Statements .. 7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12
PART II
6 Exhibits and Reports on Form 8-K.......................... 22
Signatures ............................................... 23
2
3
Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited) June 30, December 31,
- --------------------------------------------------------------------------------------------------
(In thousands, except share data) 2001 2000
- --------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,842 $ 31,245
Accounts and notes receivable, less allowance
of $2,382 in 2001 and $2,482 in 2000 104,364 75,776
Inventories 27,945 24,998
Deferred tax asset 18,008 15,715
Other current assets 9,419 4,530
--------- ---------
TOTAL CURRENT ASSETS 163,578 152,264
Property, plant and equipment, at cost, net of
accumulated depreciation 188,981 184,755
Cost in excess of net assets of purchased businesses,
net of accumulated amortization 108,724 111,487
Deferred tax asset 10,316 22,965
Other assets 35,514 35,972
--------- ---------
$ 507,113 $ 507,443
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 294 $ 329
Accounts payable 24,421 25,816
Accrued liabilities 21,041 13,621
Arbitration settlement payable -- 2,448
--------- ---------
TOTAL CURRENT LIABILITIES 45,756 42,214
Long-term debt 180,232 203,520
Other non-current liabilities 950 1,654
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, 390,000 shares outstanding in
2001 and 2000 73,745 73,521
Common Stock, $.01 par value, 100,000,000 shares
authorized, 70,108,343 shares outstanding in 2001
and 69,587,725 in 2000 701 696
Paid-in capital 332,951 329,650
Unearned restricted stock compensation (1,633) (2,339)
Accumulated other comprehensive income (953) (607)
Retained deficit (124,636) (140,866)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 280,175 260,055
--------- ---------
$ 507,113 $ 507,443
========= =========
See Accompanying Notes to Consolidated Financial Statements
3
4
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Month Periods Ended June 30,
(Unaudited)
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
- --------------------------------------------------------------------------------------
(In thousands, except per share data) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------
Revenues $108,331 $ 60,202 $207,728 $117,478
Operating costs and expenses:
Cost of services provided 66,073 36,200 127,103 71,629
Operating costs 20,164 14,606 99,270 28,570
-------- -------- -------- --------
86,237 50,806 166,373 100,199
General and administrative expenses 1,197 696 2,267 1,651
Goodwill amortization 1,233 1,242 2,467 2,490
-------- -------- -------- --------
Operating income 19,664 7,458 36,621 13,138
Foreign currency exchange (gain) loss (246) -- 245 --
Interest income (214) (236) (448) (458)
Interest expense 4,190 4,757 8,405 9,350
-------- -------- -------- --------
Income before income taxes 15,935 2,937 28,419 4,246
Provision for income taxes 5,737 1,175 10,232 1,710
-------- -------- -------- --------
Net income before effects
of preferred stock 10,198 1,762 18,187 2,536
Less:
Preferred stock dividends
and accretion 975 413 1,950 713
Non-cash conversion feature at
preferred stock issuance -- 3,529 -- 3,529
-------- -------- -------- --------
Net income (loss) applicable to common
and common equivalent shares $ 9,223 $ (2,180) $ 16,237 $ (1,706)
======== ======== ======== ========
Income (loss) per common and
common equivalent share:
BASIC:
Income before effects of
preferred stock $ 0.14 $ 0.03 $ 0.26 $ 0.04
Preferred stock dividends and accretion (0.01) (0.01) (0.03) (0.01)
Non-cash conversion feature at
preferred stock issuance -- (0.05) -- (0.05)
-------- -------- -------- --------
Net income (loss) $ 0.13) $ (0.03) $ 0.23 $ (0.02)
======== ======== ======== ========
DILUTED:
Income before effects of
preferred stock $ 0.14 $ 0.03 $ 0.26 $ 0.04
Preferred stock dividends and
accretion (0.01) (0.01) (0.03) (0.01)
Non-cash conversion feature at
preferred stock issuance -- (0.05) -- (0.05)
-------- -------- -------- --------
Net income (loss) $ 0.13 $ (0.03) $ 0.23 $ (0.02)
======== ======== ======== ========
</Table>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
5
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Month Periods Ended June 30,
(Unaudited)
- -----------------------------------------------------------------------------------------
(In thousands) 2001 2000
- -----------------------------------------------------------------------------------------
Net income $ 10,198 $ 2,536
Other comprehensive loss:
Foreign currency translation adjustments (346) (615)
-------- -------
Comprehensive income $ 9,852 $ 1,921
======== =======
See Accompanying Notes to Consolidated Financial Statements.
5
6
Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended June 30,
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
(In thousands ) 2001 2000
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,187 $ 2,536
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 13,244 11,158
Provision for deferred income taxes 10,232 1,721
Other (84) (227)
Change in assets and liabilities, net of effects of acquisitions:
Increase in accounts and notes receivable (28,531) (2,700)
Increase in inventories (2,947) (5,247)
Increase in other assets (5,592) (389)
Decrease in accounts payable (1,460) (11,851)
Increase (decrease) in accrued liabilities and other 3,313 (5,291)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,362 (10,290)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,234) (7,723)
Proceeds from disposal of property, plant and equipment 1,226 745
Payments received on notes receivable 27 540
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (12,981) (6,438)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (23,148) (12,868)
Proceeds from preferred stock offering -- 29,800
Principal payments on notes payable and long-term debt (177) (1,043)
Proceeds from exercise of stock options 2,541 431
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (20,784) 16,320
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (27,403) (408)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31,245 4,517
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,842 $ 4,109
======== ========
Included in accounts payable and accrued liabilities at June 30, 2001 and 2000
were equipment purchases of approximately $1.1 million and $2.0 million,
respectively.
Interest of $7.0 million and $9.6 million was paid during the six months ending
June 30, 2001 and 2000, respectively. Income taxes paid, net of refunds, totaled
$461,000 and $145,000 for the six months ending June 30, 2001 and 2000,
respectively.
See Accompanying Notes to Consolidated Financial Statements.
6
7
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to present fairly the
financial position of Newpark Resources, Inc. ("Newpark") as of June 30, 2001,
and the results of its operations and its cash flows for the three month and six
month periods ended June 30, 2001 and 2000. All such adjustments are of a normal
recurring nature. These interim financial statements should be read in
conjunction with the December 31, 2000 audited financial statements and related
notes filed on Form 10-K. The results of operations for the three month and six
month periods ended June 30, 2001 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.
B. PREFERRED STOCK OFFERING
As required by EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios",
during the quarter ended June 30, 2000, Newpark recorded a one-time adjustment
of $3.5 million ($.05 per share) to its equity accounts to reflect the value
assigned to the conversion feature of the Series B Preferred Stock at the date
of issuance. This adjustment did not have any effect on Newpark's operating
results or total equity. The effect of this adjustment is presented as a
dividend in the accompanying financial statements; however, Newpark issued no
additional shares or cash.
C. EARNINGS PER SHARE
The following table presents the reconciliation of the numerator and
denominator for calculating income (loss) per share in accordance with the
disclosure requirements of SFAS 128 (in thousands, except per share amounts).
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2001 2000 2001 2000
------- -------- ------- --------
Income (loss) applicable to common and
common equivalent shares $ 9,223 $ (2,180) $16,237 $ (1,706)
Add:
Series B and C Preferred Stock 675 -- 1,350 --
------- -------- ------- --------
dividends
Adjusted income (loss) applicable to
common and common equivalent shares $ 9,898 $ (2,180) $17,587 $ (1,706)
======= ======== ======= ========
7
8
Weighted average number of common
shares outstanding 69,956 69,127 69,816 69,111
Add:
Net effect of dilutive stock options
and warrants 1,728 -- 1,099 --
Shares assumed issued upon conversion
of Series B and C Preferred Stock 6,250 -- 6,250 --
------- -------- ------- --------
Adjusted weighted average number of
common shares outstanding 77,934 69,127 77,165 69,111
======= ======== ======= ========
Income (loss) applicable to common and
common equivalent shares:
Basic $ .13 $ (.03) $ .23 $ (.02)
======= ======== ======= ========
Diluted $ .13 $ (.03) $ .23 $ (.02)
======= ======== ======= ========
Basic net income (loss) per share was calculated by dividing net income
(loss) by the weighted-average number of common shares outstanding during the
period. For the quarter and six months ended June 30, 2001, Newpark had dilutive
stock options and warrants of approximately 10.4 million shares and 7.1 million
shares, respectively, which were assumed exercised using the treasury stock
method. The resulting net effects of stock options and warrants were used in
calculating diluted income per share for these periods. Options and warrants to
purchase a total of approximately 150,000 shares and 3.4 million shares of
common stock were outstanding during the quarter and six months ended June 30,
2001, respectively, but were not included in the computation of diluted income
per share because they were anti-dilutive.
Options and warrants excluded from the computation of diluted loss per
share for the quarter and six months ended June 30, 2000 totaled approximately
10.2 million shares. Since Newpark incurred a loss per share for these periods,
these potentially dilutive options are excluded from the computation of loss per
share, as they would be anti-dilutive.
The net effect of the assumed conversion of the Series A Preferred Stock
has been excluded from the computation of diluted income (loss) per share for
all periods presented because the effect would be anti-dilutive. The net effects
of the assumed conversion of the Series B Preferred Stock and the Series C
Preferred Stock, for the periods that such issuances were outstanding, have been
excluded from the computation of diluted loss per share for the quarter and six
month periods ended June 30, 2000 because the effects of such conversions would
be anti-dilutive.
D. ACCOUNTS AND NOTES RECEIVABLE
Included in current accounts and notes receivable at June 30, 2001 and
December 31, 2000 are:
8
9
- --------------------------------------------------------------------
June 30, December 31,
(In thousands) 2001 2000
- --------------------------------------------------------------------
Trade receivables $ 101,460 $ 72,114
Unbilled revenues 893 2,162
--------- --------
Gross trade receivables 102,353 74,276
Allowance for doubtful accounts (2,382) (2,482)
--------- --------
Net trade receivables 99,971 71,794
Notes and other receivables 4,393 3,982
--------- --------
Total $ 104,364 $ 75,776
========= ========
E. INVENTORY
Newpark's inventory consisted of the following items at June 30, 2001 and
December 31, 2000:
- --------------------------------------------------------------------
June 30, December 31,
(In thousands) 2001 2000
- --------------------------------------------------------------------
Composite mats 2,947 $ 263
Drilling fluids raw material / 22,419 18,465
components
Logs 1,535 4,884
Supplies 348 632
Other 696 754
-------- --------
Total $ 27,945 $ 24,998
======== ========
F. LONG-TERM DEBT
As of June 30, 2001, Newpark had outstanding $125 million of unsecured
senior subordinated notes (the "Notes") which mature on December 15, 2007.
Interest on the Notes accrues at the rate of 8-5/8% per annum and is payable
semi-annually on June 15 and December 15.
As of June 30, 2001, Newpark also maintained a $100.0 million bank credit
facility, including up to $25.0 million in standby letters of credit, in the
form of a revolving line of credit commitment, which expires January 31, 2003.
At June 30, 2001, $14.2 million in letters of credit were issued and outstanding
under the credit facility and $59.9 million was outstanding under the revolving
facility, leaving $25.9 million of availability. The facility bears interest at
either a specified prime rate (6.75% at June 30, 2001) or the LIBOR rate (3.82%
at June 30, 2001), in each case plus a spread determined quarterly based on the
ratio of Newpark's funded debt to cash flow. The weighted average interest rates
on the outstanding balance under the credit facility for the quarter ending June
30, 2001 and 2000 were 9.37% and 9.63%, respectively. The weighted average
interest rates on the outstanding balance under the credit facility for the six
months ended June 30, 2001 and 2000 were 9.47% and 9.56%, respectively.
9
10
The Notes do not contain any financial covenants; however, if Newpark does
not meet the financial covenants of the credit facility and is unable to obtain
an amendment from the banks, Newpark 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
capital stock of Newpark. Newpark was in compliance with all covenants as of
June 30, 2001.
G. SEGMENT DATA
Summarized financial information concerning Newpark's reportable segments
is shown in the following table (dollars in thousands):
Three Months Ended June 30, Increase/(Decrease)
----------------------------- -----------------------
2001 2000 $ %
-------- ------- -------- ----
Revenues by segment:
E&P waste disposal $ 16,185 $13,775 $ 2,410 17%
Fluids sales & engineering 53,870 30,386 23,484 77
Mat & integrated services 38,276 16,041 22,235 139
-------- ------- --------
Total revenues $108,331 $60,202 $ 48,129 80%
======== ======= ========
Operating income by segment:
E&P waste disposal $ 4,268 $ 4,426 $ (158) (4)%
Fluids sales & engineering 7,098 2,178 4,920 226
Mat & integrated services 10,728 2,792 7,936 284
-------- ------- --------
Total by segment 22,094 9,396 12,698 135
General and administrative expenses 1,197 696 501 72
Goodwill amortization 1,233 1,242 (9) (1)
-------- ------- --------
Total operating income $ 19,664 $ 7,458 $ 12,206 164%
======== ======= ========
Six Months Ended June 30, Increase/(Decrease)
--------------------------- -----------------------
2001 2000 $ %
-------- ------- -------- ----
Revenues by segment:
E&P waste disposal $ 30,857 $ 26,237 $ 4,620 18%
Fluids sales & engineering 104,271 59,732 44,539 75
Mat & integrated services 72,600 31,509 41,091 130
-------- -------- --------
Total revenues $207,728 $117,478 $ 90,250 77%
======== ======== ========
Operating income by segment:
E&P waste disposal $ 8,496 $ 8,111 $ 385 5%
Fluids sales & engineering 13,123 3,929 9,194 234
Mat & integrated services 19,736 5,239 14,497 277
-------- -------- --------
Total by segment 41,355 17,279 24,076 139
General and administrative expenses 2,267 1,651 616 37
Goodwill amortization 2,467 2,490 (23) (1)
-------- -------- --------
Total operating income $ 36,621 $ 13,138 $ 23,483 179%
======== ======== ========
The figures above are shown net of intersegment transfers.
10
11
H. NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (FASB) approved two
new accounting standards related to accounting for business combinations, and
goodwill and other intangible assets. The standards, which are numbered SFAS No.
141 and 142, among other requirements, (i) prohibit the use of
pooling-of-interests method of accounting for business combinations, (ii)
require that goodwill not be amortized in any circumstance, and (iii) require
that goodwill be tested for impairment annually or when events or circumstances
occur between annual test indicating that goodwill for a reporting unit might be
impaired. The standards establish a new method for testing goodwill for
impairment based on a fair value concept. Newpark's current policy is to assess
recoverability of remaining goodwill based on estimated undiscounted future cash
flows. The standards will take effect for fiscal years beginning after December
31, 2001. Upon adoption, Newpark will be required to stop amortizing its
remaining goodwill balance and will be required to perform periodic impairment
tests based on a fair value concept of its goodwill. Newpark has not completed
an analysis of the potential impact from adoption of the impairment test of
goodwill; however, amortization of existing goodwill, which was approximately
$1.2 million and $2.5 million for the quarter and six months ended June 30,
2001, will cease upon adoption.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires recording the fair value of a liability
for an asset retirement obligation in the period incurred. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application permitted. Upon adoption of the standard, Newpark will be required
to use a cumulative effect approach to recognize transition amounts for any
existing retirement obligation liabilities, asset retirement costs and
accumulated depreciation. Newpark has not determined the transition amounts.
11
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition, results of
operations, liquidity and capital resources should be read together with our
"Unaudited Consolidated Financial Statements" and "Notes to Unaudited
Consolidated Financial Statements" as well as our annual report on Form 10-K for
the year ended December 31, 2000.
RESULTS OF OPERATIONS
Our operating results depend primarily on the level of oil and gas
drilling activity in the markets we serve. These levels in turn depend, to a
great extent, on oil and gas commodities pricing, inventory levels and product
demand. Key average rig count data for the last several quarters is listed in
the following table:
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01
---- ---- ---- ---- ---- ----
U.S Rig Count 770 845 982 1,075 1,137 1,239
Gulf Coast market 223 240 270 276 301 321
Gulf Coast market to total 29.0% 28.4% 27.5% 25.7% 26.5% 25.9%
Canadian Rig Count 480 212 314 375 515 252
- -----------
Source: Baker Hughes Incorporated
Our primary Gulf Coast market, which accounted for approximately 69% of
revenues for the first six months of 2001, includes: (1) South Louisiana Land;
(2) Texas Railroad Commission Districts 2 and 3; (3) Louisiana and Texas Inland
Waters; and (4) Offshore Gulf of Mexico. According to Baker Hughes Incorporated,
as of the week ended August 3, 2001, the U.S. rig count was 1,266, with 318
rigs, or 25.1%, within our primary Gulf Coast market.
The Canadian market accounted for approximately 17% of revenues for the
first six months of 2001. Much of the terrain throughout the oil and
gas-producing region of Canada presents soil stability and access problems
similar to those encountered in the marsh areas of the U.S. Gulf Coast region.
Much of the drilling activity in Canada has historically been conducted when
winter temperatures freeze the soil and stabilize it, allowing safe access.
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
August 3, 2001, the Canadian rig count was 269.
Natural gas production accounts for the majority of activity in the
markets that we serve. Gas storage levels and demand for natural gas have a
significant impact on gas pricing, which in turn affects drilling activity, as
gas suppliers need to maintain adequate storage for peak demand levels and
insure adequate supplies for anticipated future demand.
During 2000, gas storage levels reached their lowest point in over three
years, and with increasing demand for natural gas, commodity prices spiked
dramatically, especially during the second half of 2000. The low storage levels
and high commodity prices for natural gas resulted in a surge in natural gas
drilling. During this same period, rising
12
13
commodity prices have resulted in a moderation of demand for natural gas as some
commercial users have switched to less costly alternate fuel sources when
possible. This moderating demand has resulted in increased levels of gas storage
and has contributed to the recent decline in commodity prices.
Current long-term 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. Because
many shallow fields in the Gulf Coast market have been exploited, based on
improved economics, producers are increasing the depth of drilling to reach the
larger gas reserves. As such, we expect gas-drilling activity to be increasingly
associated with deeper, more costly wells. We view this trend as favorable with
respect to demand for product offerings in all of our segments.
Summarized financial information concerning our reportable segments is
shown in the following table (dollars in thousands):
Three Months Ended June 30, Increase/(Decrease)
--------------------------- -----------------------
2001 2000 $ %
-------- -------- -------- ----
Revenues by segment:
E&P waste disposal $ 16,185 $ 13,775 $ 2,410 17%
Fluids sales & engineering 53,870 30,386 23,484 77
Mat & integrated services 38,276 16,041 22,235 139
-------- -------- --------
Total revenues $108,331 $ 60,202 $ 48,129 80%
======== ======== ========
Operating income by segment:
E&P waste disposal $ 4,268 $ 4,426 $ (158) (4)%
Fluids sales & engineering 7,098 2,178 4,920 226
Mat & integrated services 10,728 2,792 7,936 284
-------- -------- --------
Total by segment 22,094 9,396 12,698 135
General and administrative expenses 1,197 696 501 72
Goodwill amortization 1,233 1,242 (9) (1)
-------- -------- --------
Total operating income $ 19,664 $ 7,458 $ 12,206 164%
======== ======== ========
Six Months Ended June 30, Increase/(Decrease)
--------------------------- -----------------------
2001 2000 $ %
-------- -------- -------- ----
Revenues by segment:
E&P waste disposal $ 30,857 $ 26,237 $ 4,620 18%
Fluids sales & engineering 104,271 59,732 44,539 75
Mat & integrated services 72,600 31,509 41,091 130
-------- -------- --------
Total revenues $207,728 $117,478 $ 90,250 77%
======== ======== ========
13
14
Operating income by segment:
E&P waste disposal $ 8,496 $ 8,111 $ 385 5%
Fluids sales & engineering 13,123 3,929 9,194 234
Mat & integrated services 19,736 5,239 14,497 277
-------- -------- --------
Total by segment 41,355 17,279 24,076 139
General and administrative expenses 2,267 1,651 616 37
Goodwill amortization 2,467 2,490 (23) (1)
-------- -------- --------
Total operating income $ 36,621 $ 13,138 $ 23,483 179%
======== ======== ========
The figures above are shown net of intersegment transfers.
QUARTER ENDED JUNE 30, 2001 COMPARED TO QUARTER ENDED JUNE 30, 2000
Revenues
E&P Waste Disposal: The $2.4 million, or 18%, increase in waste disposal
revenue is primarily attributable to an increase in waste volumes received as a
result of increases in drilling activity and changes in the mix of waste streams
received for processing. During the second quarter of 2001, we received
1,144,000 barrels of E&P waste, compared to 1,062,000 barrels in the comparable
quarter of 2000, an 8% increase. Revenue per barrel increased from an average of
$11.47 for the second quarter of 2000 to an average of $12.19 for the second
quarter of 2001, a 6% increase.
For the second quarter of 2001, NORM revenues were $1.2 million, an
increase of 49% from the prior year amount of $797,000. Industrial waste
revenues for the second quarter of 2001 were $483,000, an 88% increase from the
prior year amount of $257,000.
During the second quarter of 2001, the level of barge mounted drilling
rigs active in the inland waters market averaged 23, versus an average of 17
during the comparable period in 2000. A drilling rig in inland waters typically
generates five to six times the waste volume of drilling rigs in other, less
tightly regulated markets. Through July 2001, the number of rigs in this market
has averaged 22. New offshore regulations imposing limitations on the discharge
of synthetic-based fluids, which are expected to be issued late in 2001, could
have a positive impact on our volume of waste received from the offshore market
in 2002.
Fluids Sales and Engineering: The $23.5 million, or 77%, increase in
drilling fluids revenue is attributable to the increase in drilling activity and
market share gains. During the second quarter of 2001, we serviced an average of
193 rigs, compared to 129 rigs in the second quarter of 2000, an increase of
49%. The average annualized revenue per rig was approximately $1,116,000 in the
second quarter of 2001, compared to $940,000 for the second quarter of 2000.
A leading contributor to our recent success in this segment is our
DeepDrill(TM) family of associated fluid products, which are targeted at deeper,
more difficult drilling operations. Because these products are environmentally
friendly, the new restrictions limiting offshore discharges of synthetic-based
fluids and cuttings may have a further
14
15
positive effect on this segment when implemented in a few months. In addition,
our Performance Services approach, which combines product and service offerings
and reduces overall costs to our customers, has contributed to increases in
market share for this segment.
Mat and Integrated Services: The $22.2 million, or 139%, increase in mat
and integrated services revenue is due to increased drilling activity along the
U.S. onshore Gulf Coast, which favorably impacted pricing and volume for our mat
systems and increased composite mat sales. During the second quarter of 2001, we
sold approximately 6,300 composite mats, generating $10.1 million in revenues.
There were no composite mat sales in the comparable period of the prior year.
Rental pricing for mats in the second quarter of 2001 improved to an average of
$1.69 per square foot on 3.5 million square feet of mats installed, compared
with $0.71 per square foot on 4.6 million square feet of mats installed for the
second quarter of 2000. The trend towards deeper, more complex drilling in the
onshore Gulf Coast market is evidenced by the increase in re-rental revenues
(i.e. revenues which extend beyond the initial 60-day contract period), the most
profitable revenues for this segment. Re-rental revenue increased to $3.8
million during the second quarter of 2001 from $1.4 million for the comparable
period of 2000, a 171% increase.
Operating Income
E&P Waste Disposal: The $158,000 decrease in waste disposal operating
income in spite of an increase in revenues is primarily due to increases in
certain operating costs which have not been fully offset by price increases.
These operating cost increases are primarily associated with the recent
expansion of our facilities at the Port of Fourchon in preparation for
anticipated increases in waste volumes resulting from new offshore discharge
regulations for synthetic-based fluids. Also, this segment has experienced
increases in certain operating costs, including barge rental costs, repairs and
maintenance and trucking costs. In addition, the accommodation for some customer
requests to segregate their waste streams at collection facilities has resulted
in duplication of costs for transportation and handling.
We have developed a plan to mitigate the recent cost increases, and we
expect to implement this plan over the next several quarters. This plan includes
reducing transportation costs through improved efficiency in barge utilization
and renegotiation of trucking contracts. Some costs are expected to decline as a
result of recent declines in fuel costs. In addition, we are working with our
customers to eliminate requests for segregation of waste, which increases
transportation and handling costs.
We have exercised our option to extend our right to dispose of specified
volumes of E&P waste at an outside party's disposal facilities, for one year
effective July 1, 2001. As part of this extension, we have doubled the amount of
waste volume that we can dispose of at these facilities and extended the outside
party's agreement not to compete with us in the E&P disposal business until June
30, 2002. In consideration of the extension of the agreement, including
extension of the non-competition agreement, our costs of disposal under this
contract will increase by approximately $2 per barrel beginning July 1, 2001.
This increase in third party disposal costs is expected to be partially offset
by reductions in other incremental disposal costs and increases in revenues
resulting from the anticipated increase in volumes of E&P waste received from
the new synthetic-based fluid regulations that we expect to be implemented.
15
16
Fluids Sales and Engineering: The $4.9 million increase in fluids sales
and engineering operating income is due primarily to the increase in revenue of
$23.5 million and represents an incremental margin of 21%. Operating margins for
this segment improved from 7% for the second quarter of 2000 to 13% for the
second quarter of 2001. The operating margin of this segment is affected by the
mix of products sold. There is a significant difference in the gross margins
recognized on commodity products and those recognized for specialty products. We
expect to recognize the benefits of our proprietary products such as
DeepDrill(TM) as these products gain wider customer acceptance. In addition, we
expect to see margin improvement as we continue to penetrate the offshore Gulf
of Mexico market, as sales in this market typically earn higher margins.
Mat and Integrated Services: Mat and integrated services operating income
increased $7.9 million on a $22.2 million increase in revenues, representing an
incremental margin of 36%. The high incremental margin is primarily attributable
to improved pricing as noted above. In addition, this incremental margin
reflects the increase in composite mat sales, which typically generate a gross
margin of approximately 45%.
General and Administrative Expenses
General and administrative expenses for the second quarter of 2001 were
$1.2 million, or 1.1% of revenues, compared to $696,000, or 1.2% of revenues, in
2000.
Interest Income/Expense
Net interest expense was $4.0 million for the second quarter of 2001, a
decrease of $546,000, or 9%, as compared to $4.5 million for the second quarter
of 2000. The decrease in net interest cost is primarily due to a decrease of
$23.1 million in average outstanding borrowings and a decrease in the average
effective interest rate from 9.63% in 2000 to 9.37% in 2001. In addition,
interest capitalization decreased from $188,000 in the second quarter of 2000 to
$127,000 in the second quarter of 2001. The decrease in average outstanding
borrowings under our bank credit facility was due to the application of proceeds
received in late December 2000 from a $30 million preferred stock offering.
Provision for Income Taxes
For the second quarter of 2001 we recorded an income tax provision of $5.7
million, reflecting an income tax rate of 36%. For the second quarter of 2000 we
recorded an income tax provision of $1.2 million, reflecting an income tax rate
of 40%. The higher effective rate in 2000 was due to non-deductible items such
as goodwill in relation to the expected level of pretax income for 2000.
Preferred Stock Dividends and Accretion of Discount
As required by EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios",
during the quarter ended June 30, 2000, we recorded a one-time adjustment of
$3.5 million ($.05 per share) to our equity accounts to reflect the value
assigned to the conversion feature of the Series B Preferred Stock at the date
of issuance. This adjustment did not have any effect on our operating results or
total equity. The affect of this adjustment is presented as a dividend
16
17
in the accompanying financial statements; however, we issued no additional
shares or cash.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Revenues
E&P Waste Disposal: The $4.6 million, or 18%, increase in waste disposal
revenue is attributable to both an increase in the volume of waste received
resulting from increased drilling activity and changes in the mix of waste
streams received for processing. During the first six months of 2001, we
received 2,221,000 barrels of E&P waste, compared to 2,003,000 barrels in the
comparable quarter of 2000, an 11% increase. Revenue per barrel increased from
an average of $11.50 for the first six months of 2000 to an average of $11.95
for the first six months of 2001, a 4% increase.
For the first six months of 2001, NORM revenues were $2.1 million, an
increase of 41% from the prior year amount of $1.5 million. Industrial waste
revenues for the first six months of 2001 were $928,000, a 41% increase from the
prior year amount of $656,000.
Fluids Sales and Engineering: The $44.5 million, or 75%, increase in
drilling fluids revenue is attributable to the increase in drilling activity and
market share gains. During the first six months of 2001, we serviced an average
of 195 rigs, compared to 132 rigs in the first six months of 2000. The
annualized average revenue per rig was $1,072,000 in the first six months of
2001, compared to $907,000 for the first six months of 2000. The increase in the
average revenue per rig reflects an increase in the number of large offshore
rigs serviced in 2001 as compared to 2000.
Mat and Integrated Services: The $41.1 million, or 130%, increase in mat
and integrated services revenue is due to increased drilling activity along the
U.S. onshore Gulf Coast, which favorably impacted pricing and volume for our mat
systems, and increased composite mat sales. During the first six months of 2001,
we sold approximately 12,100 composite mats, generating $19.5 million in
revenues. There were no composite mat sales in the comparable period of the
prior year. Rental pricing for mats in the first six months of 2001 improved to
an average of $1.52 per square foot on 8.4 million square feet of mats
installed, compared with $0.74 per square foot on 8.7 million square feet of
mats installed for the comparable period of 2000. The trend towards deeper, more
complex drilling in the onshore Gulf Coast market is evidenced by the increase
in re-rental revenues, the most profitable revenues for this segment. Re-rental
revenue increased to $7.5 million during the first six months of 2001 from $2.2
million for the comparable period of 2000, a 239% increase.
Operating Income
E&P Waste Disposal: Operating income for the waste disposal segment
increased $385,000, or 5%, on an 18% increase in revenues. The low incremental
margin is primarily due to increases in certain operating costs which have not
been fully offset by price increases, as described above.
Fluids Sales and Engineering: The $9.2 million increase in fluids sales
and engineering operating income is due primarily to the increase in revenue of
$44.5 million
17
18
and represents an incremental margin of 21%. Operating margins for this segment
improved from 7% for the first six months of 2000 to 13% for the first six
months of 2001. As noted above, operating margins of this segment have been
favorably impacted by increases in sales of our higher-margin specialty products
such as DeepDrill(TM) and our increased penetration into the offshore Gulf of
Mexico market.
Mat and Integrated Services: Mat and integrated services operating income
increased $14.5 million on a $41.1 million increase in revenues, representing an
incremental margin of 35%. The high incremental margin is primarily attributable
to improved pricing and composite mat sales noted above.
General and Administrative Expenses
General and administrative expenses of $2.3 million for 2001 represented
1.1% of revenues. General and administrative expenses of $1.7 million for 2000
represented 1.4% of revenues.
Interest Income/Expense
Net interest expense was $8.0 million for the first six months of 2001, a
decrease of $935,000, or 11%, as compared to $8.9 million for the first six
months of 2000. The decrease in net interest cost is primarily due to a decrease
of $21.9 million in average outstanding borrowings and a decrease in the average
effective interest rate from 9.56% in 2001 to 9.47% in 2001. In addition,
interest capitalization decreased from $520,000 in the first six months of 2000
to $262,000 in the first six months of 2001. The decrease in average outstanding
borrowings under our bank credit facility was due to the application of proceeds
received in late December 2000 from a $30 million preferred stock offering.
Provision for Income Taxes
For the first six months of 2001 we recorded an income tax provision of
$10.2 million, reflecting an income tax rate of 36%. For the first six months of
2000 we recorded an income tax provision of $1.7 million, reflecting an income
tax rate of 40%. The higher effective rate in 2000 was due to non-deductible
items such as goodwill in relation to the expected level of pretax income for
2000.
18
19
LIQUIDITY AND CAPITAL RESOURCES
Our working capital increased by $7.8 million during the six months ended
June 30, 2001. Key working capital data is provided below (dollars in
thousands):
June 30, December 31,
2001 2000
----------- -----------
Working Capital (000's) $ 117,822 $ 110,050
Current Ratio 3.58 3.61
Our long term capitalization was as follows (in thousands):
June 30, December 31,
2001 2000
- --------------------------------------------------------------------------------------
Long-term debt (including current maturities):
Credit facility $ 54,928 $ 78,076
Subordinated debt 125,000 125,000
Other 598 773
-------- --------
Total long-term debt 180,526 203,849
Stockholders' equity 280,175 260,055
-------- --------
Total capitalization $460,701 $463,904
======== ========
Debt to total capitalization 39.2% 43.9%
======== ========
The proceeds from the $30 million preferred stock offering received at the
end of 2000 were used to pay down our credit facility in January 2001. During
the six months ended June 30, 2001, our working capital needs were primarily met
from operations and from borrowings under our credit facility. Operations
provided $6.4 million in the first six months of 2001, which helped to provide
for $13.0 million of cash used in investing activities. A net of $20.8 million
was used in financing activities, principally related to the reduction in the
balance of the bank credit facility after funding of investing activities not
provided for from operations.
As of June 30, 2001, Newpark maintained a $100.0 million bank credit
facility, including up to $25.0 million in standby letters of credit, in the
form of a revolving line of credit commitment, which expires January 31, 2003.
At June 30, 2001, $14.2 million in letters of credit were issued and outstanding
under the credit facility and $59.9 million was outstanding under the revolving
facility, leaving $25.9 million of availability. The facility bears interest at
either a specified prime rate (6.75% at June 30, 2001) or the LIBOR rate (3.82%
at June 30, 2001), in each case plus a spread determined quarterly based on the
ratio of Newpark's funded debt to cash flow. The weighted average interest rates
on the outstanding balance under the credit facility for the six months ended
June 30, 2001 and 2000 were 9.34% and 9.56%, respectively. Recent reductions in
the prime rate and continued improvement in Newpark's funded debt to cash flow
ratio should reduce the average interest rate on the credit facility in the
third quarter of 2001.
19
20
During the six months ended June 30, 2001, we obtained an additional $7
million of operating lease funding, which was applied towards the lease of
wooden mats in order to meet customer demand for mat locations in the Gulf
Coast. The lease of wooden mats is expected to be temporary and is a result of
the recent surge in composite mat sales. For the remainder of 2001, we
anticipate total capital expenditures of approximately $13 million, concentrated
in our fluids sales and engineering and E&P waste disposal segments, related to
expansion of offshore facilities to accommodate anticipated increases in demand
for our products and services.
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.
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. The words "anticipates", "believes",
"estimates", "expects", "plans", "intends" and similar expressions are intended
to identify these forward-looking statements but are not the exclusive means of
identifying them. These forward-looking statements reflect the current views of
our management; however, various risks, uncertainties and contingencies,
including the risks identified below, could cause our actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements, including the success or failure of our efforts to
implement our business strategy.
We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed
in this report might not occur.
Among the 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 are the following:
- oil and gas exploration and production levels and the industry's
willingness to spend capital on environmental and oilfield
services;
- 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;
- domestic and international political, military, regulatory and
economic conditions;
- other risks and uncertainties generally applicable to the oil and
gas exploration and production industry;
- 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;
20
21
- 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;
- increased competition in our product lines;
- our success in integrating acquisitions;
- our success in replacing our wooden mat fleet with our new
composite mats;
- our ability to obtain the necessary permits to operate our
non-hazardous waste disposal wells and our ability to
successfully compete in this market;
- 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;
- adverse weather conditions, which could disrupt drilling
operations;
- our ability to successfully introduce our new products and
services and the market acceptability of these products and
services; and
- any delays in implementing the new synthetic fluids disposal
regulations.
- any increases in interest rates under our credit facility either as
a result of increases in the prime or LIBOR rates or as a result of
changes in our funded debt to cash flow ratio.
21
22
PART II
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
22
23
NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 10, 2001
NEWPARK RESOURCES, INC.
By: /s/Matthew W. Hardey
-----------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
23