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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999 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: 68,888,572 shares at May 11, 1999.
Page 1 of 21
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-Q
FOR THE THREE MONTH PERIOD ENDED
March 31, 1999
Item Page
Number Description Number
- ------ ----------- ------
PART I
1 Unaudited Consolidated Financial Statements:
Balance Sheets
March 31, 1999 and December 31, 1998..........................................3
Statements of Income for the
Three Month Periods Ended March 31, 1999 and 1998.............................4
Statements of Comprehensive Income for the
Three Month Periods Ended March 31, 1999 and 1998.............................5
Statements of Cash Flows for the
Three Month Periods Ended March 31, 1999 and 1998.............................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......................................................20
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Newpark Resources, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited) March 31, December 31,
- -------------------------------------------------------------------------------------------------
(In thousands, except share data) 1999 1998
- -------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,899 $ 6,611
Accounts and notes receivable, less allowance
of $10,606 in 1999 and $11,008 in 1998 60,832 65,675
Inventories 18,381 19,381
Current taxes receivable 4,719 10,593
Deferred tax asset 13,562 13,776
Other current assets 4,352 3,292
------------ ------------
TOTAL CURRENT ASSETS 106,745 119,328
Property, plant and equipment, at cost, net of
accumulated depreciation 211,651 217,988
Cost in excess of net assets of purchased businesses and
identifiable intangibles, net of accumulated amortization 123,110 123,539
Deferred tax asset 1,735 1,735
Other assets 43,355 41,889
------------ ------------
$ 486,596 $ 504,479
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 72
Current maturities of long-term debt 994 1,195
Accounts payable 14,881 23,237
Accrued liabilities 14,531 11,711
Arbitration settlement payable 6,800 7,176
------------ ------------
TOTAL CURRENT LIABILITIES 37,206 43,391
Long-term debt 197,354 208,057
Arbitration settlement payable 6,462 8,080
Other non-current liabilities 2,242 2,454
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, no shares outstanding -- --
Common Stock, $.01 par value, 100,000,000 shares
authorized, 68,884,972 shares outstanding in 1999
and 68,839,672 in 1998 688 688
Paid-in capital 320,063 319,833
Foreign currency translation adjustments (813) (1,033)
Retained earnings (deficit) (76,606) (76,991)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 243,332 242,497
------------ ------------
$ 486,596 $ 504,479
============ ============
See accompanying Notes to Consolidated financial Statements
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month Periods Ended March 31,
(Unaudited)
- -------------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998
- -------------------------------------------------------------------------------------
Revenues $ 52,779 $ 72,404
Operating costs and expenses:
Cost of services provided 33,979 42,719
Operating costs 14,030 9,658
------------ ------------
48,009 52,377
General and administrative expenses 490 911
Equity in net earnings of
unconsolidated affiliate -- (455)
------------ ------------
Operating income 4,280 19,571
Interest income (298) (480)
Interest expense 3,977 2,638
------------ ------------
Income before income taxes 601 17,413
Provision for income taxes 216 6,186
------------ ------------
Net income $ 385 $ 11,227
============ ============
Weighted average common and common
equivalent shares outstanding:
Basic 68,872 65,364
============ ============
Diluted 69,185 66,784
============ ============
Net income per common and
common equivalent share:
Basic $ 0.01 $ 0.17
============ ============
Diluted $ 0.01 $ 0.17
============ ============
See accompanying Notes to Consolidated financial Statements
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Month Periods Ended March 31,
(Unaudited)
- ------------------------------------------------------------------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------
Net income $ 385 $ 11,227
Other comprehensive income:
Foreign currency translation adjustments 220 2
---------- ----------
Comprehensive income $ 605 $ 11,229
========== ==========
See accompanying Notes to Consolidated financial Statements
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Newpark Resources, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31,
(Unaudited)
- -------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 385 $ 11,227
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 7,201 8,053
Provision for deferred income taxes 216 2,870
Net earnings of unconsolidated affiliate -- (455)
Other (264) (3)
Change in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts and notes receivable 4,812 (12,310)
Decrease in inventories 1,000 813
Decrease (increase) in other assets 1,887 (2,793)
Decrease in accounts payable (9,796) (5,753)
Increase in accrued liabilities and other 611 4,827
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,052 6,476
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,970) (13,428)
Proceeds from disposal of property, plant and equipment 104 --
Payments received on notes receivable 758 1,176
Advances on notes receivable to joint venture -- (405)
Acquisitions, net of cash acquired -- 467
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,108) (12,190)
---------- ----------
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 (576) (564)
Proceeds from issuance of debt -- --
Proceeds from exercise of stock options -- 1,091
---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,656) 527
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,712) (5,187)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,611 21,699
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 4,899 $ 16,512
========== ==========
Included in accounts payable and accrued liabilities at March 31, 1999 and 1998
were equipment purchases of $1.4 million and $4.7 million, respectively. Also
included are notes payable for equipment purchases in the amount of $234,000 at
March 31, 1998. Included in accrued liabilities at March 31, 1998 were $4.2
million of net assets related to acquisitions.
Interest of $1.6 million and $70,000 was paid during the three months ending
March 31, 1999 and 1998, respectively. Income taxes of $217,000 and $1.9 million
were paid during the three months ending March 31, 1999 and 1998, respectively.
See accompanying Notes to Consolidated financial Statements
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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, 1999,
and the results of its operations and its cash flows for the three
month periods ended March 31, 1999 and 1998. All such adjustments
are of a normal recurring nature. These interim financial
statements should be read in conjunction with the December 31,
1998 audited financial statements and related notes filed on Form
10-K. The results of operations for the three month period ended
March 31, 1999 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 - ACQUISITIONS
The accompanying unaudited consolidated financial statements
include the effects of several acquisitions completed during 1998
that were accounted for as poolings of interests. These
acquisitions included the following companies:
Company Name Acquisition Date Location Shares
---------------------------- ---------------- ---------- -------
Southwestern Universal Corp March 19, 1998 West Texas 450,000
Optimum Fluids, Inc. May 28, 1999 Canada 281,000
Houston Prime Pipe & Supply May 29, 1999 Gulf Coast 420,000
----------
1,151,000
==========
Information for the quarter ended March 31, 1998 has been
restated to reflect the effects of these transactions. In
addition, results for the quarter ended March 31, 1998 have been
restated to reflect certain adjustments in the Fluids Sales &
Engineering segment for charges that had been capitalized in the
first quarter and were later determined to be more appropriately
expensed. Operating results prior to the combinations of the
separate companies and the combined amounts presented in the
unaudited consolidated financial statements are summarized below:
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Three Months Ended
March 31, 1998
(Dollars in thousands)
Revenues:
Newpark $ 67,393
Houston Prime 2,693
Optimum 1,287
Southwestern 1,031
------------
Combined $ 72,404
============
Net Income (Loss):
Newpark $ 10,526
Houston Prime 272
Optimum 237
Southwestern 192
------------
Combined $ 11,227
============
The accompanying consolidated financial statements also
include the results of operations of Protec Mud Services, Ltd.
since its acquisition by Newpark effective March 1, 1998, which
was accounted for by the purchase method. This acquisition was
completed in exchange for an aggregate of 385,418 shares of
Newpark common stock and $4.2 million in cash. The historical
results of operations related to this acquisition were not
considered significant in relation to the financial reporting
requirements of Newpark.
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 dilutive
stock options granted to outside directors and certain employees
which totaled approximately 313,000 shares and 1,420,000 shares
during the three months ended March 31, 1999 and 1998,
respectively. Options which were considered antidilutive because
the exercise price of the options exceeded the average price for
the applicable period totaled approximately 3,200,000 shares and
48,000 shares during the three months ended March 31, 1999 and
1998, respectively.
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NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE
Included in current accounts and notes receivable at March 31,
1999 and December 31, 1998 are:
- -----------------------------------------------------------------------------------------
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------
Trade receivables $ 65,623 $ 68,960
Unbilled revenues 3,132 3,663
---------- ----------
Gross trade receivables 68,755 72,623
Allowance for doubtful accounts (10,606) (11,008)
---------- ----------
Net trade receivables 58,149 61,615
Notes and other receivables 2,683 4,060
---------- ----------
Total $ 60,832 $ 65,675
========== ==========
NOTE 6 - INVENTORY
The Company's inventory consisted of the following items at
March 31, 1999 and December 31, 1998:
- ----------------------------------------------------------------------------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------
Drilling fluids raw materials
and components $ 11,809 $ 11,385
Logs 3,007 4,835
Board road lumber 897 1,276
Supplies 2,437 1,285
Other 231 600
---------- ----------
Total $ 18,381 $ 19,381
========== ==========
NOTE 7 - CAPITALIZED INTEREST
Interest of $500,000 and $296,000 was capitalized during the
three months ended March 31, 1999 and 1998, respectively.
NOTE 8 - LONG-TERM DEBT
As of March 31, 1999, the Company maintained a $100.0 million
bank credit facility in the form of a revolving line of credit
commitment. The credit facility is unsecured. It bears interest at
either a specified prime rate (7.75% at March 31, 1999) or the
LIBOR rate (5.0% at March 31, 1999) plus a spread which is
determined quarterly based upon the ratio of the Company's funded
debt to cash flow. The line of credit requires monthly interest
payments and matures on June 30, 2001. At March 31, 1999, $18.5
million of letters of credit were issued and outstanding, leaving
a net of $81.5 million available for cash advances under the line
of credit, of which $70.5 million was borrowed. The credit
facility requires that the Company maintain certain specified
financial ratios and
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comply with other usual and customary requirements. One of the
requirements was that the Company could not incur net losses for
two consecutive fiscal quarters. Due primarily to the recording of
asset impairment charges and an arbitration settlement in the
third and fourth quarters of 1998, the Company sustained net
losses for two consecutive quarters. The lenders waived this
potential default and amended the current facility to provide for
covenants that are consistent with the Company's financial
condition and market outlook. At March 31, 1999, the Company was
in compliance with all other requirements of the respective
agreements, as amended. In addition, the Company's Senior
Subordinated Notes and the credit facility contain covenants that
significantly limit the payment of dividends on the common stock
of the Company.
NOTE 9 - SEGMENT DATA
Summarized financial information concerning the Company's
reportable segments is shown in the following table:
Three Months Ended March 31,
(Dollars in thousands)
1999 1998
------------------------- -------------------------
Revenues by segment:
E&P waste disposal $ 10,834 20.5% $ 18,064 24.9%
Fluids sales & engineering 23,554 44.6 25,341 35.0
Mat & integrated services 18,391 34.9 28,999 40.1
---------- ---------- ---------- ----------
Total $ 52,779 100.0% $ 72,404 100.0%
========== ========== ========== ==========
Three Months Ended March 31,
(Dollars in thousands)
1999 1998
---------- ----------
Operating income (loss) by segment:
E&P waste disposal $ 3,260 $ 7,456
Fluids sales & engineering (1,229) 4,493
Mat & integrated services 2,739 8,078
---------- ----------
Total $ 4,770 $ 20,027
========== ==========
The figures above are shown net of intersegment transfers.
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NOTE 10 - SUBSEQUENT EVENTS
On April 16, 1999, the Company, sold to SCF-IV, L.P., a
Delaware limited partnership managed by SCF Partners (the
"Purchaser"), 150,000 shares of Series A Cumulative Perpetual
Preferred Stock, $0.01 par value per share (the "Series A
Preferred Stock"), and a warrant (the "Warrant") to purchase up to
2,400,000 shares of the Common Stock of the Company at an exercise
price of $8.50 per share, subject to anti-dilution adjustments.
The aggregate purchase price for the Series A Preferred Stock and
the Warrant was $15.0 million, and the net proceeds from the sale
were used to repay indebtedness. No underwriting discounts,
commissions or similar fees were paid in connection with the sale
of the securities.
Cumulative dividends are payable on the Series A Preferred Stock
quarterly in arrears at the initial dividend rate of 5% per annum,
based on the stated value of $100 per share of Series A Preferred
Stock. Dividends for the first three years are payable in Newpark
Common Stock. The dividend rate is subject to adjustment three,
five and seven years after the date of issuance. The agreement
does not restrict Common Stock Dividends or Repurchases of Common
Stock by the Company as long as all accumulated dividends on the
Series A. Preferred Stock have been paid in full.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results
of operations, liquidity and capital resources should be read in conjunction
with the accompanying "Unaudited Consolidated Financial Statements" and "Notes
to Unaudited Consolidated Financial Statements" as well as the Company's annual
report on form 10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
Sustained weakness in oil and gas prices in 1998 and throughout most of
the recent quarter has produced a decline in market activity as measured by the
rig count in the markets that Newpark serves. The decline in drilling activity
continued throughout the quarter, even as oil and gas prices began to improve.
The table below shows the average crude oil and natural gas prices for
the first quarters of 1999 and 1998:
1999 1998
---- ----
West Texas Intermediate Crude ($/bbl) $ 13.17 $ 15.90
U.S. Spot Natural Gas ($/mcf) $ 1.80 $ 2.06
The table below, based on the Baker-Hughes Rotary Rig Count depicts the
recent downward trend in Newpark's primary market areas, including (i) South
Louisiana Land; (ii) Texas Railroad Commission Districts 2 and 3; (iii)
Louisiana and Texas Inland Waters; and (iv) Offshore Gulf of Mexico:
1Q98 2Q98 3Q98 4Q98 1Q99
---- ---- ---- ---- ----
U.S. Rig Count 968 864 796 690 551
Newpark's prime market 283 266 219 204 185
Newpark's prime market to total 29.2% 30.8% 27.5% 29.6% 33.6%
As of the week ended April 23, 1999, the U.S. rig count was 488, with
166 rigs, or 34.0%, within Newpark's primary market. This marks the lowest rig
count (U.S. Rig Count) ever recorded in the history of the indicator. Rig counts
in Newpark's primary market are down from a peak of 297, recorded during the
week ended February 20, 1998.
- ------------
Source: Baker Hughes Incorporated
The recent decline in rig activity has affected the Company's revenue
and is expected to continue to affect future period revenues until the cash flow
of the independent oil and gas production industry recovers.
Natural gas production accounts for the majority of activity in the
Gulf Coast region. Gas prices began to improve during March 1999 and have
continued to rise during April. Lower oil prices, beginning in 1998, slowed
drilling in markets more oriented toward oil, such as the Austin Chauk region,
West Texas, Oklahoma and areas which produce primarily heavy oil, such as Canada
and Venezuela. Oil prices have recovered as a result of voluntary production
curtailment by OPEC member
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countries. Recent news reports of improving economic conditions in other world
markets are expected to produce increased demand, which should provide increased
support for the current pricing of oil.
Operating results for the quarter ended March 31, 1998 have been
restated to give effect to several pooling of interests transactions that took
place during 1998 and the reallocation of certain 1998 charges that affected
first quarter results. Summarized financial information concerning the Company's
reportable segments for the three month periods ended March 31, 1999 and 1998 is
shown below:
Three Months Ended March 31,
(Dollars in thousands)
1999 1998
----------------------------- -----------------------------
Revenues by segment:
E&P waste disposal $ 10,834 20.5% $ 18,064 24.9%
Fluids sales & engineering 23,554 44.6 25,341 35.0
Mat & integrated services 18,391 34.9 28,999 40.1
------------ ------------ ------------ ------------
Total $ 52,779 100.0% $ 72,404 100.0%
============ ============ ============ ============
Three Months Ended March 31,
(Dollars in thousands)
1999 1998
------------ ------------
Operating income (loss) by segment:
E&P waste disposal $ 3,260 $ 7,456
Fluids sales & engineering (1,229) 4,493
Mat & integrated services 2,739 8,078
------------ ------------
Total $ 4,770 $ 20,027
============ ============
The figures above are shown net of intersegment transfers.
Revenues
Total revenues declined to $52.8 million in 1999, from $72.4 million in
1998, a decrease of $19.6 million, or 27.1%. The components of the decrease in
revenues were a $7.2 million decrease in waste disposal revenues, a $1.8 million
decrease in drilling fluids sales and engineering revenues and a $10.6 million
decrease in mat and integrated services revenues.
The $7.2 million or 40% decrease in waste disposal revenue is
attributable to the decline in waste volumes received as a result of lower
drilling activity. During the first quarter of 1999 Newpark received 783,000
barrels of E&P waste compared to 1.6 million barrels in the comparable quarter
of 1998, a 51% decline while pricing remained stable during the comparable
periods. Approximately 60% of the decline occurred in the inland barge drilling
market, and an additional 10% resulted from Newpark's waste water recycling
program, which reduces the number of barrels, not
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the revenue earned. E&P waste accounted for 89% and 95% of total waste disposal
revenues for the quarters ended March 31, 1999 and 1998, respectively.
In spite of the significant declines in drilling rig activity relative
to the first quarter of 1998, drilling fluids revenue declined only $1.8
million, or 7%. Drilling fluids revenues were benefited by several acquisitions
during 1998 which, among other things, expanded operations into the Oklahoma
Anadarko Basin and Western Canada. In addition, the drilling fluids segment
continued to penetrate the markets that it serves and gain market share.
Offsetting these revenue gains was the continued softness in commodity prices
experienced throughout the drilling fluids industry that began in the latter
part of 1998. While commodity pricing has put downward pressure on both revenues
and margins in this segment, the Company continues to be pleased with its
customers' reception to its DeepDrill(TM) fluids system. As this system gains
greater market acceptance, it is expected to enhance both revenues and margins
for this segment.
The decrease of $10.6 million in mat and integrated services revenue
reflects competitive pressure and low activity relative to industry capacity.
The Company, as well as many of its competitors, had increased their inventories
of mats during 1997 and the first half of 1998 in response to increasing
industry activity. The sharp decline in drilling activity created significant
overcapacity in this market. Roll-out of the new composite mats is continuing
and the anticipated lower operating costs for the new mats is expected to help
the Company to better compete in the current competitive pricing environment.
Operating Income
The Company reported operating income of $4.3 million for the first
quarter of 1999, a decline of $15.3 million or 78%, as compared to operating
income of $19.6 million in 1998. Beginning in the third quarter of 1998, the
Company began significant cost reductions in its infrastructure in order to
address market shifts and the expected continuance of lower drilling activity.
The full effects of some of these reductions were not completely realized in the
first quarter of 1999. The Company will continue to monitor its level of
operating costs in relation to revenues, while ensuring that customer service is
not impaired. While Newpark has recently made significant cost cuts, it has
attempted to maintain a level of operating capacity which will allow a recovery
when drilling activity increases.
Segment operating income declined to $4.8 million in the first quarter
of 1999 from $20.0 million in 1998, a decrease of $15.2 million, or 76%. The
components of the decrease were a $4.2 million decrease in E&P waste disposal
operating income, a $5.7 million decrease in fluids sales and engineering
operating income and a $5.3 million decrease in mat and integrated services
operating income.
The $4.2 million decrease in waste disposal operating income resulted
from a 40% decline in volume that reduced operating margins. When the sharp
decline in market activity began in the second quarter of 1998, the Company
began reducing the number of barges in its operations, including tugboats under
charter, closing facilities and reducing staffing levels. The Company has
continued to reduce costs in this segment of its business in the first quarter
of 1999.
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The $5.7 million decrease in fluids sales and engineering operating
income is due primarily to the decline in revenue of $1.8 million that resulted
from the rig count decline and commodity pricing. Rapid expansion in this
business segment through acquisitions and new distribution facilities during
1997 and 1998, significantly increased the Company's drilling fluids
infrastructure. The downturn in oil prices, and reduced drilling activity in the
regions that this segment serviced resulted in lower revenue opportunities and
sharp declines in operating margins beginning in the latter half of 1998. In
response, the Company has closed several of its facilities, primarily in the
Austin Chauk of Louisiana and Texas, and downsized its operations. This
downsizing has included the disposal of assets, which do not serve its other
markets effectively, and the reduction in staffing levels. The Company has
continued to make cost reductions in this business segment in the first quarter
of 1999.
The $5.3 million decrease in mat and integrated services operating
income is attributable to the $10.6 million decline in revenues for this
segment, declining margins from competitive pricing and, increased operating
costs associated with the continued disposal of wooden mats. Mat disposal
operations were conducted for the most part with internal labor and assets.
There will be some continuing cost for mat disposal in the second quarter of
1999. This business segment has significantly cut costs in response to the
decline in demand for its services by reducing staffing levels, closing
facilities and disposing of excess assets. Further cost cuts were implemented in
this segment in the first quarter of 1999.
Interest Income/Expense
Net interest expense was $3.7 million for the first quarter of 1999, an
increase of $1.5 million, or 68% as compared to $2.2 million for the first
quarter of 1998. The increase in net interest cost is due to an increase of $75
million in average outstanding borrowings which was slightly offset by a
decrease in the average effective interest rate from 9.13% in 1998 to 8.79% in
1999. The increase in average outstanding borrowings under the Company's bank
credit facility during 1998 was used to fund acquisitions, capital expenditures
and working capital for operations growth experienced until the sharp decline in
drilling activity in the third quarter of 1998. During the first quarter of
1999, the Company reduced total borrowings by $11 million. In addition, as
discussed below, in April 1999 the Company further reduced its borrowings by $15
million from net proceeds of a preferred stock offering.
Provision for Income Taxes
For the quarters ended March 31, 1999 and 1998, the Company recorded
income tax provisions of $216,000 and $6.2 million, reflecting an income tax
rate of 35.9% and 35.5%, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position decreased by $6.4 million during
the quarter ended March 31, 1999. Key working capital data is provided below:
March 31, 1999 December 31, 1998
-------------- -----------------
Working Capital (000's) $ 69,539 $ 75,937
Current Ratio 2.87 2.75
The Company's long term capitalization was as follows:
March 31, December 31,
1999 1998
- --------------------------------------------------------------------------------------
Long-term debt (including current maturities):
Credit facility $ 70,500 $ 80,900
Subordinated debt 125,000 125,000
Other 2,848 3,352
------------ ------------
Total long-term debt 198,348 209,252
Stockholders' equity 243,332 242,497
------------ ------------
Total capitalization $ 441,680 $ 451,749
============ ============
For the quarter ended March 31, 1999, Newpark's working capital needs
were met primarily from operating cash flow. Total cash generated from
operations of $6.1 million helped provide for $6.1 million used in investing
activities and $1.7 million used in financing activities.
During the first quarter of 1999, the Company entered into an operating
lease transaction, under which it received $9.3 million in reimbursement of
expenditures previously incurred by the Company for the purchase of a portion of
the underlying equipment. Additionally the Company received an income tax refund
of approximately $6.1 million, during this same period.
Newpark's current bank credit facility provides for a $100.0 million
revolving credit facility maturing on June 30, 2001, including up to $20.0
million in standby letters of credit. At March 31, 1999, $18.5 million in
letters of credit were issued and outstanding under the credit facility, and
$70.5 million was outstanding under the revolving facility. Advances under the
credit facility bear interest at either (i) a specified prime rate or (ii) the
LIBOR rate plus a spread which is determined quarterly based on the credit
facility. The credit facility requires that Newpark maintain certain specified
financial ratios and comply with other usual and customary requirements. One of
the requirements of the credit facility is that the Company cannot incur losses
for two consecutive quarters. Due primarily to asset impairments and an
arbitration settlement that were both recorded during the third and fourth
quarter of 1998, the Company sustained losses over two quarters. The banks have
waived any potential defaults as a result of these two loss quarters and amended
the Credit Facility to provide for covenants which are consistent with
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the Company's current financial condition and anticipated market outlook.
Newpark was in compliance with all other requirements of the credit facility, as
amended, at March 31, 1999. Several of the financial ratios under the credit
facility are at or near their respective limits. Any losses sustained by the
Company in future quarters may cause Newpark to not be in compliance with
certain financial covenants unless waivers can be obtained from the banks.
In April 1999 the Company sold to SCF-IV, L.P., a Delaware limited
partnership managed by SCF Partners, 150,000 shares of Series A Cumulative
Perpetual Preferred Stock, $0.01 par value per share (the "Series A Preferred
Stock"), and a warrant (the "Warrant") to purchase up to 2,400,000 shares of the
Common Stock of the Company at an exercise price of $8.50 per share, subject to
anti-dilution adjustments. The aggregate purchase price for the Series A
Preferred Stock and the Warrant was $15.0 million, and the net proceeds from the
sale have been used to repay indebtedness. This repayment of debt has provided
additional coverage under two of the financial ratios of the credit facility.
The Company has plans to make additional reductions of the outstanding balance
during 1999. There can be no assurance, however, that the Company will be able
to make such additional reductions, or, if needed, obtain any necessary waivers
from the banks.
For 1999, Newpark anticipates capital expenditures of approximately $30
million, including: (i) $3 million to develop non-hazardous industrial waste
injection well sites, (ii) $6 million for expansion of drilling fluids
operations, including the purchase of equipment associated with fluids
processing and recycling and infrastructure expansions; (iii) $2 million to
complete an enlarged joint operational offshore facility; (iv) $16 million for
the purchase of synthetic mats and additional hardwood mats; and (v) $3 million
for maintenance capital.
Potential sources of additional funds, if required by the Company,
would include operating leases for equipment purchases and the sale of equity
securities. The Company presently has no commitments beyond its working capital
and bank lines of credit by which it could obtain additional funds for current
operations; however, it regularly evaluates potential borrowing arrangements
which may be utilized to fund future expansion. Newpark believes that its
current sources of capital, coupled with internally generated funds, will be
sufficient to support its working capital, capital expenditure and debt service
requirements for the foreseeable future provided that market conditions
stabilize or improve from current levels. Any further protracted downturn in
market conditions could have an adverse affect on the Company's future available
capital and would likely result in reductions in planned capital expenditures.
Except as described in the preceding paragraph, Newpark is not aware of any
material expenditures, significant balloon payments or other payments on long
term obligations or any other demands or commitments, including off-balance
sheet items to be incurred within the next 12 months.
Inflation has not materially impacted the Company's revenues or income.
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YEAR 2000
The Company relies heavily on computers in its internal and external
financial reporting systems. In addition, computers are used extensively
throughout the Company to perform critical operating activities, including the
processing of payroll, accounts receivable and accounts payable and to perform
critical analyses such as well reports for drilling fluids customers and testing
of E&P waste streams received from customers. The Company also makes use of
computers for efficient communications with employees and customers, including
extensive use of e-mail systems and the Internet, and is expected to expand its
use of such technology in the future. Finally, embedded technology such as
microcontrollers are commonly found in equipment used throughout the Company's
operations. The complete failure of these systems could have a material negative
impact on the operations of the Company. In addition, most of the Company's
major suppliers and customers rely heavily on similar computer systems and
failures in such systems could disrupt their operations.
The Company is substantially complete in assessing and addressing Year
2000 issues in its major computer systems. Most of the Company's major systems
have been updated in the normal course of business or replaced with applications
that are Year 2000 compliant. No system replacements were made or accelerated to
comply with Year 2000 issues, but rather were made to address other operating
issues.
In addition to substantially addressing Year 2000 issues in its own
critical computer systems, the Company continues its process of contacting its
major customers and vendors to assess their progress in addressing their Year
2000 issues. Included with these contacts is a request to address embedded
technology as it relates to their own operations and to products supplied to the
Company. The Company expects to have responses from these customers and vendors
by the second or third quarter of 1999. The Company believes that in making
these contacts it can minimize the risks associated with Year 2000 failures of
such vendors and customers. The Company can give no assurance that the systems
of other companies on which its systems rely will be converted or otherwise
addressed on time, or that a failure to convert by another company would not
have a material adverse effect on Newpark.
While the Company has and will continue to make efforts to address Year
2000 issues, it could experience disruptions in its operations as a result of
failures in its own systems and those of its major vendors or customers.
Accordingly, the Company will develop contingency plans by the end of the second
quarter of 1999 to help mitigate the effects of failures, if any.
To date, the total amount spent on Year 2000 issues has been less than
$100,000 and has not been material to the Company's operations or financial
condition. Based on current assessments, the Company expects to incur less than
$100,000 in additional expenditures to address Year 2000 issues. However, these
estimates are subject to revisions based on future assessments and responses
from vendors and customers.
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Estimates of the costs or consequences of incomplete or untimely
resolution of Year 2000 issues would be speculative. The Company will continue
to assess and address Year 2000 issues and expects to fund such efforts through
operating cash flows.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains `forward-looking statements' within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. There are risks and
uncertainties that could cause future events and results to differ materially
from those anticipated by management in the forward-looking statements included
in this report. Among these risks and uncertainties are (a) the level of
exploration for and production of oil and gas and the industry's willingness to
spend capital on environmental and oilfield services; (b) oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the discovery rate of new oil and gas reserves and the
ability of oil and gas companies to raise capital; (c) domestic and
international political, military, regulatory and economic conditions; (d) other
risks and uncertainties generally applicable to the oil and gas exploration and
production industry; (e) any rescission or relaxation of existing regulations
affecting the disposal of E&P waste and NORM, failure of governmental
authorities to enforce such regulations or the ability of industry participants
to avoid or delay compliance with such regulations; (f) future technological
change and innovation, which could result in a reduction in the amount of waste
being generated or alternative methods of disposal being developed; (g)
increased competition in the Company's product lines; (h) the Company's success
in introducing new products and integrating potential future acquisitions; and
(i) any disruptions in its operations as a result of failures in its own
computer systems and those of its major vendors or customers resulting from Year
2000 issues.
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PART II
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) The registrant did not file any reports on Form 8-K for the
quarter ended March 31, 1999.
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NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 11, 1999
NEWPARK RESOURCES, INC.
By: /s/ Matthew W. Hardey
---------------------------------------
Matthew W. Hardey, Vice President
and Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule