Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
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
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.) |
|
|
|
2700 Research Forest Drive, Suite 100 |
|
|
The Woodlands, Texas
(Address of principal executive offices)
|
|
77381
(Zip Code) |
(281) 362-6800
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and small reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller Reporting Company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of April 24, 2009, a total of 88,657,033 shares of common stock, $0.01 par value per share, were
outstanding.
NEWPARK RESOURCES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED
MARCH 31, 2009
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act
of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also
may provide oral or written forward-looking statements in other materials we release to the public.
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
in Item 1A, Risk Factors, in Part I of our Annual Report on Form 10-K for the year ended December
31, 2008, and those set forth from time to time in our filings with the Securities and Exchange
Commission, 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, except as required by securities laws. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly
Report on Form 10-Q might not occur.
For further information regarding these and other factors, risks and uncertainties affecting
us, we refer you to the risk factors set forth in Part I of our Annual Report on Form 10-K for the
year ended December 31, 2008.
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands, except share data) |
|
2009 |
|
|
2008 |
|
|
|
(unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
9,309 |
|
|
$ |
8,252 |
|
Receivables, net |
|
|
134,310 |
|
|
|
211,366 |
|
Inventories |
|
|
142,423 |
|
|
|
149,304 |
|
Deferred tax asset |
|
|
18,004 |
|
|
|
22,809 |
|
Prepaid expenses and other current assets |
|
|
9,074 |
|
|
|
11,062 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
313,120 |
|
|
|
402,793 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
227,710 |
|
|
|
226,627 |
|
Goodwill |
|
|
59,614 |
|
|
|
60,268 |
|
Deferred tax asset, net |
|
|
176 |
|
|
|
707 |
|
Other intangible assets, net |
|
|
18,090 |
|
|
|
18,940 |
|
Other assets |
|
|
4,011 |
|
|
|
4,344 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
622,721 |
|
|
$ |
713,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Foreign bank lines of credit |
|
$ |
8,775 |
|
|
$ |
11,302 |
|
Current maturities of long-term debt |
|
|
10,513 |
|
|
|
10,391 |
|
Accounts payable |
|
|
57,639 |
|
|
|
89,018 |
|
Accrued liabilities |
|
|
29,002 |
|
|
|
38,946 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
105,929 |
|
|
|
149,657 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
143,967 |
|
|
|
166,461 |
|
Deferred tax liability |
|
|
7,074 |
|
|
|
15,979 |
|
Other noncurrent liabilities |
|
|
2,589 |
|
|
|
3,700 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
259,559 |
|
|
|
335,797 |
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 100,000,000 shares authorized
91,387,536 and 91,139,966 shares issued, respectively |
|
|
914 |
|
|
|
911 |
|
Paid-in capital |
|
|
457,540 |
|
|
|
457,012 |
|
Accumulated other comprehensive (loss) income |
|
|
(1,749 |
) |
|
|
1,296 |
|
Retained deficit |
|
|
(78,091 |
) |
|
|
(66,087 |
) |
Treasury stock, at cost; 2,730,503 and 2,646,409 shares, respectively |
|
|
(15,452 |
) |
|
|
(15,250 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
363,162 |
|
|
|
377,882 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
622,721 |
|
|
$ |
713,679 |
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
Newpark Resources, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
126,938 |
|
|
$ |
194,736 |
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
123,512 |
|
|
|
155,120 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
3,426 |
|
|
|
39,616 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
16,230 |
|
|
|
19,191 |
|
Other income, net |
|
|
(25 |
) |
|
|
(189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(12,779 |
) |
|
|
20,614 |
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange loss |
|
|
29 |
|
|
|
296 |
|
Interest expense, net |
|
|
1,650 |
|
|
|
3,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before
income taxes |
|
|
(14,458 |
) |
|
|
17,091 |
|
Provision for income taxes |
|
|
(2,454 |
) |
|
|
5,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(12,004 |
) |
|
|
11,396 |
|
Loss from discontinued operations, net of tax |
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(12,004 |
) |
|
$ |
11,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
88,323 |
|
|
|
90,099 |
|
Diluted weighted average common shares outstanding |
|
|
88,323 |
|
|
|
90,332 |
|
|
|
|
|
|
|
|
|
|
(Loss) income per common share basic and diluted: |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(0.14 |
) |
|
$ |
0.13 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share |
|
$ |
(0.14 |
) |
|
$ |
0.13 |
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
Newpark Resources, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Net (loss) income |
|
$ |
(12,004 |
) |
|
$ |
11,351 |
|
|
|
|
|
|
|
|
|
|
Changes in interest rate swap and cap, net of tax |
|
|
72 |
|
|
|
(781 |
) |
Foreign currency translation adjustments |
|
|
(3,117 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(15,049 |
) |
|
$ |
10,572 |
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
Newpark Resources, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(12,004 |
) |
|
$ |
11,351 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operations: |
|
|
|
|
|
|
|
|
Net loss from discontinued operations |
|
|
|
|
|
|
45 |
|
Depreciation and amortization |
|
|
6,927 |
|
|
|
7,024 |
|
Stock-based compensation expense |
|
|
427 |
|
|
|
1,656 |
|
Provision for deferred income taxes |
|
|
(3,596 |
) |
|
|
4,808 |
|
Provision for doubtful accounts |
|
|
587 |
|
|
|
660 |
|
Gain on sale of assets |
|
|
(224 |
) |
|
|
(16 |
) |
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease (increase) in receivables |
|
|
74,374 |
|
|
|
(27,024 |
) |
Decrease (increase) in inventories |
|
|
5,520 |
|
|
|
(11,271 |
) |
Decrease in other assets |
|
|
2,543 |
|
|
|
1,840 |
|
Decrease in accounts payable |
|
|
(30,958 |
) |
|
|
(540 |
) |
(Decrease) increase in accrued liabilities and other |
|
|
(10,558 |
) |
|
|
1,961 |
|
|
|
|
|
|
|
|
Net operating activities of continuing operations |
|
|
33,038 |
|
|
|
(9,506 |
) |
Net operating activities of discontinued operations |
|
|
|
|
|
|
1,978 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
33,038 |
|
|
|
(7,528 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(7,540 |
) |
|
|
(5,809 |
) |
Proceeds from sale of property, plant and equipment |
|
|
533 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7,007 |
) |
|
|
(5,793 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net (payments) borrowings on lines of credit |
|
|
(24,957 |
) |
|
|
22,401 |
|
Principal payments on notes payable and long-term debt |
|
|
(96 |
) |
|
|
(592 |
) |
Long-term borrowings |
|
|
740 |
|
|
|
|
|
Proceeds from employee stock plans |
|
|
103 |
|
|
|
|
|
Purchase of treasury stock |
|
|
(202 |
) |
|
|
(3,197 |
) |
|
|
|
|
|
|
|
Net financing activities of continuing operations |
|
|
(24,412 |
) |
|
|
18,612 |
|
Net financing activities of discontinued operations |
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(24,412 |
) |
|
|
18,560 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(562 |
) |
|
|
(2,230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
1,057 |
|
|
|
3,009 |
|
Cash and cash equivalents at beginning of period |
|
|
8,252 |
|
|
|
5,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
9,309 |
|
|
$ |
8,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Income taxes (net of refunds) |
|
$ |
1,853 |
|
|
$ |
854 |
|
Interest |
|
$ |
1,426 |
|
|
$ |
3,081 |
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Newpark Resources,
Inc. and our wholly-owned subsidiaries, which we refer to as we, our or us, have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required
to be filed with the Securities and Exchange Commission (SEC), and do not include all information
and footnotes required by generally accepted accounting principles for complete financial
statements. These unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2008. Our fiscal year end is December 31, and
our first quarter represents the three month period ending March 31. The results of operations for
the first quarter of 2009 are not necessarily indicative of the results to be expected for the
entire year.
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments necessary to present fairly our financial position as of March
31, 2009, the results of our operations for the first quarter of 2009 and 2008, and our cash flows
for the first quarter of 2009 and 2008. All adjustments are of a normal recurring nature. Our
balance sheet at December 31, 2008 reflects the audited financial statements at that date.
Selling, general and administrative expenses, as reported in our Condensed Consolidated
Statements of Operations for the first quarter of 2009 and 2008, include all expenses of this
nature from our operating segments, as well as our corporate office. Previously, selling, general
and administrative expense within our operating segments were reported within Cost of Revenues. As
a result of this reclassification, $14.4 million of expenses previously reported in cost of
revenues for the first quarter of 2008 are now reflected in selling, general and administrative
expenses.
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. For further information, see Note 1 in our
Annual Report on Form 10-K for the year ended December 31, 2008.
New Accounting Standards
On January 1, 2009, we adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the
disclosure requirements for derivative instruments and hedging activities. Entities are required
to provide enhanced disclosures about (1) how and why an entity uses derivative instruments,
(2) how derivative instruments and related hedged items are accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and its related
interpretations, and (3) how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows. The adoption did not have a material
effect on our consolidated financial position or results of operations.
On January 1, 2009, we adopted FASB Staff Position 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142).
The objective of FSP 142-3 is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141(R), Business Combinations, and other U.S. generally accepted
accounting principles. FSP 142-3 was effective for fiscal years beginning after December 15,
2008. The adoption did not have a material effect on our consolidated financial position or
results of operations.
7
In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements (SFAS 157). This
standard defines fair value, establishes a framework for measuring fair value in accounting
principles generally accepted in the United States of America and expands disclosure about fair
value measurements. SFAS 157 introduces a fair value hierarchy (levels 1 through 3) to prioritize
inputs to fair value and classifies the measurements for disclosure purposes.
|
|
|
In January 2008, we entered into interest rate swap agreements to effectively
fix the underlying LIBOR rate on our borrowings under our $50.0 million term loan.
These swap agreements are valued based upon level 2 fair value criteria under the
guidelines of SFAS 157, where the fair value of these instruments is determined
using other observable inputs, including quoted prices for similar
assets/liabilities and market corroborated inputs as well as quoted prices in
inactive markets. The fair value of the interest rate swap arrangements was a
liability of $1.2 million and $1.3 million, net of tax as of March 31, 2009 and
December 31, 2008, respectively. |
|
|
|
|
In October 2008, the FASB issued FASB staff position 157-3, Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not Active,
(FSP 157-3). FSP 157-3 clarifies the application of SFAS 157 in a market that is
not active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is not
active. FSP 157-3 was effective upon issuance. Upon adoption, the provisions of
SFAS 157 were to be applied prospectively with limited exceptions. |
On January 1, 2009, we adopted SFAS No. 141(R) (revised 2007), Business Combinations, (SFAS
141(R)) which provides revised guidance on the accounting for acquisitions of businesses. This
standard changes the current guidance, requiring that all acquired assets, liabilities, minority
interest and certain contingencies be measured at fair value, and certain other acquisition-related
costs be expensed rather than capitalized. SFAS 141(R) applies to acquisitions that are effective
after December 31, 2008, and application of the standard to acquisitions prior to that date is not
permitted. The adoption did not have a material effect on our consolidated financial position or
results of operations.
On January 1, 2009, we adopted, Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51 (FAS 160). FAS 160 amends ARB 51 to establish accounting
and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity in the consolidated
financial statements and establishes a single method of accounting for changes in a parents
ownership interest in a subsidiary that do not result in deconsolidation. SFAS No. 160 was
effective for fiscal years beginning on or after December 15, 2008. The adoption did not have a
material effect on our consolidated financial position or results of operations.
8
Note 2 Earnings per Share
The following table presents the reconciliation of the numerator and denominator for
calculating income per share:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
(In thousands, except per share data) |
|
2009 |
|
|
2008 |
|
|
Net (loss) income |
|
$ |
(12,004 |
) |
|
$ |
11,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
88,323 |
|
|
|
90,099 |
|
Add: Net effect of dilutive stock options and warrants |
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
|
Adjusted weighted average number of common shares
outstanding |
|
|
88,323 |
|
|
|
90,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.14 |
) |
|
$ |
0.13 |
|
Diluted |
|
$ |
(0.14 |
) |
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and warrants excluded from
calculation of diluted earnings per share because
anti-dilutive for the period |
|
|
5,361 |
|
|
|
5,051 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, we did not have any dilutive stock options or
restricted stock. For the three months ended March 31, 2008, we had dilutive stock options and
restricted stock of approximately 0.7 million shares. The resulting net effects of stock options
and restricted stock were used in calculating diluted income per share for this period.
On June 1, 2000, we completed the sale of 120,000 shares
of Series B Convertible Preferred Stock, $0.01 par value per share (the “Series B Preferred
Stock”), and a warrant (the “Series B Warrant”) to purchase up to 1,900,000 shares of our common
stock at an exercise price of $10.075 per share, subject to anti-dilution adjustments. Prior to 2006, all outstanding
shares of the Series B Preferred Stock were converted to common stock. The Series B Warrant was originally
issued with a seven year life, expiring June 1, 2007. This warrant contains certain registration provisions,
which, if not met, reduce the exercise price of the warrant by 2.5%, for each year we are not in compliance with the
registration requirements, and extend the term of the warrant. Effective May 1, 2009, we are now in compliance
with the registration requirements for the warrant. Previously, we were not in compliance with these requirements which
resulted in adjustments to the exercise price and extended the term of the warrant. As of March 31, 2009, the
Series B Warrant, as adjusted for certain anti-dilution provisions, remains outstanding and provides for the right
to purchase up to 2,094,765 shares of our common stock at an exercise price of $9.14. The remaining life of the warrant
is approximately 33 months.
9
Note 3 Receivables, net
Receivables consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
$ |
114,518 |
|
|
$ |
168,320 |
|
Unbilled receivables |
|
|
19,850 |
|
|
|
42,692 |
|
|
|
|
|
|
|
|
Gross trade receivables |
|
|
134,368 |
|
|
|
211,012 |
|
Allowance for doubtful accounts |
|
|
(4,728 |
) |
|
|
(4,259 |
) |
|
|
|
|
|
|
|
Net trade receivables |
|
|
129,640 |
|
|
|
206,753 |
|
|
|
|
|
|
|
|
|
|
Notes and other receivables |
|
|
4,670 |
|
|
|
4,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables, net |
|
$ |
134,310 |
|
|
$ |
211,366 |
|
|
|
|
|
|
|
|
Note 4 Inventory
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Finished goods mats |
|
$ |
4,826 |
|
|
$ |
4,701 |
|
|
|
|
|
|
|
|
|
|
Raw materials and components: |
|
|
|
|
|
|
|
|
Drilling fluids raw material and components |
|
|
136,834 |
|
|
|
144,138 |
|
Supplies and other |
|
|
763 |
|
|
|
465 |
|
|
|
|
|
|
|
|
Total raw materials and components |
|
|
137,597 |
|
|
|
144,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
142,423 |
|
|
$ |
149,304 |
|
|
|
|
|
|
|
|
10
Note 5 Financing Arrangements
In December 2007, we entered into a $225.0 million Amended and Restated Credit Agreement
(Credit Agreement) which consists of a $175.0 million revolving credit facility and a $50.0
million term loan. The Credit Agreement contains covenants normal and customary for lending
facilities of this nature. The financial covenants include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant |
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charge coverage ratio |
|
|
1.20 |
|
|
|
1.72 |
|
|
|
2.92 |
|
|
|
|
minimum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated leverage ratio |
|
|
3.00 |
|
|
|
2.46 |
|
|
|
1.82 |
|
|
|
|
maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded debt-to-captalization ratio |
|
|
45.0% |
|
|
|
29.8 |
% |
|
|
31.8 |
% |
|
|
maximum |
|
|
|
|
|
|
|
|
We were in compliance with all financial covenants as of March 31, 2009. However, continued
compliance with our covenants, particularly the fixed charge coverage ratio and consolidated
leverage ratio, are largely dependent on our ability to generate sufficient levels of EBITDA, as
defined in the Credit Agreement, and reduce our debt levels. If there continues to be reduced
drilling activity in the oil and gas industry, we expect to have difficulty complying with these
covenants in 2009 based upon our current and expected financial condition and results of
operations. As a result, we have initiated discussions with our lead bank, in an effort to explore
our options, which may include a waiver or amendment to our Credit Agreement. Any waiver or
amendment to the Credit Agreement may increase the cost of our borrowings and impose additional
limitations over certain types of activities.
Note 6 Commitments and Contingencies
Shareholder Actions
Settlement of Shareholder Derivative and Class Action Litigation
In connection with our announcement regarding an internal investigation commissioned by our
Audit Committee in April 2006, and subsequent announcements, we were served with a number of
shareholder class action and derivative lawsuits. These suits asserted claims against us and
certain of our former officers and current and former directors alleging damages resulting from the
loss of value in our common stock and, derivatively, for damages we allegedly suffered.
In April 2007, we announced that we reached a settlement of our pending derivative and class
action litigation. The settlement received final approval from the U.S. District Court for the
Eastern District of Louisiana on October 9, 2007. This settlement resolved all pending shareholder
class and derivative litigation against us, our former and current directors, and former officers.
As part of the settlement, however, we preserved certain claims against our former Chief Executive
Officer and former Chief Financial Officer for matters arising from invoicing irregularities at
Soloco Texas, LP and the backdating of stock options.
11
James D. Cole Arbitration
By letter dated April 25, 2007, counsel for James D. Cole, our former Chief Executive Officer
and former director, notified us that Mr. Cole was pursuing claims against us for breach of his
employment agreement and other causes of action. Mr. Cole sought recovery of approximately $3.1
million purportedly due under his employment agreement and reimbursement of certain defense costs
incurred in connection with the shareholder litigation, the SECs investigation, and our internal
investigation. Mr. Cole also claimed $640,000 pursuant to the non-compete provision of his
employment agreement. Pursuant to the terms of the employment contract, the matter was submitted to
arbitration. We also submitted to the same arbitration proceedings the claims preserved against
Mr. Cole arising from the derivative litigation referenced above. In the first quarter of 2009, we
concluded a settlement agreement with Mr. Cole under which we have paid Mr. Cole a lump sum and
released any claims we have against him arising from the derivative litigation. Our decision to
settle this case was influenced by the fact that our internal investigation did not conclude that
Mr. Cole gained direct personal financial benefit from the transactions that were the subject of
the investigation. As part of the settlement, Mr. Cole, has released us from all remaining claims
under his employment contract (including the non-compete provision) and his indemnity agreement.
Matthew Hardey Lawsuit
On November 2, 2007, we were served with a lawsuit filed on behalf of Matthew Hardey, our
former Chief Financial Officer, against Newpark Resources and Paul L. Howes, our current Chief
Executive Officer. The lawsuit was filed on October 9, 2007, in the 24th Judicial District Court in
Jefferson Parish, Louisiana. We have removed this case to Federal Court (United States District
Court for the Eastern District of Louisiana). The lawsuit includes a variety of allegations
arising from our internal investigation and Mr. Hardeys termination, including breach of contract,
unfair trade practices, defamation, and negligence. The lawsuit does not specify the amount of
damages being sought by Mr. Hardey. We dispute the allegations in the lawsuit and intend to
vigorously defend our position.
SEC Investigation
On March 12, 2007, we were advised that the SEC has opened a formal investigation into the
matters disclosed in Amendment No. 2 to our Annual Report on Form 10-K/A filed on October 10, 2006.
We are cooperating with the SEC in their investigation.
12
Note 7 Segment Data
Summarized financial information concerning our reportable segments is shown in the following
table (net of inter-segment transfers):
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Revenues |
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
106,588 |
|
|
$ |
157,216 |
|
Mats and integrated services |
|
|
8,863 |
|
|
|
21,251 |
|
Environmental services |
|
|
11,487 |
|
|
|
16,269 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
126,938 |
|
|
$ |
194,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
(5,574 |
)(1) |
|
$ |
21,107 |
|
Mats and integrated services |
|
|
(3,414 |
)(1) |
|
|
51 |
|
Environmental services |
|
|
1,157 |
|
|
|
4,237 |
|
Corporate office |
|
|
(4,948 |
)(1) |
|
|
(4,781 |
) |
|
|
|
|
|
|
|
Operating (loss) income |
|
$ |
(12,779 |
) |
|
$ |
20,614 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In response to the significant declines in
industry activity in North America, we have initiated cost reduction programs
including workforce reductions. Through April 2009, we have reduced our
North American employee base by 386 since December 31, 2008, in addition
to eliminating contract employee positions. Our operating loss for the first
quarter of 2009 includes employee termination and related charges of
$2.6 million, of which $0.9 million was recorded as a liability as of
March 31, 2009. The $2.6 million includes $2.0 million in fluids
systems and engineering, $0.4 million in mats and integrated services and
$0.2 million in our corporate office. Substantially all accrued employee
termination costs at March 31, 2009 were subsequently paid in
April 2009. |
13
|
|
|
ITEM 2. |
|
Managements 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 consolidated financial statements and notes to
consolidated financial statements contained in this report as well as our Annual Report on Form
10-K for the year ended December 31, 2008. Our fiscal year end is December 31, and our first
quarter represents the three month period ending March 31.
Overview
We are a diversified oil and gas industry supplier, and have three reportable segments: Fluids
Systems and Engineering, Mats and Integrated Services, and Environmental Services. We provide these
products and services principally to the exploration and production (E&P) industry in the
U.S. Gulf Coast, West Texas, U.S. mid-continent, U.S. Rocky Mountains, Canada, Mexico, Brazil,
United Kingdom (U.K.) and certain areas of Europe and North Africa. Further, we are expanding our
presence outside the E&P sector through our Mats and Integrated Services segment, where we are
marketing to utilities, municipalities and government sectors.
Our operating results depend, to a large extent, on oil and gas drilling activity levels in
the markets we serve, as well as the depth of drilling, which governs the revenue potential of each
well. The drilling activity in turn, depends on oil and gas commodity pricing, inventory levels and
product demand.
The current economic recession, the instability in the credit markets and declines in oil and
natural gas commodity prices have significantly impacted North American drilling activity during
the first quarter of 2009. This decline in E&P spending negatively impacted operating results
during the first quarter of 2009, and is expected to continue to negatively impact operating
results for the remainder of 2009, as compared to the results achieved during 2008.
Rig count data is the most widely accepted indicator of drilling activity. Average North
American rig count data for the first quarter of 2009, as compared to the previous quarter and
comparable quarter of the prior year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Fourth |
|
|
First |
|
|
Change from Fourth |
|
|
Change from First |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter 2008 |
|
|
Quarter 2008 |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
Count |
|
|
% |
|
|
Count |
|
|
% |
|
|
U.S. Rig Count |
|
|
1,344 |
|
|
|
1,904 |
|
|
|
1,770 |
|
|
|
(560 |
) |
|
|
(29 |
%) |
|
|
(426 |
) |
|
|
(24 |
%) |
Canadian Rig Count |
|
|
332 |
|
|
|
411 |
|
|
|
516 |
|
|
|
(79 |
) |
|
|
(19 |
%) |
|
|
(184 |
) |
|
|
(36 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
1,676 |
|
|
|
2,315 |
|
|
|
2,286 |
|
|
|
(639 |
) |
|
|
(28 |
%) |
|
|
(610 |
) |
|
|
(27 |
%) |
Source: Baker Hughes Incorporated
The U.S. and Canadian rig counts were 955 and 65 during the week ended April 24, 2009,
respectively.
In response to the significant declines in activity and the increasing price competition, we
have initiated cost reduction programs including workforce reductions, reduced discretionary
spending, a temporary salary reduction for substantially all North American employees including
executive officers, as well as reductions in capital expenditures. As part of this cost reduction
program, we have reduced our North American employee base by 386 since December 31, 2008 in
addition to eliminating contract employee positions. As a result of these workforce reductions,
our first quarter 2009 operating results include $2.6 million of charges associated with employee
termination costs.
14
During the first quarter of 2009, our total debt balance was reduced by $24.9 million to
$163.3 million at March 31, 2009. We anticipate that our debt levels will continue to decline in
the near-term, as working capital requirements for our operations will continue to decline in the
current environment of lower revenue levels. Further, capital expenditures are being reduced in
response to the current market environment. Cash generated by operations including the anticipated
decreases in working capital levels, along with availability under our existing credit agreement is
expected to be adequate to fund our anticipated capital needs. In December 2007, we entered into a
$225.0 million Amended and Restated Credit Agreement (Credit Agreement) which consists of a
$175.0 million revolving credit facility and a $50.0 million term loan. The Credit Agreement
contains covenants normal and customary for lending facilities of this nature. The financial
covenants include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant |
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charge coverage ratio |
|
|
1.20 |
|
|
|
1.72 |
|
|
|
2.92 |
|
|
|
|
minimum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated leverage ratio |
|
|
3.00 |
|
|
|
2.46 |
|
|
|
1.82 |
|
|
|
|
maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded debt-to-captalization ratio |
|
|
45.0% |
|
|
|
29.8 |
% |
|
|
31.8 |
% |
|
|
|
maximum |
|
|
|
|
|
|
|
|
|
We were in compliance with all financial covenants as of March 31, 2009. However, continued
compliance with our covenants, particularly the fixed charge coverage ratio and consolidated
leverage ratio, are largely dependent on our ability to generate sufficient levels of EBITDA, as
defined in the Credit Agreement, and reduce our debt levels. If there continues to be reduced
drilling activity in the oil and gas industry, we expect to have difficulty complying with these
covenants in 2009 based upon our current and expected financial condition and results of
operations. To address this, we have initiated discussions with our lead bank, in an effort to
explore our options, which may include a waiver or amendment to our Credit Agreement. Any waiver
or amendment to the Credit Agreement may increase the cost of our borrowings and impose additional
limitations over certain types of activities.
15
Results of Operations
Summarized financial information for our reportable segments is shown in the following table
(net of inter-segment transfers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2009 vs 2008 |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
106,588 |
|
|
$ |
157,216 |
|
|
$ |
(50,628 |
) |
|
|
(32 |
%) |
Mats and integrated services |
|
|
8,863 |
|
|
|
21,251 |
|
|
|
(12,388 |
) |
|
|
(58 |
%) |
Environmental services |
|
|
11,487 |
|
|
|
16,269 |
|
|
|
(4,782 |
) |
|
|
(29 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
126,938 |
|
|
$ |
194,736 |
|
|
$ |
(67,798 |
) |
|
|
(35 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
(5,574 |
) |
|
$ |
21,107 |
|
|
$ |
(26,681 |
) |
|
|
|
|
Mats and integrated services |
|
|
(3,414 |
) |
|
|
51 |
|
|
|
(3,465 |
) |
|
|
|
|
Environmental services |
|
|
1,157 |
|
|
|
4,237 |
|
|
|
(3,080 |
) |
|
|
|
|
Corporate office |
|
|
(4,948 |
) |
|
|
(4,781 |
) |
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
$ |
(12,779 |
) |
|
$ |
20,614 |
|
|
$ |
(33,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
|
(5.2 |
%) |
|
|
13.4 |
% |
|
|
|
|
|
|
|
|
Mats and integrated services |
|
|
(38.5 |
%) |
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
Environmental services |
|
|
10.1 |
% |
|
|
26.0 |
% |
|
|
|
|
|
|
|
|
First Quarter 2009 Compared to First Quarter 2008
Fluids Systems and Engineering
Revenues
Total revenues for this segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2009 vs 2008 |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling fluids and engineering |
|
$ |
60,936 |
|
|
$ |
90,007 |
|
|
$ |
(29,071 |
) |
|
|
(32 |
%) |
Completion fluids and services |
|
|
8,919 |
|
|
|
21,966 |
|
|
|
(13,047 |
) |
|
|
(59 |
%) |
Industrial minerals |
|
|
8,885 |
|
|
|
16,586 |
|
|
|
(7,701 |
) |
|
|
(46 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America |
|
|
78,740 |
|
|
|
128,559 |
|
|
|
(49,819 |
) |
|
|
(39 |
%) |
Mediterranean |
|
|
25,037 |
|
|
|
28,260 |
|
|
|
(3,223 |
) |
|
|
(11 |
%) |
Brazil |
|
|
2,811 |
|
|
|
397 |
|
|
|
2,414 |
|
|
|
608 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
106,588 |
|
|
$ |
157,216 |
|
|
$ |
(50,628 |
) |
|
|
(32 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
North American revenues decreased 39% to $78.7 million for the first quarter of 2009, as
compared to $128.6 million for the first quarter of 2008. Drilling fluids and engineering revenues
decreased 32%which is largely attributable to the decline in industry drilling activity noted
above, along with increased pricing pressure as the number of rigs serviced by this business
segment decreased 29%. North American completion fluids and services and wholesale industrial
minerals revenues were down a combined 54%, on the lower industry activity.
16
Mediterranean revenues decreased 11% compared to the first quarter of 2008, primarily due to
the impact of the strengthening US dollar, as international revenue levels have remained relatively
stable in local currency terms. Brazil revenues were $2.8 million in the first quarter of 2009,
compared to $0.4 million in the first quarter of 2008, reflecting the ramp-up in activity under
contracts entered into during 2008.
Operating Income
Operating income for this segment decreased $26.7 million for the first quarter of 2009 on a
$50.6 million decrease in revenues, compared to the first quarter of 2008. Of this change, North
American operations generated a $24.9 million decline in operating income on a $49.8 million
decrease in revenues. This decrease in operating income is primarily attributable to the rapid
decline in North American drilling activity throughout the first quarter of 2009, and the related
increase in pricing pressure from competition. Further, the benefits of cost reduction initiatives
taken during the first quarter of 2009 had minimal impact to the quarter, due to the timing of the
actions, along with $2.0 million of charges associated with employee termination costs. Operating
income was further negatively impacted by lower gross profit on industrial mineral sales. During
the first quarter of 2009, gross profits on industrial minerals were reduced by $1.8 million, as a
result of higher product costs, due to freight premiums paid on barite ore purchases.
Operating income from international operations decreased $1.8 million on a $0.8 million
decrease in revenues. The lower operating income includes a $0.9 million decrease from the
Mediterranean operations, primarily due to the strengthening US dollar against the functional
currencies in this region, as well as a $0.9 million decrease from Brazil due to the increased
operating costs being incurred, as this business continues to ramp-up and prepare for future
contracts.
Following the workforce reductions during the first four months of 2009, the North American
employee base of this segment has been reduced by 296, in addition to reductions in contracted
personnel. As a result of these reductions, combined with the employee termination costs incurred
during the first quarter of 2009, North American personnel expenses are anticipated to be reduced
in the second quarter of 2009 by approximately $5 million from first quarter 2009 levels.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2009 vs 2008 |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mat rental and integrated services |
|
$ |
7,421 |
|
|
$ |
16,950 |
|
|
$ |
(9,529 |
) |
|
|
(56 |
%) |
Mat sales |
|
|
1,442 |
|
|
|
4,301 |
|
|
|
(2,859 |
) |
|
|
(66 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,863 |
|
|
$ |
21,251 |
|
|
$ |
(12,388 |
) |
|
|
(58 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $9.5 million decrease in mat rental and integrated services revenues is primarily
attributable to declines in the Gulf Coast market served by this segment, while revenues in the
Rocky Mountain market have remained relatively stable. The declines in the Gulf Coast revenues are
primarily the result of decreases in coastal drilling activity caused by the overall decline in
industry
activity, as well as a continuing shift in focus away from coastal drilling toward more inland
locations. The decline in revenue is further impacted by the increased pricing competition
following the declines in market activity, and timing of projects from customers outside the E&P
industry.
17
Mat sales primarily consist of export sales of composite mats to various international
markets, as well as to non-oilfield industries domestically. Mat sales volume decreased by $2.9
million in the first quarter of 2009 from the first quarter of 2008, as mats sales volumes
typically fluctuate significantly based on the specific timing of large order deliveries.
Operating Income
Mats and integrated services operating income decreased by $3.5 million for the first quarter
of 2009 on a $12.4 million decrease in revenues compared to the first quarter of 2008. The
decrease in operating margin is primarily attributable to the declines in revenues and pricing
pressures, as well as the delayed impact of cost reductions. The benefits of cost reduction
initiatives taken during the first quarter of 2009 had a minimal impact to the quarters operating
results, due to the timing of the actions, along with $0.4 million of charges associated with
employee termination costs.
Following the workforce reductions during the first four months of 2009, the employee base of
this segment has been reduced by 78, in addition to reductions in contracted personnel. As a
result of these reductions, combined with the employee termination costs incurred during the first
quarter of 2009, North American personnel expenses are anticipated to be reduced in the second
quarter of 2009 by approximately $1 million from first quarter 2009 levels.
Environmental Services
Revenues
Total revenues for this segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
2009 vs 2008 |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P waste Gulf Coast |
|
$ |
8,393 |
|
|
$ |
13,074 |
|
|
$ |
(4,681 |
) |
|
|
(36 |
%) |
E&P waste West Texas |
|
|
1,063 |
|
|
|
1,230 |
|
|
|
(167 |
) |
|
|
(14 |
%) |
NORM and industrial waste |
|
|
2,031 |
|
|
|
1,965 |
|
|
|
66 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,487 |
|
|
$ |
16,269 |
|
|
$ |
(4,782 |
) |
|
|
(29 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P waste revenues in the Gulf Coast region decreased 36% to $8.4 million in the first quarter
of 2009 compared to the first quarter of 2008. Volumes processed by this region declined 52%
during this period, consisting of 17% reduction from well blow-out disposals in the first quarter
of 2008 which did not recur, and a 35% reduction reflective of the decline in Gulf Coast rig
activity during this period. This decline in volumes processed was partially offset by changes in
sales mix and pricing increases.
E&P waste revenues in West Texas decreased by 14% to $1.1 million in the first quarter of 2009
compared to the first quarter of 2008. Volumes processed by this region declined 56% during this
period; however, this was largely offset by improvements in pricing.
NORM and industrial waste revenues increased by 3% to $2.0 million in the first quarter of
2009, compared to the first quarter of 2008.
18
Operating Income
Environmental services operating income decreased by $3.1 million on a $4.8 million decline in
revenues in the first quarter of 2009, compared to the first quarter of 2008. The $4.8 million
reduction in operating income resulting from the revenue decline was partially offset by $1.7
million of operating expense reductions, including a $1.3 million reduction in transportation costs
and a $0.3 million reduction in personnel expenses.
Corporate Office
Corporate office expenses increased $0.2 million to $4.9 million for the first quarter of 2009
from the first quarter of 2008. The increase in expenses in the first quarter of 2009 is primarily
attributable to legal expenses associated with the settlement of a lawsuit with our former Chief
Executive Officer during the first quarter of 2009, as well as $0.2 million in employee termination
costs.
Interest Expense, net
Interest expense, net totaled $1.7 million for the first quarter of 2009 compared to $3.2
million for the first quarter of 2008. The decrease in interest expense is primarily attributable
to lower interest rates in 2009, following the sharp decline in borrowing rates during the fourth
quarter of 2008. As of March 31, 2009, the weighted average borrowing rate under our credit
facilities was 3.52% compared to a weighted average borrowing rate of 5.22% at March 31, 2008.
Provision for Income Taxes
The provision for income taxes for the first quarter of 2009 was a $2.5 million benefit,
reflecting an income tax rate of 17.0%, compared to $5.7 million of expense for the first quarter
of 2008, reflecting an income tax rate of 33.3%. The low effective tax rate in the first quarter
of 2009 is primarily due to the write off of a previously recognized net operating loss
carryforward tax asset in Canada, along with losses generated in certain foreign countries during
the quarter, for which the recording of a tax benefit is not permitted.
Liquidity and Capital Resources
Net cash provided by operating activities during the first quarter of 2009 totaled $33.0
million. The net loss adjusted for non-cash items used $7.9 million of cash during the period,
while decreases in working capital provided $40.9 million of cash. The decrease in working capital
during the period includes a $74.4 million decrease in receivables partially offset by a $31.0
million decrease in accounts payable, primarily due to lower sales levels and corresponding lower
purchases.
Net cash used in investing activities during the first quarter of 2009 was $7.0 million,
consisting primarily of capital expenditures which included $3.7 million for our Brazil and
Mediterranean operations. Net cash used in financing activities during the first quarter of 2009
was $24.4 million which was primarily payments on our credit facilities.
19
Our capitalization was as follows as of:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Term credit facility |
|
$ |
40,000 |
|
|
$ |
40,000 |
|
Revolving credit facility |
|
|
113,000 |
|
|
|
136,000 |
|
Foreign bank lines of credit |
|
|
8,775 |
|
|
|
11,543 |
|
Other |
|
|
1,481 |
|
|
|
611 |
|
|
|
|
|
|
|
|
Total |
|
|
163,256 |
|
|
|
188,154 |
|
Stockholders equity |
|
|
363,162 |
|
|
|
377,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
526,418 |
|
|
$ |
566,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt to capitalization |
|
|
31.0 |
% |
|
|
33.2 |
% |
|
|
|
|
|
|
|
In December 2007, we entered into a $225.0 million Credit Agreement with a five-year term,
expiring in December 2012. The Credit Agreement consists of a $175.0 million revolving credit
facility along with a $50.0 million term loan (Term Loan), which is to be repaid through annual
principal repayments of $10.0 million which began in December 2008. There are no prepayment
penalties should we decide to repay the Term Loan in part or in full prior to the scheduled
maturity dates.
We can elect to borrow under the Credit Agreement at an interest rate either based on the
prime rate plus a margin ranging from 0 to 100 basis points or at LIBOR plus a margin ranging from
150 to 250 basis points, both of which margins vary depending on our leverage. As of March 31,
2009, $95.0 million of the outstanding principal of the revolving credit facility is bearing
interest at LIBOR plus 200 basis points, or 2.54%, while the remaining $18.0 million in outstanding
principal is bearing interest at Prime Rate plus 50 basis points, or 3.75%. In January 2008, we
entered into interest rate swap agreements to effectively fix the underlying LIBOR rate on our
borrowings under the Term Loan. The initial notional amount of the swap agreements totaled $50.0
million, reducing by $10.0 million each December, matching the required principal repayments under
the Term Loan. As a result of the swap agreements, we will pay a fixed rate of 3.74% plus the
applicable LIBOR margin, which was 200 basis points at March 31, 2009, over the term of the loan.
The weighted average interest rate on the outstanding balances under our Credit Agreement including
the interest rate swaps as of March 31, 2009 and December 31, 2008 were 3.52% and 3.46%,
respectively.
The Credit Agreement is a senior secured obligation, secured by first liens on all of our U.S.
tangible and intangible assets, including our accounts receivable and inventory. Additionally, a
portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral.
At March 31, 2009, $11.1 million in letters of credit were issued and outstanding, including
$3.0 million required by insurance carriers in relation to our insurance programs. In addition, we
had $113.0 million outstanding under our revolving credit facility at March 31, 2009, leaving $50.9
million of availability at that date.
As noted above, we were in compliance with these financial covenants as of March 31, 2009.
However, continued compliance with our covenants, particularly the fixed charge coverage ratio and
consolidated leverage ratio, are largely dependent on our ability to generate sufficient levels of
EBITDA, as defined in the Credit Agreement, and reduce our debt levels. The Credit Agreement also
contains covenants that allow for, but limit, our ability to pay dividends, repurchase our common
stock, and incur additional indebtedness.
20
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles, which requires us to make assumptions, estimates and judgments that affect
the amounts reported. We periodically evaluate our estimates and judgments related to
uncollectible accounts and notes receivable, customer returns, reserves for obsolete and slow
moving inventory, impairments of long-lived assets, including goodwill and other intangibles and
our valuation allowance for deferred tax assets. Our estimates are based on historical experience
and on our future expectations that we believe to be reasonable. The combination of these factors
forms the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from our current estimates and
those differences may be material.
For additional discussion of our critical accounting estimates and policies, see Managements
Discussion and Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended December 31, 2008. Our critical accounting policies have
not changed materially since December 31, 2008.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency
rates. A discussion of our primary market risk exposure in financial instruments is presented
below.
Interest Rate Risk
Our policy is to manage exposure to interest rate fluctuations by using a combination of fixed
and variable-rate debt. At March 31, 2009, we had total debt outstanding of $163.3 million.
In January 2008, we entered into interest rate swap agreements to effectively fix the
underlying LIBOR interest rate on our borrowings under the term loan portion of our credit
facility. The initial notional amount of the swap agreements totaled $50.0 million, reducing by
$10.0 million each December, matching the required principal repayments under the term loan. As of
March 31, 2009, $40.0 million remained outstanding under this term loan. As a result of the swap
agreements, we will pay a fixed rate of 3.74% plus the applicable LIBOR margin, which was 200 basis
points at March 31, 2009, over the term of the loan.
The remaining $123.3 million of debt outstanding at March 31, 2009 bears interest at a
floating rate. At March 31, 2009, the weighted average interest rate under our floating-rate debt
was 2.92%. At the March 31, 2009 balance, a 200 basis point increase in market interest rates
during 2009 would cause our annual interest expense to increase approximately $2.5 million,
resulting in a $0.02 per diluted share reduction in annual net earnings.
Foreign Currency
Our principal foreign operations are conducted in Canada, Mexico, Brazil, U.K. and certain
areas of Europe and North Africa. We have foreign currency exchange risks associated with these
operations, which are conducted principally in the foreign currency of the jurisdictions in which
we operate which include European euros, Canadian dollars and Brazilian reals. Historically, we
have not used off-balance sheet financial hedging instruments to manage foreign currency risks when
we enter into a transaction denominated in a currency other than our local currencies because the
dollar amount of these transactions has not warranted our using hedging instruments.
21
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Based on their evaluation of our disclosure controls and procedures as of the end of the
period covered by this report, our Chief Executive Officer and Chief Financial Officer have
concluded that the disclosure controls and procedures are effective.
Changes in internal control over financial reporting
There has been no change in internal control over financial reporting during the quarter ended
March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
The information set forth in the legal proceedings section of Note 6, Commitments and
Contingencies, to our condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q is incorporated by reference into this Item 1.
ITEM 1A. Risk Factors
Information regarding risk factors appears in Item 1A to our Annual Report on Form 10-K for
the year ended December 31, 2008. The risk factor described below updates, and should be read in
conjunction with, the risk factors identified in our Annual Report on Form 10-K for the period
ended December 31, 2008.
Noncompliance with debt covenants contained in our credit agreement could adversely affect our
ability to borrow under our credit agreement and could ultimately render our outstanding
indebtedness immediately due and payable.
Our Amended and Restated Credit Agreement contains certain financial covenants. Although we
were in compliance with all of these covenants as of the end of the first quarter of 2009 and
continue to be so as of the date of this Quarterly Report, our results of operations began
deteriorating during the fourth quarter of 2008, as a consequence of the reduction in the U.S. rig
count and related negative trends in the demand for our products and services. If there continues
to be reduced drilling activity in the oil and gas industry, we expect to have difficulty complying
with these covenants in 2009 based upon our current and expected financial conditions and results
of operations. A breach of any of these covenants could result in a default under our credit
agreement unless we are able to remedy any default within the applicable cure period or obtain, on
a timely basis, the necessary waivers or amendments to the credit agreement. Any waiver or
amendment to our credit agreement may require us to amend the terms of our credit agreement which
could increase the cost of our borrowings, require the payment of additional fees, and adversely
impact the results of operations. Upon the occurrence of any event of default that is not waived or
otherwise cured within the applicable cure periods, the lenders under our credit agreement could
elect to exercise any of their available remedies, which include the right to not lend any
additional amounts to us or, in certain instances, to declare all outstanding borrowings, together
with accrued interest and other fees, to be immediately due and payable. If we are unable to repay
the borrowings under the credit agreement when due, the lenders could be permitted to proceed
against their collateral. The election to exercise any such remedies could have a material adverse
effect on our business and financial condition.
22
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not
applicable.
(b) Not
applicable.
(c) The following table details our repurchases of shares of our common stock, for the three months
ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price per Share |
|
|
Total
Number of Shares
Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum
Approximate Dollar Value
of Shares that May Yet be Purchased Under the Plans or Programs |
|
January 1 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1 28, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1 31, 2009 |
|
|
84,094 |
(1) |
|
$ |
2.40 |
|
|
|
|
|
|
$9.9 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
84,094 |
|
|
$ |
2.40 |
|
|
|
|
|
|
$9.9 million |
|
|
|
(1) |
|
The shares purchased during the quarter ended March 31, 2009, represent shares surrendered in
lieu of taxes under vesting of restricted stock awards. |
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
23
ITEM 6. Exhibits
|
|
|
|
|
|
10.1 |
|
|
Amended and Restated Employment Agreement dated December 31,
2008 by and between Newpark Resources, Inc. and Paul L. Howes. (1) |
|
|
|
|
|
|
31.1 |
|
|
Certification of Paul L. Howes pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification of James E. Braun pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1 |
|
|
Certification of Paul L. Howes pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2 |
|
|
Certification of James E. Braun pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
(1) |
|
This copy of the Amended and Restated Employment Agreement is being filed again to correct a
typographical error in the version originally filed as an exhibit to the Current Report on Form 8-K
on January 7, 2009. |
24
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 1, 2009
|
|
|
|
|
|
NEWPARK RESOURCES, INC.
|
|
|
By: |
/s/ Paul L. Howes
|
|
|
|
Paul L. Howes, President and |
|
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
By: |
/s/ James E. Braun
|
|
|
|
James E. Braun, Vice President and |
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
By: |
/s/ Gregg S. Piontek
|
|
|
|
Gregg Piontek, Vice President, Controller and |
|
|
Chief Accounting Officer
(Principal Accounting Officer) |
|
25
EXHIBIT INDEX
|
|
|
|
|
|
10.1 |
|
|
Amended and Restated Employment Agreement dated December 31,
2008 by and between Newpark Resources, Inc. and Paul L. Howes. (1) |
|
|
|
|
|
|
31.1 |
|
|
Certification of Paul L. Howes pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification of James E. Braun pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1 |
|
|
Certification of Paul L. Howes pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2 |
|
|
Certification of James E. Braun pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
(1) |
|
This copy of the Amended and Restated Employment Agreement is being filed again to correct a
typographical error in the version originally filed as an exhibit to the Current Report on Form 8-K
on January 7, 2009. |
26