NPK INTERNATIONAL INC.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the fiscal year ended December 31, 2010 | ||
|
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 Number 1-2960
Newpark Resources,
Inc.
(Exact name of registrant as
specified in its charter)
|
Delaware
(State or other jurisdiction of incorporation or organization) |
72-1123385
(I.R.S. Employer Identification No.) |
|
|
2700 Research Forest Drive, Suite 100
The Woodlands, Texas (Address of principal executive offices) |
77381
(Zip Code) |
Registrant’s telephone number, including area code
(281) 362-6800
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
| Common Stock, $0.01 par value | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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
(§ 232.405 of this chapter) 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulations S-K is not contained
herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K
þ
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 the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer þ |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
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
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant, computed by
reference to the price at which the common equity was last sold
as of June 30, 2010, was $536.6 million. The aggregate
market value has been computed by reference to the closing sales
price on such date, as reported by The New York Stock Exchange.
As of February 28, 2011, a total of 90,399,974 shares
of Common Stock, $0.01 par value per share, were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Pursuant to General Instruction G(3) to this
Form 10-K,
the information required by Items 10, 11, 12, 13 and 14 of
Part III hereof is incorporated by reference from the
registrant’s definitive Proxy Statement for its 2011 Annual
Meeting of Stockholders.
NEWPARK
RESOURCES, INC.
INDEX TO
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010
FOR THE YEAR ENDED DECEMBER 31, 2010
i
Table of Contents
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
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 information in other materials we release to the
public. Words such as “will”, “may”,
“could”, “would”, “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, contingencies and other factors, some of which
are beyond our control, are difficult to predict and 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, amend or clarify 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 Annual
Report 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 Item 1A of this Annual Report on
Form 10-K.
ii
Table of Contents
| ITEM 1. | Business |
General
Newpark Resources, Inc. was organized in 1932 as a Nevada
corporation. In 1991, we changed our state of incorporation to
Delaware. We are a diversified oil and gas industry supplier
with three reportable segments: Fluids Systems and Engineering,
Mats and Integrated Services, and Environmental Services. We
provide our products and services principally to the oil and gas
exploration and production industry (“E&P”)
industry domestically in the U.S. Gulf Coast, West Texas,
Oklahoma, East Texas, North Louisiana, Rocky Mountains, and
Northeast regions, as well as internationally in certain areas
of Europe, North Africa, Brazil, Canada and Mexico. 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, both
domestically and internationally.
Our principal executive offices are located at 2700 Research
Forest Drive, Suite 100, The Woodlands, Texas 77381. Our
telephone number is
(281) 362-6800.
You can find more information about us at our Internet website
located at www.newpark.com. Our Annual Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K
and any amendments to those reports are available free of charge
on or through our Internet website. These reports are available
as soon as reasonably practicable after we electronically file
these materials with, or furnish them to, the Securities and
Exchange Commission (“SEC”). Our Code of Ethics, our
Corporate Governance Guidelines, our Audit Committee Charter,
our Compensation Committee Charter and our Nominating and
Corporate Governance Committee Charter are also posted to the
corporate governance section of our Internet website. We make
our website content available for informational purposes only.
It should not be relied upon for investment purposes, nor is it
incorporated by reference in this
Form 10-K.
Information filed with the SEC may be read or copied at the
SEC’s Public Reference Room at 100 F Street,
N.E., Washington, D.C., 20549. Information on operation of
the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website at www.sec.gov that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC,
including us.
When referring to “Newpark” and using phrases such as
“we”, “us” and “our”, our intent
is to refer to Newpark Resources, Inc. and its subsidiaries as a
whole or on a segment basis, depending on the context in which
the statements are made.
Industry
Fundamentals
Historically, several factors have driven demand for our
services, including the supply, demand and pricing of oil and
gas commodities, which drive E&P drilling and development
activity. Demand for most of our services is related to the
level, type, depth and complexity of oil and gas drilling. The
most widely accepted measure of activity for our North American
operations is the Baker Hughes Rotary Rig Count. After several
consecutive years of elevated North American drilling activity
through 2008, the weak economic environment, the instability in
the credit markets and declines in oil and natural gas commodity
prices significantly impacted North American activity, reducing
the average North American rig count from 2,261 in 2008 to 1,310
in 2009, before rebounding to 1,894 in 2010. The dramatic
decline in E&P activity in 2009 negatively impacted our
operating results during that year. Outside of North America,
drilling activity has remained more stable, as drilling activity
in many countries is based upon longer term economic projections
and multiple year drilling programs, which tend to minimize the
impact of short term changes of commodity prices on overall
drilling activity.
In our core North American markets, we have seen significant
growth in drilling activity in deep shales and other hard rock
formations with limited permeability in East Texas, North
Louisiana, Rocky Mountains and Northeast regions in recent
years. These formations are being exploited with advanced
fracture stimulation technology, which facilitates production of
natural gas from these formations and drives higher drilling
activities. While North American drilling expands into these new
geologic formations, the shallower reserves available in the
historic oil and gas-producing basins are approaching full
development, and the longer-term economic potential of the
remaining prospects appears to be declining, including basins
along the U.S. Gulf Coast. Many operators have begun to
shift the focus of their drilling programs towards
unconventional geologic structures, which carry higher
1
Table of Contents
costs and inherently higher risks of both economic and physical
failure for the operators. Also, following the April 2010
Deepwater Horizon oil spill, the Department of Interior of the
U.S. government has taken several actions aimed at
restricting and temporarily prohibiting certain drilling
activity in the Gulf of Mexico. While the Department of Interior
has since announced the formal end of the drilling moratorium
placed in effect in May 2010, increased permitting requirements
are applicable to both shallow water and deepwater drilling
activities. As a result, the current activity in the Gulf of
Mexico is significantly reduced from historical levels and the
near-term outlook remains uncertain.
Internationally, we have seen continued growth in drilling
activity, which is more heavily focused on oil, rather than
natural gas exploration. The elevation of oil prices in recent
years and the expectation of continued increases in world-wide
demand have supported continued expansion of the international
E&P activity, benefiting our operations in certain areas of
Europe, North Africa and Brazil. In early 2011, several
international markets in which we operate, including Tunisia,
Egypt and Libya experienced political unrest. The near term
outlook for operations in these areas remains uncertain and we
cannot predict what effect the unrest may have on our operating
results from the affected areas.
Reportable
Segments
Fluids
Systems and Engineering
Our Fluids Systems and Engineering business offers customized
solutions, including highly technical drilling projects
involving complex subsurface conditions such as horizontal,
directional, geologically deep or deep water drilling. These
projects require increased monitoring and critical engineering
support of the fluids system during the drilling process. We
provide drilling fluids products and technical services to the
North American, European, North African, and Brazilian
markets. We also provide completion services and equipment
rental to customers in Oklahoma and Texas.
We have industrial mineral grinding operations for barite, a
critical raw material in drilling fluids products, which serve
to support our activity in the drilling fluids market. We grind
barite and other industrial minerals at facilities in Houston
and Corpus Christi, Texas, New Iberia, Louisiana and Dyersburg,
Tennessee. We use the resulting products in our drilling fluids
business, and also sell them to third party users, including
other drilling fluids companies. We also sell a variety of other
minerals, principally to third party industrial (non oil and
gas) markets, from our main plant in Houston, Texas and from the
plant in Dyersburg, Tennessee.
Raw Materials —
We believe that our sources of
supply for materials and equipment used in our drilling fluids
business are adequate for our needs. Our specialty milling
operation is our primary supplier of barite used in our drilling
fluids business. Our mills obtain raw barite ore under supply
agreements from foreign sources, primarily China and India. We
obtain other materials used in the drilling fluids business from
various third party suppliers. We have encountered no serious
shortages or delays in obtaining any raw materials.
Technology —
We seek patents and licenses on
new developments whenever we believe it creates a competitive
advantage in the marketplace. We own the patent rights to a
family of high-performance water-based products, which we market
as
DeepDrill
®
and
FlexDrill
TM
systems. In addition, in 2010 we introduced
Evolution
tm
,
a new water-based system which was designed to enhance drilling
performance and provide environmental benefits. Proprietary
technology and systems is an important aspect of our business
strategy. We also rely on a variety of unpatented proprietary
technologies and know-how in many of our applications. We
believe that our reputation in the industry, the range of
services we offer, ongoing technical development and know-how,
responsiveness to customers and understanding of regulatory
requirements are of equal or greater competitive significance
than our existing proprietary rights.
Competition —
We face competition from larger
companies, including Schlumberger, Halliburton and Baker Hughes,
which compete vigorously on fluids performance
and/or
price. In addition, these companies have broad product and
service offerings in addition to their drilling fluids. We also
have smaller regional competitors competing with us mainly on
price and local relationships. We believe that the principal
competitive factors in our businesses include a combination of
price, reputation, technical proficiency, reliability, quality,
breadth of services
2
Table of Contents
offered and experience. We believe that our competitive position
is enhanced by our proprietary products and services.
Customers —
Our customers are principally major
and independent oil and gas E&P companies operating in the
markets that we serve. During 2010, approximately 54% of segment
revenues were derived from the 20 largest segment customers, and
73% of segment revenues were generated domestically. Typically,
we perform services either under short-term standard contracts
or under longer term service agreements. As most agreements with
our customers can be terminated upon short notice, our backlog
is not significant. We do not derive a significant portion of
our revenues from government contracts. See
Note 12
Segment and Related Information in Item 8. Financial
Statements and Supplementary Data
for additional information
on financial and geographic data.
Mats
and Integrated Services
We provide mat rentals, location construction and related well
site services to E&P customers in the Northeast
U.S. region, onshore U.S. Gulf Coast, and Western
Colorado, and mat rentals to the utility industry in the U.K.
These mats provide environmental protection and ensure
all-weather access to sites with unstable soil conditions.
We manufacture our
DuraBase
TM
composite mat system for sales as well as for use in our
domestic and international rental operations. Our marketing
efforts for this product remain focused in principal oil and gas
industry markets which include the Pacific Rim, South America,
Europe, and the Middle East, as well as markets outside the
E&P sector in the U.S. and Europe. We believe these
mats have worldwide applications outside our traditional
oilfield market, primarily in infrastructure construction,
maintenance and upgrades of electric utility transmission lines,
military logistics and as temporary roads for movement of
oversized or unusually heavy loads.
Raw Materials —
We believe that our sources of
supply for materials and equipment used in our business are
adequate for our needs. We are not dependent upon any one
supplier and we have encountered no serious shortages or delays
in obtaining any raw materials. The resins, chemicals and other
materials used to manufacture composite mats are widely
available. Resin is the largest raw material component in the
manufacturing of our composite mat products.
Technology —
We have obtained patents related
to several of the components utilized in our DuraBase mat system
as well as our composite mat manufacturing process. Using
proprietary technology and systems is an important aspect of our
business strategy. We believe that these products provide us
with a distinct advantage over our competition, which is
generally using wooden mat products. We believe that our
reputation in the industry, the range of services we offer,
ongoing technical development and know-how, responsiveness to
customers and understanding of regulatory requirements also have
competitive significance in the markets we serve.
Competition —
Our market is fragmented and
competitive, with nine to ten competitors providing various
forms of mat products and services. We provide DuraBase
composite mat systems to many customers, both domestic and
international. The mat sales component of our business is not as
fragmented as the oilfield services segment with only a few
competitors providing various alternatives to our DuraBase mat
products. This is due to many factors, including large capital
start-up
costs and proprietary technology associated with this product.
We believe that the principal competitive factors in our
businesses include price, reputation, technical proficiency,
reliability, quality and breadth of services offered. We also
believe that our competitive position is enhanced by our
proprietary products, services and experience.
Customers —
Our customers are principally major
and independent oil and gas E&P companies operating in the
markets that we serve. During 2010, approximately 91% of our
segment revenues were derived from the 20 largest segment
customers, of which, the largest customer represented 37% of our
segment revenues. Typically, we perform services either under
short-term contracts and rental service agreements. As most
agreements with our customers are cancelable upon short notice,
our backlog is not significant. We do not derive a significant
portion of our revenues from government contracts. See
Note 12 Segment and Related Information
in
Item 8.
Financial Statements and Supplementary Data
for additional information on financial and geographic data.
3
Table of Contents
Environmental
Services
We process and dispose of waste generated by our oil and gas
customers that is treated as exempt under the Resource
Conservation and Recovery Act (“RCRA”). Primary
revenue sources include onshore and offshore drilling waste
management as well as reclamation services. Additionally, we
provide disposal services in the West Texas market. We
operate six receiving and transfer facilities located along the
U.S. Gulf Coast. E&P waste is collected at the
transfer facilities from drilling and production operations
located offshore, onshore and within inland waters. Waste is
accumulated at the transfer facilities and moved by barge
through the Gulf Intracoastal Waterway to our processing and
transfer facility at Port Arthur, Texas, and, if not recycled,
is trucked to injection disposal facilities. We also recycle a
portion of the material received and deliver it to municipal
landfill facilities for application as a commercial product. Any
remaining material is injected, after further processing, into
environmentally secure geologic formations, effecting a
permanent isolation of the material from the environment.
Under permits from Texas state regulatory agencies, we currently
operate a
50-acre
injection well facility in Jefferson County, Texas and an
additional facility at a
400-acre
site near Fannett, Texas. The Fannett site was placed in service
in September 1995 and is our primary facility for disposing of
E&P waste. Utilizing this same technology, we also receive
and dispose of non-hazardous industrial waste principally from
generators in the U.S. Gulf Coast market, including
refiners, manufacturers, service companies and industrial
municipalities that produce waste that is not regulated under
RCRA. These non-hazardous waste streams are injected into a
separate well utilizing the same low-pressure injection
technology.
We are licensed to process E&P waste contaminated with
naturally occurring radioactive material (“NORM”). We
currently operate under a license that authorizes us to inject
NORM directly into dedicated disposal wells at our Jefferson
County facility. For more information on NORM, please refer to
the discussion under Environmental Regulation below.
Technology —
We use proprietary technology to
dispose of E&P waste by low-pressure injection into unique
geologic structures deep underground. We have patents covering
our waste processing and injection operations which expire in
2014. Our injection technology is distinguished from
conventional methods in that it utilizes very low pressure to
move the waste into the injection zone.
Competition —
Our competition in this business
consists of one large independent, US Liquids of Louisiana, and
several smaller companies which utilize a variety of disposal
methods and generally serve specific geographic markets. In
addition, we face competition with our major customers, who
continually re-evaluate their decision to use internal disposal
methods or a third-party disposal company, such as ours. We
believe that the principal competitive factors in our businesses
include price, reputation and reliability. We believe that we
compete effectively on the basis of these factors.
Customers —
Our customers are principally major
and independent oil and gas E&P companies operating in the
markets that we serve. During 2010, approximately 56% of our
segment revenues were derived from the 20 largest segment
customers, of which, the largest customer represented 22% of our
segment revenues. All of our segment revenues are generated
domestically. Typically, we perform services either under
short-term standard contracts or under longer term service
agreements. As most agreements with our customers are cancelable
upon short notice, our backlog is not significant. We do not
derive a significant portion of our revenues from government
contracts. See
Note 12 Segment and Related Information
in Item 8.
Financial Statements and Supplementary
Data
for additional information on financial and geographic
data.
Employees
At January 31, 2011, we employed 1,001 full and part-time
personnel, none of which are represented by unions. We consider
our relations with our employees to be satisfactory.
4
Table of Contents
Environmental
Regulation
We seek to comply with all applicable legal requirements
concerning environmental matters. Our environmental services
business processes and disposes of several types of
non-hazardous waste. The non-hazardous wastes handled by our
environmental services business are generally described as
follows:
E&P Waste
.
E&P waste
typically contains levels of oil and grease, salts, dissolved
solids and heavy metals within limits defined by state
regulations. E&P waste also includes soils that have become
contaminated by these materials.
NORM
.
NORM is present throughout the
earth’s crust at very low levels. Radium can co-precipitate
with scale in the production stream as it is drawn to the
surface and encounters a pressure or temperature change in the
well tubing or production equipment. This scale contains
radioactive elements that can become concentrated on tank
bottoms or at water discharge points at production facilities.
Non-hazardous Industrial Waste
.
This
category of waste is generated by industries not associated with
the exploration or production of oil and gas. This includes
refineries and petrochemical plants.
Our business is affected by governmental regulations relating to
the oil and gas industry in general, as well as environmental,
health and safety regulations that have specific application to
our business. Our activities are impacted by various federal,
state and provincial pollution control, health and safety
programs that are administered and enforced by regulatory
agencies. While our business activities are not directly subject
to the drilling moratorium and increased permitting requirements
imposed during 2010 following the Deepwater Horizon accident,
both our drilling fluids and environmental services segments
were impacted by these regulatory actions.
Additionally, our business exposes us to environmental risks.
For example, our environmental services business routinely
handles, stores and disposes of non-hazardous regulated
materials and waste. We could be held liable for improper
cleanup and disposal based upon statute, negligence, strict
liability, contract or otherwise. As is common in the oil and
gas industry, we often are required contractually to indemnify
our customers or other third-parties against certain risks
related to the services we perform, including damages stemming
from environmental contamination.
We have implemented various procedures designed to ensure
compliance with applicable regulations and reduce the risk of
damage or loss. These include specified handling procedures and
guidelines for regulated waste, ongoing employee training and
monitoring and maintaining insurance coverage.
We also employ a corporate-wide web-based health, safety and
environmental management system (“HSEMS”), which is
ISO 14001:2004 compliant. The HSEMS is composed of modules
designed to capture information related to the planning,
decision-making, and general operations of environmental
regulatory activities within our operations. We also use the
HSEMS to capture the information generated by regularly
scheduled independent audits that are done to validate the
findings of our internal monitoring and auditing procedures.
| ITEM 1A. | Risk Factors |
The following summarizes the most significant risk factors to
our business. Our success will depend, in part, on our ability
to anticipate and effectively manage these and other risks. Any
of these risk factors, either individually or in combination,
could have significant adverse impacts to our results of
operations and financial condition, or prevent us from meeting
our profitability or growth objectives.
Risk
Related to the Impact of Restrictions on Offshore Drilling
Activity in the Gulf of Mexico
In April 2010, the Deepwater Horizon drilling rig sank in the
Gulf of Mexico after a blowout and fire, resulting in the
ongoing discharge of oil from the well. Following the Deepwater
Horizon oil spill, the Department of Interior of the
U.S. government took several actions aimed at restricting
and temporarily prohibiting certain drilling activity in the
Gulf of Mexico. While the Department of Interior has announced
the formal end of the drilling moratorium placed in effect in
May 2010, increased permitting requirements are applicable to
both shallow water and deepwater drilling activities.
5
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As a result of the restrictions imposed by the Department of
Interior, we have experienced revenue declines in the areas
impacted by the spill during the second half of 2010, as our
customers have delayed or ceased operations, resulting in less
demand for our drilling fluids and waste disposal services.
During 2010, we generated approximately $44 million of
revenues from the area impacted by the restrictions, including
$11 million of revenue generated directly related to the
Deepwater Horizon oil spill. Based on the uncertainty of the
regulations on drilling in the Gulf of Mexico, we expect
revenues and operating income from this region to be
significantly lower in 2011, as compared to 2010 levels, for as
long as the uncertainty remains. Due to the fixed nature of the
majority of our operating expenses in this region, we expect any
reduction in segment revenues to have a high incremental impact
on segment operating income. Further, our facilities on the
coast of the Gulf of Mexico may be forced to suspend operations
as a result of impacts from the restrictions, which could
potentially result in a reduction in revenues or an increase in
our costs, including the potential impairment of long-lived
assets.
In addition to the current restrictions, we cannot predict
whether changes in laws and regulations concerning operations in
the Gulf of Mexico, or more generally throughout the
U.S. will be enacted. Significant changes in regulations
regarding future exploration and production activities in the
Gulf of Mexico or other government or regulatory actions could
reduce drilling and production activity, or increase the costs
of our services, which could have a material adverse impact on
our business.
Risks
Related to our Customer Concentration and Cyclical Nature of the
E&P Industry
We derive a significant portion of our revenues from companies
in the E&P industry, and our customer base is highly
concentrated in major and independent oil and gas E&P
companies operating in the markets that we serve. In 2010,
approximately 50% of our consolidated revenues were derived from
our 20 largest customers. While no single customer accounted for
more than 10% of our consolidated revenues, one customer in our
mats and integrated services segment accounted for 37% of
segment revenues. The E&P industry is historically
cyclical, with levels of activity generally affected by the
following factors:
| • | current oil and natural gas prices and expectations about future prices | |
| • | the cost to explore for, produce and deliver oil and gas | |
| • | the discovery rate for new oil and gas reserves | |
| • | the ability of oil and gas companies to raise capital | |
| • | domestic and international political, military, regulatory and economic conditions | |
| • | government regulations regarding environmental protection, taxation, price controls and product allocation |
Because of the cyclical nature of our industry and our customer
concentration, our quarterly and annual operating results have
fluctuated significantly in recent years and may continue to
fluctuate in future periods. A prolonged decline in industry
drilling rig activity or the loss of any of our large customers
could materially affect the demand for our services. Because our
business has high fixed costs, including significant facility
and personnel expenses, downtime or low productivity due to
reduced demand can have significant adverse impact on our
profitability.
Risks
Related to the Availability of Raw Materials and Skilled
Personnel
Our ability to provide products and services to our customers is
dependent upon our ability to obtain the raw materials and
qualified personnel necessary to operate our business.
Barite is a naturally occurring mineral that constitutes a
significant portion of our drilling fluids systems. We currently
secure the majority of our barite ore from foreign sources,
primarily China and India. The availability and cost of barite
ore is dependent on factors beyond our control including power
shortages, political priorities and government imposed export
fees in China as well as natural disasters such as the 2008
earthquake in Sichuan Province, China. The availability and cost
of barite ore is further impacted by inland transportation and
ocean freight. Due to recent wide swings in world wide demand
for raw materials, the cost of transportation has fluctuated
6
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significantly. Significant fluctuations in either the cost of
raw materials, including barite ore or their transportation
costs, may impact our profitability.
Our business is also highly dependent on our ability to attract
and retain highly-skilled engineers, technical sales and service
personnel. The market for these employees is very competitive,
and if we cannot attract and retain quality personnel, our
ability to compete effectively and to grow our business will be
severely limited. Also a significant increase in the wages paid
by competing employers could result in a reduction in our
skilled labor force or an increase in our operating costs.
Risk
Related to our Market Competition
We face competition in the Fluids Systems and Engineering
business from larger companies, which compete vigorously on
fluids performance
and/or
price. In addition, these companies have broad product and
service offerings in addition to their drilling fluids. We also
have smaller regional competitors competing with us mainly on
price and local relationships.
Our competition in the Mats and Integrated Services business is
very fragmented and competitive, with nine to ten competitors
providing various forms of wooden mat products and services. In
addition, we are beginning to see competition in the market for
mats similar to our
DuraBase
TM
composite mat system.
Competition in the Environmental Services market could increase
as the industry continues to develop, which could put downward
pressure on our margins. We also face competition from efforts
by oil and gas producing customers to improve their own methods
of disposal and waste elimination.
Risks
Related to the Cost and Continued Availability of Borrowed
Funds
We employ borrowed funds as an integral part of our long-term
capital structure and our future success is dependent upon
continued access to borrowed funds to support our operations.
The availability of borrowed funds on reasonable terms is
dependent on the condition of credit markets and financial
institutions from which these funds are obtained. Adverse events
in the financial markets, such as those experienced in recent
years, may significantly reduce the availability of funds, which
may have an adverse effect on our cost of borrowings and our
ability to fund our business strategy. Adverse events in the
financial markets may also negatively impact our customers, as
many of them finance their drilling and production operations
through borrowed funds. The reduced availability and increased
cost of borrowing could cause our customers to reduce their
spending on drilling programs, thereby reducing demand and
potentially pricing for our products and services.
Our ability to meet our debt service requirements and the
continued availability of funds under our existing or future
credit agreements is dependent upon our ability to continue
generating operating income and remain in compliance with the
covenants in our credit agreements. This, in turn, is subject to
the volatile nature of the E&P industry, and to
competitive, economic, financial and other factors that are
beyond our control.
Risks
Related to International Operations
We have significant operations outside of the United Stated,
including certain areas of Europe, North Africa, Brazil, Canada
and Mexico. In 2010, these international operations generated
approximately 28% of our consolidated revenues. In addition, we
may seek to expand to other areas outside the United States in
the future. International operations are subject to a number of
risks and uncertainties, including:
| • | difficulties and cost associated with complying with a wide variety of complex foreign laws, treaties and regulations | |
| • | unexpected changes in regulatory environments or tax laws | |
| • | legal uncertainties, timing delays and expenses associated with tariffs, export licenses and other trade barriers | |
| • | difficulties enforcing agreements and collecting receivables through foreign legal systems |
7
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| • | risks associated with the Foreign Corrupt Practices Act and other similar U.S. laws applicable to our operations in international markets | |
| • | exchange controls or other limitations on international currency movements | |
| • | sanctions imposed by the U.S. government to prevent us from engaging in business in certain countries | |
| • | inability to preserve certain intellectual property rights in the foreign countries in which we operate | |
| • | our inexperience in new international markets | |
| • | fluctuations in foreign currency exchange rates | |
| • | political and economic instability |
In early 2011, several international markets in which we
operate, including Tunisia, Egypt and Libya experienced
political unrest, which may negatively impact our operating
results as well as oil and gas markets generally.
Risks
Related to Legal and Regulatory Matters, Including Environmental
Regulations
We are responsible for complying with numerous federal, state
and local laws, regulations and policies that govern
environmental protection, zoning and other matters applicable to
our current and past business activities, including the
activities of our former subsidiaries. Failure to remain
compliant with these laws and regulations may result in fines,
penalties, costs of cleanup of contaminated sites and site
closure obligations, or other expenditures. Further, any changes
in the current legal and regulatory environment could impact
industry activity and the demands for our products and services,
the scope of products and services that we provide, or our cost
structure required to provide our products and services.
We believe that the demand for our services in the Environmental
Services business is directly related to regulation of E&P
waste. In particular, E&P waste is currently exempt from
the principal federal statute governing the handling of
hazardous waste. In recent years, proposals have been made to
rescind this exemption. If the exemption covering this type of
E&P waste is repealed or modified, or if the regulations
interpreting the rules regarding the treatment or disposal of
E&P waste or NORM waste were changed, it could have a
material adverse effect on this business.
The markets for our products and services are dependent on the
continued exploration for and production of fossil fuels
(predominantly oil and natural gas). In December 2009, the
U.S. Environmental Protection Agency (“EPA”)
published findings that the emissions of carbon dioxide, methane
and other greenhouse gases are contributing to the warming of
the Earth’s atmosphere and other climatic changes,
presenting an endangerment to human health and the environment.
Further, federal legislation to reduce emissions of greenhouse
gases has been considered and many states have taken measures to
reduce greenhouse gas emissions. The EPA has also proposed
regulations that could potentially limit greenhouse gas
emissions and impose reporting obligations on large greenhouse
gas emission sources. To the extent that laws and regulations
enacted as part of climate change legislation increase the costs
of drilling for or producing such fossil fuels, or reduce the
demand for fossil fuels, such legislation could have a material
adverse impact on our operations and profitability.
Risks
Related to the Inherent Limitations of Insurance
Coverage
While we maintain liability insurance, this insurance is subject
to coverage limitations. Specific risks and limitations of our
insurance coverage include the following:
| • | self-insured retention limits on each claim, which are our responsibility | |
| • | exclusions for certain types of liabilities and limitations on coverage for damages resulting from pollution | |
| • | coverage limits of the policies, and the risk that claims will exceed policy limits | |
| • | the financial strength and ability of our insurance carriers to meet their obligations under the policies |
8
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In addition, our ability to continue to obtain insurance
coverage on commercially reasonable terms is dependent upon a
variety of factors impacting the insurance industry in general,
which are outside our control.
Any of the issues noted above, including insurance cost
increases, uninsured or underinsured claims, or the inability of
an insurance carrier to meet their financial obligations could
have a material adverse effect on our profitability.
Risks
Related to Potential Impairments of Long-lived Intangible
Assets
As of December 31, 2010, our consolidated balance sheet
includes $62.3 million in goodwill and $13.1 million
of intangible assets, net. Goodwill and indefinite-lived
intangible assets are tested for impairment annually, or more
frequently as the circumstances require, using a combination of
market multiple and discounted cash flow approaches. In
completing this annual evaluation during the fourth quarter of
2010, we determined that no reporting unit has a fair value
below its net carrying value, and therefore, no impairment is
required. However, if the financial performance or future
projections for our operating segments deteriorate from current
levels, a future impairment of goodwill or indefinite-lived
intangible assets may be required, which would negatively impact
our financial results, in the period of impairment.
Risks
Related to Technological Developments in our
Industry
The market for our products and services is characterized by
continual technological developments that generate substantial
improvements in product functions and performance. If we are not
successful in continuing to develop product enhancements or new
products that are accepted in the marketplace or that comply
with industry standards, we could lose market share to
competitors, which would negatively impact our results of
operations and financial condition.
We hold U.S. and foreign patents for certain of our
drilling fluids components and our mat systems. In our
Environmental Services business, we also hold U.S. patents
on certain aspects of our system to process and dispose of
E&P waste, including E&P waste that is contaminated
with NORM. However, these patents are not a guarantee that we
will have a meaningful advantage over our competitors, and there
is a risk that others may develop systems that are substantially
equivalent to those covered by our patents. If that were to
happen, we would face increased competition from both a service
and a pricing standpoint. In addition, costly and time-consuming
litigation could be necessary to enforce and determine the scope
of our patents and proprietary rights. It is possible that
future innovation could change the way companies drill for oil
and gas, reduce the amount of waste that is generated from
drilling activities or create new methods of disposal or new
types of drilling fluids. This could reduce the competitive
advantages we may derive from our patents and other proprietary
technology.
Risks
Related to Severe Weather, Particularly in the U.S. Gulf
Coast
Approximately 25% of our consolidated revenue in 2010 was
generated in market areas in the U.S. Gulf of Mexico and
related near-shore areas, which are susceptible to hurricanes
and other adverse weather events, such as those which occurred
in 2005 and 2008. These weather events can disrupt our
operations and result in damage to our properties, as well as
negatively impact the activity and financial condition of our
customers. Our business may be adversely affected by these and
other negative effects of future hurricanes or other adverse
weather events.
Risks
Related to Capital Investments and Business
Acquisitions
Our ability to successfully execute our business strategy will
depend, among other things, on our ability to make capital
investments and acquisitions which provide the Company with
financial benefits. Our 2011 capital expenditures are expected
to be approximately $30-$40 million, including investments
in a new enterprise-wide operational and financial system,
additional investments in our manufacturing and research and
development facilities, as well as additions to our composite
mat rental fleet. Further, on March 4, 2011, we entered
into a definitive agreement to acquire the drilling fluids and
related engineering services unit of Rheochem PLC, a
9
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publicly-traded Australian-based oil and gas company. These
anticipated investments, along with any future investments, are
subject to a number of risks and uncertainties, including:
| • | incorrect assumptions regarding the future benefits or results from our capital investments, any acquired operations or assets | |
| • | failure to complete a planned acquisition transaction or to successfully integrate the operations or management of any acquired businesses or assets in a timely manner | |
| • | diversion of management’s attention from existing operations or other priorities | |
| • | unanticipated disruptions to our business associated with the implementation of our enterprise-wide operational and financial system | |
| • | failure of new enterprise-wide operational and financial system to function as intended |
Any of the factors above could have an adverse effect on our
business, financial condition or results of operations.
Risks
Related to Fluctuations in the Market Value of our Common
Stock
The market price of our common stock may fluctuate due to a
number of factors, including the general economy, stock market
conditions, general trends in the E&P industry,
announcements made by us or our competitors, and variations in
our operating results. Investors may not be able to predict the
timing or extent of these fluctuations.
| ITEM 1B. | Unresolved Staff Comments |
None
| ITEM 2. | Properties |
We lease office space to support our operating segments as well
as our corporate offices. This leased space is located in The
Woodlands, Houston and Port Arthur, Texas, Lafayette, Louisiana,
Calgary, Alberta, and Rome, Italy. We also own office space in
Oklahoma City, Oklahoma. All owned properties serve as
collateral to our Amended and Restated Credit Agreement
(“Credit Amendment”).
Fluids Systems & Engineering.
We own
seven warehouse facilities and have 20 leased warehouses and
five contract warehouses to support our customers and operations
in the U.S. We own two warehouse facilities in Western
Canada to support our Canadian operations. Additionally, we
lease 16 warehouses and own one warehouse in the Mediterranean
region and lease six warehouses in Brazil to support our
international operations.
We operate four specialty product grinding facilities in the
U.S. These facilities are located in Houston, Texas on
approximately 18 acres of owned land, in New Iberia,
Louisiana on 13.7 acres of leased land, in Corpus Christi,
Texas on six acres of leased land, and in Dyersburg, Tennessee
on 13.2 acres of owned land.
Mats & Integrated Services.
We own
approximately 44,000 square feet of office and warehouse
space on nine acres of land in Carencro, Louisiana, which houses
manufacturing facilities for this segment. We also lease five
sites in Pennsylvania, Texas, Louisiana and Colorado which serve
as bases for our well site service activities. Additionally, we
own five facilities which are located in Louisiana, Texas and
Colorado to support field operations.
Environmental Services.
We lease a
4.6 acre E&P waste processing and transfer
facility in Port Arthur, Texas. We own three injection disposal
sites located in Jefferson County, Texas with two of those
properties immediately adjacent to each other, one 47 acre
site for NORM disposal with five caprock injection wells and a
140 acre site for our industrial injection operation with
two caprock injection wells. The remaining site consists of our
nonhazardous oilfield waste processing and injection operations.
This site is on 400+ acres and has 11 caprock injection wells
and a disposal cavern. In addition, we own three facilities in
West Texas on a total of approximately 100 acres of land.
Additionally, we have six leased receiving facilities to support
our injection and waste disposal services.
10
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| ITEM 3. | Legal Proceedings |
On March 12, 2007, we were advised that the SEC 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. On July 16, 2009, the SEC
filed a civil lawsuit against our former Chief Financial
Officer, the former Chief Financial Officer of our Soloco
business unit and one former vendor in connection with the
transactions that were described in the Amended
Form 10-K/A.
Subsequently, the SEC announced that it reached settlement of
its claims against all three defendants. We were not named as a
defendant in this lawsuit. In October 2010, the SEC informed us
that they have completed their investigation associated with
these matters.
In the ordinary course of conducting our business, we become
involved in litigation and other claims from private party
actions, as well as judicial and administrative proceedings
involving governmental authorities at the federal, state and
local levels. In the opinion of management, any liability in
these matters should not have a material effect on our
consolidated financial statements.
| ITEM 4. | [Removed and Reserved] |
11
Table of Contents
| ITEM 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is traded on the New York Stock Exchange under
the symbol “NR.”
The following table sets forth the range of the high and low
sales prices for our common stock for the periods indicated:
|
Period
|
High | Low | ||||||
|
2010
|
||||||||
|
4th Quarter
|
$ | 8.90 | $ | 5.12 | ||||
|
3rd Quarter
|
$ | 9.50 | $ | 5.97 | ||||
|
2nd Quarter
|
$ | 8.05 | $ | 5.18 | ||||
|
1st Quarter
|
$ | 5.85 | $ | 3.60 | ||||
|
2009
|
||||||||
|
4th Quarter
|
$ | 4.56 | $ | 2.56 | ||||
|
3rd Quarter
|
$ | 3.51 | $ | 2.22 | ||||
|
2nd Quarter
|
$ | 3.47 | $ | 2.22 | ||||
|
1st Quarter
|
$ | 4.68 | $ | 2.30 | ||||
As of February 1, 2011, we had 1,822 stockholders of record
as determined by our transfer agent.
During 2008, our Board of Directors approved a plan authorizing
our repurchase of up to $25 million of outstanding common
stock, of which $9.9 million remains available. No
repurchases were made under this plan during 2009 or 2010.
During 2010 and 2009 we repurchased $0.2 million and
$0.3 million of shares surrendered in lieu of taxes under
vesting of restricted stock awards, respectively. Our Board of
Directors currently intends to retain earnings for use in our
business. We have not paid any dividends during the two recent
fiscal years or any subsequent interim period, and we do not
intend to pay any cash dividends in the foreseeable future. In
addition, our credit facilities contain covenants which limit
the payment of dividends on our common stock.
The following table details our repurchases of shares of our
common stock for the three months ended December 31, 2010:
|
Total Number of
|
Maximum Approximate Dollar
|
|||||||||||||||
|
Shares Purchased as Part
|
Value of Shares that May Yet
|
|||||||||||||||
|
Total Number of
|
Average Price
|
of Publicly Announced
|
be Purchased Under
|
|||||||||||||
|
Period
|
Shares Purchased | per Share | Plans or Programs | Plans or Programs | ||||||||||||
|
October 1 — 31, 2010
|
— | $ | — | — | $ | 9.9 million | ||||||||||
|
November 1 — 30, 2010
|
— | — | — | $ | 9.9 million | |||||||||||
|
December 1 — 31, 2010
|
— | — | — | $ | 9.9 million | |||||||||||
|
Total
|
— | $ | — | — | ||||||||||||
12
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Performance
Graph
The following graph reflects a comparison of the cumulative
total stockholder return of our common stock from
January 1, 2006 through December 31, 2010, with the
New York Stock Exchange Market Value Index, a broad equity
market index, and the Hemscott Oil & Gas
Equipment/Services Index, an industry group index. The graph
assumes the investment of $100 on January 1, 2006 in our
common stock and each index and the reinvestment of all
dividends, if any. This information shall be deemed furnished
not filed, in this
Form 10-K,
and shall not be deemed incorporated by reference into any
filing under the Securities Exchange Act of 1933, or the
Securities Act of 1934, except to the extent we specifically
incorporate it by reference.
13
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| ITEM 6. | Selected Financial Data |
The selected consolidated historical financial data presented
below for the five years ended December 31, 2010 is derived
from our consolidated financial statements and is not
necessarily indicative of results to be expected in the future.
The following data should be read in conjunction with the
consolidated financial statements and notes thereto and with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Items 7 and 8
below.
| As of and for the Year Ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (In thousands, except share data) | ||||||||||||||||||||
|
Consolidated Statements of Operations:
|
||||||||||||||||||||
|
Revenues
|
$ | 715,954 | $ | 490,275 | $ | 858,350 | $ | 671,207 | $ | 642,317 | ||||||||||
|
Operating income (loss)
|
78,004 | (15,325 | ) | 71,496 | 66,403 | 3,468 | ||||||||||||||
|
Interest expense
|
10,267 | 9,334 | 10,881 | 20,251 | 19,546 | |||||||||||||||
|
Income (loss) from continuing operations
|
$ | 41,626 | $ | (20,573 | ) | $ | 39,300 | $ | 31,763 | $ | (12,306 | ) | ||||||||
|
Loss from discontinued operations, net of tax
|
— | — | (842 | ) | (3,488 | ) | (19,975 | ) | ||||||||||||
|
Loss from disposal of discontinued operations, net of taxes
|
— | — | — | (1,613 | ) | — | ||||||||||||||
|
Net income (loss)
|
$ | 41,626 | $ | (20,573 | ) | $ | 38,458 | $ | 26,662 | $ | (32,281 | ) | ||||||||
|
Net income (loss) per common share (basic):
|
||||||||||||||||||||
|
Income (loss) from continuing operations
|
$ | 0.47 | $ | (0.23 | ) | $ | 0.44 | $ | 0.35 | $ | (0.14 | ) | ||||||||
|
Net income (loss) per common share
|
$ | 0.47 | $ | (0.23 | ) | $ | 0.43 | $ | 0.30 | $ | (0.36 | ) | ||||||||
|
Net income (loss) per common share (diluted):
|
||||||||||||||||||||
|
Income (loss) from continuing operations
|
$ | 0.46 | $ | (0.23 | ) | $ | 0.44 | $ | 0.35 | $ | (0.14 | ) | ||||||||
|
Net income (loss) per common share
|
$ | 0.46 | $ | (0.23 | ) | $ | 0.43 | $ | 0.29 | $ | (0.36 | ) | ||||||||
|
Consolidated Balance Sheet Data:
|
||||||||||||||||||||
|
Working capital
|
$ | 329,371 | $ | 163,110 | $ | 253,136 | $ | 214,890 | $ | 215,364 | ||||||||||
|
Total assets
|
737,342 | 585,114 | 713,679 | 643,493 | 629,449 | |||||||||||||||
|
Foreign bank lines of credit
|
1,458 | 6,901 | 11,302 | 7,297 | 10,938 | |||||||||||||||
|
Current maturities of long-term debt
|
148 | 10,319 | 10,391 | 11,565 | 4,058 | |||||||||||||||
|
Long-term debt, less current portion
|
172,987 | 105,810 | 166,461 | 158,616 | 198,047 | |||||||||||||||
|
Stockholders’ equity
|
417,347 | 368,022 | 377,882 | 360,664 | 323,143 | |||||||||||||||
|
Consolidated Cash Flow Data:
|
||||||||||||||||||||
|
Net cash provided by operations
|
$ | 31,476 | $ | 88,819 | $ | 28,687 | $ | 68,171 | $ | 26,600 | ||||||||||
|
Net cash used in investing activities
|
(10,549 | ) | (17,144 | ) | (23,168 | ) | (40,292 | ) | (30,298 | ) | ||||||||||
|
Net cash provided (used in) by financing activities
|
50,621 | (66,265 | ) | (2,062 | ) | (35,649 | ) | 8,573 | ||||||||||||
14
Table of Contents
| ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
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 included in Item 8 of
this Annual Report.
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 oil and gas
exploration (“E&P”) industry domestically in the
U.S. Gulf Coast, West Texas, Oklahoma, East Texas, North
Louisiana, Rocky Mountains, and Northeast regions, as well as
internationally in certain areas of Europe, North Africa,
Brazil, Canada and Mexico. 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, both
domestically and internationally.
Our North American operations generated 76% of total reported
revenues for 2010, and our consolidated revenues by segment are
as follows:
| 2010 | ||||
| (In thousands) | ||||
|
Fluids systems and engineering
|
$ | 597,795 | ||
|
Mats and integrated services
|
69,397 | |||
|
Environmental services
|
48,762 | |||
|
Total revenues
|
$ | 715,954 | ||
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 demand, and more
recently, regulatory actions affecting operations in the Gulf of
Mexico.
Rig count data is the most widely accepted indicator of drilling
activity. Key average North American rig count data for the last
three years ended December 31 is as follows:
| Year Ended December 31, | 2010 vs 2009 | 2009 vs 2008 | ||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | Count | % | Count | % | ||||||||||||||||||||||
|
U.S. Rig Count
|
1,546 | 1,087 | 1,879 | 459 | 42 | % | (792 | ) | (42 | )% | ||||||||||||||||||
|
Canadian Rig Count
|
348 | 223 | 382 | 125 | 56 | % | (159 | ) | (42 | )% | ||||||||||||||||||
|
Total
|
1,894 | 1,310 | 2,261 | 584 | 45 | % | (951 | ) | (42 | %) | ||||||||||||||||||
Source: Baker Hughes Incorporated
North American drilling activity declined dramatically during
2009 from the elevated levels experienced in 2008. In response
to these declines, we executed cost reduction programs during
2009 including workforce reductions, reduced discretionary
spending and salary reductions. As part of this cost reduction
program, we reduced our North American workforce by
548 employees. As a result, operating results for 2009
include $4.5 million of charges associated with employee
termination and related costs.
In April 2010, the Deepwater Horizon drilling rig sank in the
Gulf of Mexico after an explosion and fire, resulting in the
discharge of oil from the well. Following the Deepwater Horizon
oil spill, the Department of Interior of the
U.S. government took several actions aimed at restricting
and temporarily prohibiting certain drilling activity in the
Gulf of Mexico. While the Department of Interior has since
announced the formal end of the drilling moratorium placed in
effect in May 2010, increased permitting requirements are
applicable to both shallow water and deepwater drilling
activities. As a result, the near-term outlook for drilling
activity in the Gulf of Mexico remains uncertain.
15
Table of Contents
We generated approximately $44 million of revenues within
the areas of the Gulf of Mexico impacted by the restrictions
during 2010, including $11 million of revenue generated
directly related to the Deepwater Horizon oil spill. We expect
revenues generated from the affected areas of the Gulf of Mexico
to be significantly lower in 2011, particularly in the
environmental services business, as compared to the levels
achieved in 2010.
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
Consolidated
Results of Operations
Summarized results of operations for the year ended
December 31, 2010 compared to the year ended
December 31, 2009 are as follows:
| Year Ended December 31, | 2010 vs 2009 | |||||||||||||||
| 2010 | 2009 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Revenues
|
$ | 715,954 | $ | 490,275 | $ | 225,679 | 46 | % | ||||||||
|
Cost of revenues
|
576,920 | 447,624 | 129,296 | 29 | % | |||||||||||
|
Selling, general and administrative expenses
|
64,157 | 61,205 | 2,952 | 5 | % | |||||||||||
|
Other operating income, net
|
(3,127 | ) | (3,229 | ) | 102 | (3 | )% | |||||||||
|
Operating income (loss)
|
78,004 | (15,325 | ) | 93,329 | NM | |||||||||||
|
Foreign currency exchange gain
|
(1,134 | ) | (1,870 | ) | 736 | (39 | )% | |||||||||
|
Interest expense
|
10,267 | 9,334 | 933 | 10 | % | |||||||||||
|
Income (loss) from continuing operations before income taxes
|
68,871 | (22,789 | ) | 91,660 | NM | |||||||||||
|
Provision for income taxes
|
27,245 | (2,216 | ) | 29,461 | NM | |||||||||||
|
Income (loss) from continuing operations
|
$ | 41,626 | $ | (20,573 | ) | $ | 62,199 | NM | ||||||||
NM — not meaningful
Revenues
Revenues increased 46% to $716.0 million in 2010, compared
to $490.3 million in 2009. This increase in revenues is
primarily driven by the 42% improvement in the U.S. rig
count, along with our expansion into new markets and market
share gains, including increased revenues of $49.0 million
from East Texas and North Louisiana, $40.9 million from the
Northeast U.S. region and $35.8 million from Brazil.
Additional information regarding the change in revenues is
provided within the operating segment results below.
Cost
of Revenues
Cost of revenues increased 29% to $576.9 million in 2010,
as compared to $447.6 million in 2009. The increase is
primarily driven by the 46% increase in revenues, partially
offset by a change in revenue mix, along with the benefits of
the 2009 cost reduction programs, workforce reductions and
non-recurring employee termination and related costs recorded in
2009. Cost of revenues as a percentage of revenues was 81% in
2010 compared to 91% in 2009. Additional information regarding
the change in cost of revenues is provided within the operating
segment results below.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$3.0 million to $64.2 million in 2010 from
$61.2 million for 2009. The increase is primarily
attributable to a $5.2 million increase in
performance-based employee incentive costs in 2010, partially
offset by the impact of cost reduction programs implemented
during 2009.
16
Table of Contents
Other
Operating Income, Net
Other income, net was $3.1 million in 2010, reflecting
$0.9 million of proceeds from insurance claims resulting
from Hurricane Ike in 2008 and $2.2 million of net proceeds
from a lawsuit settlement, both within our Mats and Integrated
Services business. Other income, net was $3.2 million
during 2009, including $2.3 million of proceeds from
business interruption insurance claims within our Environmental
Services business.
Foreign
Currency Exchange
Foreign currency exchange was a $1.1 million gain in 2010,
compared to a $1.9 million gain in 2009, reflecting the
impact of currency fluctuations on our non-functional currency
denominated assets and liabilities within our foreign operations.
Interest
Expense
Interest expense increased to $10.3 million in 2010,
compared to $9.3 million in 2009. 2010 includes a
$1.2 million charge for the termination of our interest
rate swap agreements associated with the term loan. The
remaining interest expense was $9.1 million in 2010,
reflecting a $0.2 million decrease from 2009. See
Liquidity and Capital Resources
below for additional
information.
Provision
for Income Taxes
The provision for income taxes for 2010 was a $27.2 million
expense, reflecting an effective tax rate of 39.6%, compared to
a $2.2 million benefit for 2009, reflecting an effective
tax rate of 9.7%. The low effective tax benefit rate in 2009 is
primarily due to losses generated in certain foreign countries
for which the recording of a tax benefit is not permitted, as
well as the recording of valuation allowances against a
previously recognized net operating loss carryforward tax asset
in Canada, which serve to reduce the effective tax benefit rate
in the period.
Operating
Segment Results
Summarized financial information for our reportable segments is
shown in the following table (net of inter-segment transfers):
| Year Ended December 31, | 2010 vs 2009 | |||||||||||||||
| 2010 | 2009 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Revenues
|
||||||||||||||||
|
Fluids systems and engineering
|
$ | 597,795 | $ | 409,450 | $ | 188,345 | 46 | % | ||||||||
|
Mats and integrated services
|
69,397 | 37,476 | 31,921 | 85 | % | |||||||||||
|
Environmental services
|
48,762 | 43,349 | 5,413 | 12 | % | |||||||||||
|
Total revenues
|
$ | 715,954 | $ | 490,275 | $ | 225,679 | 46 | % | ||||||||
|
Operating income (loss)
|
||||||||||||||||
|
Fluids systems and engineering
|
$ | 56,234 | $ | 1,994 | $ | 54,240 | ||||||||||
|
Mats and integrated services
|
26,684 | (7,840 | ) | 34,524 | ||||||||||||
|
Environmental services
|
13,447 | 7,711 | 5,736 | |||||||||||||
|
Corporate office
|
(18,361 | ) | (17,190 | ) | (1,171 | ) | ||||||||||
|
Operating income (loss)
|
$ | 78,004 | $ | (15,325 | ) | $ | 93,329 | |||||||||
|
Segment operating margin
|
||||||||||||||||
|
Fluids systems and engineering
|
9.4 | % | 0.5 | % | ||||||||||||
|
Mats and integrated services
|
38.5 | % | (20.9 | )% | ||||||||||||
|
Environmental services
|
27.6 | % | 17.8 | % | ||||||||||||
17
Table of Contents
Fluids
Systems and Engineering
Revenues
Total revenues for this segment consisted of the following:
| Year Ended December 31, | 2010 vs 2009 | |||||||||||||||
| 2010 | 2009 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Drilling fluids and engineering
|
$ | 330,425 | $ | 207,954 | $ | 122,471 | 59 | % | ||||||||
|
Completion fluids and services
|
45,610 | 27,656 | 17,954 | 65 | % | |||||||||||
|
Industrial minerals
|
49,092 | 32,440 | 16,652 | 51 | % | |||||||||||
|
Total North America
|
425,127 | 268,050 | 157,077 | 59 | % | |||||||||||
|
Mediterranean
|
111,416 | 115,926 | (4,510 | ) | (4 | )% | ||||||||||
|
Brazil
|
61,252 | 25,474 | 35,778 | 140 | % | |||||||||||
|
Total
|
$ | 597,795 | $ | 409,450 | $ | 188,345 | 46 | % | ||||||||
North America revenues increased 59% to $425.1 million for
2010, as compared to $268.0 million for 2009. Of this
$157.1 million increase, drilling fluids and engineering
revenues increased $122.5 million, largely attributable to
the 42% increase in the U.S. rig count, along with
expansion in the Northeast U.S. region and market share
gains in East Texas and North Louisiana. Our completion fluids
and services activity was up 65% and our wholesale industrial
minerals revenues were up 51%, both driven by the increased
activity levels.
Internationally, revenues were up 22% to $172.7 million for
2010, as compared to $141.4 million for 2009, primarily due
to a $35.8 million increase from Brazil resulting from
continued market share gains. Mediterranean revenue is down 4%
primarily due to the impact of the strengthening
U.S. dollar, as revenues were relatively unchanged in local
currency terms.
Operating
Income
Operating income for this segment was $56.2 million in
2010, reflecting an improvement of $54.2 million from a
$2.0 million operating profit in 2009. Substantially all of
this improvement was provided by the North American
operations, which generated a $51.5 million improvement in
operating income. This improvement is primarily attributable to
the incremental profit from the $157.1 million increase in
revenues described above, combined with operating expense
reductions from programs implemented during 2009, and
$3.1 million of charges in the 2009 period associated with
employee terminations. Operating income from international
operations increased $2.7 million, including a
$2.6 million increase in Brazil, as a result of higher
revenues in 2010.
Our consolidated balance sheet as of December 31, 2010
includes $12.8 million of long-lived assets within our
Brazil operation, of which $12.3 million consists of
property, plant and equipment. In 2010, our Brazil operation
generated a full year operating loss of $3.1 million. While
the operating results from this operation are expected to
improve in the future and management currently believes that the
carrying value of the long-lived assets is recoverable, an
impairment of the long-lived assets in a future period is
possible if current expectations change and management’s
outlook for the Brazil operation deteriorates.
In early 2011, several international markets in which we
operate, including Tunisia, Egypt and Libya experienced
political unrest, which may negatively impact our operating
results as compared to 2010. During 2010, revenues from these
three countries along with Algeria represented approximately 12%
of total segment revenues, with no individual country
representing more than 6% of total segment revenues.
18
Table of Contents
Mats
and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
| Year Ended December 31, | 2010 vs 2009 | |||||||||||||||
| 2010 | 2009 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Mat rental and integrated services
|
$ | 45,945 | $ | 24,944 | $ | 21,001 | 84 | % | ||||||||
|
Mat sales
|
23,452 | 12,532 | 10,920 | 87 | % | |||||||||||
|
Total
|
$ | 69,397 | $ | 37,476 | $ | 31,921 | 85 | % | ||||||||
The $21.0 million increase in mat rental and integrated
services revenue is primarily driven by a $25.6 million
increase in mat rentals in the Northeast U.S. region,
partially offset by a $3.4 million decline in rental and
service revenues in Colorado and a $1.2 million decrease in
the Gulf Coast region. Mat sales increased $10.9 million,
as demand for these products has improved from the E&P and
other industries, following the economic downturn in 2009.
Operating
Income
Segment operating income increased by $34.5 million to
$26.7 million for 2010. This improvement in operating
income is primarily attributable to the $31.9 million
increase in revenues, along with $4.4 million in operating
expense reductions following 2009 cost reduction programs.
Fiscal 2009 included $1.0 million of employee termination
costs and $1.2 million of non-cash write-downs of
inventory. Operating income in 2010 benefited from a higher mix
of mat rental activity. Incremental margins on mat rentals are
stronger than mat sales or service activities, due to the fixed
nature of operating expenses, including depreciation expense on
the rental mat fleet. As a result, we experienced significantly
higher operating margins in 2010, as compared to 2009.
Additionally, 2010 included $3.1 million of other income
reflecting proceeds from insurance claims and the settlement of
a lawsuit against a former vendor.
Environmental
Services
Revenues
Total revenues for this segment consisted of the following:
| Year Ended December 31, | 2010 vs 2009 | |||||||||||||||
| 2010 | 2009 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
E&P waste — Gulf Coast
|
$ | 36,516 | $ | 29,313 | $ | 7,203 | 25 | % | ||||||||
|
E&P waste — West Texas
|
2,653 | 3,146 | (493 | ) | (16 | )% | ||||||||||
|
NORM and industrial waste
|
9,593 | 10,890 | (1,297 | ) | (12 | )% | ||||||||||
|
Total
|
$ | 48,762 | $ | 43,349 | $ | 5,413 | 12 | % | ||||||||
Environmental services revenues increased 12% to
$48.8 million in 2010, as compared to 2009. The
$5.4 million increase in revenues from the prior year
included $10.5 million of revenues from the Deepwater
Horizon oil spill. Revenues from non oil spill activities
declined by $5.1 million in 2010, primarily reflecting the
impact of U.S. government restrictions on drilling activity
in the Gulf of Mexico.
Operating
Income
Environmental services operating income increased by
$5.7 million in 2010, partially driven by the
$5.4 million increase in revenues compared to 2009. In
addition, operating expenses are down $2.7 million in 2010,
including a $2.4 million reduction in equipment rental
expenses, following the non-renewal of barge leases in 2009.
Operating income in 2009 includes $2.3 million of proceeds
from business interruption insurance claims.
19
Table of Contents
In addition to the $10.5 million of revenues generated
directly from the Deepwater Horizon oil spill, approximately 40%
of 2010 revenues for this segment were derived from areas of the
Gulf of Mexico affected by the U.S. government
restrictions. We expect significant declines in revenues
generated directly from the Deepwater Horizon oil spill and in
non-oil spill revenues generated in the area affected by the
U.S. government restrictions in 2011. Due to the fixed
nature of the majority of our operating expenses in this
segment, we expect any reduction in segment revenues to have a
high incremental impact on segment operating income.
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Consolidated
Results of Operations
Summarized results of operations for the year ended
December 31, 2009 compared to the year ended
December 31, 2008 are as follows:
| Year Ended December 31, | 2009 vs 2008 | |||||||||||||||
| 2009 | 2008 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Revenues
|
$ | 490,275 | $ | 858,350 | $ | (368,075 | ) | (43 | )% | |||||||
|
Cost of revenues
|
447,624 | 703,430 | (255,806 | ) | (36 | )% | ||||||||||
|
Selling, general and administrative expenses
|
61,205 | 81,394 | (20,189 | ) | (25 | )% | ||||||||||
|
Other operating (income) expense, net
|
(3,229 | ) | 2,030 | (5,259 | ) | (259 | )% | |||||||||
|
Operating (loss) income
|
(15,325 | ) | 71,496 | (86,821 | ) | (121 | )% | |||||||||
|
Foreign currency exchange (gain) loss
|
(1,870 | ) | 1,269 | (3,139 | ) | (247 | )% | |||||||||
|
Interest expense
|
9,334 | 10,881 | (1,547 | ) | (14 | )% | ||||||||||
|
(Loss) income from continuing operations before income taxes
|
(22,789 | ) | 59,346 | (82,135 | ) | (138 | )% | |||||||||
|
Provision for income taxes
|
(2,216 | ) | 20,046 | (22,262 | ) | (111 | )% | |||||||||
|
(Loss) income from continuing operations
|
$ | (20,573 | ) | $ | 39,300 | $ | (59,873 | ) | (152 | )% | ||||||
Revenues
Revenues were $490.3 million in 2009, reflecting a 43%
decline from the $858.4 million reported in 2008. This
decline in revenues is primarily driven by the 42% decline in
North American drilling activity, as previously noted. North
American revenues accounted for 71% and 84% of total revenues
for 2009 and 2008, respectively. Additional information
regarding these declines is provided within the discussions of
the operating segment results below.
Cost
of Revenues
Cost of revenues were $447.6 million in 2009, reflecting a
36% decline from the $703.4 million reported in 2008. This
decline is primarily driven by the 42% decline in North American
drilling activity, as previously noted above. Cost of revenues
as a percentage of revenues was 91% in 2009 compared to 82% in
2008. Additional information regarding these declines is
provided within the discussions of operating segment results
below.
Selling,
General and Administrative expenses
Selling, general and administrative expenses declined
$20.2 million to $61.2 million in 2009 from
$81.4 million in 2008. The decrease includes
$6.7 million in fluids systems and engineering,
$3.3 million in mat and integrated services,
$0.7 million in environmental services, and
$9.5 million in the corporate office. The decline in
corporate office spending includes $4.3 million of legal
and selling costs associated with the abandoned sale of the
environmental services business along with $2.2 million of
expenses associated with the arbitration and settlement of a
lawsuit with our former Chief Executive Officer, both which were
recorded in 2008. The remainder of the decrease in all
20
Table of Contents
segments is attributable to the impact of cost reduction
programs implemented during 2009, as well as lower
performance-based employee incentive costs in 2009.
Other
Operating (Income) Expense, Net
Other income, net was $3.2 million in 2009 compared to
$2.0 million of other expense, net in 2008. The 2009
results include $2.3 million of income associated with the
settlement of business interruption insurance claims within our
environmental services business, resulting from hurricanes and
storms in 2008. The 2008 results include a $2.6 million
charge to write-down certain disposal assets within the
Environmental Services segment, following the abandoned sale of
the business in the fourth quarter of 2008.
Interest
Expense
Interest expense totaled $9.3 million in 2009 compared to
$10.9 million in 2008. The decrease in interest expense is
attributable to lower debt levels, as total outstanding debt was
$123.0 million and $188.2 million at December 31,
2009 and 2008, respectively. Our weighted average borrowing rate
under our credit facilities increased to 5.72% at
December 31, 2009 compared to a weighted average borrowing
rate of 3.46% at December 31, 2008. In July 2009, we
entered into the First Amendment which included adjustments in
interest rates under our credit facility.
Provision
for Income taxes
The provision for income taxes for 2009 was a $2.2 million
benefit, reflecting an income tax rate of 9.7%, compared to
$20.0 million of expense for 2008, reflecting an income tax
rate of 33.8%. The low effective tax rate in 2009 is primarily
due to current year losses generated in certain foreign
countries, for which recording a tax benefit is not permitted,
as well as the recording of valuation allowances against a
previously recognized net operating loss carryforward tax asset
in Canada, which serve to reduce the effective tax benefit rate
in the period.
Operating
Segment Results
Summarized financial information for our reportable segments is
shown in the following table (net of inter-segment transfers):
| Year Ended December 31, | 2009 vs 2008 | |||||||||||||||
| 2009 | 2008 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Revenues
|
||||||||||||||||
|
Fluids systems and engineering
|
$ | 409,450 | $ | 706,288 | $ | (296,838 | ) | (42 | )% | |||||||
|
Mats and integrated services
|
37,476 | 89,654 | (52,178 | ) | (58 | )% | ||||||||||
|
Environmental services
|
43,349 | 62,408 | (19,059 | ) | (31 | )% | ||||||||||
|
Total revenues
|
$ | 490,275 | $ | 858,350 | $ | (368,075 | ) | (43 | )% | |||||||
|
Operating (loss) income
|
||||||||||||||||
|
Fluids systems and engineering
|
$ | 1,994 | $ | 87,249 | $ | (85,255 | ) | |||||||||
|
Mats and integrated services
|
(7,840 | ) | 1,846 | (9,686 | ) | |||||||||||
|
Environmental services
|
7,711 | 9,031 | (1,320 | ) | ||||||||||||
|
Corporate office
|
(17,190 | ) | (26,630 | ) | 9,440 | |||||||||||
|
Operating (loss) income
|
$ | (15,325 | ) | $ | 71,496 | $ | (86,821 | ) | ||||||||
|
Segment operating margin
|
||||||||||||||||
|
Fluids systems and engineering
|
0.5 | % | 12.4 | % | ||||||||||||
|
Mats and integrated services
|
(20.9 | )% | 2.1 | % | ||||||||||||
|
Environmental services
|
17.8 | % | 14.5 | % | ||||||||||||
21
Table of Contents
Fluids
Systems and Engineering
Revenues
Total revenues for this segment consisted of the following:
| Year Ended December 31, | 2009 vs 2008 | |||||||||||||||
| 2009 | 2008 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Drilling fluids and engineering
|
$ | 207,954 | $ | 411,632 | $ | (203,678 | ) | (49 | )% | |||||||
|
Completion fluids and services
|
27,656 | 88,978 | (61,322 | ) | (69 | )% | ||||||||||
|
Industrial minerals
|
32,440 | 67,235 | (34,795 | ) | (52 | )% | ||||||||||
|
Total North America
|
268,050 | 567,845 | (299,795 | ) | (53 | )% | ||||||||||
|
Mediterranean
|
115,926 | 123,174 | (7,248 | ) | (6 | )% | ||||||||||
|
Brazil
|
25,474 | 15,269 | 10,205 | 67 | % | |||||||||||
|
Total
|
$ | 409,450 | $ | 706,288 | $ | (296,838 | ) | (42 | )% | |||||||
North America revenues decreased 53% to $268.1 million in
2009, as compared to $567.8 million in 2008. Drilling
fluids and engineering revenues decreased 49%, which is largely
attributable to the 42% decline in industry drilling activity
noted above, along with increased pricing pressure resulting
from the depressed activity levels. North American completion
fluids and services and wholesale industrial minerals revenues
were down a combined 62%, also driven by the lower industry
activity and pricing pressure.
Mediterranean revenues decreased 6% in 2009 compared to 2008,
due to the impact of the strengthening US dollar, as
revenue levels increased 4% in local currency terms from 2008 to
2009. Brazil revenues increased 67% to $25.5 million in
2009, reflecting the
ramp-up
in
activity under contracts entered into during 2008.
Operating
Income
Operating income for this segment decreased $85.3 million
in 2009 compared to 2008, on a $296.8 million decrease in
revenues. The majority of this decline is attributable to the
North American operations, which generated an $82.2 million
decline in operating income on a $299.8 million decrease in
revenues. This decrease in operating income is the result of the
decline in North American drilling activity in 2009, and the
related increase in pricing pressure from competition. Further,
the benefits of cost reduction initiatives taken during 2009 had
limited impact on full year 2009 results due to the timing of
the actions, which resulted in only partial year benefits to
2009, along with $3.1 million of charges associated with
employee termination and related costs, as the North American
workforce of this business was reduced by 374 employees
during this period. Operating income was further negatively
impacted by lower gross profit on industrial mineral sales.
Following the execution of significant cost reduction programs
in the first half of 2009, and the stabilization of North
American rig activity during the second half of 2009, the North
American operating income improved from the levels generated
during the first half of the year. Specifically, North American
operating income in this segment increased by $12.7 million
from the first half of 2009 to the second half of 2009.
Operating income from international operations decreased
$3.1 million on a $3.0 million increase in revenues.
The Mediterranean region operating income increased
$2.3 million during this period; however, this increase was
more than offset by a $5.4 million decrease in Brazil. The
2009 operating loss in Brazil is the result of the ramp up in
personnel and facility costs for this operation, in advance of
future anticipated revenues under existing contracts, along with
an unfavorable sales mix.
22
Table of Contents
Mats
and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
| Year Ended December 31, | 2009 vs 2008 | |||||||||||||||
| 2009 | 2008 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Mat rental and integrated services
|
$ | 24,944 | $ | 62,810 | $ | (37,866 | ) | (60 | )% | |||||||
|
Mat sales
|
12,532 | 26,844 | (14,312 | ) | (53 | )% | ||||||||||
|
Total
|
$ | 37,476 | $ | 89,654 | $ | (52,178 | ) | (58 | )% | |||||||
The $37.9 million decrease in mat rental and integrated
services revenues in 2009 is primarily attributable to declines
in the U.S. market served by this segment, particularly in
the U.S. Gulf Coast region. 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.
Mat sales primarily consist of export sales of composite mats to
various international markets, as well as to non-oilfield
industries domestically. Mat sales decreased by
$14.3 million to $12.5 million in 2009 compared to
2008. The
year-over-year
decline is driven by reduced demand for these products from the
E&P and utility industries, as well as governmental sectors
in the current economic environment.
Operating
Income
Mats and integrated services operating income decreased by
$9.7 million in 2009, on a $52.2 million decrease in
revenues compared to 2008. The decrease in operating income is
primarily attributable to the declines in revenues and pricing
pressures, which was partially offset by cost reductions. The
benefits of cost reduction initiatives taken during 2009,
including workforce reductions of 150 employees, had a
limited impact on the full year 2009 operating results, due to
the timing of the actions, which resulted in only partial year
benefits to 2009, along with $1.0 million of charges
associated with employee termination costs and $1.2 million
of non-cash write-downs of inventory. Of the $7.8 million
operating loss generated by this segment in 2009,
$8.2 million was generated during the first half of the
year, during which time the cost reduction actions were being
executed.
Environmental
Services
Revenues
Total revenues for this segment consisted of the following:
| Year Ended December 31, | 2009 vs 2008 | |||||||||||||||
| 2009 | 2008 | $ | % | |||||||||||||
| (In thousands) | ||||||||||||||||
|
E&P waste — Gulf Coast
|
$ | 29,313 | $ | 45,999 | $ | (16,686 | ) | (36 | )% | |||||||
|
E&P waste — West Texas
|
3,146 | 7,957 | (4,811 | ) | (60 | )% | ||||||||||
|
NORM and industrial waste
|
10,890 | 8,452 | 2,438 | 29 | % | |||||||||||
|
Total
|
$ | 43,349 | $ | 62,408 | $ | (19,059 | ) | (31 | )% | |||||||
E&P waste revenues in the U.S. Gulf Coast region
decreased 36% to $29.3 million in 2009 compared to
$46.0 million in 2008. Volumes processed by this region
declined 47% during this period, reflective of the decline in
U.S. Gulf Coast industry rig activity. 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 60% to
$3.1 million in 2009 compared to $8.0 million in 2008.
The decline in revenues is driven by a 59% decrease in volumes
processed during this period along with a decline in revenues
from the sale of oil, which is recovered as part of the waste
disposal process.
23
Table of Contents
NORM and industrial waste revenues increased by 29% to
$10.9 million in 2009, compared to $8.5 million in
2008. This increase is driven by higher volumes processed, as
activity levels tend to fluctuate significantly from period to
period based on the timing of customer projects.
Operating
Income
Environmental services operating income decreased by
$1.3 million on a $19.1 million decline in revenues in
2009, compared to 2008. The 2009 results include
$2.3 million of income associated with the settlement of
business interruption insurance claims resulting from hurricanes
and storms in 2008. The 2008 results include a $2.6 million
charge to write-down certain disposal assets, following the
abandoned sale of the business in the fourth quarter of 2008.
The remaining decline of $6.2 million is attributable to
the lower revenue levels, partially offset by $12.9 million
of operating expense reductions, including reductions in
transportation costs, personnel expenses, and rent expense
following the non-renewal of barge leases during the second half
of 2009.
Liquidity
and Capital Resources
Net cash provided by operating activities in 2010 totaled
$31.5 million. Net income adjusted for non-cash items
generated $91.0 million of cash during the period, while
changes in operating assets and liabilities used
$59.5 million of cash. The changes in operating assets and
liabilities during the period reflected the impact of increased
revenues, including $75.8 million from increases in
receivables, and $8.1 million in increases in inventories,
partially offset by a $2.8 million increase in accounts
payable and $19.7 million in increases in accrued
liabilities.
Net cash used in investing activities during in 2010 was
$10.5 million, consisting primarily of capital
expenditures. Net cash provided by financing activities during
2010 was $50.6 million, which includes $167.8 million
of net proceeds from the issuance of unsecured Convertible
Senior Notes (“Senior Notes”) and $120.6 million
of net repayments of term-loans and our revolving credit
facility. Additional information on these transactions is
included below.
We anticipate that our working capital requirements for our
operations will fluctuate with our sales activity in the near
term. Our 2011 capital expenditures are expected to be
approximately $30-$40 million, which includes a new
enterprise-wide operational and financial system, additional
investments in our manufacturing and research and development
facilities, as well as additions to our composite mat rental
fleet.
Our capitalization was as follows as of December 31:
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Senior Notes
|
$ | 172,500 | $ | — | ||||
|
Term loan
|
— | 30,000 | ||||||
|
Revolving credit facility
|
— | 85,000 | ||||||
|
Foreign bank lines of credit
|
1,458 | 6,901 | ||||||
|
Other
|
635 | 1,129 | ||||||
|
Total
|
174,593 | 123,030 | ||||||
|
Stockholder’s equity
|
417,347 | 368,022 | ||||||
|
Total capitalization
|
$ | 591,940 | $ | 491,052 | ||||
|
Total debt to capitalization
|
29.5 | % | 25.1 | % | ||||
In October 2010, we completed the sale and issuance of Senior
Notes due October 1, 2017 in the aggregate principal amount
of $172.5 million. The Senior Notes bear interest at a rate
of 4.0% per year, payable semi-annually in arrears on April 1
and October 1 of each year, beginning April 1, 2011.
Holders may convert the Senior Notes at their option at any time
prior to the close of business on the business day immediately
preceding the October 1, 2017 maturity date. The conversion
rate is initially 90.8893 shares of Company common stock
per $1,000 principal amount of Senior Notes (equivalent to an
initial conversion price of $11.00 per share of common stock),
subject to
24
Table of Contents
adjustment in certain circumstances. Upon conversion, the Senior
Notes will be settled in shares of the Company’s common
stock. The Company may not redeem the Senior Notes at its
election prior to their maturity date.
We received net proceeds of $167.8 million from the Senior
Notes issuance in October 2010, reduced by $4.7 million for
the underwriters’ discounts and commissions, which were
capitalized as part of the transaction. Following the October
2010 funding of this offering, net proceeds were used to fully
repay the revolving credit facility balance and the
$30.0 million term loan balance. Additionally, as a result
of the repayment of the term loan, the cash flow hedge agreement
was terminated and settled for $1.2 million, resulting in a
$1.2 million charge to interest expense in 2010.
Our $150.0 revolving credit facility (“Facility”)
expires in December 2012. Under the terms of the Facility, we
can elect to borrow at an interest rate either based on LIBOR
plus a margin based on our consolidated leverage ratio, ranging
from 400 to 750 basis points, or at an interest rate based
on the greatest of: (a) prime rate, (b) the federal
funds rate in effect plus 50 basis points, or (c) the
Eurodollar rate for a Eurodollar Loan with a one-month interest
period plus 100 basis points, in each case plus a margin
ranging from 300 to 650 basis points. The applicable margin
on LIBOR borrowings at December 31, 2010 was 400 basis
points. In addition, we are required to pay a commitment fee on
the unused portion of the Facility of 50 basis points. The
Facility contains certain financial covenants including a
minimum fixed charge coverage ratio, a maximum consolidated
leverage ratio, and a maximum funded
debt-to-capitalization
ratio. We were in compliance with these covenants as of
December 31, 2010, and expect to remain in compliance
through December 31, 2011.
The weighted average interest rate on the outstanding balances
under our Credit Agreement including the interest rate swaps as
of December 31, 2009 was 5.55%.
The Facility 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.
As of December 31, 2010, we have $63.8 million of cash
and cash equivalents in our U.S. operations as well as
$146.4 million of availability under our revolving credit
facility. Cash on-hand, availability under credit agreements and
expected cash generated by our U.S. operations is expected
to be adequate to fund our U.S. capital needs without
remitting foreign earnings which are deemed to be permanently
reinvested abroad.
Our foreign Fluid Systems and Engineering subsidiaries in Italy
and Brazil maintain local credit arrangements consisting
primarily of lines of credit with several banks, which are
renewed on an annual basis. We utilize local financing
arrangements in our foreign operations in order to provide
short-term liquidity needs, as well as to reduce the net
investment in foreign operations subject to foreign currency
risk. Advances under these short-term credit arrangements are
typically based on a percentage of the subsidiary’s
accounts receivable or firm contracts with certain customers.
The weighted average interest rate for the $1.5 million and
$6.9 million outstanding under these arrangements was 2.26%
and 6.83% at December 31, 2010 and 2009, respectively.
Additionally, we had $1.4 million in letters of credit
outstanding relating to foreign operations.
On March 4, 2011, we entered into a definitive agreement to
acquire the drilling fluids and engineering services unit of
Rheochem PLC, a publicly-traded Australian-based oil and gas
company. Rheochem provides drilling fluids and related
engineering services to the oil and gas exploration and
geothermal industries with operations in Australia, New Zealand
and India. Under the terms of the agreement, we will pay
approximately A$23.8 million at closing, subject to typical
adjustments for working capital. Additional consideration may be
payable based on financial results of the acquired business over
a one-year earnout period, up to a maximum total consideration
of A$45 million. Newpark expects to fund the acquisition
price, including any earnout payment, from cash on hand. In the
most recently completed fiscal year ended June 30, 2010,
Rheochem PLC’s drilling fluid services segment generated
revenues of A$20.3 million. This acquisition is expected to
be completed during the second quarter of 2011.
Off-Balance
Sheet Arrangements
In conjunction with our insurance programs, we had established
letters of credit in favor of certain insurance companies in the
amount of $3.6 million at December 31, 2010 and 2009.
In addition, as of December 31, 2009, we
25
Table of Contents
had established other letters of credit in favor of our
suppliers in the amount of $6.3 million. We also had
$8.6 million and $8.5 million in guarantee obligations
in connection with facility closure bonds and other performance
bonds issued by insurance companies outstanding as of
December 31, 2010 and 2009, respectively.
Other than normal operating leases for office and warehouse
space, barges, rolling stock and other pieces of operating
equipment, we do not have any off-balance sheet financing
arrangements or special purpose entities. As such, we are not
materially exposed to any financing, liquidity, market or credit
risk that could arise if we had engaged in such financing
arrangements.
Contractual
Obligations
A summary of our outstanding contractual and other obligations
and commitments at December 31, 2010 is as follows:
| (In thousands) | 2011 | 2012-2013 | 2014-2015 | Thereafter | Total | |||||||||||||||
|
Current maturities of long term debt
|
$ | 148 | $ | — | $ | — | $ | — | $ | 148 | ||||||||||
|
Long-term debt including capital leases
|
— | 134 | 134 | 172,719 | 172,987 | |||||||||||||||
|
Interest on 4.0% Senior Notes
|
6,900 | 13,800 | 13,800 | 12,094 | 46,594 | |||||||||||||||
|
Foreign bank lines of credit
|
1,458 | — | — | — | 1,458 | |||||||||||||||
|
Operating leases
|
18,089 | 17,652 | 4,071 | 632 | 40,444 | |||||||||||||||
|
Trade accounts payable and accrued liabilities
|
109,550 | — | — | — | 109,550 | |||||||||||||||
|
Purchase commitments, not accrued
|
11,813 | — | — | — | 11,813 | |||||||||||||||
|
Other long-term liabilities
|
— | — | — | 4,303 | 4,303 | |||||||||||||||
|
Performance bond obligations
|
6,090 | 2,532 | — | — | 8,622 | |||||||||||||||
|
Letter of credit commitments
|
3,618 | — | — | — | 3,618 | |||||||||||||||
|
Total contractual obligations
|
$ | 157,666 | $ | 34,118 | $ | 18,005 | $ | 189,748 | $ | 399,537 | ||||||||||
The above table does not reflect expected tax payments and
uncertain tax positions due to the inability to make a
reasonably reliable estimate of the timing and amount to be
paid. For additional discussion on uncertain tax positions, see
“
Note 8 — Income Taxes
” to our
Notes to Consolidated Financial Statements included in
Part II Item 8 in this report.
We anticipate that the obligations and commitments listed above
that are due in less than one year will be paid from operating
cash flows, available cash on-hand, and availability under our
existing credit agreement. The specific timing of settlement for
certain long-term obligations can not be reasonably estimated.
Critical
Accounting Policies
Critical
Accounting Estimates
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted within the United
States (“U.S. GAAP”), which requires us to make
assumptions, estimates and judgments that affect the amounts and
disclosures reported. Significant estimates used in preparing
our consolidated financial statements include the following:
allowances for sales returns, allowances for doubtful accounts,
reserves for self-insured retentions under insurance programs,
estimated performance and values associated with employee
incentive programs, fair values used for goodwill impairment
testing, undiscounted cash flows used for impairment testing of
long-lived assets and valuation allowances for deferred tax
assets. Note 1 to the consolidated financial statements
contains the accounting policies governing each of these
matters. Our estimates are based on historical experience and on
our future expectations that are believed 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.
We believe the critical accounting policies described below
affect our more significant judgments and estimates used in
preparing our consolidated financial statements.
26
Table of Contents
Allowance
for Doubtful Accounts
Reserves for uncollectible accounts receivable are determined on
a specific identification basis when we believe that the
required payment of specific amounts owed to us is not probable.
The majority of our revenues are from mid-sized and
international oil companies as well as government-owned or
government-controlled oil companies, and we have receivables in
several foreign jurisdictions. Changes in the financial
condition of our customers or political changes in foreign
jurisdictions could cause our customers to be unable to repay
these receivables, resulting in additional allowances. For 2010,
2009 and 2008, provisions for uncollectible accounts receivable
were $0.5 million, $2.3 million and $2.7 million,
respectively.
Allowance
for Sales Returns
We maintain reserves for estimated customer returns of unused
materials in our Fluids Systems and Engineering segment. The
reserves are established based upon historical customer return
levels and estimated gross profit levels attributable to product
sales. Future customer return levels may differ from the
historical return rate.
Impairments
of Long-lived Assets
Goodwill and other indefinite-lived intangible assets are tested
for impairment annually as of November 1, or more
frequently, if an indication of impairment exists. The
impairment test includes a comparison of the carrying value of
net assets of our reporting units, including goodwill, with
their estimated fair values, which we determine using a
combination of a market multiple and discounted cash flow
approach. If the carrying value exceeds the estimated fair
value, an impairment charge is recorded in the period in which
such review is performed. We identify our reporting units based
on our analysis of several factors, including our operating
segment structure, evaluation of the economic characteristics of
our geographic regions within each of our operating segments,
and the extent to which our business units share assets and
other resources.
We determine the impairment of goodwill by comparing the
carrying amounts of our reporting units with fair values, which
we estimate using a combination of a market multiple and
discounted cash flow approach. In completing our
November 1, 2010, evaluation, we determined that each
reporting unit’s fair value was substantially in excess of
the net carrying value and therefore, no impairment was required.
We review property, plant and equipment, finite-lived intangible
assets and certain other assets for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. We assess recoverability based on
expected undiscounted future net cash flows. In estimating
expected cash flows, we use a probability-weighted approach.
Should the review indicate that the carrying value is not fully
recoverable, the amount of impairment loss is determined by
comparing the carrying value to the estimated fair value.
Insurance
We maintain reserves for estimated future payments associated
with our self-insured employee healthcare programs, as well as
the self-insured retention exposures under our general
liability, auto liability and workers compensation insurance
policies. Our reserves are determined based on historical cost
experience under these programs, including estimated development
of known claims under these programs and estimated
incurred-but-not-reported claims. Required reserves could change
significantly based upon changes in insurance coverage, loss
experience or inflationary impacts. As of December 31, 2010
and 2009, total insurance reserves were $3.7 million and
$3.1 million, respectively.
Income
Taxes
We have total deferred tax assets of $53.8 million at
December 31, 2010. A valuation allowance must be
established to offset a deferred tax asset if, based on
available evidence, it is more likely than not that some or all
of the deferred tax asset will not be realized. We have
considered future taxable income and tax planning strategies in
assessing the need for our valuation allowance. At
December 31, 2010, a total valuation allowance of
$20.5 million was recorded, substantially all of which
offsets $19.2 million of net operating loss carryforwards
for state tax
27
Table of Contents
purposes, as well as foreign jurisdictions, including Brazil,
Canada, and Mexico. No valuation allowance is recorded for our
U.S. net operating loss carryforward. Changes in the
expected future generation of qualifying taxable income within
these jurisdictions or in the realizability of other tax assets
may result in an adjustment to the valuation allowance, which
would be charged or credited to income in the period this
determination was made. Specifically, we have a
$5.7 million valuation allowance recorded on the net
operating loss carryforward in Brazil which could be reversed in
the future, depending on our ability to generate taxable income.
New
Accounting Standards
In October 2009, the Financial Accounting Standards Board
(“FASB”) issued additional guidance on
multiple-deliverable revenue arrangements. The guidance provides
amendments to the criteria for separating consideration in
multiple-deliverable arrangements. It replaces the term
“fair value” in the revenue allocation guidance with
“selling price” to clarify that the allocation of
revenue is based on entity-specific assumptions rather than
assumptions of a marketplace participant, and they establish a
selling price hierarchy for determining the selling price of a
deliverable. The amendments eliminate the residual method of
allocation and require that arrangement consideration be
allocated at the inception of the arrangement to all
deliverables using the relative selling price method, and they
significantly expand the required disclosures related to
multiple-deliverable revenue arrangements. The amendments are
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning after
June 15, 2010 and we do not expect the impact of this
additional guidance to have a material impact on our
consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance
related to the calculation of the carrying amount of a reporting
unit when performing the first step of a goodwill impairment
test. Specifically, this update requires an entity to use an
equity premise when performing the first step of a goodwill
impairment test and if a reporting unit has a zero or negative
carrying amount, the entity must assess and consider qualitative
factors and whether it is more likely than not that a goodwill
impairment exists. The new accounting guidance is effective for
impairment tests performed during entities’ fiscal years
(and interim periods within those years) that begin after
December 15, 2010. Early application is not permitted. We
do not expect the adoption of this guidance to have a material
impact on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance to
clarify that pro forma disclosures should be presented as if a
business combination occurred at the beginning of the prior
annual period for purposes of preparing both the current
reporting period and the prior reporting period pro forma
financial information. These disclosures should be accompanied
by a narrative description about the nature and amount of
material, nonrecurring pro forma adjustments. The new accounting
guidance is effective for business combinations consummated in
periods beginning after December 15, 2010, and should be
applied prospectively as of the date of adoption. Early adoption
is permitted. The impact of this adoption will be evaluated as
business combinations occur.
28
Table of Contents
| ITEM 7A. | 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
At December 31, 2010, we had total debt outstanding of
$174.6 million, including $172.5 million of borrowings
under our Senior Notes, bearing interest at a fixed rate of 4.0%
and $1.5 million of borrowings under foreign bank lines of
credit, which bear interest at variable rates. Due to the
limited borrowing currently outstanding under variable rate
agreements, interest rate risk is minimal.
Foreign
Currency
Our principal foreign operations are conducted in certain areas
of Europe and North Africa, Brazil, Canada, U.K. and Mexico. 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 reais.
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.
Unremitted foreign earnings permanently reinvested abroad upon
which deferred income taxes have not been provided aggregated
approximately $67.9 million and $52.3 million at
December 31, 2010 and 2009, respectively. We have the
ability and intent to leave these foreign earnings permanently
reinvested abroad.
29
Table of Contents
| ITEM 8. | Financial Statements and Supplementary Data |
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Newpark Resources, Inc.
The Woodlands, Texas
We have audited the accompanying consolidated balance sheets of
Newpark Resources, Inc. and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and
the related consolidated statements of operations, comprehensive
income (loss), stockholders’ equity, and cash flows for
each of the three years in the period ended December 31,
2010. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Newpark Resources, Inc. and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and
the results of their operations and their cash flows for the
three years in the period ended December 31, 2010 in
conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2010, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 8, 2011 expressed an
unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Houston, Texas
March 8, 2011
30
Table of Contents
Newpark
Resources, Inc.
December 31,
| 2010 | 2009 | |||||||
| (In thousands, except share data) | ||||||||
|
ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 83,010 | $ | 11,534 | ||||
|
Receivables, net
|
196,799 | 122,386 | ||||||
|
Inventories
|
123,028 | 115,495 | ||||||
|
Deferred tax asset
|
27,654 | 7,457 | ||||||
|
Prepaid expenses and other current assets
|
10,036 | 11,740 | ||||||
|
Total current assets
|
440,527 | 268,612 | ||||||
|
Property, plant and equipment, net
|
212,655 | 224,625 | ||||||
|
Goodwill
|
62,307 | 62,276 | ||||||
|
Other intangible assets, net
|
13,072 | 16,037 | ||||||
|
Other assets
|
8,781 | 13,564 | ||||||
|
Total assets
|
$ | 737,342 | $ | 585,114 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Foreign bank lines of credit
|
$ | 1,458 | $ | 6,901 | ||||
|
Current maturities of long-term debt
|
148 | 10,319 | ||||||
|
Accounts payable
|
66,316 | 62,992 | ||||||
|
Accrued liabilities
|
43,234 | 25,290 | ||||||
|
Total current liabilities
|
111,156 | 105,502 | ||||||
|
Long-term debt, less current portion
|
172,987 | 105,810 | ||||||
|
Deferred tax liability
|
31,549 | 2,083 | ||||||
|
Other noncurrent liabilities
|
4,303 | 3,697 | ||||||
|
Total liabilities
|
319,995 | 217,092 | ||||||
|
Commitments and contingencies (Note 14)
|
||||||||
|
Common stock, $0.01 par value, 200,000,000 shares
authorized and 93,143,102 and 91,672,871 shares issued,
respectively
|
931 | 917 | ||||||
|
Paid-in capital
|
468,503 | 460,544 | ||||||
|
Accumulated other comprehensive income
|
8,581 | 8,635 | ||||||
|
Retained deficit
|
(45,034 | ) | (86,660 | ) | ||||
|
Treasury stock, at cost; 2,766,912 and 2,727,765 shares,
respectively
|
(15,634 | ) | (15,414 | ) | ||||
|
Total stockholders’ equity
|
417,347 | 368,022 | ||||||
|
Total Liabilities and Stockholders’ Equity
|
$ | 737,342 | $ | 585,114 | ||||
See Accompanying Notes to Consolidated Financial Statements
31
Table of Contents
Newpark
Resources, Inc.
Years Ended December 31,
| 2010 | 2009 | 2008 | ||||||||||
|
(In thousands, except
|
||||||||||||
| per share data) | ||||||||||||
|
Revenues
|
$ | 715,954 | $ | 490,275 | $ | 858,350 | ||||||
|
Cost of revenues
|
576,920 | 447,624 | 703,430 | |||||||||
|
Selling, general and administrative expenses
|
64,157 | 61,205 | 81,394 | |||||||||
|
Other operating (income) expense, net
|
(3,127 | ) | (3,229 | ) | 2,030 | |||||||
|
Operating income (loss)
|
78,004 | (15,325 | ) | 71,496 | ||||||||
|
Foreign currency exchange (gain) loss
|
(1,134 | ) | (1,870 | ) | 1,269 | |||||||
|
Interest expense
|
10,267 | 9,334 | 10,881 | |||||||||
|
Income (loss) from continuing operations before income taxes
|
68,871 | (22,789 | ) | 59,346 | ||||||||
|
Provision for income taxes
|
27,245 | (2,216 | ) | 20,046 | ||||||||
|
Income (loss) from continuing operations
|
41,626 | (20,573 | ) | 39,300 | ||||||||
|
Loss from discontinued operations, net of tax
|
— | — | (842 | ) | ||||||||
|
Net income (loss)
|
$ | 41,626 | $ | (20,573 | ) | $ | 38,458 | |||||
|
Income (loss) per common share (basic):
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | 0.47 | $ | (0.23 | ) | $ | 0.44 | |||||
|
Loss from discontinued operations
|
— | — | (0.01 | ) | ||||||||
|
Net income (loss) per common share
|
$ | 0.47 | $ | (0.23 | ) | $ | 0.43 | |||||
|
Income (loss) per common share (diluted):
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | 0.46 | $ | (0.23 | ) | $ | 0.44 | |||||
|
Loss from discontinued operations
|
— | — | (0.01 | ) | ||||||||
|
Net income (loss) per common share
|
$ | 0.46 | $ | (0.23 | ) | $ | 0.43 | |||||
See Accompanying Notes to Consolidated Financial Statements
32
Table of Contents
Newpark
Resources, Inc.
Consolidated
Statements of Comprehensive Income (Loss)
Years Ended December 31,
Years Ended December 31,
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Net income (loss)
|
$ | 41,626 | $ | (20,573 | ) | $ | 38,458 | |||||
|
Changes in fair value of interest rate swap, net of tax
|
— | 452 | (1,310 | ) | ||||||||
|
Settlement of interest rate swap, net of tax
|
858 | — | — | |||||||||
|
Foreign currency translation adjustments
|
(912 | ) | 6,887 | (11,382 | ) | |||||||
|
Comprehensive income (loss)
|
$ | 41,572 | $ | (13,234 | ) | $ | 25,766 | |||||
See Accompanying Notes to Consolidated Financial Statements
33
Table of Contents
Newpark
Resources, Inc.
Years
Ended December 31,
|
Accumulated
|
||||||||||||||||||||||||
|
Other
|
||||||||||||||||||||||||
|
Common
|
Paid-In
|
Comprehensive
|
Retained
|
Treasury
|
||||||||||||||||||||
| Stock | Capital | Income | Deficit | Stock | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Balance at January 1, 2008
|
$ | 902 | $ | 450,319 | $ | 13,988 | $ | (104,545 | ) | $ | — | $ | 360,664 | |||||||||||
|
Net income
|
— | — | — | 38,458 | — | 38,458 | ||||||||||||||||||
|
Employee stock options and employee stock purchase plan
|
3 | 1,907 | — | — | — | 1,910 | ||||||||||||||||||
|
Stock-based compensation expense
|
— | 5,128 | — | — | — | 5,128 | ||||||||||||||||||
|
Issuance of restricted stock and restricted stock units
|
6 | (6 | ) | — | — | — | — | |||||||||||||||||
|
Income tax effect, net, of employee stock option activity
|
— | (336 | ) | — | — | — | (336 | ) | ||||||||||||||||
|
Changes in fair value of interest rate swap, net of tax
|
— | — | (1,310 | ) | — | — | (1,310 | ) | ||||||||||||||||
|
Treasury shares purchased at cost
|
— | — | — | — | (15,250 | ) | (15,250 | ) | ||||||||||||||||
|
Foreign currency translation
|
— | — | (11,382 | ) | — | — | (11,382 | ) | ||||||||||||||||
|
Balance at December 31, 2008
|
911 | 457,012 | 1,296 | (66,087 | ) | (15,250 | ) | 377,882 | ||||||||||||||||
|
Net loss
|
— | — | — | (20,573 | ) | (20,573 | ) | |||||||||||||||||
|
Employee stock options and employee stock purchase plan
|
2 | 99 | — | — | — | 101 | ||||||||||||||||||
|
Stock-based compensation expense
|
— | 3,437 | — | — | — | 3,437 | ||||||||||||||||||
|
Issuance of restricted stock and restricted stock units
|
4 | (4 | ) | — | — | — | — | |||||||||||||||||
|
Changes in fair value of interest rate swap, net of tax
|
— | — | 452 | — | — | 452 | ||||||||||||||||||
|
Treasury shares purchased at cost
|
— | — | — | — | (164 | ) | (164 | ) | ||||||||||||||||
|
Foreign currency translation
|
— | — | 6,887 | — | — | 6,887 | ||||||||||||||||||
|
Balance at December 31, 2009
|
917 | 460,544 | 8,635 | (86,660 | ) | (15,414 | ) | 368,022 | ||||||||||||||||
|
Net income
|
— | — | — | 41,626 | 41,626 | |||||||||||||||||||
|
Employee stock options, restricted stock and employee stock
purchase plan
|
14 | 3,838 | — | — | (220 | ) | 3,632 | |||||||||||||||||
|
Stock-based compensation expense
|
— | 3,876 | — | — | — | 3,876 | ||||||||||||||||||
|
Income tax effect, net, of employee stock related activity
|
— | 245 | — | — | — | 245 | ||||||||||||||||||
|
Settlement of interest rate swap, net of tax
|
— | — | 858 | — | — | 858 | ||||||||||||||||||
|
Foreign currency translation
|
— | — | (912 | ) | — | — | (912 | ) | ||||||||||||||||
|
Balance at December 31, 2010
|
$ | 931 | $ | 468,503 | $ | 8,581 | $ | (45,034 | ) | $ | (15,634 | ) | $ | 417,347 | ||||||||||
See Accompanying Notes to Consolidated Financial Statements
34
Table of Contents
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | 41,626 | $ | (20,573 | ) | $ | 38,458 | |||||
|
Adjustments to reconcile net income (loss) to net cash provided
by operations:
|
||||||||||||
|
Net loss from discontinued operations
|
— | — | 842 | |||||||||
|
Non-cash impairment charges
|
225 | 1,166 | 3,840 | |||||||||
|
Depreciation and amortization
|
27,010 | 28,138 | 27,343 | |||||||||
|
Stock-based compensation expense
|
3,876 | 3,437 | 5,128 | |||||||||
|
Provision for deferred income taxes
|
18,030 | (6,916 | ) | 12,773 | ||||||||
|
Provision for doubtful accounts
|
478 | 2,301 | 2,664 | |||||||||
|
(Gain) loss on sale of assets
|
(257 | ) | 233 | (245 | ) | |||||||
|
Change in assets and liabilities:
|
||||||||||||
|
(Increase) decrease in receivables
|
(75,829 | ) | 89,340 | (67,741 | ) | |||||||
|
(Increase) decrease in inventories
|
(8,085 | ) | 35,182 | (37,002 | ) | |||||||
|
Decrease (increase) in other assets
|
1,898 | (800 | ) | 4,651 | ||||||||
|
Increase (decrease) in accounts payable
|
2,810 | (28,710 | ) | 21,340 | ||||||||
|
Increase (decrease) in accrued liabilities and other
|
19,694 | (13,979 | ) | 16,090 | ||||||||
|
Net operating activities of continuing operations
|
31,476 | 88,819 | 28,141 | |||||||||
|
Net operating activities of discontinued operations
|
— | — | 546 | |||||||||
|
Net cash provided by operating activities
|
31,476 | 88,819 | 28,687 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Capital expenditures
|
(12,134 | ) | (18,544 | ) | (22,494 | ) | ||||||
|
Proceeds from sale of property, plant and equipment
|
1,585 | 1,400 | 510 | |||||||||
|
Business acquisitions
|
— | — | (1,184 | ) | ||||||||
|
Net investing activities of continuing operations
|
(10,549 | ) | (17,144 | ) | (23,168 | ) | ||||||
|
Net investing activities of discontinued operations
|
— | — | — | |||||||||
|
Net cash used in investing activities
|
(10,549 | ) | (17,144 | ) | (23,168 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Borrowings on lines of credit
|
141,497 | 116,000 | 239,593 | |||||||||
|
Payments on lines of credit
|
(231,613 | ) | (171,701 | ) | (216,000 | ) | ||||||
|
Principal payments on notes payable and long-term debt
|
(30,457 | ) | (10,439 | ) | (12,252 | ) | ||||||
|
Proceeds from senior notes, net of offering costs
|
167,756 | — | — | |||||||||
|
Proceeds from employee stock plans
|
3,591 | 143 | 1,910 | |||||||||
|
Purchase of treasury stock
|
(153 | ) | (268 | ) | (15,250 | ) | ||||||
|
Net financing activities of continuing operations
|
50,621 | (66,265 | ) | (1,999 | ) | |||||||
|
Net financing activities of discontinued operations
|
— | — | (63 | ) | ||||||||
|
Net cash provided by (used in) financing activities
|
50,621 | (66,265 | ) | (2,062 | ) | |||||||
|
Effect of exchange rate changes on cash
|
(72 | ) | (2,128 | ) | (946 | ) | ||||||
|
Net increase in cash and cash equivalents
|
71,476 | 3,282 | 2,511 | |||||||||
|
Cash and cash equivalents at beginning of year
|
11,534 | 8,252 | 5,741 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 83,010 | $ | 11,534 | $ | 8,252 | ||||||
|
Cash paid for:
|
||||||||||||
|
Income taxes (net of refunds)
|
$ | 7,395 | $ | 5,179 | $ | 6,231 | ||||||
|
Interest
|
$ | 7,956 | $ | 7,564 | $ | 10,355 | ||||||
See Accompanying Notes to Consolidated Financial Statements
35
Table of Contents
NEWPARK
RESOURCES, INC.
| Note 1 — | Summary of Significant Accounting Policies |
Organization and Principles of
Consolidation.
Newpark Resources, Inc., a
Delaware corporation, provides fluids management, waste
disposal, and well site preparation products and services
primarily to the oil and gas exploration and production
(“E&P”) industry domestically in the
U.S. Gulf Coast, West Texas, Oklahoma, East Texas,
North Louisiana, Rocky Mountains and Northeast regions, as well
as internationally in certain areas of Europe and North Africa,
Brazil, Canada and Mexico. The consolidated financial statements
include our company and our wholly-owned subsidiaries
(“we”, “our” or “us”). All
intercompany transactions are eliminated in consolidation.
Use of Estimates and Market Risks.
The
preparation of financial statements in conformity with
accounting principles generally accepted in the United States
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. Estimates used in preparing our
consolidated financial statements include, but are not limited
to the following: allowances for sales returns, allowances for
doubtful accounts, reserves for self-insured retentions under
insurance programs, reserves for incentive compensation
programs, fair values used for goodwill impairment testing,
undiscounted future cash flows used for impairment testing of
long-lived assets, depreciation using the
unit-of-production
method and valuation allowances for deferred tax assets.
Our operating results depend primarily on oil and gas drilling
activity levels in the markets we serve. Drilling activity, in
turn, depends on oil and gas commodities pricing, inventory
levels and product demand. Oil and gas prices and activity are
cyclical and volatile. This market volatility has a significant
impact on our operating results.
Cash Equivalents.
All highly liquid
investments with a remaining maturity of three months or less at
the date of acquisition are classified as cash equivalents.
Allowance for Doubtful
Accounts.
Reserves for uncollectible accounts
receivable are determined on a specific identification basis
when we believe that the required payment of specific amounts
owed to us is not probable.
The majority of our revenues are from mid-sized and
international oil companies and government-owned or
government-controlled oil companies, and we have receivables in
several foreign jurisdictions. Changes in the financial
condition of our customers or political changes in foreign
jurisdictions could cause our customers to be unable to repay
these receivables, resulting in additional allowances.
Allowance for Sales Returns.
We
maintain reserves for estimated customer returns of unused
materials in our Fluids Systems and Engineering segment. The
reserves are established based upon historical customer return
levels and estimated gross profit levels attributable to product
sales.
Inventories.
Inventories are stated at
the lower of cost (principally average cost) or market. Certain
conversion costs associated with the acquisition, production,
blending and storage of inventory in our Fluids Systems and
Engineering segment as well as in the manufacturing operations
in the Mats and Integrated Services segment are capitalized as a
component of the carrying value of the inventory and expensed as
a component of cost of revenues as the products are sold.
Reserves for inventory obsolescence are determined based on the
fair value of the inventory using factors such as our historical
usage of inventory on-hand, future expectations related to our
customers needs, market conditions and the development of new
products.
Property, Plant and
Equipment.
Property, plant and equipment are
recorded at cost. Additions and improvements that extend the
useful life of the assets are capitalized. Maintenance and
repairs are charged to expense as incurred. The cost of
property, plant and equipment sold or otherwise disposed of and
the accumulated depreciation thereon are eliminated from the
property and related accumulated depreciation accounts, and any
gain or loss is credited or charged to income.
36
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For financial reporting purposes, except as described below,
depreciation is provided on property, plant and equipment,
including assets held under capital leases, by utilizing the
straight-line method over the following estimated useful service
lives or lease term:
|
Computers and office equipment
|
3-5 years | |||
|
Autos & light trucks
|
5-7 years | |||
|
Furniture, fixtures & trailers
|
7-10 years | |||
|
Composite mats
|
7-12 years | |||
|
Machinery and heavy equipment
|
5-15 years | |||
|
Owned buildings
|
20-39 years | |||
|
Leasehold improvements
|
Lease term, including reasonably assured renewal periods |
We compute the provision for depreciation on certain of our
environmental disposal assets and our barite grinding mills
using the
unit-of-production
method. In applying this method, we have considered certain
factors which affect the expected production units (lives) of
these assets. These factors include periods of non-use for
normal maintenance and economic slowdowns.
Goodwill and Other Intangible
Assets.
Goodwill represents the excess of the
purchase price of acquisitions over the fair value of the net
identifiable assets acquired. Goodwill and other intangible
assets with indefinite lives are not amortized. Intangible
assets with finite useful lives are amortized either on a
straight-line basis over the asset’s estimated useful life
or on a basis that reflects the pattern in which the economic
benefits of the asset are realized. Any period costs of
maintaining intangible assets are expensed as incurred.
Impairment of Long-Lived
Assets.
Goodwill and other indefinite-lived
intangible assets are tested for impairment annually as of
November 1, or more frequently, if an indication of
impairment exists. The impairment test includes a comparison of
the carrying value of net assets of our reporting units,
including goodwill, with their estimated fair values, which we
determine using a combination of a market multiple and
discounted cash flow approach. If the carrying value exceeds the
estimated fair value, an impairment charge is recorded in the
period in which such review is performed. We identify our
reporting units based on our analysis of several factors,
including our operating segment structure, evaluation of the
economic characteristics of our geographic regions within each
of our operating segments, and the extent to which our business
units share assets and other resources.
We review property, plant and equipment, finite-lived intangible
assets and certain other assets for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. We assess recoverability based on
expected undiscounted future net cash flows. In estimating
expected cash flows, we use a probability-weighted approach.
Should the review indicate that the carrying value is not fully
recoverable, the amount of impairment loss is determined by
comparing the carrying value to the estimated fair value.
Insurance.
We maintain reserves for
estimated future payments associated with our self-insured
employee healthcare programs, as well as the self-insured
retention exposures under our general liability, auto liability
and workers compensation insurance policies. Our reserves are
determined based on historical cost experience under these
programs, including estimated development of known claims under
these programs and estimated incurred-but-not-reported claims.
Revenue Recognition.
The Fluids Systems
and Engineering segment recognizes sack and bulk material
additive revenues upon shipment of materials and passage of
title. Formulated liquid systems revenues are recognized when
utilized or lost downhole while drilling. An allowance for
product returns is maintained, reflecting estimated future
customer product returns. Engineering and related services are
provided to customers at agreed upon hourly or daily rates, and
revenues are recognized when the services are performed.
For the Mats and Integrated Services segment, revenues from the
sale of mats are recognized when title passes to the customer,
which is upon shipment or delivery, depending upon the terms of
the underlying sales contract.
37
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Revenues for services and rentals provided by this segment are
generated from both fixed-price and unit-priced contracts, which
are short-term in duration. The activities under these contracts
include site preparation, pit design, construction, drilling
waste management, and the installation and rental of mat systems
for a period of time generally not to exceed 60 days.
Revenues from services provided under these contracts are
recognized as the specified services are completed. Revenues
from any subsequent extensions to the rental agreements are
recognized over the extension period.
For our Environmental Services segment, revenues are recognized
when we take title to the waste, which is upon receipt of the
waste at one of our facilities. All costs related to the
transporting and disposing of the waste received are accrued
when that revenue is recognized.
Shipping and handling costs are reflected in cost of revenues,
and all reimbursements by customers of shipping and handling
costs are included in revenues.
Income Taxes.
We provide for deferred
taxes using an asset and liability approach by measuring
deferred tax assets and liabilities due to temporary differences
existing at year end using currently enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. We reduce deferred tax assets by a valuation allowance
when, based on our estimates, it is more likely than not that a
portion of those assets will not be realized in a future period.
The estimates utilized in recognition of deferred tax assets are
subject to revision, either up or down, in future periods based
on new facts or circumstances. We evaluate uncertain tax
positions and record a liability as circumstances warrant. We
have a $1.6 million and $0.8 million liability for
uncertain tax positions recorded as of December 31, 2010
and 2009, respectively.
Stock-Based Compensation.
All
share-based payments to employees, including grants of employee
stock options, are recognized in the income statement based on
their fair values. We use the Black-Scholes option-pricing model
for measuring the fair value of stock options granted and
recognize stock-based compensation based on the grant date fair
value, net of an estimated forfeiture rate, for all share-based
awards, on a straight-line basis over the vesting term.
Foreign Currency Transactions.
The
majority of our transactions are in U.S. dollars; however,
our foreign subsidiaries maintain their accounting records in
the respective local currency. These currencies are converted to
U.S. dollars with the effect of the foreign currency
translation reflected in “accumulated other comprehensive
income,” a component of stockholders’ equity. Foreign
currency transaction gains (losses), if any, are credited or
charged to income. We recorded a net transaction gain (loss)
totaling $1.1 million, $1.9 million, and
($1.3) million in 2010, 2009 and 2008, respectively. At
December 31, 2010 and 2009, cumulative foreign currency
translation adjustments, net of tax, related to foreign
subsidiaries reflected in stockholders’ equity amounted to
$8.6 million and $9.5 million, respectively.
Derivative Financial Instruments.
We
monitor our exposure to various business risks including
interest rates and foreign currency exchange rates and
occasionally use derivative financial instruments to manage the
impact of certain of these risks. At the inception of a new
derivative, we designate the derivative as a cash flow or fair
value hedge or we determine the derivative to be undesignated as
a hedging instrument based on the underlying facts. We do not
enter into derivative instruments for trading purposes.
New Accounting Standards.
In October
2009, the Financial Accounting Standards Board
(“FASB”) issued additional guidance on
multiple-deliverable revenue arrangements. The guidance provides
amendments to the criteria for separating consideration in
multiple-deliverable arrangements. It replaces the term
“fair value” in the revenue allocation guidance with
“selling price” to clarify that the allocation of
revenue is based on entity-specific assumptions rather than
assumptions of a marketplace participant, and they establish a
selling price hierarchy for determining the selling price of a
deliverable. The amendments eliminate the residual method of
allocation and require that arrangement consideration be
allocated at the inception of the arrangement to all
deliverables using the relative selling price method, and they
significantly expand the required disclosures related to
multiple-deliverable revenue arrangements. The amendments are
effective prospectively for revenue arrangements entered into or
38
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
materially modified in fiscal years beginning after
June 15, 2010 and we do not expect the impact of this
additional guidance to have a material impact on our
consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance
related to the calculation of the carrying amount of a reporting
unit when performing the first step of a goodwill impairment
test. Specifically, this update will require an entity to use an
equity premise when performing the first step of a goodwill
impairment test and if a reporting unit has a zero or negative
carrying amount, the entity must assess and consider qualitative
factors and whether it is more likely than not that a goodwill
impairment exists. The new accounting guidance is effective for
impairment tests performed during entities’ fiscal years
(and interim periods within those years) that begin after
December 15, 2010. Early application is not permitted. We
do not expect the adoption of this guidance to have a material
impact on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance to
clarify that pro forma disclosures should be presented as if a
business combination occurred at the beginning of the prior
annual period for purposes of preparing both the current
reporting period and the prior reporting period pro forma
financial information. These disclosures should be accompanied
by a narrative description about the nature and amount of
material, nonrecurring pro forma adjustments. The new accounting
guidance is effective for business combinations consummated in
periods beginning after December 15, 2010, and should be
applied prospectively as of the date of adoption. Early adoption
is permitted. The impact of this adoption will be evaluated as
business combinations occur.
| Note 2 — | Discontinued Operations |
Discontinued operations includes the results of operations for
Newpark Environmental Water Solutions, a business we exited in
2006.
| 2008 | ||||
| (In thousands) | ||||
|
Revenues
|
$ | — | ||
|
Loss from discontinued operations before income taxes
|
(1,479 | ) | ||
|
Loss from discontinued operations, net of tax
|
(842 | ) | ||
| 3. | Inventories |
Inventories consisted of the following items at December 31:
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Raw materials and components:
|
||||||||
|
Drilling fluids
|
$ | 122,490 | $ | 113,287 | ||||
|
Mats
|
359 | 527 | ||||||
|
Total raw materials and components
|
122,849 | 113,814 | ||||||
|
Finished goods- mats
|
179 | 1,681 | ||||||
|
Total
|
$ | 123,028 | $ | 115,495 | ||||
39
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Property, Plant and Equipment |
Our investment in property, plant and equipment consisted of the
following at December 31:
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Land
|
$ | 14,258 | $ | 14,262 | ||||
|
Buildings and improvements
|
131,164 | 129,614 | ||||||
|
Machinery and equipment
|
192,747 | 189,094 | ||||||
|
Mats (rental fleet)
|
37,964 | 43,699 | ||||||
|
Construction in progress
|
4,535 | 1,467 | ||||||
| 380,668 | 378,136 | |||||||
|
Less accumulated depreciation
|
(168,013 | ) | (153,511 | ) | ||||
|
Property, plant and equipment, net
|
$ | 212,655 | $ | 224,625 | ||||
Depreciation expense was $23.9 million, $24.8 million
and $23.6 million in 2010, 2009 and 2008, respectively.
| 5. | Goodwill, Other Intangibles and Impairments of Long-Lived Assets |
Changes in the carrying amount of goodwill by reportable segment
are as follows:
|
Mats and
|
||||||||||||
|
Fluids Systems
|
Integrated
|
|||||||||||
| & Engineering | Services | Total | ||||||||||
| (In thousands) | ||||||||||||
|
Balance at December 31, 2008
|
$ | 45,339 | $ | 14,929 | $ | 60,268 | ||||||
|
Effects of foreign currency
|
2,008 | — | 2,008 | |||||||||
|
Balance at December 31, 2009
|
47,347 | 14,929 | 62,276 | |||||||||
|
Effects of foreign currency
|
31 | — | 31 | |||||||||
|
Balance at December 31, 2010
|
$ | 47,378 | $ | 14,929 | $ | 62,307 | ||||||
We have evaluated the carrying values of our goodwill and other
indefinite-lived intangible assets as of November 1, 2010.
We determine the impairment of goodwill by comparing the
carrying amounts of our reporting units with fair values, which
we estimate using a combination of a market multiple and
discounted cash flow approach. In completing this evaluation, we
determined that no reporting unit has a fair value below its net
carrying value and therefore, no impairment was required.
40
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Other intangible assets consist of the following:
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
|
Gross
|
Gross
|
|||||||||||||||||||||||
|
Carrying
|
Accumulated
|
Intangible
|
Carrying
|
Accumulated
|
Intangible
|
|||||||||||||||||||
| Amount | Amortization | Assets, Net | Amount | Amortization | Assets, Net | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Technology related
|
$ | 7,409 | $ | (4,057 | ) | $ | 3,352 | $ | 7,315 | $ | (3,634 | ) | $ | 3,681 | ||||||||||
|
Customer related
|
9,524 | (5,586 | ) | 3,938 | 10,732 | (4,828 | ) | 5,904 | ||||||||||||||||
|
Employment related
|
2,775 | (1,805 | ) | 970 | 2,733 | (1,197 | ) | 1,536 | ||||||||||||||||
|
Total amortizing intangible assets
|
19,708 | (11,448 | ) | 8,260 | 20,780 | (9,659 | ) | 11,121 | ||||||||||||||||
|
Permits and licenses
|
3,950 | — | 3,950 | 3,993 | — | 3,993 | ||||||||||||||||||
|
Trademarks
|
862 | — | 862 | 923 | — | 923 | ||||||||||||||||||
|
Total indefinite-lived intangible assets
|
4,812 | — | 4,812 | 4,916 | — | 4,916 | ||||||||||||||||||
|
Total intangible assets
|
$ | 24,520 | $ | (11,448 | ) | $ | 13,072 | $ | 25,696 | $ | (9,659 | ) | $ | 16,037 | ||||||||||
Total amortization expense in 2010, 2009 and 2008 related to
other intangible assets was $3.1 million, $3.3 million
and $3.7 million, respectively.
Estimated future amortization expense for the years ended
December 31 is as follows (in thousands):
|
2011
|
$ | 2,155 | ||
|
2012
|
1,617 | |||
|
2013
|
1,162 | |||
|
2014
|
747 | |||
|
2015
|
648 | |||
|
Thereafter
|
1,931 | |||
|
Total
|
$ | 8,260 | ||
| 6. | Financing arrangements |
Financing arrangements consisted of the following at
December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Senior Notes
|
$ | 172,500 | $ | — | ||||
|
Term loan
|
— | 30,000 | ||||||
|
Revolving credit facility
|
— | 85,000 | ||||||
|
Foreign bank lines of credit
|
1,458 | 6,901 | ||||||
|
Other
|
635 | 1,129 | ||||||
|
Total debt
|
$ | 174,593 | $ | 123,030 | ||||
|
Less: current portion
|
(1,606 | ) | (17,220 | ) | ||||
|
Long-term portion
|
$ | 172,987 | $ | 105,810 | ||||
In October 2010, we completed the sale and issuance of Senior
Notes due October 1, 2017 in the aggregate principal amount
of $172.5 million. The Senior Notes bear interest at a rate
of 4.0% per year, payable semi-annually
41
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in arrears on April 1 and October 1 of each year, beginning
April 1, 2011. Holders may convert the Senior Notes at
their option at any time prior to the close of business on the
business day immediately preceding the October 1, 2017
maturity date. The conversion rate is initially
90.8893 shares of Company common stock per $1,000 principal
amount of Senior Notes (equivalent to an initial conversion
price of $11.00 per share of common stock), subject to
adjustment in certain circumstances. Upon conversion, the Senior
Notes will be settled in shares of the Company’s common
stock. The Company may not redeem the Senior Notes at its
election prior to their maturity date.
We received net proceeds of $167.8 million from the Senior
Notes issuance in October 2010, reduced by $4.7 million for
the underwriters’ discounts and commissions, which were
capitalized as part of the transaction. Following the October
2010 funding of this offering, net proceeds were used to fully
repay the revolving credit facility balance and the
$30.0 million term loan balance. Additionally, as a result
of the repayment of the term loan, the cash flow hedge agreement
was terminated and settled for $1.2 million, resulting in a
$1.2 million charge to interest expense in 2010.
Our $150.0 million revolving credit facility
(“Facility”) expires in December 2012. Under the terms
of the Facility, we can elect to borrow at an interest rate
either based on LIBOR plus a margin based on our consolidated
leverage ratio, ranging from 400 to 750 basis points, or at
an interest rate based on the greatest of: (a) prime rate,
(b) the federal funds rate in effect plus 50 basis
points, or (c) the Eurodollar rate for a Eurodollar Loan
with a one-month interest period plus 100 basis points, in
each case plus a margin ranging from 300 to 650 basis
points. The applicable margin on LIBOR borrowings at
December 31, 2010 was 400 basis points. In addition,
we are required to pay a commitment fee on the unused portion of
the Facility of 50 basis points. The Facility contains
certain financial covenants including a minimum fixed charge
coverage ratio, a maximum consolidated leverage ratio, and a
maximum funded
debt-to-capitalization
ratio. We were in compliance with these covenants as of
December 31, 2010.
At December 31, 2010 no borrowings were outstanding under
this Facility, and $3.6 million in letters of credit were
issued and outstanding under our Facility leaving
$146.4 million of availability at December 31, 2010.
Additionally, we had $1.4 million in letters of credit
outstanding relating to foreign operations.
The Facility 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.
Our foreign Fluid Systems and Engineering subsidiaries in Italy
and Brazil maintain local credit arrangements consisting
primarily of lines of credit with several banks, which are
renewed on an annual basis. We utilize local financing
arrangements in our foreign operations in order to provide
short-term local liquidity needs, as well as to reduce the net
investment in foreign operations subject to foreign currency
risk. Advances under these short-term credit arrangements are
typically based on a percentage of the subsidiary’s
accounts receivable or firm contracts with certain customers.
The weighted average interest rate under these arrangements was
2.26% and 6.83% on total outstanding balances of
$1.5 million and $6.9 million at December 31,
2010 and 2009, respectively.
We incurred interest expense of $10.3 million, including
$1.2 million for the settlement of an interest rate swap
agreement, $9.3 million and $10.9 million in 2010,
2009 and 2008, respectively. Scheduled maturities of all
long-term debt are as follows (in thousands):
|
2012
|
$ | 67 | ||
|
2013
|
67 | |||
|
2014
|
67 | |||
|
2015 and thereafter
|
172,786 | |||
|
Total
|
$ | 172,987 | ||
42
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 7. | Fair Value of Financial Instruments and Concentrations of Credit Risk |
Fair
Value of Financial Instruments
Our financial instruments include cash and cash equivalents,
receivables, payables, and debt. We believe the carrying values
of these instruments, with the exception of our debt at
December 31, 2010, approximated their fair values. At
December 31, 2010, the estimated fair value of total debt
is $159.1 million. The fair value of the Senior Notes at
December 31, 2010 was based on quoted market prices.
Concentrations
of Credit Risk
Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash, trade
accounts and notes receivable. At December 31, 2010,
substantially all of our U.S. cash deposits are held in
accounts at a financial institution with deposit ratings of Aa1
by Moody’s, AA- by Standard and Poor’s, and AA by
Fitch. As part of our investment strategy, we perform periodic
evaluations of the relative credit standing of these financial
institutions.
Accounts Receivable.
Accounts receivable at
December 31, 2010 and 2009 include the following:
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Gross trade receivables
|
$ | 193,349 | $ | 123,909 | ||||
|
Allowance for doubtful accounts
|
(5,839 | ) | (5,969 | ) | ||||
|
Net trade receivables
|
187,510 | 117,940 | ||||||
|
Other receivables
|
9,289 | 4,446 | ||||||
|
Total receivables, net
|
$ | 196,799 | $ | 122,386 | ||||
We derive a significant portion of our revenues from companies
in the E&P industry, and our customer base is highly
concentrated in major and independent oil and gas E&P
companies operating in the markets that we serve. In 2010,
approximately 50% of our consolidated revenues were derived from
our 20 largest customers. We maintain an allowance for losses
based upon the expected collectability of accounts receivable.
Changes in this allowance for 2010, 2009 and 2008 are as follows:
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Balance at beginning of year
|
$ | 5,969 | $ | 4,259 | $ | 3,915 | ||||||
|
Provision for uncollectible accounts
|
478 | 2,301 | 2,664 | |||||||||
|
Write-offs, net of recoveries
|
(608 | ) | (591 | ) | (2,320 | ) | ||||||
|
Balance at end of year
|
$ | 5,839 | $ | 5,969 | $ | 4,259 | ||||||
During the years ended December 31, 2010, 2009 and 2008, no
single customer accounted for more than 10% of total sales.
43
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 8. | Income Taxes |
The provision for income taxes charged to continuing operations
was as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Current tax (benefit) expense :
|
||||||||||||
|
U.S. Federal
|
$ | 1,110 | $ | (121 | ) | $ | 817 | |||||
|
State
|
1,868 | (455 | ) | (9 | ) | |||||||
|
Foreign
|
6,427 | 5,438 | 5,706 | |||||||||
|
Total current
|
9,405 | 4,862 | 6,514 | |||||||||
|
Deferred tax (benefit) expense :
|
||||||||||||
|
U.S. Federal
|
17,532 | (10,326 | ) | 15,068 | ||||||||
|
State
|
552 | 1,108 | (252 | ) | ||||||||
|
Foreign
|
(244 | ) | 2,140 | (1,284 | ) | |||||||
|
Total deferred
|
17,840 | (7,078 | ) | 13,532 | ||||||||
|
Total provision
|
$ | 27,245 | $ | (2,216 | ) | $ | 20,046 | |||||
The total provision was allocated to the following component of
income (loss):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Income (loss) from continuing operations
|
$ | 27,245 | $ | (2,216 | ) | $ | 20,046 | |||||
|
Loss from discontinued operations
|
— | — | (637 | ) | ||||||||
|
Total provision
|
$ | 27,245 | $ | (2,216 | ) | $ | 19,409 | |||||
Income (loss) from continuing operations before income taxes was
as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
U.S.
|
$ | 52,608 | $ | (31,868 | ) | $ | 45,088 | |||||
|
Foreign
|
16,263 | 9,079 | 14,258 | |||||||||
|
Income (loss) from continuing operations before income taxes
|
$ | 68,871 | $ | (22,789 | ) | $ | 59,346 | |||||
44
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effective income tax rate is reconciled to the statutory
federal income tax rate as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Income tax (benefit) expense at federal statutory rate
|
35.0 | % | (35.0 | )% | 35.0 | % | ||||||
|
Nondeductible expenses
|
1.9 | % | 2.3 | % | 2.0 | % | ||||||
|
Nondeductible stock based compensation expense
|
— | 3.0 | % | — | ||||||||
|
Different rates on earnings of foreign operations
|
(2.6 | )% | (5.7 | )% | (2.2 | )% | ||||||
|
Tax exempt foreign earnings due to tax holidays
|
(0.6 | )% | (3.7 | )% | (1.4 | )% | ||||||
|
Benefit of foreign interest deductible in U.S.
|
— | (2.0 | )% | (0.8 | )% | |||||||
|
Increase in valuation allowance
|
2.2 | % | 17.5 | % | 1.6 | % | ||||||
|
Tax on undistributed earnings
|
0.2 | % | 2.6 | % | — | |||||||
|
Foreign exchange gain
|
— | 2.6 | % | — | ||||||||
|
Foreign tax withholdings
|
0.4 | % | 4.0 | % | — | |||||||
|
State tax expense, net
|
2.6 | % | 3.6 | % | (0.4 | )% | ||||||
|
Other
|
0.5 | % | 1.1 | % | — | |||||||
|
Total income tax expense (benefit)
|
39.6 | % | (9.7 | )% | 33.8 | % | ||||||
Temporary differences and carryforwards which give rise to
deferred tax assets and liabilities at December 31, 2010
and 2009 are as follows:
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Deferred tax assets:
|
||||||||
|
Net operating losses
|
$ | 27,581 | $ | 46,009 | ||||
|
Accruals not currently deductible
|
12,343 | 6,710 | ||||||
|
Bad debts
|
2,044 | 2,054 | ||||||
|
Alternative minimum tax credits
|
5,606 | 4,735 | ||||||
|
Foreign tax credits
|
2,150 | 2,150 | ||||||
|
Other
|
4,043 | 3,534 | ||||||
|
Total deferred tax assets
|
53,767 | 65,192 | ||||||
|
Valuation allowance
|
(20,459 | ) | (19,485 | ) | ||||
|
Total deferred tax assets, net of allowances
|
33,308 | 45,707 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Accelerated depreciation and amortization
|
32,182 | 28,610 | ||||||
|
Other
|
5,212 | 3,152 | ||||||
|
Total deferred tax liabilities
|
37,394 | 31,762 | ||||||
|
Total net deferred tax assets (liabilities)
|
$ | (4,086 | ) | $ | 13,945 | |||
|
Current portion of deferred tax assets
|
$ | 27,654 | $ | 7,457 | ||||
|
Non current portion of deferred tax assets
|
3 | 8,986 | ||||||
|
Current portion of deferred tax liabilities
|
(194 | ) | (415 | ) | ||||
|
Non current portion of deferred tax liabilities
|
(31,549 | ) | (2,083 | ) | ||||
|
Net deferred tax assets (liabilities)
|
$ | (4,086 | ) | $ | 13,945 | |||
45
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For U.S. federal income tax purposes, we have net operating
loss carryforwards (“NOLs”) of approximately
$24.0 million that, if not used, will expire in 2030. We
also have approximately $5.6 million of alternative minimum
tax credit carryforwards, which are not subject to expiration
and are available to offset future regular income taxes subject
to certain limitations. Additionally, for state income tax
purposes, we have NOLs of approximately $237 million
available to reduce future state taxable income. These NOLs
expire in varying amounts beginning in year 2011 through 2029.
Foreign NOLs of approximately $21.5 million are available
to reduce future taxable income, some of which expire beginning
in 2015.
The realization of our net deferred tax assets is dependent on
our ability to generate taxable income in future periods. At
December 31, 2010 and December 31, 2009, we have
recorded a valuation allowance in the amount of
$20.5 million and $19.5 million, respectively, related
to state and foreign NOL carryforwards.
Unremitted foreign earnings permanently reinvested abroad upon
which deferred income taxes have not been provided aggregated
approximately $67.9 million and $52.3 million at
December 31, 2010 and 2009, respectively. We have the
ability and intent to leave these foreign earnings permanently
reinvested abroad.
We operate in a foreign tax jurisdiction which has granted tax
holidays, which will terminate in 2011. The current tax benefit
in 2010 and 2009 attributable to these holidays was
$0.4 million and $0.8 million, respectively, both of
which were $0.01 per share.
We file an income tax return in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. We
are no longer subject to income tax examinations for
substantially all tax jurisdictions for years prior to 1999.
A reconciliation of the beginning and ending provision for
uncertain tax positions is as follows:
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Balance at January 1
|
$ | 750 | $ | 750 | $ | 750 | ||||||
|
Additions for tax positions of prior years
|
818 | — | — | |||||||||
|
Balance at December 31
|
$ | 1,568 | $ | 750 | $ | 750 | ||||||
The provision for uncertain tax positions, if recognized, would
affect the annual effective tax rate. The Company recognizes
accrued interest and penalties related to uncertain tax
positions in operating expenses. The Company accrued
$0.2 million for interest and penalties in 2010.
| 9. | Capital Stock |
Common
stock
Changes in outstanding Common Stock for the years ended
December 31, 2010, 2009 and 2008 were as follows:
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands of shares) | ||||||||||||
|
Outstanding, beginning of year
|
91,673 | 91,140 | 90,215 | |||||||||
|
Shares issued upon exercise of options
|
677 | 18 | 309 | |||||||||
|
Shares issued under employee stock purchase plan
|
— | 32 | 63 | |||||||||
|
Shares issued for grants of time vested restricted stock
|
773 | 229 | 443 | |||||||||
|
Shares issued upon vesting of performance units
|
20 | 254 | 110 | |||||||||
|
Outstanding, end of year
|
93,143 | 91,673 | 91,140 | |||||||||
46
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Preferred
stock and Warrant
We are authorized to issue up to 1,000,000 shares of
Preferred Stock, $0.01 par value. There was no outstanding
preferred stock at December 31, 2010, 2009 or 2008.
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
became compliant with the registration requirements for the
warrant. Previously, because of a restatement of our earnings
which occurred in 2006, 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 December 31,
2010, the Series B Warrant, as adjusted for certain
anti-dilution provisions, remains outstanding and provides for
the right to purchase up to approximately 2.1 million
shares of our common stock at an exercise price of $8.97, and
expires in February 2012.
Treasury
stock
During 2008, our Board of Directors approved a plan authorizing
the repurchase of up to $25.0 million of our outstanding
shares of common stock. During 2008, 2,618,195 shares were
repurchased for an aggregate price of approximately
$15.1 million. No additional purchases were made under this
plan in 2009 or 2010. During 2010, 2009 and 2008, 27,134,
104,824 and 28,214 shares were repurchased, respectively,
for an aggregate price of $0.2 million, $0.3 million
and $0.2 million, respectively, representing employee
shares surrendered in lieu of taxes under vesting of restricted
stock awards.
All of the shares repurchased are held as treasury stock. During
2010 and 2009, 59,804 and 23,468 shares of treasury stock
were re-issued, respectively, pursuant to our employee stock
purchase plan. We record treasury stock purchases under the cost
method whereby the entire cost of the acquired stock is recorded
as treasury stock.
47
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 10. | Earnings per Share |
The following table presents the reconciliation of the numerator
and denominator for calculating earnings per share:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share data) | ||||||||||||
|
Basic EPS:
|
||||||||||||
|
Net income (loss)
|
$ | 41,626 | $ | (20,573 | ) | $ | 38,458 | |||||
|
Weighted average number of common shares outstanding
|
89,103 | 88,500 | 88,987 | |||||||||
|
Basic income (loss) per common share
|
$ | 0.47 | $ | (0.23 | ) | $ | 0.43 | |||||
|
Diluted EPS:
|
||||||||||||
|
Net income (loss)
|
$ | 41,626 | $ | (20,573 | ) | $ | 38,458 | |||||
|
Assumed conversions of Senior Notes
|
1,138 | — | — | |||||||||
|
Adjusted net income (loss)
|
$ | 42,764 | $ | (20,573 | ) | $ | 38,458 | |||||
|
Weighted average number of common shares outstanding-basic
|
89,103 | 88,500 | 88,987 | |||||||||
|
Add: Net effect of dilutive stock options and restricted stock
awards
|
790 | — | 232 | |||||||||
|
Dilutive effect of Senior Notes
|
3,824 | — | — | |||||||||
|
Diluted weighted average number of common shares outstanding
|
93,717 | 88,500 | 89,219 | |||||||||
|
Diluted income (loss) per share
|
$ | 0.46 | $ | (0.23 | ) | $ | 0.43 | |||||
|
Stock options and warrants excluded from calculation of diluted
earnings per share because anti-dilutive for the period
|
3,913 | 6,613 | 4,674 | |||||||||
| 11. | Stock Based Compensation and Other Benefit Plans |
The following describes stockholder approved plans utilized by
the Company for the issuance of stock based awards.
2003
Long-Term Incentive Plan
Our stockholders approved the 2003 Long Term Incentive Plan
(“2003 Plan”) in June 2003. Under the 2003 Plan,
awards of performance-based restricted stock units are made at
the beginning of overlapping three-year performance periods.
These awards vest and become payable in our common stock if
certain performance criteria are met over the three-year
performance period. Subject to adjustment upon a stock split,
stock dividend or other recapitalization event, the maximum
number of shares of common stock that may be issued under the
2003 Plan is 1,000,000. The common stock issued under the 2003
Plan will be from authorized but un-issued shares of our common
stock, although shares re-acquired due to forfeitures or any
other reason may be re-issued under the 2003 Plan. At
December 31, 2010, 195,533 shares remained available
for award under the 2003 Plan.
2004
Non-Employee Directors’ Incentive Compensation
Plan
In June 2004, our stockholders approved the 2004 Non-Employee
Directors’ Stock Option Plan (“2004 Plan”).
During 2007, stockholders approved the amended and restated 2004
Plan (renamed the 2004 Non-Employee Directors’ Incentive
Compensation Plan) which authorizes grants of restricted stock
to non-employee directors instead of stock options. In 2010,
each non-employee director received $125,000 in restricted stock
(valued as of the
48
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
date of the annual stockholder’s meeting), upon their
election or re-election. At December 31, 2010,
433,543 shares remained available for award under the
amended 2004 Plan.
2006
Equity Incentive Plan
In December 2006, our stockholders approved the 2006 Equity
Incentive Plan ( “2006 Plan”), pursuant to which the
Compensation Committee of our Board of Directors
(“Compensation Committee”) may grant to key employees,
including executive officers and other corporate and divisional
officers, a variety of forms of equity-based compensation,
including options to purchase shares of common stock, shares of
restricted common stock, restricted stock units, stock
appreciation rights, other stock-based awards, and
performance-based awards. During 2009, the 2006 Plan was amended
to increase the number of shares available for issuance under
the 2006 Plan to 5,000,000. At December 31, 2010,
473,940 shares remained available for award under the 2006
Plan, as amended.
The Compensation Committee approves the granting of all stock
based compensation to employees, utilizing shares available
under the 2003 Plan and 2006 Plan. Stock based awards are
granted in a variety of forms, including stock options and
performance-based restricted stock units. The Committee also
grants other stock based awards to non-executive employees
including cash-settled stock appreciation rights and
cash-settled performance-based restricted stock equivalents,
which are not part of the plans outlined above and are not
available to executives or non-employee directors. Activity
under each of these programs is described below.
Stock
Options & Cash-Settled Stock Appreciation
Rights
Stock options granted by the Compensation Committee are
generally granted with a three or four year vesting period and a
term of ten years. During 2010, 12,533 options were granted with
a three year vesting period and a ten year term. The exercise
price of each stock option granted was equal to the fair market
value on the date of grant.
The following table summarizes activity for our outstanding
stock options for the year ended December 31, 2010:
|
Weighted-
|
||||||||||||||||
|
Average
|
||||||||||||||||
|
Weighted-
|
Remaining
|
|||||||||||||||
|
Average
|
Contractual
|
Aggregate
|
||||||||||||||
| Shares | Exercise Price | Life (Years) | Intrinsic Value | |||||||||||||
|
Outstanding at beginning of period
|
4,979,954 | $ | 5.31 | |||||||||||||
|
Granted
|
12,533 | 5.61 | ||||||||||||||
|
Exercised
|
(677,538 | ) | 5.30 | |||||||||||||
|
Expired or cancelled
|
(413,717 | ) | 4.10 | |||||||||||||
|
Outstanding at end of period
|
3,901,232 | $ | 5.44 | 6.80 | $ | 5,695,856 | ||||||||||
|
Options exercisable at end of period
|
2,080,780 | $ | 6.91 | 5.44 | $ | 1,029,965 | ||||||||||
We estimated the fair value of options granted on the date of
grant using the Black-Scholes option-pricing model, with the
following weighted average assumptions:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Risk-free interest rate
|
1.99 | % | 2.93 | % | 3.50 | % | ||||||
|
Expected life of the option in years
|
5.22 | 5.22 | 5.22 | |||||||||
|
Expected volatility
|
62.5 | % | 62.5 | % | 47.2 | % | ||||||
|
Dividend yield
|
— | — | — | |||||||||
49
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The risk-free interest rate is based on the implied yield on a
U.S. Treasury zero-coupon issue with a remaining term equal
to the expected term of the option. The expected life of the
option is based on observed historical patterns. The expected
volatility is based on historical volatility of the price of our
common stock. The dividend yield is based on the projected
annual dividend payment per share divided by the stock price at
the date of grant, which is zero because we have not paid
dividends for several years and do not expect to pay dividends
in the foreseeable future.
The following table summarizes information about the
weighted-average exercise price and the weighted-average grant
date fair value of stock options granted:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Weighted-average exercise price of the stock on the date of grant
|
$ | 5.61 | $ | 3.31 | $ | 7.87 | ||||||
|
Weighted-average grant date fair value on the date of grant
|
$ | 3.08 | $ | 1.85 | $ | 3.65 | ||||||
All stock options granted for the years ended December 31,
2010, 2009 and 2008 reflected an exercise price equal to the
market value of the stock on the date of grant.
The total intrinsic value of options exercised was
$1.9 million, $0.0 and $0.6 million for the years
ended December 31, 2010, 2009 and 2008, while cash from
option exercises totaled $3.6 million, $0.0 and
$1.8 million, respectively.
The following table summarizes activity for outstanding
cash-settled stock appreciation rights for the year-ended
December 31, 2010:
| Rights | ||||
|
Outstanding at the beginning of the period
|
661,100 | |||
|
Exercised
|
(99,334 | ) | ||
|
Forfeited
|
(15,966 | ) | ||
|
Outstanding at the end of the period
|
545,800 | |||
|
Exercisable at end of period
|
331,883 | |||
During 2010, there were no additional grants of cash-settled
stock appreciation rights. The remaining outstanding
cash-settled stock appreciation rights, if vested and exercised,
will ultimately be settled in cash for the difference between
market value of our outstanding shares at the date of exercise,
and $7.89. As such, the projected cash settlement is adjusted
each period based upon an updated Black-Scholes options pricing
model, adjusted for the ending fair market value of the
underlying stock. At December 31, 2010, the fair market
value of each cash-settled stock appreciation right was $0.31,
resulting in a liability of $0.1 million.
Total compensation cost recognized for stock options and
cash-settled stock appreciation rights during the years-ended
December 31, 2010, 2009 and 2008 was $1.8 million,
$2.9 million and $2.2 million, respectively. For the
years ended December 31, 2010, 2009 and 2008, we recognized
tax benefits resulting from the exercise of stock options
totaling $0.6 million, $0.0 million and
$0.2 million, respectively.
Performance-Based
Restricted Stock Units & Cash-Settled
Performance-Based Restricted Stock Units
The Compensation Committee may use various business criteria to
set the performance objectives for awards of performance-based
restricted stock units. For awards made during 2008 and 2009,
the Compensation Committee determined that our cumulative
earnings per share for the three-year performance period ending
December 31, 2010 and December 31, 2011, respectively
are the performance criterion for vesting in the award shares.
Partial vesting occurs when our performance achieves
“expected” levels, and full vesting occurs if our
performance is at the “over-achievement” level, as
measured over the entire three-year performance period. No
shares vest if our performance
50
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
level is below the “expected” level and straight-line
interpolation will be used to determine vesting if performance
is between “expected” and “over-achievement”
levels. No performance-based awards were granted during 2010.
The following table summarizes activity for outstanding
performance-based restricted stock units for the
year-ended
December 31, 2010:
|
Weighted-
|
||||||||
|
Average
|
||||||||
|
Grant Date
|
||||||||
|
Nonvested Shares (Performance-Based)
|
Shares | Fair Value | ||||||
|
Outstanding at beginning of the period
|
1,088,980 | $ | 5.74 | |||||
|
Forfeited
|
(380,700 | ) | 7.39 | |||||
|
Outstanding at the end of the period
|
708,280 | $ | 4.88 | |||||
Subsequent to December 31, 2010, 242,500 shares were
forfeited related to the three-year performance period ending
December 31, 2010 as performance objectives were not
achieved.
The following table summarizes activity for outstanding
cash-settled performance-based restricted stock units for the
year-ended December 31, 2010:
|
Nonvested Shares (Cash-Settled Performance Based)
|
Shares | |||
|
Outstanding at beginning of the period
|
265,800 | |||
|
Forfeited
|
(5,800 | ) | ||
|
Outstanding at the end of the period
|
260,000 | |||
Subsequent to December 31, 2010, the 260,000 shares
remaining under this award were forfeited related to the
three-year performance period ending December 31, 2010, as
performance objectives were not achieved.
Total compensation cost (income) recognized for
performance-based restricted stock units and cash-settled
performance based restricted stock units was ($0.6) million
and $2.0 million for the years ended December 31, 2009
and 2008 respectively. The 2009 income of ($0.6) million
reflects the reversal of the previous liability for these
awards, based on the revised forecast of performance criteria
for the three year measurement periods. No compensation cost was
recognized during 2010 for these awards.
Restricted
Stock Awards
Time-vested restricted stock awards are periodically granted to
key employees, including grants for employment inducements, as
well as to members of our Board of Directors. Employee awards
provide for vesting periods ranging from three to five years.
Non-employee director grants fully vest at the one year
anniversary from the date of grant. Upon vesting of these
grants, shares are issued to award recipients. The following
table summarizes activity for our outstanding time-vesting
restricted stock awards for the year-ended December 31,
2010.
|
Weighted-
|
||||||||
|
Average
|
||||||||
|
Grant Date
|
||||||||
|
Nonvested Shares (Time-Vesting)
|
Shares | Fair Value | ||||||
|
Nonvested at January 1, 2010
|
358,820 | $ | 5.10 | |||||
|
Granted
|
787,000 | 5.88 | ||||||
|
Vested
|
(283,820 | ) | 4.55 | |||||
|
Forfeited
|
(14,307 | ) | 5.61 | |||||
|
Nonvested at December 31, 2010
|
847,693 | $ | 6.00 | |||||
51
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NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Total compensation cost recognized for restricted stock awards
was $1.8 million, $1.4 million and $1.4 million
for the years ended December 31, 2010, 2009 and 2008
respectively. Total unrecognized compensation cost at
December 31, 2010 related to restricted stock awards is
approximately $3.7 million which is expected to be
recognized over the next 2.3 years. During the years ended
December 31, 2010, 2009 and 2008, the total fair value of
shares vested was $1.2 million $0.6 million and
$2.5 million, respectively.
For the years ended December 31, 2010, 2009 and 2008, we
recognized tax benefits resulting from the vesting of share
awards totaling $0.6 million, $0.4 million and
$0.4 million, respectively.
Defined
Contribution Plan
Substantially all of our U.S. employees are covered by a
defined contribution plan (“401(k) Plan”). Employees
may voluntarily contribute up to 50% of compensation, as defined
in the 401(k) Plan. Participants’ contributions, up to 3%
of compensation, are matched 100% by us, and the
participants’ contributions, from 3% to 6% of compensation,
are matched 50% by us. Under the 401(k) Plan, our cash
contributions were $1.7 million, $1.5 million and
$2.7 million in 2010, 2009 and 2008, respectively. During
2009, we executed cost reduction programs which included the
temporary elimination of our 401(k) matching for
U.S. employees beginning in the second quarter of 2009 and
did not resume until March 2010.
| 12. | Segment and Related Information |
Our Company consists of three reportable segments, which offer
different products and services to a relatively homogenous
customer base. The reportable segments include: Fluids Systems
and Engineering, Mats and Integrated Services, and Environmental
Services. Intersegment revenues are generally recorded at cost
for items which are included in inventory of the purchasing
segment, and at standard markups for items which are included in
cost of revenues of the purchasing segment. All intersegment
revenues and related profits have been eliminated.
Fluids Systems and Engineering —
Our Fluids
Systems and Engineering business offers customized solutions
including highly technical drilling projects involving complex
subsurface conditions, such as horizontal directional,
geologically deep or deep water drilling. These projects require
increased monitoring and critical engineering support of the
fluids system during the drilling process. We provide drilling
fluids products and technical services to the North American,
European, North African, and the Brazilian market. We also
provide completion fluids services and equipment rental to
customers in Oklahoma and Texas.
We also have industrial mineral grinding operations which are
included in our Fluids Systems and Engineering business. The
operation grinds barite, a mineral used in drilling fluids
products. In addition to providing this critical raw material
for our drilling fluids products, the grinding operation also
sells barite and other industrial minerals to third parties.
Together, our drilling fluids and mineral grinding operations
serve to comprise the Fluids Systems and Engineering reportable
segment.
Mats and Integrated Services —
This segment
provides mat rentals and related well site services to E&P
customers in the Northeast U.S. regions, onshore
U.S. Gulf Coast and Western Colorado, as well as mat
rentals to the utility industry in the U.K., which provide
environmental protection and ensure all-weather access to sites
with unstable soil conditions common to these areas. This
segment also manufactures our
DuraBase
TM
composite mat system for sales into domestic and international
markets as well as for use in our domestic rental operations.
The principal customers are major independent and multi-national
E&P companies.
Environmental Services —
This segment provides
disposal services for both oilfield E&P waste and
industrial waste. The primary method used for disposal is low
pressure injection into environmentally secure geologic
formations deep underground. This segment operates in the
U.S. Gulf Coast and West Texas markets.
52
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Summarized financial information concerning our reportable
segments is shown in the following tables:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Revenues
|
||||||||||||
|
Fluids Systems & Engineering
|
$ | 597,795 | $ | 409,450 | $ | 706,288 | ||||||
|
Mats & Integrated Services
|
69,397 | 37,476 | 89,654 | |||||||||
|
Environmental Services
|
48,762 | 43,349 | 62,408 | |||||||||
|
Total Revenues
|
$ | 715,954 | $ | 490,275 | $ | 858,350 | ||||||
|
Depreciation and Amortization
|
||||||||||||
|
Fluids Systems & Engineering
|
$ | 15,253 | $ | 13,739 | $ | 11,967 | ||||||
|
Mats & Integrated Services
|
7,672 | 10,309 | 10,603 | |||||||||
|
Environmental Services
|
3,169 | 3,339 | 4,142 | |||||||||
|
Corporate Office
|
916 | 751 | 631 | |||||||||
|
Total Depreciation and Amortization
|
$ | 27,010 | $ | 28,138 | $ | 27,343 | ||||||
|
Operating Income (loss)
|
||||||||||||
|
Fluids Systems & Engineering
|
$ | 56,234 | $ | 1,994 | $ | 87,249 | ||||||
|
Mats & Integrated Services
|
26,684 | (7,840 | ) | 1,846 | ||||||||
|
Environmental Services
|
13,447 | 7,711 | 9,031 | |||||||||
|
Corporate Office
|
(18,361 | ) | (17,190 | ) | (26,630 | ) | ||||||
|
Operating Income (loss)
|
$ | 78,004 | $ | (15,325 | ) | $ | 71,496 | |||||
|
Segment Assets
|
||||||||||||
|
Fluids Systems & Engineering
|
$ | 476,677 | $ | 409,054 | $ | 494,477 | ||||||
|
Mats & Integrated Services
|
79,957 | 77,868 | 99,123 | |||||||||
|
Environmental Services
|
69,058 | 66,966 | 80,222 | |||||||||
|
Corporate
|
111,650 | 31,226 | 39,857 | |||||||||
|
Total Assets
|
$ | 737,342 | $ | 585,114 | $ | 713,679 | ||||||
|
Capital Expenditures
|
||||||||||||
|
Fluids Systems & Engineering
|
$ | 7,033 | $ | 12,748 | $ | 17,111 | ||||||
|
Mats & Integrated Services
|
2,253 | 4,604 | 2,922 | |||||||||
|
Environmental Services
|
738 | 865 | 1,852 | |||||||||
|
Corporate
|
2,110 | 326 | 609 | |||||||||
|
Total Capital Expenditures
|
$ | 12,134 | $ | 18,544 | $ | 22,494 | ||||||
53
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth information about our operations
by geographic area. Revenues by geographic location are
determined based on the location in which services are rendered
or products are sold.
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Revenue
|
||||||||||||
|
United States
|
$ | 516,786 | $ | 334,986 | $ | 692,247 | ||||||
|
Canada
|
23,846 | 13,432 | 26,620 | |||||||||
|
Europe and North Africa
|
113,295 | 115,926 | 123,174 | |||||||||
|
Brazil and Mexico
|
62,027 | 25,931 | 16,309 | |||||||||
|
Total Revenue
|
$ | 715,954 | $ | 490,275 | $ | 858,350 | ||||||
|
Long-Lived Assets
|
||||||||||||
|
United States
|
$ | 243,194 | $ | 253,630 | $ | 270,893 | ||||||
|
Canada
|
12,334 | 12,075 | 10,733 | |||||||||
|
Europe and North Africa
|
26,380 | 27,076 | 22,285 | |||||||||
|
Brazil and Mexico
|
14,904 | 14,735 | 6,092 | |||||||||
|
Total Long-Lived Assets
|
$ | 296,812 | $ | 307,516 | $ | 310,003 | ||||||
No single customer accounted for more than 10% of our
consolidated revenues for years ended December 31, 2010,
2009 or 2008.
| 13. | Supplemental Cash Flow and Other Information |
Included in accounts payable and accrued liabilities at
December 31, 2010, 2009 and 2008, were capital expenditures
of $2.3 million, $1.4 million and $0.8 million,
respectively.
Accrued liabilities at December 31, 2010 and 2009 were
$43.2 million and $25.3 million respectively. The
balance in 2010 included $15.4 million for employee
incentives and $5.8 million for value added, goods and
service taxes related to foreign jurisdictions.
During the years ended December 31, 2010, 2009 and 2008, we
did not finance the acquisition of property, plant and equipment
with capital leases.
| 14. | Commitments and Contingencies |
In the ordinary course of conducting our business, we become
involved in litigation and other claims from private party
actions, as well as judicial and administrative proceedings
involving governmental authorities at the federal, state and
local levels. In the opinion of management, any liability in
these matters should not have a material effect on our
consolidated financial statements.
Leases
We lease various manufacturing facilities, warehouses, office
space, machinery and equipment, including transportation
equipment, under operating leases with remaining terms ranging
from one to twenty years, with various renewal options.
Substantially all leases require payment of taxes, insurance and
maintenance costs in addition to rental payments. Total rental
expenses for all operating leases were approximately
$25.4 million, $29.4 million and $32.6 million
for the years ending 2010, 2009, and 2008, respectively.
54
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Future minimum payments under non-cancelable operating leases,
with initial or remaining terms in excess of one year are
included in the table below. Future minimum payments under
capital leases are not significant.
| (In thousands) | ||||
|
2011
|
$ | 18,089 | ||
|
2012
|
11,344 | |||
|
2013
|
6,308 | |||
|
2014
|
2,874 | |||
|
2015
|
1,197 | |||
|
Thereafter
|
632 | |||
| $ | 40,444 | |||
Other
In conjunction with our insurance programs, we had established
letters of credit in favor of certain insurance companies in the
amount of $3.6 million at December 31, 2010 and 2009.
In addition, as of December 31, 2009, we had established
other letters of credit in favor of our suppliers in the amount
of $6.3 million. We also had $8.6 million and
$8.5 million in guarantee obligations in connection with
facility closure bonds and other performance bonds issued by
insurance companies outstanding as of December 31, 2010 and
2009, respectively.
In our industrial minerals business, we have purchase
obligations for barite, a critical raw material in drilling
fluids products which totaled $11.1 million at
December 31, 2010, in which all purchases will be made in
2011.
Other than normal operating leases for office and warehouse
space, barges, rolling stock and other pieces of operating
equipment, we do not have any off-balance sheet financing
arrangements or special purpose entities. As such, we are not
materially exposed to any financing, liquidity, market or credit
risk that could arise if we had engaged in such financing
arrangements.
We are self-insured for health claims, subject to certain
“stop loss” insurance policies. Claims in excess of
$200,000 per incident are insured by third-party insurers. At
December 31, 2010 and 2009, we had accrued liabilities of
$1.2 million for unpaid claims incurred, based on
historical experience. These estimated claims are expected to be
paid within one year of their occurrence.
We are self-insured for certain workers’ compensation, auto
and general liability claims up to a certain policy limit.
Claims in excess of $750,000 are insured by third-party
reinsurers. At December 31, 2010 and 2009, we had accrued a
liability of $2.5 million and $1.9 million,
respectively, for the uninsured portion of claims.
We maintain accrued liabilities for asset retirement
obligations, which represent obligations associated with the
retirement of tangible long-lived assets that result from the
normal operation of the long-lived asset. Our asset retirement
obligations primarily relate to repair cost obligations
associated with the return of leased barges as well as required
expenditures associated with owned and leased facilities. Upon
settlement of the liability, a gain or loss for any difference
between the settlement amount and the liability recorded is
recognized. As of December 31, 2010 and 2009, we had
accrued asset retirement obligations of $1.9 million and
$1.0 million, respectively.
55
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 15. | Supplemental Selected Quarterly Financial Data (Unaudited) |
| Quarter Ended | ||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||
|
Fiscal Year 2010
|
||||||||||||||||
|
Revenues
|
$ | 160,798 | $ | 181,352 | $ | 179,278 | $ | 194,526 | ||||||||
|
Operating income
|
13,709 | 19,896 | 19,532 | (1) | 24,867 | |||||||||||
|
Net income
|
7,782 | 10,840 | 8,234 | 14,770 | ||||||||||||
|
Net income per share:
|
||||||||||||||||
|
Basic
|
0.09 | 0.12 | 0.09 | 0.16 | ||||||||||||
|
Diluted
|
0.09 | 0.12 | 0.09 | 0.15 | ||||||||||||
|
Fiscal Year 2009
|
||||||||||||||||
|
Revenues
|
$ | 126,938 | $ | 109,599 | $ | 118,208 | $ | 135,530 | ||||||||
|
Operating (loss) income
|
(12,779 | ) | (9,922 | ) | 2,238 | (2) | 5,138 | |||||||||
|
Net (loss) income
|
(12,004 | ) | (8,787 | ) | 202 | 16 | ||||||||||
|
Net (loss) income per share:
|
||||||||||||||||
|
Basic
|
(0.14 | ) | (0.10 | ) | 0.00 | 0.00 | ||||||||||
|
Diluted
|
(0.14 | ) | (0.10 | ) | 0.00 | 0.00 | ||||||||||
| (1) | Includes $2.2 million of income reflecting proceeds from the settlement of a lawsuit. | |
| (2) | Includes $2.3 million of other income, reflecting proceeds of business interruption insurance claims related to hurricanes in 2008. |
| 16. | Subsequent Event |
On March 4, 2011, we entered into a definitive agreement to
acquire the drilling fluids and engineering services unit of
Rheochem PLC, a publicly-traded Australian-based oil and gas
company. Rheochem provides drilling fluids and related
engineering services to the oil and gas exploration and
geothermal industries with operations in Australia, New Zealand
and India. Under the terms of the agreement, we will pay
approximately A$23.8 million at closing, subject to typical
adjustments for working capital. Additional consideration may be
payable based on financial results of the acquired business over
a one-year earnout period, up to a maximum total consideration
of A$45 million. Newpark expects to fund the acquisition
price, including any earnout payment, from cash on hand. In the
most recently completed fiscal year ended June 30, 2010,
Rheochem PLC’s drilling fluid services segment generated
revenues of A$20.3 million. This acquisition is expected to
be completed during the second quarter of 2011.
| 17. | Guarantor and Non-Guarantor Financials |
In May 2010, we filed a “shelf” registration statement
on
Form S-3
(“Form S-3”)
registering up to $200 million in securities that may be
issued by the Company from time to time. In October 2010, we
completed our offering of Senior Notes under this
“shelf” registration statement (see “Note 6
Financing Arrangements” for additional information). While
our Senior Notes did not include subsidiary guarantees, under
our remaining “shelf” registration statement, we may
in the future issue additional debt securities registered
pursuant to the
Form S-3
that are fully and unconditionally guaranteed by certain
subsidiaries of the Company, as identified in the
Form S-3
and primarily consisting of our U.S. subsidiaries. As a
result, we are required to present consolidating financial
information regarding the guarantors and non-guarantors of the
securities in accordance with SEC
Regulation S-X
Rule 3-10.
As specified in
Rule 3-10,
the condensed consolidating balance sheets, results of
operations, and
56
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
statements of cash flows presented on the following pages meet
the requirements for financial statements of the issuer and each
guarantor of the debt securities because the guarantors are all
direct or indirect wholly-owned subsidiaries of Newpark
Resources, Inc., and all of the guarantees are full and
unconditional on a joint and several basis. The condensed
consolidating balance sheets as of December 31, 2010 and
2009, and condensed consolidating statements of operations and
statements of cash flows for the years ended 2010, 2009 and 2008
are as follows:
Condensed
Consolidating Balance Sheets
| December 31, 2010 | ||||||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
Consolidating
|
||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 68,128 | $ | (4,290 | ) | $ | 19,172 | $ | — | $ | 83,010 | |||||||||
|
Receivables, net
|
789 | 122,827 | 73,183 | — | 196,799 | |||||||||||||||
|
Inventories
|
— | 83,434 | 39,594 | — | 123,028 | |||||||||||||||
|
Deferred tax asset
|
16,572 | 10,351 | 731 | — | 27,654 | |||||||||||||||
|
Prepaid expenses and other current assets
|
2,121 | 2,279 | 5,636 | — | 10,036 | |||||||||||||||
|
Total current assets
|
87,610 | 214,601 | 138,316 | — | 440,527 | |||||||||||||||
|
Property, plant and equipment, net
|
6,991 | 180,743 | 24,921 | — | 212,655 | |||||||||||||||
|
Goodwill
|
— | 38,237 | 24,070 | — | 62,307 | |||||||||||||||
|
Other intangible assets, net
|
— | 10,562 | 2,510 | — | 13,072 | |||||||||||||||
|
Other assets
|
8,316 | 594 | 1,621 | (1,750 | ) | 8,781 | ||||||||||||||
|
Investment in subsidiaries
|
180,700 | 29,283 | — | (209,983 | ) | — | ||||||||||||||
|
Total assets
|
$ | 283,617 | $ | 474,020 | $ | 191,438 | $ | (211,733 | ) | $ | 737,342 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
|
Foreign bank lines of credit
|
$ | — | $ | — | $ | 1,458 | $ | — | $ | 1,458 | ||||||||||
|
Current maturities of long-term debt
|
— | — | 148 | — | 148 | |||||||||||||||
|
Accounts payable
|
2,083 | 38,516 | 25,717 | — | 66,316 | |||||||||||||||
|
Accrued liabilities
|
16,470 | 11,094 | 15,670 | — | 43,234 | |||||||||||||||
|
Total current liabilities
|
18,553 | 49,610 | 42,993 | — | 111,156 | |||||||||||||||
|
Long-term debt, less current portion
|
172,500 | — | 487 | — | 172,987 | |||||||||||||||
|
Deferred tax liability
|
— | 31,785 | 1,514 | (1,750 | ) | 31,549 | ||||||||||||||
|
Other noncurrent liabilities
|
2,043 | 10 | 2,250 | — | 4,303 | |||||||||||||||
|
Net intercompany (receivable) payable
|
(326,826 | ) | 254,541 | 72,285 | — | — | ||||||||||||||
|
Total liabilities
|
(133,730 | ) | 335,946 | 119,529 | (1,750 | ) | 319,995 | |||||||||||||
|
Common stock
|
931 | 24,557 | 29,110 | (53,667 | ) | 931 | ||||||||||||||
|
Paid-in capital
|
468,503 | 56,417 | 3 | (56,420 | ) | 468,503 | ||||||||||||||
|
Accumulated other comprehensive income
|
8,581 | — | 14,826 | (14,826 | ) | 8,581 | ||||||||||||||
|
Retained (deficit) earnings
|
(45,034 | ) | 57,100 | 27,970 | (85,070 | ) | (45,034 | ) | ||||||||||||
|
Treasury stock, at cost
|
(15,634 | ) | — | — | — | (15,634 | ) | |||||||||||||
|
Total stockholders’ equity
|
417,347 | 138,074 | 71,909 | (209,983 | ) | 417,347 | ||||||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 283,617 | $ | 474,020 | $ | 191,438 | $ | (211,733 | ) | $ | 737,342 | |||||||||
57
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| December 31, 2009 | ||||||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
Consolidating
|
||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 162 | $ | — | $ | 11,372 | $ | — | $ | 11,534 | ||||||||||
|
Receivables, net
|
9 | 72,985 | 49,392 | — | 122,386 | |||||||||||||||
|
Inventories
|
— | 72,197 | 43,298 | — | 115,495 | |||||||||||||||
|
Deferred tax asset
|
155 | 7,091 | 211 | — | 7,457 | |||||||||||||||
|
Prepaid expenses and other current assets
|
1,937 | 2,384 | 7,419 | — | 11,740 | |||||||||||||||
|
Total current assets
|
2,263 | 154,657 | 111,692 | — | 268,612 | |||||||||||||||
|
Property, plant and equipment, net
|
3,766 | 194,902 | 25,957 | — | 224,625 | |||||||||||||||
|
Goodwill
|
— | 38,237 | 24,039 | — | 62,276 | |||||||||||||||
|
Other intangible assets, net
|
— | 13,249 | 2,788 | — | 16,037 | |||||||||||||||
|
Deferred tax and other assets
|
38,379 | 680 | 1,151 | (26,646 | ) | 13,564 | ||||||||||||||
|
Investment in subsidiaries
|
93,860 | 26,171 | — | (120,031 | ) | — | ||||||||||||||
|
Total assets
|
$ | 138,268 | $ | 427,896 | $ | 165,627 | $ | (146,677 | ) | $ | 585,114 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
|
Foreign bank lines of credit
|
$ | — | $ | — | $ | 6,901 | $ | — | $ | 6,901 | ||||||||||
|
Current maturities of long-term debt
|
10,000 | 107 | 212 | — | 10,319 | |||||||||||||||
|
Accounts payable
|
1,195 | 38,317 | 23,480 | — | 62,992 | |||||||||||||||
|
Accrued liabilities
|
7,940 | 7,945 | 9,405 | — | 25,290 | |||||||||||||||
|
Total current liabilities
|
19,135 | 46,369 | 39,998 | — | 105,502 | |||||||||||||||
|
Long-term debt, less current portion
|
105,000 | — | 810 | — | 105,810 | |||||||||||||||
|
Deferred tax liability
|
— | 27,437 | 1,292 | (26,646 | ) | 2,083 | ||||||||||||||
|
Other noncurrent liabilities
|
1,782 | 10 | 1,905 | — | 3,697 | |||||||||||||||
|
Net intercompany (receivable) payable
|
(356,257 | ) | 295,408 | 60,849 | — | — | ||||||||||||||
|
Total liabilities
|
(230,340 | ) | 369,224 | 104,854 | (26,646 | ) | 217,092 | |||||||||||||
|
Common stock
|
917 | 24,907 | 25,945 | (50,852 | ) | 917 | ||||||||||||||
|
Paid-in capital
|
460,544 | 56,423 | 3 | (56,426 | ) | 460,544 | ||||||||||||||
|
Accumulated other comprehensive income
|
5,230 | — | 17,241 | (13,836 | ) | 8,635 | ||||||||||||||
|
Retained (deficit) earnings
|
(82,669 | ) | (22,658 | ) | 17,584 | 1,083 | (86,660 | ) | ||||||||||||
|
Treasury stock, at cost
|
(15,414 | ) | — | — | — | (15,414 | ) | |||||||||||||
|
Total stockholders equity
|
368,608 | 58,672 | 60,773 | (120,031 | ) | 368,022 | ||||||||||||||
|
Total liabilities and stockholders equity
|
$ | 138,268 | $ | 427,896 | $ | 165,627 | $ | (146,677 | ) | $ | 585,114 | |||||||||
58
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidated Statements of Operations
| Year Ended December 31, 2010 | ||||||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
Consolidating
|
||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | 518,665 | $ | 197,289 | $ | — | $ | 715,954 | ||||||||||
|
Cost of revenues
|
— | 416,242 | 160,678 | — | 576,920 | |||||||||||||||
|
Selling, general and administrative expenses
|
18,369 | 28,324 | 17,464 | — | 64,157 | |||||||||||||||
|
Other operating income, net
|
(11 | ) | (3,421 | ) | 305 | — | (3,127 | ) | ||||||||||||
|
Operating (loss) income
|
(18,358 | ) | 77,520 | 18,842 | — | 78,004 | ||||||||||||||
|
Foreign currency exchange loss (gain)
|
— | (4 | ) | (1,130 | ) | — | (1,134 | ) | ||||||||||||
|
Interest expense
|
9,915 | 20 | 332 | — | 10,267 | |||||||||||||||
|
Intercompany interest (income) expense
|
— | (2,941 | ) | 2,941 | — | — | ||||||||||||||
|
(Loss) income from operations before income taxes
|
(28,273 | ) | 80,445 | 16,699 | — | 68,871 | ||||||||||||||
|
Provision for income taxes
|
(11,471 | ) | 32,838 | 5,878 | — | 27,245 | ||||||||||||||
|
Equity in income of subsidiaries
|
58,428 | 10,367 | — | (68,795 | ) | — | ||||||||||||||
|
Net income
|
$ | 41,626 | $ | 57,974 | $ | 10,821 | $ | (68,795 | ) | $ | 41,626 | |||||||||
| Year Ended December 31, 2009 | ||||||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
Consolidating
|
||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | 334,981 | $ | 155,294 | $ | — | $ | 490,275 | ||||||||||
|
Cost of revenues
|
— | 319,774 | 127,850 | — | 447,624 | |||||||||||||||
|
Selling, general and administrative expenses
|
17,183 | 27,348 | 16,674 | — | 61,205 | |||||||||||||||
|
Other income, net
|
— | (2,549 | ) | (680 | ) | — | (3,229 | ) | ||||||||||||
|
Operating (loss) income
|
(17,183 | ) | (9,592 | ) | 11,450 | (15,325 | ) | |||||||||||||
|
Foreign currency exchange gain
|
— | (49 | ) | (1,821 | ) | — | (1,870 | ) | ||||||||||||
|
Interest expense (income), net
|
9,121 | (72 | ) | 285 | — | 9,334 | ||||||||||||||
|
Intercompany interest (income) expense
|
(1,374 | ) | (2,539 | ) | 3,913 | — | — | |||||||||||||
|
(Loss) income from operations before income taxes
|
(24,930 | ) | (6,932 | ) | 9,073 | — | (22,789 | ) | ||||||||||||
|
Provision for income taxes
|
(6,941 | ) | (1,932 | ) | 6,657 | — | (2,216 | ) | ||||||||||||
|
Equity in income (loss) of subsidiaries
|
(2,584 | ) | 7,379 | — | (4,795 | ) | — | |||||||||||||
|
Net (loss) income
|
$ | (20,573 | ) | $ | 2,379 | $ | 2,416 | $ | (4,795 | ) | $ | (20,573 | ) | |||||||
59
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, 2008 | ||||||||||||||||||||
|
Guarantor
|
Non-guarantor
|
Consolidating
|
||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | 692,210 | $ | 166,140 | $ | — | $ | 858,350 | ||||||||||
|
Cost of revenues
|
— | 569,886 | 133,544 | — | 703,430 | |||||||||||||||
|
Selling, general and administrative expenses
|
26,628 | 40,346 | 14,420 | — | 81,394 | |||||||||||||||
|
Other (income) expense, net
|
(10 | ) | 2,492 | (452 | ) | — | 2,030 | |||||||||||||
|
Operating (loss) income
|
(26,618 | ) | 79,486 | 18,628 | — | 71,496 | ||||||||||||||
|
Foreign currency exchange loss
|
— | 179 | 1,090 | — | 1,269 | |||||||||||||||
|
Interest expense
|
10,200 | 45 | 636 | — | 10,881 | |||||||||||||||
|
Intercompany interest (income) expense
|
(1,416 | ) | (1,237 | ) | 2,653 | — | — | |||||||||||||
|
(Loss) income from continuing operations before income taxes
|
(35,402 | ) | 80,499 | 14,249 | — | 59,346 | ||||||||||||||
|
Provision for income taxes
|
(12,900 | ) | 28,738 | 4,208 | — | 20,046 | ||||||||||||||
|
(Loss) income from continuing operations
|
(22,502 | ) | 51,761 | 10,041 | — | 39,300 | ||||||||||||||
|
(Loss) income from discontinued operations, net of tax
|
— | (924 | ) | 82 | — | (842 | ) | |||||||||||||
|
Equity in income of subsidiaries
|
60,960 | 11,380 | — | (72,340 | ) | — | ||||||||||||||
|
Net (loss) income
|
$ | 38,458 | $ | 62,217 | $ | 10,123 | $ | (72,340 | ) | $ | 38,458 | |||||||||
60
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidated Statements of Cash Flows
| Year Ended December 31, 2010 | ||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Net cash (used in) provided by operating activitites
|
$ | (15,551 | ) | $ | 36,033 | $ | 10,994 | $ | 31,476 | |||||||
|
Net cash used in investing activities
|
(2,109 | ) | (4,482 | ) | (3,958 | ) | (10,549 | ) | ||||||||
|
Borrowings on lines of credit
|
109,000 | — | 32,497 | 141,497 | ||||||||||||
|
Payments on lines of credit
|
(194,000 | ) | — | (37,613 | ) | (231,613 | ) | |||||||||
|
Principal payments on notes and long-term debt
|
(30,000 | ) | (107 | ) | (350 | ) | (30,457 | ) | ||||||||
|
Proceeds from Senior notes, net of offering costs
|
167,756 | — | — | 167,756 | ||||||||||||
|
Inter-company borrowings (repayments)
|
29,432 | (35,734 | ) | 6,302 | — | |||||||||||
|
Other financing activities
|
3,438 | — | — | 3,438 | ||||||||||||
|
Net cash provided by (used in) financing activities
|
85,626 | (35,841 | ) | 836 | 50,621 | |||||||||||
|
Effect of exchange rate changes on cash
|
— | — | (72 | ) | (72 | ) | ||||||||||
|
Net increase in cash
|
67,966 | (4,290 | ) | 7,800 | 71,476 | |||||||||||
|
Cash at the beginning of the period
|
162 | — | 11,372 | 11,534 | ||||||||||||
|
Cash at the end of the period
|
$ | 68,128 | $ | (4,290 | ) | $ | 19,172 | $ | 83,010 | |||||||
| Year Ended December 31, 2009 | ||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Net cash (used in) provided by operating activitites
|
$ | (20,709 | ) | $ | 104,350 | $ | 5,178 | $ | 88,819 | |||||||
|
Net cash used in investing activitites
|
(326 | ) | (7,596 | ) | (9,222 | ) | (17,144 | ) | ||||||||
|
Net (payments) borrowings on lines of credit
|
(51,000 | ) | — | (4,701 | ) | (55,701 | ) | |||||||||
|
Principal payments on notes payable and long-term debt
|
(10,000 | ) | (327 | ) | (112 | ) | (10,439 | ) | ||||||||
|
Inter-company borrowings (repayments)
|
82,322 | (96,427 | ) | 14,105 | — | |||||||||||
|
Other financing activities
|
(125 | ) | — | — | (125 | ) | ||||||||||
|
Net cash provided by (used in) financing activitites
|
21,197 | (96,754 | ) | 9,292 | (66,265 | ) | ||||||||||
|
Effect of exchange rate changes on cash
|
— | — | (2,128 | ) | (2,128 | ) | ||||||||||
|
Net increase in cash
|
162 | — | 3,120 | 3,282 | ||||||||||||
|
Cash at the beginning of the period
|
— | — | 8,252 | 8,252 | ||||||||||||
|
Cash at the end of the period
|
$ | 162 | $ | — | $ | 11,372 | $ | 11,534 | ||||||||
61
Table of Contents
NEWPARK
RESOURCES, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, 2008 | ||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Consolidated | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Net cash (used in) provided by operating activitites
|
$ | (15,704 | ) | $ | 35,612 | $ | 8,779 | $ | 28,687 | |||||||
|
Net cash (used in) provided by investing activitites
|
(609 | ) | (12,990 | ) | (9,569 | ) | (23,168 | ) | ||||||||
|
Net borrowings on lines of credit
|
19,000 | — | 4,593 | 23,593 | ||||||||||||
|
Principal payments on notes payable and long-term debt
|
(11,166 | ) | (319 | ) | (767 | ) | (12,252 | ) | ||||||||
|
Inter-company borrowings (repayments)
|
21,653 | (22,348 | ) | 695 | — | |||||||||||
|
Purchase of treasury stock
|
(15,250 | ) | — | — | (15,250 | ) | ||||||||||
|
Other financing activities
|
1,910 | — | (63 | ) | 1,847 | |||||||||||
|
Net cash provided by (used in) financing activitites
|
16,147 | (22,667 | ) | 4,458 | (2,062 | ) | ||||||||||
|
Effect of exchange rate changes on cash
|
— | — | (946 | ) | (946 | ) | ||||||||||
|
Net (decrease) increase in cash
|
(166 | ) | (45 | ) | 2,722 | 2,511 | ||||||||||
|
Cash at the beginning of the period
|
166 | 45 | 5,530 | 5,741 | ||||||||||||
|
Cash at the end of the period
|
$ | — | $ | — | $ | 8,252 | $ | 8,252 | ||||||||
62
Table of Contents
| ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| ITEM 9A. | Controls and Procedures |
Evaluation
of disclosure controls and procedures
Based on their evaluation of the Company’s disclosure
controls and procedures as of the end of the period covered by
this report, the Chief Executive Officer and Chief Financial
Officer of the Company have concluded that the Company’s
disclosure controls and procedures are effective as of
December 31, 2010.
Changes
in internal control over financial reporting.
There has been no change in the Company’s internal controls
over financial reporting during the quarter ended
December 31, 2010 that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal controls over financial reporting.
Management’s
Report on Internal Control Over Financial
Reporting
We are responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is
defined in Securities and Exchange Act
Rule 13(a)-15(f).
Our internal control system over financial reporting is designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles.
Internal control over financial reporting has inherent
limitations and may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance, not absolute assurance with
respect to the financial statement preparation and presentation.
Further, because of changes in conditions, the effectiveness of
internal control over financial reporting may vary over time.
Under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, we have evaluated
the effectiveness of our internal control over financial
reporting as of December 31, 2010 as required by the
Securities and Exchange Act of 1934
Rule 13a-15(c).
In making its assessment, we have utilized the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in a report entitled “Internal
Control — Integrated Framework.” We concluded
that based on our evaluation, our internal control over
financial reporting was effective as of December 31, 2010.
The effectiveness of our internal control over financial
reporting as of December 31, 2010 has been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report which is
included herein.
/s/
Paul
L. Howes
Paul L. Howes
President, Chief Executive Officer
/s/
James
E. Braun
James E. Braun
Vice President and Chief Financial Officer
63
Table of Contents
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Newpark Resources, Inc.
The Woodlands, Texas
We have audited the internal control over financial reporting of
Newpark Resources, Inc. and subsidiaries (the
“Company”) as of December 31, 2010, based on
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2010 of the Company and our report dated
March 8, 2011 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte &
Touche LLP
Houston, Texas
March 8, 2011
64
Table of Contents
| ITEM 9B. | Other Information |
Under the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”), each operator of a coal or
other mine is required to include certain mine safety results in
its periodic reports filed with the Securities and Exchange
Commission. We do not believe that certain operations of our
subsidiary, Excalibar Minerals, LLC (“Excalibar”), are
subject to the jurisdiction of the Mine Safety and Health
Administration (“MSHA”) and we previously filed an
action with MSHA requesting a transfer of regulatory
jurisdiction for the operations of Excalibar to the Occupational
Safety and Health Administration (“OSHA”). Our request
to transfer regulatory jurisdiction for these operations from
MSHA to OSHA has been denied. As a result, the four specialized
barite and calcium carbonate grinding facilities operated by
Excalibar and a gravel excavation facility formerly operated by
the Mats and Integrated Services business were subject to the
regulation by MSHA under the Federal Mine Safety and Health Act
of 1977 (the “Mine Act”) in 2010. Information
regarding certain mine safety violations which occurred in 2010
related to the facilities referenced above is included in
Exhibit 99.1.
65
Table of Contents
| ITEM 10. | Directors, Executive Officers and Corporate Governance |
Executive
Officers and Directors
The information required by this Item is incorporated by
reference to the “Executive Officers” and
“Election of Directors” sections of the definitive
Proxy Statement relating to our 2011 Annual Meeting of
Stockholders.
Compliance
with Section 16(a) of the Exchange Act
The information required by this Item is incorporated by
reference to the “Section 16(a) Beneficial Ownership
Reporting Compliance” section of the definitive Proxy
Statement relating to our 2011 Annual Meeting of Stockholders.
Code of
Conduct and Ethics
We have adopted a Code of Ethics that applies to all of our
directors and senior officers, and a Corporate Compliance and
Business Ethics Manual (“Ethics Manual”) that applies
to all officers and employees. The Code of Ethics and Ethics
Manual are publicly available in the investor relations area of
our website at
www.newpark.com.
This Code of Ethics is
incorporated in this report by reference. Copies of our Code of
Ethics may also be requested in print by writing to Newpark
Resources, Inc., 2700 Research Forest Drive, Suite 100, The
Woodlands, Texas, 77381.
| ITEM 11. | Executive Compensation |
The information required by this Item is incorporated by
reference to the “Executive Compensation” section of
the definitive Proxy Statement relating to our 2011 Annual
Meeting of Stockholders.
| ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item is incorporated by
reference to the “Ownership of Common Stock” section
of the definitive Proxy Statement relating to our 2011 Annual
Meeting of Stockholders.
| ITEM 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item is incorporated by
reference to the “Related Person Transactions” and
“Director Independence” sections of the definitive
Proxy Statement relating to our 2011 Annual Meeting of
Stockholders.
| ITEM 14. | Principal Accounting Fees and Services |
The information required by this Item is incorporated by
reference to the “Independent Auditor” section of the
definitive Proxy Statement relating to our 2011 Annual Meeting
of Stockholders.
| ITEM 15. | Exhibits and Financial Statement Schedules |
(a)
List of documents filed as part of this
report or incorporated herein by reference.
| 1. | Financial Statements |
The following financial statements of the Registrant as set
forth under Part II, Item 8 of this report on
Form 10-K
on the pages indicated.
66
Table of Contents
|
Page in this
|
||||
| Form 10-K | ||||
| 30 | ||||
| 31 | ||||
| 32 | ||||
| 33 | ||||
| 34 | ||||
| 35 | ||||
| 36 | ||||
| 2. | Financial Statement Schedules |
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
| 3. | Exhibits |
The exhibits listed are filed as part of, or incorporated by
reference into, this Annual Report on
Form 10-K.
| 3.1 | Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K405 for the year ended December 31, 1998 filed on March 31, 1999 (SEC File No. 001-02960). | |||
| 3.2 | Certificate of Designation of Series A Cumulative Perpetual Preferred Stock of Newpark Resources, Inc. incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 27, 1999 (SEC File No. 001-02960). | |||
| 3.3 | Certificate of Designation of Series B Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 7, 2000 (SEC File No. 001-02960). | |||
| 3.4 | Certificate of Rights and Preferences of Series C Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 4, 2001 (SEC File No. 001-02960). | |||
| 3.5 | Certificate of Amendment to the Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 4, 2009 (SEC File No. 001-02960). | |||
| 3.6 | Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 13, 2007 (SEC File No. 001-02960). | |||
| 4.1 | Specimen form of common stock certificate of Newpark Resources, Inc., incorporated by reference to the exhibit filed with the Company’s Registration Statement on Form S-1 (SEC File No. 33-40716). | |||
| 4.2 | Warrant Certificate dated March 2, 2006, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (SEC File No. 333-156009). | |||
| 4.3 | Indenture, dated October 4, 2010, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-02960). | |||
| 4.4 | First Supplemental Indenture, dated October 4, 2010, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960). |
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| 4.5 | Form of 4.00% Convertible Senior Note due 2017, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960). | |||
| *10.1 | Amended and Restated 1993 Non-Employee Directors’ Stock Option Plan, incorporated by reference to Exhibit 10.7 to the Company’s Form 10-K for the year ended December 31, 1998 filed on March 31, 1999 (SEC File No. 001-02960). | |||
| *10.2 | 1995 Incentive Stock Option Plan, incorporated by reference to Exhibit 10.8.1 to the Company’s Form 10-K for the year ended December 31, 1995 filed on March 11, 1996 (SEC File No. 001-02960). | |||
| *10.3 | Form of Stock Option under 1995 Incentive Stock Option Plan, incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K for the year ended December 31, 2004 filed on March 16, 2005 (SEC File No. 001-02960). | |||
| 10.4 | Agreement, dated May 30, 2000, between the registrant and Fletcher International Ltd., a Bermuda company, incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on June 7, 2000 (SEC File No. 001-02960). | |||
| 10.5 | Agreement, dated December 28, 2000, between the registrant and Fletcher International Limited, a Cayman Islands company, incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on January 4, 2001 (SEC File No. 001-02960). | |||
| *10.6 | Newpark Resources, Inc. 2003 Executive Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005 filed on May 3, 2005 (SEC File No. 001-02960). | |||
| *10.7 | Newpark Resources, Inc. 2003 Long Term Incentive Plan, incorporated by reference to Exhibit 10.7 to the Company’s Form 10-K for the year ended December 31, 2007 filed on March 7, 2008 (SEC File No. 001-02960). | |||
| *10.8 | Form of Award Agreement under 2003 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K for the year ended December 31, 2004 filed on March 16, 2005 (SEC File No. 001-02960). | |||
| *10.9 | Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.10 | Form of Non-Employee Director Restricted Stock Agreement under the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.11 | Amended and Restated Employment Agreement, dated as of December 31, 2008, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2009 (SEC File No. 001-02960). | |||
| *10.12 | Indemnification Agreement, dated June 7, 2006, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960). | |||
| *10.13 | Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960). | |||
| *10.14 | Employment Agreement, dated as of September 18, 2006, by and between Newpark Resources, Inc. and James E. Braun, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 20, 2006 (SEC File No. 001-02960). | |||
| *10.15 | Employment Agreement, dated as of September 18, 2006, by and between Newpark Resources, Inc. and Mark J. Airola, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 20, 2006 (SEC File No. 001-02960). | |||
| *10.16 | Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 10.57 to the Company’s Form 10-K for the year ended December 31, 2006 filed on March 16, 2007 (SEC File No. 001-02960). | |||
| *10.17 | Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 filed on March 26, 2007 (SEC File No. 333-0141577). |
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| *10.18 | Employment Agreement between Newpark Resources, Inc. and Bruce Smith dated April 20, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed on May 8, 2007 (SEC File No. 001-02960). | |||
| 10.19 | Amendment to the Indemnification Agreement between Newpark Resources, Inc. and Paul L. Howes dated September 11, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 14, 2007 (SEC File No. 001-02960). | |||
| 10.20 | Amended and Restated Credit Agreement among Newpark Resources, Inc., JPMORGAN CHASE BANK, N.A., as Administrative Agent CALYON NEW YORK BRANCH, as Syndication Agent, and BANK OF AMERICA, N.A., as Documentation Agent, dated December 21, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 28, 2007 (SEC File No. 001-02960). | |||
| *10.21 | First Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.25 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.22 | Amendment One to the Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.23 | Newpark Resources, Inc., 2008 Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 the Company’s Registration Statement on Form S-8 filed on December 9, 2008 (SEC File No. 333-156010). | |||
| *10.24 | Employment Agreement, dated as of June 2, 2008, by an between Newpark Resources, Inc. and William D. Moss, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 6, 2006 (SEC File no. 001-02960). | |||
| 10.25 | Form of Change of Control Agreement, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008 filed on May 2, 2008 (SEC File No. 001-02960). | |||
| *10.26 | Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated April 20, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.27 | Amendment to Employment Agreement between Newpark Resources, Inc. and James E. Braun dated April 21, 2009, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-L filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.28 | Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated April 22, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.29 | Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated April 22, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.30 | Amendment to Employment Agreement between Newpark Resources, Inc. and William D. Moss dated April 23, 2009, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| 10.31 | First Amendment and Waiver to Amended and Restated Credit Agreement among Newpark Resources, Inc., JPMORGAN CHASE BANK, N.A., as Administrative Agent CALYON NEW YORK BRANCH, as Syndication Agent, and BANK OF AMERICA, N.A., as Documentation Agent, dated July 17, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 21, 2009 (SEC File No. 001-02960). | |||
| *10.32 | Extension Letter Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated November 30, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| *10.33 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and James E. Braun dated November 30, 2009, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| *10.34 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated November 30, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). |
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| *10.35 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated November 30, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| *10.36 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and William D. Moss dated November 30, 2009, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| 10.37 | Letter Agreement dated as of March 3, 2010 between Newpark Resources, Inc. and William D. Moss, incorporated by reference to the Company’s Current Report on Form 8-K filed on March 9, 2010 (SEC File No. 001-02960). | |||
| 10.38 | Employment Agreement, dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960). | |||
| 10.39 | Change in Control Agreement dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960). | |||
| 10.40 | Newpark Resources, Inc. 2010 Annual Cash Incentive Plan, incorporated by reference to the Company’s Current Report on Form 8-K filed on April 2, 2010 (SEC File No. 001-02960). | |||
| †10.41 | Second Amendment to Amended and Restated Credit Agreement among Newpark Resources, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, Calyon New York Branch, as Syndication Agent, and Bank of America, N.A., as Documentation Agent dated September 24, 2010. | |||
| *10.42 | Director Compensation Summary, incorporated by reference to Exhibit 10.37 to the Company’s Form 10-K filed on March 9, 2009 (SEC File No. 001-02960). | |||
| †21.1 | Subsidiaries of the Registrant. | |||
| †23.1 | Consent of Independent Registered Public Accounting Firm. | |||
| †31.1 | Certification of Paul L. Howes pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| †31.2 | Certification of James E. Braun pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| †32.1 | Certification of Paul L. Howes pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| †32.2 | Certification of James E. Braun pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| †99.1 | Reporting requirements under the Mine Safety and Health Administration. |
| † | Filed herewith. | |
| * | Management compensation plan or agreement |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
NEWPARK RESOURCES, INC.
| By: |
/s/
Paul
L. Howes
|
Paul L. Howes
President and Chief Executive Officer
Dated: March 8, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant in the capacities and on the dates
indicated.
|
Signatures
|
Title
|
Date
|
||||
|
/s/
Paul
L. Howes
|
President, Chief
Executive Office and Director (Principal Executive Officer) |
March 8, 2011 | ||||
|
/s/
James
E. Braun
|
Vice President and Chief Financial Officer (Principal Financial Officer) | March 8, 2011 | ||||
|
/s/
Gregg
S. Piontek
|
Vice President, Controller and Chief Accounting Officer
(Principal
Accounting Officer) |
March 8, 2011 | ||||
|
/s/
Jerry
W. Box
|
Chairman of the Board | March 8, 2011 | ||||
|
/s/
James
W. McFarland
|
Director, Member of Audit Committee | March 8, 2011 | ||||
|
/s/
G.
Stephen Finley
|
Director, Member of Audit Committee | March 8, 2011 | ||||
|
/s/
Gary
L. Warren
|
Director, Member of Audit Committee | March 8, 2011 | ||||
|
/s/
David
C. Anderson
|
Director | March 8, 2011 | ||||
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NEWPARK
RESOURCES, INC
EXHIBIT INDEX
The exhibits listed are filed as part of, or incorporated by
reference into, this Annual Report on
Form 10-K.
| 3.1 | Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K405 for the year ended December 31, 1998 filed on March 31, 1999 (SEC File No. 001-02960). | |||
| 3.2 | Certificate of Designation of Series A Cumulative Perpetual Preferred Stock of Newpark Resources, Inc. incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 27, 1999 (SEC File No. 001-02960). | |||
| 3.3 | Certificate of Designation of Series B Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 7, 2000 (SEC File No. 001-02960). | |||
| 3.4 | Certificate of Rights and Preferences of Series C Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 4, 2001 (SEC File No. 001-02960). | |||
| 3.5 | Certificate of Amendment to the Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 4, 2009 (SEC File No. 001-02960). | |||
| 3.6 | Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 13, 2007 (SEC File No. 001-02960). | |||
| 4.1 | Specimen form of common stock certificate of Newpark Resources, Inc., incorporated by reference to the exhibit filed with the Company’s Registration Statement on Form S-1 (SEC File No. 33-40716). | |||
| 4.2 | Warrant Certificate dated March 2, 2006, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (SEC File No. 333-156009). | |||
| 4.3 | Indenture, dated October 4, 2010, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-02960). | |||
| 4.4 | First Supplemental Indenture, dated October 4, 2010, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960). | |||
| 4.5 | Form of 4.00% Convertible Senior Note due 2017, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960). | |||
| *10.1 | Amended and Restated 1993 Non-Employee Directors’ Stock Option Plan, incorporated by reference to Exhibit 10.7 to the Company’s Form 10-K for the year ended December 31, 1998 filed on March 31, 1999 (SEC File No. 001-02960). | |||
| *10.2 | 1995 Incentive Stock Option Plan, incorporated by reference to Exhibit 10.8.1 to the Company’s Form 10-K for the year ended December 31, 1995 filed on March 11, 1996 (SEC File No. 001-02960). | |||
| *10.3 | Form of Stock Option under 1995 Incentive Stock Option Plan, incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K for the year ended December 31, 2004 filed on March 16, 2005 (SEC File No. 001-02960). | |||
| 10.4 | Agreement, dated May 30, 2000, between the registrant and Fletcher International Ltd., a Bermuda company, incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on June 7, 2000 (SEC File No. 001-02960). | |||
| 10.5 | Agreement, dated December 28, 2000, between the registrant and Fletcher International Limited, a Cayman Islands company, incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on January 4, 2001 (SEC File No. 001-02960). | |||
| *10.6 | Newpark Resources, Inc. 2003 Executive Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005 filed on May 3, 2005 (SEC File No. 001-02960). |
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| *10.7 | Newpark Resources, Inc. 2003 Long Term Incentive Plan, incorporated by reference to Exhibit 10.7 to the Company’s Form 10-K for the year ended December 31, 2007 filed on March 7, 2008 (SEC File No. 001-02960). | |||
| *10.8 | Form of Award Agreement under 2003 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K for the year ended December 31, 2004 filed on March 16, 2005 (SEC File No. 001-02960). | |||
| *10.9 | Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.10 | Form of Non-Employee Director Restricted Stock Agreement under the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.11 | Amended and Restated Employment Agreement, dated as of December 31, 2008, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2009 (SEC File No. 001-02960). | |||
| *10.12 | Indemnification Agreement, dated June 7, 2006, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960). | |||
| *10.13 | Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960). | |||
| *10.14 | Employment Agreement, dated as of September 18, 2006, by and between Newpark Resources, Inc. and James E. Braun, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 20, 2006 (SEC File No. 001-02960). | |||
| *10.15 | Employment Agreement, dated as of September 18, 2006, by and between Newpark Resources, Inc. and Mark J. Airola, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 20, 2006 (SEC File No. 001-02960). | |||
| *10.16 | Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 10.57 to the Company’s Form 10-K for the year ended December 31, 2006 filed on March 16, 2007 (SEC File No. 001-02960). | |||
| *10.17 | Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 filed on March 26, 2007 (SEC File No. 333-0141577). | |||
| *10.18 | Employment Agreement between Newpark Resources, Inc. and Bruce Smith dated April 20, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed on May 8, 2007 (SEC File No. 001-02960). | |||
| 10.19 | Amendment to the Indemnification Agreement between Newpark Resources, Inc. and Paul L. Howes dated September 11, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 14, 2007 (SEC File No. 001-02960). | |||
| 10.20 | Amended and Restated Credit Agreement among Newpark Resources, Inc., JPMORGAN CHASE BANK, N.A., as Administrative Agent CALYON NEW YORK BRANCH, as Syndication Agent, and BANK OF AMERICA, N.A., as Documentation Agent, dated December 21, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 28, 2007 (SEC File No. 001-02960). | |||
| *10.21 | First Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.25 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.22 | Amendment One to the Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960). | |||
| *10.23 | Newpark Resources, Inc., 2008 Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 the Company’s Registration Statement on Form S-8 filed on December 9, 2008 (SEC File No. 333-156010). | |||
| *10.24 | Employment Agreement, dated as of June 2, 2008, by an between Newpark Resources, Inc. and William D. Moss, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 6, 2006 (SEC File no. 001-02960). |
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| 10.25 | Form of Change of Control Agreement, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008 filed on May 2, 2008 (SEC File No. 001-02960). | |||
| *10.26 | Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated April 20, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.27 | Amendment to Employment Agreement between Newpark Resources, Inc. and James E. Braun dated April 21, 2009, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-L filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.28 | Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated April 22, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.29 | Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated April 22, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| *10.30 | Amendment to Employment Agreement between Newpark Resources, Inc. and William D. Moss dated April 23, 2009, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960). | |||
| 10.31 | First Amendment and Waiver to Amended and Restated Credit Agreement among Newpark Resources, Inc., JPMORGAN CHASE BANK, N.A., as Administrative Agent CALYON NEW YORK BRANCH, as Syndication Agent, and BANK OF AMERICA, N.A., as Documentation Agent, dated July 17, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 21, 2009 (SEC File No. 001-02960). | |||
| *10.32 | Extension Letter Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated November 30, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| *10.33 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and James E. Braun dated November 30, 2009, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| *10.34 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated November 30, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| *10.35 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated November 30, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| *10.36 | Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and William D. Moss dated November 30, 2009, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960). | |||
| 10.37 | Letter Agreement dated as of March 3, 2010 between Newpark Resources, Inc. and William D. Moss, incorporated by reference to the Company’s Current Report on Form 8-K filed on March 9, 2010 (SEC File No. 001-02960). | |||
| 10.38 | Employment Agreement, dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960). | |||
| 10.39 | Change in Control Agreement dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960). | |||
| 10.40 | Newpark Resources, Inc. 2010 Annual Cash Incentive Plan, incorporated by reference to the Company’s Current Report on Form 8-K filed on April 2, 2010 (SEC File No. 001-02960). | |||
| †10.41 | Second Amendment to Amended and Restated Credit Agreement among Newpark Resources, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, Calyon New York Branch, as Syndication Agent, and Bank of America, N.A., as Documentation Agent dated September 24, 2010. |
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| *10.42 | Director Compensation Summary, incorporated by reference to Exhibit 10.37 to the Company’s Form 10-K filed on March 9, 2009 (SEC File No. 001-02960). | |||
| †21.1 | Subsidiaries of the Registrant. | |||
| †23.1 | Consent of Independent Registered Public Accounting Firm. | |||
| †31.1 | Certification of Paul L. Howes pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| †31.2 | Certification of James E. Braun pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| †32.1 | Certification of Paul L. Howes pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| †32.2 | Certification of James E. Braun pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| †99.1 | Reporting requirements under the Mine Safety and Health Administration. |
| † | Filed herewith. | |
| * | Management compensation plan or agreement |
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TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. [removed and Reserved]Part IIItem 5. Market For The Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 Summary Of Significant Accounting PoliciesNote 2 Discontinued OperationsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules