Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| |
|
|
| þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 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 No. 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) |
(281) 362-6800
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of “large accelerated
filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o
(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
As of July 20, 2010, a total of 89,881,847 shares of common stock, $0.01 par value per share, were
outstanding.
NEWPARK RESOURCES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2010
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act
of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also
may provide oral or written forward-looking statements in other materials we release to the public.
The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar
expressions are intended to identify these forward-looking statements but are not the exclusive
means of identifying them. These forward-looking statements reflect the current views of our
management; however, various risks, uncertainties and contingencies, including the risks identified
in Item 1A in Part II of this Quarterly Report, Item 1A, “Risk Factors,” in Part I of our Annual
Report on Form 10-K for the year ended December 31, 2009, and those set forth from time to time in
our filings with the Securities and Exchange Commission, could cause our actual results,
performance or achievements to differ materially from those expressed in, or implied by, these
statements, including the success or failure of our efforts to implement our business strategy.
We assume no obligation to update publicly any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by securities laws. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly
Report on Form 10-Q might not occur.
For further information regarding these and other factors, risks and uncertainties affecting
us, we refer you to the risk factors set forth in Item 1A in Part II of this Quarterly Report and
Part I of our Annual Report on Form 10-K for the year ended December 31, 2009.
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Newpark Resources, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| (In thousands, except share data) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
12,213 |
|
|
$ |
11,534 |
|
Receivables, net |
|
|
172,475 |
|
|
|
122,386 |
|
Inventories |
|
|
116,470 |
|
|
|
115,495 |
|
Deferred tax asset |
|
|
35,315 |
|
|
|
7,457 |
|
Prepaid expenses and other current assets |
|
|
12,060 |
|
|
|
11,740 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
348,533 |
|
|
|
268,612 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
215,336 |
|
|
|
224,625 |
|
Goodwill |
|
|
60,873 |
|
|
|
62,276 |
|
Other intangible assets, net |
|
|
14,350 |
|
|
|
16,037 |
|
Other assets |
|
|
4,366 |
|
|
|
13,564 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
643,458 |
|
|
$ |
585,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Foreign bank lines of credit |
|
$ |
5,286 |
|
|
$ |
6,901 |
|
Current maturities of long-term debt |
|
|
10,192 |
|
|
|
10,319 |
|
Accounts payable |
|
|
76,183 |
|
|
|
62,992 |
|
Accrued liabilities |
|
|
31,397 |
|
|
|
25,290 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
123,058 |
|
|
|
105,502 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
104,588 |
|
|
|
105,810 |
|
Deferred tax liability |
|
|
30,378 |
|
|
|
2,083 |
|
Other noncurrent liabilities |
|
|
4,224 |
|
|
|
3,697 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
262,248 |
|
|
|
217,092 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 200,000,000 shares authorized
92,599,210 and 91,672,871 shares issued, respectively |
|
|
926 |
|
|
|
917 |
|
Paid-in capital |
|
|
463,366 |
|
|
|
460,544 |
|
Accumulated other comprehensive income |
|
|
307 |
|
|
|
8,635 |
|
Retained deficit |
|
|
(68,038 |
) |
|
|
(86,660 |
) |
Treasury stock, at cost; 2,717,363 and 2,727,765 shares, respectively |
|
|
(15,351 |
) |
|
|
(15,414 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
381,210 |
|
|
|
368,022 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
643,458 |
|
|
$ |
585,114 |
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
Newpark Resources, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
| (In thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
181,352 |
|
|
$ |
109,599 |
|
|
$ |
342,150 |
|
|
$ |
236,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
145,299 |
|
|
|
103,906 |
|
|
|
278,817 |
|
|
|
227,418 |
|
Selling, general and administrative expenses |
|
|
16,360 |
|
|
|
15,652 |
|
|
|
30,773 |
|
|
|
31,882 |
|
Other income, net |
|
|
(203 |
) |
|
|
(37 |
) |
|
|
(1,045 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
19,896 |
|
|
|
(9,922 |
) |
|
|
33,605 |
|
|
|
(22,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain |
|
|
(1,213 |
) |
|
|
(590 |
) |
|
|
(1,824 |
) |
|
|
(561 |
) |
Interest expense |
|
|
2,228 |
|
|
|
1,600 |
|
|
|
4,376 |
|
|
|
3,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes |
|
|
18,881 |
|
|
|
(10,932 |
) |
|
|
31,053 |
|
|
|
(25,390 |
) |
Provision for income taxes |
|
|
8,041 |
|
|
|
(2,145 |
) |
|
|
12,431 |
|
|
|
(4,599 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
10,840 |
|
|
$ |
(8,787 |
) |
|
$ |
18,622 |
|
|
$ |
(20,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
88,818 |
|
|
|
88,514 |
|
|
|
88,737 |
|
|
|
88,430 |
|
Diluted weighted average common shares outstanding |
|
|
89,392 |
|
|
|
88,514 |
|
|
|
89,079 |
|
|
|
88,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share — basic |
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
|
$ |
0.21 |
|
|
$ |
(0.24 |
) |
Income (loss) per common share — diluted |
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
|
$ |
0.21 |
|
|
$ |
(0.24 |
) |
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
Newpark Resources, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
10,840 |
|
|
$ |
(8,787 |
) |
|
$ |
18,622 |
|
|
$ |
(20,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of interest rate
swap, net of tax |
|
|
49 |
|
|
|
255 |
|
|
|
39 |
|
|
|
327 |
|
Foreign currency translation adjustments |
|
|
(5,985 |
) |
|
|
6,074 |
|
|
|
(8,367 |
) |
|
|
2,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
4,904 |
|
|
$ |
(2,458 |
) |
|
$ |
10,294 |
|
|
$ |
(17,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
Newpark Resources, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Six Months Ended June 30, |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
18,622 |
|
|
$ |
(20,791 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operations: |
|
|
|
|
|
|
|
|
Non-cash impairment charges |
|
|
150 |
|
|
|
941 |
|
Depreciation and amortization |
|
|
13,298 |
|
|
|
14,093 |
|
Stock-based compensation expense |
|
|
1,930 |
|
|
|
1,190 |
|
Provision for deferred income taxes |
|
|
9,402 |
|
|
|
(6,256 |
) |
Provision for doubtful accounts |
|
|
542 |
|
|
|
1,533 |
|
Gain on sale of assets |
|
|
(189 |
) |
|
|
(265 |
) |
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in receivables |
|
|
(54,167 |
) |
|
|
111,652 |
|
(Increase) decrease in inventories |
|
|
(4,132 |
) |
|
|
12,658 |
|
(Increase) decrease in other assets |
|
|
(558 |
) |
|
|
427 |
|
Increase (decrease) in accounts payable |
|
|
15,742 |
|
|
|
(45,083 |
) |
Increase (decrease) in accrued liabilities and other |
|
|
7,162 |
|
|
|
(12,592 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
7,802 |
|
|
|
57,507 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(5,995 |
) |
|
|
(14,139 |
) |
Proceeds from sale of property, plant and equipment |
|
|
1,318 |
|
|
|
734 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4,677 |
) |
|
|
(13,405 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings on lines of credit |
|
|
99,027 |
|
|
|
84,934 |
|
Payments on lines of credit |
|
|
(100,782 |
) |
|
|
(128,701 |
) |
Principal payments on notes payable and long-term debt |
|
|
(305 |
) |
|
|
(195 |
) |
Proceeds from employee stock plans |
|
|
902 |
|
|
|
104 |
|
Purchase of treasury stock |
|
|
(153 |
) |
|
|
(212 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,311 |
) |
|
|
(44,070 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(1,135 |
) |
|
|
(1,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
679 |
|
|
|
(1,541 |
) |
Cash and cash equivalents at beginning of period |
|
|
11,534 |
|
|
|
8,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
12,213 |
|
|
$ |
6,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Income taxes (net of refunds) |
|
$ |
4,249 |
|
|
$ |
3,023 |
|
Interest |
|
$ |
4,474 |
|
|
$ |
2,819 |
|
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Newpark Resources,
Inc. and our wholly-owned subsidiaries, which we refer to as “we,” “our” or “us,” have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required
to be filed with the Securities and Exchange Commission (“SEC”), and do not include all information
and footnotes required by the accounting principles generally accepted in the United States (“U.S.
GAAP”) for complete financial statements. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009, as updated
by our Current Report on Form 8-K, filed with the SEC on May 12, 2010 (“Form 8-K”). Our fiscal year
end is December 31, our second quarter represents the three month period ending June 30 and our
first half represents the six month period ending June 30. The results of operations for the second
quarter and first half of 2010 are not necessarily indicative of the results to be expected for the
entire year.
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments necessary to present fairly our financial position as of June
30, 2010, the results of our operations for the second quarter and first half of 2010 and 2009, and
our cash flows for the first half of 2010 and 2009. All adjustments are of a normal recurring
nature. Our balance sheet at December 31, 2009 is derived from the audited financial statements at that
date.
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. For further information, see Note 1 in our Annual Report on Form 10-K for the
year ended December 31, 2009, as updated by our Form 8-K, filed with the SEC on May 12, 2010.
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 will be 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
financial statements.
7
Note 2 — Earnings per Share
The following table presents the reconciliation of the numerator and denominator for
calculating income per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
First Half |
|
| (In thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income (loss) |
|
$ |
10,840 |
|
|
$ |
(8,787 |
) |
|
$ |
18,622 |
|
|
$ |
(20,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
88,818 |
|
|
|
88,514 |
|
|
|
88,737 |
|
|
|
88,430 |
|
Add: Net effect of dilutive stock options
and restricted stock awards |
|
|
574 |
|
|
|
— |
|
|
|
342 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average number of common shares
outstanding |
|
|
89,392 |
|
|
|
88,514 |
|
|
|
89,079 |
|
|
|
88,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
|
$ |
0.21 |
|
|
$ |
(0.24 |
) |
Diluted |
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
|
$ |
0.21 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and warrants excluded from
calculation of diluted earnings per share because
they were anti-dilutive for the period |
|
|
3,952 |
|
|
|
5,827 |
|
|
|
4,641 |
|
|
|
5,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the second quarter and first half of 2010, we had dilutive stock options and restricted
stock of approximately 3.2 million shares and 2.6 millions shares respectively, and zero dilutive
stock options or restricted stock for the same periods in 2009. The resulting net effect of stock
options and restricted stock were used in calculating diluted income per share for the period.
On June 1, 2000, we completed the sale of 120,000 shares of Series B Convertible Preferred
Stock, $0.01 par value per share (the “Series B Preferred Stock”), and a warrant (the “Series B
Warrant”) to purchase up to 1,900,000 shares of our common stock at an exercise price of $10.075
per share, subject to anti-dilution adjustments. Prior to 2006, all outstanding shares of the
Series B Preferred Stock were converted to common stock. The Series B Warrant was originally
issued with a seven year life, expiring June 1, 2007. This warrant contains certain registration
provisions, which, if not met, reduce the exercise price of the warrant by 2.5%, for each year we
are not in compliance with the registration requirements, and extend the term of the warrant.
Effective May 1, 2009, we became compliant with the registration requirements for the warrant.
Previously, we were not in compliance with these requirements which resulted in adjustments to the
exercise price and extended the term of the warrant. As of June 30, 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.
Note 3 — Stock Based Compensation
During the second quarter of 2010, the Compensation Committee of our Board of Directors
approved equity-based compensation to executive officers and other key employees. These awards
included a grant of 636,030 time-vesting shares of stock, which vest equally over a three year
period. The fair value on the date of grant for these awards was $5.61 per share.
Additionally, in June 2010, non-employee directors received shares of restricted stock
totaling 100,970 shares, which will vest in full on the first anniversary of the grant date.
8
Note 4 — Receivables and Inventories
Receivables — Receivables, net consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Gross trade receivables |
|
$ |
172,862 |
|
|
$ |
123,909 |
|
Allowance for doubtful accounts |
|
|
(6,365 |
) |
|
|
(5,969 |
) |
|
|
|
|
|
|
|
Net trade receivables |
|
|
166,497 |
|
|
|
117,940 |
|
|
|
|
|
|
|
|
|
|
Notes and other receivables |
|
|
5,978 |
|
|
|
4,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables, net |
|
$ |
172,475 |
|
|
$ |
122,386 |
|
|
|
|
|
|
|
|
Inventories
— Our inventories include $115.8 million and $113.3 million of raw materials and
components for our drilling fluids systems at June 30, 2010 and December 31, 2009, respectively.
The remaining balance consists primarily of composite mat finished goods.
Note 5 — Fair Value of Financial Instruments
Our derivative financial instruments consist of interest rate swap agreements entered into in
January 2008, which effectively fix the underlying LIBOR rate on our borrowings under our term
loan. The initial notional amount of the swap agreements totaled $50.0 million reducing by $10.0
million each December, matching the required principal payments under the term loan. As of June 30,
2010, $30.0 million remained outstanding on the term loan. As a result of the swap agreements, we
will pay a fixed rate of 3.74% plus the applicable margin.
The swap agreements represent a cash flow hedge, entered into for the purpose of fixing a
portion of our borrowing costs and thereby decreasing the volatility of future cash flows. These
agreements are valued based upon “level 2” fair value criteria, where the fair value of these
instruments is determined using observable inputs, including quoted prices for similar
assets/liabilities and market corroborated inputs as well as quoted prices in inactive markets. The
fair value of the interest rate swap arrangements was an obligation of $1.3 million as of June 30,
2010 and December 31, 2009, recorded within accrued liabilities,
which was determined from broker quotes.
Our financial instruments include cash and cash equivalents, receivables, payables, debt, and
certain derivative financial instruments. We believe the carrying values of these instruments
approximated their fair values at June 30, 2010 and December 31, 2009.
At June 30, 2010 and December 31, 2009, the estimated fair value of total debt is equal to the
carrying value of $120.1 million and $123.0 million, respectively.
Note 6 — 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.
SEC Investigation
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. We have
and will continue to cooperate fully with the SEC’s investigation. 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 a settlement of its claims against the former vendor and the former CFO of our Soloco
business. We have not been named as a defendant in this lawsuit.
9
Note 7 — Segment Data
Summarized operating results for our reportable segments is shown in the following table (net
of inter-segment transfers):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
First Half |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
150,534 |
|
|
$ |
89,642 |
|
|
$ |
286,844 |
|
|
$ |
196,230 |
|
Mats and integrated services |
|
|
16,981 |
|
|
|
8,638 |
|
|
|
30,601 |
|
|
|
17,501 |
|
Environmental services |
|
|
13,837 |
|
|
|
11,319 |
|
|
|
24,705 |
|
|
|
22,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
181,352 |
|
|
$ |
109,599 |
|
|
$ |
342,150 |
|
|
$ |
236,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
15,164 |
|
|
$ |
(1,722 |
)(1) |
|
|
27,578 |
|
|
$ |
(7,296 |
)(3) |
Mats and integrated services |
|
|
5,036 |
|
|
|
(4,774 |
)(1) |
|
|
7,750 |
(2) |
|
|
(8,188 |
)(3) |
Environmental services |
|
|
4,224 |
|
|
|
1,385 |
|
|
|
6,903 |
|
|
|
2,542 |
|
Corporate office |
|
|
(4,528 |
) |
|
|
(4,811 |
)(1) |
|
|
(8,626 |
) |
|
|
(9,759 |
)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
19,896 |
|
|
$ |
(9,922 |
) |
|
$ |
33,605 |
|
|
$ |
(22,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Includes employee termination and related charges of $1.8 million, which
includes $1.0 million in fluids systems and engineering, $0.6 million in mats and
integrated services and $0.2 million in our corporate office. |
| |
| (2) |
|
Includes $0.9 million of other income reflecting proceeds from insurance claims
related to Hurricane Ike in 2008. |
| |
| (3) |
|
Includes employee termination costs and related charges of $4.4 million, which
includes $3.0 million in fluids systems and engineering, $1.0 million in mats and
integrated services and $0.4 million in our corporate office. |
Note 8 — 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. The Form S-3
was declared effective by the SEC on May 19, 2010. We may in the future issue 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 unaudited condensed consolidating balance sheets, results of
operations, and 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 unaudited condensed
consolidating balance sheet as of June 30, 2010 and December 31, 2009, the
unaudited condensed consolidating statements of operations for the second quarter and first
half of 2010 and 2009, and the unaudited condensed consolidated statements of cash flows for the
first half of 2010 and 2009 are as follows:
10
Condensed Consolidating Balance Sheets
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
June 30, 2010 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
entries |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
238 |
|
|
$ |
— |
|
|
$ |
11,975 |
|
|
$ |
— |
|
|
$ |
12,213 |
|
Receivables, net |
|
|
198 |
|
|
|
121,372 |
|
|
|
50,905 |
|
|
|
— |
|
|
|
172,475 |
|
Inventories |
|
|
— |
|
|
|
77,903 |
|
|
|
38,567 |
|
|
|
— |
|
|
|
116,470 |
|
Deferred tax asset |
|
|
27,958 |
|
|
|
7,091 |
|
|
|
266 |
|
|
|
— |
|
|
|
35,315 |
|
Prepaid expenses and other current assets |
|
|
1,157 |
|
|
|
2,689 |
|
|
|
8,214 |
|
|
|
— |
|
|
|
12,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
29,551 |
|
|
|
209,055 |
|
|
|
109,927 |
|
|
|
— |
|
|
|
348,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
4,064 |
|
|
|
187,005 |
|
|
|
24,267 |
|
|
$ |
— |
|
|
|
215,336 |
|
Goodwill |
|
|
— |
|
|
|
38,236 |
|
|
|
22,637 |
|
|
|
— |
|
|
|
60,873 |
|
Other intangible assets, net |
|
|
— |
|
|
|
12,053 |
|
|
|
2,297 |
|
|
|
— |
|
|
|
14,350 |
|
Other assets |
|
|
2,280 |
|
|
|
685 |
|
|
|
1,401 |
|
|
|
— |
|
|
|
4,366 |
|
Investment in subsidiaries |
|
|
126,111 |
|
|
|
26,165 |
|
|
|
— |
|
|
|
(152,276 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
162,006 |
|
|
$ |
473,199 |
|
|
$ |
160,529 |
|
|
$ |
(152,276 |
) |
|
$ |
643,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign bank lines of credit |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,286 |
|
|
$ |
— |
|
|
$ |
5,286 |
|
Current maturities of long-term debt |
|
|
10,000 |
|
|
|
— |
|
|
|
192 |
|
|
|
— |
|
|
|
10,192 |
|
Accounts payable |
|
|
(661 |
) |
|
|
58,289 |
|
|
|
18,555 |
|
|
|
— |
|
|
|
76,183 |
|
Accrued liabilities |
|
|
10,579 |
|
|
|
10,365 |
|
|
|
10,453 |
|
|
|
— |
|
|
|
31,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
19,918 |
|
|
|
68,654 |
|
|
|
34,486 |
|
|
|
— |
|
|
|
123,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
104,000 |
|
|
|
— |
|
|
|
588 |
|
|
|
— |
|
|
|
104,588 |
|
Deferred tax liability |
|
|
1,832 |
|
|
|
27,436 |
|
|
|
1,110 |
|
|
|
— |
|
|
|
30,378 |
|
Other noncurrent liabilities |
|
|
2,283 |
|
|
|
10 |
|
|
|
1,931 |
|
|
|
— |
|
|
|
4,224 |
|
Net intercompany (receivable) payable |
|
|
(347,237 |
) |
|
|
282,079 |
|
|
|
65,158 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
(219,204 |
) |
|
|
378,179 |
|
|
|
103,273 |
|
|
|
— |
|
|
|
262,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
926 |
|
|
|
24,557 |
|
|
|
25,991 |
|
|
|
(50,548 |
) |
|
|
926 |
|
Paid-in capital |
|
|
463,366 |
|
|
|
56,417 |
|
|
|
3 |
|
|
|
(56,420 |
) |
|
|
463,366 |
|
Accumulated other comprehensive income |
|
|
307 |
|
|
|
— |
|
|
|
9,209 |
|
|
|
(9,209 |
) |
|
|
307 |
|
Retained (deficit) earnings |
|
|
(68,038 |
) |
|
|
14,046 |
|
|
|
22,053 |
|
|
|
(36,099 |
) |
|
|
(68,038 |
) |
Treasury stock, at cost |
|
|
(15,351 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity |
|
|
381,210 |
|
|
|
95,020 |
|
|
|
57,256 |
|
|
|
(152,276 |
) |
|
|
381,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity |
|
$ |
162,006 |
|
|
$ |
473,199 |
|
|
$ |
160,529 |
|
|
$ |
(152,276 |
) |
|
$ |
643,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2009 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Condensed Consolidated Statements of Operations
Second Quarter 2010 and 2009
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter 2010 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
|
$ |
137,542 |
|
|
$ |
43,810 |
|
|
$ |
— |
|
|
$ |
181,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
108,971 |
|
|
|
36,328 |
|
|
|
— |
|
|
|
145,299 |
|
Selling, general and administrative expenses |
|
|
4,528 |
|
|
|
7,562 |
|
|
|
4,270 |
|
|
|
— |
|
|
|
16,360 |
|
Other (income) expense, net |
|
|
— |
|
|
|
(287 |
) |
|
|
84 |
|
|
|
— |
|
|
|
(203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(4,528 |
) |
|
|
21,296 |
|
|
|
3,128 |
|
|
|
— |
|
|
|
19,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange loss (gain) |
|
|
— |
|
|
|
55 |
|
|
|
(1,268 |
) |
|
|
— |
|
|
|
(1,213 |
) |
Interest expense (income) |
|
|
2,104 |
|
|
|
(6 |
) |
|
|
130 |
|
|
|
— |
|
|
|
2,228 |
|
Intercompany interest (income) expense |
|
|
— |
|
|
|
(739 |
) |
|
|
739 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income
taxes |
|
|
(6,632 |
) |
|
|
21,986 |
|
|
|
3,527 |
|
|
|
— |
|
|
|
18,881 |
|
Provision for income taxes |
|
|
(2,240 |
) |
|
|
7,775 |
|
|
|
2,506 |
|
|
|
— |
|
|
|
8,041 |
|
Equity in income of subsidiaries |
|
|
15,232 |
|
|
|
1,724 |
|
|
|
— |
|
|
|
(16,956 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,840 |
|
|
$ |
15,935 |
|
|
$ |
1,021 |
|
|
$ |
(16,956 |
) |
|
$ |
10,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter 2009 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
|
$ |
75,570 |
|
|
$ |
34,029 |
|
|
$ |
— |
|
|
$ |
109,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
74,273 |
|
|
|
29,633 |
|
|
|
— |
|
|
|
103,906 |
|
Selling, general and administrative expenses |
|
|
4,813 |
|
|
|
7,746 |
|
|
|
3,093 |
|
|
|
— |
|
|
|
15,652 |
|
Other (income) expense, net |
|
|
— |
|
|
|
(256 |
) |
|
|
219 |
|
|
|
— |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(4,813 |
) |
|
|
(6,193 |
) |
|
|
1,084 |
|
|
|
— |
|
|
|
(9,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain |
|
|
— |
|
|
|
(98 |
) |
|
|
(492 |
) |
|
|
— |
|
|
|
(590 |
) |
Interest expense (income) |
|
|
1,582 |
|
|
|
(4 |
) |
|
|
22 |
|
|
|
— |
|
|
|
1,600 |
|
Intercompany interest (income) expense |
|
|
(369 |
) |
|
|
(467 |
) |
|
|
836 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income
taxes |
|
|
(6,026 |
) |
|
|
(5,624 |
) |
|
|
718 |
|
|
|
— |
|
|
|
(10,932 |
) |
Provision for income taxes |
|
|
(1,940 |
) |
|
|
(1,886 |
) |
|
|
1,681 |
|
|
|
— |
|
|
|
(2,145 |
) |
Equity in income (loss) of subsidiaries |
|
|
(4,701 |
) |
|
|
1,097 |
|
|
|
— |
|
|
|
3,604 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(8,787 |
) |
|
$ |
(2,641 |
) |
|
$ |
(963 |
) |
|
$ |
3,604 |
|
|
$ |
(8,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half 2010 and 2009
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half 2010 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
|
$ |
251,245 |
|
|
$ |
90,905 |
|
|
$ |
— |
|
|
$ |
342,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
203,433 |
|
|
|
75,384 |
|
|
|
— |
|
|
|
278,817 |
|
Selling, general and administrative expenses |
|
|
8,635 |
|
|
|
13,745 |
|
|
|
8,393 |
|
|
|
— |
|
|
|
30,773 |
|
Other (income) expense, net |
|
|
(11 |
) |
|
|
(1,248 |
) |
|
|
214 |
|
|
|
— |
|
|
|
(1,045 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(8,624 |
) |
|
|
35,315 |
|
|
|
6,914 |
|
|
|
— |
|
|
|
33,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange loss (gain) |
|
|
— |
|
|
|
74 |
|
|
|
(1,898 |
) |
|
|
— |
|
|
|
(1,824 |
) |
Interest expense (income) |
|
|
4,183 |
|
|
|
(15 |
) |
|
|
208 |
|
|
|
— |
|
|
|
4,376 |
|
Intercompany interest (income) expense |
|
|
— |
|
|
|
(1,448 |
) |
|
|
1,448 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income
taxes |
|
|
(12,807 |
) |
|
|
36,704 |
|
|
|
7,156 |
|
|
|
— |
|
|
|
31,053 |
|
Provision for income taxes |
|
|
(4,975 |
) |
|
|
14,257 |
|
|
|
3,149 |
|
|
|
— |
|
|
|
12,431 |
|
Equity in income of subsidiaries |
|
|
26,454 |
|
|
|
3,662 |
|
|
|
— |
|
|
|
(30,116 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,622 |
|
|
$ |
26,109 |
|
|
$ |
4,007 |
|
|
$ |
(30,116 |
) |
|
$ |
18,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half 2009 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
|
$ |
170,091 |
|
|
$ |
66,446 |
|
|
$ |
— |
|
|
$ |
236,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
— |
|
|
|
170,007 |
|
|
|
57,411 |
|
|
|
— |
|
|
|
227,418 |
|
Selling, general and administrative expenses |
|
|
9,759 |
|
|
|
16,200 |
|
|
|
5,923 |
|
|
|
— |
|
|
|
31,882 |
|
Other (income) expense, net |
|
|
— |
|
|
|
(92 |
) |
|
|
30 |
|
|
|
— |
|
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(9,759 |
) |
|
|
(16,024 |
) |
|
|
3,082 |
|
|
|
— |
|
|
|
(22,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain |
|
|
— |
|
|
|
(92 |
) |
|
|
(469 |
) |
|
|
— |
|
|
|
(561 |
) |
Interest expense (income) |
|
|
3,149 |
|
|
|
(6 |
) |
|
|
107 |
|
|
|
— |
|
|
|
3,250 |
|
Intercompany interest (income) expense |
|
|
(710 |
) |
|
|
(838 |
) |
|
|
1,548 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income
taxes |
|
|
(12,198 |
) |
|
|
(15,088 |
) |
|
|
1,896 |
|
|
|
— |
|
|
|
(25,390 |
) |
Provision for income taxes |
|
|
(3,676 |
) |
|
|
(4,548 |
) |
|
|
3,625 |
|
|
|
— |
|
|
|
(4,599 |
) |
Equity in income (loss) of subsidiaries |
|
|
(12,269 |
) |
|
|
2,201 |
|
|
|
— |
|
|
|
10,068 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(20,791 |
) |
|
$ |
(8,339 |
) |
|
$ |
(1,729 |
) |
|
$ |
10,068 |
|
|
$ |
(20,791 |
) |
Condensed Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half 2010 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating
activitites |
|
$ |
(8,511 |
) |
|
$ |
14,657 |
|
|
$ |
1,656 |
|
|
$ |
7,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(60 |
) |
|
|
(1,733 |
) |
|
|
(2,884 |
) |
|
|
(4,677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on lines of credit |
|
|
75,000 |
|
|
|
— |
|
|
|
24,027 |
|
|
|
99,027 |
|
Payments on lines of credit |
|
|
(76,000 |
) |
|
|
— |
|
|
|
(24,782 |
) |
|
|
(100,782 |
) |
Inter-company borrowings (repayments) |
|
|
8,898 |
|
|
|
(12,817 |
) |
|
|
3,919 |
|
|
|
— |
|
Other financing activities |
|
|
749 |
|
|
|
(107 |
) |
|
|
(198 |
) |
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
8,647 |
|
|
|
(12,924 |
) |
|
|
2,966 |
|
|
|
(1,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
— |
|
|
|
— |
|
|
|
(1,135 |
) |
|
|
(1,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
76 |
|
|
|
— |
|
|
|
603 |
|
|
|
679 |
|
Cash at the beginning of the period |
|
|
162 |
|
|
|
— |
|
|
|
11,372 |
|
|
|
11,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period |
|
$ |
238 |
|
|
$ |
— |
|
|
$ |
11,975 |
|
|
$ |
12,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half 2009 |
|
| (in thousands) |
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
| (unaudited) |
|
Parent |
|
|
subsidiaries |
|
|
subsidiaries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activitites |
|
$ |
(13,675 |
) |
|
$ |
67,909 |
|
|
$ |
3,273 |
|
|
$ |
57,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activitites |
|
|
(253 |
) |
|
|
(6,756 |
) |
|
|
(6,396 |
) |
|
|
(13,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on lines of credit |
|
|
68,000 |
|
|
|
— |
|
|
|
16,934 |
|
|
|
84,934 |
|
Payments on lines of credit |
|
|
(107,000 |
) |
|
|
— |
|
|
|
(21,701 |
) |
|
|
(128,701 |
) |
Inter-company borrowings (repayments) |
|
|
53,353 |
|
|
|
(60,992 |
) |
|
|
7,639 |
|
|
|
— |
|
Other financing activities |
|
|
(108 |
) |
|
|
(161 |
) |
|
|
(34 |
) |
|
|
(303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activitites |
|
|
14,245 |
|
|
|
(61,153 |
) |
|
|
2,838 |
|
|
|
(44,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
— |
|
|
|
— |
|
|
|
(1,573 |
) |
|
|
(1,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
317 |
|
|
|
— |
|
|
|
(1,858 |
) |
|
|
(1,541 |
) |
Cash at the beginning of the period |
|
|
— |
|
|
|
— |
|
|
|
8,252 |
|
|
|
8,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period |
|
$ |
317 |
|
|
$ |
— |
|
|
$ |
6,394 |
|
|
$ |
6,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 — Subsequent Events
In July 2010, we reached a settlement in a lawsuit we filed in 2007 against a former raw
materials vendor used in our Mats and Integrated Services segment. As a result of this settlement,
we expect to record approximately $2.0 million of other income in the mats and integrated services
segment during the third quarter of 2010.
14
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition, results of operations, liquidity and
capital resources should be read together with our unaudited condensed consolidated financial
statements and notes to unaudited condensed consolidated financial statements contained in this
report as well as our Annual Report on Form 10-K for the year ended December 31, 2009, as updated
by our Current Report on Form 8-K, filed with the SEC on May 12, 2010 (“Form 8-K”). Our second
quarter represents the three month period ended June 30, and our first half represents the six
month period ended June 30.
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 primarily 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 Canada, Brazil, United Kingdom (“U.K.”), Mexico and certain areas of Europe and
North Africa. Further, we established a presence outside the E&P sector, particularly in Mats and
Integrated Services, where we are marketing to utilities, municipalities and government sectors.
Our North American operations generated 77% of total reported revenues for the first half of 2010,
and our consolidated revenues by segment are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
First Half |
|
|
|
|
| (In thousands) |
|
2010 Revenues |
|
|
% |
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
286,844 |
|
|
|
84 |
% |
Mats and integrated services |
|
|
30,601 |
|
|
|
9 |
% |
Environmental services |
|
|
24,705 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
Total revenues |
|
$ |
342,150 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
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.
Rig count data is the most widely accepted indicator of drilling activity. Average North
American rig count data for the second quarter and first half of 2010, as compared to the
comparable period of the prior year is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
2010 vs 2009 |
|
| |
|
2010 |
|
|
2009 |
|
|
Count |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Rig Count |
|
|
1,506 |
|
|
|
934 |
|
|
|
572 |
|
|
|
61 |
% |
Canadian Rig Count |
|
|
163 |
|
|
|
89 |
|
|
|
74 |
|
|
|
83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
1,669 |
|
|
|
1,023 |
|
|
|
646 |
|
|
|
63 |
% |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half |
|
|
2010 vs 2009 |
|
| |
|
2010 |
|
|
2009 |
|
|
Count |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Rig Count |
|
|
1,419 |
|
|
|
1,139 |
|
|
|
280 |
|
|
|
25 |
% |
Canadian Rig Count |
|
|
306 |
|
|
|
211 |
|
|
|
95 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
1,725 |
|
|
|
1,350 |
|
|
|
375 |
|
|
|
28 |
% |
| |
|
|
Source: Baker Hughes Incorporated |
15
North American drilling activity declined dramatically during the first half of 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, in addition to eliminating substantially all contract employee positions. As a result
of these workforce reductions, operating results for the first half of 2009 include $4.4 million of
charges associated with employee termination and related costs, including $1.8 million in the
second quarter of 2009.
In April 2010, the Deepwater Horizon drilling rig sank in the Gulf of Mexico after an
explosion and fire, resulting in the ongoing discharge of oil from the well. During the second
quarter of 2010, we generated $2.7 million of revenue related to the Deepwater Horizon oil spill,
which includes the disposal of spill-related waste along with the sale of products and equipment
rentals.
Following the 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. In addition to the $2.7 million of revenue generated directly from
the Deepwater Horizon oil spill in the second quarter of 2010, we estimate that approximately $23
million, or 7%, of total consolidated revenue in the first half of 2010 came from services provided
in the areas of the Gulf of Mexico affected by the U.S. government restrictions. Of this,
approximately $13 million was generated within our Environmental Services business, and the
remaining $10 million was generated within our Fluids Systems and Engineering segment. As a result
of these restrictions on Gulf of Mexico drilling activity, we expect revenues and operating income
from this region to be lower in future periods, as compared to first half 2010 levels, for as long
as the restrictions remain in effect. While we expect revenue declines resulting from these
restrictions to be partially offset by revenues generated from continued oil spill disposals in the third quarter of 2010,
we do not expect the spill activity to fully offset the lost
revenues. As a result, we expect revenues
from the affected areas to be approximately $7.0 million to
$9.0 million lower and operating income to be $4.0 million
to $5.0 million lower in the
third quarter of 2010, as compared to the second quarter of 2010.
Second Quarter of 2010 Compared to Second Quarter of 2009
Results of Operations
Summarized results of operations for the second quarter of 2010 compared to the second quarter
of 2009 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
181,352 |
|
|
$ |
109,599 |
|
|
$ |
71,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
145,299 |
|
|
|
103,906 |
|
|
|
41,393 |
|
Selling, general and administrative expenses |
|
|
16,360 |
|
|
|
15,652 |
|
|
|
708 |
|
Other income, net |
|
|
(203 |
) |
|
|
(37 |
) |
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
19,896 |
|
|
|
(9,922 |
) |
|
|
29,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain |
|
|
(1,213 |
) |
|
|
(590 |
) |
|
|
(623 |
) |
Interest expense |
|
|
2,228 |
|
|
|
1,600 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income
taxes |
|
|
18,881 |
|
|
|
(10,932 |
) |
|
|
29,813 |
|
Provision for income taxes |
|
|
8,041 |
|
|
|
(2,145 |
) |
|
|
10,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
$ |
10,840 |
|
|
$ |
(8,787 |
) |
|
$ |
19,627 |
|
|
|
|
|
|
|
|
|
|
|
16
Revenues
Revenues increased 65% to $181.4 million in the second quarter of 2010, compared to $109.6
million in the second quarter of 2009. This increase in revenues is primarily driven by the 63%
improvement in the North American rig count, along with our expansion into new markets and market
share gains, including increased revenues of $21.2 million from East Texas and North Louisiana,
$9.4 million from the Northeast U.S. region and $7.7 million from Brazil. Additional information
regarding these increases is provided within the operating segment results below.
Cost of revenues
Cost of revenues increased 40% to $145.3 million in the second quarter of 2010, as compared to
$103.9 million in the second quarter of 2009. The increase is primarily driven by the 65% increase
in revenues, partially offset by the benefits of the 2009 cost reduction programs, workforce
reductions and non-recurring employee termination and related costs recorded in the second quarter
of 2009. Additional information regarding these declines is provided within the operating segment
results below.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $0.7 million to $16.4 million in the
second quarter of 2010 from $15.7 million for the second quarter of 2009. The increase is
primarily attributable to a $1.8 million increase in performance-based employee incentive costs in
the 2010 period, partially offset by the impact of cost reduction programs implemented during 2009.
Foreign currency exchange
Foreign currency exchange was a $1.2 million gain in the second quarter of 2010, reflecting
the impact of non-functional currency fluctuations in our foreign operations. During the second
quarter of 2010, foreign currency exchange was favorably impacted by the strengthening U.S. dollar
as compared to other currencies in our foreign operations.
Interest expense
Interest expense totaled $2.2 million for the second quarter of 2010 compared to $1.6 million
for the second quarter of 2009. The increase in interest expense is primarily attributable to
higher interest rates following the First Amendment and Waiver to the Amended Credit Agreement
(“First Amendment”), which was entered into in July 2009. Following the First Amendment, the
weighted average borrowing rate under our credit facilities was 5.31% at June 30, 2010, compared to
a weighted average borrowing rate of 3.64% at June 30, 2009. See additional discussion regarding
the First Amendment in Liquidity and Capital Resources below.
Provision for income taxes
The provision for income taxes for the second quarter of 2010 was a $8.0 million expense,
reflecting an effective tax rate of 42.6%, compared to a $2.1 million benefit for the second
quarter of 2009, reflecting an effective tax rate of 19.6%. The high effective tax rate in the
second quarter of 2010 is due to losses generated in Brazil for which the recording of a tax
benefit is not permitted. The low effective tax benefit rate in the second quarter of 2009 is
primarily due to the write off of a previously recognized net operating loss carryforward tax asset
in Canada, along with losses generated in certain foreign countries for which the recording of a
tax benefit is not permitted.
17
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table
(net of inter-segment transfers):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
150,534 |
|
|
$ |
89,642 |
|
|
$ |
60,892 |
|
|
|
68 |
% |
Mats and integrated services |
|
|
16,981 |
|
|
|
8,638 |
|
|
|
8,343 |
|
|
|
97 |
% |
Environmental services |
|
|
13,837 |
|
|
|
11,319 |
|
|
|
2,518 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
181,352 |
|
|
$ |
109,599 |
|
|
$ |
71,753 |
|
|
|
65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
15,164 |
|
|
$ |
(1,722 |
) |
|
$ |
16,886 |
|
|
|
|
|
Mats and integrated services |
|
|
5,036 |
|
|
|
(4,774 |
) |
|
|
9,810 |
|
|
|
|
|
Environmental services |
|
|
4,224 |
|
|
|
1,385 |
|
|
|
2,839 |
|
|
|
|
|
Corporate office |
|
|
(4,528 |
) |
|
|
(4,811 |
) |
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
19,896 |
|
|
$ |
(9,922 |
) |
|
$ |
29,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
|
10.1 |
% |
|
|
(1.9 |
%) |
|
|
|
|
|
|
|
|
Mats and integrated services |
|
|
29.7 |
% |
|
|
(55.3 |
%) |
|
|
|
|
|
|
|
|
Environmental services |
|
|
30.5 |
% |
|
|
12.2 |
% |
|
|
|
|
|
|
|
|
Fluids Systems and Engineering
Revenues
Total revenues for this segment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling fluids and engineering |
|
$ |
85,311 |
|
|
$ |
41,700 |
|
|
$ |
43,611 |
|
|
|
105 |
% |
Completion fluids and services |
|
|
11,500 |
|
|
|
7,776 |
|
|
|
3,724 |
|
|
|
48 |
% |
Industrial minerals |
|
|
12,367 |
|
|
|
7,218 |
|
|
|
5,149 |
|
|
|
71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America |
|
|
109,178 |
|
|
|
56,694 |
|
|
|
52,484 |
|
|
|
93 |
% |
Mediterranean |
|
|
30,160 |
|
|
|
29,476 |
|
|
|
684 |
|
|
|
2 |
% |
Brazil |
|
|
11,196 |
|
|
|
3,472 |
|
|
|
7,724 |
|
|
|
222 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
150,534 |
|
|
$ |
89,642 |
|
|
$ |
60,892 |
|
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
North America revenues increased 93% to $109.2 million for the second quarter of 2010, as
compared to $56.7 million for the second quarter of 2009. Of this $52.5 million increase, drilling
fluids and engineering revenues increased $43.6 million, largely attributable to the 63% increase
in the North American 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
48% and our wholesale industrial minerals revenues were up 71%, both driven by the increased
activity levels.
Internationally, revenues were up 26% to $41.4 million for the second quarter of 2010, as
compared to $32.9 million for the second quarter of 2009, primarily due to a $7.7 million increase
from Brazil as activity under new contracts continues to ramp-up, while Mediterranean revenues
increased 2% to $30.2 million.
18
Operating Income
Operating income for this segment was $15.2 million in the second quarter of 2010, reflecting
an improvement of $16.9 million from a $1.7 million operating loss for the same period in 2009.
Substantially all of this improvement was provided by the North American operations, which
generated a $16.0 million improvement in operating income. This increase is primarily attributable
to the incremental profit from the $52.5 million increase in revenues described above, combined
with operating expense reductions from programs implemented during 2009, and $1.0 million of second
quarter 2009 charges associated with employee terminations. Operating income from international
operations increased $0.7 million, resulting from the higher revenue levels. The low incremental
margin is attributable to Brazil, which generated a $2.0 million operating loss in the second
quarter of 2010, compared to a $2.5 million operating loss in the second quarter of 2009.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mat rental and integrated services |
|
$ |
10,612 |
|
|
$ |
4,869 |
|
|
$ |
5,743 |
|
|
|
118 |
% |
Mat sales |
|
|
6,369 |
|
|
|
3,769 |
|
|
|
2,600 |
|
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,981 |
|
|
$ |
8,638 |
|
|
$ |
8,343 |
|
|
|
97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $8.3 million increase in revenues is primarily driven by revenues from mat rentals,
including a $5.6 million increase in the Northeast U.S. region. Mat sales also increased $2.6
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 $9.8 million to $5.0 million for the second quarter of
2010, as compared to a $4.8 million operating loss in the second quarter of 2009. This improvement
in operating income is primarily attributable to the $8.3 million increase in revenues, along with
$1.9 million in operating expense reductions associated with 2009 cost reduction programs,
including $0.6 million of employee termination costs and $0.8 million non-cash write-downs of
inventory recorded in the prior year. Operating income in the second quarter of 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 our rental mat fleet. As a result, we experienced significantly higher operating
margins in the second quarter of 2010, as compared to the second quarter of 2009.
Environmental Services
Revenues
Total revenues for this segment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P waste — Gulf Coast |
|
$ |
10,617 |
|
|
$ |
7,805 |
|
|
$ |
2,812 |
|
|
|
36 |
% |
E&P waste — West Texas |
|
|
740 |
|
|
|
725 |
|
|
|
15 |
|
|
|
2 |
% |
NORM and industrial waste |
|
|
2,480 |
|
|
|
2,789 |
|
|
|
(309 |
) |
|
|
(11 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,837 |
|
|
$ |
11,319 |
|
|
$ |
2,518 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Environmental services revenues increased 22% to $13.8 million in the second quarter of 2010,
as compared to the second quarter of 2009. The majority of this increase is attributable to the
E&P waste in the Gulf Coast, which included $2.0 million of revenues from the Deepwater Horizon oil
spill for the second quarter of 2010.
Operating Income
Environmental services operating income increased by $2.8 million in the second quarter of
2010, of which $1.8 million was attributable to higher revenue levels. In addition, operating
expenses are down $1.0 million in the second quarter of 2010, including a $0.8 million reduction in
equipment rental expenses, following the non-renewal of barge leases in 2009.
In addition to the $2.0 million of revenues generated directly from the Deepwater Horizon oil
spill, approximately 55% of second quarter 2010 revenues for this
segment were derived from areas of
the Gulf of Mexico affected by the U.S. government restrictions. We expect revenues and operating
income from this region to be lower in future periods, as compared to second quarter 2010 levels,
for as long as the restrictions remain in effect. 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.
First Half of 2010 Compared to First Half of 2009
Results of Operations
Summarized results of operations for the first half of 2010 compared to the first half of 2009
are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
Revenues |
|
$ |
342,150 |
|
|
$ |
236,537 |
|
|
$ |
105,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
278,817 |
|
|
|
227,418 |
|
|
|
51,399 |
|
Selling, general and administrative expenses |
|
|
30,773 |
|
|
|
31,882 |
|
|
|
(1,109 |
) |
Other income, net |
|
|
(1,045 |
) |
|
|
(62 |
) |
|
|
(983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
33,605 |
|
|
|
(22,701 |
) |
|
|
56,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain |
|
|
(1,824 |
) |
|
|
(561 |
) |
|
|
(1,263 |
) |
Interest expense |
|
|
4,376 |
|
|
|
3,250 |
|
|
|
1,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income
taxes |
|
|
31,053 |
|
|
|
(25,390 |
) |
|
|
56,443 |
|
Provision for income taxes |
|
|
12,431 |
|
|
|
(4,599 |
) |
|
|
17,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
$ |
18,622 |
|
|
$ |
(20,791 |
) |
|
$ |
39,413 |
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues increased 45% to $342.2 million in the first half of 2010, compared to $236.5 million
in the first half of 2009. This increase in revenues is primarily driven by the 28% improvement in
the North American rig count, along with our expansion into new markets and market share gains,
including increased revenues of $34.0 million from East Texas and North Louisiana, $14.9 million
from the Northeast U.S. region and $20.1 million from Brazil. Additional information regarding
these increases is provided within the operating segment results below.
Cost of revenues
Cost of revenues increased 23% to $278.8 million in the first half of 2010, as compared to
$227.4 million in the first half of 2009. The increase is primarily driven by the 45% increase in
revenues, partially offset by the benefits of the 2009 cost reduction programs, workforce
reductions and non-recurring employee termination and related costs recorded in the first half of
2009. Additional information regarding these declines is provided within the operating segment
results below.
20
Selling, general and administrative expenses
Selling, general and administrative expenses declined $1.1 million to $30.8 million in the
first half of 2010 from $31.9 million for the first half of 2009. The decrease is primarily
attributable to the impact of cost reduction programs implemented during 2009, partially offset by
$3.0 million of performance-based employee incentive costs in the 2010 period.
Other income, net
Other income, net was $1.0 million during the first half of 2010, reflecting $0.9 million of
proceeds from insurance claims within our Mats and Integrated Services business, resulting from
Hurricane Ike in 2008.
Foreign currency exchange
Foreign currency exchange was a $1.8 million gain in the first half of 2010, compared to a
$0.6 million gain in the first half of 2009, reflecting the impact of non-functional currency
fluctuations in our foreign operations. During the first half of 2010, foreign currency exchange
was favorably impacted by the strengthening U.S. dollar as compared to other currencies in our
foreign operations.
Interest expense
Interest expense increased 35% to $4.4 million in the first half of 2010 compared to $3.3
million for the first half of 2009. The increase in interest expense is primarily attributable to
higher interest rates following the First Amendment, which was entered into in July 2009.
Following the First Amendment, the weighted average borrowing rate under our credit facilities was
5.31% at June 30, 2010, compared to a weighted average borrowing rate of 3.64% at June 30, 2009.
See additional discussion regarding the First Amendment in Liquidity and Capital Resources below.
Provision for income taxes
The provision for income taxes for the first half of 2010 was a $12.4 million expense,
reflecting an effective tax rate of 40.0%, compared to a $4.6 million benefit for the second
quarter of 2009, reflecting an effective tax rate of 18.1%. The high effective tax rate in the
first half of 2010 is due to losses generated in Brazil for which the recording of a tax benefit is
not permitted. The low effective tax benefit rate in the first half of 2009 is primarily due to
the write off of a previously recognized net operating loss carryforward tax asset in Canada, along
with losses generated in certain foreign countries for which the recording of a tax benefit is not
permitted.
21
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table
(net of inter-segment transfers):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
286,844 |
|
|
$ |
196,230 |
|
|
$ |
90,614 |
|
|
|
46 |
% |
Mats and integrated services |
|
|
30,601 |
|
|
|
17,501 |
|
|
|
13,100 |
|
|
|
75 |
% |
Environmental services |
|
|
24,705 |
|
|
|
22,806 |
|
|
|
1,899 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
342,150 |
|
|
$ |
236,537 |
|
|
$ |
105,613 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
$ |
27,578 |
|
|
$ |
(7,296 |
) |
|
$ |
34,874 |
|
|
|
|
|
Mats and integrated services |
|
|
7,750 |
|
|
|
(8,188 |
) |
|
|
15,938 |
|
|
|
|
|
Environmental services |
|
|
6,903 |
|
|
|
2,542 |
|
|
|
4,361 |
|
|
|
|
|
Corporate office |
|
|
(8,626 |
) |
|
|
(9,759 |
) |
|
|
1,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
$ |
33,605 |
|
|
$ |
(22,701 |
) |
|
$ |
56,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids systems and engineering |
|
|
9.61 |
% |
|
|
(3.7 |
%) |
|
|
|
|
|
|
|
|
Mats and integrated services |
|
|
25.3 |
% |
|
|
(46.8 |
%) |
|
|
|
|
|
|
|
|
Environmental services |
|
|
27.9 |
% |
|
|
11.1 |
% |
|
|
|
|
|
|
|
|
Fluids Systems and Engineering
Revenues
Total revenues for this segment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling fluids and engineering |
|
$ |
163,749 |
|
|
$ |
102,636 |
|
|
$ |
61,113 |
|
|
|
60 |
% |
Completion fluids and services |
|
|
19,839 |
|
|
|
16,695 |
|
|
|
3,144 |
|
|
|
19 |
% |
Industrial minerals |
|
|
24,485 |
|
|
|
16,103 |
|
|
|
8,382 |
|
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America |
|
|
208,073 |
|
|
|
135,434 |
|
|
|
72,639 |
|
|
|
54 |
% |
Mediterranean |
|
|
52,437 |
|
|
|
54,513 |
|
|
|
(2,076 |
) |
|
|
(4 |
%) |
Brazil |
|
|
26,334 |
|
|
|
6,283 |
|
|
|
20,051 |
|
|
|
319 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
286,844 |
|
|
$ |
196,230 |
|
|
$ |
90,614 |
|
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
North America revenues increased 54% to $208.1 million for the first half of 2010, as
compared to $135.4 million for the first half of 2009. Of this $72.6 million increase, drilling
fluids and engineering revenues increased
$61.1 million, largely attributable to the 28% increase in the North American 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 19% and our wholesale industrial
minerals revenues were up 52%, both driven by the increased activity levels.
Internationally, revenues were up 30% to $78.8 million for the first half of 2010, as compared
to $60.8 million for the first half of 2009, primarily due to a $20.0 million increase from Brazil
as activity under new contracts continues to ramp-up. Mediterranean revenue is down 4%, due to
lower revenues in the first quarter of 2010 resulting from delays in customer projects and
unusually cold weather in Eastern Europe.
22
Operating Income
Operating income for this segment was $27.6 million in the first half of 2010, reflecting an
improvement of $34.9 million from a $7.3 million operating loss for the same period in 2009.
Substantially all of this improvement was provided by the North American operations, which
generated a $33.9 million improvement in operating income. This improvement is primarily
attributable to the incremental profit from the $72.6 million increase in revenues described above,
combined with operating expense reductions from programs implemented during 2009, and $3.0 million
of first half 2009 charges associated with employee terminations.
Operating income from international operations increased $0.8 million, including a $2.3
million increase in Brazil, resulting from the higher revenue levels. This increase was offset by
a $1.5 decline in the Mediterranean operations, as revenues were down $2.1 million in this period.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mat rental and integrated services |
|
$ |
18,342 |
|
|
$ |
12,290 |
|
|
$ |
6,052 |
|
|
|
49 |
% |
Mat sales |
|
|
12,259 |
|
|
|
5,211 |
|
|
|
7,048 |
|
|
|
135 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,601 |
|
|
$ |
17,501 |
|
|
$ |
13,100 |
|
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The $13.1 million increase in revenues is primarily driven by a $7.9 million increase in
mat rentals in the Northeast U.S. region, partially offset by a $2.7 million decline in Colorado
rental and service revenues. Mat sales increased $7.0 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 $15.9 million to $7.8 million for the first half of
2010. This improvement in operating income is primarily attributable to the $13.1 million increase
in revenues, along with $4.5 million in operating expense reductions associated with 2009 cost
reduction programs, including $1.0 million of employee termination costs and $1.0 million of
non-cash write-downs of inventory recorded in the prior year. Operating income in the first half
of 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 the first half of 2010, as compared to the first half of 2009.
Additionally, the first quarter of 2010 included $0.9 million of other income reflecting proceeds
for insurance claims related to Hurricane Ike in 2008.
23
Environmental Services
Revenues
Total revenues for this segment consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First Half |
|
|
2010 vs 2009 |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P waste — Gulf Coast |
|
$ |
18,545 |
|
|
$ |
16,198 |
|
|
$ |
2,347 |
|
|
|
14 |
% |
E&P waste — West Texas |
|
|
1,385 |
|
|
|
1,788 |
|
|
|
(403 |
) |
|
|
(23 |
%) |
NORM and industrial waste |
|
|
4,775 |
|
|
|
4,820 |
|
|
|
(45 |
) |
|
|
(1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,705 |
|
|
$ |
22,806 |
|
|
$ |
1,899 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental services revenues increased 8% to $24.7 million in the first half of 2010, as
compared to the first half of 2009. The majority of this increase is attributable to higher E&P
waste in the Gulf Coast in the first half of 2010, which included $2.0 million of revenues related
to the Deepwater Horizon oil spill.
Operating Income
Environmental services operating income increased by $4.4 million in the first half of 2010,
partially driven by the $1.9 million increase in revenues compared to the first half of 2009. In
addition, operating expenses are down $2.5 million in the first half of 2010, including a $1.7
million reduction in equipment rental expenses, following the non-renewal of barge leases in 2009.
In addition to the $2.0 million of revenues generated directly from the Deepwater Horizon oil
spill, approximately 55% of first half 2010 revenues for this segment
were derived from areas of the
Gulf of Mexico affected by the U.S. government restrictions. We expect revenues and operating
income from this region to be lower in future periods, as compared to first half 2010 levels, for
as long as the restrictions remain in effect. 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.
Liquidity and Capital Resources
Net cash provided by operating activities during the first half of 2010 totaled $7.8 million.
Net income adjusted for non-cash items provided $43.8 million of cash during the period, while
increases in changes in operating assets and liabilities used $36.0 million of cash. The increase in working capital during
the period includes $54.2 million from increases in receivables reflecting the impact of increased
revenue levels along with a $4.1 million increase in inventories, partially offset by a $15.7
million increase in accounts payable and $7.2 million in increases in accrued liabilities.
Net cash used in investing activities during the first half of 2010 was $4.7 million,
consisting primarily of capital expenditures. Net cash used in financing activities during the
first half of 2010 was $1.3 million, primarily reflecting net payments on our revolving credit
facilities during the period.
We anticipate that our working capital requirements for our operations will fluctuate with our
sales activity in the near term. Cash generated by operations along with availability under our
existing credit agreement is expected to be adequate to fund our anticipated capital needs.
Further, we may decide to access the public equity or debt markets for potential acquisitions,
working capital or other liquidity needs, if such financings are available on acceptable terms. In
May 2010, we filed a “shelf” registration statement on Form S-3 registering up to $200 million of
common stock, preferred stock, debt securities and warrants, and such registration statement was declared effective on May 19, 2010.
24
Our capitalization is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| (In thousands) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Term loan |
|
$ |
30,000 |
|
|
$ |
30,000 |
|
Revolving credit facility |
|
|
84,000 |
|
|
|
85,000 |
|
Foreign bank lines of credit |
|
|
5,286 |
|
|
|
6,901 |
|
Other |
|
|
780 |
|
|
|
1,129 |
|
|
|
|
|
|
|
|
Total |
|
|
120,066 |
|
|
|
123,030 |
|
Stockholder’s equity |
|
|
381,210 |
|
|
|
368,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
501,276 |
|
|
$ |
491,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt to capitalization |
|
|
24.0 |
% |
|
|
25.1 |
% |
|
|
|
|
|
|
|
In December 2007, we entered into a $225.0 million Amended and Restated Credit Agreement
(“Credit Agreement”) which consisted of a $175.0 million revolving credit facility and a $50.0
million term loan. The Credit Agreement contained certain financial covenants including a minimum
fixed charge coverage ratio, a maximum consolidated leverage ratio, and a maximum funded
debt-to-capitalization ratio. At June 30, 2009, we were not in compliance with the fixed charge
coverage ratio and consolidated leverage ratio covenants. However, in July 2009, we entered into
the First Amendment, which provided a waiver of the financial covenant violations as of June 30,
2009 and modified certain covenant requirements.
We were in compliance with our covenants as of June 30, 2010, and expect to remain in
compliance through June 30, 2011. The calculated performance for these covenants as of June 30,
2010 is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Covenant |
|
|
Calculation as of |
|
| |
|
Requirement |
|
|
June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
Fixed charge coverage ratio (1) |
|
|
1.10 minimum |
|
|
|
2.60 |
|
|
|
|
|
|
|
|
|
|
Consolidated leverage ratio |
|
|
3.00 maximum |
|
|
|
1.63 |
|
|
|
|
|
|
|
|
|
|
Funded debt-to-captalization ratio |
|
|
45.0% maximum |
|
|
|
23.1 |
% |
| |
|
|
| (1) |
|
Effective September 30, 2010, this coverage ratio goes to 1.20. |
The First Amendment also reduced the revolving credit facility from $175.0 million to $150.0
million, and provided for adjustments in the interest rates and commitment fees under the credit
facility. Under the Credit Agreement, as amended by the First Amendment, 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 First Amendment also increased the commitment fee rate
payable under the credit facility, which is now fixed at 50 basis points. The applicable margin on
LIBOR borrowings at June 30, 2010 was 400 basis points.
25
As of June 30, 2010, $79.0 million of the outstanding principal of the revolving credit
facility was bearing interest at LIBOR plus 400 basis points, or 4.33%, while the remaining $5.0
million in outstanding principal was bearing interest at Prime Rate plus 300 basis points, or
6.25%. In January 2008, we entered into interest rate swap agreements to effectively fix the
underlying LIBOR rate on our borrowings under the Term Loan. The initial notional amount of the
swap agreements totaled $50.0 million, reducing by $10.0 million each December, matching the
required principal repayments under the Term Loan. As a result of the swap agreements, we will pay
a fixed rate of 3.74% over the term of the loan plus the applicable margin to lenders, which was
400 basis points at June 30, 2010. The weighted average interest rate on the outstanding balances
under our Credit Agreement including the interest rate swaps as of June 30, 2010 and December 31,
2009 was 5.31% and 5.55%, respectively.
The Credit Agreement is a senior secured obligation, secured by first liens on all of our U.S.
tangible and intangible assets, including our accounts receivable and inventory. Additionally, a
portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral.
At June 30, 2010, $3.9 million in letters of credit were issued and outstanding relating to
our insurance programs. In addition, we had $84.0 million outstanding under our revolving credit
facility at June 30, 2010, leaving $62.1 million of availability at that date. Additionally, we
had $1.4 million in letters of credit outstanding relating to foreign operations.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires us to make assumptions,
estimates and judgments that affect the amounts reported. We periodically evaluate our estimates
and judgments related to uncollectible accounts and notes receivable, customer returns, reserves
for obsolete and slow moving inventory, impairments of long-lived assets, including goodwill and
other intangibles and our valuation allowance for deferred tax assets. Our estimates are based on
historical experience and on our future expectations that we believe to be reasonable. The
combination of these factors forms the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ
from our current estimates and those differences may be material.
For additional discussion of our critical accounting estimates and policies, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual
Report on Form 10-K for the year ended December 31, 2009. Our critical accounting policies have
not changed materially since December 31, 2009.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency
rates. A discussion of our primary market risk exposure in financial instruments is presented
below.
Interest Rate Risk
Our policy is to manage exposure to interest rate fluctuations by using a combination of fixed
and variable-rate debt. At June 30, 2010, we had total debt outstanding of $120.1 million.
In January 2008, we entered into interest rate swap agreements to effectively fix the
underlying LIBOR interest rate on our borrowings under the term loan portion of our credit
facility. The initial notional amount of the swap agreements totaled $50.0 million, reducing by
$10.0 million each December, matching the required principal repayments under the term loan. As of
June 30, 2010, $30.0 million remained outstanding under this term loan. As a result of the swap
agreements, we will pay a fixed rate of 3.74% plus the applicable margin, over the term of the
loan.
At June 30, 2010, we had $86.8 million of variable rate debt, bearing interest at a weighted
average of 4.40%. At the June 30, 2010 balance, a 200 basis point increase in market interest rates
during 2010 would cause our annual interest expense to increase approximately $1.7 million,
resulting in a $0.01 per diluted share reduction in annual net earnings.
26
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.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Based on their evaluation of our disclosure controls and procedures as of the
end of the period covered by this report, our Chief Executive Officer and
Chief Financial Officer have concluded that the disclosure controls and
procedures were effective as of June 30, 2010, the end of the period covered
by this quarterly report.
Changes in internal control over financial reporting
There has been no change in internal control over financial reporting during
the quarter ended June 30, 2010 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
The information set forth in the legal proceedings section of Note 6, “Commitments and
Contingencies,” to our condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q is incorporated by reference into this Item 1.
ITEM 1A. Risk Factors
Information regarding risk factors appears in Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2009. The risk factor described below updates, and should be read in conjunction with, the risk factors identified in our Annual Report on Form 10-K for the period ended December 31, 2009.
Our operations could be adversely impacted by 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 has taken several actions aimed at
restricting and temporarily prohibiting certain drilling activity in the Gulf of Mexico. During
the first half of 2010, we have generated approximately $26 million of
revenues from the area impacted by the restrictions, including $2.7 million of revenue
generated directly related to the Deepwater Horizon oil spill.
As a result of the restrictions imposed by the Department of Interior, our customers may
possibly be forced to delay or cease operations in the areas impacted by the spill, resulting in
less demand for our drilling fluids and waste disposal services. 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. Depending on the scope of restrictions on Gulf of Mexico drilling activity, we expect
revenues and operating income from this region to be lower in future periods, as compared to first
half 2010 levels, for as long as the restrictions remain in effect.
In addition, 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.
27
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) |
|
Not applicable |
| |
| (b) |
|
Not applicable |
| |
| (c) |
|
The following table details our repurchases of shares of our common stock, for the three
months ended June 30, 2010: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Approximate |
|
| |
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Dollar Value of |
|
| |
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
Shares that |
|
| |
|
|
|
|
|
|
|
|
|
as Part of |
|
|
May Yet be |
|
| |
|
Total Number of |
|
|
Average Price |
|
|
Publicly Announced |
|
|
Purchased Under the |
|
| Period |
|
Shares Purchased |
|
|
per Share |
|
|
Plans or Programs |
|
|
Plans or Programs |
|
April 1 - 30, 2010 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$9.9 million |
May 1 - 31, 2010 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$9.9 million |
June 1 - 30, 2010 |
|
|
11,506 |
(1) |
|
$ |
5.93 |
|
|
|
— |
|
|
$9.9 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,506 |
|
|
$ |
5.93 |
|
|
|
— |
|
|
|
|
|
| |
|
|
| (1) |
|
The shares purchased represent shares surrendered in lieu of
taxes under vesting of restricted stock awards. These shares
were not acquired as part of the stock repurchase plan. |
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. (Removed and Reserved)
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits
| 31.1 |
|
Certification of Paul L. Howes pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
| 31.2 |
|
Certification of James E. Braun pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
| 32.1 |
|
Certification of Paul L. Howes pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
| |
| 32.2 |
|
Certification of James E. Braun pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
28
NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 30, 2010
| |
|
|
|
|
| |
NEWPARK RESOURCES, INC.
|
|
| |
By: |
/s/ Paul L. Howes
|
|
| |
|
Paul L. Howes, President and |
|
| |
|
Chief Executive Officer
(Principal Executive Officer) |
|
| |
| |
|
|
| |
By: |
/s/ James E. Braun
|
|
| |
|
James E. Braun, Vice President and |
|
| |
|
Chief Financial Officer
(Principal Financial Officer) |
|
| |
| |
|
|
| |
By: |
/s/ Gregg S. Piontek
|
|
| |
|
Gregg S. Piontek, Vice President, Controller |
|
| |
|
and Chief Accounting Officer
(Principal Accounting Officer) |
|
| |
29
EXHIBIT INDEX
| 31.1 |
|
Certification of Paul L. Howes pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
| 31.2 |
|
Certification of James E. Braun pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
| 32.1 |
|
Certification of Paul L. Howes pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
| |
| 32.2 |
|
Certification of James E. Braun pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
30