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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File No. 1-2960
Newpark Resources, Inc.
(Exact name of registrant as specified in its charter)
Delaware 72-1123385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3850 N. Causeway, Suite 1770
Metairie, Louisiana 70002
(Address of principal executive offices) (Zip Code)
(504) 838-8222
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
___________________
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulations S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ].
At March 4, 1996, the aggregate market value of the voting stock
held by non-affiliates of the registrant is $242,707,025. The aggregate
market value has been computed by reference to the price at which the stock
was sold, as reported by The New York Stock Exchange.
As of March 4, 1996, a total of 10,658,453 shares of Common Stock,
$.01 par value, were outstanding.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the upcoming 1996
Annual Meeting of Shareholders are incorporated by reference into Part III
hereof.
Page 1 of 65
Exhibit Index Appears on Page 60
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NEWPARK RESOURCES, INC.
INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Item Page
Number Description Number
______ ___________ ______
PART I
______
1 Business 3
2 Properties 29
3 Legal Proceedings 30
4 Submission of Matters to a Vote of Security Holders 31
PART II
_______
5 Market for the Registrant's Common Equity and
Related Stockholder Matters 32
6 Selected Financial Data 33
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 34
8 Financial Statements and Supplementary Data 41
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 58
PART III
________
10 Directors and Executive Officers of the Registrant 59
11 Executive Compensation 59
12 Security Ownership of Certain Beneficial Owners
and Management 59
13 Certain Relationships and Related Transactions 59
PART IV
_______
14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 60
Signatures 64
2
PART I
ITEM 1. Business
The Company
Newpark Resources, Inc. ("Newpark" or the "Company") provides
integrated environmental services to the oil and gas exploration and
production industry in the Gulf Coast area, principally in Louisiana
and Texas. Those services are concentrated in three key product
lines: (i) mat rental servicesDthe use of patented prefabricated
wooden mats as temporary worksites in oilfield and other construction
applications; (ii) processing and disposal of nonhazardous oilfield
waste ("NOW'); and (iii) processing and disposal of NOW which is
contaminated with naturally occurring radioactive material ("NORM").
In its waste disposal operations, the Company utilizes proprietary
technology.
The Company's mat rental services have been provided primarily to
the oil and gas exploration and production industry. The mats provide
temporary worksites in unstable soil conditions typically found along
the Gulf Coast. In addition to the installation and rental of mats,
the Company also provides for the management and treatment of
nonhazardous oilfield waste on the well site, the remediation of waste
pits, and general oilfield services. In 1994, the Company began
marketing these temporary worksites to other industries. Increasing
environmental regulation affecting the construction of pipelines,
electrical distribution systems and highways in and through wetlands
environments has provided a substantial and rapidly growing new
market for these services and have broadened the geographic market
served by the Company to include the coastal areas of the Southeastern
states, particularly Florida and Georgia, in addition to its
traditional Gulf Coast market. The Company believes that heightened
environmental concern in other markets and other countries, such as
that developing in Venezuela, will continue to provide opportunities
for the mat rental business.
In its NOW processing and disposal business, Newpark processes
the majority of the NOW received at its facilities for injection into
geologically secure formations deep underground and creates from the
remainder a reuse product which is used as intermediate daily cover
material or cell liner material at municipal waste landfills. Since
the fourth quarter of 1994, the Company has provided processing and
disposal of NOW waste that is contaminated with NORM, processing the
waste for injection disposal in wells owned by the Company. In
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addition, the Company provides laboratory and consulting services for
its customers in connection with its NOW and NORM services.
The Company offers these services individually and as an
integrated package. The recent trend toward more strict environmental
regulation of both drilling and production operations conducted by the
Company's customers has resulted in greater synergy between the
Company's mat rental and oilfield general construction services and
its other environmental services. The Company provides a
comprehensive integrated combination of in-situ waste management and
construction services for both the drilling of new sites and the
remediation of existing sites. This integration provides it a
competitive advantage in an era of downsizing by its major customers,
which has made those customers more reliant upon outside suppliers for
many services. By providing a broad array of integrated services,
Newpark reduces the number of contractors necessary to provide these
services, decreasing the customer's administrative workload.
Newpark's offsite waste processing operations utilize a
combination of proprietary preparation technology to blend the waste
into an injectible slurry and specific underground geology into which
injection is effected, and patent applications have been filed to
protect this proprietary methodology. The Company's mat rental
business uses a patented interlocking wooden mat system, patent
protection of which extends to the year 2003. Newpark believes that
the proprietary aspects of these businesses cannot be easily
duplicated, thereby providing a competitive advantage.
In anticipation of increased demand for hardwood lumber used in
construction of its rental mats, the Company purchased a sawmill in
Batson, Texas, in October 1992. Newpark has since doubled the
capacity of the facility, and expects to fully utilize such capacity
in serving its mat rental business.
4
The following table sets forth for the years ended December 31,
1995, 1994, and 1993, respectively, the amount of revenues for each
class of similar products and services.
Year ended December 31,
_______________________
1995 1994 1993
____ ____ ____
(Dollars in thousands)
Revenues:
Offsite waste processing $31,126 $20,738 $11,354
Mat rental 30,775 23,048 21,042
General oilfield services 14,511 13,452 11,358
Wood products sales 12,609 13,105 7,947
Onsite environmental management 7,361 7,689 4,629
Other 1,600 1,600 -
______ ______ ______
Total revenues $97,982 $79,632 $56,330
====== ====== ======
Newpark was organized in 1932 as a Nevada corporation and in
April 1991 changed its state of incorporation to Delaware. The
Company's principal executive offices are located at 3850 North
Causeway Boulevard, Suite 1770, Metairie, Louisiana 70002, and its
telephone number is (504) 838-8222.
Development of the Business
Since 1990, the Company has concentrated on expanding and further
integrating its environmental service capabilities. Through
acquisitions in 1990 and 1991, Newpark extended its environmental
services into the Texas Gulf Coast region. In May 1991, the Company
expanded its processing capacity by constructing a new NOW processing
plant in Port Arthur, Texas, replacing a smaller facility. The
Company has further increased plant capacity through subsequent
equipment additions and improvements in process technology and
procedures. Beginning in 1992, the Company accelerated the
development of its deep well injection program and, in November 1993,
opened its first facility for underground disposal of NOW, at Big
Hill, Texas.
Significant developments in 1995 included:
. The Company's license to process NORM waste was amended to
increase the maximum level of radioactive contamination
permitted and to increase the capacity of the facility.
5
. The trend toward a more strict regulation of NOW and NORM waste
continued. NORM regulations were adopted in several states,
most importantly New Mexico and Texas. The NORM regulations
were revised in Louisiana and are under revision in the
state of Mississippi. Draft regulations have been prepared,
but are not yet proposed in Oklahoma.
. The volume of NOW processed by the Company grew by 25% to 2.9
million barrels despite lower drilling activity as measured
by the rig count.
. A second NOW facility, located near Fannett, Texas, was opened
in the third quarter of 1995, and additional wells were
drilled at the Big Hill facility, providing a further
increase in waste disposal capacity.
. The market for the Company's mat rental services in non-
oilfield markets expanded into Florida and Georgia.
. The Company initiated a joint venture to provide its
proprietary mat rental services to the exploration and
production market in Venezuela.
. The effect on the Company's services of a decline in the number
of active drilling rigs was substantially offset by deeper
drilling by the Company's customers.
NOW and NORM are defined as follows:
NOW - Nonhazardous Oilfield Waste or NOW is waste generated in
the exploration or production of oil and gas. These wastes typically
contain levels of oil and grease, salts or chlorides, and heavy metals
in excess of concentration limits defined by state regulators. NOW
also includes soils which have become contaminated by these materials.
In the environment, oil and grease and chlorides disrupt the food
chain and have been determined by regulatory authorities to be harmful
to plant and animal life. Heavy metals are toxic and can become
concentrated in living tissues.
NORM - Naturally Occurring Radioactive Material or NORM is
present throughout the earth's crust at very low levels. Among the
radioactive elements, only Radium 226 and Radium 228 are slightly
soluble in water. Because of their solubility, which can carry them
into living plant and animal tissues, these elements present a hazard.
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Radium 226 and Radium 228 can be leached out of hydrocarbon bearing
strata deep underground by salt water which is produced with the
hydrocarbons. Radium generally precipitates out of the production
stream as it is drawn to the surface and encounters a pressure or
temperature change in the well tubing or production equipment, forming
a rust-like scale. This scale contains radioactive elements which,
over many years, can become concentrated on tank bottoms or at water
discharge points at production facilities. Thus, NORM waste is NOW
that has become contaminated with these radioactive elements above
concentration levels defined by state regulatory authorities.
Amendment to NORM waste license - During 1994, Newpark became a
licensed NORM contractor in Louisiana and Texas. The Company built a
NORM waste treatment plant adjacent to its NOW treatment plant in Port
Arthur, Texas, at which the Company uses a proprietary process to
slurry the material and reduce the NORM concentration below the level
at which it is regulated as NORM in preparation for underground
injection. Newpark applied for U.S. patents on certain aspects of its
treatment and disposal processes. The facility began operations in
October 1994, and is one of only four commercial offsite facilities in
the United States that is licensed to process and dispose of NORM
waste. The license was modified during 1995 to increase the maximum
permitted concentration of Radium 226 present in the waste received at
the facility from 400 picocuries per gram to 6,000, and the total
concentration of radioactive isotopes from 2,000 picocuries per gram
to 30,000.
Developments related to NOW - The Company processed and
disposed of 2,905,000 barrels of NOW in 1995, of which 2,364,000
barrels were generated from current drilling and production operations
and 541,000 barrels were generated from the remediation of old pits
and production facilities, compared with 2,329,000 barrels in 1994, of
which 1,974,000 were from current drilling and production operations
and 355,000 were from remediation activities. The increase resulted
principally from the further tightening of state and federal
regulations limiting the discharge of waste into inland waterways and
offshore and, to a lesser extent, from changes in the type and mix of
drilling activity.
During 1995, Newpark further expanded its NOW injection facility,
located at Big Hill, Texas, drilling two additional injection wells
and constructing a grinding mill at the site to more efficiently
handle the large quantities of waste resulting from the growing
remediation market. The mill is used to reduce and make uniform the
size of the particles in the waste stream to maintain desired flow
7
characteristics in the Company's injection wells. In September 1995,
the Company opened its second injection site, at Fannett, Texas,
drilling two wells at that facility, and in the fourth quarter,
completed a bulk barge unloading facility adjacent to the original
Port Arthur processing plant. Together with additions to personnel
and equipment at its receiving facilities, this increased its NOW
processing capacity to approximately 500,000 barrels per month.
Services to wetlands construction projects - Many of the
environmental concerns that have affected drilling in the
environmentally sensitive marshes of the Gulf Coast are now beginning
to affect other construction activities in the Gulf Coast and other
geographic areas. Federal and state regulatory agencies have begun to
require increased precautions to prevent construction-related damage
to the environment in wetlands areas throughout the United States.
Newpark believes that its prefabricated mat technology is well-suited
for use in construction projects in wetlands areas. During 1995, the
Company performed projects in connection with pipeline, electrical
utility and highway construction projects in Georgia, Florida, Texas
and Louisiana. The Company anticipates that similar opportunities
will allow it to continue to diversify its geographic base, following
the wetlands activity to construction related markets in other states.
Venezuela joint venture - During the first quarter of 1995, the
Company invested in a joint venture providing mat rental services in
Venezuela in support of oil and gas exploration and production
activities. A total of 7,000 mats were shipped to the market during
the year and, by year end, substantially all were under contract to a
customer. The government of Venezuela has made increasing its output
of oil over the next several years a national priority, and has begun
attracting outside investment partners from among the international
oil companies, many of which are Newpark's customers in the domestic
market. Subsequent to December 31, 1995, the joint venture arranged
shipment of an additional 5,000 mats to Venezuela, and expects that
activity there will continue to increase as further exploration
concessions are granted. Newpark holds a 38.8% interest in the
venture.
Drilling activity - The level of drilling activity in Newpark's
key market declined 4% to an average of 195 rigs running in 1995
compared to 202 during 1994. This mirrored the decline in the U.S.
rig count, which averaged 723 in 1995 compared to 774 in 1994. The
1995 activity level was the second lowest since 1940, after an average
of 717 recorded in 1992. In much of the coastal marsh and inland
waters, termed the "transition zone," the high cost associated with
access to the site and lack of seismic data has been an obstacle to
8
development, and as a result, the area has been less actively drilled
compared to the offshore and land areas. High quality seismic data
has become available only through recent improvements in technology.
The increased use of advanced seismic data and the computer-enhanced
interpretation of that data has enabled Newpark's customers to select
exploratory drilling sites with greater likelihood of success. This
enables them to undertake more expensive projects, such as drilling in
the transition zone along the Gulf Coast region.
Such projects rely heavily on services such as the Company's
integrated environmental services. Deeper wells require the
construction of larger locations to accommodate the drilling equipment
and the equipment for handling drilling fluids and associated wastes;
such locations generally are in service for significantly longer
periods and generate additional mat rental revenues. Deeper wells
also require more chemically complex drilling fluids programs, which
are more difficult and costly to dispose of than the simpler systems
used in shallower wells. The Company believes that, in 1995, deeper
drilling contributed significantly to the increased demand for the
Company's services.
Regulatory Background
The oilfield market for environmental services has increased as
regulations have increased. Louisiana, Texas, and other states have
enacted comprehensive laws and regulations governing the proper
handling of NOW and NORM. This has also heightened the awareness of
both the generators of waste and landowners of the need for proper
treatment and disposal of such waste in both the drilling of new wells
and the remediation of production facilities.
For many years, prior to current regulation, industry practice
was to allow NOW to remain in the environment. Onshore, surface pits
were used for the disposal of NOW; offshore, NOW was discharged
directly into the water. As a result of increasing public concern
over the environment, NOW has in recent years become subject to public
scrutiny and governmental regulation. Operators of exploration and
production facilities, including major and independent oil companies,
have found themselves subject to a multiplicity of laws and
regulations issued by numerous jurisdictions and agencies. These laws
and regulations have imposed strict requirements for ongoing drilling
and production activities in certain geographic areas, as well as for
the remediation of sites contaminated by past disposal practices and,
in many respects, have prohibited the prior disposal practices. In
9
addition, operators have become increasingly concerned about possible
long-term liability for remediation, and landowners have become more
aggressive about land restoration. For these reasons, operators are
increasingly retaining service companies, such as Newpark, to devise
and implement comprehensive waste management techniques to handle
waste on an ongoing basis and to remediate past contamination of oil
and gas properties.
Late in 1992, the Louisiana Department of Environmental Quality
("DEQ") began to promulgate and enforce new, stricter limits on the
level of radium concentration above which NOW became categorized as
NORM. NORM regulations require more stringent worker protection,
handling and storage procedures than those required of NOW under
Louisiana Statewide Executive Order 29-B. Uncertainty in measuring
NORM concentration was created by apparent inconsistencies in the
results produced by alternative testing methodologies allowed in then
current regulations. Early in 1994, DEQ published draft NORM
regulations which, with minor modification, became effective January
20, 1995, as LAC 33:XV.1401-1420, Chapter 14. In Texas, the Railroad
Commission adopted final rules ("Rule 94") effective February 1, 1995.
Adoption of these regulations has resolved the regulatory uncertainty
associated with NORM.
The primary laws that have helped to create the market for
Newpark's environmental services in the Gulf Coast region, and which
apply to Newpark in the conduct of its business, are the Resource
Conservation and Recovery Act of 1976, as amended in 1984 ("RCRA"),
the Comprehensive Environmental Response, Compensation, and Liability
Act, as amended in 1986 ("CERCLA"), the laws and regulations
promulgated by the states of Louisiana, Texas and Alabama, the Federal
Water Pollution Control Act, as amended (the "Clean Water Act"), and
the Federal Oil Pollution Act of 1990 ("OPA"). These laws are
discussed under "Environmental Regulation".
Description of Business
The principal services and products provided by the Company are
classified as follows:
10
Offsite Waste Processing
NOW Waste Processing. Under state regulation, if NOW cannot be
treated for discharge or disposed of on the oil or gas lease location
where it is generated, it must be transported to a licensed NOW
disposal or treatment facility. There are three primary alternatives
for offsite disposal of NOW available to generators in the Gulf Coast:
(i) land-farming, provided by the Company's competitors; (ii)
processing and conversion of the NOW into a reuse product; and (iii)
underground injection (See "Injection Wells"). The Company processes
NOW waste at a facility located at Port Arthur, Texas, which was
opened in 1991. Newpark also operates six other receiving and
transfer facilities located along the Gulf Coast from Venice,
Louisiana, to Corpus Christi, Texas. Waste products are collected at
the transfer facilities from three distinct markets: offshore
exploration and production; land and inland waters exploration and
production; and remediation of existing or inactive well sites and
production facilities. These facilities are supported by a fleet of
42 double-skinned barges certified by the U. S. Coast Guard to
transport NOW. Waste received is transported by barge through the
Gulf Intracoastal Waterway to the Company's processing facility at
Port Arthur, Texas, or trucked to facilities at Fannett or Big Hill,
Texas.
The Company has historically converted the waste stream to a
commercial reuse product meeting the specifications under applicable
federal and state regulations for reuse as a covering material or cell
liner material at sanitary landfills. Under these regulations,
landfills must cover the solid waste deposited daily with earth or
other inert material. The Company's reuse product is deposited at
either the City of Port Arthur Municipal Landfill or the City of
Beaumont Municipal Landfill for use as such cover material pursuant to
contracts with the respective cities. This reuse is conducted under
authorization from the Texas Natural Resources Conservation Commission
and is permitted by the Texas Railroad Commission, under a permit that
was renewed in January 1994, for a three year period. The Company has
also developed alternative uses for the product as roadbase material
or construction fill material.
Currently, only a portion of the waste received by the Company
is processed into a reuse product. Since November 1994, the Company
has disposed of a majority of the waste received at its processing
facility by injection of the waste into disposal wells at its Big Hill
facility and, since the third quarter of 1995, its Fannett Facility.
11
NORM Processing and Disposal. Newpark's entry into the onsite
remediation (1993) and disposal (1994) of NORM waste is discussed
under "Business - Development of the Business." Many alternatives are
available to the generator for the treatment and disposal of NORM.
These include both chemical and mechanical methods designed to achieve
volume reduction, in-situ burial of encapsulated NORM within old well
bores, and soil washing and other techniques of dissolving and
suspending the radium in solution for onsite injection of NORM
liquids. When the application of these techniques are insufficient to
bring the site into compliance with applicable regulations, the NORM
must be transported to a licensed storage or disposal facility.
Newpark's NORM processing facility was licensed in September 1994
and began operations October 21, 1994. The facility receives NORM
waste from production operations and remediation sites, generally by
barge, truck, in drums or other containers. The material, which is
similar to NOW in virtually all respects other than its elevated level
of Radium 226 or Radium 228, is processed to achieve a uniform
particle size and, through the introduction of viscosifiers and
carrying agents, is suspended in a liquid stream suitable for disposal
in Class II injection wells operated by the Company. Such processing
also reduces the concentration of radioactive material to a level at
which the material is no longer regulated as NORM, but reverts to NOW
characteristics. The processed waste meets the criteria for injection
disposal under Texas Railroad Commission Rule 9 and Rule 94 and is
transported by truck to the Company's injection well facility. During
1995, the facility license was modified to increase the level of total
radioactive contamination permitted in the waste received at the
facility from 2,000 picocuries per gram to 30,000, and the level of
Radium 226, upon which most regulation is primarily focused, from 400
to 6,000 picocuries per gram.
During 1995, the Company received 70,000 barrels of NORM
contaminated waste. Much of the growth in the market can be
attributed to increased litigation on the part of landowners concerned
over the past practices of the oil and gas industry which have
resulted in numerous instances of radioactive contamination of the
surface. In some cases, settlement of the litigation has mandated the
remediation of such sites.
Injection Wells. In February 1993, upon receipt of a permit
from the Texas Railroad Commission, the Company began development of a
50 acre injection well facility in the Big Hill Field in Jefferson
County, Texas. Newpark's injection technology is distinguished from
conventional methods in that it utilizes very low pressure, typically
12
under 100 pounds per square inch, to move the waste into the injection
zone. Conventional wells typically use pressures as high as 2,000
pounds per square inch. In the event of a formation failure or
blockage of the face of the injection zone, such pressure can force
waste material beyond the intended zone, posing a hazard to the
environment. The low pressure used by Newpark is inadequate to drive
the injected waste from its intended injection zone.
Three wells were initially installed at this facility and two
additional wells were successfully completed during 1995. Disposal
operations began at this site in November 1993. During 1995, the
Company licensed and constructed a new injection well facility at a
400 acre site near Fannett, Texas, which was placed in service in
September 1995. Because of differences between the geology and
physical size of the two sites, the Fannett site is expected to
provide greater capacity than the Big Hill site.
The injection wells at Big Hill and Fannett receive NOW waste
from the Company's processing facilities at Port Arthur, as well as
from customers in the surrounding area. Newpark anticipates that it
will open additional injection facilities for both NOW and NORM waste
in Louisiana and Texas over the next two to three years. The Company
has identified a number of sites in the Gulf Coast region as suitable
for development of such disposal facilities, has received permits for
one additional site in Texas, and plans to file for additional permit
authority in Louisiana.
The Company believes that its proprietary injection technology
has application to other markets and waste streams, and has begun
preliminary work and analysis to enter the nonhazardous industrial
waste market in the future.
The Company also operates an analytical laboratory in Lafayette,
Louisiana, which supports all phases of its environmental services and
provides independent laboratory services to the oil and gas industry.
These services include analytical laboratory and sampling services,
permit application and maintenance services and environmental site
assessment and audit services.
Mat Rental
In 1988, the Company acquired the right to use, in Louisiana and
Texas, a patented prefabricated interlocking mat system for the
construction of drilling and work sites, which has displaced use of
individual hardwood boards. This system is quicker to install and
13
remove, substantially reducing labor costs. It is also stronger,
easier to repair and maintain, and generates less waste material
during construction and removal than conventional board roads. In
1994, the Company acquired the exclusive right to use this system in
the Continental U.S. for the life of the patent, which expires in
2003. Newpark provides this service to two markets:
Oilfield market: Newpark provides this patented interlocking mat
system to the oil and gas industry to ensure all-weather access to
exploration and production sites in the unstable soil conditions
common along the onshore Gulf of Mexico. These sites are generally
rented to the customer for an initial period of 60 days; after that
time, additional rentals are earned on a monthly basis until the mats
are released by the customer.
Wetlands market: Beginning in 1994, the Company recognized the
development of another market for its patented mat system in providing
access roads and temporary work sites to the pipeline, electrical
utility and highway construction industries. Demand for these
services was spurred by Federal Energy Regulatory Commission orders
requiring compliance with environmental protection rules under the
Clean Water Act in the pipeline construction business. In 1994, the
Company received approximately $2.4 million in revenue from this
source. During 1995, approximately $7.0 million in revenues were
received in this market.
Rerentals. Drilling and work sites are typically rented by the
customer for an initial period of 60 days. Often, the customer
extends the rental term for additional 30 day periods, resulting in
additional revenues to the Company. These rerental revenues provide
high margins because only minimal incremental depreciation and
maintenance costs accrue to each rerental period. Factors which may
increase rerental revenue include: (i) the trend toward increased
activity in the "transition zone" along the Gulf of Mexico, an area in
which the Company's mat system provides the primary means of access;
(ii) a trend toward deeper drilling, taking a longer time to reach the
desired target; and, (iii) the increased frequency of commercial
success, requiring logging, testing, and completion (hook-up),
extending the period during which access to the site is required. In
the opinion of industry analysts, application of advanced
technologies, particularly the use of three- dimensional seismic data,
has contributed to these trends.
14
Onsite Environmental Management
Promulgation and enforcement of increasingly stringent
environmental regulations affecting drilling and production sites has
increased the scope of services required by the oil companies. Often
it is more efficient for the site operator to contract with a single
company that can provide all-weather site access and provide the
required onsite and offsite environmental services on a fully
integrated basis. The Company provides a comprehensive range of
environmental services necessary for its customers' oil and gas
exploration and production activities. These services include:
Site Assessment: Site assessment work begins prior to
installation of mats on a drilling site, and generally begins with a
study of the proposed well site, which includes site photography,
background soil sampling, laboratory analysis and investigation of
flood hazards and other native conditions. The assessment determines
whether the site has previously been contaminated and provides a
baseline for later restoration to pre-drilling condition.
Pit Design, Construction and Drilling Waste Management. Under
its Environmentally Managed Pit ("EMP") Program, the Company
constructs waste pits at drilling sites and monitors the waste stream
produced in drilling operations and the contents and condition of the
pits with the objective of minimizing the amount of waste generated on
the site. Where possible, the Company disposes of waste onsite by
land-farming, through chemical and mechanical treatment of liquid
waste and by annular injection into a suitably permitted underground
formation. Waste water treated onsite may be reused in the drilling
process or, where permitted, discharged into adjacent surface waters.
Regulatory Compliance. Throughout the drilling process, the
Company assists the operator in interfacing with the landowner and
regulatory authorities. The Company also assists the operator in
obtaining necessary permits and in complying with record maintenance
and reporting requirements.
Site Remediation.
NOW (Drilling). At the completion of the drilling process,
under applicable regulations, waste water on the site may be
15
chemically or mechanically treated and discharged into surface waters.
Other waste that may not remain on the surface of the site may be
land-farmed on the site or injected under permit into geologic
formations to minimize the need for offsite disposal. Any waste that
cannot, under regulations, remain onsite is manifested (in Louisiana)
and transported to an authorized facility for processing and disposal
at the direction of the generator or customer (See "Description of
Business- NOW Waste Processing").
NOW (Production). The Company also provides services to
remediate production pits and inactive waste pits including those from
past oil and gas drilling and production operations. The Company
provides the following remediation services: (i) analysis of the
contaminants present in the pit and a determination of whether
remediation is required by applicable state regulation; (ii) treatment
of waste onsite, and where permitted, reintroduction of that material
into the environment, (iii) removal, containerization and
transportation to the Company's processing facility of NOW waste not
treated onsite.
NORM. In January 1994, Newpark became a licensed NORM
contractor, allowing the Company to perform site remediation work at
NORM contaminated facilities in Louisiana and Texas. Because of the
need for increased worker-protective equipment, extensive
decontamination procedures and other regulatory compliance issues at
NORM sites, the cost of providing such services are materially greater
than at NOW facilities, and generates proportionately higher revenues
than similar work at a NOW facility.
Site Closure. The location is restored to its pre-drilling
condition and reseeded with native grasses. Closure also involves
delivery of test results indicating that closure has been completed in
compliance with applicable regulations. This information is important
to the customer because the operator is subject to future regulatory
review and audits. In addition, the information may be required on a
current basis if the operator is subject to a pending regulatory
compliance order.
Wood Product Sales
By the end of 1991, the Company had become aware of increasing
environmental regulation affecting wetlands areas. These regulations
have affected the oil and gas drilling industry as well as pipeline,
electrical distribution and highway projects. In anticipation of
increased demand for hardwood lumber used in providing access to such
16
wetlands sites, the Company purchased a sawmill in Batson, Texas, in
October 1992. The mill's products include lumber, timber, and wood
chips, as well as bark and sawdust. Pulp and paper companies in the
area supply a large proportion of the hardwood logs processed at the
sawmill and, in turn, are the primary customers for wood chips created
in the milling process. During 1993, Newpark invested approximately
$1.0 million in expansion of the sawmill to increase its capacity for
producing wood chips. During 1995, the Company invested an additional
$750,000 to: (i) install a log watering system to maintain the level
of moisture in the wood chips produced, as desired by its customers,
and; (ii) for expanded and improved sawing capacity, which improved
both production and efficiency.
General Oilfield Services
The Company performs general oilfield services throughout the
Gulf Coast area between Corpus Christi, Texas and Pensacola, Florida.
General oilfield services performed by the Company include preparation
of work sites for installations of mats, connecting wells and placing
them in production, laying flow lines and infield pipelines, building
permanent roads, grading, lease maintenance (the maintenance and
repair of producing well sites), cleanup and general roustabout
services. General oilfield services are typically performed under
short-term time and material contracts, which are obtained by direct
negotiation or bid.
The Company manufactures and sells a line of American Petroleum
Institute certified wellheads and valves (flow and pressure control
equipment, principally installed above ground) to oil and gas
exploration and production companies. Most of the Company's wellhead
sales include installation and service for which the Company earns
additional revenues. The Company also repairs and refurbishes
customer-owned wellheads. Newpark has entered into an agreement to
sell this operating unit to an unrelated third party, and expects to
consummate that transaction before mid-1996.
International Expansion
During the first quarter of 1995, the Company initiated
participation in a venture which provides mat rental services to the
oil and gas industry in Venezuela. Revenue from foreign operations
has been immaterial in each of the past three years.
17
Sources and Availability of Raw Materials and Equipment
Newpark believes that its sources of supply for any materials or
equipment used in its businesses are adequate for its needs and that
it is not dependent upon any one supplier. No serious shortages or
delays have been encountered in obtaining any raw materials.
Patents and Licenses
Newpark seeks patents and licenses on new developments whenever
feasible, and has recently applied for U.S. patents on its new NOW and
NORM waste processing and injection disposal system. Newpark has the
exclusive license for the life of the patent (which expires in 2003)
to use, sell and lease the prefabricated mats that it uses in
connection with its site preparation business in the 48 contiguous
states of the United States. The licensor has the right to sell mats
in states where Newpark is not engaged in business, but only after
giving Newpark the opportunity to take advantage of the opportunity
itself. The license is subject to a royalty which Newpark can satisfy
by purchasing specified quantities of mats annually from the licensor.
The utilization of proprietary technology and systems is an
important aspect of the Company's business strategy. For example, the
Company relies on a variety of unpatented proprietary technologies and
know-how in the processing of NOW. Although the Company believes that
this technology and know-how provide it with significant competitive
advantages in the environmental services business, competitive
products and services have been successfully developed and marketed by
others. The Company believes that its reputation in its industry, the
range of services offered, ongoing technical development and know-how,
responsiveness to customers and understanding of regulatory
requirements are of equal or greater competitive significance than its
existing proprietary rights.
Working Capital Practice
Newpark does not have any special working capital practices which
differ significantly from those generally practiced in the oil and gas
or environmental services industries. For additional information on
Newpark's current borrowings see "Management's Discussion and Analysis
18
of Results of Operations and Financial Condition-Liquidity and Capital
Resources," and "Note E. Credit Arrangements and Long-Term Debt," in
the "Notes to Consolidated Financial Statements."
Dependence Upon Limited Number of Customers
The Company's customers are principally major and independent oil
and gas exploration and production companies operating in the Gulf
Coast area, with the vast majority of the Company's customers
concentrated in Louisiana and Texas.
During the year ended December 31, 1995, approximately 30% of the
Company's revenues were derived from 14 major oil companies, and one
other customer accounted for approximately 16% of consolidated
revenues. Given current market conditions and the nature of the
products involved, management does not believe that the loss of this
customer would have a material adverse effect upon the Company.
The Company performs services either pursuant to standard
contracts or under longer term negotiated agreements. As most of the
Company's agreements with its customers are cancelable upon limited
notice, the Company's backlog is not significant. For the year ended
December 31, 1995, approximately half of the revenues of the
environmental services segment were obtained on a bid basis, and half
of its revenues were derived on a negotiated or contractual basis.
Newpark does not derive a significant portion of its revenues
from government contracts of any kind.
Competition
The Company operates in highly competitive industry segments.
The Company believes that the principal competitive factors in its
businesses are reputation, technical proficiency, reliability, quality
and breadth of services offered, managerial experience and price. The
Company believes that it effectively competes on the basis of these
factors, and that its competitive position benefits from its
proprietary position with respect to the patented mat system used in
its site preparation business, its proprietary treatment and disposal
methods for both NOW and NORM waste streams and its ability to provide
its customers with an integrated well site management program
including environmental and general oilfield services.
19
It is often more efficient for the site operator to contract with
a single company that can prepare the well site and provide the
required onsite and offsite environmental services. The Company
believes that its ability to provide a number of services as part of a
comprehensive program enables the Company to price its services
competitively.
The Company believes that there are certain barriers to entry in
the environmental and oilfield services industry in the Gulf Coast
region. These barriers include formalized procedures for customer
acceptance, licenses, and permits, and the need for specially equipped
facilities and trained personnel. Facilities disposing of NOW are
subject to permitting and regulatory requirements which pose a barrier
to entry into the market. The market, however, is very large. Only a
small portion of the total waste generated is taken to a commercial
disposal facility and many other methods exist for dealing with the
waste stream. In the market served by the Company there are over one
hundred permitted commercial facilities, including landfarms,
landfills, and injection facilities authorized to dispose of NOW.
For additional information concerning the markets that Newpark
serves and the effects of competition, see "Description of Business"
and "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
Environmental Disclosures
Newpark has sought to comply with all applicable regulatory
requirements concerning environmental quality. The Company has made,
and expects to continue to make, the necessary capital expenditures
for environmental protection at its facilities, but does not expect
that these will become material in the foreseeable future. No
material capital expenditures for environmental protection were made
during 1995.
Newpark derives a significant portion of its revenue from
providing environmental services to its customers. These services
have become necessary in order for these customers to comply with
regulations governing the discharge of materials into the environment.
Substantially all of Newpark's capital expenditures made during 1994
and 1995, and those planned for 1996, are directly or indirectly the
result of such regulation.
20
Employees
At February 16, 1996, Newpark employed approximately 565 full and
part-time personnel, none of which are represented by unions. Newpark
considers its relations with its employees to be satisfactory.
Environmental Regulation
The Company's business is affected both directly and indirectly
by governmental regulations relating to the oil and gas industry in
general, as well as environmental, health and safety regulations that
have specific application to the Company's business. The Company,
through the routine course of providing its services, handles and
profiles hazardous regulated material for its customers. Newpark also
handles, processes and disposes of nonhazardous regulated materials.
This section discusses various federal and state pollution control and
health and safety programs that are administered and enforced by
regulatory agencies, including, without limitation, the U. S.
Environmental Protection Agency ("EPA"), the U.S. Coast Guard, the
Department of the Interior's Office of Surface Mining, the U.S. Army
Corps of Engineers, the Texas Natural Resource Conservation
Commission, the Texas Department of Health, the Texas Railroad
Commission, the Louisiana Department of Environmental Quality and the
Louisiana Department of Natural Resources. These programs are
applicable or potentially applicable to the Company's current
operations. Although the Company intends to make capital expenditures
to expand its environmental services capabilities, the Company
believes that it is not presently required to make material capital
expenditures to remain in compliance with federal, state and local
provisions relating to the protection of the environment.
RCRA. The Resource Conservation and Recovery Act of 1976, as
amended in 1984, ("RCRA"), is the principal federal statute governing
hazardous waste generation, treatment, storage and disposal. RCRA and
EPA-approved state hazardous waste management programs govern the
handling of "hazardous wastes". Under RCRA, liability and stringent
operating requirements are imposed on a person who is either a
"generator" or "transporter" of hazardous waste or an "owner" or
"operator" of a hazardous waste treatment, storage or disposal
facility. The EPA and the states have issued regulations pursuant to
RCRA for hazardous waste generators, transporters and owners and
operators of hazardous waste treatment, storage or disposal
facilities. These regulations impose detailed operating, inspection,
training and emergency preparedness and response standards and
requirements for closure, continuing financial responsibility,
21
manifesting of waste, record-keeping and reporting, as well as
treatment standards for any hazardous waste intended for land
disposal.
The Company's primary operations involve NOW, which is exempt
from classification as a RCRA-regulated hazardous waste. However,
extensive state regulatory programs govern the management of such
waste. In addition, in performing other services for its customers,
the Company is subject to both federal (RCRA) and state solid or
hazardous waste management regulations as contractor to the generator
of such waste.
Proposals have been made to rescind the exemption of NOW from
regulation as hazardous waste under RCRA. Repeal or modification of
this exemption by administrative, legislative or judicial process
could require the Company to change significantly its method of doing
business. There is no assurance that the Company would have the
capital resources available to do so, or that it would be able to
adapt its operations.
Subtitle I of RCRA regulates underground storage tanks in which
liquid petroleum or hazardous substances are stored. States have
similar regulations, many of which are more stringent in some respects
than federal programs. The implementing regulations require that each
owner or operator of an underground tank notify a designated state
agency of the existence of such underground tank, specifying the age,
size, type, location and use of each such tank. The regulations also
impose design, construction and installation requirements for new
tanks, tank testing and inspection requirements, leak detection,
prevention, reporting and cleanup requirements, as well as tank
closure and removal requirements.
The Company has a number of underground storage tanks that are
subject to the requirements of RCRA and applicable state programs.
Violators of any of the federal or state regulations may be subject to
enforcement orders or significant penalties by the EPA or the
applicable state agency. The Company is not aware of any instances in
which it has incurred liability under RCRA. Cleanup costs or costs
associated with changes in environmental laws or regulations could be
substantial and could have a material adverse effect on the Company.
CERCLA. The Comprehensive Environmental Response, Compensation
and Liability Act, as amended in 1986, ("CERCLA"), provides for
immediate response and removal actions coordinated by the EPA for
22
releases of hazardous substances into the environment and authorizes
the government, or private parties, to respond to the release or
threatened release of hazardous substances. The government may also
order persons responsible for the release to perform any necessary
cleanup. Liability extends to the present owners and operators of
waste disposal facilities from which a release occurs, persons who
owned or operated such facilities at the time the hazardous substances
were released, persons who arranged for disposal or treatment of
hazardous substances and waste transporters who selected such
facilities for treatment or disposal of hazardous substances. CERCLA
has been interpreted to create strict, joint and several liability for
the costs of removal and remediation, other necessary response costs
and damages for injury to natural resources.
Among other things, CERCLA requires the EPA to establish a
National Priorities List ("NPL") of sites at which hazardous
substances have been or are threatened to be released and that require
investigation or cleanup. The NPL is constantly expanding. In
addition, the states in which the Company conducts operations have
enacted similar laws and keep similar lists of sites which may be in
need of remediation.
Although Newpark primarily handles oilfield waste classified as
NOW under relevant laws, this waste typically contains constituents
designated by the EPA as hazardous substances under RCRA, despite the
current exemption of NOW from hazardous substance classification.
Where the Company's operations result in the release of hazardous
substances, including releases at sites owned by other entities where
the Company performs its services, the Company could incur CERCLA
liability. Previously owned businesses also may have disposed or
arranged for disposal of hazardous substances that could result in the
imposition of CERCLA liability on the Company in the future. In
particular, divisions and subsidiaries previously owned by the Company
were involved in extensive mining operations at facilities in Utah and
Nevada. In addition, divisions and subsidiaries previously owned by
the Company were involved in waste generation and management
activities in numerous states. These activities involved substances
that may be classified as RCRA hazardous substances. Any of those
sites or activities potentially could be the subject of future CERCLA
damage claims.
With the exception of the sites discussed in "Legal Proceedings -
Environmental Proceedings" below, the Company is not aware of any
instances in which it has incurred liability under CERCLA.
Nonetheless, the identification of additional sites at which clean-up
23
action is required could subject the Company to liabilities which
could have a material adverse effect on the Company.
The Clean Water Act. The Clean Water Act regulates the discharge
of pollutants, including NOW, into waters. The Clean Water Act
establishes a system of standards, permits and enforcement procedures
for the discharge of pollutants from industrial and municipal waste
water sources. The law sets treatment standards for industries and
waste water treatment plants and provides federal grants to assist
municipalities in complying with the new standards. In addition to
requiring permits for industrial and municipal discharges directly
into waters of the United States, the Clean Water Act also requires
pretreatment of industrial waste water before discharge into municipal
systems. The Clean Water Act gives the EPA the authority to set
pretreatment limits for direct and indirect industrial discharges.
In addition, the Clean Water Act prohibits certain discharges of
oil or hazardous substances and authorizes the federal government to
remove or arrange for removal of such oil or hazardous substances. The
Clean Water Act also requires the adoption of the National Contingency
Plan to cover removal of such materials. Under the Clean Water Act,
the owner or operator of a vessel or facility may be liable for
penalties and costs incurred by the federal government in responding
to a discharge of oil or hazardous substances.
The Company treats and discharges waste waters at certain of its
facilities. These activities are subject to the requirements of the
Clean Water Act and federal and state enforcement of these
regulations.
The EPA Region 6 Outer Continental Shelf ("OCS") permit covering
oil and gas operations in federal waters in the Gulf (seaward of the
Louisiana and Texas territorial seas) was reissued in November, 1992
and modified in December, 1993. This permit includes stricter limits
for oil and grease concentrations in produced waters to be discharged.
These limits are based on the Best Available Treatment ("BAT")
requirements contained in the Oil and Gas Offshore Subcategory
national guidelines which were published March 3, 1993. Additional
requirements include toxicity testing and bioaccumulation monitoring
studies of proposed discharges.
24
EPA Region 6, which includes the Company's market, continues to
issue new and amended National Pollution Discharge Elimination System
("NPDES") general permits further limiting or restricting
substantially all discharges of produced water from the Oil and Gas
Extraction Point Source Category into Waters of the United States.
These permits include:
1) Onshore subcategory permits for Texas, Louisiana, Oklahoma and
New Mexico issued in February, 1991 (56 Fed. Reg. 7698). This permit
completely prohibits the discharge of drilling fluids, drill cuttings,
produced water or sand, and various other oilfield wastes generated by
onshore operations into waters of the U.S. This provision has the
effect of requiring that most oilfield wastes follow established state
disposal programs.
2) Permits for produced water and produced sand discharges into
coastal waters of Louisiana and Texas issued on January 9, 1995 (60
Fed. Reg. 2387). Coastal means "any water landward of the territorial
seas... or any wetlands adjacent to such waters". All such discharges
must cease by January 1, 1997.
3) The Outer Continental Shelf (OCS) permit for the western Gulf of
Mexico, covering oil and gas operations in federal waters (seaward of
the Louisiana and Texas territorial seas) was reissued in November
1992 and modified in December 1993. It is expected to be combined
with an OCS general permit covering new sources at its next revision.
4) Permits for the territorial seas of Louisiana and Texas were
scheduled to be proposed in the spring of 1995. The most recent
information from the EPA indicates the permits should be proposed in
the spring of 1996. The territorial seas part of the Offshore
Subcategory begins at the line of ordinary low water along the part of
the coast which is in direct contact with the open sea, and extends
out three nautical miles. These permits will cover both existing
sources and new sources. All discharges in state waters must comply
with any more stringent requirements contained in Louisiana Water
Quality Regulations, LAC 33.IX.7.708.
The combined effect of all these regulations will closely
approach a "zero discharge standard" affecting all waters except those
of the OCS. The Company and many industry participants believe that
these permits may ultimately lead to a total prohibition of overboard
discharge in the Gulf of Mexico.
25
The Clean Air Act. The Clean Air Act provides for federal, state
and local regulation of emissions of air pollutants into the
atmosphere. Any modification or construction of a facility with
regulated air emissions must be a permitted or authorized activity.
The Clean Air Act provides for administrative and judicial enforcement
against owners and operators of regulated facilities, including
substantial penalties. In 1990, the Clean Air Act was reauthorized
and amended, substantially increasing the scope and stringency of the
Clean Air Act's regulations. The Clean Air Act has very little impact
on the Company's operations.
Oil Pollution Act of 1990. The Oil Pollution Act of 1990
contains liability provisions for cleanup costs, natural resource
damages and property damages as well as substantial penalty
provisions. The OPA also requires double hulls on all new oil tankers
and barges operating in waters subject to the jurisdiction of the
United States. All marine vessels operated by the Company already
meet this requirement.
State Regulation. In 1986, the Louisiana Department of Natural
Resources promulgated Order 29-B. Order 29-B contains extensive rules
governing pit closure and the generation, treatment, storage,
transportation and disposal of NOW. Under Order 29-B, onsite disposal
of NOW is limited and is subject to stringent guidelines. If these
guidelines cannot be met, NOW must be transported and disposed of
offsite in accordance with the provisions of Order 29-B. Moreover,
under Order 29-B, most, if not all, active waste pits must be closed
or modified to meet regulatory standards; those pits that continue to
be allowed may be used only for a limited time. A material number of
these pits may contain sufficient concentrations of NORM to become
subject to regulation by the DEQ. Rule 8 of the Texas Railroad
Commission also contains detailed requirements for the management and
disposal of NOW and Rule 94 governs the management and disposal of
NORM. In addition, the Texas Legislature recently enacted a law that
has established an Oilfield Cleanup Fund to be administered by the
Texas Railroad Commission to plug abandoned wells if the Commission
deems it necessary to prevent pollution, and to control or clean up
certain oil and gas wastes that cause or are likely to cause pollution
of surface or subsurface water.
The Railroad Commission of Texas Rule 91 (16 TAC 3.91) became
effective November 1, 1993. This rule regulates the cleanup of spills
of crude oil and gas exploration and production activities including
transportation by pipeline. In general, contaminated soils must be
remediated to oil and grease content of less than 1%.
26
Many states maintain licensing and permitting procedures for the
construction and operation of facilities that emit pollutants into the
air. In Texas, the Texas Natural Resource Conservation Commission
(the "TNRCC") requires companies that emit pollutants into the air to
apply for an air permit or to satisfy the conditions for an exemption.
The Company has obtained certain air permits and believes that it is
exempt from obtaining other air permits at its facilities including
its Port Arthur, Texas, NOW processing facility. The Company met with
the TNRCC and filed for an exemption in the fall of 1991. A
subsequent renewal letter was filed in 1995. Based upon its feedback
from the TNRCC, the Company expects that it will continue to remain
exempt. However, should it not remain exempt, the Company believes
that any remedial actions that the TNRCC may require with regard to
non-exempt air emissions would not have a material adverse effect on
the financial position or operation of the Company.
Other Environmental Laws. Newpark may be subject to other
federal and state environmental protection laws, including without
limitation, the Toxic Substances Control Act, the Surface Mining
Control and Reclamation Act ("SMCRA") and the Super Fund Amendments
and Reauthorization Act, including the Emergency Planning and
Community Right-To-Know-Act. In particular, SMCRA established a
nationwide program to regulate surface mining and reclamation, and the
surface effects of underground mining. It sets strict reclamation
standards and a mandatory enforcement system. While the Company does
not currently conduct mining activities, SMCRA reclamation
responsibility and corresponding state regulatory programs could apply
to any of the facilities in which the Company participated in mining
activities in the past.In addition, the Company is subject to the
Occupation Safety and Health Act that imposes requirements for
employee safety and health and applicable state provisions adopting
worker health and safety requirements. Moreover, it is possible that
other developments, such as increasingly stricter environmental,
safety and health laws, and regulations and enforcement policies
thereunder, could result in substantial additional regulation of the
Company and could subject to further scrutiny the Company's handling,
manufacture, use or disposal of substances or pollutants. The Company
cannot predict the extent to which its operations may be affected by
future enforcement policies as applied to existing laws or by the
enactment of new statutes and regulations.
27
Risk Management
The Company's business exposes it to substantial risks. For
example, the Company's environmental services routinely involve the
handling, storage and disposal of nonhazardous regulated materials and
waste, and in some cases, handling of hazardous regulated materials
and waste for its customers which are generators of such waste. The
Company could be held liable for improper cleanup and disposal, which
liability could be based upon statute, negligence, strict liability,
contract or otherwise. As is common in the oil and gas industry, the
Company often is required to indemnify its customers or other third-
parties against certain risks related to the services performed by the
Company, including damages stemming from environmental contamination.
The Company has implemented various procedures designed to ensure
compliance with applicable regulations and reduce the risk of damage
or loss. These include specified handling procedures and guidelines
for regulated waste, ongoing training and monitoring of employees and
maintenance of its insurance coverage.
The Company carries a broad range of insurance coverages that
management considers adequate for the protection of its assets and
operations. This coverage includes general liability, comprehensive
property damage, workers' compensation and other coverage customary in
its industries; however, this insurance is subject to coverage limits.
The Company could be materially adversely affected by a claim that is
not covered or only partially covered by insurance. There is no
assurance that insurance will continue to be available to the Company,
that the possible types of liabilities that may be incurred by the
Company will be covered by its insurance, that the Company's insurance
carriers will meet their obligations or that the dollar amount of such
liabilities will not exceed the Company's policy limits.
28
ITEM 2. Properties
Lease of Principal Facilities
With few exceptions, the Company leases its principal facilities
and certain equipment.
Newpark's corporate offices in Metairie, Louisiana, are occupied
at an annual rental of approximately $127,000 under a lease expiring
in December 1997.
Its NOW processing facility in Port Arthur, Texas, is occupied at
a current annual rental of $168,000 under a lease of which the Company
entered, during 1995, the first of three 4-year renewal options. The
facility, which is located on 2.9 acres near the Intracoastal
Waterway, was constructed by the landowner to the Company's
specifications beginning late in 1990 and began operations in mid
1991.
The Company's NORM processing facility is also located in Port
Arthur, Texas on 3.0 acres of leased land adjacent to the NOW
facility. Annual property rentals are currently $37,000. The lease
expires in July of 1997 and has two 5-year renewal options available.
The Company constructed the processing facility during 1994.
The Company owns two injection disposal sites in Jefferson
County, Texas, one on 50 acres of land and the other on 400 acres.
Seven wells are currently operational at these sites.
The Company maintains a fleet of forty-two barges of which
twenty-one are owned by the Company, fifteen are on daily rental
agreements, six are under 10-year lease terms, and four are under 7-
year terms. The barges are used to transport waste to processing
stations and are certified for this purpose by the U. S. Coast Guard.
Annual rentals under the barge leases totaled approximately $1,500,000
during 1995.
Additional facilities are held under short-term leases with
annual rentals aggregating approximately $800,000 during 1995. The
Company believes that its facilities are suitable for their respective
uses and adequate for current needs.
The Company owns property leased to others and used as a marine
repair facility occupying approximately 23 acres on an island in the
Houston Ship Channel. In December 1993, the property was leased to a
third party that also obtained the option to purchase the facility as
part of the lease agreement. Early in 1994, the Company entered into
a new financing of the property.
The Company also owns 80 acres occupied as a sawmill facility
near Batson, Texas. The Company believes this facility is adequate
for current production needs.
29
ITEM 3. Legal Proceedings
Newpark and its subsidiaries are involved in litigation and other
claims or assessments on matters arising in the normal course of
business. In the opinion of management, any recovery or liability in
these matters should not have a material effect on Newpark's
consolidated financial statements.
Environmental Proceedings
In the ordinary course of conducting its business, the Company
becomes involved in judicial and administrative proceedings involving
governmental authorities at the federal, state and local levels, as
well as private party actions. Pending proceedings that may involve
liability for violation of environmental matters are described below.
The Company believes that none of these matters involves material
exposure. There is no assurance, however, that such exposure does not
exist or will not arise in other matters relating to the Company's
past or present operations.
The Company was identified by the EPA as a minor or "de minimus"
contributor of waste to a disposal site requiring cleanup under
CERCLA, as amended in 1986. That facility, the French Limited site,
located in Southeast Texas, is currently undergoing a voluntary
cleanup by those parties identified as waste contributors. Five
related private party suits have been filed against the Company and
the other potentially responsible parties at the French Limited site.
The Company has settled its potential liability in four of those
suits. Management does not anticipate that the outcome of the
remaining suit will have a material adverse impact upon the Company,
and anticipates either a nominal settlement or dismissal from the
action.
The Company has been identified by the EPA as a potentially
responsible party in two other CERCLA actions, based on its
contribution of oilfield waste to three disposal sites. In the first
case, the Company was the largest volume contributor of waste to the
Disposal Services, Inc. Clay Point site, located in southern
Mississippi. The Company has resolved its liability by its voluntary
participation in a consent decree with the EPA, and payment of
$158,900 in 1992 as its pro rata share of the removal costs. Two
other facilities operated by the same company, the Lee Street and
Woolmarket sites, are not subject to any enforcement action by a
federal regulatory agency, and the EPA has specifically declined
pursuing an action for remediation of these two facilities. However,
the Mississippi Department of Environmental Quality is overseeing a
continued, voluntary cleanup at the three sites.
In the second CERCLA action, the Company has taken the position
that it has been incorrectly identified by the EPA as a potentially
responsible Ode minimus' party for the cleanup of an abandoned
oilfield site in Louisiana referred to as the PAB site. The Company
settled its potential liability on a "de minimus" buy-out.
30
The Company has been identified as one of 600 contributors of
material to the MAR Services facility, a state voluntary cleanup
site. Because the Company delivered only processed solid meeting the
requirements of Louisiana Statewide Executive Order 29-B to the site,
it does not believe it has material financial liability for the site
cleanup cost. The Louisiana Department of Environmental Quality is
overseeing voluntary cleanup at the site.
Recourse against its insurers under general liability insurance
policies for reimbursement of cost and expense in the foregoing CERCLA
actions is uncertain as a result of conflicting court decisions in
similar cases. In addition, certain insurance policies under which
coverage may be afforded contain self-insurance levels that may exceed
the Company's ultimate liability.
The Company believes that any liability incurred in the foregoing
matters will not have a material adverse effect on the Company's
consolidated financial statements. However, a material adverse
outcome in any of the foregoing matters could have an adverse effect
on the Company.
ITEM 4. Submission of Matters to a Vote of Shareholders
None
31
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Newpark's common stock traded on The Nasdaq Stock Market under the
symbol "NPRS" through December 5, 1995, and commenced trading on the
New York Stock Exchange on December 6, 1995 under the symbol "NR".
The following table sets forth the range of the high and low sales
prices for the periods indicated.
Period High Low
1994
1st Quarter $14.50 $ 8.25
2nd Quarter $16.75 $13.50
3rd Quarter $19.75 $15.75
4th Quarter $25.00 $18.25
1995
1st Quarter $26.00 $14.75
2nd Quarter $24.25 $20.25
3rd Quarter $23.25 $17.00
4th Quarter $22.86 $15.50
At December 31, 1995, the Company had 4,230 stockholders of
record. Newpark paid a 5% stock dividend on the Common Stock on
December 30, 1995 to shareholders of record on November 30, 1995.
32
ITEM 6. SELECTED FINANCIAL DATA
selected consolidated financial information
The following tables set forth selected consolidated financial
information with respect to Newpark for the five years ended
December 31, 1995. The selected consolidated financial information
for the five years ended December 31, 1995 is derived from the audited
consolidated financial statements of Newpark. Information with
respect to this item can also be found in "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Notes
to Consolidated Financial Statements."
For information regarding dispositions, see "Note B. Discontinued
Operations," in the "Notes to Consolidated Financial Statements."
Years Ended December 31,
____________________________________________________________
1995 1994 1993 1992 1991
____________________________________________________________
(Dollars in thousands, except Per Share data)
Consolidated Statements of Income
Data:
Revenues $ 97,982 $ 79,632 $ 56,330 $ 49,457 $ 44,635
Cost of services provided 64,467 56,259 42,581 36,860 34,703
Operating costs 9,414 7,277 6,557 5,519 3,799
General and administrative expenses 2,658 3,231 2,129 1,963 1,305
Provision for uncollectible accounts
and notes receivable 463 974 671 154 94
________ ________ ________ __________ __________
Operating income from continuing
operations 20,980 11,891 4,392 4,961 4,734
Interest income (183) (78) - (18) (47)
Interest expense 3,740 2,660 1,274 847 1,562
Non-recurring expense 436 - - - -
Financial restructure costs - - - - 155
________ ________ ________ __________ __________
Income from continuing operations
before provision for income taxes 16,987 9,309 3,118 4,132 3,064
Provision (benefit) for income taxes 4,751 (85) (1,670) 51 73
________ ________ ________ __________ __________
Income from continuing operations 12,236 9,394 4,788 4,081 2,991
Income (loss) from discontinued
operations - - (2,366) 1,205 877
________ ________ ________ __________ __________
Income before extraordinary items 12,236 9,394 2,422 5,286 3,868
Extraordinary items - - - - 1,365
________ ________ ________ __________ __________
Net income $ 12,236 $ 9,394 $ 2,422 $ 5,286 $ 2,503
======== ======== ======== ========== ==========
Income (loss):
Continuing operations $ 1.16 $ .90 $ .49 $ .43 $ .46
Discontinued operations - - (.24) .12 .13
Extraordinary items - - - - (.21)
________ ________ ________ __________ __________
Net income per common share $ 1.16 $ .90 $ .25 $ .55 $ .38
======== ======== ======== ========== ==========
Weighted average shares outstanding 10,568 10,422 9,690 9,564 6,521
======== ======== ======== ========== ==========
December 31,
_____________________________________________________________________________________________
(In thousands) 1995 1994 1993 1992 1991
_____________________________________________________________________________________________
Consolidated Balance Sheet Data:
Working capital $ 32,108 $ 13,585 $ 5,361 $ 4,900 $ 12,121
Total assets 152,747 110,756 90,316 75,478 53,454
Short-term debt 7,911 10,032 14,928 12,212 1,377
Long-term debt 46,724 28,892 12,446 10,432 3,774
Shareholders' equity 77,518 63,699 53,353 45,658 40,239
33
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion of the Company's financial condition,
results of operations, liquidity and capital resources should be read
in conjunction with the "Consolidated Financial Statements" and the
"Notes to Consolidated Financial Statements" included elsewhere in
this report.
Overview
Since 1990, Newpark has concentrated on expanding and further
integrating its environmental service capabilities. The Company has
made several acquisitions to extend its integrated environmental
services into the Texas Gulf Coast region. During 1991, the Company
completed a NOW processing plant and in 1993 opened its first
injection well facility for underground disposal of NOW. During 1994,
Newpark obtained a permit to process NORM waste for disposal and thus
became a participant in the NORM disposal business.
In 1994, the Company began to offer temporary worksite
installation and mat rental services utilizing its proprietary
prefabricated mat system outside of the oil and gas industry in
connection with pipeline construction, electrical power distribution
and highway construction projects, in environmentally sensitive
"wetlands" and other areas where unstable soil conditions exist.
The Baker-Hughes Rotary Rig Count has historically been viewed as
the most significant single indicator of oil and gas drilling activity
in the domestic market. In 1993, the United States rig count averaged
754 rigs in operation, and increased to 774 in 1994. In 1995, the rig
count averaged 723, the second lowest on record since the advent of
the indicator in the early 1940's.
Newpark's key market area includes the (i) South Louisiana Land,
(ii) Texas Railroad Commission Districts 2 and 3, (iii) Louisiana and
Texas Inland Waters and (iv) the Offshore Gulf of Mexico rig count
measurement areas. The rig count trend in the Company's primary
market has tracked these national trends as set forth in the table
below:
1995 1994 1993 1Q95 2Q95 3Q95 4Q95
____ ____ ____ ____ ____ ____ ____
U.S. Rig Count 723 774 754 705 677 745 765
Newpark's key market 195 202 176 191 187 201 199
Newpark's key market
to total 27.0% 26.1% 23.3% 27.1% 27.6% 27.0% 26.0%
Management believes that the improved natural gas drilling
activity, as evidenced by the rig count in its key market, was an
important factor which allowed a trend of increasing prices in its
site preparation and mat rerental business to continue through 1994.
The upward trend in pricing abated with the decline in the rig count
within the Company's key market during 1995.
34
Despite this decline in rig activity, the volume of waste
received by Newpark increased at a compound rate of 44% from 1993 to
1995, primarily due to: (i) the recovery of the remediation market
following implementation of NORM regulations; and, (ii) new, more
stringent regulations governing the discharge of drilling and
production waste in the coastal and inland waters and in the offshore
Gulf of Mexico. Since 1993, the total volume of waste in Newpark's
key market has grown at a compound rate of 24% for the same reasons.
The Company's financial statements do not include any provision
for possible contingent liabilities, such as liability for violation
of environmental laws or other risks noted under "Business - Risk
Management." To the best of the Company's knowledge, it has conducted
its business in compliance with applicable laws and, except as noted
under "Legal Proceedings," is not involved in any material litigation
with respect to violations of such laws.
Results of Operations
The following table represents revenue by product line, for each
of the three years ended December 31, 1995, 1994 and 1993. The
product line data has been reclassified from prior years' presentation
in order to more effectively distinguish the offsite waste processing
and mat rental services, in which the Company maintains certain
proprietary advantages, from its other service offerings.
Years Ended December 31,
(Dollars in thousands)
1995 1994 1993
______________ _______________ _______________
Revenues by product line:
Offsite waste processing 31,126 31.8% $ 20,738 26.0% $ 11,354 20.2%
Mat rental services 30,775 31.4 23,048 28.9 21,042 37.4
General oilfield services 14,511 14.8 13,452 16.9 11,358 20.1
Wood product sales 12,609 12.9 13,105 16.5 7,947 14.1
Onsite environmental
management 7,361 7.5 7,689 9.7 4,629 8.2
Other 1,600 1.6 1,600 2.0 - -
_______ _____ ________ _____ ________ _____
Total revenues $97,982 100.0% $ 79,632 100.0% $ 56,330 100.0%
======= ===== ======== ===== ======== =====
35
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues
Total revenues increased to $98.0 million in 1995 from $79.6
million in 1994, an increase of $18.4 million or 23.0%. The components
of the increase by product line are as follows: (i) offsite waste
processing revenues increased $10.4 million, as NOW revenue increased
$5.5 million, due almost exclusively to additional volume, and NORM
processing revenue increased to $6.0 million on approximately 70,000
barrels in 1995 from $1.2 million and 15,000 barrels in 1994; (ii) mat
rental revenue increased $7.7 million, or 34% due to two factors: (a)
increased volume installed at similar pricing compared to the prior
year, and, (b) an increase in revenues from extended rerentals of
$3.6 million resulting from the longer use of sites, consistent with
the trend toward deeper drilling. The size of the average location
installed in 1995 grew 17% from the prior year, primarily the result
of the trend toward deeper drilling in more remote locations,
requiring larger sites to accommodate increased equipment and supplies
on the site; (iii) general oilfield service revenue increased $1.1
million or 7.9%. The increase resulted primarily from the increased
level of site preparation work incident to the rental of mats in the
oilfield segment of that business; (iv) onsite environmental
management service revenue declined approximately $300,000 or 4% with
the reduced level of current drilling-related projects more than
offsetting increased activity in the remediation of old sites; and (v)
revenue from wood product sales decreased approximately $500,000 due
in part to production inefficiency during the start-up of a new
processing line and the inclusion of a large non-recurring order in
prior year revenue.
Operating Income from Continuing Operations
Operating income from continuing operations increased by $9.1
million or 76.4% to total $21.0 million in the 1995 period compared to
$11.9 million in the prior year, representing an improvement in
operating margin to 21.4% in 1995 compared to 14.9% in 1994.
Primary components of the increase included: (i) approximately
$2.9 million related to the effect of volume increases in both NOW and
NORM processing; (ii) $3.6 million from increased mat rerentals, and,
(iii) $1.3 million resulting from the increase in the volume of mats
rented, to approximately 220 million board feet compared to 157
million in 1994, at similar margins, and, (iv) an approximate $200,000
increase in operating profit on better gross margin mix from wood
product sales.
The decline of $573,000 in general and administrative expenses
reflects, primarily, the impact of approximately $600,000 of prior
year charges for legal costs incurred in an appeal of an expropriation
matter. Additionally, the provision for uncollectible accounts was
$511,000 less in the 1995 period as compared to the 1994 period.
36
Interest Expense
Interest expense increased to $3.7 million in 1995 from $2.7
million in 1994. The increase is a result of an increase in
borrowings, proceeds of which were used to fund continued additions to
productive capacity, including the Company's waste processing
facilities, its prefabricated board road mats, and additions to
inventory, primarily at the sawmill facility.
Non-recurring Expense
Results for the current period include $436,000 of non-recurring
cost associated with a proposed merger which was not completed.
Provision for Income Taxes
During 1995, the Company recorded an income tax provision of $4.8
million equal to 28% of pre-tax income. While the Company's net
operating loss carryforwards remain to be used for income tax return
purposes, for financial reporting purposes, substantially all of the
remaining net operating loss and tax credit carryforwards applicable
to federal taxes were recognized in the first half of the year, which
reduced the effective tax rate for that portion of the year. During
1994, the Company recorded a tax benefit of $85,000 as a result of the
availability of net operating loss carryforwards.
Net Income
Net income increased by $2.8 million or 30% to $12.2 million in
1995 compared to $9.4 million in 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues
Total revenues increased from $56.3 million in 1993 to $79.6
million in 1994, an increase of $23.3 million or 41.4%. Components of
the increase by product line included: (i) a $9.4 million increase in
offsite waste processing, composed of (a) an increase of $8.2 million
the result of a 72.5% increase in the number of barrels of NOW waste
received, which grew to 2.3 million in 1994 from 1.3 million in 1993;
and (b) $1.2 million from NORM processing which began in the fourth
quarter of 1994; (ii) an increase of $5.2 million of wood product
sales revenue due to an increase in the total tonnage of products sold
at similar pricing; (iii) a $3.0 million increase in onsite
environmental management revenue reflecting the recovery of this
market during 1994 once definitive NORM regulations were effected in
both Louisiana and Texas. A total of 355,000 barrels of remediation
waste was handled in 1994 compared to only 22,000 in 1993; (iv) a
$2.0 million increase in mat rental revenue, the net effect of a 29%
increase in average pricing to approximately $93 per thousand board
feet installed and a 4% decline in total volume to 157 million board
37
feet in 1994 compared to 164 million board feet in 1993; and, (v) an
increase of approximately $2.1 million in general oilfield service
revenue, which primarily reflects the increased site construction
services related to the increased volume of mats installed on
customer's sites. Other revenue included $1.6 million in 1994 from
the lease of the facility formerly operated as a marine repair yard in
Houston, Texas.
Operating Income from Continuing Operations
Operating income from continuing operations increased $7.5
million from $4.4 million or 7.8% of revenue in 1993 to $11.9 million
or 14.9% of revenue in the current period. Factors contributing to the
increase included: (i) a $3.1 million increase in operating income
from offsite waste processing, of which approximately $600,000 relates
to receipt of 14,711 barrels of NORM waste, solely during the fourth
quarter of 1994, with the remainder attributable to increased volume
and substantially unchanged profit contribution per barrel of NOW
processed; (ii) $2.7 million from increased mat rental revenue, (iii)
a $2.5 million increase resulting from the increase in the volume of
mats rented; and, (iv) a profit of approximately $800,000 (before
related interest expense) from the lease of the Company's former
marine repair facility; net of (v) a $258,000 decrease in operating
income from wood products sales due to higher inventory costs relative
to 1993; (vi) a $1.1 million increase in general and administrative
expenses and (vii) a $300,000 increase in the provision for
uncollectible accounts and notes receivable.
General and administrative expenses as a proportion of revenue
rose to 4.1% in 1994 from 3.8% in 1993, while rising in total by $1.1
million to $3.2 million in 1994 from $2.1 million in 1993. The
principal items associated with the increase included a charge for
legal costs of approximately $600,000 incurred due to the appeal of an
expropriation matter and a $130,000 provision for additional franchise
taxes, as a result of a recently completed audit.
Interest Expense
Interest expense increased $1.4 million to $2.7 million in 1994
compared to $1.3 million in 1993, as the Company added approximately
$17.5 million in net borrowings to finance new and existing
facilities and equipment during 1994.
Income from Continuing Operations
Income from continuing operations increased 96.2% or $4.6 million
to $9.4 million in the 1994 period from $4.8 million in the 1993
period.
Provision for Income Taxes
During 1994, the Company recorded a net deferred tax benefit of
$200,000 as a result of recognizing the future benefit of the income
tax carryforwards available to offset the estimated future earnings
(See "Note F. Income Taxes", in the "Notes to Consolidated Financial
38
Statements"). The net deferred tax benefit was partially offset by
current tax expense of $115,000.
Net Income
Net income increased to $9.4 million in 1994 from $2.4 million in
1993, an increase of $7.0 million or 288% equal to 29.9% of
incremental revenues.
Liquidity and Capital Resources
The Company's working capital position increased by $18.5 million
during the year ended December 31, 1995. Key working capital data is
provided below:
Year Ended December 31,
______________________
1995 1994
____ ____
Working Capital (000's) $32,108 $13,585
Current Ratio 2.3 1.8
During 1995, the Company's working capital needs were met
primarily from operating cash flow.
Throughout 1995, the company invested heavily to provide future
capacity within key product lines. These improvements included
addition of two additional injection wells and a grinding mill at the
Big Hill plant, construction of a new injection facility which
includes two injection wells at the Fannett site, construction of a
bulk waste unloading facility adjacent to the existing Port Arthur
plants, and additions to its inventory of rental mats in the domestic
market and in the expansion into Venezuela. As a result of these
asset additions, long term debt increased to $46.7 million at year
end, representing 36.3% of total long-term capital. A total of $43.4
million of the debt was funded within a $50 million commitment which
was completed during the second quarter of the year.
On June 29, 1995, the Company entered into a new credit agreement
with a group of three banks, providing a total of up to $50 million of
term financing. This facility included the refinancing of $25 million
of existing debt amortized over a five year term. At the Company's
option, these borrowings bear interest at either a specified prime
rate or LIBOR rate, plus a spread which is determined quarterly based
upon the ratio of the Company's funded debt to cash flow.
In addition, up to $25 million is available under a revolving
line of credit which matures December 31, 1998. Availability under
this facility is tied to the level of the Company's accounts
receivable and certain inventory. Advances under the line bear
interest, at the Company's option, at either a specified prime rate
or the LIBOR rate, plus a spread calculated quarterly based upon the
ratio of the Company's funded debt to cash flow; interest is payable
monthly. At December 31, 1995, $6.3 million of letters of credit were
issued and outstanding within the facility and $18.4 million had been
39
borrowed. The credit agreement requires that the Company maintain
certain specified financial ratios and comply with other usual and
customary requirements. The Company was in compliance with the
agreement at December 31, 1995.
Subsequent to December 31, 1995, the banks providing the credit
facility approved an increase of $10 million in the term note portion
of the facility, which will be used initially to reduce borrowings on
the revolving line of credit of the credit facility.
Potential sources of additional funds, if required by the
Company, would include additional borrowings and the sale of equity
securities. The Company presently has no commitments beyond its bank
lines of credit by which it could obtain additional funds for current
operations; however, it regularly evaluates potential borrowing
arrangements which may be utilized to fund future expansion plans.
Inflation has not materially impacted the Company's revenues or
income.
Deferred Tax Asset
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." This standard requires, among other things,
recognition of future tax benefits measured by enacted tax rates,
attributable to deductible temporary differences between the financial
statement and income tax basis of assets and liabilities and to tax
net operating loss and credit carryforwards to the extent that
realization of such benefits is more likely than not. The Company has
provided a valuation allowance ($236,000 at December 31, 1995) for
deferred tax assets which cannot be realized through future reversals
of existing taxable temporary differences. Management believes that
remaining deferred tax assets ($10,450,000 at December 31, 1995) are
realizable through reversals of existing taxable temporary
differences. Management will continue to assess the adequacy of the
valuation allowance on a quarterly basis.
40
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Newpark Resources, Inc.
We have audited the accompanying consolidated balance sheets of
Newpark Resources, Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement
schedule for the years ended December 31, 1995, 1994 and 1993 listed
in the Index at Item 14. These financial statements and financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Newpark Resources,
Inc. and subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule for the years ended December 31, 1995, 1994 and
1993, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 1, 1996
41
Newpark Resources, Inc.
Consolidated Balance Sheets
December 31
_______________________________________________________________________________
(In thousands, except share data) 1995 1994
_______________________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 1,018 $ 1,404
Accounts and notes receivable, less
allowance of $768 in 1995 and
$455 in 1994 39,208 21,450
Inventories 11,996 7,099
Other current assets 4,088 1,544
_______ _______
Total current assets 56,310 31,497
Property, plant and equipment, at cost,
net of accumulated depreciation 85,461 67,630
Cost in excess of net assets of purchased
businesses, net of accumulated amortization 4,340 4,403
Deferred tax assets - 2,271
Investment in joint venture 1,094 -
Other assets 5,542 4,955
_______ _______
$ 152,747 $ 110,756
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 169 $ 1,796
Current maturities of long-term debt 7,742 8,236
Accounts payable 11,664 5,022
Accrued liabilities 3,462 2,858
Current taxes payable 1,165 -
_______ _______
Total current liabilities 24,202 17,912
Long-term debt 46,724 28,892
Other non-current liabilities 285 253
Deferred taxes payable 4,018 -
Commitments and contingencies (Note J.) - -
Shareholders' equity:
Preferred Stock, $.01 par value,
1,000,000 shares authorized, no
shares outstanding - -
Common Stock, $.01 par value,
20,000,000 shares authorized,
10,634,177 shares outstanding
in 1995 and 10,485,074 in 1994 105 99
Paid-in capital 144,553 134,252
Retained earnings (deficit) (67,140) (70,652)
_______ _______
Total shareholders' equity 77,518 63,699
_______ _______
$ 152,747 $ 110,756
======= =======
See accompanying Notes to Consolidated Financial Statements.
42
Newpark Resources, Inc.
Consolidated Statements of Income
Years Ended December 31
_________________________________________________________________________________________________
(In thousands, except per share data) 1995 1994 1993
_________________________________________________________________________________________________
Revenues $ 97,982 $ 79,632 $ 56,330
Operating costs and expenses:
Cost of services provided 64,467 56,259 42,581
Operating costs 9,414 7,277 6,557
_______ _______ _______
73,881 63,536 49,138
General and administrative expenses 2,658 3,231 2,129
Provision for uncollectible accounts
and notes receivable 463 974 671
_______ _______ _______
Operating income from continuing
operations 20,980 11,891 4,392
Interest income (183) (78) -
Interest expense 3,740 2,660 1,274
Non-recurring expense 436 - -
_______ _______ _______
Income from continuing operations
before provision for income taxes 16,987 9,309 3,118
Provision (benefit) for income taxes 4,751 (85) (1,670)
_______ _______ _______
Income from continuing operations 12,236 9,394 4,788
Loss from discontinued operations - - (2,366)
_______ _______ _______
Net income $ 12,236 $ 9,394 $ 2,422
======= ======= =======
Weighted average shares outstanding 10,568 10,422 9,690
======= ======= =======
Income (loss) per common share:
Continuing operations $ 1.16 $ 0.90 $ 0.49
Discontinued operations - - (0.24)
_______ _______ _______
Net income $ 1.16 $ 0.90 $ 0.25
======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
43
Newpark Resources, Inc.
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1993, 1994 and 1995
_________________________________________________________________________________________________________________
Retained
Common Paid-In Earnings
(In thousands) Stock Capital (Deficit) Total
_________________________________________________________________________________________________________________
Balance, January 1, 1993 $ 91 $ 128,035 $ (82,468) $ 45,658
Employee stock options - 136 - 136
Stock sale 7 5,130 - 5,137
Net income - - 2,422 2,422
____________________________________________________________________________
Balance, December 31, 1993 98 133,301 (80,046) 53,353
Employee stock options 1 950 - 951
Other - 1 - 1
Net income - - 9,394 9,394
____________________________________________________________________________
Balance, December 31, 1994 99 134,252 (70,652) 63,699
Employee stock options 1 1,582 - 1,583
Stock dividend 5 8,719 (8,724) -
Net income - - 12,236 12,236
____________________________________________________________________________
Balance, December 31, 1995 $ 105 $ 144,553 $ (67,140) $ 77,518
============================================================================
See accompanying Notes to Consolidated Financial Statements.
44
Newpark Resources, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31
________________________________________________________________________________________________________________________
(In thousands) 1995 1994 1993
________________________________________________________________________________________________________________________
Cash flows from operating activities:
Net income $ 12,236 $ 9,394 $ 2,422
Adjustments to reconcile net income
to net cash provided by
continuing operations:
Depreciation and amortization 9,967 7,370 5,929
Provision for doubtful accounts 463 974 671
Provision (benefit) from deferred
income taxes 3,217 (200) (1,700)
Loss (gain) on sales of assets 80 (9) (237)
Change in assets and liabilities
net of effects of acquisitions:
Increase in accounts and notes
receivable (17,129) (3,723) (2,513)
(Increase) decrease in inventories (4,897) 739 (3,418)
Increase in other assets (1,536) (1,839) (211)
Increase (decrease) in accounts payable 2,577 (677) 282
Increase (decrease) in accrued
liabilities and other 2,096 (937) 1,413
________ _________ _________
Net cash provided by operating
activities 7,074 11,092 2,638
________ _________ _________
Cash flows from investing activities:
Capital expenditures (23,989) (23,149) (9,690)
Disposal of property, plant and equipment 564 97 124
Investment in joint venture (1,094) - -
Payments received on notes receivable 249 30 144
Advances on notes receivable (227) (1,000) -
Proceeds from sale of net assets of
discontinued operations - 661 -
Other - - (79)
Decrease in net assets of discontinued
operations - - 722
________ _________ _________
Net cash used in investing activities (24,497) (23,361) (8,779)
________ _________ _________
Cash flows from financing activities:
Net borrowings on lines of credit 20,796 492 1,720
Principal payments on notes payable,
capital lease obligations and
long-term debt (20,170) (10,109) (4,825)
Proceeds from issuance of debt 14,828 21,167 9,728
Proceeds from conversion of stock options 1,266 897 136
Other 317 55 -
________ _________ _________
Net cash provided by financing
activities 17,037 12,502 6,759
________ _________ _________
Net (decrease) increase in cash and cash
equivalents (386) 233 618
Cash and cash equivalents at beginning of year 1,404 1,171 553
________ _________ _________
Cash and cash equivalents at end of year $ 1,018 $ 1,404 $ 1,171
======== ========= =========
See accompanying Notes to Consolidated Financial Statements.
45
NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Summary of Significant Accounting Policies
Organization and Principles of consolidation. Newpark Resources,
Inc. ("Newpark" or the "Company") provides comprehensive environmental
management and oilfield construction services to the oil and gas
industry in the Gulf Coast region, principally Louisiana and Texas.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions are eliminated in consolidation.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents. All highly liquid investments with a remaining
maturity of three months or less at the date of acquisition are
classified as cash equivalents.
Fair Value Disclosures. Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial
Instruments", requires the disclosure of the fair value of all
significant financial instruments. The estimated fair value amounts
have been developed based on available market information and
appropriate valuation methodologies. However, considerable judgment
is required in developing the estimates of fair value. Therefore,
such estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange. After such analysis,
management believes the carrying values of the Company's significant
financial instruments (consisting of cash and cash equivalents,
receivables, payables and long-term debt) approximate fair values at
December 31, 1995.
Inventories. Inventories are stated at the lower of cost
(principally average and first-in, first-out) or market. The cost of
lumber and related supplies for board roads is amortized on the
straight-line method over their estimated useful life of approximately
one year.
Depreciation and amortization. Depreciation of property, plant and
equipment, including interlocking board road mats, is provided for
financial reporting purposes on the straight-line method over the
estimated useful lives of the individual assets which range from three
to thirty years. For income tax purposes, accelerated methods of
depreciation are used.
During the year ended December 31, 1993, the Company made a change
in the estimated service lives of its board road mats from five years
to seven years. The new lives were adopted to recognize the longer
service life provided by the mats. The effect of the change for the
46
year ended December 31, 1993 was to increase income from continuing
operations $1,175,000 ($0.12 per share).
The cost in excess of net assets of purchased businesses ("excess
cost") is being amortized on a straight-line basis over forty years,
except for $2,211,000 relating to acquisitions prior to 1971 that is
not being amortized. Management of the Company periodically reviews
the carrying value of the excess cost in relation to the current and
expected operating results of the businesses which benefit therefrom
in order to assess whether there has been a permanent impairment of
the excess cost of the net purchased assets. Accumulated amortization
on excess cost was $437,000 and $374,000 at December 31, 1995 and
1994, respectively.
Revenue recognition. Revenues from certain contracts, which are
typically of short duration, are reported as income on a percentage-
of-completion method. Contract revenues are recognized in the
proportion that costs incurred bear to the estimated total costs of
the contract. When an ultimate loss is anticipated on a contract, the
entire estimated loss is recorded. Included in accounts receivable
are unbilled revenues in the amounts of $8,600,000 and $2,674,000 at
December 31, 1995 and 1994, respectively, all of which are due within
a one year period.
Income Taxes. Income taxes are provided using the liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes." Under
this method, deferred income taxes are recorded based upon differences
between the financial reporting and income tax basis of assets and
liabilities and are measured using the enacted income tax rates and
laws that will be in effect when the differences are expected to
reverse.
Non-recurring Expense. Results for the current period include
$436,000 of non-recurring cost associated with a proposed merger which
was not completed.
Interest Capitalization. For the years ended December 31, 1995,
1994 and 1993 the Company incurred interest cost of $4,198,000,
$2,805,000, and $1,359,000 of which $458,000, $145,000, and $85,000
was capitalized, respectively, on qualifying construction projects.
Income per share. Income per share amounts are based on the
weighted average number of shares outstanding during the respective
year and exclude the negligible dilutive effect of shares issuable in
connection with all stock plans. All per share and weighted average
share amounts have been restated to give retroactive effect to a 5%
stock dividend declared and paid during 1995.
New Accounting Standards. During 1995, SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" was issued. SFAS No. 121 establishes accounting
standards for recording the impairment of long-lived assets, certain
identifiable intangibles, goodwill, and assets to be disposed of. The
Company is required to adopt SFAS No. 121 effective for fiscal 1996.
47
During 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation" was also issued. SFAS No. 123, which the Company is
required to adopt effective for fiscal 1996, provides guidance
relating to the recognition, measurement and disclosure of stock-based
compensation.
Management believes that the implementation of SFAS No.'s 121 and
123 will not have a material impact on the Company's consolidated
financial statements.
Reclassifications. Certain reclassifications of prior year amounts
have been made to conform to the current year presentation.
B. Discontinued Operations
On December 30, 1993, the operations of the Company's marine
service subsidiary were sold to an unrelated third party for their
estimated net book value of $1,135,000 of which $661,000 was received
in cash during 1994 and a short term note was issued for the
remainder. The Company leased the facility and certain equipment to
the new operator through June 30, 1996, with an option to purchase
these assets at specified times during the lease term. The new
operator has notified the Company of their intent to exercise the
purchase option before the expiration of the lease term. The Company
also agreed to make available certain short-term financing of up to
$1.6 million through June 30, 1996, with annual interest at 7%;
secured by, among other items, certain assets of the third party and
the personal guarantee of one of its principals. Advances related to
this financing arrangement amounted to $1.6 million at December 31,
1995 and $1.4 million at December 31, 1994. Revenue of the marine
repair business was $16,251,000 for the year ended December 31, 1993.
C. Inventories
The Company's inventories at December 31, 1995 and 1994 are
summarized as follows:
______________________________________________________________________
(In thousands) 1995 1994
______________________________________________________________________
Raw materials and supplies
(including logs and board road lumber) $11,641 $ 6,752
Finished goods 355 347
_______ _______
$11,996 $ 7,099
======================================================================
48
D. Property, Plant and Equipment
The Company's investment in property, plant and equipment at
December 31, 1995 and 1994 is summarized as follows:
______________________________________________________________________
(In thousands) 1995 1994
______________________________________________________________________
Land $ 5,072 $ 4,273
Buildings and improvements 30,172 19,554
Machinery and equipment 90,448 77,353
Other 2,537 2,208
______ ______
128,229 103,388
Less accumulated depreciation (42,768) (35,758)
_______ _______
$85,461 $67,630
======================================================================
As further discussed in Note B., the former marine repair facility
is currently held for lease and included in the above table. The cost
of this facility totaled $19.9 million at December 31, 1995 and 1994,
with related accumulated depreciation at $6.3 million and $5.6
million, respectively. The principal components of the cost of this
facility include land of $3.1 million, buildings and improvements of
$9.8 million, and machinery and equipment of $6.4 million. Rentals
received during 1995 and 1994 amounted to $1.6 million annually.
49
E. Credit Arrangements and Long-Term Debt
Credit arrangements and long-term debt consisted of the following
at December 31, 1995 and 1994:
______________________________________________________________________
(In thousands) 1995 1994
______________________________________________________________________
Bank - line of credit $18,378 $ 8,767
Bank - term note 25,000 -
Assets subject to lease, financed through
2001 with an interest rate of 10.1% 8,075 8,558
Interim construction credit agreement 482 -
Acquisition financing due in 1996 with an
interest rate of 8% 327 743
Bank - inventory line of credit - 1,796
Term financing of board road mats - 8,730
Term financing of barges - 2,814
Other, principally installment notes secured
by machinery and equipment, payable through
2000 with interest at 3.3% to 13.5% 2,373 7,516
______ ______
54,635 38,924
Less: current maturities of long-term debt (7,911) (8,236)
current maturities of lines of credit - (1,796)
______ ______
Long-term portion $46,724 $28,892
======================================================================
The Company maintains a $50.0 million bank credit facility with
$25.0 million in the form of a revolving line of credit commitment and
the remaining $25.0 million in a term note. The line of credit is
secured by a pledge of accounts receivable and certain inventory. It
bears interest at either a specified prime rate (8.5% at December 31,
1995) or the LIBOR rate (5.63% at December 31, 1995) plus a spread
which is determined quarterly based upon the ratio of the Company's
funded debt to cash flow. The average interest rate for the year
ended December 31, 1995 was 8.56%. The line of credit requires
monthly interest payments and matures on December 31, 1998. At
December 31, 1995, $6.3 million of letters of credit were issued and
outstanding and $18.4 million had been borrowed. The term note was
used to refinance existing debt and requires monthly interest
installments and seventeen equal quarterly principal payments
commencing March 31, 1996. The term note bears interest at the
Company's option of either a specified prime rate or LIBOR rate, plus
a spread which is determined quarterly based upon the ratio of the
Company's funded debt to cash flow. The average interest rate for the
year ended December 31, 1995 was 8.40%. The credit facility requires
that the Company maintain certain specified financial ratios and
comply with other usual and customary requirements. The Company was
in compliance with the agreement at December 31, 1995.
50
Subsequent to December 31, 1995, the banks providing the credit
facility approved an increase of $10 million in the term note portion
of the facility, which will be used initially to reduce borrowings on
the revolving line of credit of the credit facility.
On December 1, 1995, the Company entered into an interim
construction credit agreement in an aggregate amount not to exceed
$1,840,000 for the construction of an office building for two of its
subsidiaries. The outstanding balance of this credit agreement was
$482,000 at December 31, 1995. The agreement provides for an interest
rate of 8.75% during construction. At the completion of construction,
the interim construction credit agreement will be converted to a term
loan. The term loan will require monthly principal and interest
payments to fully amortize the amount over 10 years. The term note
will bear a fixed interest rate of 2.25% per annum in excess of the
treasury rate in effect on the date the term loan is signed.
Maturities of Long-Term Debt are $7,911,000 in 1996, $7,438,000 in
1997, $26,067,000 in 1998, $7,638,000 in 1999, $4,941,000 in 2000 and
$640,000 thereafter.
F. Income Taxes
The provision for income taxes charged to continuing operations
(income taxes related to discontinued operations for 1993 were not
segregated as the amounts were immaterial) is almost exclusively U. S.
Federal tax as follows:
Year Ended December 31,
______________________________________________________________________
(In thousands) 1995 1994 1993
______________________________________________________________________
Current tax expense $ 1,534 $ 115 $ 30
Deferred tax expense (benefit) 3,217 (200) (1,700)
______ _____ ______
Total provision (benefit) $ 4,751 $ (85) $(1,670)
======================================================================
The deferred tax expense (benefit) includes a decrease in the
valuation allowance for deferred tax assets of $1,700,000, $3,129,000,
and $2,407,000 for 1995, 1994 and 1993, respectively.
The effective income tax rate is reconciled to the statutory federal
income tax rate as follows:
Year Ended December 31,
______________________________________________________________________
1995 1994 1993
______________________________________________________________________
Income tax expense at statutory rate 34.0% 34.0% 34.0%
Non-deductible portion of business expenses 1.4 (2.5) 1.6
Tax benefit of NOL utilization (10.0) (33.6) (90.1)
Other 2.6 1.2 0.9
______________________
Total income tax expense (benefit) 28.0% (0.9%) (53.6%)
======================================================================
51
For federal income tax return purposes, the Company has net
operating loss carryforwards ("NOLs") of $22,835,000 (net of amounts
disallowed pursuant to IRC Section 382) that, if not used, will expire
in 1998 through 2009. The Company also has $1,592,000 of alternative
minimum tax credit carryforwards available to offset future regular
income taxes subject to certain limitations. Substantially all of
these carryforwards have been recognized for financial reporting
purposes.
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities at December
31, 1995 and 1994 are as follows:
______________________________________________________________________
(In thousands) 1995 1994
______________________________________________________________________
Deferred tax assets:
Net operating losses $ 8,696 $ 9,893
Alternative minimum tax credits 1,592 295
All other 398 444
_______ _______
Total deferred tax assets 10,686 10,632
Valuation allowance (236) (967)
_______ _______
Net deferred tax assets $ 10,450 $ 9,665
_______ _______
Deferred tax liabilities:
Depreciation $ 8,767 $ 6,244
Amortization 1,823 1,074
All other 1,177 447
_______ ________
Total deferred tax liabilities 11,767 7,765
_______ ________
Total net deferred tax (liabilities)
assets $ (1,317) $ 1,900
======================================================================
Under SFAS No. 109 a valuation allowance must be established to
offset a deferred tax asset if, based on the weight of available
evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized. At December 31, 1994, the
Company evaluated the available evidence and believed that it was more
likely than not that a portion of the deferred tax asset would not be
realized. A valuation allowance was recorded in the financial
statements to offset NOLs which the Company believed would not be
utilized. At December 31, 1994, the Company recorded a net deferred
tax asset of $1,900,000, of which $2,271,000 was recorded in non-
current assets and $371,000 was recorded in current accrued
liabilities, the realization of which was dependent on the Company's
ability to generate taxable income in future periods. The Company
believed that its estimate of future earnings based on contracts in
place, the overall improved gas market, and its prior earnings trend
supported the recorded net deferred tax asset.
52
At December 31, 1995, the deferred tax liabilities of the
consolidated group exceeded the deferred tax assets, therefore a
deferred tax benefit was recorded for the full amount of the remaining
federal NOLs. The valuation allowance recorded at December 31, 1995
relates to certain state NOLs which have not to date been recognized
for financial reporting purposes. At December 31, 1995, the Company
has recorded a net deferred tax liability of $1,317,000, of which
$2,701,000 has been recorded in other current assets and $4,018,000
has been recorded as long-term deferred taxes payable.
G. Preferred Stock
The Company has been authorized to issue up to 1,000,000
shares of Preferred Stock, $.01 par value, none of which are
issued or outstanding at December 31, 1995.
H. Common Stock and Stock Options
Changes in outstanding Common Stock for the three years
ended December 31, 1995, 1994, and 1993 were as follows:
______________________________________________________________________
(In Thousands of Shares) 1995 1994 1993
______________________________________________________________________
Outstanding, beginning of year 9,986 9,858 9,130
Shares issued in exchange for
extinguishment of debt - - 700
Dividend shares issued 505 - -
Shares issued upon exercise of Options 143 128 28
_____ _____ _____
Outstanding, end of year 10,634 9,986 9,858
======================================================================
The Amended and Restated Newpark Resources, Inc. 1988 Incentive
Stock Option Plan (the "1988 Plan") was adopted by the Board of
Directors on June 22, 1988 and thereafter was approved by the
shareholders. The 1988 Plan was amended and restated by the Board of
Directors and shareholders in 1992 to increase the number of shares of
Common Stock issuable thereunder from 100,000 to 450,000; was further
amended by the Board of Directors and shareholders in 1994 to increase
the number of shares of Common Stock issuable thereunder from 450,000
to 650,000, and was further amended by the Board of Directors and
shareholders in 1995 to increase the number of shares of Common Stock
issuable thereunder from 650,000 to one million shares. An option may
not be granted for an exercise price less than the fair market value
on the date of grant and may have a term of up to ten years.
53
Stock option transactions for the 1988 Plan for the three years
ended December 31, 1995, 1994 and 1993 are summarized below:
______________________________________________________________________
Years Ended December 31, 1995 1994 1993
______________________________________________________________________
Outstanding, beginning of year 374,981 303,149 215,191
Options granted 387,000 191,000 117,500
Dividend options granted 32,610 - -
Options exercised (87,667) (119,168) (27,542)
Options canceled (22,166) - (2,000)
_______ _______ _______
Outstanding, end of year 684,758 374,981 303,149
======= ======= =======
Option price per share:
Outstanding, end-of-year $3.80-$18.88 $3.00-$18.75 $3.00-$9.25
======================================================================
At December 31, 1995 and 1994, the total number of outstanding
exercisable options were 145,979 and 54,144, respectively.
The 1992 Directors' Stock Option Plan (the "1992 Directors' Plan")
was adopted on October 21, 1992 by the Compensation Committee and,
thereafter, was approved by the shareholders in 1993.
The purpose of the 1992 Directors' Plan was to provide two
directors ("Optionees") additional compensation for their services to
Newpark and to promote an increased incentive and personal interest in
the welfare of Newpark by such directors. The Optionees were each
granted a stock option to purchase 50,000 shares of Common Stock at an
exercise price of $8.75 per share, the fair market value of the Common
Stock on the date of grant for a term of ten years. No additional
options may be granted under the Directors" Plan. At December 31,
1995, 50,000 options had been exercised under this plan.
The 1993 Non-Employee Directors' Stock Option Plan (the "1993 Non-
Employee Directors' Plan") was adopted on September 1, 1993 by the
Board of Directors and, thereafter, was approved by the shareholders
in 1994.
The 1993 Non-Employee Directors' Plan is intended to allow each
non-employee director of Newpark to purchase 15,000 shares of Common
Stock. Non-employee directors are not eligible to participate in any
other stock option or similar plan currently maintained by Newpark.
The purpose of the 1993 Non-Employee Directors' Plan is to promote an
increased incentive and personal interest in the welfare of Newpark by
those individuals who are primarily responsible for shaping the long-
range plans of Newpark, to assist Newpark in attracting and retaining
on the Board persons of exceptional competence and to provide
additional incentives to serve as a director of Newpark.
Upon the adoption of the 1993 Non-Employee Directors' Plan, the
five non-employee directors were each granted a stock option to
purchase 15,000 shares of Common Stock at an exercise price of $9.00
per share, the fair market value of the Common Stock on the date of
grant. In addition, each new Non-Employee Director, on the date of
54
his or her election to the Board of Directors automatically will be
granted a stock option to purchase 15,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on
the date of grant. The determination of fair market value of the
Common Stock is based on market quotations. On November 2, 1995, the
Board of Directors adopted, subject to shareholder approval,
amendments to the Non-Employee Directors' Plan to increase the maximum
number of shares issuable thereunder from 150,000 to 200,000 and to
provide for the automatic grant at five year intervals of additional
stock options to purchase 10,000 shares of Common Stock to each non-
employee director who continues to serve on the Board. At December
31, 1995, 15,000 options had been exercised.
On November 2, 1995, the Board of Directors adopted, subject to
shareholder approval, the Newpark Resources, Inc. 1995 Incentive Stock
Option Plan (the "1995 Plan"), pursuant to which the Compensation
Committee may grant incentive stock options and nonstatutory stock
options to designated employees of Newpark. Initially, a maximum of
500,000 shares of Common Stock may be issued under the 1995 Plan, with
such maximum number increasing on the last business day of each fiscal
year of Newpark, commencing with the last business day of the fiscal
year ending December 31, 1996, by a number equal to 1.25% of the
number of shares of Common Stock issued and outstanding on the close
of business on such date, with a maximum number of shares of Common
Stock that may be issued upon exercise of options granted under the
1995 Plan being limited to 1,250,000.
I. Supplemental Cash Flow Information
During 1994, the Company's noncash transactions included the
consummation of the sale of the operations of the Company's marine
repair business for $661,000 in cash and a $400,000 note receivable.
During 1993, the Company's noncash transactions included the
issuance of 700,000 shares of the Company's common stock for
extinguishment of certain notes payable issued in connection with the
assets purchased from Quality Mill, Inc. and accrued liabilities
incurred with the purchase of other fixed assets. Additionally, the
Company sold property with a book value of $250,000 in exchange for
$100,000 in cash and a $400,000 note receivable.
Included in accounts payable and accrued liabilities at December
31, 1995, 1994 and 1993, were equipment purchases of $4,141,000,
$774,000, and $933,000 respectively. Also included are notes payable
for equipment purchases in the amount of $257,000 and $635,000 for
1995 and 1993, respectively.
Interest of $4,235,000, $2,713,000, and $1,912,000 was paid in
1995, 1994 and 1993, respectively. Income taxes of $51,000, $90,200,
and $82,000 were paid in 1995, 1994 and 1993, respectively.
55
J. Commitments and Contingencies
Newpark and its subsidiaries are involved in litigation and other
claims or assessments on matters arising in the normal course of
business. In the opinion of management, any recovery or liability in
these matters will not have a material adverse effect on Newpark's
consolidated financial statements.
During 1992, the State of Texas assessed additional sales taxes
for the years 1988-1991. The Company has filed a petition for
redetermination with the Comptroller of Public Accounts. The Company
believes that the ultimate resolution of this matter will not have a
material adverse effect on the consolidated financial statements.
In the normal course of business, in conjunction with its
insurance programs, the Company has established letters of credit in
favor of certain insurance companies in the amount of $2,825,000 at
December 31, 1995 and December 31, 1994. At December 31, 1995, the
Company had outstanding guaranty obligations totaling $469,000 in
connection with facility closure bonds issued by an insurance company.
Since May 1988, the Company has held the exclusive right to use a
patented prefabricated mat system with respect to the oil and gas
exploration and production industry within the State of Louisiana. On
June 20, 1994, the Company entered into a new license agreement by
which it obtained the exclusive right to use the same patented
prefabricated mat system, without industry restriction, throughout the
continental United States. The license agreement requires, among
other things, that the company purchase a minimum of 20,000 mats
annually through 2003. The Company has met this annual mat purchase
requirement since the inception of the agreement. Any purchases in
excess of that level may be applied to future annual requirements.
The Company's annual commitment to maintain the agreement in force is
currently estimated to be $4,600,000.
At December 31, 1995, the Company had outstanding a letter of
credit in the amount of $3,816,000 issued to a state regulatory agency
to assure funding for future site closure obligations at its NORM
processing facility.
The Company leases various manufacturing facilities, warehouses,
office space, machinery and equipment and transportation equipment
under operating leases with remaining terms ranging from one to ten
years with various renewal options. Substantially all leases require
payment of taxes, insurance and maintenance costs in addition to
rental payments. Total rental expenses of continuing operations for
all operating leases were $5,210,000, $4,049,000, and $4,226,000,
1995, 1994 and 1993, respectively.
Future minimum payments under noncancelable operating leases, with
initial or remaining terms in excess of one year are: $1,683,000 in
1996, $1,192,000 in 1997, $924,000 in 1998, $859,000 in 1999, $781,000
in 2000, and $562,000 thereafter.
Capital lease commitments are not significant.
56
K. Business and Credit Concentration
During 1995, one customer accounted for approximately
16%, $15,890,000, of total revenue. In 1993 and 1994, the Company did
not derive ten percent or more of its revenues from sales to any
single customer.
Export sales are not significant.
L. Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and trade accounts and notes receivable.
The Company maintains cash and cash equivalents with various
financial institutions. These financial institutions are located
throughout the Company's trade area and company policy is designed to
limit exposure to any one institution. The Company performs periodic
evaluations of the relative credit standing of these financial
institutions which are considered in the Company's investment
strategy.
Concentrations of credit risk with respect to trade accounts and
notes receivable are limited due to the large number of entities
comprising the Company's customer base, and for notes receivable, the
required collateral. The Company maintains an allowance for losses
based upon the expected collectibility of accounts and notes
receivable.
M. Supplemental Selected Quarterly Financial Data (Unaudited)
Quarter Ended
______________________________________________________________________
Mar 31 Jun 30 Sep 30 Dec 31
(In thousands, except per share amounts)
_____________________________________________________________
Fiscal Year 1995
Revenues $22,209 $22,454 $24,793 $28,526
Operating income 3,711 4,789 5,529 6,951
Net income 2,490 3,206 2,700 3,840
Net income per share 0.24 0.30 0.26 0.36
Fiscal Year 1994
Revenues $17,146 $19,396 $21,169 $21,921
Operating income 2,288 2,843 3,165 3,595
Net income 1,740 2,273 2,436 2,945
Net income per share 0.17 0.22 0.23 0.28
57
ITEM 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
None
58
PART III
ITEM 10. Directors and Officers of the Registrant
The information required by this Item is incorporated by reference
to the registrantOs Proxy Statement to be filed pursuant to Regulation
14A under the Securities Act of 1934 in connection with the CompanyOs
1996 Annual Meeting of Shareholders.
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference
to the registrantOs Proxy Statement to be filed pursuant to Regulation
14A under the Securities Act of 1934 in connection with the CompanyOs
1996 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is incorporated by reference
to the registrantOs Proxy Statement to be filed pursuant to Regulation
14A under the Securities Act of 1934 in connection with the Company's
1996 Annual Meeting of Shareholders.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference
to the registrantOs Proxy Statement to be filed pursuant to Regulation
14A under the Securities Act of 1934 in connection with the Company's
1996 Annual Meeting of Shareholders.
59
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) 1. Financial Statements
Reports of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following financial statement schedule is included:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
3. Exhibits
3.1 Certificate of Incorporation
3.1.1 Certificate of Amendment to Certificate of
Incorporation**
3.2 Bylaws
10.1 Employment Agreement, dated as of October 23, 1990,
between the registrant and James D. Cole. *
10.2 Lease Agreement, dated as of May 17, 1990, by and
between Harold F. Bean Jr. and Newpark Environmental
Services, Inc. ("NESI").
60
10.3 Building Lease Agreement, dated April 10, 1992, between
the registrant and The Traveler' Insurance Company.
10.4 Building Lease Agreement, dated May 14, 1992, between
State Farm Life Insurance Company, and SOLOCO, Inc.
10.5 Operating Agreement, dated June 30, 1993, between
Goldrus Environmental Services, Inc. and NESI.
10.6 1992 Directors' Stock Option Plan. *
10.7 1993 Non-Employee Directors' Stock Option Plan. *
10.7.1 Amendment to the 1993 Non-Employee Directors' Stock
Option Plan.**
10.8 Amended and Restated 1988 Incentive Stock Option Plan.
*
10.8.1 1995 Incentive Stock Option Plan**
10.9 Loan Agreements, dated December 30, 1993, between
the registrant and SFA Industries, Inc.
10.10 Continuing Guaranty, dated December 30, 1993, between
the registrant and Sam Eakin.
10.11 Pledge Agreement, dated December 30, 1993, between
the registrant and SFA Industries, Inc.
10.12 Security Agreement, dated December 30, 1993, between
the registrant and SFA Industries, Inc.
10.13 Lease and Security Agreement, dated December 30, 1993,
between the registrant and SFA Industries, Inc.
10.14 Guaranty of Lease, dated December 30, 1993, between
the registrant and SFA Industries, Inc.
10.15 Equipment Lease Agreement, dated March 11, 1994, among
Republic Financial Corporation ("RFC"), the registrant
and Newpark Shipholding, Inc.
10.16 Guaranty, dated March 11, 1994, by the registrant in favor
of RFC.
10.17 First Note, dated March 11, 1994, by the registrant in
favor of RFC.
61
10.18 Special Guaranty, dated March 11, 1994, by the registrant
in favor of Lockwood National Bank of Houston.
10.19 Exclusive License Agreement, dated June 20, 1994, between
SOLOCO, Inc. and Quality Mat Company.
10.20 Lease Agreement, dated as of July 29, 1994, by and between
Harold F. Bean Jr. and NESI.
10.21 Credit Agreement by and among Newpark Resources, Inc.,
SOLOCO, Inc., Newpark Environmental Services, Inc.,
SOLOCO Texas, L. P., Batson Mill, L.P., Newpark
Environmental Water Services, Inc., Newpark Shipholding
Texas, L.P., Mallard and Mallard of La., Inc., SOLOCO,
L. L. C., Newpark Texas, L. L. C., Newpark Holdings,
Inc., Hibernia National Bank, Bank One Texas, N. A.,
and Premier Bank, National Association.
10.21.1Second Amendment and Supplement to the Credit Agreement,
dated March 5, 1996 to Credit Agreement by and among
Newpark Resources, Inc., SOLOCO, L. L. C., Newpark
Environmental Services, L. L. C., Newpark Shipholding
Texas, L.P., SOLOCO Texas, L. P., Batson Mill, L. P.,
Newpark Environmental Water Services, Inc., Mallard and
Mallard of La., Inc., Newpark Texas, L. L. C., Newpark
Holdings, Inc., Hibernia National Bank, Bank One Texas,
N. A., and Premier Bank, National Association. **
10.22 Credit Agreement, dated December 1, 1995, between
SOLOCO, Inc., and Hibernia National Bank**
21.1 Subsidiaries of the Registrant **
23.1 Consent of Deloitte & Touche **
24.1 Powers of Attorney **
________________________________
* Management Compensation Plan or Agreement.
** Filed herewith.
Previously filed in the exhibits to the registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991, and incorporated by reference herein.
Previously filed in the exhibits to the registrant's
Registration Statement on Form S-1 (File No. 33-40716)
filed on June 21, 1991, and incorporated by reference
herein.
62
Previously filed in the exhibits to the registrant's
Registration Statement on Form S-8 (File No. 33-67284)
filed on August 12, 1993, and incorporated by reference
herein.
Previously filed in the exhibits to the registrant's
Registration Statement on Form S-8 (File No. 33-83680)
filed on August 12, 1993, and incorporated by reference
herein.
Previously filed in the exhibits to the registrant's
Current Report on Form 8-K, dated January 14, 1994, and
incorporated by reference herein.
Previously filed in the exhibits to the registrant's
Current Report on Form 8-K, dated March 25, 1994, and
incorporated by reference herein.
Previously filed in the exhibits to the registrant's
Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated by reference herein.
Previously filed in the exhibits to the registrant's
Current Report on Form 8-K, dated July 18, 1995, and
incorporated by reference herein.
Previously filed as Exhibit B to the registrant's
Definitive Proxy Materials relating to its Annual Meeting
of Shareholders held on June 28, 1995 and incorporated by
reference herein.
(b) Reports on Form 8-K
The registrant did not file a report on Form 8-K during
the fourth quarter of 1995.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 8, 1996
NEWPARK RESOURCES, INC.
By: /s/ James D. Cole
James D. Cole, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
Signatures Title Date
/s/ James D. Cole President and Chief Executive March 8, 1996
James D. Cole Officer and Director
/s/ Matthew W. Hardey Vice President of Finance and March 8, 1996
Matthew W. Hardey Chief Financial Officer
/s/ Kathleen D. Lacoste Controller March 8, 1996
Kathleen D. Lacoste
/s/ Philip S. Sassower* Chairman of the Board March 8, 1996
Philip S. Sassower and Director
/s/ Wm. Thomas Ballantine Director March 8, 1996
Wm. Thomas Ballantine
/s/ W. W. Goodson* Director March 8, 1996
W. W. Goodson
/s/David P. Hunt* Director March 8, 1996
David P. Hunt
/s/ Dr. Alan Kaufman* Director March 8, 1996
Dr. Alan Kaufman
/s/ James H. Stone* Director March 8, 1996
James H. Stone
By /s/ James D. Cole
* James D. Cole
Attorney-in-Fact
64
Newpark Resources, Inc. SCHEDULE II
Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993
(In thousands of dollars)
Additions
Balance Charged Balance
at to at
Beginning Costs and Other Other End of
of Year Expenses Additions Deductions Year
_________ _________ _________ __________ _______
1995
Allowance for
doubtful accounts $ 455 $ 463 $ 13 (a) $ (163)(b) $ 768
========= ========= ========== ========= =========
Valuation allowance for
deferred tax assets $ 967 - $ 969 (d) $ (1,700)(c) $ 236
========= ========= ========== ========= =========
1994
Allowance for
doubtful accounts $ 354 $ 974 $ 44 (a) $ (917)(b) $ 455
========= ========= ========== ========= =========
Valuation allowance for
deferred tax assets $ 4,096 - - $ (3,129)(c) $ 967
========= ========= ========== ========= =========
1993
Allowance for
doubtful accounts $ 352 $ 671 - $ (669)(b) $ 354
========= ========= ========== ========= =========
Valuation allowance for
deferred tax assets $ 6,503 - - $ (2,407)(c) $ 4,096
========= ========= ========== ========= =========
(a) Recovery of amounts previously written off and other adjustments.
(b) Write-offs.
(c) Change in valuation allowance reflecting the future benefit of net operating losses.
(d) Initial set-up of valuation allowance.
65