e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File No. 1-2960
Newpark Resources, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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72-1123385 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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2700 Research Forest Drive, Suite 100 |
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The Woodlands, Texas
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77381 |
(Address of principal executive offices)
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(Zip Code) |
(281) 362-6800
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act. (Check one)
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of July 25, 2007, a total of 90,086,238 shares of Common Stock, $0.01 par value per share, were
outstanding.
NEWPARK RESOURCES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED
June 30, 2007
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act
of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also
may provide oral or written forward-looking statements in other materials we release to the public.
The words anticipates, believes, estimates, expects, plans, intends, and similar
expressions are intended to identify these forward-looking statements but are not the exclusive
means of identifying them. These forward-looking statements reflect the current views of our
management; however, various risks, uncertainties and contingencies, including the risks identified
in Item 1A, Risk Factors, in Part I of our Annual Report on Form 10-K for the year ended December
31, 2006, and those set forth from time to time in our filings with the Securities and Exchange
Commission, could cause our actual results, performance or achievements to differ materially from
those expressed in, or implied by, these statements, including the success or failure of our
efforts to implement our business strategy.
We assume no obligation to update publicly any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by securities laws. In light of
these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly
Report on Form 10-Q might not occur.
For further information regarding these and other factors, risks and uncertainties affecting
us, we refer you to the risk factors set forth in Part I of our Annual Report on Form 10-K for the
year ended December 31, 2006.
2
PART I
ITEM 1. Unaudited Consolidated Financial Statements
Newpark Resources, Inc.
Consolidated Balance Sheets
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June 30, |
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December 31, |
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(In thousands, except share data) |
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2007 |
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2006 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
3,483 |
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$ |
12,974 |
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Receivables, net |
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156,681 |
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154,443 |
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Inventories |
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107,464 |
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108,129 |
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Deferred tax asset |
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26,052 |
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22,970 |
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Prepaid expenses and other current assets |
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18,207 |
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12,878 |
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Assets of discontinued operations |
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9,023 |
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15,459 |
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Total current assets |
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320,910 |
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326,853 |
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Property, plant and equipment, net |
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223,588 |
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220,827 |
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Goodwill |
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56,013 |
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55,143 |
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Deferred tax asset |
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5,348 |
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Other intangible assets, net |
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11,038 |
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11,623 |
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Other assets |
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6,541 |
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7,875 |
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$ |
618,090 |
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$ |
627,669 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Foreign bank lines of credit |
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$ |
4,546 |
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$ |
10,938 |
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Current maturities of long-term debt |
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6,383 |
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4,208 |
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Accounts payable |
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53,412 |
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43,793 |
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Accrued liabilities |
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36,350 |
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42,692 |
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Liabilities of discontinued operations |
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844 |
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364 |
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Total current liabilities |
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101,535 |
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101,995 |
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Long-term debt, less current portion |
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166,040 |
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198,186 |
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Deferred tax liability |
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4,567 |
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Other non-current liabilities |
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4,210 |
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4,345 |
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Total liabilities |
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276,352 |
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304,526 |
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Stockholders equity: |
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Common Stock, $0.01 par value, 100,000,000 shares
authorized, 90,043,854 and 89,675,292 shares issued
and outstanding, respectively |
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900 |
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897 |
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Paid-in capital |
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447,568 |
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444,763 |
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Accumulated other comprehensive income |
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11,944 |
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7,940 |
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Retained deficit |
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(118,674 |
) |
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(130,457 |
) |
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Total stockholders equity |
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341,738 |
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323,143 |
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$ |
618,090 |
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$ |
627,669 |
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See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements
3
Newpark Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(In thousands, except per share data) |
|
2007 |
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2006 |
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2007 |
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2006 |
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Revenues |
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$ |
167,050 |
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$ |
160,724 |
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$ |
334,251 |
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$ |
322,603 |
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Cost of revenues |
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145,587 |
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141,015 |
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288,327 |
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283,859 |
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|
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21,463 |
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19,709 |
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45,924 |
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38,744 |
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General and administrative expenses |
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5,111 |
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5,463 |
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13,266 |
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8,792 |
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Operating income |
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16,352 |
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14,246 |
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32,658 |
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29,952 |
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Foreign currency exchange gain |
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(293 |
) |
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|
(432 |
) |
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(179 |
) |
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(327 |
) |
Interest expense, net |
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3,817 |
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4,123 |
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|
8,241 |
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|
8,916 |
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Income from continuing operations
before income taxes |
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12,828 |
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10,555 |
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24,596 |
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|
21,363 |
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Provision for income taxes |
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4,584 |
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|
3,694 |
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8,774 |
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|
7,555 |
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Income from continuing operations |
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8,244 |
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|
6,861 |
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|
|
15,822 |
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|
13,808 |
|
Loss from discontinued operations,
net of tax |
|
|
(2,945 |
) |
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|
(938 |
) |
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|
(3,289 |
) |
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(1,700 |
) |
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Net income |
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$ |
5,299 |
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|
$ |
5,923 |
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|
$ |
12,533 |
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$ |
12,108 |
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Weighted average shares outstanding |
|
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|
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Basic |
|
|
89,979 |
|
|
|
89,373 |
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|
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89,907 |
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|
89,212 |
|
Diluted |
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|
90,671 |
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89,874 |
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|
|
90,359 |
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|
89,991 |
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|
|
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|
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Basic earnings per share |
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|
|
|
|
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|
|
|
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Income from continuing operations |
|
$ |
0.09 |
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|
$ |
0.08 |
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|
$ |
0.18 |
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|
$ |
0.16 |
|
Loss from discontinued operations |
|
|
(0.03 |
) |
|
|
(0.01 |
) |
|
|
(0.04 |
) |
|
|
(0.02 |
) |
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|
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|
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|
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Income per share |
|
$ |
0.06 |
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|
$ |
0.07 |
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|
$ |
0.14 |
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|
$ |
0.14 |
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Diluted earnings per share |
|
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|
|
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Income from continuing operations |
|
$ |
0.09 |
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|
$ |
0.08 |
|
|
$ |
0.18 |
|
|
$ |
0.15 |
|
Loss from discontinued operations |
|
|
(0.03 |
) |
|
|
(0.01 |
) |
|
|
(0.04 |
) |
|
|
(0.02 |
) |
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|
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Income per share |
|
$ |
0.06 |
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|
$ |
0.07 |
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$ |
0.14 |
|
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$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements
4
Newpark Resources, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
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June 30, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Net income |
|
$ |
5,299 |
|
|
$ |
5,923 |
|
|
$ |
12,533 |
|
|
$ |
12,108 |
|
Changes in fair value of interest rate
swap and
cap (net of tax of $23 and $68) |
|
|
(129 |
) |
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|
|
|
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|
(172 |
) |
|
|
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|
Foreign currency translation adjustments |
|
|
3,329 |
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|
1,624 |
|
|
|
4,176 |
|
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|
965 |
|
|
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|
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|
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Comprehensive income |
|
$ |
8,499 |
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|
$ |
7,547 |
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$ |
16,537 |
|
|
$ |
13,073 |
|
|
|
|
|
|
|
|
|
|
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See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements
5
Newpark Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
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Six Months Ended |
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June 30, |
|
(In thousands) |
|
2007 |
|
|
2006 |
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|
Cash flows from operating activities: |
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Net income |
|
$ |
12,533 |
|
|
$ |
12,108 |
|
Adjustments to reconcile net income to net cash provided by operations: |
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|
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|
Net loss from discontinued operations |
|
|
3,289 |
|
|
|
1,700 |
|
Depreciation and amortization |
|
|
12,221 |
|
|
|
13,110 |
|
Stock-based compensation expense |
|
|
1,197 |
|
|
|
1,133 |
|
Provision for deferred income taxes |
|
|
5,883 |
|
|
|
5,354 |
|
Provision for doubtful accounts |
|
|
524 |
|
|
|
808 |
|
Loss on sale of assets |
|
|
795 |
|
|
|
321 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
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|
Increase in accounts and notes receivable |
|
|
(2,762 |
) |
|
|
(11,325 |
) |
Increase in inventories |
|
|
(2,471 |
) |
|
|
(11,929 |
) |
Increase in other assets |
|
|
(1,219 |
) |
|
|
(862 |
) |
Increase (decrease) in accounts payable |
|
|
9,619 |
|
|
|
(4,107 |
) |
(Decrease) increase in accrued liabilities and other |
|
|
(7,086 |
) |
|
|
6,491 |
|
|
|
|
|
|
|
|
Net operating activities of continuing operations |
|
|
32,523 |
|
|
|
12,802 |
|
Net operating activities of discontinued operations |
|
|
3,627 |
|
|
|
(3,616 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
36,150 |
|
|
|
9,186 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(11,532 |
) |
|
|
(11,972 |
) |
Proceeds from sale of property, plant and equipment |
|
|
633 |
|
|
|
539 |
|
Insurance proceeds from property, plant and equipment claim |
|
|
|
|
|
|
3,471 |
|
|
|
|
|
|
|
|
Net investing activities of continuing operations |
|
|
(10,899 |
) |
|
|
(7,962 |
) |
Net investing activities of discontinued operations |
|
|
|
|
|
|
(10,783 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(10,899 |
) |
|
|
(18,745 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net (payments) borrowings on lines of credit |
|
|
(30,555 |
) |
|
|
15,516 |
|
Proceeds from long-term financing |
|
|
937 |
|
|
|
|
|
Payments on notes payable and long-term debt, net |
|
|
(7,048 |
) |
|
|
(10,417 |
) |
Proceeds from exercise of stock options and ESPP |
|
|
1,702 |
|
|
|
4,075 |
|
Excess tax benefit from exercise of stock options |
|
|
|
|
|
|
596 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(34,964 |
) |
|
|
9,770 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
222 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(9,491 |
) |
|
|
458 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
12,974 |
|
|
|
7,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
3,483 |
|
|
$ |
8,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for: |
|
|
|
|
|
|
|
|
Income taxes (net of refunds) |
|
$ |
3,759 |
|
|
$ |
2,309 |
|
Interest |
|
$ |
8,410 |
|
|
$ |
8,581 |
|
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements
6
NEWPARK RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements of Newpark Resources,
Inc. and our wholly-owned subsidiaries, which we refer to as we, our or us, have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required
to be filed with the Securities and Exchange Commission and do not include all information and
footnotes required by generally accepted accounting principles for complete financial statements.
These consolidated condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2006. The results of operations for the three and six months ended
June 30, 2007 are not necessarily indicative of the results to be expected for the entire year.
In the opinion of management, the accompanying unaudited consolidated condensed financial
statements reflect all adjustments necessary to present fairly our financial position as of June
30, 2007, and the results of our operations and our cash flows for the three and six months ended
June 30, 2007 and 2006. All adjustments are of a normal recurring nature. Our balance sheet at
December 31, 2006 has been derived from the audited financial statements at that date. We have
reclassified certain amounts related to discontinued operations previously reported to conform with
the presentation at June 30, 2007.
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. For further information, see Note 1 in our
Annual Report on Form 10-K for the year ended December 31, 2006.
Note 2 Discontinued Operations
During 2006, we decided to shut down the operations of Newpark Environmental Water Solutions,
LLC (NEWS), and dispose of, or redeploy the assets related to this operation along with the
disposal and water treatment operations in Wyoming which existed prior to the start up of NEWS.
The operations ceased at these facilities during the fourth quarter of 2006, and all remaining
assets of these businesses are held for sale. As a result of separate agreements entered into
during 2007 to sell substantially all remaining assets and settle outstanding claims related to the
NEWS business, a $0.9 million charge ($0.6 million after-tax) was recorded during the quarter ended
June 30, 2007.
During the second quarter of 2007, we began to explore strategic alternatives related to a
sawmill facility that supplies wood products to third parties and provides wooden mat materials for
our Mats and Integrated Services segment. In June 2007, we signed a letter of intent with a third
party to sell substantially all of the operating assets of the sawmill facility for $4.0 million,
subject to certain adjustments. In July 2007, we entered into a definitive agreement related to
this transaction. Accordingly, we reclassified all assets, liabilities and the results of
operations to discontinued operations for all periods presented, and recorded an impairment charge
of $3.2 million ($2.1 million after-tax) to reduce the value of the sawmill assets to expected
realizable value. We expect the sale of this facility to be completed in the third quarter of
2007.
7
Summarized results of operations from discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
(In thousands) |
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Revenues |
|
$ |
3,748 |
|
|
$ |
4,107 |
|
|
$ |
8,347 |
|
|
$ |
8,993 |
|
Loss from discontinued operations
before income taxes |
|
|
(4,419 |
) |
|
|
(1,437 |
) |
|
|
(4,880 |
) |
|
|
(2,604 |
) |
Loss from discontinued operations,
net of tax |
|
|
(2,945 |
) |
|
|
(938 |
) |
|
|
(3,289 |
) |
|
|
(1,700 |
) |
Assets and liabilities of discontinued operations are as follows as of June 30, 2007 and
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December |
|
(In thousands) |
|
2007 |
|
|
31, 2006 |
|
|
|
|
|
Current assets |
|
$ |
3,340 |
|
|
$ |
5,935 |
|
Property, plant and equipment |
|
|
5,659 |
|
|
|
9,500 |
|
Other assets |
|
|
24 |
|
|
|
24 |
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
$ |
9,023 |
|
|
$ |
15,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
844 |
|
|
$ |
364 |
|
|
|
|
|
|
|
|
Note 3 Earnings per Share
The following table presents the reconciliation of the numerator and denominator for
calculating income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(In thousands, except per share amounts) |
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
5,299 |
|
|
$ |
5,923 |
|
|
$ |
12,533 |
|
|
$ |
12,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
89,979 |
|
|
|
89,373 |
|
|
|
89,907 |
|
|
|
89,212 |
|
Add: Net effect of dilutive stock
options, warrants and restricted stock |
|
|
692 |
|
|
|
501 |
|
|
|
452 |
|
|
|
779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average number of
common shares outstanding |
|
|
90,671 |
|
|
|
89,874 |
|
|
|
90,359 |
|
|
|
89,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
|
$ |
0.06 |
|
|
$ |
0.07 |
|
|
$ |
0.14 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
$ |
0.06 |
|
|
$ |
0.07 |
|
|
$ |
0.14 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2007, we had dilutive stock options and warrants
of approximately 3.9 million shares and 1.3 million shares, respectively, which were assumed to be
exercised using the treasury stock method. For the three and six months ended June 30, 2006, we
had dilutive stock options and warrants of approximately 2.1 million shares and
8
2.7 million shares, respectively, which were assumed to be exercised using the treasury stock
method. The resulting net effects of stock options and warrants were used in calculating diluted
income per share for these periods.
During the three and six months ended June 30, 2007, respectively, we issued 124,197 shares
and 317,562 shares in conjunction with the exercise of stock options. During the three and six
months ended June 30, 2007, respectively, we issued 10,000 shares and 50,000 shares in conjunction
with the vesting of time restricted shares.
Options
and warrants to purchase a total of approximately 1.0 million
shares and 3.6 million
shares, respectively, of common stock were outstanding during the three and six months ended June
30, 2007, respectively, but were not included in the computation of diluted income per share
because they were anti-dilutive. Options and warrants to purchase a total of approximately 4.2
million shares and 3.5 million shares, respectively, of common stock were outstanding during the
three and six months ended June 30, 2006, respectively, but were not included in the computation of
diluted income per share because they were anti-dilutive.
On June 1, 2000, we completed the sale of 120,000 shares of Series B Convertible Preferred
Stock, $0.01 par value per share (the Series B Preferred Stock), and a warrant (the Series B
Warrant) to purchase up to 1,900,000 shares of our Common Stock at an exercise price of $10.075
per share, subject to anti-dilution adjustments. Prior to 2007, all outstanding Series B Preferred
Stock was converted to Common Stock. As of June 30, 2007, the Series B Warrant, as adjusted for
certain anti-dilution provisions, remains outstanding and provides for the right to purchase up to
1,928,972 shares of our Common Stock. The Series B Warrant was
originally issued with a seven year life,
expiring June 1, 2007. This warrant contains certain registration provisions, which, if not met,
reduce the exercise price of the warrants by 2.5%, compounding
monthly, extending the term of
the warrant. The warrant may also provide for a corresponding
increase in the number of shares that can be purchased by the
warrant. We are currently not in compliance with the registration provisions and do not
currently expect to establish an effective registration of this warrant until November 2007. As a
result of the anti-dilution adjustments and registration provisions, the exercise price for these
warrants is $7.51 as of June 30, 2007.
Note 4 Stock Based Compensation
During the quarter ended June 30, 2007, the Compensation Committee of our Board of Directors
approved equity-based compensation to key employees, executive officers, directors and other
corporate and divisional officers. These awards included a grant of 415,000 deferred stock awards
which become payable share for share in Common Stock subject to meeting certain performance
criteria over a three year measurement period. Additionally, 957,500 stock options were granted at
an exercise price of $7.82 which provide for equal vesting over a three-year period with a term of
ten years. Non-employee directors each received a grant of 10,000 shares of restricted Common
Stock reflecting a total of 60,000 shares, which vest in full on the first anniversary of the grant
date.
9
Note 5 Receivables, net
Receivables consisted of the following at June 30, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December |
|
(In thousands) |
|
2007 |
|
|
31, 2006 |
|
|
|
|
|
Trade receivables |
|
$ |
131,130 |
|
|
$ |
130,613 |
|
Unbilled revenues |
|
|
27,852 |
|
|
|
23,455 |
|
Notes and other receivables |
|
|
655 |
|
|
|
2,740 |
|
|
|
|
|
|
|
|
Gross accounts receivables |
|
|
159,637 |
|
|
|
156,808 |
|
Allowance for doubtful accounts |
|
|
(2,956 |
) |
|
|
(2,365 |
) |
|
|
|
|
|
|
|
Receivables, net |
|
$ |
156,681 |
|
|
$ |
154,443 |
|
|
|
|
|
|
|
|
Note 6 Inventory
Inventory consisted of the following at June 30, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December |
|
(In thousands) |
|
2007 |
|
|
31, 2006 |
|
|
|
|
|
Finished goods-composite mats |
|
$ |
6,880 |
|
|
$ |
14,458 |
|
|
|
|
|
|
|
|
Raw materials and components: |
|
|
|
|
|
|
|
|
Drilling fluids raw material and components |
|
|
94,109 |
|
|
|
89,240 |
|
Supplies and other |
|
|
6,475 |
|
|
|
4,431 |
|
|
|
|
|
|
|
|
Total raw materials and components |
|
|
100,584 |
|
|
|
93,671 |
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
107,464 |
|
|
$ |
108,129 |
|
|
|
|
|
|
|
|
Note 7 Commitments and Contingencies
Shareholder Litigation
Settlement of Shareholder Derivative and Class Action Litigation
On April 13, 2007, we announced that, subject to court approval, we had reached a settlement
of our pending derivative and class action litigation described below. Under the terms of the
settlement, we will pay $1.6 million, and our directors and officers liability insurance carrier
will pay $8.3 million. A portion of these amounts will be used to pay administration costs and
legal fees. If approved, the settlement will resolve all pending shareholder class and derivative
litigation against us, our former and current directors, and former officers. As part of the
settlement, however, we will preserve certain claims against our former Chief Executive Officer and
Chief Financial Officer for matters arising from the potential invoicing irregularities at Soloco
Texas, LP and the backdating of stock options. The settlement has received preliminary court
approval and notification is being sent to the shareholders. A hearing to consider final approval
of the settlement is scheduled for October 9, 2007. As of June 30, 2007, we have accrued our
estimated costs required to conclude this settlement. The history and nature of this litigation is
set forth below.
10
Derivative Actions
On August 17, 2006, a shareholder derivative action was filed in the 24th Judicial
District Court for the Parish of Jefferson, captioned: Victor Dijour, Derivatively on
Behalf of Nominal Defendant Newpark Resources, Inc., v. James D. Cole, et al. On August 28,
2006, a second shareholder derivative action was filed in the 24th Judicial District Court
for the Parish of Jefferson, captioned: James Breaux, Derivatively on Behalf of Nominal
Defendant Newpark Resources, Inc., v. James D. Cole, et al. These actions, which are
substantially similar, were brought, allegedly for the benefit of us, in which we are sued
as a nominal defendant in each of these actions, against James D. Cole, our former Chief
Executive Officer and director; Matthew W. Hardey, our former Chief Financial Officer;
William Thomas Ballantine, our former Chief Operating Officer, President and director; and
directors David P. Hunt, Alan J. Kaufman, Roger C. Stull and James H. Stone. The plaintiffs
in these respective actions allege improper backdating of stock option grants to our
executives, improper recording and accounting of the backdated stock option grants and
producing and disseminating false financial statements and other SEC filings to our
shareholders and the market. The plaintiffs do not seek any recovery against us. Instead,
they seek unspecified damages from the individual defendants on our behalf for alleged
breach of fiduciary duty, and against Messrs. Cole and Hardey, and also against Mr.
Ballantine in the second shareholder derivative action, for alleged unjust enrichment. These
two cases were voluntarily dismissed without prejudice by the plaintiffs on December 29,
2006 and have subsequently been re-filed in the U.S. District Court for the Eastern District
of Louisiana. The complaints in the re-filed cases are virtually identical to the complaints
filed in the Galchutt and Pomponi cases described below.
On October 5, 2006, a third shareholder derivative action was filed in the U.S.
District Court, Eastern District of Louisiana, captioned: Vincent Pomponi, Derivatively on
Behalf of Newpark Resources, Inc., v. James D. Cole, et al. On October 6, 2006, a fourth
derivative action was filed in the U.S. District Court, Eastern District of Louisiana,
captioned: David Galchutt, Derivatively on Behalf of Newpark Resources, Inc., v. James D.
Cole, et al. These complaints are virtually identical and were brought, allegedly for the
benefit of us, in which we are sued as a nominal defendant, against Messrs. Cole and Hardey
and current and previous directors Hunt, Kaufman, Stone, Stull, Jerry W. Box, F. Walker
Tucei, Jr., Gary L. Warren, Ballantine, Michael Still, Dibo Attar, Phillip S. Sassower,
Lawrence I. Schneider and David C. Baldwin, alleging improper financial reporting and
backdating of stock option grants to our employees. The plaintiffs do not seek any recovery
against us. Instead, they seek unspecified damages from Messrs. Cole and Hardey for alleged
disgorgement under the Sarbanes-Oxley Act of 2002 and alleged rescission, against Messrs.
Hardey, Hunt, Kaufman, Stone, Ballantine, Still, Attar, Sassower, Schneider, and Baldwin for
alleged violation of Section 14(a) of the Securities Exchange Act of 1934, which we refer to
as the Exchange Act, and against all of the individual defendants on behalf of us for
alleged unjust enrichment, breach of fiduciary duty, abuse of control, gross mismanagement,
waste of corporate assets, and constructive trust. All four derivative actions have been
consolidated in Judge Livaudais court.
Pursuant to previously existing indemnification agreements, we are advancing to the
officer and director defendants the fees they incur to defend themselves, subject to
repayment in the event of a determination that they are not entitled to indemnification. We
have also agreed to advance to the former directors the fees they incur to defend themselves
subject to certain restrictions on reasonableness and an agreement to repay in the event of
a determination that they are not entitled to indemnification.
Our Board of Directors formed a Special Litigation Committee consisting of David C.
Anderson and James W. McFarland, recently elected independent directors who are not named in
any of the derivative actions, to review the allegations in these actions and in any other
derivative actions that may be filed that involve the same subject matter, and the
11
Special Litigation Committee has retained outside counsel to assist it. After
conducting its investigation and analysis of the claims made in the derivative actions, the
Special Litigation Committee approved the settlement of the derivative actions on the terms
outlined above. The Special Litigation Committee has recommended that we preserve our
causes of action against Messrs. Cole and Hardey, but that we not pursue claims against any
other officer or director of our company named in the derivative actions.
Class Action Lawsuit
Between April 21, 2006 and May 9, 2006, five lawsuits asserting claims against us for
violation of Section 10(b) of the Exchange Act, and SEC Rule 10b-5 were filed in the U.S.
District Court for the Eastern District of Louisiana. All five lawsuits have been
transferred to Judge Marcel Livaudais who has consolidated these actions as In re: Newpark
Resources, Inc. Securities Litigation. Following the filing of the Amendment No. 2 to our
Annual Report on Form 10-K/A for 2005 (filed on October 10, 2006), the plaintiffs filed (on
November 9, 2006) a Consolidated Class Action Complaint for Securities Fraud (the
Consolidated Class Complaint) against us and the following directors and officers: James
Cole, Matthew Hardey, Thomas Ballantine, David Hunt, Alan Kaufman, James Stone, Roger Stull
and Jerry Box. The Consolidated Class Complaint alleges that we and the individual
defendants made false and misleading statements in violation of Sections 10(b) and 20(a) of
the Exchange Act. These allegations arise from our disclosure of an internal investigation
into potential irregularities in the processing and payment of invoices at one of our
subsidiaries, Soloco Texas, LP, and alleged improper granting, recording and accounting of
backdated grants of our stock options to our executives. The Consolidated Class Complaint
does not specify the damages sought by the Plaintiffs and no discovery has been conducted to
date.
Pursuant to previously existing indemnification agreements, we are advancing to the
officer and director defendants the fees they incur to defend themselves, subject to
repayment in the event of a determination that they are not entitled to indemnification.
James D. Cole Demand Letter
By letter dated April 25, 2007, counsel for James D. Cole, our former Chief Executive Officer
and former director, notified us that Mr. Cole is pursuing claims against us for breach of his
employment agreement and other causes of action. Mr. Cole seeks recovery of approximately $3.1
million purportedly due under his employment agreement and reimbursement of certain defense costs
incurred in connection with the shareholder litigation and our internal investigation. Mr. Cole
also claims that he is entitled to the sum of $640,000 pursuant to the non-compete provision of his
employment agreement. We believe that Mr. Coles claims regarding his employment agreement are
without merit and intend to vigorously defend any action brought by him.
Other Matters
In response to our announcement to exit the business activities of NEWS as disclosed in our
Current Report on Form 8-K filed on August 30, 2006, we received a letter from counsel for the
Mexican company in September 2006 demanding, among other things, that we return to the Mexican
company certain equipment and pay it an aggregate of $4.0 million for the period that this
equipment was utilized, technical support and administrative costs, unreimbursed costs of the
equipment, and lost profits due to the Mexican companys dedication of time to our water treatment
business. We have resolved this claim by agreeing to return certain equipment belonging to the
Mexican company and providing to them certain assets from the former NEWS operations. A charge of
$0.4 million was recorded in the second quarter of 2007 related to the decommissioning of one of
the former NEWS facilities and our obligations to return the equipment.
12
We have also been advised that the Securities and Exchange Commission (SEC) has opened a
formal investigation into the matters disclosed in Amendment No. 2 to our Annual Report on Form
10-K/A filed on October 10, 2006. We are cooperating with the SEC in their investigation.
In addition, we and our 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 our results of
operations or financial position.
Note 8 Segment Data
Summarized financial information concerning our reportable segments is shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenues by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids Systems and Engineering |
|
$ |
131,163 |
|
|
$ |
111,868 |
|
|
$ |
256,461 |
|
|
$ |
227,157 |
|
Mats and Integrated Services |
|
|
18,819 |
|
|
|
31,133 |
|
|
|
42,785 |
|
|
|
60,384 |
|
Environmental Services |
|
|
17,068 |
|
|
|
17,723 |
|
|
|
35,005 |
|
|
|
35,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
167,050 |
|
|
$ |
160,724 |
|
|
$ |
334,251 |
|
|
$ |
322,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids Systems and Engineering |
|
$ |
16,323 |
|
|
$ |
13,143 |
(1) |
|
$ |
32,953 |
|
|
$ |
25,803 |
(1) |
Mats and Integrated Services |
|
|
2,273 |
|
|
|
4,217 |
|
|
|
6,873 |
|
|
|
8,559 |
|
Environmental Services |
|
|
2,867 |
|
|
|
2,349 |
(2) |
|
|
6,098 |
|
|
|
4,382 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
21,463 |
|
|
|
19,709 |
|
|
|
45,924 |
|
|
|
38,744 |
|
General and administrative expenses |
|
|
5,111 |
|
|
|
5,463 |
|
|
|
13,266 |
|
|
|
8,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
16,352 |
|
|
$ |
14,246 |
|
|
$ |
32,658 |
|
|
$ |
29,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $0.8 million of insurance recoveries as a result of Hurricanes Katrina
and Rita |
|
(2) |
|
Includes $0.1 million of insurance recoveries as a result of Hurricanes Katrina
and Rita |
In the first quarter of 2007 following a comprehensive review of all of our businesses, we
decided to explore strategic alternatives with regards to our Environmental Services business,
including the potential sale of this business. This decision is part of our newly-developed
strategic plan to focus our attention and capital on our Fluids Systems and Engineering and Mats
and Integrated Services businesses. It is in these two segments where we believe there is a
greater opportunity for earnings growth.
Note 9 Uncertain Tax Positions
On January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109
(FIN 48). As a result of the implementation of FIN 48, we performed a comprehensive review of
possible uncertain tax positions in accordance with recognition standards established by FIN 48.
As a result of the implementation of FIN 48, we recognized a liability of approximately $0.8
million resulting in a corresponding increase to the retained deficit balance.
13
We recognize accrued interest and penalties related to uncertain tax positions in interest and
general and administrative expenses, respectively. No interest or penalties have been accrued due
to tax net operating loss carry forwards.
Our United States and international income tax returns for 2003 and subsequent years remain
subject to examination by tax authorities.
14
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition, results of operations, liquidity and
capital resources should be read together with our consolidated financial statements and Notes to
Consolidated Financial Statements contained in this report as well as our Annual Report on Form
10-K for the year ended December 31, 2006.
We are a diversified oil and gas industry supplier and we currently have three operating
segments: Fluids Systems and Engineering, Mats and Integrated Services, and Environmental Services.
We provide these products and services principally to the oil and gas exploration and production
(E&P) industry in the U.S. Gulf Coast, West Texas, U.S. Mid-continent, U.S. Rocky Mountains,
Canada, Mexico, Brazil and areas of Europe and North Africa surrounding the Mediterranean Sea.
Further, we are expanding our presence outside the E&P sector, particularly in Mats and Integrated
Services, where we are marketing to utilities, municipalities, and government sectors.
Following a comprehensive review of all of our businesses in the first quarter of 2007, we
decided to explore strategic alternatives with regards to our Environmental Services business,
including the potential sale of this business. Subsequently, we initiated a sale process for this
business. While we have received indications of interest from
numerous potential buyers and are continuing to conduct due diligence
procedures with them, we have not yet entered into any binding
agreement to sell this business. The decision to explore the potential sale of this business is part of our newly developed strategic plan to focus our attention and
capital on our Fluids Systems and Engineering and Mats and Integrated Services businesses.
In April 2007, we announced that, subject to court approval, we had reached a settlement of
our pending derivative and class action litigation. Under the terms of the settlement, we will pay
$1.6 million, and our directors and officers liability insurance carrier will pay $8.3 million.
If approved, the settlement will resolve all pending shareholder class and derivative litigation
against us, our former and current directors, and our former officers. As part of the settlement,
however, we will preserve certain claims against our former Chief Executive Officer and Chief
Financial Officer for matters arising from the potential invoicing
irregularities at Soloco Texas, LP and the
backdating of stock options. The settlement has received preliminary
court approval and notification is being sent to the shareholders. A
hearing to consider final approval of the settlement is scheduled for
October 9, 2007. As of June 30, 2007, we have accrued our estimated costs required to
conclude this settlement.
During the second quarter of 2007, we began to explore strategic alternatives related to a
sawmill facility that supplies wood products to third parties and provides wooden mat materials for
our Mats and Integrated Services segment. In June 2007, we signed a letter of intent with a third
party to sell substantially all of the operating assets of the sawmill facility for $4.0 million,
subject to certain adjustments. In July 2007, we entered into a definitive agreement related to
this transaction. Accordingly, we recorded an impairment charge of $3.2 million to reduce the
value of the sawmill assets to expected realizable value, and reclassified all assets, liabilities
and results of operations to discontinued operations, for all periods presented. We expect the
sale of this facility to be completed in the third quarter of 2007.
Results of Operations
Our operating results depend in large measure on oil and gas drilling activity levels in the
markets we serve, as well as on the depth of drilling, which governs the revenue potential of each
well. These levels, in turn, depend on oil and gas commodity pricing, inventory levels and product
demand. Rig count data is the most widely accepted indicator of drilling activity. Key average
rig count data for the last six quarters is listed in the following table:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q06 |
|
2Q06 |
|
3Q06 |
|
4Q06 |
|
1Q07 |
|
2Q07 |
U.S. rig count |
|
|
1,521 |
|
|
|
1,635 |
|
|
|
1,721 |
|
|
|
1,719 |
|
|
|
1,734 |
|
|
|
1,757 |
|
Canadian rig count |
|
|
661 |
|
|
|
292 |
|
|
|
490 |
|
|
|
441 |
|
|
|
521 |
|
|
|
144 |
|
|
|
|
|
|
Derived from Baker Hughes Incorporated |
Summarized financial information concerning our reportable segments is shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenues by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids Systems and Engineering |
|
$ |
131,163 |
|
|
$ |
111,868 |
|
|
$ |
256,461 |
|
|
$ |
227,157 |
|
Mats and Integrated Services |
|
|
18,819 |
|
|
|
31,133 |
|
|
|
42,785 |
|
|
|
60,384 |
|
Environmental Services |
|
|
17,068 |
|
|
|
17,723 |
|
|
|
35,005 |
|
|
|
35,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
167,050 |
|
|
$ |
160,724 |
|
|
$ |
334,251 |
|
|
$ |
322,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids Systems and Engineering |
|
$ |
16,323 |
|
|
$ |
13,143 |
(1) |
|
$ |
32,953 |
|
|
$ |
25,803 |
(1) |
Mats and Integrated Services |
|
|
2,273 |
|
|
|
4,217 |
|
|
|
6,873 |
|
|
|
8,559 |
|
Environmental Services |
|
|
2,867 |
|
|
|
2,349 |
(2) |
|
|
6,098 |
|
|
|
4,382 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
21,463 |
|
|
|
19,709 |
|
|
|
45,924 |
|
|
|
38,744 |
|
General and administrative expenses |
|
|
5,111 |
|
|
|
5,463 |
|
|
|
13,266 |
|
|
|
8,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
16,352 |
|
|
$ |
14,246 |
|
|
$ |
32,658 |
|
|
$ |
29,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluids Systems and Engineering |
|
|
12.4 |
% |
|
|
11.7 |
% |
|
|
12.8 |
% |
|
|
11.3 |
% |
Mats and Integrated Services |
|
|
12.1 |
% |
|
|
13.5 |
% |
|
|
16.1 |
% |
|
|
14.2 |
% |
Environmental Services |
|
|
16.8 |
% |
|
|
13.3 |
% |
|
|
17.4 |
% |
|
|
12.5 |
% |
|
|
|
(1) |
|
Includes $0.8 million of insurance recoveries as a result of Hurricanes Katrina
and Rita |
|
(2) |
|
Includes $0.1 million of insurance recoveries as a result of Hurricanes Katrina
and Rita |
The amounts above are shown net of intersegment transfers.
16
Quarter Ended June 30, 2007 Compared to Quarter Ended June 30, 2006
Fluids Systems and Engineering
Revenues
Total revenues by region for this segment were as follows for the three months ended June 30,
2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
2007 |
|
2006 |
|
$ |
|
% |
|
|
|
Drilling fluid sales and
engineering: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
82.8 |
|
|
$ |
70.4 |
|
|
$ |
12.4 |
|
|
|
18 |
% |
Mediterranean |
|
|
20.4 |
|
|
|
14.2 |
|
|
|
6.2 |
|
|
|
44 |
|
|
|
|
|
|
|
|
Total drilling fluid sales
and engineering |
|
|
103.2 |
|
|
|
84.6 |
|
|
|
18.6 |
|
|
|
22 |
|
Completion fluids and services |
|
|
17.8 |
|
|
|
18.3 |
|
|
|
(0.5 |
) |
|
|
(3 |
) |
Industrial materials |
|
|
10.2 |
|
|
|
9.0 |
|
|
|
1.2 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Total |
|
$ |
131.2 |
|
|
$ |
111.9 |
|
|
$ |
19.3 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
North American drilling fluid sales and engineering revenues increased 18% to $82.8 million
for the quarter ended June 30, 2007, as compared to $70.4 million for the quarter ended June 30,
2006. Overall North American rig activity decreased 1% during this period, including a 7% increase
in the U.S. rig count and a 51% decrease in the Canadian rig count. The average number of North
American rigs serviced by this segment, namely the U.S. Gulf Coast, U.S. Central Region and Canada,
decreased by 5%. Significant drivers of the revenue growth were market penetration in areas where
new rigs are being deployed in the off-shore Gulf Coast markets and the servicing of more
complicated wells which generate higher revenues and improved pricing. The decrease in the number
of rigs serviced by this segment is primarily related to the Canadian market due to the decrease in
rig count as well as a shift to drilling shallower conventional oil wells as compared to the
deeper wells that we typically service. Average revenue per rig, an indication of the complexity
and depth of wells being serviced, increased 24% in the quarter ended June 30, 2007 from the same
period in 2006.
In the quarter ended June 30, 2007, our Mediterranean revenues increased 44% over the same
period in 2006. This increase was driven by North African rig activity and continued
penetration into these markets.
Revenues in our industrial materials business is principally associated with wholesale sales
of barite and industrial minerals. These revenues increased $1.2 million for the quarter ended
June 30, 2007, or 13%, as compared to the same period in 2006 as a result of higher demand for
barite driven by the increased drilling activity in the U.S. markets we serve.
Operating Income
Operating income for this segment increased $3.2 million for the quarter ended June 30, 2007
on a $19.3 million increase in revenues, compared to the same period in 2006, representing an
incremental operating margin of 16.5%. The operating margin for this segment for the quarter ended
June 30, 2007 was 12.4%, compared to 11.7% for the comparable
period in 2006. The second quarter of 2006 included $0.8 million
of insurance recoveries from Hurricanes Katrina and Rita. Excluding
this non-recurring item, the increase in
operating margin included $2.1 million attributable to increased
sales volume and $1.9 million
attributable to operating leverage gained throughout the segment and
a change in mix of revenues,
along with an increased focus on pricing driven by higher customer demand.
17
Mats and Integrated Services
Revenues
Total
revenues for this segment consist of the following for the three months ended June 30,
2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
2007 |
|
2006 |
|
$ |
|
% |
|
|
|
Mat rental and integrated services |
|
$ |
13.0 |
|
|
$ |
12.4 |
|
|
$ |
0.6 |
|
|
|
5 |
% |
Mat sales |
|
|
3.5 |
|
|
|
17.1 |
|
|
|
(13.6 |
) |
|
|
(80 |
) |
Non-oilfield services and other |
|
|
2.3 |
|
|
|
1.6 |
|
|
|
0.7 |
|
|
|
44 |
|
|
|
|
|
|
|
|
Total |
|
$ |
18.8 |
|
|
$ |
31.1 |
|
|
$ |
(12.3 |
) |
|
|
(40 |
%) |
|
|
|
|
|
|
|
Oilfield mat rental volume decreased 40% for the quarter ended June 30, 2007 compared to the
same period in 2006, while the average price per square foot increased 16%. Total mat rental and
integrated services revenues increased by $0.6 million in the quarter ended June 30, 2007, compared
to the same period in 2006 as the impact of the lower rental volume was more than offset by
improved pricing combined with a higher mix of re-rental activity and services.
Mat sales primarily consist of export sales of wooden mats to Canada and composite mats to
other regions. The decline in mat sales is primarily attributable to a $9.0 million decrease in
Canadian sales, due to lower drilling activity and non-recurring wooden mat sales in the quarter
ended June 30, 2006. Composite mat export sales were also down in the quarter ended June 30, 2007
from the comparable period of 2006 due to the timing of delivery for certain orders.
Non-oilfield services and other revenues, our lowest-margin business unit for this segment,
were $2.3 million in the quarter ended June 30, 2007, compared to $1.6 million in the same period
of 2006.
Operating Income
Mats and Integrated Services operating income declined $1.9 million for the quarter ended June
30, 2007 on a $12.3 million decrease in revenues, compared to the same period in 2006. Operating
margins decreased to 12.1% for the quarter ended June 30, 2007 as compared to 13.5% for the same
period in 2006. The decrease in operating margin is primarily attributable to the decline in
sales volumes, as certain overhead and administrative costs remain relatively fixed. The decline
in operating profit was partially offset by $0.7 million of cost reductions in the quarter ended
June 30, 2007, resulting from organizational restructuring and general and administrative workforce
reductions completed during the first quarter of 2007.
18
Environmental Services
Revenues
Total revenues for this segment consist of the following for the three months ended June 30,
2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
2007 |
|
2006 |
|
$ |
|
% |
|
|
|
Environmental services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P waste-U.S. Gulf Coast |
|
$ |
12.5 |
|
|
$ |
12.6 |
|
|
$ |
(0.1 |
) |
|
|
(1 |
%) |
E&P waste other markets |
|
|
2.4 |
|
|
|
2.9 |
|
|
|
(0.5 |
) |
|
|
(17 |
) |
NORM and Industrial |
|
|
2.2 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17.1 |
|
|
$ |
17.7 |
|
|
$ |
(0.6 |
) |
|
|
(3 |
%) |
|
|
|
|
|
|
|
E&P waste-U.S. Gulf Coast revenues decreased slightly on a 13% decrease in waste volumes
received. The average revenue per barrel in the U.S. Gulf Coast market increased 11% as compared
to 2006 driven by improved pricing along with increased service revenue. The decrease in E&P waste
revenues from other markets of $0.5 million is related to lower activity in the western Canadian
market.
Operating Income
Environmental Services operating income increased by $0.5 million in the quarter ended June
30, 2007 from the comparable period of 2006, on a $0.6 million decrease in revenues. This change
reflects an improvement in operating margins from 13.3% to 16.8%. The improved operating margins
are primarily attributable to improved pricing described above, along with a continued focus on
operational efficiency.
General and Administrative Expense
General and administrative expense decreased $0.4 million to $5.1 million for the quarter
ended June 30, 2007 from the comparable period of 2006. The quarter ended June 30, 2007 included
$0.4 million of legal fees related to the shareholder class action and derivative litigation, for
which a settlement was reached in April 2007, subject to court approval. The quarter ended June
30, 2006 included $1.4 million of expenses related to the internal investigation conducted by our
Audit Committee which resulted in the restatement of financial statements for the year ended
December 31, 2005. The remaining spending increase of $0.6 million is primarily attributable to a
$0.5 million increase in salaries and other employee-related costs resulting from the relocation of
the corporate office and the addition of new corporate executive officers and staff positions.
Interest Expense, net
Interest expense, net totaled $3.8 million for the quarter ended June 30, 2007 as compared to
$4.1 million for the comparable period of 2006 due to lower average debt balances during the
quarter ended June 30, 2007.
Provision for Income Taxes
For the quarter ended June 30, 2007, we recorded an income tax provision of $4.6 million,
reflecting an income tax rate of 35.7%. For the quarter ended June 30, 2006, we recorded an income
tax provision of $3.7 million, reflecting an income tax rate of 35.0%.
19
Discontinued Operations
During 2006, we decided to shut down the operations of Newpark Environmental Water Solutions,
LLC (NEWS), and dispose of, or redeploy the assets related to this operation along with the
disposal and water treatment operations in Wyoming which existed prior to the start up of NEWS.
The operations ceased at these facilities during the fourth quarter of 2006, and all remaining
assets of these businesses are held for sale. As a result of separate agreements entered into
during 2007 to sell substantially all remaining assets and settle outstanding claims related to the
NEWS business, a $0.9 million charge ($0.6 million after-tax) was recorded during the quarter ended
June 30, 2007.
As described above, we entered into an agreement in July 2007 to sell substantially all of the
operating assets of our sawmill facility for $4.0 million, subject to certain adjustments. As a
result of this agreement, we reclassified all assets, liabilities and results of operations to
discontinued operations for all periods presented, and recorded an impairment charge of $3.2
million ($2.1 million after-tax) to reduce the value of the sawmill assets to expected realizable
value.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Fluids Systems and Engineering
Revenues
Total revenues by region for this segment were as follows for the six months ended June 30,
2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
2007 |
|
2006 |
|
$ |
|
% |
|
|
|
Drilling fluid sales and
engineering: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
161.4 |
|
|
$ |
145.5 |
|
|
$ |
15.9 |
|
|
|
11 |
% |
Mediterranean |
|
|
35.9 |
|
|
|
27.1 |
|
|
|
8.8 |
|
|
|
32 |
|
|
|
|
|
|
|
|
Total drilling fluid sales
and engineering |
|
|
197.3 |
|
|
|
172.6 |
|
|
|
24.7 |
|
|
|
14 |
|
Completion fluids and services |
|
|
37.0 |
|
|
|
35.8 |
|
|
|
1.2 |
|
|
|
3 |
|
Industrial materials |
|
|
22.2 |
|
|
|
18.8 |
|
|
|
3.4 |
|
|
|
18 |
|
|
|
|
|
|
|
|
Total |
|
$ |
256.5 |
|
|
$ |
227.2 |
|
|
$ |
29.3 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
North American drilling fluid sales and engineering revenues increased 11% to $161.4 million
for the six months ended June 30, 2007, as compared to $145.5 million for the first six months of
2006. The average number of North American rigs serviced by this segment, namely the U.S. Gulf
Coast, U.S. Central Region and Canada, decreased by 9% during the period. Significant drivers of
the revenue growth were market penetration in areas where new rigs are being deployed in our
markets, the servicing of more complicated wells which generate higher revenues and improved
pricing. The decrease in the number of rigs serviced by this segment is primarily related to the
Canadian market due to the decrease in rig count and a shift to drilling shallower
conventional oil wells as compared to the deeper wells that we typically service. Average revenue
per rig, an indication of the complexity and depth of wells being serviced, increased 22% in the
six months ended June 30, 2007 from the same period in 2006.
In the six months ended June 30, 2007, our Mediterranean revenues increased 32% over the same
period in 2006. This increase was driven by North African rig activity and continued
penetration into these markets.
Revenues in our industrial materials business is principally associated with wholesale sales
of barite and industrial minerals. These revenues increased $3.4 million for the six months ended
20
June 30, 2007, or 18%, as compared to the same period in 2006 as a result of higher demand for
barite driven by the increased drilling activity in the U.S. markets we serve.
Operating Income
Operating income for this segment increased $7.2 million for the six months ended June 30,
2007 on a $29.3 million increase in revenues, compared to the same period in 2006, representing an
incremental operating margin of 24.6%. The operating margin for this segment for the six months
ended June 30, 2007 was 12.8%, compared to 11.3% for the
comparable period in 2006. The six months ended June 30, 2006
included $0.8 million of insurance recoveries from Hurricanes
Katrina and Rita. Excluding this non-recurring item, the increase
in operating margin included $3.2 million attributable to
increased sales volume and $4.8 million
attributable to operating leverage gained throughout the segment and a change in mix of revenues
along with an improved pricing driven by higher market demand.
Mats and Integrated Services
Revenues
Total
revenues for this segment consist of the following for the six months ended June 30,
2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
2007 |
|
2006 |
|
$ |
|
% |
|
|
|
Mat rental and integrated services |
|
$ |
31.1 |
|
|
$ |
26.4 |
|
|
$ |
4.7 |
|
|
|
18 |
% |
Mat sales |
|
|
8.9 |
|
|
|
31.7 |
|
|
|
(22.8 |
) |
|
|
(72 |
) |
Non-oilfield services |
|
|
2.8 |
|
|
|
2.3 |
|
|
|
0.5 |
|
|
|
22 |
|
|
|
|
|
|
|
|
Total |
|
$ |
42.8 |
|
|
$ |
60.4 |
|
|
$ |
(17.6 |
) |
|
|
(29 |
%) |
|
|
|
|
|
|
|
Oilfield mat rental volume decreased 19% for the six months ended June 30, 2007 compared to
the same period in 2006, while the average price per square foot increased 23%. Total mats rental
and integrated services increased by $4.7 million in the six months ended June 30, 2007, compared
to the same period in 2006, as the impact of the lower rental volume was more than offset by
improved pricing combined with a higher mix of re-rental activity and services.
Mat sales primarily consist of export sales of wooden mats to Canada and composite mats to
other regions. The decline in mat sales is primarily attributable to a $16.7 million decrease in
Canadian sales, due to lower drilling activity and non-recurring wooden mat sales recorded in the
six months ended June 30, 2006. Composite mat export sales were also down in the six months ended
June 30, 2007 from the comparable period of 2006 due to the
timing of delivery for certain orders.
Non-oilfield services and other revenues, our lowest-margin business unit for this segment,
were $2.8 million in the six months ended June 30, 2007, compared to $2.3 million in the same
period of 2006.
Operating Income
Mats and Integrated Services operating income declined $1.7 million for the six months ended
June 30, 2007 on a $17.6 million decrease in revenues, compared to the same period in 2006.
Operating margins improved to 16.1% for the six months ended June 30, 2007 as compared to 14.2% for
the same period in 2006. The improvement in operating margin is primarily attributable to
favorable pricing and strong market conditions experienced in the first quarter of 2007, combined
with $0.7 million of cost reductions achieved in the quarter ended June 30, 2007, resulting from
organizational restructuring and general and administrative workforce reductions completed during
the first quarter of 2007.
21
Environmental Services
Revenues
Total revenues for this segment consist of the following for the six months ended June 30,
2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
2007 |
|
2006 |
|
$ |
|
% |
|
|
|
Environmental Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&P waste-U.S. Gulf Coast |
|
$ |
24.8 |
|
|
$ |
24.2 |
|
|
$ |
0.6 |
|
|
|
2 |
% |
E&P waste other markets |
|
|
5.9 |
|
|
|
7.2 |
|
|
|
(1.3 |
) |
|
|
(18 |
) |
NORM and industrial |
|
|
4.3 |
|
|
|
3.7 |
|
|
|
0.6 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Total |
|
$ |
35.0 |
|
|
$ |
35.1 |
|
|
$ |
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
E&P waste-U.S. Gulf Coast revenues increased $0.6 million, or 2%, on a 9% decrease in waste
volumes received. The average revenue per barrel in the U.S. Gulf Coast market increased 12% as
compared to the same period in 2006 which was driven by improved pricing as well as increased
services revenue. The decrease in E&P waste revenues from other markets of $1.3 million is related
to lower activity in the western Canadian market. NORM and industrial revenues increased due to an
increase in waste volumes received, combined with improved revenue per barrel.
Operating Income
Environmental Services operating income increased by $1.7 million in the six months ended June
30, 2007 from the comparable period of 2006, on a $0.1 million decrease in revenues. This change
reflects an improvement in operating margins from 12.5% to 17.4%. The improved operating margins
are primarily attributable to improved pricing described above, combined with the higher mix of
NORM and industrial revenues, which resulted in higher revenues per barrel throughout the segment.
General and Administrative Expense
General and administrative expense increased $4.5 million to $13.3 million for the six months
ended June 30, 2007 from the comparable period of 2006. The six months ended June 30, 2007
included $2.8 million of legal expenses related to the shareholder class action and derivative
litigation, including a $1.6 million settlement charge based on an April 2007 agreement that is
subject to court approval. Additionally, the six months ended June 30, 2007 included consulting
fees of $1.0 million related to corporate strategic planning projects.
The six months ended June 30, 2006 included $1.4 million of expenses related to the internal
investigation conducted by our Audit Committee which resulted in the restatement of financial
statements for the year ended December 31, 2005. The remaining spending increase of $2.1 million
is primarily attributable to an increase in salaries and other employee related costs resulting
from the relocation of the corporate office and the addition of new corporate executive officers
and staff positions.
Interest Expense, net
Interest expense, net totaled $8.2 million for the six months ended June 30, 2007 as compared
to $8.9 million for the comparable period of 2006 due to lower average debt balances during the six
months ended June 30, 2007.
22
Provision for Income Taxes
For the six months ended June 30, 2007, we recorded an income tax provision of $8.8 million,
reflecting an income tax rate of 35.7%. For the six months ended June 30, 2006, we recorded an
income tax provision of $7.6 million, reflecting an income tax rate of 35.4%.
Discontinued Operations
As described above, during 2006, we decided to shut down the operations of Newpark
Environmental Water Solutions, LLC (NEWS), and dispose of, or redeploy the assets related to this
operation along with the disposal and water treatment operations in Wyoming which existed prior to
the start up of NEWS. The operations ceased at these facilities during the fourth quarter of 2006,
and all remaining assets of these businesses are held for sale. As a result of separate agreements
entered into during 2007 to sell substantially all remaining assets and settle outstanding claims
related to the NEWS business, a $0.9 million charge ($0.6 million after-tax) was recorded during
the quarter ended June 30, 2007.
As described previously, we entered into an agreement in July 2007 to sell substantially all
of the operating assets of our sawmill facility for $4.0 million, subject to certain adjustments.
See the discussion in Item 2 regarding the quarter ended June 30, 2007 compared to the quarter
ended June 30, 2006 for additional details.
Liquidity and Capital Resources
Cash generated from operating activities during the six months ended June 30, 2007 totaled
$36.2 million. Net income adjusted for non-cash items generated
$33.2 million of cash during the
period, while changes in working capital used $0.3 million of cash. Capital expenditures for the
six months ended June 30, 2007 were $11.5 million.
Net cash used in financing activities during the six months ended June 30, 2007 totaled $35.0
million and included $36.7 million in net debt repayments. These repayments were primarily funded
by net income, $9.5 million reduction in idle cash balances, along with $1.7 million in proceeds
from employee stock plans.
We anticipate that our working capital requirements for 2007 will continue to increase with
the anticipated growth in revenue. Cash generated by net income, along with our continued focus on
improving our collection cycle are expected to be adequate to fund this increase in working
capital.
Our long term capitalization was as follows as of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
Term Credit Facility |
|
$ |
142,566 |
|
|
$ |
148,125 |
|
Credit facility-revolver |
|
|
20,929 |
|
|
|
44,825 |
|
Other, primarily mat financing |
|
|
2,545 |
|
|
|
5,236 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
166,040 |
|
|
|
198,186 |
|
Stockholders equity |
|
|
341,738 |
|
|
|
323,143 |
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
507,778 |
|
|
$ |
521,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt to long-term capitalization |
|
|
32.7 |
% |
|
|
38.0 |
% |
|
|
|
|
|
|
|
In August 2006, we entered into a Term Credit Facility, which has an aggregate face amount of
$150.0 million, a five-year term and a current interest rate of LIBOR plus 3.00%, based
on our corporate family ratings by Moodys and Standard & Poors. The maturity date of the
Term Credit Facility is August 18, 2011.
23
In December 2006, we entered into a Revolving Credit Facility, which has a maximum aggregate
face amount of $100.0 million and matures on June 25, 2011. The Revolving Credit Facility is
secured by a first lien on our U.S. accounts receivable and inventory and by a second lien on our
U.S. tangible and intangible assets. Availability under the Revolving Credit Facility is based on
a percentage of our eligible consolidated accounts receivable and inventory as defined in the
Revolving Credit Facility.
At
June 30, 2007, we had $20.9 million outstanding under the
$100 million Revolving Credit Facility and $5.7 million in
letters of credit issued and outstanding, leaving $73.4 million of
availability. The Revolving Credit Facility bears interest at our choice of either a specified
prime rate (8.25% at June 30, 2007), or a LIBOR rate plus a spread determined quarterly based upon
the amount of the prior quarter average availability under the Revolving Credit Facility (7.07% at
June 30, 2007). The weighted average interest rates on the outstanding balances under the credit
facilities as of June 30, 2007 and December 31, 2006 were 7.80% and 7.63%, respectively.
Both the Term Credit Facility and Revolving Credit Facility contain a fixed charge coverage
ratio covenant and a debt to EBITDA ratio. As of June 30, 2007, we were in compliance with the
financial covenants contained in these facilities. The Term Credit Facility and the Revolving
Credit Facility also contain covenants that significantly limit our ability to pay dividends on our
common stock, incur additional debt and repurchase our common stock.
With respect to additional off-balance sheet liabilities, we lease most of our office and
warehouse space, barges, rolling stock and certain pieces of operating equipment under operating
leases.
Except as described in the preceding paragraphs, we are not aware of any material
expenditures, significant balloon payments or other payments on long-term obligations or any other
demands or commitments, including off-balance sheet items to be incurred within the next 12 months.
Inflation has not materially impacted our revenues or income.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles, which requires us to make assumptions, estimates and judgments that affect
the amounts reported. We periodically evaluate our estimates and judgments related to
uncollectible accounts and notes receivable, customer returns, reserves for obsolete and slow
moving inventory, impairments of long-lived assets, including goodwill and other intangibles and
our valuation allowance for deferred tax assets. Our estimates are based on historical experience
and on our future expectations that we believe to be reasonable. The combination of these factors
forms the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from our current estimates and
those differences may be material.
For additional discussion of our critical accounting estimates and policies, see Managements
Discussion and Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended December 31, 2006. Our critical accounting policies have
not changed materially since December 31, 2006, except for the adoption of Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 which we
refer to as FIN 48, in Note 9 to our unaudited condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q.
24
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency
rates. A discussion of our primary market risk exposure in financial instruments is presented
below.
Interest Rate Risk
Our policy historically has been to manage exposure to interest rate fluctuations by using a
combination of fixed and variable-rate debt. At June 30, 2007, we had total debt outstanding of
$177.0 million, all of which is subject to variable rate terms.
Our Term Credit Agreement requires that we enter into, and thereafter maintain, interest rate
management transactions, such as interest rate swap arrangements, to the extent necessary to
provide that at least 50% of the aggregate principal amount of the Term Credit Facility is subject
to either a fixed interest rate or interest rate protection for a period of not less than three
years. To satisfy this requirement, we entered into an interest rate swap arrangement for the
period from September 22, 2006 through March 22, 2008, which fixes the LIBOR rate applicable to
100% of the principle amount under the Term Credit Facility at 5.35% plus a spread based on our
corporate family ratings by Moodys and Standard & Poors. In addition, we entered into an
interest rate cap arrangement that provides for a maximum LIBOR rate of 6.00% on the principal
amount of $68.9 million for the period from March 22, 2008 through September 22, 2009. We paid a
fee of $170,000 for the interest rate cap arrangement. Through this swap arrangement, we have
effectively fixed the interest rate on $143.9 million, or 81.3%, of our total debt outstanding as
of June 30, 2007.
The fair value of the Term Credit Facility totaled $145.1 million at June 30, 2007, as
compared to the recorded balance of $144.1 million. The fair value of the interest rate swap is a
$28,000 liability as of June 30, 2007. The fair value of the interest rate cap is $68,000 as of
June 30, 2007 as compared to the original cost of $170,000.
As of June 30, 2007, Ava, S.p.A, our European fluids systems and engineering subsidiary, which
we refer to as Ava, had a swap arrangement in which Ava received a floating rate from a bank and
paid a rate which varied based on inflation. Under the terms of the swap, Ava receives an annual
payment from the bank based on a Euro notional amount of $4.0 million times the Euribor rate in
effect as of the end of the determination period, and pays an annual amount to the bank based on
the notional amount times a rate which varies according to both the Euribor rate and the published
inflation rate for the Euro area. This arrangement requires annual settlements and matures in
February 2015. At June 30, 2007, the fair value of this arrangement represents a liability of
approximately $0.7 million.
The remaining $27.9 million of debt outstanding at June 30, 2007 bears interest at a floating
rate. At June 30, 2007, the weighted average interest rate under our floating-rate debt was
approximately 7.86%. A 200 basis point increase in market interest rates during 2007 would cause
our annual interest expense to increase approximately $0.4 million, net of taxes, resulting in less
than a $0.01 per diluted share reduction in annual earnings.
Foreign Currency
Our principal foreign operations are conducted in Canada, Brazil and in areas surrounding the
Mediterranean Sea. We have foreign currency exchange risks associated with these operations, which
are conducted principally in the foreign currency of the jurisdictions in which we operate.
Historically, we have not used off-balance sheet financial hedging instruments to manage foreign
currency risks when we enter into a transaction denominated in a currency other than our local
currencies because the dollar amount of these transactions has not warranted our using hedging
instruments. However, during the quarter ended March 31, 2005, our Canadian subsidiary committed
to purchase approximately $2.0 million of barite from one of our U.S. subsidiaries and we
25
entered into a foreign currency forward contract arrangement to reduce its exposure to foreign
currency fluctuations related to this commitment. During the quarter ended March 31, 2007, this
contract expired and we have not entered into a similar contract.
ITEM 4. Controls and Procedures
(a) We maintain disclosure controls and procedures designed to ensure that information required
to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and communicated to our management,
including our principle executive officer and principle financial officer, as appropriate, to
allow timely decisions regarding required disclosure. Our management, with the participation and
oversight of our principle executive officer and principle financial officer, evaluated the
design and effectiveness of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, our principle executive officer and our
principle financial officer concluded that our disclosure controls and procedures were effective
as of June 30, 2007.
(c) Our management assessed the effectiveness of our internal control over financial reporting
as of December 31, 2006. In making this assessment, we used the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled Internal
Controls Integrated Framework. As previously reported in our Annual Report on Form 10-K for
the year ended December 31, 2006, in conducting this evaluation, the following material
weaknesses were identified in our internal control over financial reporting:
|
§
|
|
Management did not adequately monitor certain control practices to foster an
environment that allowed for a consistent and open flow of information and
communication between those who initiated transactions and those who were responsible
for the financial reporting of those transactions, principally at one of our
subsidiaries, Soloco Texas, LP. This control deficiency resulted in 2006 adjustments
that were recorded by management and related to accounts receivable and revenues; and |
|
|
§
|
|
Management did not maintain effective controls over the recording of intangible
assets. This control deficiency resulted in 2006 adjustments that were recorded by
management and related to intangible assets and cost of revenues. |
We implemented certain corrective actions in 2006, as disclosed in our Annual Report on Form 10-K
for the year ended December 31, 2006. In order to further address the identified material
weaknesses, management implemented additional corrective measures during the first half of 2007
including:
|
§
|
|
We have distributed our Corporate Compliance and Business
Ethics Manual (Manual) to all U.S.
employees and are in the process of distributing the Manual to our international
employees. We have also established a process to train all management level employees
regarding the policies in the Manual and have established procedures for employees to
certify they have read and understand the policies. |
|
|
§
|
|
We have activated our enhanced fraud hotline. We have also implemented an education
campaign to inform employees of the hotline and its availability. |
|
|
§
|
|
We have implemented procedures to provide assurances that no side agreements exist
between us, our subsidiaries or employees and our significant vendors or customers. |
|
|
§
|
|
We have further strengthened our controls in our Mats and integrated services
segment surrounding the purchasing of products and services, particularly as they
relate to receiving products at the operating locations. |
|
|
§
|
|
We have implemented a policy that requires senior division management approval prior
to entering into any transaction to sell products or services to a customer that is
also a vendor. |
26
|
§
|
|
Our Intellectual Property Committee, which was established in 2006 and became
operational in 2007, is responsible for the oversight and review of the establishment
of intangible assets on our books, setting of the useful lives of intangible assets,
the periodic review of the useful lives of intangible assets and the periodic review
for potential impairment of intangible assets. This committee meets on a quarterly
basis to review our intangible assets. |
We believe that the corrective actions described above, taken together with the corrective actions
taken in 2006, remedied the identified material weaknesses described above, and will improve both
our disclosure controls and procedures and internal control over financial reporting. However,
these controls have not been tested as extensively as required for the annual evaluation under
Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, there may be some additional control
procedures implemented in the future to further strengthen the controls over financial reporting
Except as noted above, there were no other changes in our internal control over financial reporting
during the quarter ended June 30, 2007, that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II
ITEM 1. Legal Proceedings
The information set forth in the legal proceedings section of Note 7, Commitments and
Contingencies, to our consolidated financial statements included in this Quarterly Report on Form
10-Q is incorporated by reference into this Item 1.
ITEM 1A. Risk Factors
There have been no material changes during the period ended June 30, 2007 in our risk factors
as set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
27
ITEM 4. Submission of Matters to a Vote of Security Holders
|
(a) |
|
We held an Annual Meeting of Stockholders on June 13, 2007. |
|
|
(b) |
|
The following seven directors were elected at that meeting to serve until the
next Annual Meeting of Stockholders, with the following votes cast: |
|
|
|
|
|
|
|
|
|
|
|
For |
|
Withheld |
David C. Anderson |
|
|
72,123,868 |
|
|
|
7,847,636 |
|
Jerry W. Box |
|
|
71,093,582 |
|
|
|
8,877,922 |
|
G. Stephen Finley |
|
|
79,385,374 |
|
|
|
586,130 |
|
Paul L. Howes |
|
|
73,189,531 |
|
|
|
6,781,973 |
|
James W. McFarland |
|
|
73,103,998 |
|
|
|
6,867,506 |
|
F. Walker Tucei, Jr |
|
|
71,217,187 |
|
|
|
8,754,317 |
|
Gary L. Warren |
|
|
73,184,215 |
|
|
|
6,787,289 |
|
|
(c) |
|
The amendment and restatement of the 2004 Non-Employee Directors Stock Option
Plan was adopted, with the following votes cast: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
|
|
57,828,389 |
|
|
|
8,045,832 |
|
|
|
40,206 |
|
|
(d) |
|
Stockholders ratified the selection of Ernst & Young LLP as independent
auditors for the year ended December 31, 2007 with the following votes cast: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
|
|
79,686,278 |
|
|
|
154,714 |
|
|
|
130,512 |
|
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits
|
31.1 |
|
Certification of Paul L. Howes pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of James E. Braun pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification of Paul L. Howes pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification of James E. Braun pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
28
NEWPARK RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 3, 2007
|
|
|
|
|
|
NEWPARK RESOURCES, INC.
|
|
|
By: |
/s/ Paul L. Howes
|
|
|
|
Paul L. Howes, President and |
|
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
By: |
/s/ James E. Braun
|
|
|
|
James E. Braun, Vice President and |
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Gregg Piontek
|
|
|
|
Gregg Piontek, Vice President, Controller and Chief |
|
|
|
Accounting Officer
(Principal Accounting Officer) |
|
29
EXHIBIT INDEX
Exhibit No. |
|
Exhibit Title |
31.1 |
|
Certification of Paul L. Howes pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
Certification of James E. Braun pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification of Paul L. Howes pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification of James E. Braun pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
30