2 017
A N N U A L R E P O R T
Evolving
Sustainable
Innovative
2017 Our strategic focus is what got us to
where we are today and what will
carry us into the future.
In 2017 Newpark improved revenues 59% over
the previous year. We continued to build upon our
market share, acquired new capabilities, extended our
offering and expanded our presence in new markets.
We see these accomplishments as great strides in
the right direction, but our efforts are nowhere near
complete. Newpark is ever evolving, with an unwavering
commitment on sustainable growth through innovation.
1
2017 For the past decade, Newpark remained diligently focused on its
strategy, each year taking meaningful steps toward our long-term
vision. While the fundamental strategy remains intact, we navigate
with an eye on the changing market landscape and seek out new
opportunities. We are always evolving.
2
vingEvol 3
vingEvol Evolving
Newpark is an accomplished global company with
ever-expanding capabilities and offerings. We are leveraging
our broad global footprint to expand our reach with our
comprehensive product and service offering, allowing us to
serve current customers in more ways and move into adjacent
markets to secure new customers.
Fluids Expansion
In 2017 we made progress on our ongoing
strategic imperative to expand our presence
globally. Newpark continued to expand market
share, now holding the #2 share position for
drilling fluids in North America and #3 in the
world.1 Our EMEA region achieved $179 million
of revenue in 2017, a new all-time high.
We also were awarded key contracts to drive
future growth. We entered an agreement with
Baker Hughes, a GE Company, to provide drilling
fluids and related services for their integrated
service offering to support offshore drilling
operations for Woodside in Australia. In India,
we signed a three-year contract to provide
drilling and completion fluids to Cairn Energy.
4
1 Drilling Fluids Market Share & Supplier Performance Report,
Kimberlite International Oilfield Research, June 2017
Customer Loyalty and Overall Satisfaction Levels1
59%
46%
39%
25%
60%
50%
40%
30%
20%
10%
0%
Newpark
Integrated Global Competitor
1 The Net Promoter Score is a widely used industry benchmark
based on the likelihood of customers recommending a company to
a colleague. The score is calculated by subtracting the percentage
of promoters from the percentage of detractors, and is a good
benchmark of customer loyalty.
Source: Drilling Fluids Market Share & Supplier Performance
Report, Kimberlite International Oilfield Research, June 2017.
Recognized
Leader
Our actions are always driven
by customer needs, and global
operators have taken notice.
In 2017 our fluids business
achieved the highest level of
customer loyalty and overall
satisfaction among our peers.
Key Acquisition
Newpark made its largest
acquisition to date with the purchase
of Well Service Group and Utility Access
Solutions companies, who have been
key service providers for our mats
business since 2012. This acquisition
immediately enhanced our capabilities,
expanding our service offering and
geographic footprint.
5
We are committed to building a
sustainable future for our customers,
shareholders, employees and the
communities in which we operate.
6
Sustainable 77
Sustainable Sustainable
The key to successfully executing a strategy is sustainability.
Every pillar of our strategy is built to support ongoing growth over
the long term. We develop advanced fluids chemistry and matting
systems that help sustain the environment by minimizing impact.
We bring this same discipline to sustaining the strength of our
balance sheet and making ongoing improvements in safety.
Safety Discipline
While 2017 was highlighted by rapid
expansion and growth, one thing
that didn’t change, and never will,
is our unwavering commitment to
safety. Once again, we achieved
world-class performance with a TRIR
of 0.50. We believe that safety is
central to everything we do. Our Stop
Work Authority Policy and Near Miss
Reporting Program empowers our
employees to stop work immediately
if they encounter a potentially unsafe
condition while maintaining our focus
on continual improvement. These
programs are instrumental in our
efforts to ensure safety is at the core
of our corporate culture.
8
Financial
Strength
The recent downturn provided the most
economically challenging market environment
we have ever faced. Yet our approach,
which balances the swift execution of our
strategic growth objectives with disciplined
capital deployment, has served us well. This
prudent approach to managing our balance
sheet allowed us to continue making crucial
investments through the cycle, which have
expanded our capabilities and strengthened
our business model.
Debt-to-Capital Ratio
30%
20%
10%
0%
2013
2014
2015
2016
2017
Environmental
Benefits
At Newpark, we continue to drive innovations
that provide superior performance to our customers,
while also minimizing the impact to the environment.
In Fluids, we’ve long been the recognized leader in
high-performance water-based drilling fluid systems,
which provide environmentally sensitive alternatives
to traditional drilling fluid products. Meanwhile, our
fully recyclable composite matting systems provide
enhanced environmental protection on the worksite,
while also enabling customers to reduce their carbon
footprint and eliminate deforestation associated with
competitor wood mat products.
9
We are leading innovation through
advancements in product technology
and expertise.
10
Innovative 11
Innovative Innovative
Customer challenges are ever evolving in the industries we serve, as well as the
industries we are pursuing. Our strategy is to be the first to solve these challenges by
taking the lead in innovation. We have made major capital investments to expand our
R&D capabilities in both fluids and mats, and Newpark is now well-positioned to
provide our customers with innovative solutions.
Expanding
Fluids Portfolio
Building upon our global leadership position in drilling
fluids, we are taking the same focus on innovation to
adjacent fluid chemistries, developing solutions that span
across the life cycle of the well. This strategic expansion is
a natural step for Newpark, leveraging our core capabilities
in chemistry and global footprint, and providing improved
stability for the fluids business.
Developing solutions across the Life Cycle of the Well
Drilling & Completion Fluids
Stimulation Chemicals
Production Chemicals
Drilling fluids chemistry
serves vital functions such
as preventing well-control
issues, preserving wellbore
stability and minimizing
formation damage.
Completion fluids are used
after the well has been
drilled, to clean out the
wellbore without damaging
the formation, to ensure the
well’s production can be
fully maximized.
Stimulation chemicals are
utilized in the hydraulic
fracturing and matrix
acidizing process, to help
maximize the production
of hydrocarbons from a
reservoir after the well has
been drilled and completed.
Production chemicals
are used over the
life of the well, to
enhance the flow of
hydrocarbons and
to protect the integrity
of the path in which the
production flows (well,
tubing, pipeline, etc.).
C H E M I S T R Y
12
Leading
Capabilities
Newpark’s industry-leading R&D capabilities are producing
next-generation technologies that are achieving unprecedented
results for customers. We are continually adding to our
intellectual property portfolio, expanding our product
offerings, and opening new market opportunities.
Fluids Technology Center
Katy, Texas
Mats & Integrated Services Research Center
Carenco, Louisiana
Mats Market Diversification
Any industry requiring a temporary road or worksite surface represents an
opportunity for Newpark. Building upon our industry-leading Dura-Base®
composite mats, we’re developing next-generation matting systems, accessories
and adaptations to further differentiate our offerings from our competition.
We’ve expanded our product offering to address unique customer requirements
of targeted growth markets, including power transmission and distribution and
petrochemical industries, with a highly positive reception. Newpark’s constant
drive to improve through innovation continues to propel our status as a
solutions leader among matting providers worldwide.
Clockwise from top left: 1. Army Corps of Engineers test
at the Engineer Research and Development Center (ERDC)
in Vicksburg, MS 2. Temporary substation in Uvalde, TX
on the Dura-Base EPZ Mat System 3. Transmission line
wire pull on the Dura-Base EPZ Mat System in Minnesota
4. Mobile self-contained mat washing system 5. Pipeline
Pigging Project in El Campo, TX
13
Financial Highlights
Total Revenues
(Millions)
International
North America
Fluids Revenues
(Millions)
Mats Revenues
(Millions)
Cash From Operations
(Millions)
$1,200
$900
$600
$300
$0
$1,000
$750
$500
$250
$0
$160
$120
$80
$40
$0
$160
$120
$80
$40
$0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
14
2013
2014
2015
2016
2017
To Our
Shareholders
Before addressing our 2017 performance, I’d first like to share with you the
evolution we are seeing in the markets we serve and our business.
Over the past year, the oil and gas industry continued its recovery from one
of the most severe downturns in its history. The improvement in the North
American market was particularly important for our business. Our optimism as
we exit 2017, however, is balanced by the expectation that the North American
market is changing. Fewer rigs, drilling longer laterals, in a shorter period of time,
which, when combined with new completion techniques, allow our customers
to access more feet of productive zones and produce more hydrocarbons from
a single well. Our fluids chemistry is part of that story. We have developed and
commercialized a series of drilling fluid systems tailored to meet the demands
of this changing market. And our customers have recognized the strength of our
focus on delivering state-of-the-art fluids solutions with outstanding customer
service. We are now the 2nd largest drilling fluids company in North America and
the 3rd largest globally, and we continue to rank among the highest of all oilfield
service companies in the EnergyPoint Research Customer Satisfaction Surveys.
But as the markets we serve continue to evolve, so must our business. That is
the reason we are expanding our product offerings to include completion and
stimulation chemicals. We are confident we can bring the benefits of the same
type of focus to these product lines, taking advantage of our infrastructure and
the expanding product offering of our business to grow revenue in markets we
already serve.
15
“We are in a position to make these strategic investments
because of our financial strength. Newpark has
emerged from the downturn stronger.”
There is a similar evolution occurring in our Mats business. In the last few years, we have focused on
expanding our business beyond oil and gas exploration, including utilities (transmission and distribution
of electricity), pipeline (construction and maintenance) and general construction markets. As you have
seen from the pages in this report, we are constantly innovating in the Mats business as well, by developing
new uses for our mats, new tools to make the installation of the mats more efficient and enhancing the
safety of workers located near energized power lines (the EPZ Grounding System™). We now have the
majority of our mat fleet dedicated to these new markets, an early indicator of success in executing
this strategy. Our commitment to service in this business is equally focused. Late in 2017, we acquired
the Well Service Group and Utility Access Solutions to enhance our service capabilities and expand our
understanding of our customer needs across all of our markets. We are very optimistic about the future
for both the Mats and Fluids businesses as we evolve with the markets we serve.
We are in a position to make these strategic investments because of our financial strength. Newpark has
emerged from the downturn stronger. I am pleased to report on our activities for the year and how our
efforts have positioned Newpark to continue its path of growth.
FINANCIAL PERFORMANCE
In 2017 Newpark achieved improvements in both segments and generated $748 million in revenues, a
59% increase over 2016, resulting in $31 million of operating income. While these numbers are reflective
of improving markets, they also testify to both the strategic and financial discipline Newpark maintained
throughout the downturn.
16
We also were steadfast in protecting our balance sheet. Over the past year we successfully navigated the
funding of our convertible debt maturity, and as market conditions improved, we expanded our credit
facility to provide more flexibility while also reducing our borrowing costs, to ensure Newpark has the
capital needed to further its strategies. Even with the significant outlay we made for the acquisition late in
the year, we ended 2017 with a debt-to-capital ratio among the lowest levels achieved in the past decade.
We are moving forward in a position of strength.
In a year marked by a sharp increase in activity, I am particularly proud of our safety performance.
Although our North American workforce grew by nearly 80% in 2017, which includes the acquisition in
our Mats business, we still achieved world-class safety performance, with a total recordable incident
rate (TRIR) of 0.50. I would like to thank all of our employees for their unwavering commitment to
safety, which enabled this remarkable achievement.
Paul L. Howes
President and Chief
Executive Officer
17
From Our Chairman
To all of the employees, executive leaders, board members and shareholders of
Newpark, I have been honored to serve on the Board of Directors for the past
12 years, including the past four years as non-executive chairman. I will be retiring
from the board following the 2018 shareholders’ meeting, and I would like to
share my thoughts about the tremendous transformation, growth and success
the company has achieved during my time here.
When you are involved with the oversight of a company for 12 years, you see and take part in a
lot of change. Newpark has made key acquisitions while divesting operating units that are not
essential to our strategies. We have expanded our global footprint to more than 20 countries.
In fluids market share we have come from a distant fourth to the number-two position in North
America and third in the world. We have earned a reputation as the technology leader in both
Fluids and Mats, and we are consistently ranked at the top of our industry in providing superior
customer support and satisfaction.
Newpark has put in the work to get here. We have made astute R&D, manufacturing and
infrastructure investments in both business lines, making Newpark a leader in both innovation
and capacity. These investments have allowed us to diversify our business into other industries,
geographies and product lines and stabilize our revenue streams. More than ever, Newpark is
built to weather cycles and emerge stronger.
I attribute this to the vision of the Newpark leadership team, the finest I have worked with over
my career. This team has built a business with the financial discipline that allows it to make
important strategic investments even during the harshest of market downturns. This is not the
same company that I joined in 2006. What the team has achieved in that time is nothing short of
phenomenal, and I’m proud to have been part of it.
18
“This is not the same company that I joined in 2006.
What the team has achieved in that time is nothing short
of phenomenal, and I’m proud to have been part of it.”
I’m also proud to be part of a company that invests so fully in its people. Our entrepreneurial spirit
and culture of opportunity has made Newpark the place where professionals in our industry want
to build their careers. The best people come here and stay here because this is an organization
that truly lives by its core values of integrity, respect, excellence and accountability.
In closing I would like to acknowledge the outstanding board with whom I have served. Today’s
board comprises a diversity of backgrounds, experience and skills that are vital to guiding Newpark
to pursue its strategies and thrive in today’s markets. I extend my sincere appreciation to my
fellow board members, as well as the leadership team, employees, customers and shareholders
of Newpark. I am grateful for the support you have given me over the years, and I wish you all
continued success. I leave with great confidence in Newpark’s future.
David C. Anderson
Chairman of The Board
19
Evolving
Sustainable
Innovative
20
2017 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number 001-2960
Newpark Resources, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
9320 Lakeside Blvd., Suite 100
The Woodlands, Texas
(Address of principal executive office)
72-1123385
(I.R.S. Employer Identification No.)
77381
(Zip Code)
Registrant’s telephone number, including area code (281) 362-6800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ___ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ___ No
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No ___
No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “small reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ___
Non-accelerated filer ___ (Do not check if a smaller reporting company)
Emerging growth company
Accelerated filer
Smaller Reporting Company ___
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by
reference to the price at which the common equity was last sold as of June 30, 2017, was $613.1 million. The aggregate market value
has been computed by reference to the closing sales price on such date, as reported by The New York Stock Exchange.
As of February 16, 2018, a total of 89,218,581 shares of Common Stock, $0.01 par value per share, were outstanding.
Pursuant to General Instruction G(3) to this Form 10-K, the information required by Items 10, 11, 12, 13 and 14 of Part III hereof is
incorporated by reference from the registrant’s definitive Proxy Statement for its 2018 Annual Meeting of Stockholders.
Documents Incorporated by Reference
NEWPARK RESOURCES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
ITEM 5.
ITEM 6.
ITEM 7.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
3
3
6
11
12
12
13
13
13
15
16
33
34
68
68
70
70
70
70
70
70
70
70
71
75
76
1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, as amended. We also may provide oral or written forward-looking information in other materials
we release to the public. Words such as “will”, “may”, “could”, “would”, “anticipates”, “believes”, “estimates”, “expects”, “plans”,
“intends”, and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of
identifying them. These forward-looking statements reflect the current views of our management; however, various risks,
uncertainties, contingencies and other factors, some of which are beyond our control, are difficult to predict and could cause our
actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements, including
the success or failure of our efforts to implement our business strategy.
We assume no obligation to update, amend or clarify publicly any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by securities laws. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this Annual Report might not occur.
For further information regarding these and other factors, risks and uncertainties affecting us, we refer you to the risk
factors set forth in Item 1A of this Annual Report on Form 10-K.
2
ITEM 1. Business
General
PART I
Newpark Resources, Inc. was organized in 1932 as a Nevada corporation. In 1991, we changed our state of incorporation
to Delaware. We are a geographically diversified supplier providing products, rentals and services primarily to the oil and gas
exploration and production (“E&P”) industry. We operate our business through two reportable segments: Fluids Systems and Mats
and Integrated Services. Our Fluids Systems segment provides drilling fluids products and technical services to customers in the
North America, Europe, the Middle East and Africa (“EMEA”), Latin America and Asia Pacific regions. Our Mats and Integrated
Services segment provides composite mat rentals, site construction and related site services to customers in various markets
including oil and gas exploration and production, electrical transmission & distribution, pipeline, solar, petrochemical and
construction across the U.S., Canada and Europe. We also sell composite mats to customers outside of the U.S. and to domestic
customers outside of the E&P market.
Our principal executive offices are located at 9320 Lakeside Blvd., Suite 100, The Woodlands, Texas 77381. Our telephone
number is (281) 362-6800. You can find more information about us at our website located at www.newpark.com. Our Annual
Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those
reports are available free of charge through our website. These reports are available as soon as reasonably practicable after we
electronically file these materials with, or furnish them to, the Securities and Exchange Commission (“SEC”). Our Code of Ethics,
our Corporate Governance Guidelines, our Audit Committee Charter, our Compensation Committee Charter and our Nominating
and Corporate Governance Committee Charter are also posted to the corporate governance section of our website. We make our
website content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated
by reference in this Form 10-K. Information filed with the SEC may be read or copied at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C., 20549. Information on operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC, including us.
When referring to “Newpark” and using phrases such as the “Company”, “we”, “us” and “our”, our intent is to refer to
Newpark Resources, Inc. and its subsidiaries as a whole or on a segment basis, depending on the context in which the statements
are made.
Industry Fundamentals
Historically, several factors have driven demand for our products and services, including the supply, demand and pricing
of oil and gas commodities, which drive E&P drilling and development activity. Demand for most of our Fluids Systems’ products
and services is also driven, in part, by the level, type, depth and complexity of oil and gas drilling. Historically, drilling activity
levels in North America have been volatile, primarily driven by the price of oil and natural gas. Beginning in the fourth quarter
of 2014 and continuing through early 2016, the price of oil declined dramatically from the price levels in previous years. As a
result, E&P drilling activity significantly declined in North America and many global markets over this period. While oil prices
and drilling activity have improved from the lows reached in early 2016, both oil price and activity levels remain significantly
lower than pre-downturn levels. The most widely accepted measure of activity for our North American operations is the Baker
Hughes Rotary Rig Count. The average North America rig count was 1,083 in 2017, compared to 639 in 2016, 1,170 in 2015, and
2,241 in 2014.
The declining E&P drilling activity levels in 2015 and 2016 reduced the demand for our services, negatively impacted
customer pricing and resulted in elevated costs associated with workforce reductions, all of which negatively impacted our
profitability. Further, due to the fact that our business contains substantial levels of fixed costs, including significant facility and
personnel expenses, North American operating margins in both operating segments were negatively impacted by the lower customer
demand during this period.
Outside of North America, drilling activity is generally more stable, as drilling activity in many countries is based upon
longer term economic projections and multiple year drilling programs, which tend to reduce the impact of short-term changes in
commodity prices on overall drilling activity. While drilling activity in certain of our international markets (including Brazil and
Australia) has declined in recent years, as a whole, our international activities have remained relatively stable. This stability is
primarily driven by new contract awards, which include geographical expansion into new markets as well as market share gains
in existing markets.
In addition to our ongoing activity in the E&P industry, our Mats and Integrated Services segment is continuing to expand
into other industries in North America, including electrical transmission & distribution and pipeline construction and maintenance.
The demand for our composite matting systems from customers in these industries, is driven in part, by the level of construction
and maintenance activity associated with the electrical transmission & distribution grid, as well as the oil and natural gas pipeline
infrastructure within the U.S.
3
Reportable Segments
Fluids Systems
Our Fluids Systems business provides drilling fluids products and technical services to customers in the North America,
EMEA, Latin America, and Asia Pacific regions. We offer customized solutions for highly technical drilling projects involving
complex subsurface conditions such as horizontal, directional, geologically deep or drilling in deep water. These projects require
increased monitoring and critical engineering support of the fluids system during the drilling process. In addition, our Fluids
Systems offering is expanding into adjacent areas to drilling fluids, including completion and stimulation chemistry, which are
typically utilized by customers following the drilling process.
We also have industrial mineral grinding operations for barite, a critical raw material in drilling fluids products, which
serve to support our activity in the North American drilling fluids market. We grind barite and other industrial minerals at four
facilities, including locations in Texas, Louisiana and Tennessee. We use the resulting products in our drilling fluids business, and
also sell them to third party users, including other drilling fluids companies. We also sell a variety of other minerals, principally
to third-party industrial (non-oil and gas) markets.
Raw Materials — We believe that our sources of supply for materials and equipment used in our drilling fluids business
are adequate for our needs, however, we have experienced periods of short-term scarcity of barite ore, which have resulted in
significant cost increases. Our specialty milling operation is our primary supplier of barite used in our North American drilling
fluids business. Our mills obtain raw barite ore under supply agreements from foreign sources, primarily China and India. We
obtain other materials used in the drilling fluids business from various third party suppliers. We have encountered no serious
shortages or delays in obtaining these raw materials.
Technology — Proprietary technology and systems are an important aspect of our business strategy. We seek patents
and licenses on new developments whenever we believe it creates a competitive advantage in the marketplace. We own patent
rights in a family of high-performance water-based fluids systems, which we market as Evolution® and DeepDrill® systems, which
are designed to enhance drilling performance and provide environmental benefits. We also rely on a variety of unpatented proprietary
technologies and know-how in many of our applications. We believe that our reputation in the industry, the range of services we
offer, ongoing technical development and know-how, responsiveness to customers and understanding of regulatory requirements
are of equal or greater competitive significance than our existing proprietary rights.
Competition — We face competition from larger companies, including Halliburton and Schlumberger, which compete
vigorously on fluids performance and/or price. In addition, these companies have broad product and service offerings in addition
to their drilling fluids. We also have smaller regional competitors competing with us mainly on price and local relationships. We
believe that the principal competitive factors in our businesses include a combination of technical proficiency, reputation, price,
reliability, quality, breadth of services offered and experience. We believe that our competitive position is enhanced by our
proprietary products and services.
Customers — Our customers are principally major integrated and independent oil and gas E&P companies operating
in the markets that we serve. During 2017, approximately 51% of segment revenues were derived from the 20 largest segment
customers, of which the largest customer represented 10% of our segment revenues. The segment also generated 55% of revenues
domestically during 2017. Typically, in North America, we perform services either under short-term standard contracts or under
“master” service agreements. Internationally, some customers issue multi-year contracts, but many are on a well-by-well, or project
basis. As most agreements with our customers can be terminated upon short notice, our backlog is not significant. We do not derive
a significant portion of our revenues from government contracts. See “Note 12 – Segment and Related Information” in our
Consolidated Financial Statements for additional information on financial and geographic data.
Mats and Integrated Services
Our Mats and Integrated Services segment provides composite mat rentals, site construction and related site services to
customers in various markets including oil and gas exploration and production (“E&P”), electrical transmission & distribution,
pipeline, solar, petrochemical and construction across North America and Europe. We also sell composite mats to customers outside
of the U.S. and to domestic customers outside of the E&P market. Following our efforts in recent years to diversify our customer
base, Mats and Integrated Services segment revenues from non-E&P markets represented approximately two-thirds of our segment
revenues in 2017.
We manufacture our DURA-BASE® Advanced Composite Mats for use in our rental operations as well as for third-party
sales. Our mats provide environmental protection and ensure all-weather access to sites with unstable soil conditions. In order to
support our efforts to expand our markets globally, we completed an expansion of our mats manufacturing facility in 2015 which
nearly doubled our manufacturing capacity and significantly expanded our research and development capabilities. We continue
to expand our product offerings, which now include the EPZ Grounding System™ for enhanced safety and efficiency for contractors
working on power line maintenance and construction projects and the T-REX™ automated mat cleaning system to provide
customers with a cost effective system to clean composite mats on site.
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In November 2017, we acquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility
Access Solutions, Inc. (together, “WSG”). Since 2012, WSG has been a strategic logistics and installation service provider for
our Mats and Integrated Service segment, offering a variety of complementary services to our composite matting systems, including
access road construction, site planning and preparation, environmental protection, fluids and spill storage/containment, erosion
control, and site restoration services. The completion of the WSG acquisition expanded our service offering as well as our U.S.
geographic footprint across the Northeast, Midwest, Rockies, and West Texas regions of the U.S.
Raw Materials — We believe that our sources of supply for materials used in our business are adequate for our needs.
We are not dependent upon any one supplier and we have encountered no serious shortages or delays in obtaining any raw materials.
The resins, chemicals and other materials used to manufacture composite mats are widely available. Resin is the largest material
component in the manufacturing of our composite mat products.
Technology — We have obtained patents related to the design and manufacturing of our DURA-BASE mats and several
of the components, as well as other products and systems related to these mats (including the connecting pins and the EPZ Grounding
System™). Using proprietary technology and systems is an important aspect of our business strategy. We believe that these products
provide us with a distinct advantage over our competition. While we continue to add to our patent portfolio, two patents related
to our DURA-BASE matting system will expire in May of 2020, and competitors may begin offering mats that include features
described in those patents. We also believe that our reputation in the industry, the range of services we offer, ongoing technical
development and know-how, responsiveness to customers and understanding of regulatory requirements also have competitive
significance in the markets we serve.
Competition — Our market is fragmented and competitive, with many competitors providing various forms of site
preparation products and services. The mat sales component of our business is not as fragmented as the rental and services segment
with only a few competitors providing various alternatives to our DURA-BASE mat products, such as Signature Systems Group
and Checkers Group. This is due to many factors, including large capital start-up costs and proprietary technology associated with
this product. We believe that the principal competitive factors in our businesses include product capabilities, price, reputation, and
reliability. We also believe that our competitive position is enhanced by our proprietary products, services and experience.
Customers — Our customers are principally infrastructure construction and oil and gas E&P companies operating in the
markets that we serve. Approximately 63% of our segment revenues in 2017 were derived from the 20 largest segment customers,
of which, the largest customer represented 15% of our segment revenues. The segment generated 91% of its revenues domestically
during 2017. As a result of our efforts to expand beyond our traditional oilfield customer base, revenues from non E&P customers
represented approximately 67% of segment revenues in 2017. Typically, we perform services either under short-term contracts or
rental service agreements. As most agreements with our customers are cancelable upon short notice, our backlog is not significant.
We do not derive a significant portion of our revenues from government contracts. See “Note 12 - Segment and Related Information”
in our Consolidated Financial Statements for additional information on financial and geographic data.
Employees
At January 31, 2018, we employed approximately 2,400 full and part-time personnel none of which are represented by
unions. We consider our relations with our employees to be satisfactory.
Environmental Regulation
We seek to comply with all applicable legal requirements concerning environmental matters. Our business is affected by
governmental regulations relating to the oil and gas industry in general, as well as environmental, health and safety regulations
that have specific application to our business. Our activities are impacted by various federal and state regulatory agencies, and
provincial pollution control, health and safety programs that are administered and enforced by regulatory agencies.
Additionally, our business exposes us to environmental risks. We have implemented various procedures designed to
ensure compliance with applicable regulations and reduce the risk of damage or loss. These include specified handling procedures
and guidelines for waste, ongoing employee training, and monitoring and maintaining insurance coverage.
We also employ a corporate-wide web-based health, safety and environmental management system (“HSEMS”), which
is ISO 14001:2004 compliant. The HSEMS is designed to capture information related to the planning, decision-making, and
general operations of environmental regulatory activities within our operations. We also use the HSEMS to capture the information
generated by regularly scheduled independent audits that are done to validate the findings of our internal monitoring and auditing
procedures.
5
ITEM 1A. Risk Factors
The following summarizes the most significant risk factors to our business. Our success will depend, in part, on our
ability to anticipate and effectively manage these and other risks. Any of these risk factors, either individually or in combination,
could have significant adverse impacts to our results of operations and financial condition, or prevent us from meeting our
profitability or growth objectives.
Risks Related to the Worldwide Oil and Natural Gas Industry
We derive a significant portion of our revenues from customers in the worldwide oil and natural gas industry; therefore,
our risk factors include those factors that impact the demand for oil and natural gas. Spending by our customers for exploration,
development and production of oil and natural gas is based on a number of factors, including expectations of future hydrocarbon
demand, energy prices, the risks associated with developing reserves, our customers' ability to finance exploration and development
of reserves, regulatory developments and the future value of the reserves. Reductions in customer spending levels adversely affect
the demand for our services and consequently, our revenue and operating results; and the presence of these market conditions
negatively affects our revenue and operating results. The key risk factors that we believe influence the worldwide oil and natural
gas markets are discussed below.
Demand for oil and natural gas is subject to factors beyond our control
Demand for oil and natural gas, as well as the demand for our services, is highly correlated with global economic growth
and in particular by the economic growth of countries such as the U.S., India, China, and developing countries in Asia and the
Middle East. Weakness in global economic activity could reduce demand for oil and natural gas and result in lower oil and natural
gas prices. In addition, demand for oil and natural gas could be impacted by environmental regulation, including cap and trade
legislation, regulation of hydraulic fracturing, and carbon taxes. Weakness or deterioration of the global economy could reduce
our customers’ spending levels and reduce our revenue and operating results.
Supply of oil and natural gas is subject to factors beyond our control
The ability to produce oil and natural gas can be affected by the number and productivity of new wells drilled and
completed, as well as the rate of production and resulting depletion of existing wells. Productive capacity in excess of demand is
also an important factor influencing energy prices and spending by oil and natural gas exploration companies. Oil and natural gas
storage inventory levels are indicators of the relative balance between supply and demand. Supply can also be impacted by the
degree to which individual Organization of Petroleum Exporting Countries (“OPEC”) nations and other large oil and natural gas
producing countries are willing and able to control production and exports of hydrocarbons, to decrease or increase supply and to
support their targeted oil price or meet market share objectives. Any of these factors could affect the supply of oil and natural gas
and could have a material effect on our results of operations.
Volatility of oil and natural gas prices can adversely affect demand for our products and services
Volatility in oil and natural gas prices can also impact our customers’ activity levels and spending for our products and
services. The level of energy prices is important to the cash flow for our customers and their ability to fund exploration and
development activities. Compared to 2011 to 2014 levels, oil prices have declined significantly due in large part to increasing
supplies, weakening demand growth and the decision by OPEC countries to maintain production levels throughout 2015 and most
of 2016. While OPEC production limits were put in place in late 2016 and maintained throughout 2017, expectations about future
commodity prices and price volatility are important for determining future spending levels. Our customers also take into account
the volatility of energy prices and other risk factors by requiring higher returns for individual projects if there is higher perceived
risk.
Our customers’ activity levels, spending for our products and services and ability to pay amounts owed us could be
impacted by the ability of our customers to access equity or credit markets
Our customers’ access to capital is dependent on their ability to access the funds necessary to develop oil and gas prospects.
Limited access to external sources of funding has and may continue to cause customers to reduce their capital spending plans. In
addition, a reduction of cash flow to our customers resulting from declines in commodity prices or the lack of available debt or
equity financing may impact the ability of our customers to pay amounts owed to us.
Risks Related to our Customer Concentration and Reliance on the U.S. Exploration and Production Market
In 2017, approximately 45% of our consolidated revenues were derived from our 20 largest customers, although no
customer accounted for more than 10% of our consolidated revenues. In addition, approximately 62% of our consolidated revenues
were derived from our U.S. operations.
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Beginning in the fourth quarter of 2014 and continuing through early 2016, the price of oil declined dramatically from
the price levels in previous years. Following this decline, North American drilling activity decreased significantly, which reduced
the demand for our services and negatively impacted customer pricing in our North American operations, relative to pre-downturn
levels. While oil prices and drilling activity have since improved from the lows reached in early 2016, there are no assurances that
the price for oil or activity levels will not decline again in the future. Due to these changes, our quarterly and annual operating
results have fluctuated significantly and may continue to fluctuate in future periods. Because our business has substantial fixed
costs, including significant facility and personnel expenses, downtime or low productivity due to reduced demand can have a
significant adverse impact on our profitability.
Risks Related to International Operations
We have significant operations outside of the United States, including certain areas of Canada, EMEA, Latin America,
and Asia Pacific. In 2017, these international operations generated approximately 38% of our consolidated revenues. Algeria
represents our largest international market with our total Algerian operations representing 12% of our consolidated revenues in
2017 and 8% of our total assets at December 31, 2017, including 28% of our total cash balance at December 31, 2017.
In addition, we may seek to expand to other areas outside the United States in the future. International operations are
subject to a number of risks and uncertainties, including:
difficulties and cost associated with complying with a wide variety of complex foreign laws, treaties and regulations;
uncertainties in or unexpected changes in regulatory environments or tax laws;
legal uncertainties, timing delays and expenses associated with tariffs, export licenses and other trade barriers;
difficulties enforcing agreements and collecting receivables through foreign legal systems;
risks associated with failing to comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, export laws,
and other similar laws applicable to our operations in international markets;
exchange controls or other limitations on international currency movements, including restrictions on the repatriation
of funds to the U.S. from certain countries, such as Algeria;
sanctions imposed by the U.S. government that prevent us from engaging in business in certain countries or with
certain counter-parties;
inability to obtain or preserve certain intellectual property rights in the foreign countries in which we operate;
our inexperience in certain international markets;
fluctuations in foreign currency exchange rates;
political and economic instability; and
acts of terrorism.
In addition, several North African markets in which we operate, including Tunisia, Egypt, Libya, and Algeria have
experienced social and political unrest in past years, which, when they occur, negatively impact our operating results, and can
include the temporary suspension of our operations. More recently in Brazil, the ongoing widely-publicized corruption investigation
has continued to disrupt Petrobras’ operations, which could negatively impact our operating results in Brazil.
Risks Related to the Cost and Continued Availability of Borrowed Funds, including Risks of Noncompliance with Debt
Covenants
We employ borrowed funds as an integral part of our long-term capital structure and our future success is dependent upon
continued access to borrowed funds to support our operations. The availability of borrowed funds on reasonable terms is dependent
on the condition of credit markets and financial institutions from which these funds are obtained. Adverse events in the financial
markets may significantly reduce the availability of funds, which may have an adverse effect on our cost of borrowings and our
ability to fund our business strategy. Our ability to meet our debt service requirements and the continued availability of funds
under our existing or future loan agreements is dependent upon our ability to generate operating income and remain in compliance
with the covenants in our debt agreements. This, in turn, is subject to the volatile nature of the oil and natural gas industry, and to
competitive, economic, financial and other factors that are beyond our control.
We fund our ongoing operational needs through a $150 million asset-based revolving credit facility (the “Amended ABL
Facility”). Borrowing availability under the Amended ABL Facility is calculated based on eligible accounts receivable, inventory,
and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of
reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base
calculation shall also include the amount of eligible pledged cash. The lender may establish reserves, in part based on appraisals
of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the Amended ABL
Facility. Availability associated with eligible rental mats will also be subject to maintaining a minimum consolidated fixed charge
coverage ratio and a minimum level of operating income for the Mats and Integrated Services segment. The availability under the
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Amended ABL Facility is expected to fluctuate directionally with changes in our domestic accounts receivable, inventory, and
composite mat rental fleet.
The Amended ABL Facility terminates on October 17, 2022; however, the Amended ABL Facility has a springing maturity
date that will accelerate the maturity of the Amended ABL Facility to September 1, 2021 if, prior to such date, the convertible
notes due 2021 (“2021 Convertible Notes”) have not either been repurchased, redeemed, converted or we have not provided
sufficient funds to repay the 2021 Convertible Notes in full on their maturity date. For this purpose, funds may be provided in
cash to an escrow agent or a combination of cash to an escrow agent and the assignment of a portion of availability under the
Amended ABL Facility. The Amended ABL Facility requires compliance with a minimum fixed charge coverage ratio and minimum
unused availability of $25.0 million to utilize borrowings or assignment of availability under the Amended ABL Facility towards
funding the repayment of the 2021 Convertible Notes.
We are subject to compliance with a fixed charge coverage ratio covenant if our borrowing availability falls below $22.5
million. If we are unable to make required payments under the Amended ABL Facility or other indebtedness of more than $25.0
million, or if we fail to comply with the various covenants and other requirements of the Amended ABL Facility, we would be in
default thereunder, which would permit the holders of the indebtedness to accelerate the maturity thereof, unless we are able to
obtain, on a timely basis, a necessary waiver or amendment. Any waiver or amendment may require us to revise the terms of our
agreements which could increase the cost of our borrowings, require the payment of additional fees, and adversely impact the
results of our operations. Upon the occurrence of any event of default that is not waived, the lenders could elect to exercise any
of their available remedies, which include the right to not lend any additional amounts or, in the event we have outstanding
indebtedness under the Amended ABL Facility, to declare any outstanding indebtedness, together with any accrued interest and
other fees, to be immediately due and payable. If we are unable to repay the outstanding indebtedness, if any, under the Amended
ABL Facility when due, the lenders would be permitted to proceed against their collateral. In the event any outstanding indebtedness
in excess of $25.0 million is accelerated, this could also cause an event of default under our 2021 Convertible Notes. The acceleration
of any of our indebtedness and the election to exercise any such remedies could have a material adverse effect on our business
and financial condition.
Risks Related to Operating Hazards Present in the Oil and Natural Gas Industry
Our operations are subject to hazards present in the oil and natural gas industry, such as fire, explosion, blowouts, oil
spills and leaks or spills of hazardous materials (both onshore and offshore). These incidents as well as accidents or problems in
normal operations can cause personal injury or death and damage to property or the environment. Our customers’ operations can
also be interrupted and it is possible that such incidents can interrupt our ongoing operations and the ability to provide our services.
From time to time, customers seek recovery for damage to their equipment or property that occurred during the course of our
service obligations. Damage to our customers’ property and any related spills of hazardous materials could be extensive if a major
problem occurred. We purchase insurance which may provide coverage for incidents such as those described above, however, the
policies may not provide coverage or a sufficient amount of coverage for all types of damage claims that could be asserted against
us. See the section entitled “Risks Related to the Inherent Limitations of Insurance Coverage” for additional information.
Risks Related to Business Acquisitions and Capital Investments
Our ability to successfully execute our business strategy will depend, among other things, on our ability to make capital
investments and acquisitions which provide us with financial benefits. In November 2017, we acquired certain assets and assumed
certain liabilities of WSG for approximately $78 million. WSG has been a strategic logistics and installation service provider for
our Mats and Integrated Service segment, offering a variety of complementary services to the composite matting systems, including
access road construction, site planning and preparation, environmental protection, fluids and spill storage/containment, erosion
control, and site restoration services. In addition, our 2018 capital expenditures are expected to range between $20 million to $25
million (exclusive of any acquisitions). These acquisitions and investments are subject to a number of risks and uncertainties,
including:
incorrect assumptions regarding business activity levels or results from our capital investments, acquired operations
or assets;
failure to complete a planned acquisition transaction or to successfully integrate the operations or management of any
acquired businesses or assets in a timely manner, including the WSG acquisition mentioned above;
diversion of management’s attention from existing operations or other priorities;
unanticipated disruptions to our business associated with the implementation of our enterprise-wide operational and
financial system; and
delays in completion and cost overruns associated with large capital investments.
Any of the factors above could have an adverse effect on our business, financial condition or results of operations.
8
Risks Related to the Availability of Raw Materials and Skilled Personnel
Our ability to provide products and services to our customers is dependent upon our ability to obtain the raw materials
and qualified personnel necessary to operate our business.
Barite is a naturally occurring mineral that constitutes a significant portion of our drilling fluids systems. We currently
secure the majority of our barite ore from foreign sources, primarily China and India. The availability and cost of barite ore is
dependent on factors beyond our control including transportation, political priorities and government imposed export fees in the
exporting countries, as well as the impact of weather and natural disasters. The future supply of barite ore from existing sources
could be inadequate to meet the market demand, particularly during periods of increasing world-wide demand, which could
ultimately restrict industry activity or our ability to meet customer’s needs.
Our mats business is highly dependent on the availability of high-density polyethylene (“HDPE”), which is the primary
raw material used in the manufacture of our DURA-BASE mats. The cost of HDPE can vary significantly based on the energy
costs of the producers of HDPE, demand for this material, and the capacity/operations of the plants used to make HDPE. Should
our cost of HDPE increase, we may not be able to increase our customer pricing to cover our costs, which may result in a reduction
in future profitability.
All of our businesses are also highly dependent on our ability to attract and retain highly-skilled engineers, technical
sales and service personnel. The market for these employees is competitive, and if we cannot attract and retain quality personnel,
our ability to compete effectively and to grow our business will be severely limited. Also, a significant increase in the wages paid
by competing employers could result in a reduction in our skilled labor force or an increase in our operating costs.
Risk Related to our Market Competition
We face competition in the Fluids Systems business from larger companies, including Halliburton and Schlumberger,
which compete vigorously on fluids performance and/or price. In addition, these companies have broad product and service
offerings in addition to their drilling fluids. At times, these larger companies attempt to compete by offering discounts to customers
to use multiple products and services from our competitors, some of which we do not offer. We also have smaller regional competitors
competing with us mainly on price and local relationships. Our competition in the Mats and Integrated Services business is
fragmented, with many competitors providing various forms of mat products and services. More recently, several competitors
have begun marketing composite products to compete with our DURA-BASE mat system. While we believe the design and
manufacture of our mat products provide a differentiated value to our customers, many of our competitors seek to compete on
pricing. Some of the early patents we received related to our DURA-BASE mat system will expire in 2020 and competitors may
begin offering mats that include features described in those patents. We have filed legal actions against competitors in the U.S.
to enforce our patents, and have filed for additional patents, but there is no assurance that these actions will be successful or that
competitors will not be able to offer matting products that are substantially similar to the DURA-BASE mat system.
Risk Related to Offering New Products and Offering Existing Products in New Markets
As a key component of our long-term strategy in both operating segments, we seek to continue to expand our product
and service offerings and enter new customer markets with our existing products. As with any market expansion effort, new
customer and product markets include inherent uncertainties regarding customer expectations, industry-specific regulatory
requirements, product performance and customer-specific risk profiles. As such, new market entry is subject to a number of risks
and uncertainties, which could have an adverse effect on our business, financial condition or results of operations.
Risks Related to Legal and Regulatory Matters, Including Environmental Regulations
We are responsible for complying with numerous federal, state, local and foreign laws, regulations and policies that
govern environmental protection, zoning and other matters applicable to our current and past business activities, including the
activities of our former subsidiaries. Failure to remain compliant with these laws, regulations and policies may result in, among
other things, fines, penalties, costs of cleanup of contaminated sites and site closure obligations, or other expenditures. Further,
any changes in the current legal and regulatory environment could impact industry activity and the demands for our products and
services, the scope of products and services that we provide, or our cost structure required to provide our products and services,
or the costs incurred by our customers.
Many of the markets for our products and services are dependent on the continued exploration for and production of
fossil fuels (predominantly oil and natural gas). Climate change is receiving increased attention worldwide. Many scientists,
legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide attributed to the
use of fossil fuels, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. The
Environmental Protection Agency (the “EPA”) and other domestic and foreign regulatory agencies have adopted regulations that
potentially limit greenhouse gas emissions and impose reporting obligations on large greenhouse gas emission sources. In addition,
the EPA has adopted rules that could require the reduction of certain air emissions during exploration and production of oil and
gas. To the extent that laws and regulations enacted as part of climate change legislation increase the costs of drilling for or
9
producing such fossil fuels, limit or restrict oil and natural gas exploration and production, or reduce the demand for fossil fuels,
such legislation could have a material adverse impact on our operations and profitability.
Hydraulic fracturing is a common practice used by E&P operators to stimulate production of hydrocarbons, particularly
from shale oil and gas formations in the United States. The process of hydraulic fracturing, which involves the injection of sand
(or other forms of proppants) laden fluids into oil and gas bearing zones, has come under increasing scrutiny from a variety of
regulatory agencies, including the EPA and various state authorities. Several states have adopted regulations requiring operators
to identify the chemicals used in fracturing operations, others have adopted moratoriums on the use of fracturing, and the State
of New York has banned the practice altogether. In addition, concerns have been raised about whether injection of waste associated
with hydraulic fracturing operations or from the fracturing operations themselves, may cause or increase the impact of earthquakes.
Studies are in process regarding the correlation between hydraulic fracturing and earthquakes. Although we do not provide hydraulic
fracturing services, we have begun to offer stimulation fluids used in the hydraulic fracturing process. Regulations which have
the effect of limiting the use or significantly increasing the costs of hydraulic fracturing, could have a significant negative impact
on both the drilling and stimulation activity levels of our customers, and, therefore, the demand for our products and services.
Risks Related to the Inherent Limitations of Insurance Coverage
While we maintain liability insurance, this insurance is subject to coverage limitations. Specific risks and limitations of
our insurance coverage include the following:
self-insured retention limits on each claim, which are our responsibility;
exclusions for certain types of liabilities and limitations on coverage for damages resulting from pollution;
coverage limits of the policies, and the risk that claims will exceed policy limits; and
the financial strength and ability of our insurance carriers to meet their obligations under the policies.
In addition, our ability to continue to obtain insurance coverage on commercially reasonable terms is dependent upon a
variety of factors impacting the insurance industry in general, which are outside our control. Any of the issues noted above,
including insurance cost increases, uninsured or underinsured claims, or the inability of an insurance carrier to meet their financial
obligations could have a material adverse effect on our profitability.
Risks Related to the Ongoing Effects of the U.S. Tax Cuts and Jobs Act and the Refinement of Provisional Estimates
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017, resulting in broad and complex changes
to U.S. income tax law. Our effective tax rate may fluctuate in the future as a result of the Tax Act, which introduces significant
changes to U.S. income tax law that will have a meaningful impact on our provision for income taxes. Accounting for the income
tax effects of the Tax Act requires significant judgments and estimates in the interpretation and calculations of the provisions of
the Tax Act. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made
reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31,
2017. The U.S. Treasury Department, the U.S. Internal Revenue Service (“IRS”), and other standard-setting bodies may issue
guidance on how the provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation.
As we finalize the necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department,
the IRS or other standard-setting bodies, we may make adjustments to the provisional amounts that could materially affect our
financial position and results of operations as well as our effective tax rate in the period in which the adjustments are made.
Risks Related to Potential Impairments of Long-lived Intangible Assets
As of December 31, 2017, our consolidated balance sheet includes $43.6 million in goodwill and $30.0 million of
intangible assets, net, substantially all of which relates to the Mats and Integrated Services segment. Goodwill and indefinite-lived
intangible assets are tested for impairment annually, or more frequently as the circumstances require, if any qualitative factors
exist. In completing this annual evaluation during the fourth quarter of 2017, we determined that no reporting unit has a fair value
below its net carrying value, and therefore, no impairment is required.
However, if the financial performance or future projections for our operating segments deteriorate from current levels,
a future impairment of goodwill or indefinite-lived intangible assets may be required, which would negatively impact our financial
results in the period of impairment.
Risks Related to Technological Developments and Intellectual Property in our Industry
The market for our products and services is characterized by continual technological developments that generate
substantial improvements in product functions and performance. If we are not successful in continuing to develop product
enhancements or new products that are accepted in the marketplace or that comply with industry standards, we could lose market
share to competitors, which would negatively impact our results of operations and financial condition.
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Our success can be affected by our development and implementation of new product designs and improvements and by
our ability to protect and maintain critical intellectual property assets related to these developments. Although in many cases our
products are not protected by any registered intellectual property rights, in other cases we rely on a combination of patents and
trade secret laws to establish and protect this proprietary technology. While patent rights give the owner of a patent the right to
exclude third parties from making, using, selling, and offering for sale the inventions claimed in the patents, they do not necessarily
grant the owner of a patent the right to practice the invention claimed in a patent. It may also be possible for a third party to design
around our patents. We do not have patents in every country in which we conduct business and our patent portfolio will not protect
all aspects of our business. When patent rights expire, competitors are generally free to offer the technology and products that
were covered by the patents.
We also protect our trade secrets by customarily entering into confidentiality and/or license agreements with our
employees, customers and potential customers and suppliers. Our rights in our confidential information, trade secrets, and
confidential know-how will not prevent third parties from independently developing similar information. Publicly available
information (such as information in expired patents, published patent applications, and scientific literature) can also be used by
third parties to independently develop technology. We cannot provide assurance that this independently developed technology
will not be equivalent or superior to our proprietary technology.
We may from time to time engage in litigation to determine the enforceability, scope and validity of our patent rights. In
addition, we can seek to enforce our rights in trade secrets, or “know-how,” and other proprietary information and technology in
the conduct of our business. However, it is possible that our competitors may infringe upon, misappropriate, violate or challenge
the validity or enforceability of our intellectual property, and we may not able to adequately protect or enforce our intellectual
property rights in the future.
Risks Related to Severe Weather, Particularly in the U.S. Gulf Coast
We have significant operations located in market areas in the U.S. Gulf of Mexico and related near-shore areas which
are susceptible to hurricanes and other adverse weather events. In these market areas, we generated approximately 16% of our
consolidated revenue in 2017 and had approximately $215 million of inventory and property, plant and equipment as of
December 31, 2017. Such adverse weather events can disrupt our operations and result in damage to our properties, as well as
negatively impact the activity and financial condition of our customers. Our business may be adversely affected by these and other
negative effects of future hurricanes or other adverse weather events in regions in which we operate.
Risks Related to Cybersecurity Breaches or Business System Disruptions
We utilize various management information systems and information technology infrastructure to manage or support a
variety of our business operations, and to maintain various records, which may include confidential business or proprietary
information as well as information regarding our customers, business partners, employees or other third parties. Failures of or
interference with access to these systems, such as communication disruptions, could have an adverse effect on our ability to conduct
operations or directly impact consolidated financial reporting. Security breaches pose a risk to confidential data and intellectual
property which could result in damages to our competitiveness and reputation. We have policies and procedures in place, including
system monitoring and data back-up processes, to prevent or mitigate the effects of these potential disruptions or breaches, however
there can be no assurance that existing or emerging threats will not have an adverse impact on our systems or communications
networks. These risks could harm our reputation and our relationships with our customers, business partners, employees or other
third parties, and may result in claims against us. In addition, these risks could have a material adverse effect on our business,
consolidated results of operations, and consolidated financial condition.
Risks Related to Fluctuations in the Market Value of our Common Stock
The market price of our common stock may fluctuate due to a number of factors, including the general economy, stock
market conditions, general trends in the E&P industry, announcements made by us or our competitors, and variations in our
operating results. Investors may not be able to predict the timing or extent of these fluctuations.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 2. Properties
We lease office space to support our operating segments as well as our corporate offices. All material domestic owned
properties are subject to liens and security interests under our Amended ABL Facility.
Fluids Systems. We own a facility containing approximately 103,000 square feet of office space on approximately 11
acres of land in Katy, Texas, which houses the divisional headquarters and technology center for this segment. We own a distribution
warehouse and fluids blending facility containing approximately 65,000 square feet of office and industrial space on approximately
21 acres of land in Conroe, Texas. We lease approximately 9 acres of industrial space in Fourchon, Louisiana which houses a
drilling fluids blending, storage, and transfer station to serve the Gulf of Mexico deepwater market. Additionally, we own six
warehouse facilities and have 12 leased warehouses and 13 contract warehouses to support our customers and operations in the
U.S. We own two warehouse facilities and have 22 contract warehouses in Canada to support our Canadian operations. For our
international operations in the EMEA, Latin America and Asia Pacific regions, we lease 35 warehouses and own two warehouses
to support these operations. Some of the warehouses also include blending facilities.
We operate four specialty product grinding facilities in the U.S. These facilities are located in Houston, Texas on
approximately 18 acres of owned land, in New Iberia, Louisiana on 15.7 acres of leased land, in Corpus Christi, Texas on 6 acres
of leased land, and in Dyersburg, Tennessee on 13.2 acres of owned land.
Mats and Integrated Services. We own a facility containing approximately 93,000 square feet of office and industrial
space on approximately 34 acres of land in Carencro, Louisiana, which houses our manufacturing facilities and technology center
for this segment. We also own three facilities and lease 18 sites throughout the U.S. which serve as bases for our well site service
activities. Additionally, we lease two facilities in the United Kingdom to support field operations.
ITEM 3. Legal Proceedings
Escrow Claims Related to the Sale of the Environmental Services Business
Newpark Resources, Inc. v. Ecoserv, LLC. On July 13, 2015, we filed a declaratory action in the District Court in Harris
County, Texas (80th Judicial District) seeking release of $8.0 million of funds placed in escrow by Ecoserv in connection with its
purchase of our Environmental Services business. Ecoserv filed a counterclaim asserting that we breached certain representations
and covenants contained in the purchase/sale agreement including, among other things, the condition of certain assets. In addition,
Ecoserv has alleged that Newpark committed fraud in connection with the March 2014 transaction.
Under the terms of the March 2014 sale of the Environmental Services business to Ecoserv, $8.0 million of the sales
price was withheld and placed in an escrow account to satisfy claims for possible breaches of representations and warranties
contained in the purchase/sale agreement. For the amount withheld in escrow, $4.0 million was scheduled for release to Newpark
at each of the nine-month and 18-month anniversary of the closing. In December 2014, we received a letter from Ecoserv asserting
that we had breached certain representations and warranties contained in the purchase/sale agreement, including failing to disclose
operational problems and service work performed on injection/disposal wells and increased barge rental costs. The letter indicated
that Ecoserv expected the damages associated with these claims to exceed the escrow amount. Following a further exchange of
letters, in July 2015, we filed the action against Ecoserv referenced above. Thereafter, Ecoserv filed a counterclaim seeking recovery
in excess of the escrow funds based on the alleged breach of representations and covenants in the purchase/sale agreement. Ecoserv
also alleged that we committed fraud in connection with the March 2014 transaction. Discovery in the case provided more
information about Ecoserv’s claims, which included, among other things, alleged inadequate disclosures regarding the condition
of a disposal cavern (at the time of the execution of the purchase/sale agreement and as it relates to the time period between
execution of the purchase/sale agreement and at closing) and the lack of appropriate reserves/accruals/provisions in the financial
statements of the business relating to certain regulatory obligations (such as plug and abandonment costs for injection wells and
costs associated with a solids drying facility). Ecoserv sought to use a damage model for most of its damages based on its calculation
of the difference between (a) the value of the business at closing, and (b) the sales price ($100.0 million), and had claimed damages
of approximately $20.0 million. Following commencement of the trial in December 2017, we reached a settlement agreement
with Ecoserv, under which Ecoserv will receive $22.0 million in cash effectively reducing the net sales price of the Environmental
Services business by such amount in exchange for dismissal of the pending claims in the lawsuit, and release of any future claims
related to the March 2014 transaction. The impact of this settlement results in a $17.4 million loss from disposal of discontinued
operations, net of tax in 2017 to reduce the previously recognized gain from the sale of the Environmental Services business. The
reduction in sales price will be funded, in part, through the release of the $8.0 million that has been held in escrow since the March
2014 transaction. The remaining $14 million will be funded in the first quarter of 2018 through available cash on hand and
borrowings under our Amended ABL Facility. Litigation expenses related to this matter are included in corporate office expenses
in operating income.
12
ITEM 4. Mine Safety Disclosures
The information concerning mine safety violations and other regulatory matters required by Section 1503 (a) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 of this Annual
Report on Form 10-K, which is incorporated by reference.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol “NR.”
The following table sets forth the range of the high and low sales prices for our common stock for the periods indicated:
Period
High
Low
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
$
$
$
$
$
$
$
10.05
10.15
8.25
8.45
8.20
7.72
5.89
5.47
$
$
$
$
$
$
$
$
8.20
7.00
6.65
6.75
5.80
5.48
3.74
3.35
As of February 1, 2018, we had 1,305 stockholders of record as determined by our transfer agent.
The following table details our repurchases of shares of our common stock for the three months ended December 31,
2017:
Period
October 2017
November 2017
December 2017
Total Number of
Shares Purchased (1)
8,195
41,950
—
50,145
$
$
$
Total
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Approximate
Dollar Value of Shares that
May Yet be Purchased
Under Plans or Programs
($ in millions)
Average Price
per Share
8.54
9.45
—
9.30
— $
— $
— $
—
33.5
33.5
33.5
(1) During the three months ended December 31, 2017, we purchased an aggregate of 50,145 shares surrendered in lieu of
taxes under vesting of restricted stock awards.
Our Board of Directors has approved a repurchase program that authorizes us to purchase up to $100.0 million of our
outstanding shares of common stock and prior to their maturity, our outstanding 2017 Convertible Notes in the open market or as
otherwise determined by management, subject to certain limitations under the Amended ABL Facility and other factors. The
repurchase program has no specific term. Repurchases are expected to be funded from operating cash flows and available cash
on-hand. As part of the share repurchase program, our management has been authorized to establish trading plans under Rule
10b5-1 of the Securities Exchange Act of 1934.
There were no share or 2017 Convertible Notes repurchases under the program during 2017. At December 31, 2017,
there was $33.5 million of authorization remaining under the program. During 2017, we repurchased 415,418 of shares surrendered
in lieu of taxes under vesting of restricted stock awards. All of the shares repurchased are held as treasury stock.
We have not paid any dividends during the three most recent fiscal years or any subsequent interim period, and we do
not intend to pay any cash dividends in the foreseeable future. In addition, our Amended ABL Facility contains covenants which
limit the payment of dividends on our common stock. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Asset-Based Loan Facility.”
13
Performance Graph
The following graph reflects a comparison of the cumulative total stockholder return of our common stock from January
1, 2013 through December 31, 2017, with the New York Stock Exchange Market Value Index, a broad equity market index, and
the Morningstar Oil & Gas Equipment & Services Index, an industry group index. The graph assumes the investment of $100 on
January 1, 2013 in our common stock and each index and the reinvestment of all dividends, if any. This information shall be
deemed furnished not filed, in this Form 10-K, and shall not be deemed incorporated by reference into any filing under the Securities
Act of 1933, or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference.
14
ITEM 6. Selected Financial Data
The selected consolidated historical financial data presented below for the five years ended December 31, 2017 is derived
from our consolidated financial statements. The following data should be read in conjunction with the consolidated financial
statements and notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in Items 7 and 8 below.
(In thousands, except share data)
Consolidated Statements of Operations Data:
Revenues
Operating income (loss)
Interest expense, net
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Gain (loss) from disposal of discontinued operations, net
of tax
Net income (loss)
As of and for the Year Ended December 31,
2015
2016
2014
2013
2017
$ 747,763
31,436
13,273
11,219
—
$ 471,496
(57,213)
9,866
(40,712)
—
$ 676,865
(99,099)
9,111
(90,828)
—
$1,118,416
130,596
10,431
79,009
1,152
$1,042,356
94,445
11,279
52,622
12,701
(17,367)
(6,148)
—
(40,712)
—
(90,828)
22,117
102,278
—
65,323
Basic income (loss) per share from continuing operations $
$
Basic net income (loss) per share
$
0.13
(0.07) $
(0.49) $
(0.49) $
(1.10) $
(1.10) $
Diluted income (loss) per share from continuing
operations
Diluted net income (loss) per share
$
$
$
0.13
(0.07) $
(0.49) $
(0.49) $
(1.10) $
(1.10) $
0.95
1.23
0.84
1.07
$
$
$
$
0.62
0.77
0.56
0.69
Consolidated Balance Sheet Data:
Working capital
Total assets
Foreign bank lines of credit
Other current debt
Long-term debt, less current portion
Stockholders' equity
Consolidated Cash Flow Data:
Net cash provided by operations
Net cash used in investing activities
Net cash used in financing activities
$ 346,623
902,716
1,000
518
158,957
547,480
$ 283,139
798,183
—
83,368
72,900
500,543
$ 380,950
848,893
7,371
11
171,211
520,259
$ 440,098
1,007,672
11,395
253
170,462
625,458
$ 395,159
954,918
12,809
58
170,009
581,054
$
$
38,381
(68,374)
(2,290)
11,095
(28,260)
(650)
$ 121,517
(84,366)
(6,730)
$
89,173
(14,002)
(49,158)
$ 151,903
(60,063)
(72,528)
During 2016 and 2015, operating loss includes charges totaling $14.8 million and $80.5 million, respectively, resulting
from the reduction in value of certain assets, the wind-down of our operations in Uruguay and the resolution of certain wage and
hour litigation claims. Charges in 2016 include $6.9 million of non-cash impairments in the Asia Pacific region, $4.1 million of
charges for the reduction in carrying values of certain inventory, $4.5 million of charges in the Latin America region associated
with the wind-down of our operations in Uruguay, partially offset by a $0.7 million gain in 2016 associated with the change in
final settlement amount of certain wage and hour litigation claims. Charges in 2015 include a $70.7 million non-cash impairment
of goodwill, a $2.6 million non-cash impairment of assets, a $2.2 million charge to reduce the carrying value of inventory and a
$5.0 million charge for the resolution of certain wage and hour litigation claims and related costs.
15
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition, results of operations, liquidity and capital resources should be read
together with our Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this
Annual Report.
Overview
We are a geographically diversified supplier providing products, rentals and services primarily to the oil and gas exploration
and production (“E&P”) industry. We operate our business through two reportable segments: Fluids Systems and Mats and
Integrated Services. In recent years, our Mats and Integrated Services segment has expanded beyond the E&P industry, and now
serves a variety of industries, including the electrical transmission & distribution, pipeline, solar, petrochemical and construction
industries.
Our operating results depend, to a large extent, on oil and gas drilling activity levels in the markets we serve, and particularly
for the Fluids Systems segment, the nature of the drilling operations (including the depth and whether the wells are drilled vertically
or horizontally), which governs the revenue potential of each well. Drilling activity, in turn, depends on oil and gas commodity
pricing, inventory levels, product demand and regulatory restrictions. Oil and gas prices and activity are cyclical and volatile. This
market volatility has a significant impact on our operating results.
Beginning in the fourth quarter of 2014 and continuing through early 2016, the price of oil declined dramatically from
the price levels in previous years. As a result, E&P drilling activity declined sharply in North America and many global markets
over this period. Since reaching a low point in early 2016, oil prices and North American drilling activity have steadily improved,
although both remain significantly lower than pre-downturn levels. While our revenue potential is driven by a number of factors
including those described above, rig count data remains the most widely accepted indicator of drilling activity. Average North
America rig count data for the last three years is as follows:
U.S. Rig Count
Canadian Rig Count
Total
________________
Source: Baker Hughes, a GE Company
Year Ended December 31,
2015
2016
2017
2017 vs 2016
%
Count
877
206
1,083
509
130
639
978
192
1,170
368
76
444
72%
58%
69%
Count
2016 vs 2015
%
(48%)
(32%)
(45%)
(469)
(62)
(531)
As of February 16, 2018, the U.S. and Canadian rig counts were 975 and 318, respectively. The Canadian rig count reflects
the normal seasonality for this market, with the highest rig count levels generally observed in the first quarter of each year, prior
to Spring break-up.
Outside of North America, drilling activity has remained generally more stable during this period as drilling activity in
many countries is based upon longer term economic projections and multiple year drilling programs, which tends to reduce the
impact of short term changes in commodity prices on overall drilling activity. While drilling activity in certain of our international
markets (including Brazil and Australia) has declined in recent years, as a whole, our international activities have remained relatively
stable. This stability is primarily driven by new contract awards, including those described below, which include geographical
expansion into new markets as well as market share gains in existing markets. While our international contracts vary in revenue
potential and duration, certain international contracts are scheduled to conclude in 2018, including those with Sonatrach and
Petrobras. Our future revenue levels in international markets are largely dependent on our ability to maintain existing market share
upon contract renewals which may be subject to a competitive bid process and can be impacted by our customers’ procurement
strategies and allocation of contract awards.
Segment Overview
Our Fluids Systems segment, which generated 82% of consolidated revenues in 2017, provides customized fluids solutions
to E&P customers globally, operating through four geographic regions: North America, Europe, the Middle East and Africa
(“EMEA”), Latin America, and Asia Pacific.
16
International expansion is a key element of our Fluids Systems strategy, which in recent years, has helped to stabilize
revenues as North American oil and gas exploration activities have fluctuated significantly. Significant international contract
awards in recent years include:
• A five year contract with Kuwait Oil Company to provide drilling fluids and related services for land operations.
Work under this contract began in the second half of 2014.
• Lot 1 and Lot 3 of a restricted tender by Sonatrach to provide drilling fluids and related services, which expanded
our market share with Sonatrach in Algeria. Work under this three-year contract began in the second quarter of 2015,
with activity levels ramping up during the second half of 2015 and early 2016. While revenues from this contract
represented less than 10% of consolidated revenues in 2017, the contract contributed approximately 14% of our
consolidated revenues in 2016.
• A contract with Total S.A. to provide drilling fluids and related services for an exploratory ultra-deepwater well in
Block 14 of offshore Uruguay. This project was completed in 2016, contributing approximately $12 million of revenue
for the year in 2016.
• A two-year contract with Shell Oil in Albania to provide drilling fluids and related services for onshore drilling
activity. Work under this contract began in 2016.
• A three-year contract with Cairn Oil & Gas to provide drilling and completion fluids, along with associated services,
in support of Cairn’s onshore drilling in India. Work under this contract began in the third quarter of 2017.
• A contract with Baker Hughes, a GE Company, to provide drilling fluids and related services as part of Baker Hughes’
integrated service offering in support of the Greater Enfield project in offshore Western Australia. Work under this
contract began in January 2018.
Within the U.S. operations of our Fluids Systems segment we invested approximately $40 million in recent years to
significantly expand existing capacity and upgrade the drilling fluids blending, storage, and transfer capabilities in our Fourchon,
Louisiana facility which serves customers in the Gulf of Mexico deepwater market. This project is part of our Fluids Systems
strategy to penetrate the Gulf of Mexico deepwater market and was substantially completed in the second quarter of 2017. Capital
expenditures related to the Fourchon expansion totaled $6.9 million, $22.2 million and $10.1 million in 2017, 2016 and 2015,
respectively.
Our Mats and Integrated Services segment, which generated 18% of consolidated revenues in 2017, provides composite
mat rentals, site construction and related site services to customers in various markets including oil and gas exploration and
production, electrical transmission & distribution, pipeline, solar, petrochemical and construction across North America and Europe.
We also sell composite mats to customers outside of the U.S. and to domestic customers outside of the E&P market. Following
our efforts in recent years to diversify our customer base, Mats and Integrated Services segment revenues from non-E&P markets
represented approximately two-thirds of our segment revenues in 2017.
In November 2017, we acquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility
Access Solutions, Inc. (together, “WSG”) for $77.9 million, which included $45.5 million of cash consideration and $32.4 million
of our common equity. Since 2012, WSG has been a strategic logistics and installation service provider for our Mats and Integrated
Service segment, offering a variety of complementary services to our composite matting systems, including access road
construction, site planning and preparation, environmental protection, fluids and spill storage/containment, erosion control, and
site restoration services. The completion of the WSG acquisition expanded our service offering as well as our geographic footprint
across the Northeast, Midwest, Rockies, and West Texas regions of the U.S. Following the mid-November acquisition, WSG
contributed approximately $9 million of revenues to the Mats and Integrated Services segment in 2017, reflecting an annualized
revenue level of approximately $70 million.
Impact of U.S. Tax Reform
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017, resulting in broad and complex changes
to U.S. income tax law. The Tax Act includes a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not
previously subject to U.S. income tax, reduces the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018,
generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, creates new tax on certain foreign-sourced
earnings, makes other changes to limit certain deductions and changes rules on how certain tax credits and net operating loss
carryforwards can be utilized.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made
reasonable estimates of the effects and recorded provisional amounts in our 2017 financial statements. As we finalize the necessary
data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, or other standard-
setting bodies, we may make adjustments to the provisional amounts.
17
We recorded a net tax benefit of $3.4 million in 2017, reflecting provisional amounts for the following income tax effects
of the Tax Act:
One-time transition tax — The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings
not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and
8% on the remaining earnings. We recorded a provisional amount in 2017 for our one-time transitional tax liability and income
tax expense of $6.9 million.
Taxes on repatriation of foreign earnings — We previously considered the unremitted earnings in our non-US subsidiaries
held directly by a U.S. parent to be indefinitely reinvested and, accordingly, had not provided any deferred income taxes. We
intend to pursue repatriation of unremitted earnings in our non-US subsidiaries held directly by a U.S. parent to the extent that
such earnings have been included in the one-time transition tax discussed above, and subject to cash requirements to support the
strategic objectives of the non-US subsidiary. We recorded a provisional amount in 2017 for the estimated liability and income
tax expense for any U.S. federal or state income taxes or additional foreign withholding taxes related to repatriation of such earnings
of $7.0 million.
Deferred tax effects — The Tax Act reduces the U.S. corporate statutory tax rate from 35% to 21% for years after 2017.
Accordingly, we have remeasured our U.S. net deferred tax liabilities as of December 31, 2017 to reflect the reduced rate that will
apply in future periods when these deferred taxes are settled or realized. We recognized a provisional deferred tax benefit in 2017
of $17.4 million to reflect the reduced U.S. tax rate on our estimated U.S. net deferred tax liabilities.
While we have not completed our analysis of the impacts of the Tax Act on our effective tax rate going forward, we
anticipate the overall impacts of the Tax Act described above will reduce our effective tax rate in 2018 compared to 2017, excluding
the $3.4 million net benefit included in our 2017 income tax provision as described above. The impact of the Tax Act on our
effective tax rate in 2018 will depend in large part on the relative contribution of our domestic earnings and finalization of the
provisional accounting for the Tax Act.
2016 and 2015 Impairments and Restructuring Charges
After achieving an average North America rig count of 2,241 in 2014, the declining E&P drilling activity levels throughout
2015 through early 2016 reduced the demand for our services, negatively impacted customer pricing and resulted in elevated costs
associated with workforce reductions, negatively impacting our profitability. Further, due to the fact that our business contains
substantial levels of fixed costs, including significant facility and personnel expenses, North American operating margins in both
operating segments were negatively impacted by the lower customer demand during these years.
In response to these significant activity declines in North America, we implemented cost reduction programs in 2015
including workforce reductions, reduced discretionary spending, and implemented temporary salary freezes for substantially all
employees, including executive officers. In September 2015, we also implemented a voluntary early retirement program with
certain eligible employees in the United States. As a result of the continuing declines in activity in the first half of 2016, we
implemented further cost reduction actions including additional workforce reductions and beginning in March 2016, a temporary
salary reduction for a significant number of North American employees, including executive officers, suspension of the Company’s
matching contribution to the U.S. defined contribution plan as well as a reduction in cash compensation paid to our Board of
Directors in order to further align our cost structure to activity levels. In the second quarter of 2017, we restored salaries to pre-
reduction levels for our North American employees, as well as the Company matching contribution to the U.S. defined contribution
plan.
As part of these workforce reductions, we recognized charges for employee termination costs as shown in the table below:
(In thousands)
Fluids systems
Mats and integrated services
Corporate office
Total employee termination costs
Year Ended December 31,
2016
2015
$
$
4,125
$
285
162
4,572
$
7,218
717
228
8,163
During 2016 and 2015 we also recorded charges totaling $14.8 million and $80.5 million, respectively, resulting from
the reduction in value of certain assets, the wind-down of our operations in Uruguay and the resolution of certain wage and hour
litigation claims. The Fluids Systems segment operating results included $15.5 million and $75.5 million of these charges in 2016
and 2015, respectively. The remaining $0.7 million benefit and $5.0 million charge was included in Corporate Office expenses in
2016 and 2015, respectively, related to the resolution of certain wage and hour litigation claims.
18
The $15.5 million of Fluids Systems charges in 2016 included $6.9 million of non-cash impairments in the Asia Pacific
region resulting from the continuing unfavorable industry market conditions and outlook for the region in 2016, $4.1 million of
charges for the reduction in carrying values of certain inventory, primarily resulting from lower of cost or market adjustments and
$4.5 million of charges in the Latin America region associated with the wind-down of our operations in Uruguay, including $0.5
million to write-down property, plant and equipment. The $6.9 million of impairments in the Asia Pacific region included a $3.8
million charge to write-down property, plant and equipment to its estimated fair value and a $3.1 million charge to fully impair
the customer related intangible assets in the region.
The $75.5 million of Fluids Systems charges in 2015 included $70.7 million of non-cash charges for the impairment of
goodwill, following our November 1, 2015 annual evaluation, a $2.6 million non-cash impairment of assets, following our decision
to exit a facility, and a $2.2 million charge to reduce the carrying value of diesel-based drilling fluid inventory, resulting from
lower of cost or market adjustments.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Consolidated Results of Operations
Summarized results of operations for the year ended December 31, 2017 compared to the year ended December 31,
2016 are as follows:
(In thousands)
Revenues
Cost of revenues
Selling, general and administrative expenses
Other operating income, net
Impairments and other charges
Operating income (loss)
Foreign currency exchange (gain) loss
Interest expense, net
Gain on extinguishment of debt
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Year Ended December 31,
2017 vs 2016
2017
2016
$
%
$
747,763
$
471,496
$
276,267
607,899
108,838
(410)
—
31,436
2,051
13,273
—
16,112
4,893
11,219
437,836
170,063
88,473
(4,345)
6,745
(57,213)
(710)
9,866
(1,615)
(64,754)
(24,042)
(40,712)
20,365
3,935
(6,745)
88,649
2,761
3,407
1,615
80,866
28,935
51,931
Loss from disposal of discontinued operations, net of tax
Net Loss
Revenues
(17,367)
(6,148) $
—
(40,712) $
(17,367)
34,564
$
59%
39%
23%
91%
NM
155%
NM
35%
NM
125%
120%
128%
NM
85%
Revenues increased 59% to $747.8 million in 2017, compared to $471.5 million in 2016. This $276.3 million increase
includes a $268.0 million (108%) increase in revenues in North America, comprised of a $212.5 million increase in our Fluids
Systems segment and a $55.5 million increase in the Mats and Integrated Services segment. Revenues from our international
operations increased by $8.3 million (4%), as activity gains in the EMEA region, Brazil and Chile were mostly offset by the
completion of the offshore Uruguay project, which contributed $12.3 million of revenue in 2016. Additional information regarding
the change in revenues is provided within the operating segment results below.
Cost of Revenues
Cost of revenues increased 39% to $607.9 million in 2017, compared to $437.8 million in 2016. This increase was
primarily driven by the 59% increase in revenues; however, cost of revenues contain substantial levels of fixed costs in each
business, including significant depreciation, facility costs and personnel expenses, resulting in the lower increase in cost of revenues
relative to the change in revenues. In addition, 2016 included $4.6 million of employee severance costs which did not recur in
2017.
19
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $20.4 million to $108.8 million in 2017 from $88.5 million in
2016. The increase in expenses is primarily attributable to a $10.6 million increase in performance-based incentive compensation
as well as elevated spending related to strategic planning efforts and legal matters, including the WSG acquisition described above.
Selling, general and administrative expenses as a percentage of revenues decreased to 14.6% in 2017 from 18.8% in the prior year.
Other Operating Income, net
Other operating income was $0.4 million in 2017 as compared to $4.3 million in 2016, primarily reflecting gains on the
sale of assets in both periods.
Impairments and Other Charges
During 2017, we did not recognize any impairments and other charges. During 2016, we recognized $6.7 million of
impairments and other charges. As previously described, these charges primarily included $6.9 million of non-cash impairments
in our Asia Pacific region including a $3.8 million charge to write-down property, plant and equipment to its estimated fair value
and a $3.1 million charge to fully impair the customer related intangible assets. See “Note 12 – Segment Data” for additional
information related to these charges. In addition, we recorded a $0.5 million charge in 2016 in the Latin America region of our
Fluids Systems segment to write-down property, plant and equipment associated with the wind-down of our operations in Uruguay.
These charges were partially offset by a $0.7 million gain in 2016 in our corporate office associated with the change in the final
settlement amount of the wage and hour litigation claims.
Foreign Currency Exchange
Foreign currency exchange was a $2.1 million loss in 2017 compared to a $0.7 million gain in 2016, reflecting the impact
of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than
functional currencies.
Interest Expense, net
Interest expense totaled $13.3 million in 2017 compared to $9.9 million in 2016. This increase was primarily attributable
to a $3.7 million increase in non-cash amortization of debt discount associated with the 2021 Convertible Notes and lower capitalized
interest in 2017 as compared to 2016. These increases were partially offset by $1.1 million of charges in the second quarter of
2016 for the write-off of debt issuance costs related to the termination and replacement of our revolving Credit Agreement. See
“Note 6 – Financing Arrangements” for further discussion of the accounting treatment for the 2021 Convertible Notes.
Gain on Extinguishment of Debt
The $1.6 million gain on extinguishment of debt in 2016 reflects the difference in the amount paid and the net carrying
value of the extinguished debt, including debt issuance costs, related to the repurchase of $89.3 million aggregate principal amount
of our 2017 Convertible Notes.
Provision (Benefit) for Income Taxes
The provision for income taxes for 2017 was $4.9 million, reflecting an effective tax rate of 30.4%, compared to a $24.0
million benefit in 2016, reflecting an effective tax rate of 37.1%. The provision for income taxes in 2017 includes a $3.4 million
benefit resulting from the provisional accounting for the Tax Act as previously described. In addition, the 2017 effective tax rate
was negatively impacted primarily by non-deductible expenses relative to the amount of pre-tax income.
The benefit for income taxes in 2016 included a $9.3 million benefit associated with a worthless stock deduction and
related impacts from restructuring the investment in our Brazilian subsidiary, partially offset by the unfavorable impact of pretax
losses incurred in Australia, including $6.9 million of impairment charges, for which the recording of a tax benefit is not permitted.
Loss from Disposal of Discontinued Operations
Loss from disposal of discontinued operations includes a $17.4 million charge, net of tax, in 2017 for the settlement of
a pending litigation matter related to the March 2014 sale of our Environmental Services business. See “Note 14 – Discontinued
Operations” and “Note 15 – Commitments and Contingencies” in our consolidated financial statements for additional information.
20
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment
transfers):
(In thousands)
Revenues
Fluids systems
Mats and integrated services
Total revenues
Operating income (loss)
Fluids systems
Mats and integrated services
Corporate office
Operating income (loss)
Segment operating margin
Fluids systems
Mats and integrated services
Fluids Systems
Revenues
Year ended December 31,
2017 vs 2016
2017
2016
$
%
56%
74%
59%
$ 615,803
131,960
$ 747,763
$ 395,461
76,035
$ 471,496
$
$
27,580
40,491
(36,635)
31,436
$ (43,631)
14,741
(28,323)
$ (57,213)
$
$
$
$
220,342
55,925
276,267
71,211
25,750
(8,312)
88,649
4.5%
30.7%
(11.0%)
19.4%
Total revenues for this segment consisted of the following:
(In thousands)
United States
Canada
Total North America
Latin America
Total Western Hemisphere
EMEA
Asia Pacific
Total Eastern Hemisphere
Year ended December 31,
2017 vs 2016
$
$
2017
341,075
54,322
395,397
36,965
432,362
179,360
4,081
183,441
$
2016
149,876
33,050
182,926
40,736
223,662
167,130
4,669
171,799
$
191,199
21,272
212,471
(3,771)
208,700
12,230
(588)
11,642
%
128%
64%
116%
(9%)
93%
7%
(13%)
7%
Total Fluids Systems
$
615,803
$
395,461
$
220,342
56%
North America revenues increased 116% to $395.4 million in 2017 compared to $182.9 million in 2016. This increase
in revenues is primarily attributable to the 69% increase in North American average rig count along with market share gains and
higher customer spending per well in 2017 compared to the prior year. Canadian revenues also included a $4.8 million increase
from the August 2016 acquisition of Pragmatic Drilling Fluids Additives, Ltd.
Internationally, revenues increased 4% to $220.4 million in 2017 compared to $212.5 million in 2016. The increase in
the EMEA region is primarily attributable to an increase in customer activity levels in Algeria and Romania. The decrease in the
Latin America region is attributable to completion of the offshore Uruguay project which contributed $12.3 million of revenue in
2016 partially offset by increased activity with Petrobras in Brazil and an increase in revenue from a customer contract in Chile
which started in the fourth quarter of 2016.
21
Operating Income
The Fluids Systems segment generated operating income of $27.6 million in 2017 compared to an operating loss of $43.6
million in 2016, representing a $71.2 million improvement in operating results. The operating loss in 2016 includes $15.5 million
of charges related to asset impairments and $4.1 million of charges related to workforce reductions, as previously described.
The remaining $51.6 million increase in operating results includes a $48.7 million improvement from North American
operations and a $2.9 million increase in operating income from international operations. The improvement in North American
operating results is largely attributable to the $212.5 million increase in revenues described above. The increase in international
operating income is primarily attributable to the increase in revenues as well as the benefit of cost reduction programs in the Asia
Pacific region.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
(In thousands)
Mat rental and services
Mat sales
Total
Year ended December 31,
2017 vs 2016
2017
2016
$
$
96,067
35,893
131,960
$
$
58,389
17,646
76,035
$
$
$
37,678
18,247
55,925
%
65%
103%
74%
Mat rental and services revenues for 2017 increased $37.7 million compared to 2016. This improvement includes an
increase in revenue from E&P customer activity, attributable to the improvement in oil prices, as well as increases in non-E&P
customer activity associated with our continued efforts to expand beyond our traditional oilfield customer base and strong weather-
related demand for rental mats. The 2017 operating results also include approximately $9 million of services revenue from the
WSG acquisition in mid-November.
Revenues from mat sales were $35.9 million in 2017 compared to $17.6 million in 2016. Revenues from mat sales have
typically fluctuated based on the timing of mat orders from customers. The improvement in 2017 is primarily attributable to our
continued efforts to further expand our sales into non-E&P markets.
Operating Income
Segment operating income increased by $25.8 million to $40.5 million for 2017 as compared to $14.7 million in 2016,
attributable to the increases in both mat sales and rental and services revenues as described above. Due to the relatively fixed
nature of operating expenses, increases in revenue have a higher incremental impact on segment operating margin.
As noted above, the 2017 operating results include approximately $9 million of revenues associated with the WSG
acquisition completed in mid-November 2017. The acquired business is predominately focused on site services, as opposed to
product sales and rentals, which we expect will drive a shift in sales mix toward service revenues in 2018, as compared to 2017.
While we expect the incremental service revenues to provide a positive impact to segment operating income, the mix shift and
higher depreciation and amortization expense related to the purchase accounting allocation is expected to reduce the overall
segment operating margin from the 30.7% operating margin achieved in 2017. See “Note 2 - Business Combinations” for further
discussion of the acquisition.
Corporate office
Corporate office expenses increased $8.3 million to $36.6 million in 2017, compared to $28.3 million for 2016. The
increase is primarily attributable to a $2.7 million increase in performance-based incentive compensation and a $2.0 million
increase in spending related to strategic planning efforts and legal matters, including the Ecoserv lawsuit described further in “Note
15 - Commitments and Contingencies.” The 2017 operating results also include a $1.0 million increase in acquisition related costs,
primarily attributable to the WSG acquisition.
22
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Consolidated Results of Operations
Summarized results of operations for the year ended December 31, 2016 compared to the year ended December 31, 2015
are as follows:
(In thousands)
Revenues
Cost of revenues
Selling, general and administrative expenses
Other operating income, net
Impairments and other charges
Operating loss
Foreign currency exchange loss
Interest expense, net
Gain on extinguishment of debt
Loss from operations before income taxes
Benefit for income taxes
Net Loss
Revenues
Year Ended December 31,
2016 vs 2015
2016
2015
$
%
$
471,496
$
676,865
$
437,836
88,473
(4,345)
6,745
(57,213)
(710)
9,866
(1,615)
(64,754)
599,013
101,032
(2,426)
78,345
(99,099)
4,016
9,111
—
(112,226)
(205,369)
(161,177)
(12,559)
(1,919)
(71,600)
41,886
(4,726)
755
1,615
47,472
(24,042)
(40,712) $
(21,398)
(90,828) $
$
(2,644)
50,116
(30%)
(27%)
(12%)
(79%)
NM
42%
NM
8%
NM
42%
(12%)
55%
Revenues decreased 30% to $471.5 million in 2016, compared to $676.9 million in 2015. This $205.4 million decrease
included a $189.1 million (43%) decrease in revenues in North America, including a $169.0 million decline in our Fluids Systems
segment and a $20.1 million decline in our Mats and Integrated Services segment. Revenues from our international operations
decreased by $16.3 million (7%), as a $12.3 million revenue contribution from the offshore Uruguay project in 2016, along with
activity gains in our EMEA region were more than offset by reduced drilling activity in Brazil and Asia Pacific, as well as a $12.0
million unfavorable impact of currency exchange related to the stronger U.S. dollar in 2016. Additional information regarding the
change in revenues is provided within the operating segment results below.
Cost of Revenues
Cost of revenues decreased 27% to $437.8 million in 2016, compared to $599.0 million in 2015. The decrease was
primarily driven by the decline in revenues, the benefits of cost reduction programs, a $6.1 million reduction in depreciation
expense associated with the January 2016 change in estimated useful lives and residual values of our composite mats rental fleet
and a $2.0 million reduction in employee termination costs. These decreases were partially offset by a $1.9 million increase in
inventory impairments primary resulting from lower of cost or market adjustments. Additional information regarding the change
in cost of revenues is provided within the operating segment results below.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $12.6 million to $88.5 million in 2016 from $101.0 million in
2015. The decrease is primarily attributable to the benefits of cost reduction programs, a $2.4 million decline in performance-
based incentive compensation, a $1.9 million decline in spending related to legal matters, a $1.6 million decrease in employee
termination costs and lower spending on strategic planning projects.
Other Operating Income, net
Other operating income was $4.3 million in 2016 as compared to $2.4 million in 2015, primarily reflecting gains on the
sale of assets in both periods.
23
Impairments and Other Charges
As previously described, we recognized $6.7 million of impairments and other charges in 2016, which included $6.9
million of non-cash impairments in the Asia Pacific region of our Fluids Systems segment, reflecting a $3.8 million charge to
write-down property, plant and equipment to its estimated fair value and a $3.1 million charge to fully impair the customer related
intangible assets in the region. In addition, we recorded a $0.5 million charge in 2016 in the Latin America region of our Fluids
Systems segment to write-down property, plant and equipment associated with the wind-down of our operations in Uruguay,
partially offset by a $0.7 million gain in 2016 in our corporate office associated with the change in the final settlement amount of
the wage and hour litigation claims.
In 2015, we recognized $78.3 million of impairments and other charges including $70.7 million of non-cash charges in
the Fluids Systems segment for the impairment of goodwill and $2.6 million for the impairment of certain assets following our
decision to exit a facility. In addition, corporate office expenses in 2015 included a $5.0 million charge for the resolution of certain
wage and hour litigation claims and related costs.
Foreign Currency Exchange
Foreign currency exchange was a $0.7 million gain in 2016 compared to a $4.0 million loss in 2015, reflecting the impact
of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than
functional currencies. The foreign exchange loss in 2015 was primarily due to the strengthening of the U.S. dollar against the
Brazilian real. In September 2015, approximately 70% of the inter-company balances due from our Brazilian subsidiary with
foreign currency exposure were forgiven, which reduced the foreign currency volatility in 2016 in comparison to 2015.
Interest Expense, net
Interest expense, which primarily reflected the 4% interest associated with our unsecured 2017 Convertible Notes, totaled
$9.9 million for 2016 compared to $9.1 million in 2015. The increase in 2016 was primarily attributable to a non-cash charge of
$1.1 million in the second quarter of 2016 for the write-off of debt issuance costs related to the termination and replacement of
our revolving Credit Agreement partially offset by the benefit from the repurchase of $11.2 million of our 2017 Convertible Notes
in the first quarter of 2016.
Gain on Extinguishment of Debt
The $1.6 million gain in 2016 reflects the difference in the amount paid and the net carrying value of the extinguished
debt, including debt issuance costs, related to the repurchase of $89.3 million aggregate principal amount of our 2017 Convertible
Notes.
Provision (Benefit) for Income Taxes
The provision for income taxes for 2016 was a $24.0 million benefit, reflecting an effective tax rate of 37.1%, compared
to a $21.4 million benefit in 2015, reflecting an effective tax rate of 19.1%. The benefit for income taxes in 2016 included a $9.3
million benefit associated with a worthless stock deduction and related impacts from restructuring the investment in our Brazilian
subsidiary, partially offset by the unfavorable impact of pretax losses incurred in Australia for which the recording of a tax benefit
is not permitted.
The benefit for income taxes in 2015 was unfavorably impacted by the impairment of non-deductible goodwill. In addition,
the 2015 income tax provision also included a $4.6 million charge for increases to the valuation allowance for certain deferred
tax assets which may not be realized (primarily related to our Australian subsidiary and certain U.S. state net operating losses).
These 2015 charges were partially offset by a $4.4 million benefit associated with the forgiveness of certain inter-company balances
due from our Brazilian subsidiary and a $2.2 million benefit from the release of U.S. tax reserves following the expiration of
statutes of limitation.
24
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment
transfers):
(In thousands)
Revenues
Fluids systems
Mats and integrated services
Total revenues
Operating income (loss)
Fluids systems
Mats and integrated services
Corporate office
Operating loss
Segment operating margin
Fluids systems
Mats and integrated services
Fluids Systems
Revenues
Year ended December 31,
2016 vs 2015
2016
2015
$
%
(185,675)
(19,694)
(205,369)
(32%)
(21%)
(30%)
43,139
(10,208)
8,955
41,886
$ 395,461
76,035
$ 471,496
$ 581,136
95,729
$ 676,865
$ (43,631)
14,741
(28,323)
$ (57,213)
$ (86,770)
24,949
(37,278)
$ (99,099)
$
$
$
$
(11.0%)
19.4%
(14.9%)
26.1%
Total revenues for this segment consisted of the following:
(In thousands)
United States
Canada
Total North America
Latin America
Total Western Hemisphere
EMEA
Asia Pacific
Total Eastern Hemisphere
Year ended December 31,
2016 vs 2015
$
$
2016
149,876
33,050
182,926
40,736
223,662
167,130
4,669
171,799
$
2015
299,266
52,673
351,939
46,668
398,607
164,426
18,103
182,529
$
(149,390)
(19,623)
(169,013)
(5,932)
(174,945)
2,704
(13,434)
(10,730)
%
(50%)
(37%)
(48%)
(13%)
(44%)
2%
(74%)
(6%)
Total Fluids Systems
$
395,461
$
581,136
$
(185,675)
(32%)
North America revenues decreased 48% to $182.9 million in 2016, compared to $351.9 million in 2015. This decrease
in revenues is primarily attributable to the 45% decline in North American average rig count along with lower pricing and customer
spending per well, partially offset by market share gains over this period.
Internationally, revenues decreased 7% to $212.5 million in 2016 compared to $229.2 million in 2015, which included
a $10.7 million reduction from currency rate changes compared to 2015. The increase in the EMEA region was primarily driven
by a $39.8 million increase for activity in Algeria, Kuwait, and the Republic of the Congo, partially offset by a $16.6 million
decrease following the completion of customer drilling activity in the deepwater Black Sea and other reductions in customer
drilling activity related to the current commodity price environment, as well as an $8.5 million reduction from the impact of
currency exchange. The decrease in revenues in Latin America is primarily attributable to declines in Petrobras drilling activity
in Brazil and the impact of currency exchange partially offset by the $12.3 million revenue contribution from the offshore Uruguay
project in 2016. The decline in Asia Pacific is primarily attributable to reduced drilling activity in Australia.
25
Operating Income
The Fluids Systems segment incurred an operating loss of $43.6 million in 2016 compared to an operating loss of $86.8
million in 2015. The operating losses in 2016 and 2015 included $15.5 million and $75.5 million of charges, respectively, for the
impairment of assets as previously discussed. The remaining $16.8 million net increase in operating loss in 2016 compared to
2015 included a $13.3 million increase in the North American operating loss and a $3.5 million decrease in international operating
income. The increase in North American operating loss is largely attributable to the $169.0 million decline in revenues described
above, partially offset by the benefits of cost reduction programs and a $3.1 million reduction in employee termination costs. The
$3.5 million decrease in international operating income is primarily attributable to an unfavorable change in customer mix in
EMEA along with the revenue declines in Asia Pacific and Latin America and a $1.8 million negative impact of currency exchange.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
(In thousands)
Mat rental and services
Mat sales
Total
Year ended December 31,
2016 vs 2015
2016
2015
$
$
58,389
17,646
76,035
$
$
73,037
22,692
95,729
$
$
$
(14,648)
(5,046)
(19,694)
%
(20%)
(22%)
(21%)
Mat rental and services revenues decreased $14.6 million in 2016, as compared to 2015. The decrease is primarily due
to weakness in North American drilling markets, including the U.S. Northeast region which has historically been the segment’s
largest rental market. A 49% decline in the U.S. Northeast region’s drilling activity, along with a significant decline in completions
activity, has resulted in lower rental fleet utilization and customer pricing from prior year levels. The revenue decline from North
American drilling markets was partially offset by a $5.7 million increase in revenues from non-E&P customers in North America
and Europe.
Revenues from mat sales declined by $5.0 million compared to 2015 and typically fluctuates based on the timing of mat
orders from customers.
Operating Income
Segment operating income declined by $10.2 million to $14.7 million in 2016, as compared to $24.9 million in 2015,
largely attributable to the decline in revenues described above. Due to the relatively fixed nature of operating expenses in our
rental business, declines in rental and services revenue have a higher decremental impact on the segment’s operating margin. The
impact of lower revenue was partially offset by a $6.1 million reduction in depreciation expense and a $1.4 million increase in
gains recognized on the sale of used composite mats from our rental fleet. The reduction in depreciation expense was a result of
a change in estimated useful lives and residual values of our composite mats included in rental fleet fixed assets in 2016 as further
discussed in Note 1 to the Consolidated Financial Statements.
Corporate office
Corporate office expenses decreased $9.0 million to $28.3 million in 2016, compared to $37.3 million in 2015. The
decrease is primarily attributable to a $5.7 million improvement from the settlement of the wage and hour litigation claims and a
$2.0 million decrease in legal costs, primarily associated with such claims. The remaining $1.3 million decrease is primarily
attributable to reduced spending on strategic projects and the benefits of cost reduction programs.
Liquidity and Capital Resources
Net cash provided by operating activities during 2017 totaled $38.4 million compared to $11.1 million during 2016. The
increase in operating cash flow is primarily attributable to the improvements in operational performance in North America. As a
result of the 59% improvement in consolidated revenues, net income adjusted for non-cash items provided $57.4 million of
operating cash in 2017, while an increase in working capital required to support the growth used $19.1 million of cash in 2017,
primarily reflecting increases in trade receivables offset by a $37.2 million tax refund received in the second quarter of 2017.
Net cash used in investing activities during 2017 was $68.4 million, including $44.8 million associated with the WSG
acquisition. Investing activities also included capital expenditures of $31.4 million, including $17.6 million in the Fluids Systems
segment, of which $6.9 million related to the facility upgrade and expansion of our Fourchon, Louisiana facility. The Mats and
Integrated Services segment capital expenditures totaled $12.0 million during 2017, primarily reflecting investments in the mat
rental fleet.
26
Net cash used in financing activities during 2017 was $2.3 million. We borrowed a net $81.6 million on our Amended
ABL Facility in 2017, which largely funded repayment of the $83.3 million 2017 Convertible Notes that matured in October 2017.
As of December 31, 2017, we had cash on-hand of $56.4 million, substantially all of which resides within our international
subsidiaries. As a result of the Tax Act as previously described, we intend to pursue repatriation of available cash in certain of our
international subsidiaries subject to cash requirements to support the strategic objectives of these international subsidiaries and
finalization of our analysis of the impacts of the Tax Act. We anticipate that our future working capital requirements for our
operations will fluctuate directionally with revenues. In addition, we expect total 2018 capital expenditures to be approximately
$20 million to $25 million. Availability under our Amended ABL Facility also provides additional liquidity as discussed further
below. Total availability under the Amended ABL Facility will fluctuate directionally based on the level of eligible accounts
receivable, inventory, and, subject to satisfaction of certain financial covenants as described below, composite mats included in
the rental fleet. We expect our available cash on-hand, cash generated by operations and remaining availability under our Amended
ABL Facility to be adequate to fund current operations during the next 12 months.
Our capitalization was as follows:
(In thousands)
Convertible Notes due 2017
Convertible Notes due 2021
Amended ABL Facility
Other debt
Unamortized discount and debt issuance costs
Total debt
Stockholder's equity
Total capitalization
December 31, 2017
— $
100,000
81,600
1,518
(22,643)
160,475
547,480
707,955
$
$
December 31, 2016
83,256
100,000
—
380
(27,368)
156,268
500,543
656,811
$
$
$
Total debt to capitalization
22.7%
23.8%
2017 Convertible Notes. In September 2010, we issued $172.5 million of unsecured convertible senior notes (“2017
Convertible Notes”) that matured on October 1, 2017. As of December 31, 2016, $83.3 million aggregate principal amount remained
outstanding, all of which were repaid upon maturity in October 2017.
2021 Convertible Notes. In December 2016, we issued $100.0 million of unsecured convertible senior notes (“2021
Convertible Notes”) that mature on December 1, 2021, unless earlier converted by the holders pursuant to the terms of the notes.
The notes bear interest at a rate of 4.0% per year, payable semiannually in arrears on June 1 and December 1 of each year.
Holders may convert the notes at their option at any time prior to the close of business on the business day immediately
preceding June 1, 2021, only under the following circumstances:
• during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock
for at least 20 trading days (regardless of whether consecutive) during a period of 30 consecutive trading days ending
on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion
price of the notes in effect on each applicable trading day;
• during the five business day period after any five consecutive trading day period in which the trading price per $1,000
principal amount of notes for each trading day was less than 98% of the last reported sale price of our common stock
on such date multiplied by the conversion rate on each such trading day; or
• upon the occurrence of specified corporate events, as described in the indenture governing the notes, such as a
consolidation, merger, or share exchange.
On or after June 1, 2021 until the close of business on the business day immediately preceding the maturity date, holders
may convert their notes at any time, regardless of whether any of the foregoing conditions have been satisfied. As of February 23,
2018, the notes were not convertible.
The notes are convertible into, at our election, cash, shares of common stock, or a combination of both, subject to
satisfaction of specified conditions and during specified periods, as described above. If converted, we currently intend to pay cash
for the principal amount of the notes converted. The conversion rate is initially 107.1381 shares of our common stock per $1,000
principal amount of notes (equivalent to an initial conversion price of $9.33 per share of common stock), subject to adjustment in
certain circumstances. We may not redeem the notes prior to their maturity date.
27
In accordance with accounting guidance for convertible debt with a cash conversion option, we separately accounted for
the debt and equity components of the notes in a manner that reflected our estimated nonconvertible debt borrowing rate. We
estimated the fair value of the debt component of the notes to be $75.2 million at the issuance date, assuming a 10.5% non-
convertible borrowing rate. The carrying amount of the equity component was determined to be approximately $24.8 million by
deducting the fair value of the debt component from the principal amount of the notes, and was recorded as an increase to additional
paid-in capital, net of the related deferred tax liability of $8.7 million. The excess of the principal amount of the debt component
over its carrying amount (the “debt discount”) is being amortized as interest expense over the term of the notes using the effective
interest method. See “Note 6 – Financing Arrangements” in our consolidated financial statements for further discussion of the
accounting treatment for the 2021 Convertible Notes.
Revolving Credit Facility. In March 2015, we entered into a Third Amended and Restated Credit Agreement (the “Credit
Agreement”) which provided for a $200.0 million revolving loan facility available for borrowings and letters of credit through
March 2020. In December 2015, the Credit Agreement was amended, decreasing the revolving credit facility to $150.0 million
and subsequently, we terminated the Credit Agreement in May 2016, replacing it with an asset-based revolving loan facility as
discussed further below. As of the date of termination, we had no outstanding borrowings under the Credit Agreement. In the
second quarter of 2016, we recognized a non-cash charge of $1.1 million in interest expense for the write-off of debt issuance
costs in connection with the termination.
Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement (the “ABL Facility”)
which replaced the terminated Credit Agreement. The ABL Facility had a termination date of March 6, 2020 and provided financing
of up to $90.0 million available for borrowings (inclusive of letters of credit) and subject to certain conditions, could be increased
to a maximum capacity of $150.0 million. In October 2017, we entered into an Amended and Restated Credit Agreement (the
“Amended ABL Facility”) which amends and restates our previous ABL Facility and increases the borrowing capacity from $90.0
million to $150.0 million, while also reducing applicable borrowing rates and fee terms. Subject to certain conditions, the Amended
ABL Facility can be increased up to a maximum capacity of $225.0 million.
The Amended ABL Facility terminates on October 17, 2022; however, the Amended ABL Facility has a springing maturity
date that will accelerate the maturity of the Amended ABL Facility to September 1, 2021 if, prior to such date, the 2021 Convertible
Notes have not either been repurchased, redeemed, converted or we have not provided sufficient funds to repay the 2021 Convertible
Notes in full on their maturity date. For this purpose, funds may be provided in cash to an escrow agent or a combination of cash
to an escrow agent and the assignment of a portion of availability under the Amended ABL Facility. The Amended ABL Facility
requires compliance with a minimum fixed charge coverage ratio and minimum unused availability of $25.0 million to utilize
borrowings or assignment of availability under the Amended ABL Facility towards funding the repayment of the 2021 Convertible
Notes.
Borrowing availability under the Amended ABL Facility is calculated based on eligible accounts receivable, inventory,
and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of
reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base
calculation shall also include the amount of eligible pledged cash. The lender may establish reserves, in part based on appraisals
of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the Amended ABL
Facility. Availability associated with eligible rental mats will also be subject to maintaining a minimum consolidated fixed charge
coverage ratio and a minimum level of operating income for the Mats and Integrated Services segment. As of December 31, 2017,
our total borrowing base availability under the Amended ABL Facility was $136.2 million, of which, $81.6 million was drawn,
resulting in remaining availability of $54.6 million.
Under the terms of the Amended ABL Facility, we may elect to borrow at a variable interest rate plus an applicable margin
based on either, (1) LIBOR subject to a floor of zero or (2) a base rate equal to the highest of: (a) the federal funds rate plus 50
basis points, (b) the prime rate of Bank of America, N.A. or (c) LIBOR, subject to a floor of zero, plus 100 basis points. The
applicable margin ranges from 175 to 275 basis points for LIBOR borrowings, and 75 to 175 basis points for base rate borrowings,
based on the ratio of debt to consolidated EBITDA as defined in the Amended ABL Facility. As of December 31, 2017, the
applicable margin for borrowings under our Amended ABL Facility is 200 basis points with respect to LIBOR borrowings and
100 basis points with respect to base rate borrowings. The weighted average interest rate for the Amended ABL Facility is 3.9%
at December 31, 2017. In addition, we are required to pay a commitment fee on the unused portion of the Amended ABL Facility
ranging from 25 to 37.5 basis points, based on the ratio of debt to consolidated EBITDA, as defined in the Amended ABL Facility.
The applicable commitment fee as of December 31, 2017 was 37.5 basis points.
The Amended ABL Facility is a senior secured obligation, secured by first liens on all of our U.S. tangible and intangible
assets and a portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral. The Amended ABL Facility
contains customary operating covenants and certain restrictions including, among other things, the incurrence of additional debt,
liens, dividends, asset sales, investments, mergers, acquisitions, affiliate transactions, stock repurchases and other restricted
payments. The Amended ABL Facility also requires compliance with a fixed charge coverage ratio if availability under the Amended
ABL Facility falls below $22.5 million. In addition, the Amended ABL Facility contains customary events of default, including,
28
without limitation, a failure to make payments under the facility, acceleration of more than $25.0 million of other indebtedness,
certain bankruptcy events and certain change of control events.
Other Debt. Our foreign subsidiaries in Italy and India maintain local credit arrangements consisting primarily of lines
of credit which are renewed on an annual basis. We utilize local financing arrangements in our foreign operations in order to
provide short-term local liquidity needs. Advances under these short-term credit arrangements are typically based on a percentage
of the subsidiary’s accounts receivable or firm contracts with certain customers. We had $1.0 million outstanding under these
arrangements at December 31, 2017, and there were no balances outstanding at December 31, 2016.
At December 31, 2017, we had letters of credit issued and outstanding which totaled $7.2 million that are collateralized
by $7.6 million in restricted cash. Additionally, our foreign operations had $21.6 million outstanding in letters of credit and other
guarantees, primarily issued under the line of credit in Italy as well as certain letters of credit that are collateralized by $1.5 million
in restricted cash. At December 31, 2017 and December 31, 2016, prepaid expenses and other current assets in the accompanying
balance sheet include total restricted cash related to letters of credit of $9.1 million and $7.4 million, respectively.
Off-Balance Sheet Arrangements
In conjunction with our insurance programs, we had established letters of credit in favor of certain insurance companies
in the amount of $2.2 million and $3.0 million at December 31, 2017 and 2016, respectively. We also had $0.4 million in guarantee
obligations in connection with facility closure bonds and other performance bonds issued by insurance companies outstanding as
of December 31, 2017 and 2016.
Other than normal operating leases for office and warehouse space, rolling stock and other pieces of operating equipment,
we do not have any off-balance sheet financing arrangements or special purpose entities. As such, we are not materially exposed
to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.
Contractual Obligations
A summary of our outstanding contractual and other obligations and commitments at December 31, 2017 is as follows:
(In thousands)
Current debt
2021 Convertible Notes
Interest on 2021 Convertible Notes
Amended ABL Facility
Operating leases
Trade accounts payable and accrued
liabilities (1)
Purchase commitments, not accrued
Other long-term liabilities (2)
Performance bond obligations
Letter of credit commitments
Total contractual obligations
2018
2019
2020
2021
2022
Thereafter
Total
$
1,518
—
4,000
—
13,318
156,813
15,005
—
444
23,889
$ 214,987
$
— $
—
4,000
—
6,877
— $
— $
— 100,000
4,000
—
3,764
4,000
—
4,611
— $
—
—
81,600
3,251
1,518
— $
— 100,000
16,000
—
81,600
—
39,510
7,689
—
1,800
—
—
1,815
$ 14,492
—
—
—
—
1,494
$ 10,105
—
—
—
—
213
$ 107,977
—
—
—
—
1,383
$ 86,234
$
— 156,813
16,805
—
6,285
6,285
444
—
28,794
—
$ 447,769
13,974
(1) Excludes accrued interest on the 2021 Convertible Notes.
(2) Table does not allocate by year expected tax payments and uncertain tax positions due to the inability to make reasonably
reliable estimates of the timing of future cash settlements with the respective taxing authorities. For additional discussion
on uncertain tax positions, see “Note 8 – Income Taxes” in our Consolidated Financial Statements.
We anticipate that the obligations and commitments listed above that are due in less than one year will be paid from
available cash on-hand, cash generated by operations, and estimated availability under our Amended ABL Facility, subject to
covenant compliance and certain restrictions as discussed further above. The specific timing of settlement for certain long-term
obligations cannot be reasonably estimated.
29
Critical Accounting Policies
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted within
the United States (“U.S. GAAP”), which requires us to make assumptions, estimates and judgments that affect the amounts and
disclosures reported. Significant estimates used in preparing our consolidated financial statements include the following:
allowances for product returns, allowances for doubtful accounts, reserves for self-insured retentions under insurance programs,
estimated performance and values associated with employee incentive programs, fair values used for goodwill impairment testing,
undiscounted future cash flows used for impairment testing of long-lived assets, the provisional accounting for the Tax Act, and
valuation allowances for deferred tax assets. See “Note 1 – Summary of Significant Accounting Policies” in our Consolidated
Financial Statements for a discussion of the accounting policies governing each of these matters. Our estimates are based on
historical experience and on our future expectations that are believed to be reasonable. The combination of these factors forms
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from our current estimates and those differences may be material.
We believe the critical accounting policies described below affect our more significant judgments and estimates used in
preparing our consolidated financial statements.
Allowance for Doubtful Accounts
Reserves for uncollectible accounts receivable are determined on a specific identification basis when we believe that the
required payment of specific amounts owed to us is not probable. The majority of our revenues are from mid-sized and international
oil companies as well as government-owned or government-controlled oil companies, and we have receivables in several foreign
jurisdictions. Changes in the financial condition of our customers or political changes in foreign jurisdictions could cause our
customers to be unable to repay these receivables, resulting in additional allowances. For 2017, 2016, and 2015, provisions for
uncollectible accounts receivable were $1.5 million, $2.4 million and $1.9 million, respectively.
Allowance for Product Returns
We maintain reserves for estimated customer returns of unused products in our Fluids Systems segment. The reserves
are established based upon historical customer return levels and estimated gross profit levels attributable to product sales. Future
customer return levels may differ from the historical return rate.
Impairment of Long-lived Assets
Goodwill and other indefinite-lived intangible assets are tested for impairment annually as of November 1, or more
frequently, if an indication of impairment exists. When there are qualitative indicators of impairment, we use an impairment test
which includes a comparison of the carrying value of net assets of our reporting units, including goodwill, with their estimated
fair values, which we determine using a combination of a market multiple and discounted cash flow approach. We also compare
the aggregate fair values of our reporting units with our market capitalization. If the carrying value exceeds the estimated fair
value, an impairment charge is recorded in the period in which such review is performed. We identify our reporting units based
on our analysis of several factors, including our operating segment structure, evaluation of the economic characteristics of our
geographic regions within each of our operating segments, and the extent to which our business units share assets and other
resources.
In completing our November 1, 2017 evaluation, we determined that each reporting unit’s fair value was in excess of the
net carrying value and therefore, no impairment was required. At December 31, 2017, we had $43.6 million of goodwill, substantially
all of which relates to the Mats and Integrated Services segment.
In 2015, we completed the annual evaluation of the carrying values of our goodwill and other indefinite-lived intangible
assets as of November 1, 2015. As a result of the further decline in commodity prices and drilling activities in the fourth quarter
of 2015, including the projection of lower commodity prices and drilling activities, as well as the further decline in the quoted
market prices of our common stock, we determined that the carrying value of our drilling fluids reporting unit exceeded its estimated
fair value such that goodwill was potentially impaired. As a result, we completed step two of the evaluation to measure the amount
of goodwill impairment determining a full impairment of goodwill related to the drilling fluids reporting unit was required. As
such, in the fourth quarter of 2015, we recorded a $70.7 million non-cash impairment charge to write-off the goodwill related to
the drilling fluids reporting unit, which is included in impairments and other charges. In completing this annual evaluation as of
November 1, 2015, we also determined that the mats and integrated services reporting unit did not have a fair value below its net
carrying value and therefore, no impairment was required.
There are significant inherent uncertainties and management judgment in estimating the fair value of a reporting unit.
While we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units, it is possible
that a material change could occur. If actual results are not consistent with our current estimates and assumptions, or if changes
in macroeconomic conditions outside the control of management change such that it results in a significant negative impact on
30
our estimated fair values, the fair value of a reporting unit may decrease below its net carrying value, which could result in a
material impairment of our goodwill.
We review property, plant and equipment, finite-lived intangible assets and certain other assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. In 2016, we recognized $6.9 million
of non-cash impairments in the Asia Pacific region resulting from the continuing unfavorable industry market conditions and
outlook for the region and a $0.5 million charge in the Latin America region to write-down property, plant and equipment associated
with the wind-down of our operations in Uruguay. In 2015, we recognized a $2.6 million non-cash impairment charge for assets,
following our decision to exit a drilling fluids facility.
We assess recoverability based on expected undiscounted future net cash flows. In estimating expected cash flows, we
use a probability-weighted approach. Should the review indicate that the carrying value is not fully recoverable, the amount of
impairment loss is determined by comparing the carrying value to the estimated fair value. Estimating future net cash flows requires
us to make judgments regarding long-term forecasts of future revenues and costs related to the assets subject to review. These
forecasts are uncertain in that they require assumptions about demand for our products and services, future market conditions and
technological developments. If changes in these assumptions occur, our expectations regarding future net cash flows may change
such that a material impairment could result.
Insurance
We maintain reserves for estimated future payments associated with our self-insured employee healthcare programs, as
well as the self-insured retention exposures under our general liability, auto liability and workers compensation insurance policies.
Our reserves are determined based on historical experience under these programs, including estimated development of known
claims and estimated incurred-but-not-reported claims. Required reserves could change significantly based upon changes in
insurance coverage, loss experience or inflationary impacts. As of December 31, 2017 and 2016, total insurance reserves were
$3.8 million and $2.7 million, respectively.
Income Taxes
The Tax Act was enacted on December 22, 2017, resulting in broad and complex changes to U.S. income tax law. The
Tax Act includes a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not previously subject to U.S.
income tax, reduces the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018, generally eliminates U.S.
federal income tax on dividends from foreign subsidiaries, creates new tax on certain foreign-sourced earnings, makes other
changes to limit certain deductions and changes rules on how certain tax credits and net operating loss carryforwards can be
utilized.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made
reasonable estimates of the effects and recorded provisional amounts in our 2017 financial statements. As we finalize the necessary
data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, or other standard-
setting bodies, we may make adjustments to the provisional amounts.
The net tax benefit recognized in 2017 related to the Tax Act was $3.4 million. As we complete our analysis of the Tax
Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS or other standard-setting
bodies, we may identify additional effects not reflected as of December 31, 2017. Those adjustments may materially impact our
provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects
of the Tax Act will be completed in 2018.
While we have not completed our analysis of the impacts of the Tax Act on our effective tax rate going forward, we
anticipate the overall impacts of the Tax Act described above will reduce our effective tax rate in 2018 compared to 2017, excluding
the $3.4 million net benefit included in our 2017 income tax provision. The impact of the Tax Act on our effective tax rate in 2018
will depend in large part on the relative contribution of our domestic earnings and finalization of the provisional accounting for
the Tax Act.
We had total deferred tax assets of $61.9 million and $51.2 million at December 31, 2017 and 2016, respectively. A
valuation allowance must be established to offset a deferred tax asset if, based on available evidence, it is more likely than not
that some or all of the deferred tax asset will not be realized. In 2017, we recognized certain foreign tax credits of $5.5 million in
the U.S. related to the provisional accounting for taxes on repatriation of foreign earnings, however, we also recognized a full
valuation allowance related to such tax assets as it is more likely than not that these assets will not be realized. We have considered
future taxable income and tax planning strategies in assessing the need for our valuation allowance. At December 31, 2017, a total
valuation allowance of $30.2 million was recorded, which includes a valuation allowance on $22.2 million of net operating loss
carryforwards for certain U.S. state and foreign jurisdictions, including Australia, as well as a valuation allowance of $5.5 million
for certain tax credits recognized in 2017 related to the provisional accounting for the impact of the Tax Act as described above.
Changes in the expected future generation of qualifying taxable income within these jurisdictions or in the realizability of other
tax assets may result in an adjustment to the valuation allowance, which would be charged or credited to income in the period this
31
determination was made. In 2016, we recognized an increase in the valuation allowance for deferred tax assets, primarily related
to our Australian subsidiary and certain U.S. state net operating losses, which are not expected to be realized. In addition, we
decreased the valuation allowance in 2016 related to Brazil as we were able to utilize certain net operating loss carryforwards
related to income in 2016 from the forgiveness of certain inter-company balances due from our Brazilian subsidiary.
We file income tax returns in the United States and several non-U.S. jurisdictions and are subject to examination in the
various jurisdictions in which we file. We are no longer subject to income tax examinations for U.S. federal and substantially all
state jurisdictions for years prior to 2012 and for substantially all foreign jurisdictions for years prior to 2008. We are currently
under examination by the United States federal tax authorities for tax years 2014 and 2015. During the second quarter of 2017,
we received a Revenue Agent Report from the IRS disallowing a deduction claimed on our 2015 tax return associated with the
forgiveness of certain inter-company balances due from our Brazilian subsidiary and assessing tax due of approximately $3.9
million. We submitted our response to the IRS in the third quarter of 2017 and are proceeding with the tax appeals process. We
believe our tax position is properly reported in accordance with applicable U.S. tax laws and regulations and intend to vigorously
defend our position through the tax appeals process.
We are also under examination by various tax authorities in other countries, and certain foreign jurisdictions have
challenged the amounts of taxes due for certain tax periods. These audits are in various stages of completion. We fully cooperate
with all audits, but defend existing positions vigorously. We evaluate the potential exposure associated with various filing positions
and record a liability for tax contingencies as circumstances warrant. Although we believe all tax positions are reasonable and
properly reported in accordance with applicable tax laws and regulations in effect during the periods involved, the final
determination of tax audits and any related litigation could be materially different than that which is reflected in historical income
tax provisions and tax contingency accruals.
New accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) amended the existing accounting standards for revenue
recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The amendments are to be applied using a retrospective or modified retrospective approach. The new
guidance is effective for us in the first quarter of 2018. In order to determine the impact of the new guidance on our financial
statements, we formed an implementation work team and completed assessments of the new guidance across our revenue streams.
Our process included performing reviews of representative contracts across our revenue streams and comparing historical
accounting practices to the new standard.
We have completed our evaluation of the impacts of these amendments. As our performance obligations under customer
contracts are primarily short-term in nature, we do not expect the new guidance to have a material impact on the amounts of
revenue recognized in our consolidated financial statements. We will include incremental disclosures in our 2018 consolidated
financial statements regarding our revenue recognition policies and related amounts. We have adopted the new guidance utilizing
the modified retrospective method effective January 1, 2018. The cumulative-effect adjustment to retained earnings upon adoption
is not material.
In October 2016, the FASB amended the guidance related to the recognition of current and deferred income taxes for
intra-entity asset transfers. Under current U.S. GAAP, recognition of income taxes on intra-entity asset transfers is prohibited until
the asset has been sold to an outside party. This update requires that entities recognize the income tax consequences of an intra-
entity transfer of an asset other than inventory when the transfer occurs. This update does not change U.S. GAAP for the pre-tax
effects of an intra-entity asset transfer or for an intra-entity transfer of inventory. This guidance is effective for us in the first quarter
of 2018 and should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained
earnings as of the beginning of the period of adoption. We have adopted the new guidance utilizing the modified retrospective
method effective January 1, 2018. The cumulative-effect adjustment to retained earnings upon adoption is not material.
In August 2016, the FASB issued updated guidance that clarifies how certain cash receipts and cash payments are presented
and classified in the statement of cash flows. This update provides guidance on eight specific cash flow issues. This guidance is
effective for us in the first quarter of 2018 and should be applied using the retrospective transition method to each period presented.
Early adoption is permitted but all changes must be adopted in the same period. We do not expect the adoption of this new guidance
to have a material impact on the presentation of our consolidated statements of cash flows.
32
In February 2016, the FASB issued updated guidance regarding accounting for leases. The new accounting standard
provides principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize both
assets and liabilities arising from financing and operating leases. The classification as either a financing or operating lease will
determine whether lease expense is recognized based on an effective interest method basis or on a straight-line basis over the term
of the lease, respectively. The new guidance is effective for us in the first quarter of 2019 with early adoption permitted. Based
on our current lease portfolio, we anticipate the new guidance will require us to reflect additional assets and liabilities in our
consolidated balance sheet; however, we have not yet completed an estimation of such amount and we are still evaluating the
overall impact of the new guidance on our consolidated financial statements.
In June 2016, the FASB issued new guidance which requires financial assets measured at amortized cost basis to be
presented at the net amount expected to be collected, including trade receivables. The new standard requires an entity to estimate
its lifetime “expected credit loss” for such assets at inception which will generally result in the earlier recognition of allowances
for losses. The new guidance is effective for us in the first quarter of 2020 with early adoption permitted in 2019. This guidance
should be applied using a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the
beginning of the period of adoption. We are currently evaluating the impact of the new guidance on our consolidated financial
statements.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. A discussion
of our primary market risk exposure in financial instruments is presented below.
Interest Rate Risk
At December 31, 2017, we had total principal amounts outstanding under financing arrangements of $183.1 million,
including $100.0 million of borrowings under our 2021 Convertible Notes which bear interest at a fixed rate of 4% and $81.6
million of borrowings under the Amended ABL Facility. Borrowings under our Amended ABL Facility are subject to a variable
interest rate as determined by the credit agreement. The weighted average interest rate at December 31, 2017 for the Amended
ABL Facility is 3.9%. Based upon the balance of variable rate debt at December 31, 2017, a 100 basis-point increase in short-
term interest rates would have increased pre-tax interest expense by $0.8 million.
Foreign Currency
Our principal foreign operations are conducted in certain areas of EMEA, Latin America, Asia Pacific, and Canada. 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 including European euros, Algerian dinar, Romanian new leu, Canadian dollars, Australian
dollars, British pounds and Brazilian reais. Historically, we have not used off-balance sheet financial hedging instruments to
manage foreign currency risks when we enter into a transaction denominated in a currency other than our local currencies.
33
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Newpark Resources, Inc.
The Woodlands, Texas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Newpark Resources, Inc. and subsidiaries (the "Company") as
of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders’
equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 23, 2018, expressed an unqualified opinion on the Company's internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 2018
We have served as the Company’s auditor since 2008.
34
Newpark Resources, Inc.
Consolidated Balance Sheets
December 31,
(In thousands, except share data)
ASSETS
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current debt
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt, less current portion
Deferred tax liabilities
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 15)
Common stock, $0.01 par value, 200,000,000 shares authorized and 104,571,839 and
99,843,094 shares issued, respectively
Paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock, at cost; 15,366,504 and 15,162,050 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders' equity
2017
2016
$
$
$
56,352
265,866
165,336
17,483
505,037
315,320
43,620
30,004
4,753
3,982
902,716
1,518
88,648
68,248
158,414
158,957
31,580
6,285
355,236
87,878
214,307
143,612
17,143
462,940
303,654
19,995
6,067
1,747
3,780
798,183
83,368
65,281
31,152
179,801
72,900
38,743
6,196
297,640
1,046
603,849
(53,219)
123,375
(127,571)
547,480
902,716
$
998
558,966
(63,208)
129,873
(126,086)
500,543
798,183
$
$
$
$
See Accompanying Notes to Consolidated Financial Statements
35
Newpark Resources, Inc.
Consolidated Statements of Operations
Years Ended December 31,
(In thousands, except per share data)
Revenues
Product sales
Rental and services
Total Revenues
Cost of revenues
Cost of product sales
Cost of rental and services
Total Cost of revenues
Selling, general and administrative expenses
Other operating income, net
Impairments and other charges
Operating income (loss)
Foreign currency exchange (gain) loss
Interest expense, net
Gain on extinguishment of debt
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Loss from disposal of discontinued operations, net of tax
Net loss
Income (loss) per common share - basic:
Income (loss) from continuing operations
Loss from discontinued operations
Net loss
Income (loss) per common share - diluted:
Income (loss) from continuing operations
Loss from discontinued operations
Net loss
2017
2016
2015
$
$
628,401
119,362
747,763
$
390,306
81,190
471,496
539,243
68,656
607,899
108,838
(410)
—
31,436
2,051
13,273
—
16,112
4,893
11,219
386,085
51,751
437,836
88,473
(4,345)
6,745
(57,213)
(710)
9,866
(1,615)
(64,754)
(24,042)
(40,712)
(17,367)
(6,148) $
—
(40,712) $
$
0.13
(0.20)
(0.07) $
$
0.13
(0.20)
(0.07) $
(0.49) $
—
(0.49) $
(0.49) $
—
(0.49) $
$
$
$
$
$
569,290
107,575
676,865
533,040
65,973
599,013
101,032
(2,426)
78,345
(99,099)
4,016
9,111
—
(112,226)
(21,398)
(90,828)
—
(90,828)
(1.10)
—
(1.10)
(1.10)
—
(1.10)
See Accompanying Notes to Consolidated Financial Statements
36
Newpark Resources, Inc.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31,
(In thousands)
Net loss
Foreign currency translation adjustments
Comprehensive income (loss)
2017
2016
2015
$
$
(6,148) $
(40,712) $
(90,828)
9,989
(4,932)
(26,284)
3,841
$
(45,644) $
(117,112)
See Accompanying Notes to Consolidated Financial Statements
37
Newpark Resources, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common
Stock
Balance at January 1, 2015
$
Net loss
Employee stock options, restricted stock
and employee stock purchase plan
Stock-based compensation expense
Income tax effect, net, of employee stock
related activity
Foreign currency translation
Other
Balance at December 31, 2015
Net loss
Employee stock options, restricted stock
and employee stock purchase plan
Stock-based compensation expense
Income tax effect, net, of employee stock
related activity
Issuance of Convertible Notes due 2021
Foreign currency translation
Balance at December 31, 2016
Net loss
Employee stock options, restricted stock
and employee stock purchase plan
Stock-based compensation expense
Issuance of shares for acquisition
Foreign currency translation
Balance at December 31, 2017
Paid-In
Capital
$ 521,228
—
(402)
14,202
(412)
—
(870)
533,746
—
(478)
12,056
(1,558)
15,200
—
992
—
2
—
—
—
—
994
—
4
—
—
—
—
998
558,966
—
14
—
34
—
—
1,636
10,843
32,404
—
$
1,046
$ 603,849
$
Accumulated
Other
Comprehensive
Loss
$
Retained
Earnings
(31,992) $ 262,616
(90,828)
—
Treasury
Stock
Total
$ (127,386) $ 625,458
— (90,828)
(607)
(1,007)
—
—
14,202
(412)
— (26,284)
(870)
—
(127,993)
520,259
— (40,712)
—
—
—
—
—
171,788
(40,712)
(1,203)
1,907
230
—
—
—
—
129,873
(6,148)
—
—
—
—
(126,086)
—
12,056
(1,558)
15,200
(4,932)
500,543
(6,148)
(350)
(1,485)
(185)
—
—
10,843
—
—
—
(26,284)
—
(58,276)
—
—
—
—
—
(4,932)
(63,208)
—
—
—
9,989
—
(53,219) $ 123,375
32,438
9,989
$ (127,571) $ 547,480
—
See Accompanying Notes to Consolidated Financial Statements
38
Newpark Resources, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operations:
Impairments and other non-cash charges
Depreciation and amortization
Stock-based compensation expense
Provision for deferred income taxes
Net provision for doubtful accounts
Loss on sale of a business
Gain on sale of assets
Gain on extinguishment of debt
Amortization of original issue discount and debt issuance costs
Excess tax benefit from stock-based compensation
Change in assets and liabilities:
(Increase) decrease in receivables
(Increase) decrease in inventories
(Increase) decrease in other assets
Increase (decrease) in accounts payable
Increase (decrease) in accrued liabilities and other
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of property, plant and equipment
Business acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Borrowings on lines of credit
Payments on lines of credit
Proceeds from 2021 Convertible Notes
Purchases of 2017 Convertible Notes
Payment on 2017 Convertible Notes
Debt issuance costs
Other financing activities
Proceeds from employee stock plans
Purchases of treasury stock
Excess tax benefit from stock-based compensation
Net cash used in financing activities
2017
2016
2015
$
(6,148) $
(40,712) $
(90,828)
—
39,757
10,843
(10,350)
1,481
21,983
(5,478)
—
5,345
—
(73,722)
(15,097)
986
14,153
54,628
38,381
(31,371)
7,747
(44,750)
(68,374)
176,267
(93,700)
—
—
(83,252)
(955)
165
2,424
(3,239)
—
(2,290)
12,523
37,955
12,056
3,352
2,416
—
(2,820)
(1,615)
1,618
—
(1,699)
16,044
1,708
(5,213)
(24,518)
11,095
(38,440)
4,540
(4,420)
(38,320)
6,437
(14,269)
100,000
(87,271)
—
(5,403)
357
725
(1,226)
—
(650)
75,508
43,917
14,202
(503)
1,886
—
(1,364)
—
1,842
(204)
122,399
21,309
(651)
(31,974)
(34,022)
121,517
(69,404)
2,523
—
(66,881)
11,036
(12,544)
—
—
—
(2,023)
(1,673)
553
(2,283)
204
(6,730)
Effect of exchange rate changes on cash
2,444
(1,449)
(8,335)
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Cash paid (received) for:
Income taxes (net of refunds)
Interest
(29,839)
95,299
65,460
$
(29,324)
124,623
95,299
$
39,571
85,052
124,623
(20,396) $
$
8,718
(20,709) $
$
8,802
10,866
8,464
$
$
$
See Accompanying Notes to Consolidated Financial Statements
39
NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
Organization and Principles of Consolidation. Newpark Resources, Inc. was organized in 1932 as a Nevada corporation.
In 1991, we changed our state of incorporation to Delaware. The consolidated financial statements include our company and our
wholly-owned subsidiaries (“we”, “our” or “us”). All intercompany transactions are eliminated in consolidation.
We are a geographically diversified supplier providing products, rentals and services primarily to the oil and gas exploration
and production (“E&P”) industry. We operate our business through two reportable segments: Fluids Systems and Mats and Integrated
Services. Our Fluids Systems segment provides customized drilling fluids solutions to E&P customers globally, operating through
four geographic regions: North America, Europe, the Middle East and Africa (“EMEA”), Latin America, and Asia Pacific. Our
Mats and Integrated Services segment provides composite mat rentals as well as location construction and related site services to
customers at well, production, transportation and refinery locations in the United States (“U.S.”). In addition, mat rental and
services activity is expanding into applications in other markets, including electrical transmission & distribution, pipeline, solar,
petrochemical and construction industries across North America and Europe. We also manufacture and sell composite mats to
customers outside of the U.S., and to domestic customers outside of the E&P market.
Use of Estimates and Market Risks. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Estimates used in preparing our consolidated financial statements include, but are not limited to the following: allowances for
product returns, allowances for doubtful accounts, reserves for self-insured retentions under insurance programs, estimated
performance and values associated with employee incentive programs, fair values used for goodwill impairment testing,
undiscounted future cash flows used for impairment testing of long-lived assets, the provisional accounting for the U.S. Tax Cuts
and Jobs Act enacted on December 22, 2017 and valuation allowances for deferred tax assets.
Our operating results depend, to a large extent, on oil and gas drilling activity levels in the markets we serve, and particularly
for the Fluids Systems segment, the nature of the drilling operations (including the depth and whether the wells are drilled vertically
or horizontally) which governs the revenue potential of each well. Drilling activity, in turn, depends on oil and gas commodity
pricing, inventory levels, product demand and regulatory restrictions. Oil and gas prices and activity are cyclical and volatile. This
market volatility has a significant impact on our operating results.
Cash Equivalents. All highly liquid investments with a remaining maturity of three months or less at the date of acquisition
are classified as cash equivalents.
Restricted Cash. Cash that is restricted as to withdrawal or usage is recognized as restricted cash and is included in other
current assets in the accompanying balance sheet.
Allowance for Doubtful Accounts. Reserves for uncollectible accounts receivable are determined on a specific
identification basis when we believe that the required payment of specific amounts owed to us is not probable. The majority of
our revenues are from mid-sized and international oil companies as well as government-owned or government-controlled oil
companies, and we have receivables in several foreign jurisdictions. Changes in the financial condition of our customers or political
changes in foreign jurisdictions could cause our customers to be unable to repay these receivables, resulting in additional allowances.
Allowance for Product Returns. We maintain reserves for estimated customer returns of unused products in our Fluids
Systems segment. The reserves are established based upon historical customer return levels and estimated gross profit levels
attributable to product sales.
Inventories. Inventories are stated at the lower of cost (principally average cost) or net realizable value. Certain conversion
costs associated with the acquisition, production, blending and storage of inventory in our Fluids Systems segment as well as in
the manufacturing operations in the Mats and Integrated Services segment are capitalized as a component of the carrying value of
the inventory and expensed as a component of cost of revenues as the products are sold. Reserves for inventory obsolescence are
determined based on the fair value of the inventory using factors such as our historical usage of inventory on-hand, future
expectations related to our customers’ needs, market conditions and the development of new products.
Property, Plant and Equipment. Property, plant and equipment are recorded at cost. Additions and improvements that
extend the useful life of an asset are capitalized. We capitalize interest costs on significant capital projects. Maintenance and repairs
are expensed as incurred. Sales and disposals of property, plant and equipment are removed at carrying cost less accumulated
depreciation with any resulting gain or loss reflected in earnings.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Depreciation is provided on property, plant and equipment, including assets held under capital leases, primarily utilizing
the straight-line method over the following estimated useful service lives or lease term:
Computer hardware and office equipment
Computer software
Autos & light trucks
Furniture, fixtures & trailers
Composite mats (rental fleet)
Machinery and heavy equipment
Owned buildings
Leasehold improvements
3-5 years
3-10 years
5-7 years
7-10 years
10-12 years
5-15 years
20-39 years
Lease term, including reasonably assured renewal periods
In 2016, we revised our estimates of the useful lives and residual values of certain of our composite mats included in
rental fleet fixed assets within the Mats and Integrated Services segment. We now estimate that certain composite mats which were
originally estimated to have a useful life of 7 years with zero residual value will have estimated useful lives ranging from 10 to
12 years with an estimated residual value of 20%. These changes in estimates were recognized prospectively beginning January
1, 2016 resulting in a reduction in depreciation expense for the Mats and Integrated Services segment of approximately $6.1
million, or $0.05 per share, for the year ended December 31, 2016. We expect these changes to have a similar effect on annual
results going forward.
Goodwill and Other Intangible Assets. Goodwill represents the excess of the purchase price of acquisitions over the fair
value of the net identifiable assets acquired in business combinations. Goodwill and other intangible assets with indefinite lives
are not amortized. Intangible assets with finite useful lives are amortized either on a straight-line basis over the asset’s estimated
useful life or on a basis that reflects the pattern in which the economic benefits of the asset are realized. Any period costs of
maintaining intangible assets are expensed as incurred.
Impairment of Long-Lived Assets. Goodwill and other indefinite-lived intangible assets are tested for impairment
annually as of November 1, or more frequently, if an indication of impairment exists. As part of our annual goodwill review we
first perform a qualitative assessment based on company performance and future business outlook to determine if indicators of
impairment exist. If there are any indicators of impairment present after performing the qualitative assessment, we then determine
any impairment of goodwill by comparing the carrying amounts of our reporting units with fair values, which we estimate using
a combination of a market multiple and discounted cash flow approach (classified within level 3 of the fair value hierarchy). We
also compare the aggregate fair values of our reporting units with our market capitalization. If the carrying value exceeds the
estimated fair value, an impairment charge is recorded in the period in which such review is performed. We identify our reporting
units based on our analysis of several factors, including our operating segment structure, evaluation of the economic characteristics
of our geographic regions within each of our operating segments, and the extent to which our business units share assets and other
resources.
We review property, plant and equipment, finite-lived intangible assets and certain other assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. We assess recoverability based on
expected undiscounted future net cash flows. In estimating expected cash flows, we use a probability-weighted approach. Should
the review indicate that the carrying value is not fully recoverable; the amount of impairment loss is determined by comparing the
carrying value to the estimated fair value.
Insurance. We maintain reserves for estimated future payments associated with our self-insured employee healthcare
programs, as well as the self-insured retention exposures under our general liability, auto liability and workers compensation
insurance policies. Our reserves are determined based on historical experience under these programs, including estimated
development of known claims and estimated incurred-but-not-reported claims.
Treasury Stock. Treasury stock is carried at cost, which includes the entire cost of the acquired stock.
Revenue Recognition. The Fluids Systems segment recognizes sack and bulk material additive revenues upon shipment
of materials and passage of title. Formulated liquid systems revenues are recognized when utilized or lost downhole while drilling.
An allowance for product returns is maintained, reflecting estimated future customer product returns. Engineering and related
services are provided to customers as an integral component of the fluid system delivery, at agreed upon hourly or daily rates, and
revenues are recognized when the services are performed.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
For the Mats and Integrated Services segment, revenues from the sale of mats are recognized when title passes to the
customer, which is upon shipment or delivery, depending upon the terms of the underlying sales contract. Revenues for services
and rentals provided by this segment are generated from both fixed-price and unit-priced contracts, which are short-term in duration.
The activities under these contracts include site preparation, pit design, construction, drilling waste management, and the installation
and rental of mat systems for a period of time generally not to exceed 60 days. Revenues from services provided under these
contracts are recognized as the specified services are completed. Revenues from any subsequent extensions to the rental agreements
are recognized over the extension period.
Shipping and handling costs are reflected in cost of revenues, and all reimbursements by customers of shipping and
handling costs are included in revenues.
Income Taxes. We provide for deferred taxes using an asset and liability approach by measuring deferred tax assets and
liabilities due to temporary differences existing at year end using currently enacted tax rates and laws that will be in effect when
the differences are expected to reverse. We reduce deferred tax assets by a valuation allowance when, based on our estimates, it
is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition
of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances. We present
deferred tax assets and liabilities as noncurrent in the balance sheet based on an analysis of each taxpaying component within a
jurisdiction. We evaluate uncertain tax positions and record a liability as circumstances warrant.
Share-Based Compensation. Share-based compensation cost is measured at the grant date based on the fair value of the
award, net of an estimated forfeiture rate. We recognize these costs in the income statement using the straight-line method over
the vesting term. Fair value at the grant date is determined using the Black-Scholes option-pricing model for stock options and
using the Monte Carlo valuation model for performance-based restricted stock units.
Foreign Currency Translation. The functional currency for substantially all international subsidiaries is their respective
local currency. Financial statements for these international subsidiaries are translated into U.S. dollars using the exchange rate at
each balance sheet date for assets and liabilities and the average exchange rates in effect during the respective period for revenues
and expenses. Exchange rate adjustments resulting from translation of foreign currency financial statements are reflected in
accumulated other comprehensive loss in stockholders’ equity whereas exchange rate adjustments resulting from foreign currency
denominated transactions are recorded in income. At December 31, 2017 and 2016, accumulated other comprehensive loss related
to foreign subsidiaries reflected in stockholders’ equity amounted to $53.2 million and $63.2 million, respectively.
Fair Value Measurement. Fair value is measured as the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants at a measurement date. We apply the following fair value
hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy
upon the lowest level of input that is available and significant to the fair value measurement:
• Level 1: The use of quoted prices in active markets for identical financial instruments.
• Level 2: The use of quoted prices for similar instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active or other inputs that are observable in the market or can be corroborated by
observable market data.
• Level 3: The use of significantly unobservable inputs that typically require the use of management’s estimates of
assumptions that market participants would use in pricing.
Derivative Financial Instruments. We monitor our exposure to various business risks including interest rates and foreign
currency exchange rates and occasionally use derivative financial instruments to manage the impact of certain of these risks. At
the inception of a new derivative, we designate the derivative as a cash flow or fair value hedge or we determine the derivative to
be undesignated as a hedging instrument based on the underlying facts. We do not enter into derivative instruments for trading
purposes.
Reclassifications. In 2017, we separately presented in the consolidated statements of operations revenue and cost of
revenue for product sales and rental and service categories. As a result, we recast the presentation of revenue and cost of revenue
by such categories in the 2016 and 2015 presentation to conform to the current presentation. In addition, certain amounts reported
in the consolidated statements of cash flows for prior periods have been reclassified to conform to the current reporting presentation.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
New Accounting Pronouncements
Standards adopted in 2017
Inventory Measurement. In July 2015, the Financial Accounting Standards Board (“FASB”) issued updated guidance
that simplifies the subsequent measurement of inventory. It replaced the former lower of cost or market test with the lower of cost
or net realizable value test. Net realizable value is defined as the estimated selling price in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. We adopted this new guidance prospectively in the first
quarter of 2017; however, the adoption did not have a material impact on our consolidated financial statements.
Share-based Compensation. In March 2016, the FASB issued updated guidance that simplified several aspects of
accounting for share-based payments transactions, including income tax consequences. We adopted this new guidance in the first
quarter of 2017.
The most significant impact of adopting this new guidance is the required change in accounting for excess tax benefits
(“windfalls”) and deficiencies (“shortfalls”) related to share-based compensation. Beginning in the first quarter of 2017, such
windfalls and shortfalls are now reflected in the consolidated statements of operations as a tax benefit or expense, respectively,
whereas previously, they were generally recognized in additional paid in capital in the condensed consolidated balance sheets. For
the twelve months ended December 31, 2017, we recognized $0.5 million of expense in the provision for income taxes related to
net shortfall tax deficiencies from share-based payments. For the twelve months ended December 31, 2016 and 2015, $1.6 million
and $0.4 million respectively, of net shortfall tax deficiencies were recognized in additional paid-in capital.
The new guidance also impacts the calculation of diluted earnings per share. When applying the treasury stock method
to share-based payment awards, entities shall no longer include tax windfalls or shortfalls when calculating assumed proceeds to
determine the awards dilutive effect on earnings per share. The adoption of this guidance did not materially impact our diluted
earnings per share in each of the periods presented.
In addition to the income tax consequences described above, the new guidance requires all windfall tax benefits related
to share-based payments be reported as cash flows from operating activities along with all other income tax cash flows. Previously,
windfall tax benefits from share-based payment arrangements were reported as cash flows from financing activities. The new
guidance allows companies to elect either a prospective or retrospective application with respect to this statement of cash flows
presentation. We have elected to apply this classification amendment prospectively. Since we did not have any material windfall
tax benefits in 2016 or 2015, the prospective adoption did not significantly impact comparability with the prior year.
Finally, the new guidance allows for the accounting policy option to account for forfeitures as they occur or continue
estimating expected forfeitures over the course of the vesting period as required under previous guidance. We have elected the
accounting policy option to continue estimating forfeitures in determining share-based compensation expense resulting in no
impact to our financial statements from the adoption of the new guidance.
Restricted Cash Presentation. In November 2016, the FASB issued updated guidance that requires that the statement of
cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We
elected to early adopt this new guidance in the fourth quarter of 2017 using the retrospective transition method to each period
presented. The adoption of this new guidance changed the presentation of our consolidated statement of cash flows to include the
amount of restricted cash with cash and cash equivalents when reconciling the beginning and end of period amounts shown on the
consolidated statements of cash flows. See Note 13 for restricted cash balances.
Goodwill Impairment Test. In January 2017, the FASB amended the guidance related to the accounting for goodwill
impairments by eliminating step two from the goodwill impairment test. Under the new guidance, if the carrying amount of a
reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total
amount of goodwill allocated to that reporting unit. This guidance is effective for us for goodwill impairment tests beginning after
December 15, 2019 with early adoption permitted. We elected to adopt this new guidance prospectively in 2017; however, the
adoption did not have any impact on our consolidated financial statements.
Standards not yet adopted
Revenue Recognition. In May 2014, the FASB amended the existing accounting standards for revenue recognition. The
amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The amendments are to be applied using a retrospective or modified retrospective approach. The new guidance is effective
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
for us in the first quarter of 2018. In order to determine the impact of the new guidance on our financial statements, we formed an
implementation work team and completed assessments of the new guidance across our revenue streams. Our process included
performing reviews of representative contracts across our revenue streams and comparing historical accounting practices to the
new standard.
We have completed our evaluation of the impacts of these amendments. As our performance obligations under customer
contracts are primarily short-term in nature, we do not expect the new guidance to have a material impact on the amounts of revenue
recognized in our consolidated financial statements. We will include incremental disclosures in our 2018 consolidated financial
statements regarding our revenue recognition policies and related amounts. We have adopted the new guidance utilizing the modified
retrospective method effective January 1, 2018. The cumulative-effect adjustment to retained earnings upon adoption is not material.
Deferred Taxes on Intra-Entity Asset Transfers. In October 2016, the FASB amended the guidance related to the
recognition of current and deferred income taxes for intra-entity asset transfers. Under current U.S. GAAP, recognition of income
taxes on intra-entity asset transfers is prohibited until the asset has been sold to an outside party. This update requires that entities
recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This
update does not change U.S. GAAP for the pre-tax effects of an intra-entity asset transfer or for an intra-entity transfer of inventory.
This guidance is effective for us in the first quarter of 2018 and should be applied using a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We have adopted the new
guidance utilizing the modified retrospective method effective January 1, 2018. The cumulative-effect adjustment to retained
earnings upon adoption is not material.
Statement of Cash Flows. In August 2016, the FASB issued updated guidance that clarifies how certain cash receipts
and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight specific
cash flow issues. This guidance is effective for us in the first quarter of 2018 and should be applied using the retrospective transition
method to each period presented. Early adoption is permitted but all changes must be adopted in the same period. We do not expect
the adoption of this new guidance to have a material impact on the presentation of our consolidated statements of cash flows.
Leases. In February 2016, the FASB issued updated guidance regarding accounting for leases. The new accounting
standard provides principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize
both assets and liabilities arising from financing and operating leases. The classification as either a financing or operating lease
will determine whether lease expense is recognized based on an effective interest method basis or on a straight-line basis over the
term of the lease, respectively. The new guidance is effective for us in the first quarter of 2019 with early adoption permitted.
Based on our current lease portfolio, we anticipate the new guidance will require us to reflect additional assets and liabilities in
our consolidated balance sheet; however, we have not yet completed an estimation of such amount and we are still evaluating the
overall impact of the new guidance on our consolidated financial statements.
Credit Losses. In June 2016, the FASB issued new guidance which requires financial assets measured at amortized cost
basis to be presented at the net amount expected to be collected, including trade receivables. The new standard requires an entity
to estimate its lifetime “expected credit loss” for such assets at inception which will generally result in the earlier recognition of
allowances for losses. The new guidance is effective for us in the first quarter of 2020 with early adoption permitted in 2019. This
guidance should be applied using a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of
the beginning of the period of adoption. We are currently evaluating the impact of the new guidance on our consolidated financial
statements.
Note 2 — Business Combinations
In November 2017, we acquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility
Access Solutions, Inc. (together, “WSG”). Since 2012, WSG has been a strategic logistics and installation service provider for the
Mats and Integrated Services segment. The acquisition of WSG further expands our range of site construction and related services
and geographic footprint across the Northeast, Midwest, Rockies and West Texas regions of the U.S. With the acquisition of WSG,
we are now able to offer a range of complimentary services to our composite matting systems, including access road construction,
site planning and preparation, environmental protection, fluids and spill storage/containment, erosion control, and site restoration
services. The purchase price for this acquisition was approximately $77.9 million, net of cash acquired, which included $44.8
million of cash conveyed at closing, the issuance of 3,361,367 shares of our common equity valued at $32.4 million and an estimated
$0.7 million to be paid in 2018 upon finalization of actual working capital conveyed at closing. The results of operations of WSG
are reported within the Mats and Integrated Services segment for the period subsequent to the date of the acquisition.
The WSG transaction has been recorded using the acquisition method of accounting and accordingly, assets acquired and
liabilities assumed were recorded at their estimated fair values as of the acquisition date. The acquisition resulted in the preliminary
recognition of $27.1 million in other intangible assets consisting primarily of customer relationships, technology and tradename.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
All of the other intangibles are finite-lived intangible assets that are preliminarily expected to be amortized over periods of 10 to
15 years with a weighted average amortization period of approximately 13 years. The excess of the total consideration was recorded
as goodwill, which is deductible for tax purposes, and includes the value of the assembled workforce. The fair values of the
identifiable assets acquired and liabilities assumed were based on the Company’s estimates and assumptions using various market,
income and cost valuation approaches, which are classified within level 3 of the fair value hierarchy. While the initial purchase
price allocation has been completed, the allocation of the purchase price is subject to change for a period of one year following
the acquisition.
The following table summarizes the preliminary amounts recognized for the assets acquired and liabilities assumed as
of the November 13, 2017 acquisition date:
(in thousands)
Receivables
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Total Assets Acquired
Current Liabilities
Total Liabilities Assumed
Net Assets Purchased
Goodwill
Total Purchase Consideration
Cash conveyed at closing
Equity issued at closing
Due to seller
Total Purchase Consideration
14,854
3,207
114
16,313
27,050
61,538
6,833
6,833
54,705
23,188
77,894
44,750
32,438
706
77,894
$
$
$
In August 2016, we completed the acquisition of Pragmatic Drilling Fluids Additives, Ltd. (“Pragmatic”), a Canadian
provider of specialty chemicals for the oil and gas industry, which further expands our fluids technology portfolio and capabilities.
The purchase price for this acquisition was $4.4 million, net of cash acquired. The purchase price allocation resulted in amortizable
intangible assets of $1.7 million and goodwill of approximately $1.7 million. Goodwill represents the excess of the purchase price
over the fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. The results of operations
of Pragmatic are reported within the Fluids Systems segment for the period subsequent to the date of the acquisition.
Results of operations and pro-forma combined results of operations for these acquired businesses have not been presented
as the effect of these acquisitions are not material to our consolidated financial statements.
Note 3 — Inventories
Inventories consisted of the following at December 31:
(In thousands)
Raw materials:
Drilling fluids
Mats
Total raw materials
Blended drilling fluids components
Finished goods - mats
Total inventories
2017
2016
$
$
123,022
1,419
124,441
30,495
10,400
165,336
$
$
115,399
1,137
116,536
23,762
3,314
143,612
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Raw materials consist primarily of barite, chemicals, and other additives that are consumed in the production of our
drilling fluid systems. Our blended drilling fluids components consist of base drilling fluid systems that have been either mixed
internally at our mixing plants or purchased from third party vendors. These base drilling fluid systems require raw materials to
be added, as needed to meet specified customer requirements.
Note 4 — Property, Plant and Equipment
Our investment in property, plant and equipment consisted of the following at December 31:
(In thousands)
Land
Buildings and improvements
Machinery and equipment
Computer hardware and software
Furniture and fixtures
Construction in progress
Less accumulated depreciation
Composite mats (rental fleet)
Less accumulated depreciation - composite mats
$
2017
2016
$
11,504
132,322
284,337
33,738
5,926
8,607
476,434
(215,419)
261,015
101,968
(47,663)
54,305
11,505
121,967
248,229
30,544
5,829
19,417
437,491
(186,700)
250,791
100,543
(47,680)
52,863
Property, plant and equipment, net
$
315,320
$
303,654
Depreciation expense was $36.4 million, $34.6 million and $39.3 million in 2017, 2016 and 2015, respectively. Capital
expenditures in 2017 included approximately $17.6 million in the Fluids Systems segment, including a total of $6.9 million related
to completion of the facility upgrade and expansion of our Fourchon, Louisiana facility. Capital expenditures for the Mats and
Integrated Services segment totaled $12.0 million during 2017, primarily reflecting investments in the mat rental fleet.
Note 5 — Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill by reportable segment are as follows:
(In thousands)
Balance at December 31, 2015
Acquisition
Effects of foreign currency
Balance at December 31, 2016
Acquisition
Effects of foreign currency
Balance at December 31, 2017
Fluids
Systems
Mats and
Integrated
Services
Total
$
$
— $
1,720
(54)
1,666
—
116
1,782
$
19,009
—
(680)
18,329
23,188
321
41,838
$
$
19,009
1,720
(734)
19,995
23,188
437
43,620
We completed our annual evaluation of the carrying values of our goodwill and other indefinite-lived intangible assets
as of November 1, 2017 and determined that the carrying values of each of our reporting units were less than their respective fair
values and therefore, no impairment was required.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Other intangible assets consisted of the following:
December 31, 2017
December 31, 2016
(In thousands)
Technology related
Customer related
Employment related
Total amortizing intangible assets
Gross
Carrying
Amount
$ 15,596
42,903
1,864
60,363
Accumulated
Amortization
$
(4,427) $
(24,679)
(1,794)
(30,900)
Other
intangible
assets, net
11,169
18,224
70
29,463
Gross
Carrying
Amount
5,766
$
25,158
1,848
32,772
Accumulated
Amortization
$
(3,873) $
(21,962)
(1,346)
(27,181)
Other
intangible
assets, net
1,893
3,196
502
5,591
Permits and licenses
Total indefinite-lived intangible assets
Total intangible assets
542
542
$ 60,905
$
—
—
(30,900) $
541
541
30,004
476
476
$ 33,248
$
—
—
(27,181) $
476
476
6,067
Total amortization expense in 2017, 2016 and 2015 related to other intangible assets was $3.3 million, $3.4 million and
$4.6 million, respectively.
In November 2017, we completed the acquisition of WSG, and in August 2016, we completed the acquisition of Pragmatic,
which resulted in additions to amortizable intangible assets of $27.1 million and $1.7 million, respectively. See Note 2 for further
discussion.
Estimated future amortization expense for the years ended December 31 is as follows:
(In thousands)
Technology related
Customer related
Employment related
2018
2019
2020
2021
2022
Thereafter
Total
$
1,013
$
1,019
$
991
$
940
$
878
$
6,328
$ 11,169
3,877
70
2,975
—
2,414
—
1,863
—
1,518
—
5,577
18,224
—
70
Total future amortization expense
$
4,960
$
3,994
$
3,405
$
2,803
$
2,396
$
11,905
$ 29,463
The weighted average amortization period for technology related, customer related and employment related intangible
assets is 15 years, 11 years and 5 years, respectively.
Note 6 — Financing arrangements
Financing arrangements consisted of the following:
December 31, 2017
Unamortized
Discount and
Debt Issuance
Costs
Principal
Amount
Total Debt
Principal
Amount
December 31, 2016
Unamortized
Discount and
Debt Issuance
Costs
Total Debt
(In thousands)
2017 Convertible Notes
$
— $
— $
— $
83,256
$
(268) $
2021 Convertible Notes
Amended ABL Facility
Other debt
Total debt
Less: current portion
100,000
81,600
1,518
183,118
(1,518)
(22,643)
—
—
(22,643)
—
Long-term debt
$
181,600
$
(22,643) $
77,357
81,600
1,518
100,000
—
380
160,475
(1,518)
158,957
$
183,636
(83,636)
100,000
$
(27,100)
—
—
(27,368)
268
(27,100) $
82,988
72,900
—
380
156,268
(83,368)
72,900
2017 Convertible Notes. In September 2010, we issued $172.5 million of unsecured convertible senior notes (“2017
Convertible Notes”) that matured on October 1, 2017. The notes bore interest at a rate of 4.0% per year, payable semiannually in
arrears on April 1 and October 1 of each year. The conversion rate was 90.8893 shares of our common stock per $1,000 principal
amount of notes (equivalent to a conversion price of $11.00 per share of common stock). In 2016, we repurchased $89.3 million
aggregate principal amount of our 2017 Convertible Notes for $87.3 million and recognized a net gain of $1.6 million reflecting
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs. As of December
31, 2016, $83.3 million aggregate principal amount remained outstanding, all of which were repaid upon maturity in October 2017.
2021 Convertible Notes. In December 2016, we issued $100.0 million of unsecured convertible senior notes (“2021
Convertible Notes”) that mature on December 1, 2021, unless earlier converted by the holders pursuant to the terms of the notes.
The notes bear interest at a rate of 4.0% per year, payable semiannually in arrears on June 1 and December 1 of each year.
Holders may convert the notes at their option at any time prior to the close of business on the business day immediately
preceding June 1, 2021, only under the following circumstances:
• during any calendar quarter commencing after the calendar quarter ending on March 31, 2017 (and only during such
calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (regardless of whether
consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding
calendar quarter is greater than or equal to 130% of the conversion price of the notes in effect on each applicable trading
day;
• during the five business day period after any five consecutive trading day period in which the trading price per $1,000
principal amount of notes for each trading day was less than 98% of the last reported sale price of our common stock
on such date multiplied by the conversion rate on each such trading day; or
• upon the occurrence of specified corporate events, as described in the indenture governing the notes, such as a
consolidation, merger, or share exchange.
On or after June 1, 2021 until the close of business on the business day immediately preceding the maturity date, holders
may convert their notes at any time, regardless of whether any of the foregoing conditions have been satisfied. As of February 23,
2018, the notes were not convertible.
The notes are convertible into, at our election, cash, shares of common stock, or a combination of both, subject to
satisfaction of specified conditions and during specified periods, as described above. If converted, we currently intend to pay cash
for the principal amount of the notes converted. The conversion rate is initially 107.1381 shares of our common stock per $1,000
principal amount of notes (equivalent to an initial conversion price of $9.33 per share of common stock), subject to adjustment in
certain circumstances. We may not redeem the notes prior to their maturity date.
In accordance with accounting guidance for convertible debt with a cash conversion option, we separately accounted for
the debt and equity components of the notes in a manner that reflected our estimated nonconvertible debt borrowing rate. We
estimated the fair value of the debt component of the notes to be $75.2 million at the issuance date, assuming a 10.5% non-
convertible borrowing rate. The carrying amount of the equity component was determined to be approximately $24.8 million by
deducting the fair value of the debt component from the principal amount of the notes, and was recorded as an increase to additional
paid-in capital, net of the related deferred tax liability of $8.7 million. The excess of the principal amount of the debt component
over its carrying amount (the “debt discount”) is being amortized as interest expense over the term of the notes using the effective
interest method.
We allocated transaction costs related to the issuance of the notes, including underwriting discounts, of $0.9 million and
$2.7 million to the equity and debt components, respectively. Issuance costs attributable to the equity component were netted
against the equity component recorded in additional paid-in capital. The amount of the equity component was $15.2 million at the
time of issuance (net of issuance costs and the deferred tax liability related to the conversion feature) and is not remeasured as
long as it continues to meet the conditions for equity classification.
The $2.7 million of issuance costs attributable to the debt component were netted against long-term debt and are being
amortized to interest expense over the term of the notes using the effective interest method. As of December 31, 2017, the carrying
amount of the debt component was $77.4 million, which is net of the unamortized debt discount and issuance costs of $20.4 million
and $2.2 million, respectively. Including the impact of the debt discount and related deferred debt issuance costs, the effective
interest rate on the notes is approximately 11.3%.
Revolving Credit Facility. In March 2015, we entered into a Third Amended and Restated Credit Agreement (the “Credit
Agreement”) which provided for a $200.0 million revolving loan facility available for borrowings and letters of credit through
March 2020. In December 2015, the Credit Agreement was amended, decreasing the revolving credit facility to $150.0 million
and subsequently, we terminated the Credit Agreement in May 2016, replacing it with an asset-based revolving loan facility as
discussed further below. As of the date of termination, we had no outstanding borrowings under the Credit Agreement. In the
second quarter of 2016, we recognized a non-cash charge of $1.1 million in interest expense for the write-off of debt issuance
costs in connection with the termination.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement (the “ABL Facility”)
which replaced the terminated Credit Agreement. The ABL Facility had a termination date of March 6, 2020 and provided financing
of up to $90.0 million available for borrowings (inclusive of letters of credit) and subject to certain conditions, could be increased
to a maximum capacity of $150.0 million. In October 2017, we entered into an Amended and Restated Credit Agreement (the
“Amended ABL Facility”) which amends and restates our previous ABL Facility and increases the borrowing capacity from $90.0
million to $150.0 million, while also reducing applicable borrowing rates and fee terms. Subject to certain conditions, the Amended
ABL Facility can be increased up to a maximum capacity of $225.0 million.
The Amended ABL Facility terminates on October 17, 2022; however, the Amended ABL Facility has a springing maturity
date that will accelerate the maturity of the Amended ABL Facility to September 1, 2021 if, prior to such date, the 2021 Convertible
Notes have not either been repurchased, redeemed, converted or we have not provided sufficient funds to repay the 2021 Convertible
Notes in full on their maturity date. For this purpose, funds may be provided in cash to an escrow agent or a combination of cash
to an escrow agent and the assignment of a portion of availability under the Amended ABL Facility. The Amended ABL Facility
requires compliance with a minimum fixed charge coverage ratio and minimum unused availability of $25.0 million to utilize
borrowings or assignment of availability under the Amended ABL Facility towards funding the repayment of the 2021 Convertible
Notes.
Borrowing availability under the Amended ABL Facility is calculated based on eligible accounts receivable, inventory,
and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of
reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base
calculation shall also include the amount of eligible pledged cash. The lender may establish such reserves, in part based on appraisals
of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the Amended ABL
Facility. Availability associated with eligible rental mats will also be subject to maintaining a minimum consolidated fixed charge
coverage ratio and a minimum level of operating income for the Mats and Integrated Services segment. As of December 31, 2017,
our total borrowing base availability under the Amended ABL Facility was $136.2 million, of which, $81.6 million was drawn,
resulting in remaining availability of $54.6 million.
Under the terms of the Amended ABL Facility, we may elect to borrow at a variable interest rate plus an applicable margin
based on either, (1) LIBOR subject to a floor of zero or (2) a base rate equal to the highest of: (a) the federal funds rate plus 50
basis points, (b) the prime rate of Bank of America, N.A. or (c) LIBOR, subject to a floor of zero, plus 100 basis points. The
applicable margin ranges from 175 to 275 basis points for LIBOR borrowings, and 75 to 175 basis points for base rate borrowings,
based on the ratio of debt to consolidated EBITDA as defined in the Amended ABL Facility. As of December 31, 2017, the applicable
margin for borrowings under our Amended ABL Facility is 200 basis points with respect to LIBOR borrowings and 100 basis
points with respect to base rate borrowings. The weighted average interest rate for the Amended ABL Facility is 3.9% at December
31, 2017. In addition, we are required to pay a commitment fee on the unused portion of the Amended ABL Facility ranging from
25 to 37.5 basis points, based on the ratio of debt to consolidated EBITDA, as defined in the Amended ABL Facility. The applicable
commitment fee as of December 31, 2017 was 37.5 basis points.
The Amended ABL Facility is a senior secured obligation, secured by first liens on all of our U.S. tangible and intangible
assets and a portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral. The Amended ABL Facility
contains customary operating covenants and certain restrictions including, among other things, the incurrence of additional debt,
liens, dividends, asset sales, investments, mergers, acquisitions, affiliate transactions, stock repurchases and other restricted
payments. The Amended ABL Facility also requires compliance with a fixed charge coverage ratio if availability under the Amended
ABL Facility falls below $22.5 million. In addition, the Amended ABL Facility contains customary events of default, including,
without limitation, a failure to make payments under the facility, acceleration of more than $25.0 million of other indebtedness,
certain bankruptcy events and certain change of control events.
Other Debt. Our foreign subsidiaries in Italy and India, maintain local credit arrangements consisting primarily of lines
of credit which are renewed on an annual basis. We utilize local financing arrangements in our foreign operations in order to
provide short-term local liquidity needs. Advances under these short-term credit arrangements are typically based on a percentage
of the subsidiary’s accounts receivable or firm contracts with certain customers. We had $1.0 million outstanding under these
agreements at December 31, 2017, and no balances outstanding at December 31, 2016. In December 2016, we terminated our
revolving line of credit in Brazil and repaid the outstanding balance.
At December 31, 2017, we had letters of credit issued and outstanding which totaled $7.2 million that are collateralized
by $7.6 million in restricted cash. Additionally, our foreign operations had $21.6 million outstanding in letters of credit and other
guarantees, primarily issued under the line of credit in Italy as well as certain letters of credit that are collateralized by $1.5 million
in restricted cash. At December 31, 2017 and December 31, 2016, prepaid expenses and other current assets in the accompanying
balance sheet include total restricted cash related to letters of credit of $9.1 million and $7.4 million, respectively.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
We incurred net interest expense of $13.3 million, $9.9 million and $9.1 million for the years ended December 31, 2017,
2016 and 2015, respectively. The increase in interest expense in 2017 is primarily related to amortization of the debt discount
related to the 2021 Convertible Notes as discussed above. Capitalized interest was $0.1 million, $0.9 million and $1.1 million for
the years ended December 31, 2017, 2016 and 2015 respectively. Scheduled repayment of long-term debt as of December 31, 2017
is $100.0 million in 2021 and $81.6 million in 2022.
Note 7 — Fair Value of Financial Instruments and Concentrations of Credit Risk
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, receivables, payables and debt. We believe the carrying
values of these instruments, with the exception of our 2017 Convertible Notes and our 2021 Convertible Notes, approximated
their fair values at December 31, 2017 and December 31, 2016. The estimated fair value of our 2021 Convertible Notes was $127.3
million at December 31, 2017 and $110.5 million at December 31, 2016, and the estimated fair value of our 2017 Convertible
Notes was $84.4 million at December 31, 2016, based on quoted market prices at these respective dates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash,
trade accounts and notes receivable. At December 31, 2017, substantially all of our cash deposits are held in accounts at numerous
financial institutions across the various regions that we operate in. A majority of the cash is held in accounts that maintain deposit
ratings of P-1 by Moody’s, A-1 by Standard and Poor’s, and F1 by Fitch. As part of our investment strategy, we perform periodic
evaluations of the relative credit standing of these financial institutions.
Accounts Receivable
Accounts receivable consisted of the following at December 31:
(In thousands)
Gross trade receivables
Allowance for doubtful accounts
Net trade receivables
Income tax receivables
Other receivables
Total receivables, net
2017
2016
$
$
256,851
(9,457)
247,394
6,905
11,567
265,866
$
$
162,569
(8,849)
153,720
39,944
20,643
214,307
Gross trade receivables increased $94.3 million, or 58%, in 2017 primarily due to the increase in revenues.
At December 31, 2016, income tax receivables included approximately $38.0 million related to the carryback refund
claims primarily for our U.S. federal tax losses incurred in 2016, substantially all of which was received in 2017.
Other receivables includes $10.8 million and $11.5 million for value added, goods and service taxes related to foreign
jurisdictions as of December 31, 2017 and 2016, respectively. In addition, other receivables included $8.0 million held in escrow
at December 31, 2016 in connection with the March 2014 sale of the Environmental Services business. In connection with the
settlement of a dispute with the buyers, as described further in Note 15 below, the escrow funds have been reclassified at December
31, 2017, reducing the settlement obligation reflected in accrued liabilities in the accompanying balance sheet.
Customer Revenue Concentration
We derive a significant portion of our revenues from companies in the E&P industry, and our customer base is highly
concentrated in mid-sized and international oil companies as well as government-owned or government-controlled oil companies
operating in the markets that we serve. For 2017, 2016 and 2015, revenues from our 20 largest customers represented approximately
45%, 53% and 49%, respectively, of our consolidated revenues. For 2016, revenue from Sonatrach, our primary customer in
Algeria, represented approximately 14% of consolidated revenues. For 2017 and 2015, no single customer accounted for more
than 10% of our consolidated revenues.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
We maintain an allowance for doubtful accounts based upon the expected collectability of accounts receivable. Changes
in this allowance for 2017, 2016 and 2015 was as follows:
(In thousands)
Balance at beginning of year
Provision for uncollectible accounts
Write-offs, net of recoveries
Balance at end of year
Note 8 — Income Taxes
2017
2016
2015
$
$
8,849
1,481
(873)
9,457
$
$
7,189
2,416
(756)
8,849
$
$
5,458
1,886
(155)
7,189
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 resulting in broad and complex changes
to U.S. income tax law. The Tax Act includes a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not
previously subject to U.S. income tax, reduces the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018,
generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, creates new tax on certain foreign-sourced
earnings, makes other changes to limit certain deductions and changes rules on how certain tax credits and net operating loss
carryforwards can be utilized.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made
reasonable estimates of the effects and recorded provisional amounts in our 2017 financial statements. As we finalize the necessary
data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the United States Internal
Revenue Service (“IRS”), or other standard-setting bodies, we may make adjustments to the provisional amounts.
Provisional amounts for the following income tax effects of the Tax Act have been recorded as of December 31, 2017
and are subject to change during 2018.
One-time transition tax
The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to
U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining
earnings. We recorded a provisional amount in 2017 for our one-time transitional tax liability and income tax expense of $6.9
million. We have recorded provisional amounts based on estimates of the effects of the Tax Act as the analysis requires significant
data from our foreign subsidiaries that is not regularly collected or analyzed.
Taxes on repatriation of foreign earnings
We previously considered the unremitted earnings in our non-US subsidiaries held directly by a U.S. parent to be
indefinitely reinvested and, accordingly, had not provided any deferred income taxes. We intend to pursue repatriation of unremitted
earnings in our non-US subsidiaries held directly by a U.S. parent to the extent that such earnings have been included in the one-
time transition tax discussed above, and subject to cash requirements to support the strategic objectives of the non-US subsidiary.
We recorded a provisional amount in 2017 for the estimated liability and income tax expense for any U.S. federal or state income
taxes or additional foreign withholding taxes related to repatriation of such earnings of $7.0 million. In 2017, we recognized certain
foreign tax credits of $5.5 million in the U.S. related to the provisional accounting for taxes on repatriation of foreign earnings,
however, we also recognized a full valuation allowance related to such tax assets as it is more likely than not that these assets will
not be realized.
Deferred tax effects
The Tax Act reduces the U.S. corporate statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have
remeasured our U.S. net deferred tax liabilities as of December 31, 2017 to reflect the reduced rate that will apply in future periods
when these deferred taxes are settled or realized. We recognized a provisional deferred tax benefit in 2017 of $17.4 million to
reflect the reduced U.S. tax rate on our estimated U.S. net deferred tax liabilities. Although the tax rate reduction is known, we
have not completed our analysis of the effect of the Tax Act on the underlying deferred taxes and as such, the amounts recorded
as of December 31, 2017 are provisional.
The net tax benefit recognized in 2017 related to the Tax Act was $3.4 million. As we complete our analysis of the Tax
Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS or other standard-setting
bodies, we may identify additional effects not reflected as of December 31, 2017. Those adjustments may materially impact our
provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects
of the Tax Act will be completed in 2018.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
While we have not completed our analysis of the impacts of the Tax Act on our effective tax rate going forward, we
anticipate the overall impacts of the Tax Act described above will reduce our effective tax rate in 2018 compared to 2017, excluding
the $3.4 million net benefit included in our 2017 income tax provision. The impact of the Tax Act on our effective tax rate in 2018
will depend in large part on the relative contribution of our domestic earnings and finalization of the provisional accounting for
the Tax Act.
The provision (benefit) for income taxes related to continuing operations was as follows:
(In thousands)
Current:
U.S. Federal
State
Foreign
Total current
Deferred:
U.S. Federal
State
Foreign
Total deferred
Total income tax expense (benefit)
Year Ended December 31,
2016
2015
2017
$
$
(236) $
561
10,301
10,626
(3,848)
(796)
(1,089)
(5,733)
4,893
$
(37,854) $
20
10,440
(27,394)
2,670
(181)
863
3,352
(24,042) $
(32,272)
(34)
11,411
(20,895)
(2,624)
179
1,942
(503)
(21,398)
The total provision (benefit) was allocated to the following components of income (loss):
(In thousands)
Income (loss) from continuing operations
Loss from discontinued operations
Total provision (benefit)
Year Ended December 31,
2016
2015
2017
$
$
4,893
(4,616)
277
$
$
(24,042) $
—
(24,042) $
(21,398)
—
(21,398)
Income (loss) from continuing operations before income taxes was as follows:
(In thousands)
U.S.
Foreign
Income (loss) from continuing operations before income taxes
Year Ended December 31,
2016
2015
2017
$
$
(27,282) $
43,394
16,112
$
(76,805) $
12,051
(64,754) $
(122,082)
9,856
(112,226)
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
The effective income tax rate for continuing operations is reconciled to the statutory federal income tax rate as follows:
Income tax expense (benefit) at federal statutory rate
Nondeductible expenses
Net impact of Tax Act
Worthless stock deduction - Brazil
Goodwill and other asset impairments
Manufacturing deduction
Different rates on earnings of foreign operations
Dividend taxes on unremitted earnings
Change in valuation allowance
Uncertain tax positions
State tax expense (benefit), net
Other items, net
Total income tax expense (benefit)
Year Ended December 31,
2016
2015
2017
35.0%
16.2%
(22.3%)
—
—
—
(13.3%)
9.3%
1.5%
—
(1.8%)
5.8%
30.4%
(35.0%)
2.8%
—
(14.4%)
3.5%
0.8%
(1.2%)
2.2%
6.9%
—
(2.5%)
(0.2%)
(37.1%)
(35.0%)
2.8%
—
—
15.7%
1.8%
(3.6%)
1.4%
2.8%
(2.2%)
(1.5%)
(1.3%)
(19.1%)
Our effective tax rate in 2017 includes a $3.4 million benefit resulting from the provisional accounting for the Tax Act
as described above. In addition, the 2017 effective tax rate was negatively impacted primarily by non-deductible expenses relative
to the amount of pre-tax income.
Our effective tax rate in 2016 includes a $9.3 million benefit associated with a worthless stock deduction and related
impacts from restructuring the investment in our Brazilian subsidiary, partially offset by a $4.5 million charge for increases to the
valuation allowance for certain deferred tax assets which may not be realized (primarily related to our Australian subsidiary and
certain U.S. state net operating losses).
Our effective tax rate for 2015 was primarily impacted by the impairment of non-deductible goodwill. In addition, the
2015 income tax provision also includes a $4.6 million charge for increases to the valuation allowance for certain deferred tax
assets which may not be realized (primarily related to our Australian subsidiary and certain U.S. state net operating losses). These
2015 charges were partially offset by a $4.4 million benefit associated with the forgiveness of certain inter-company balances due
from our Brazilian subsidiary and a $2.2 million benefit from the release of U.S. tax reserves, following the expiration of statutes
of limitation.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Temporary differences and carryforwards which give rise to deferred tax assets and liabilities at December 31 are as
follows:
(In thousands)
Deferred tax assets:
Net operating losses
Capitalized inventory costs
Stock based compensation
Accruals not currently deductible
Unrealized foreign exchange losses, net
Foreign tax credits
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of allowances
Deferred tax liabilities:
Accelerated depreciation and amortization
Original issue discount on 2021 Convertible Notes
Tax on unremitted earnings
Other
Total deferred tax liabilities
Total net deferred tax liabilities
Non-current deferred tax assets
Non-current deferred tax liabilities
Net deferred tax liabilities
2017
2016
$
$
$
$
$
23,490
4,581
3,793
7,730
2,595
9,262
10,451
61,902
(30,154)
31,748
(34,265)
(4,299)
(16,821)
(3,190)
(58,575)
(26,827) $
$
4,753
(31,580)
(26,827) $
18,771
12,378
6,955
4,883
3,087
3,269
1,871
51,214
(21,847)
29,367
(43,225)
(8,553)
(8,555)
(6,030)
(66,363)
(36,996)
1,747
(38,743)
(36,996)
For state income tax purposes, we have net operating loss carryforwards (“NOLs”) of approximately $245.9 million
available to reduce future state taxable income. These NOLs expire in varying amounts beginning in 2018 through 2037. Foreign
NOLs of approximately $30.5 million are available to reduce future taxable income, some of which expire beginning in 2018.
The realization of our net deferred tax assets is dependent on our ability to generate taxable income in future periods. At
December 31, 2017 and 2016, we have recorded a valuation allowance in the amount of $30.2 million and $21.8 million, respectively,
primarily related to certain U.S. state and foreign NOL carryforwards, including Australia, as well as for certain tax credits
recognized in 2017 related to the provisional accounting for the impact of the Tax Act, which may not be realized.
We file income tax returns in the United States and several non-U.S. jurisdictions and are subject to examination in the
various jurisdictions in which we file. We are no longer subject to income tax examinations for U.S. federal and substantially all
state jurisdictions for years prior to 2012 and for substantially all foreign jurisdictions for years prior to 2008. We are currently
under examination by the United States federal tax authorities for tax years 2014 and 2015. During the second quarter of 2017,
we received a Revenue Agent Report from the IRS disallowing a deduction claimed on our 2015 tax return associated with the
forgiveness of certain inter-company balances due from our Brazilian subsidiary and assessing tax due of approximately $3.9
million. We submitted our response to the IRS in the third quarter of 2017 and are proceeding with the tax appeals process. We
believe our tax position is properly reported in accordance with applicable U.S. tax laws and regulations and intend to vigorously
defend our position through the tax appeals process.
We are also under examination by various tax authorities in other countries, and certain foreign jurisdictions have
challenged the amounts of taxes due for certain tax periods. These audits are in various stages of completion. We fully cooperate
with all audits, but defend existing positions vigorously. We evaluate the potential exposure associated with various filing positions
and record a liability for tax contingencies as circumstances warrant. Although we believe all tax positions are reasonable and
properly reported in accordance with applicable tax laws and regulations in effect during the periods involved, the final determination
of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions
and tax contingency accruals.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
A reconciliation of the beginning and ending provision for uncertain tax positions is as follows:
(In thousands)
Balance at January 1
Additions (reductions) for tax positions of prior years
Additions (reductions) for tax positions of current year
Reductions for settlements with tax authorities
Reductions for lapse of statute of limitations
Balance at December 31
2017
2016
2015
665
(399)
—
—
(9)
257
$
$
419
477
—
—
(231)
665
$
$
3,786
(95)
—
(575)
(2,697)
419
$
$
Approximately $0.3 million of unrecognized tax benefits at December 31, 2017, if recognized, would favorably impact
the effective tax rate. In 2015, we recognized a $2.2 million benefit to the income tax provision relating to uncertain tax positions
for which the applicable statutes of limitation expired.
We recognize accrued interest and penalties related to uncertain tax positions in operating expenses. The amount of interest
and penalties was immaterial for all periods presented.
Note 9 — Capital Stock
Common stock
Changes in outstanding Common Stock were as follows:
(In thousands of shares)
Outstanding, beginning of year
Shares issued for exercise of options
Shares issued for time vested restricted stock (net of forfeitures)
Shares issued for acquisition
Outstanding, end of year
2017
2016
2015
99,843
416
952
3,361
104,572
99,377
125
341
—
99,843
99,204
104
69
—
99,377
Outstanding shares of common stock include shares held as treasury stock totaling 15,366,504, 15,162,050 and 15,302,345
as of December 31, 2017, 2016 and 2015, respectively.
Preferred stock
We are authorized to issue up to 1,000,000 shares of Preferred Stock, $0.01 par value. There were no outstanding shares
of preferred stock at December 31, 2017, 2016 or 2015.
Treasury stock
During 2017, 2016 and 2015, we repurchased 415,418, 234,901 and 292,168 shares, respectively, for an aggregate price
of $3.2 million, $1.2 million and $2.3 million, respectively, representing employee shares surrendered in lieu of taxes under vesting
of restricted stock awards. All of the shares repurchased are held as treasury stock.
During 2017, 2016 and 2015, we reissued 210,964, 375,196 and 200,056 shares of treasury stock pursuant to various
stock plans, including our employee stock purchase plan and our 2014 Non-Employee Directors’ Restricted Stock Plan.
Repurchase program
Our Board of Directors has approved a repurchase program that authorizes us to purchase up to $100.0 million of our
outstanding shares of common stock and prior to their maturity, our outstanding 2017 Convertible Notes in the open market or as
otherwise determined by management, subject to certain limitations under our Amended ABL facility or other factors. There were
no shares repurchased under the program during 2017, 2016 or 2015. In February 2016, we repurchased $11.2 million of our 2017
Convertible Notes in the open market for $9.2 million. As of December 31, 2017, we had $33.5 million of authorization remaining
under the program. The repurchase program has no specific term. Repurchases are expected to be funded from operating cash
flows and available cash on-hand. As part of the share repurchase program, our management has been authorized to establish
trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934.
In addition, the Board separately authorized the repurchase of $78.1 million of our 2017 Convertible Notes then outstanding
in connection with the December 2016 issuance of $100.0 million of 2021 Convertible Notes.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Note 10 — Earnings per Share
The following table presents the reconciliation of the numerator and denominator for calculating earnings per share from
continuing operations:
(In thousands, except per share data)
Numerator
Income (loss) from continuing operations - basic
Assumed conversions of 2017 Convertible Notes
Adjusted income (loss) from continuing operations - diluted
Denominator
Basic - weighted average common shares outstanding
Dilutive effect of stock options and restricted stock awards
Dilutive effect of 2017 Convertible Notes
Dilutive effect of 2021 Convertible Notes
Diluted - weighted average common shares outstanding
Income (loss) from continuing operations per common share
Basic
Diluted
$
$
$
$
Year Ended December 31,
2016
2015
2017
11,219
—
11,219
$
$
(40,712) $
—
(40,712) $
(90,828)
—
(90,828)
85,421
2,554
—
—
87,975
83,697
—
—
—
83,697
82,722
—
—
—
82,722
0.13
0.13
$
$
(0.49) $
(0.49) $
(1.10)
(1.10)
We excluded the following weighted-average potential shares from the calculations of diluted net income (loss) per
share during the applicable periods because their inclusion would have been anti-dilutive:
(In thousands)
Stock options and restricted stock-based awards
2017 Convertible Notes
2021 Convertible Notes
Year Ended December 31,
2017
2016
2015
7,419
5,702
—
7,482
14,295
—
3,884
15,682
—
The 2021 Convertible Notes will not impact the calculation of diluted net income per share unless the average price of
our common stock, as calculated in accordance with the terms of the indenture governing the 2021 Convertible Notes, exceeds
the conversion price of $9.33 per share. At December 31, 2017 the average price of our common stock was $8.80 per share. We
have the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion
of the 2021 Convertible Notes as further described in Note 6 above. If converted, we currently intend to settle the principal amount
of the notes in cash and as a result, only the amounts payable in excess of the principal amount of the notes, if any, are assumed
to be settled with shares of common stock for purposes of computing diluted net income from continuing operations per share.
Note 11 — Stock Based Compensation and Other Benefit Plans
The following describes stockholder approved plans utilized by the Company for the issuance of stock based awards.
2014 Non-Employee Directors’ Restricted Stock Plan
In May 2014, our stockholders approved the 2014 Non-Employee Directors’ Restricted Stock Plan (the “2014 Director
Plan”) which authorizes grants of restricted stock to non-employee directors based on a pre-determined dollar amount on the date
of each annual meeting of stockholders. The pre-determined dollar amount for determining the number of restricted shares granted
is subject to change by the Board of Directors or its committee but is initially set at $150,000 for each non-employee director,
except for the Chairman of the Board who will receive an annual grant of restricted shares equal to $170,000. Each restricted share
granted to a non-employee director vests in full on the earlier of the day prior to the next annual meeting of stockholders following
the grant date or the first anniversary of the grant. During 2017, non-employee directors received shares of restricted stock totaling
98,714 shares at a weighted average fair value on the date of grant of $7.80 per share.
The maximum number of shares of common stock issuable under the 2014 Director Plan is 1,000,000 leaving 504,258
shares available for grant as of December 31, 2017.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
2015 Employee Equity Incentive Plan
In May 2015, our stockholders approved the 2015 Employee Equity Incentive Plan (“2015 Plan”), pursuant to which the
Compensation Committee of our Board of Directors (“Compensation Committee”) may grant to key employees, including executive
officers and other corporate and divisional officers, a variety of forms of equity-based compensation, including options to purchase
shares of common stock, shares of restricted common stock, restricted stock units, stock appreciation rights, other stock-based
awards, and performance-based awards. In May 2016, our stockholders approved an amendment to the 2015 Plan which increased
the number of shares authorized for issuance under the Plan from 6,000,000 to 7,800,000 shares. In May 2017, our stockholders
approved a further amendment to the 2015 Plan which increased the number of shares authorized for issuance under the Plan from
7,800,000 to 9,800,000 shares. Under the 2015 Plan, as amended, grants of stock options and stock appreciation rights will reduce
the number of available shares on a 1.00 to 1.00 basis, while full value awards will reduce the number of available shares on a
1.78 to 1.00 basis. At December 31, 2017, 2,079,603 shares remained available for award under the 2015 Plan.
In June 2017, our Board of Directors approved the Long-Term Cash Incentive Plan (“Cash Plan”), a sub-plan to the 2015
Plan, pursuant to which the Compensation Committee may grant time-based cash awards or performance-based cash awards to
key employees, including executive officers and other corporate and divisional officers, to provide an opportunity for employees
to receive a cash payment upon either completion of a service period or achievement of predetermined performance criteria at the
end of a performance period.
Prior to approval of the 2015 Plan, equity-based compensation was provided pursuant to the 2006 Equity Incentive Plan
(“2006 Plan”). No additional grants of equity-based compensation may be granted under the 2006 Plan following approval of the
2015 Plan, however, unexpired options and other awards previously granted continue in effect in accordance with their terms until
they vest or are otherwise exercised or expire.
The Compensation Committee approves the granting of all stock based compensation to employees, utilizing shares
available under the 2015 Plan, as amended. Activity under each of these programs is described below.
Stock Options and Cash-Settled Stock Appreciation Rights
Stock options granted by the Compensation Committee are granted with a three year vesting period and a term of ten
years. During 2017, no options were granted.
The following table summarizes activity for our outstanding stock options for the year ended December 31, 2017:
Outstanding at beginning of period
Granted
Exercised
Expired or canceled
Outstanding at end of period
Vested or expected to vest at end of period
Options exercisable at end of period
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
$
$
$
$
7.02
—
5.83
8.40
7.03
7.05
7.60
5.53 $ 6,172,506
5.51 $ 6,102,803
4.70 $ 3,732,798
Shares
4,684,839
—
(416,017)
(303,297)
3,965,525
3,942,351
3,010,995
We estimated the fair value of options granted on the date of grant using the Black-Scholes option-pricing model, with
the following weighted average assumptions:
Risk-free interest rate
Expected life of the option in years
Expected volatility
Dividend yield
2016
2015
1.38%
5.22
50.5%
—%
1.57%
5.22
47.3%
—%
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal
to the expected term of the option. The expected life of the option is based on observed historical patterns. The expected volatility
is based on historical volatility of the price of our common stock. The dividend yield is based on the projected annual dividend
payment per share divided by the stock price at the date of grant, which is zero because we have not paid dividends for several
years and do not expect to pay dividends in the foreseeable future.
The following table summarizes information about the weighted-average exercise price and the weighted-average grant
date fair value of stock options granted:
Weighted-average exercise price of the stock on the date of grant
Weighted-average grant date fair value on the date of grant
$
$
4.32
1.97
$
$
9.00
3.91
2016
2015
All stock options granted for 2016 and 2015 reflected an exercise price equal to the market value of the stock on the date
of grant.
The total intrinsic value of options exercised was $1.1 million, $0.1 million and $0.3 million for the years ended
December 31, 2017, 2016 and 2015, while cash from option exercises totaled $2.6 million, $0.7 million and $0.6 million,
respectively.
The following table summarizes activity for outstanding cash-settled stock appreciation rights for the year-ended
December 31, 2017:
Outstanding at beginning of period
Exercised
Expired or cancelled
Outstanding at end of period
Exercisable at end of period
Rights
69,500
(25,000)
(1,500)
43,000
43,000
During 2017, there were no additional grants of cash-settled stock appreciation rights. All remaining cash-settled stock
appreciation rights have a June 2018 expiration date, and if exercised, will ultimately be settled in cash for the difference between
the market value of our outstanding shares at the date of exercise, and $7.89. As such, the projected cash settlement is adjusted
each period based on the ending fair market value of the underlying stock. At December 31, 2017, the fair market value of each
cash-settled stock appreciation right was $1.58, resulting in a liability of $0.1 million.
Total compensation cost recognized for stock options and cash-settled stock appreciation rights during the years ended
December 31, 2017, 2016 and 2015 was $1.7 million, $2.3 million and $2.6 million, respectively. For the years ended December 31,
2017, 2016 and 2015, we recognized tax benefits resulting from the exercise of stock options totaling $0.3 million, $0.1 million
and $0.1 million , respectively.
Performance-Based Restricted Stock Units
There were no performance-based restricted stock units granted during 2017. In 2016 and 2015, performance-based
restricted stock units were awarded to executive officers and will be settled in shares of common stock based on the relative ranking
of our total shareholder return (“TSR”) as compared to the TSR of our designated peer group over a three-year period. The ending
TSR price is equal to the average closing price of our shares over the last 30-calendar days of the performance period as set forth
in the following table:
Number of performance-based restricted stock units issued, at target
230,790
136,881
2016
2015
Range of payout of shares for each executive
Performance period begin date
Performance period end date
Estimated fair value at date of grant
0% - 150%
0% - 150%
June 1, 2016
June 1, 2015
May 31, 2019 May 31, 2018
$
5.18
$
10.06
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
We estimated the fair value of each performance-based restricted stock unit at the date of grant using the Monte Carlo
valuation model, with the following weighted average assumptions:
Risk-free interest rate
Average closing price(1)
Expected volatility
Dividend yield
$
2016
2015
$
0.95%
4.69
46.9%
—%
1.02%
8.96
38.4%
—%
(1) Average closing price of our shares over the 30-calendar days ending May 16, 2016, and May 19, 2015,
respectively.
The following table summarizes activity for outstanding performance-based restricted stock units for the year-ended
December 31, 2017:
Nonvested Performance-Based Restricted Stock Units
Outstanding at beginning of period
Granted
Vested
Forfeited
Outstanding at the end of period
Shares
Weighted-Average
Grant Date
Fair Value
447,184
—
(93,244)
—
353,940
$
$
8.06
—
12.55
—
6.88
Total compensation cost recognized for performance-based restricted stock units was $1.0 million, $1.0 million and $1.1
million for the years ended December 31, 2017, 2016 and 2015 respectively. During the year ended December 31, 2017, the total
fair value of performance-based restricted stock units vested was $1.0 million.
Restricted Stock Awards and Units
Time-vested restricted stock awards and restricted stock units are periodically granted to key employees, including grants
for employment inducements, as well as to members of our Board of Directors. Employee awards provide for vesting periods
ranging from three to four years. Non-employee director grants vest in full on the earlier of the day prior to the next annual meeting
of stockholders following the grant date or the first anniversary of the grant. Upon vesting of these grants, shares are issued to
award recipients.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
The following tables summarize the activity for our outstanding time-vested restricted stock awards and restricted stock
units for the year ended December 31, 2017.
Nonvested Restricted Stock Awards (Time-Vesting)
Nonvested at January 1, 2017
Granted
Vested
Forfeited
Nonvested at December 31, 2017
Nonvested Restricted Stock Units (Time-Vesting)
Nonvested at January 1, 2017
Granted
Vested
Forfeited
Nonvested at December 31, 2017
Weighted-
Average
Grant Date
Fair Value
8.45
7.80
8.70
11.20
7.24
Weighted-
Average
Grant Date
Fair Value
5.82
7.83
6.36
5.72
6.38
$
$
$
$
Shares
595,535
98,714
(521,379)
(4,156)
168,714
Shares
2,183,029
768,661
(815,289)
(145,764)
1,990,637
Total compensation cost recognized for restricted stock awards and restricted stock units was $8.0 million, $8.6 million
and $10.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Total unrecognized compensation cost at
December 31, 2017 related to restricted stock awards and restricted stock units is approximately $8.8 million which is expected
to be recognized over the next 1.8 years. During the years ended December 31, 2017, 2016 and 2015, the total fair value of shares
vested was $10.4 million, $3.9 million and $8.1 million, respectively.
For 2017, 2016 and 2015, we recognized tax benefits resulting from the vesting of restricted stock awards and units
totaling $1.9 million, $1.5 million and $2.0 million, respectively.
Cash-Based Awards
The Compensation Committee also approved the issuance of cash-based awards during the second quarter of 2017,
including $5.3 million of time-based cash awards and a target amount of $1.3 million of performance-based cash awards. The
time-based cash awards were granted to executive officers and other key employees and primarily vest in equal installments over
a three-year period. The performance-based cash awards were granted to executive officers and will be paid based on the relative
ranking of the Company’s TSR as compared to the TSR of the Company’s designated peer group for 2017. The performance period
began June 1, 2017 and ends May 31, 2020, with the ending TSR price being equal to the average closing price of our shares over
the 30-calendar days ending May 31, 2020 with the cash payout for each executive ranging from 0% to 150% of target. The
performance-based cash awards are accrued as a liability award over the performance period based on the estimated fair value.
The fair value of the performance-based cash awards is remeasured each period using a Monte-Carlo valuation model with changes
in fair value recognized in the consolidated statement of operations. At December 31, 2017, the total liability for cash-based awards
was $1.4 million.
Defined Contribution Plan
Substantially all of our U.S. employees are covered by a defined contribution plan (“401(k) Plan”). Employees may
voluntarily contribute up to 50% of compensation, as defined in the 401(k) Plan. Participants’ contributions, up to 3% of
compensation, are matched 100% by us, and the participants’ contributions, from 3% to 6% of compensation, are matched 50%
by us. Under the 401(k) Plan, our cash contributions were $1.4 million, $0.9 million and $3.2 million in 2017, 2016 and 2015,
respectively. In connection with the cost reduction programs implemented in early 2016, we temporarily eliminated our 401(k)
matching contribution beginning in March 2016. This temporary elimination in the Company’s matching contribution to the U.S.
defined contribution plan was lifted in the second quarter of 2017.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Note 12 — Segment and Related Information
Our Company consists of two reportable segments, which offer different products and services to a relatively homogeneous
customer base. The reportable segments include: Fluids Systems and Mats and Integrated Services. All intercompany revenues
and related profits have been eliminated.
Fluids Systems — Our Fluids Systems business provides drilling fluids products and technical services to customers in
the North America, EMEA, Latin America, and Asia Pacific regions. We offer customized solutions for highly technical drilling
projects involving complex subsurface conditions, such as horizontal, directional, geologically deep or drilling in deep water.
These projects require increased monitoring and critical engineering support of the fluids system during the drilling process. In
addition, our Fluids Systems offering is expanding into adjacent areas to drilling fluids, including completion and stimulation
chemistry, which are typically utilized by customers following the drilling process.
We also have industrial mineral grinding operations for barite, a critical raw material in drilling fluids products, which
serve to support our activity in the North American drilling fluids market. We use the resulting products in our drilling fluids
business, and also sell them to third party users, including other drilling fluids companies. We also sell a variety of other minerals,
principally to third party industrial (non-oil and gas) markets.
Mats and Integrated Services — Our Mats and Integrated Services segment provides composite mat rentals, site
construction and related site services to customers in various markets including oil and gas exploration and production (“E&P”),
electrical transmission & distribution, pipeline, solar, petrochemical and construction across North America and Europe. We also
sell composite mats to customers outside of the U.S. and to domestic customers outside of the E&P market. We manufacture our
DURA-BASE® Advanced Composite Mats for use in our rental operations as well as for third-party sales. Our mats provide
environmental protection and ensure all-weather access to sites with unstable soil conditions. The November 2017 acquisition of
WSG expanded our range of site construction and related services we offer our customers across the U.S. to include a variety of
complementary services to our composite matting systems, including access road construction, site planning and preparation,
environmental protection, fluids and spill storage/containment, erosion control, and site restoration services.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Summarized financial information concerning our reportable segments is shown in the following tables:
(In thousands)
Revenues
Fluids systems
Mats and integrated services
Total revenues
Depreciation and amortization
Fluids systems
Mats and integrated Services
Corporate office
Total depreciation and amortization
Operating income (loss)
Fluids systems
Mats and integrated services
Corporate office
Operating income (loss)
Segment Assets
Fluids Systems
Mats and Integrated Services
Corporate
Total Assets
Capital Expenditures
Fluids Systems
Mats and Integrated Services
Corporate
Total Capital Expenditures
Year Ended December 31,
2016
2015
2017
$
$
$
$
$
$
$
$
$
$
615,803
131,960
747,763
21,566
14,991
3,200
39,757
27,580
40,491
(36,635)
31,436
611,455
260,931
30,330
902,716
17,589
11,956
1,826
31,371
$
$
$
$
$
$
$
$
$
$
395,461
76,035
471,496
20,746
14,227
2,982
37,955
$
$
$
$
581,136
95,729
676,865
22,108
18,869
2,940
43,917
(43,631) $
14,741
(28,323)
(57,213) $
(86,770)
24,949
(37,278)
(99,099)
522,488
164,515
111,180
798,183
32,310
4,637
1,493
38,440
$
$
$
$
549,827
172,415
126,651
848,893
40,533
27,456
1,415
69,404
As a result of the significant declines in industry activity in North America in 2015 and early 2016, we implemented cost
reduction programs including workforce reductions, reduced discretionary spending, and beginning in March 2016, a temporary
salary reduction for a significant number of North American employees, including executive officers, suspension of the Company’s
matching contribution to the U.S. defined contribution plan as well as a reduction in cash compensation paid to our Board of
Directors in order to align our cost structure to activity levels.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
As part of these cost reduction programs, we reduced our North American employee base by 626 (approximately 48%)
from the first quarter 2015 through the third quarter of 2016, including reductions of 436 employees in 2015 and 190 employees
in the first nine months of 2016. As a result of these termination programs, we recognized charges for employee termination costs
as shown in the table below:
(In thousands)
Cost of revenues
Selling, general and administrative expenses
Total employee termination costs
Fluids systems
Mats and integrated services
Corporate office
Total employee termination costs
Year Ended December 31,
2016
2015
$
$
$
$
3,647
925
4,572
4,125
285
162
4,572
$
$
$
$
5,664
2,499
8,163
7,218
717
228
8,163
The temporary reduction in salaries, suspension of the Company’s matching contribution to the U.S. defined contribution
plan and reduction in cash compensation paid to our Board of Directors were lifted in the second quarter of 2017.
Our 2016 and 2015 operating losses include net charges of $14.8 million and $80.5 million, respectively, resulting from
the reduction in value of certain assets, the wind-down of our operations in Uruguay and the resolution of certain wage and hour
litigation claims. The Fluids Systems segment operating results included $15.5 million and $75.5 million of these charges in 2016
and 2015, respectively. The remaining $0.7 million benefit and $5.0 million charge was included in Corporate Office expenses in
2016 and 2015, respectively, related to the resolution of certain wage and hour litigation claims.
The $15.5 million of Fluids Systems charges in 2016 included $6.9 million of non-cash impairments in the Asia Pacific
region resulting from the continuing unfavorable industry market conditions and outlook for the region in 2016, $4.1 million of
charges for the reduction in carrying values of certain inventory, primarily resulting from lower of cost or market adjustments and
$4.5 million of charges in the Latin America region associated with the wind-down of our operations in Uruguay, including $0.5
million to write-down property, plant and equipment. The $6.9 million of impairments in the Asia Pacific region included a $3.8
million charge to write-down property, plant and equipment to its estimated fair value and a $3.1 million charge to fully impair
the customer related intangible assets in the region.
The $75.5 million of Fluids Systems charges in 2015 included $70.7 million of non-cash charges for the impairment of
goodwill, following our November 1, 2015 annual evaluation, a $2.6 million non-cash impairment of assets, following our decision
to exit a facility, and a $2.2 million charge to reduce the carrying value of diesel-based drilling fluid inventory, resulting from
lower of cost or market adjustments.
In 2016, a total of $6.7 million of these charges are reported in impairments and other charges with the remaining $8.1
million reported in cost of revenues including the $4.1 million of charges for the write-down of inventory and $4.0 million of the
Uruguay exit costs. In 2015, a total of $78.3 million of these charges are reported in impairments and other charges with the
remaining $2.2 million of charges for the write-down of inventory being reported in cost of revenues.
As described in Note 1, we revised our estimated useful lives and end-of-life residual values for composite mats included
in our rental fleet as of January 1, 2016 resulting in a decrease in depreciation expense of approximately $6.1 million for the year
ended December 31, 2016.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
The following table sets forth geographic information for our operations. Revenues by geographic location are determined
based on the operating location from which services are rendered or products are sold. Long-lived assets include property, plant
and equipment and other long-term assets based on the country in which the assets are located.
(In thousands)
Revenue
United States
Canada
Algeria
All Other EMEA
Latin America
Asia Pacific
Total Revenue
Long-Lived Assets
United States
Canada
EMEA
Latin America
Asia Pacific
Total Long-Lived Assets
Year Ended December 31,
2016
2015
2017
$
$
$
$
460,872
55,600
87,975
102,247
36,988
4,081
747,763
337,190
3,993
46,269
2,354
3,120
392,926
$
$
$
$
214,026
34,176
80,936
96,654
41,035
4,669
471,496
274,746
3,922
48,047
4,842
1,939
333,496
$
$
$
$
384,147
52,851
65,272
109,252
47,240
18,103
676,865
275,109
552
50,759
4,543
9,731
340,694
For 2016, revenue from Sonatrach, our primary customer in Algeria, was approximately 14% of consolidated revenues.
For 2017 and 2015 no single customer accounted for more than 10% of our consolidated revenues.
Note 13 — Supplemental Cash Flow and Other Information
Accounts payable and accrued liabilities at December 31, 2017, 2016, and 2015, included accruals for capital expenditures
of $2.7 million, $2.0 million, and $3.9 million, respectively.
Accrued liabilities at December 31, 2017 and 2016 were $68.2 million and $31.2 million, respectively. The balance at
December 31, 2017 and 2016 included $31.4 million and $11.9 million, respectively, for employee incentives and other
compensation related expenses. The balance at December 31, 2017 also includes $14.0 million for the settlement of claims in
connection with the sale of the Environmental Services business that will be funded in the first quarter of 2018 through available
cash on hand and borrowings under our Amended ABL Facility. Further discussion of the claims and related settlement is contained
in Note 15 below.
Cash, cash equivalents and restricted cash in the consolidated statements of cash flows included the following:
(in thousands)
Cash and cash equivalents
Restricted cash included in other current assets
Cash, cash equivalents and restricted cash
2017
2016
2015
$
$
56,352
9,108
65,460
$
$
87,878
7,421
95,299
$
$
107,138
17,485
124,623
Impairments and other non-cash charges in the consolidated statements of cash flows included the following:
(In thousands)
Goodwill and other intangible asset impairments
Property, plant and equipment impairments
Inventory write-downs
Write-off of debt issuance costs on termination of Credit Agreement
2016
2015
$
3,104
$
70,720
4,286
4,075
1,058
2,625
2,163
—
Impairments and other non-cash charges in the Consolidated Statements of Cash Flows
$
12,523
$
75,508
There were no impairments and other non-cash charges in 2017.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Note 14 — Discontinued Operations
In March of 2014 we completed the sale of the Environmental Services business for $100 million in cash. Cash proceeds
from the sale were $89.8 million in 2014, net of transaction related expenses, including the adjustment related to final working
capital conveyed at closing. Following the sale, $8 million of the sales price was withheld in escrow associated with transaction
representations, warranties and indemnities, with $4 million scheduled to be released at each of the nine-month and 18-month
anniversary of the closing. As a result of the sale transaction, we recorded a gain on the disposal of the business of $34.0 million
($22.1 million after-tax) in the first quarter of 2014. Following completion of the March 2014 transaction, the buyer asserted that
we had breached certain representations and warranties contained in the sale agreement. The disputed matter went to trial in 2017
and following commencement of the trial, we reached a settlement agreement with the buyer to effectively reduce the sales price
by $22.0 million. The impact of this settlement results in a charge to discontinued operations for $22.0 million ($17.4 million net
of tax) in 2017 to reduce the previously recognized gain from the sale of the Environmental Services business. See further discussion
of the buyer’s claims and related litigation in Note 15.
Summarized results of operations from discontinued operations are as follows:
(In thousands)
Loss from disposal of discontinued operations before income taxes
Loss from disposal of discontinued operations, net of tax
Note 15 — Commitments and Contingencies
2017
21,983
17,367
$
$
In the ordinary course of conducting our business, we become involved in litigation and other claims from private party
actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state and local levels.
While the outcome of litigation or other proceedings against us cannot be predicted with certainty, except as described below,
management does not consider it reasonably possible that a loss resulting from such litigation or other proceedings, in excess of
any amounts accrued or covered by insurance, has been incurred that is expected to have a material adverse impact on our
consolidated financial statements.
Escrow Claims Related to Sale of Environmental Services Business
Under the terms of the March 2014 sale of our previous Environmental Services business to Ecoserv, LLC (“Ecoserv”),
$8.0 million of the sales price was withheld and placed in an escrow account to satisfy claims for possible breaches of representations
and warranties contained in the purchase/sale agreement. For the amount withheld in escrow, $4.0 million was scheduled for release
to Newpark at each of the nine-month and 18-month anniversary of the closing. In December 2014, we received a letter from
Ecoserv asserting that we had breached certain representations and warranties contained in the purchase/sale agreement, including
failing to disclose operational problems and service work performed on injection/disposal wells and increased barge rental costs.
The letter indicated that Ecoserv expected the damages associated with these claims to exceed the escrow amount. Following a
further exchange of letters, in July 2015 we filed an action against Ecoserv in state district court in Harris County, Texas, seeking
release of the escrow funds. Thereafter, Ecoserv filed a counterclaim seeking recovery in excess of the escrow funds based on the
alleged breach of representations and covenants in the purchase/sale agreement. Ecoserv also alleged that we committed fraud in
connection with the March 2014 transaction. Discovery in the case provided more information about Ecoserv’s claims, which
included, among other things, alleged inadequate disclosures regarding the condition of a disposal cavern (at the time of the
execution of the purchase/sale agreement and again as it relates to the time period between execution of the purchase/sale agreement
and closing) and the lack of appropriate reserves/accruals/provisions in the financial statements of the business relating to certain
regulatory obligations (such as plug and abandonment costs for injection wells and costs associated with a solids drying facility).
Ecoserv sought to use a damage model for most of its damages based on its calculation of the difference between (a) the value of
the business at closing, and (b) the sales price ($100 million), and had claimed damages of approximately $20.0 million. Following
commencement of the trial in December 2017, we reached a settlement agreement with Ecoserv, under which Ecoserv will receive
$22.0 million in cash, effectively reducing the net sales price of the Environmental Services business by such amount in exchange
for dismissal of the pending claims in the lawsuit, and release of any future claims related to the March 2014 transaction. The
reduction in sale price will be funded, in part, through the release of the $8.0 million that has been held in escrow since the March
2014 transaction. The remaining $14.0 million will be funded in the first quarter of 2018 through available cash on hand and
borrowings under our Amended ABL Facility. Litigation expenses related to this matter are included in corporate office expenses
in operating income.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Leases
We lease various manufacturing facilities, warehouses, office space, machinery and equipment under operating leases
with remaining terms ranging from 1 to 9 years with various renewal options. Substantially all leases require payment of taxes,
insurance and maintenance costs in addition to rental payments. Total rental expenses for all operating leases were approximately
$23.9 million, $21.0 million and $22.6 million in 2017, 2016 and 2015, respectively.
Future minimum payments under non-cancelable operating leases, with initial or remaining terms in excess of one year
are included in the table below. Future minimum payments under capital leases are not significant.
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Other
$
$
13,318
6,877
4,611
3,764
3,251
7,689
39,510
In conjunction with our insurance programs, we had established letters of credit in favor of certain insurance companies
in the amount of $2.2 million and $3.0 million at December 31, 2017 and 2016, respectively. We also had $0.4 million in guarantee
obligations in connection with facility closure bonds and other performance bonds issued by insurance companies outstanding as
of December 31, 2017 and 2016.
Other than normal operating leases for office and warehouse space, rolling stock and other pieces of operating equipment,
we do not have any off-balance sheet financing arrangements or special purpose entities. As such, we are not materially exposed
to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.
We are self-insured for health claims, subject to certain “stop loss” insurance policies. Claims in excess of $250,000 per
incident are insured by third-party insurers. We had accrued liabilities of $1.3 million and $0.8 million for unpaid claims incurred,
based on historical experience at December 31, 2017 and 2016, respectively. Substantially all of these estimated claims are expected
to be paid within six months of their occurrence.
We are self-insured for certain workers’ compensation, auto and general liability claims up to a certain policy limit. Claims
in excess of $750,000 are insured by third-party reinsurers. At December 31, 2017 and 2016, we had accrued liabilities of $2.5
million and $1.9 million, respectively, for the uninsured portion of claims.
We maintain accrued liabilities for asset retirement obligations, which represent obligations associated with the retirement
of tangible long-lived assets that result from the normal operation of the long-lived asset. Our asset retirement obligations primarily
relate to required expenditures associated with owned and leased facilities. Upon settlement of the liability, a gain or loss for any
difference between the settlement amount and the liability recorded is recognized. We had accrued asset retirement obligations of
$1.1 million and $1.0 million as of December 31, 2017 and 2016, respectively.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Note 16 — Supplemental Selected Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Fiscal Year 2017
Revenues
Operating income
Income (loss) from continuing operations
Net income (loss)
Income (loss) per common share - basic:
Income (loss) from continuing operations
Net income (loss)
Income (loss) per common share - diluted:
Income (loss) from continuing operations
Net income (loss)
Fiscal Year 2016
Revenues
Operating loss
Loss from continuing operations
Net loss
Net loss per common share - basic:
Loss from continuing operations
Net loss
Net loss per common share - diluted:
Loss from continuing operations
Net loss
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
158,691
3,746
(983)
(983)
183,020
7,968
1,632
1,632
(0.01) $
(0.01) $
(0.01) $
(0.01) $
0.02
0.02
0.02
0.02
$
114,544
(18,825)
(13,300)
(13,300)
115,315
(15,135)
(13,904)
(13,904)
$
$
$
$
$
$
$
$
$
$
$
$
201,663
9,882
2,653
2,653
0.03
0.03
0.03
0.03
104,554
(15,055)
(13,451)
(13,451)
204,389
9,840
7,917
(9,450)
0.09
(0.11)
0.09
(0.11)
137,083
(8,198)
(57)
(57)
(0.16) $
(0.16) $
(0.17) $
(0.17) $
(0.16) $
(0.16) $
(0.16) $
(0.16) $
(0.17) $
(0.17) $
(0.16) $
(0.16) $
—
—
—
—
$
$
$
$
$
$
$
$
$
$
Fourth quarter 2017 income from continuing operations and net loss includes the $3.4 million net tax benefit recognized
related to the Tax Act. Fourth quarter 2017 net loss also includes the $17.4 million loss from disposal of discontinued operations,
net of tax.
Fourth quarter 2016 operating loss included a $2.6 million non-cash charge to reduce the carrying value of drilling fluids
inventory in our Asia Pacific region. Fourth quarter 2016 and third quarter 2016 operating loss included charges of $2.0 million
and $2.5 million, respectively, associated primarily with asset redeployment costs resulting from the exit of our Fluids Systems
operations in Uruguay. Second quarter 2016 operating loss included a total of $6.9 million of impairments and other charges related
to our Asia Pacific region, including a $3.8 million non-cash impairment to write-down property, plant and equipment to its
estimated fair value and a $3.1 million impairment of customer related intangible assets.
67
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
Based on their evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by
this Annual Report, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company’s
disclosure controls and procedures are effective as of December 31, 2017.
Changes in internal control over financial reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31,
2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Securities and Exchange Act Rule 13(a)-15(f). Our internal control system over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles.
Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance, not absolute assurance with respect to the
financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control
over financial reporting may vary over time.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of our internal control over financial reporting as of December 31, 2017 as required by the Securities
and Exchange Act of 1934 Rule 13a-15(c). In making its assessment, we have utilized the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in a report entitled “Internal Control — Integrated Framework
(2013).” We concluded that based on our evaluation, our internal control over financial reporting was effective as of December 31,
2017.
The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
/s/ Paul L. Howes
Paul L. Howes
President, Chief Executive Officer
/s/ Gregg S. Piontek
Gregg S. Piontek
Vice President and Chief Financial Officer
68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Newpark Resources, Inc.
The Woodlands, Texas
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Newpark Resources, Inc. and subsidiaries (the “Company”) as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report
dated February 23, 2018 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 23, 2018
69
ITEM 9B. Other Information
None
ITEM 10. Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
PART III
The information required by this Item is incorporated by reference to the “Executive Officers” and “Election of Directors”
sections of the definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders.
Compliance with Section 16(a) of the Exchange Act
The information required by this Item is incorporated by reference to the “Section 16(a) Beneficial Ownership Reporting
Compliance” section of the definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders.
Code of Conduct and Ethics
We have adopted a Code of Ethics for Senior Officers and Directors, and a Code of Business Ethics and Conduct (“Ethics
Manual”) that applies to all officers and employees. The Code of Ethics and Ethics Manual are publicly available in the investor
relations area of our website at www.newpark.com. This Code of Ethics is incorporated in this Annual Report by reference. Copies
of our Code of Ethics may also be requested in print by writing to Newpark Resources, Inc., 9320 Lakeside Blvd., Suite 100, The
Woodlands, Texas, 77381.
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference to the “Executive Compensation” section of the
definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference to the “Ownership of Common Stock” section of the
definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the “Related Person Transactions” and “Director
Independence” sections of the definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders.
ITEM 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to the “Independent Auditor” section of the definitive
Proxy Statement relating to our 2018 Annual Meeting of Stockholders.
70
ITEM 15. Exhibits and Financial Statement Schedules
PART IV
(a) List of documents filed as part of this Annual Report or incorporated herein by reference.
1. Financial Statements
The following financial statements of the Registrant as set forth under Part II, Item 8 of this Annual Report on Form
10-K on the pages indicated.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Page in this
Form 10-K
34
35
36
37
38
39
40
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
3. Exhibits
The exhibits listed are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.2
4.3
Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-K405 for the year ended December 31, 1998 filed on March 31, 1999 (SEC File No. 001-02960).
Certificate of Designation of Series A Cumulative Perpetual Preferred Stock of Newpark Resources, Inc. incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 27, 1999 (SEC File No.
001-02960).
Certificate of Designation of Series B Convertible Preferred Stock of Newpark Resources, Inc., incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 7, 2000 (SEC File No.
001-02960).
Certificate of Rights and Preferences of Series C Convertible Preferred Stock of Newpark Resources, Inc.,
incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 4, 2001
(SEC File No. 001-02960).
Certificate of Amendment to the Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 4, 2009 (SEC File No.
001-02960).
Certificate of Amendment to the Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on July 29, 2016 (SEC File No.
001-02960).
Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form
8-K filed March 13, 2007 (SEC File No. 001-02960).
Specimen form of common stock certificate of Newpark Resources, Inc., incorporated by reference to the exhibit
filed with the Company’s Registration Statement on Form S-1 (SEC File No. 33-40716).
Indenture, dated December 5, 2016, between Newpark Resources, Inc. and Wells Fargo Bank, National Association,
as trustee, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on December
5, 2016 (SEC File No. 001-02960).
Form of 4.00% Convertible Senior Note due 2021, incorporated by reference to Exhibit 4.2 of the Company's Current
Report on Form 8-K filed on December 5, 2016 (SEC File No. 001-02960).
*10.1
Amended and Restated Employment Agreement, dated as of December 31, 2008, between the registrant and Paul
L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May
1, 2009 (SEC File No. 001-02960).
71
10.2
*10.3
*10.4
*10.5
10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
Indemnification Agreement, dated June 7, 2006, between the registrant and Paul L. Howes, incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960).
Employment Agreement, dated as of September 18, 2006, by and between Newpark Resources, Inc. and Mark J.
Airola, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September
20, 2006 (SEC File No. 001-02960).
Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan,
incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 filed on March 26,
2007 (SEC File No. 333-0141577).
Employment Agreement between Newpark Resources, Inc. and Bruce Smith dated April 20, 2007, incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007
filed on May 8, 2007 (SEC File No. 001-02960).
Amendment to the Indemnification Agreement between Newpark Resources, Inc. and Paul L. Howes dated September
11, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September
14, 2007 (SEC File No. 001-02960).
Newpark Resources, Inc., 2008 Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 the
Company’s Registration Statement on Form S-8 filed on December 9, 2008 (SEC File No. 333-156010).
Form of Change of Control Agreement, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report
on Form 10-Q for the period ended March 31, 2008 filed on May 2, 2008 (SEC File No. 001-02960).
Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes
dated April 20, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on April 23, 2009 (SEC File No. 001-02960).
Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated April 22, 2009,
incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 23, 2009
(SEC File No. 001-02960).
Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated April 22, 2009,
incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 23, 2009
(SEC File No. 001-02960).
Newpark Resources, Inc. 2010 Annual Cash Incentive Plan, incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on April 2, 2010 (SEC File No. 001-02960).
†*10.13
Director Compensation Summary.
*10.14
*10.15
*10.16
*10.17
*10.18
*10.19
*10.20
10.21
*10.22
Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009),
incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-8 filed on August 14,
2009 (SEC File No. 333-161378).
Amendment No. 1 to the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective
June 10, 2009), incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed
on June 9, 2011 (SEC File No. 333-174807).
Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan
(As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.9 to the
Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).
Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan
(As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.10 to the
Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).
Form of Restricted Stock Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended
and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.11 to the Company’s
Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).
Form of Restricted Stock Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended
and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.12 to the Company’s
Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).
Employment Agreement, dated October 18, 2011, by and between Newpark Resources, Inc. and Gregg Steven
Piontek, incorporated by reference to the Company’s Current Report on Form 8-K filed on October 21, 2011 (SEC
File No. 001-02960).
Indemnification Agreement, dated October 26, 2011, between Gregg S. Piontek and Newpark Resources, Inc.,
incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 31, 2011
(SEC File No. 001-02960).
Form of Restricted Stock Unit for Participants Outside the United States under the 2006 Equity Incentive Plan (As
Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).
72
*10.23
*10.24
*10.25
10.26
*10.27
*10.28
10.29
*10.30
*10.31
*10.32
*10.33
*10.34
*10.35
*10.36
*10.37
*10.38
*10.39
*10.40
*10.41
*10.42
Form of Non-Qualified Stock Option Agreement for Participants Outside the United States under the 2006 Equity
Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).
Amendment to Employment Agreement, dated December 31, 2012, between Mark Airola and Newpark Resources,
Inc., incorporated by reference to the Company’s Current Report on Form 8-K filed on January 4, 2013 (SEC File
No. 001-02960).
Amendment to Employment Agreement, dated December 31, 2012, between Bruce Smith and Newpark Resources,
Inc., incorporated by reference to the Company’s Current Report on Form 8-K filed on January 4, 2013 (SEC File
No. 001-02960).
Membership Interests Purchase Agreement, dated February 10, 2014, by and among Newpark Resources, Inc.,
Newpark Drilling Fluids LLC and ecoserv, LLC, incorporated by reference to the Company’s Quarterly Report on
Form 10-Q filed on April 25, 2014 (SEC File No. 001-02960).
Newpark Resources, Inc. 2014 Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit
4.7 to the Company’s Registration Statement on Form S-8 filed on May 22, 2014 (SEC File No. 333-196164).
Form of Non-Employee Director Restricted Stock Agreement under the Newpark Resources, Inc. 2014 Non-
Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 4.8 to the Company’s Registration
Statement on Form S-8 filed on May 22, 2014 (SEC File No. 333-196164).
Form of Indemnification Agreement, incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report
on Form 10-Q filed on July 25, 2014 (SEC File No. 001-02960).
Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.7 to the
Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333-204403).
Form of Restricted Stock Agreement (time vested) under the Newpark Resources, Inc. 2015 Employee Equity
Incentive Plan, incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed
May 22, 2015 (SEC File No. 333-204403).
Form of Restricted Stock Unit Agreement (performance-based) under the Newpark Resources, Inc. 2015 Employee
Equity Incentive Plan, incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form
S-8 filed May 22, 2015 (SEC File No. 333-204403).
Form of Restricted Stock Unit Agreement (retirement eligible) under the Newpark Resources, Inc. 2015 Employee
Equity Incentive Plan, incorporated by reference to Exhibit 4.10 to the Company’s Registration Statement on Form
S-8 filed May 22, 2015 (SEC File No. 333.204403).
Form of Restricted Stock Unit Agreement (not retirement eligible) under the Newpark Resources, Inc. 2015 Employee
Equity Incentive Plan, incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement on Form
S-8 filed May 22, 2015 (SEC File No. 333.204403).
Form of Restricted Stock Unit Agreement (international) under the Newpark Resources, Inc. 2015 Employee Equity
Incentive Plan, incorporated by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8
filed May 22, 2015 (SEC File No. 333.204403).
Form of Non-Qualified Stock Option Agreement (retirement eligible) under the Newpark Resources, Inc. 2015
Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.13 to the Company’s Registration Statement
on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).
Form of Non-Qualified Stock Option Agreement (not retirement eligible) under the Newpark Resources, Inc. 2015
Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.14 to the Company’s Registration Statement
on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).
Form of Non-Qualified Stock Option Agreement (international) under the Newpark Resources, Inc. 2015 Employee
Equity Incentive Plan, incorporated by reference to Exhibit 4.15 to the Company’s Registration Statement on Form
S-8 filed May 22, 2015 (SEC File No. 333.204403).
Amendment to Amended and Restated Employment Agreement dated as of February 16, 2016, between Newpark
Resources, Inc. and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).
Amendment to Employment Agreement dated as of February 16, 2016 between Newpark Resources, Inc. and Gregg
S. Piontek, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February
18, 2016 (SEC File No. 001-02960).
Amendment to Employment Agreement dated February 16, 2016 between Newpark Resources, Inc. and Bruce C.
Smith, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February
18, 2016 (SEC File No. 001-02960).
Amendment to Employment Agreement dated February 16, 2016 between Newpark Resources, Inc. and Mark J.
Airola, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February
18, 2016 (SEC File No. 001-02960).
73
*10.43
*10.44
*10.45
10.46
*10.47
*10.48
*10.49
*10.50
*10.51
*10.52
*10.53
*10.54
*10.55
*10.56
*10.57
10.58
10.59
10.60
†21.1
†23.1
†31.1
Employment Agreement, dated as of April 22, 2016, by and between Newpark Resources, Inc. and Matthew S.
Lanigan, incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on July
29, 2016 (SEC File No. 001-02960).
Change in Control Agreement dated as of April 22, 2016 by and between Newpark Resources, Inc. and Matthew S.
Lanigan, incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on July
29, 2016 (SEC File No. 001-02960).
Amendment No. 1 to Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to
Exhibit 4.8 to the Company's Registration Statement on Form S-8 filed on May 19, 2016 (333-211459).
Purchase Agreement, dated November 29, 2016, by and between Newpark Resources, Inc. and Credit Suisse
Securities (USA) LLC, as representative of the several initial purchasers named therein, incorporated by reference
to Exhibit 1.1 to the Company's Current Report on Form 8-K filed on December 5, 2016 (SEC File No. 001-02960).
Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and Paul L. Howes, incorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 15, 2016 (SEC File
No. 001-02960).
Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and Gregg S. Piontek,
incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 15,
2016 (SEC File No. 001-02960).
Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and Bruce C. Smith, incorporated
by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on December 15, 2016 (SEC File
No. 001-02960).
Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and Mark J. Airola, incorporated
by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 15, 2016 (SEC File
No. 001-02960).
Amendment No. 2 to Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to
Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed on May 18, 2017 (SEC File No. 333-218072).
Newpark Resources, Inc. Amended and Restated Employee Stock Purchase Plan, incorporated by reference to Exhibit
4.7 to the Company’s Registration Statement on Form S-8 filed on May 18, 2017 (SEC File No. 333-218074).
Newpark Resources, Inc. Long-Term Cash Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on June 15, 2017 (SEC File No. 001-02960).
Form of Time-Based Cash Award Agreement under the Newpark Resources, Inc. Long-Term Cash Incentive Plan,
incorporated by reference to Exhibit 10.2 to the Company’s Current Report of Form 8-K filed on June 15, 2017
(SEC File No. 001-02960).
Form of Performance-Based Cash Award Agreement under the Newpark Resources, Inc. Long-Term Cash Incentive
Plan, incorporated by reference to Exhibit 10.3 to the Company’s Current Report of Form 8-K filed on June 15, 2017
(SEC File No. 001-02960).
Employment Agreement, dated as of July 1, 2017, by and between Newpark Resources, Inc. and Phillip T. Vollands,
incorporated by reference to Exhibit 10.1 to the Company's Current Report of Form 8-K filed on July 3, 2017 (SEC
File No. 001-02960)
Amended and Restated Employment Agreement, dated as of July 1, 2017, by and between Newpark Resources, Inc.
and Bruce Smith, incorporated by reference to Exhibit 10.2 to the Company’s Current Report of Form 8-K filed on
July 3, 2017 (SEC File No. 001-02960).
Amended and Restated Credit Agreement dated October 17, 2017 by and among Newpark Resources, Inc., Newpark
Drilling Fluids LLC, Newpark Mats & Integrated Services LLC, Excalibar Minerals LLC and Dura-Base Nevada,
Inc., as borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the
other Lenders party hereto, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed on October 18, 2017 (SEC File No. 001-02960).
Asset Purchase Agreement, dated as of October 27, 2017, by and among Well Service Group Inc., the stockholders
designated therein, Newpark Resources, Inc. and Newpark Mats & Integrated Services LLC, incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on October 31, 2017 (SEC File No.
001-02960).
Asset Purchase Agreement, dated as of October 27, 2017, by and among Utility Access Solutions Inc., the stockholders
designated therein, Newpark Resources, Inc. and Newpark Mats & Integrated Services LLC, incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 31, 2017 (SEC File No.
001-02960).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Paul L. Howes pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
74
†31.2
†32.1
†32.2
Certification of Gregg S. Piontek pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Paul L. Howes pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Gregg S. Piontek pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
†95.1
Reporting requirements under the Mine Safety and Health Administration.
†101.INS XBRL Instance Document
†101.SCH XBRL Schema Document
†101.CAL XBRL Calculation Linkbase Document
†101.LAB XBRL Label Linkbase Document
†101.PRE XBRL Presentation Linkbase Document
†101.DEF XBRL Definition Linkbase Document
† Filed herewith.
* Management compensation plan or agreement
ITEM 16. Form 10-K Summary
None.
75
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NEWPARK RESOURCES, INC.
By:
/s/ Paul L. Howes
Paul L. Howes
President and Chief Executive Officer
Dated: February 23, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of the registrant in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Paul L. Howes
Paul L. Howes
/s/ Gregg S. Piontek
Gregg S. Piontek
/s/ Douglas L. White
Douglas L. White
/s/ David C. Anderson
David C. Anderson
/s/ Anthony J. Best
Anthony J. Best
/s/ G. Stephen Finley
G. Stephen Finley
/s/ Roderick A. Larson
Roderick A. Larson
/s/ John C. Mingé
John C. Mingé
/s/ Rose M. Robeson
Rose M. Robeson
/s/ Gary L. Warren
Gary L. Warren
President, Chief Executive Officer and Director
(Principal Executive Officer)
Vice President and Chief Financial Officer
(Principal Financial Officer)
February 23, 2018
February 23, 2018
Corporate Controller and Chief Accounting Officer
(Principal Accounting Officer)
February 23, 2018
Chairman of the Board
February 23, 2018
Director, Member of the Audit Committee
February 23, 2018
Director, Member of the Audit Committee
February 23, 2018
Director, Member of the Audit Committee
February 23, 2018
Director, Member of the Audit Committee
February 23, 2018
Director, Member of the Audit Committee
February 23, 2018
Director, Member of the Audit Committee
February 23, 2018
76
DIRECTORS
DAVID C. ANDERSON
ANTHONY J. BEST
G. STEPHEN FINLEY
Chairman of the Board,
Newpark Resources, Inc.,
Chief Executive Officer,
Anderson Partners
Retired President and
Chief Executive Officer,
SM Energy Company
Retired Senior V.P.,
Finance and Administration
and Chief Financial Officer,
Baker Hughes Incorporated
PAUL L. HOWES
President and
Chief Executive Officer
RODERICK A. LARSON
President and
Chief Operating Officer,
Oceaneering International, Inc.
JOHN C. MINGÉ
Chairman and President,
BP America, Inc.
CORPORATE INFORMATION
NEWPARK RESOURCES, INC.
CORPORATE HEADQUARTERS
9320 Lakeside Blvd., Suite 100
The Woodlands, TX 77381
INVESTOR RELATIONS CONTACT
GREGG S. PIONTEK
Senior Vice President and
Chief Financial Officer
Phone: 281-362-6800
Fax: 281-362-6801
E-mail: gpiontek@newpark.com
AUDITORS
DELOITTE & TOUCHE LLP
Houston, Texas
TRANSFER AGENT
AMERICAN STOCK TRANSFER &
TRUST COMPANY
6201 Fifteenth Avenue
3rd Floor Mail Room
Brooklyn, New York 11219
Phone: 718-921-8124
ROSE M. ROBESON
GARY L. WARREN
Retired VP and CFO, General
Partner of DCP Midstream
Partners LP
Retired Senior V.P., President,
Drilling and Well Services Division,
Weatherford International, Ltd.
ANNUAL MEETING
The Annual Meeting of Shareholders
of Newpark Resources, Inc. will be held on
Thursday, May 17, 2018 at 10 a.m. CDT, at
Newpark Corporate Offices
9320 Lakeside Blvd., Suite 100
The Woodlands, Texas 77381
COMMON STOCK LISTED
NEW YORK STOCK EXCHANGE
Symbol - NR
EXECUTIVE OFFICERS
PAUL L. HOWES
President and
Chief Executive Officer
MARK J. AIROLA
Senior Vice President,
General Counsel,
Chief Administrative Officer,
Chief Compliance Officer
and Secretary
MATTHEW S. LANIGAN
Vice President and President,
Mats and Integrated Services
CORE VALUES
INTEGRITY
RESPECT
EXCELLENCE
GREGG S. PIONTEK
Senior Vice President and
Chief Financial Officer
ACCOUNTABILITY
Acting honestly, ethically
and responsibly in all
aspects of our business
Dealing fairly and openly
with employees, customers,
suppliers and community
Delivering value through
performance, innovation
and service quality
Using good judgment
and taking responsibility
for our actions
BRUCE C. SMITH
Chief Technology
Marketing Officer
PHILLIP T. VOLLANDS
Vice President and
President, Fluids Systems
DOUGLAS L. WHITE
Corporate Controller and
Chief Accounting Officer
2017 CORPORATE HEADQUARTERS
9320 Lakeside Blvd., Suite 100
The Woodlands, TX 77381
281-362-6800 newpark.com