Newpark Think
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2 0 1 8 A N N U A L R E P O R T
3 NEWPA RK
2 0 1 8
At Newpark, we prepare for the future by thinking
strategically today. We encourage a company mindset
that is curious, confident and energetic – a way of
thinking that drives us forward. Thinking to solve
technical challenges. Thinking of new uses for current
technologies. Thinking of ways to open new markets.
Thinking about how we can positively impact our
industry, customers, and communities in which we
live and work. We’re Newpark, and that’s how we think.
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Chemistry
Thinking creatively to break boundaries
Ingrid Velasco
Technology Manager
Katy, Texas
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Chemistry
Thinking creatively to break boundaries
Chemistry drives our Total Fluids Solutions strategy.
It is the foundation for our ingenuity and the unique
solutions we provide to our customers. We foster an
environment that inspires unique ideas unbound
by conventional thinking. We approach challenges
holistically, collaborating as a global technical team
to create solutions that exceed customer expectations.
This is our passion and a cornerstone of our success.
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Engineering
Thinking small for big results
Randy Bordelon
Manufacturing Engineer
Carencro, Louisiana
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Engineering
Thinking small for big results
Our customers put Newpark products to the test,
day in and day out. From moving eight million
pound draglines to ensuring the safety of employees
working under 765kV power lines, we are faced with
new challenges every day. To us, these challenges are
opportunities. Our innovative hands-on approach to
solving problems is built upon methodical discipline
in engineering and meticulous attention to detail. We
know that addressing the smallest details is critical to
solving our customers’ biggest challenges.
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Strategy
Thinking forward and adapting
Alessandro Cascone
Technical Supervisor
Rome, Italy
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Strategy
Thinking forward and adapting
Our customer and competitive markets change
constantly. Newpark adapts. Our forward-thinking
strategic approach and unyielding commitment to
our customers help ensure we meet their needs today,
and anticipate their needs of tomorrow. Customer
requirements are expanding beyond traditional
products and services. Today, information flows quickly
and we recognize our role to help customers reduce
their risks and costs. Newpark remains vigilant, always
moving forward, adapting our strategy to ensure we
help our customers prepare for future challenges.
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Sustainability
Thinking green before we had to
Andy Arrington
Environmental Technology Manager
Ridgeville, Indiana
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Sustainability
Thinking green before we had to
For years Newpark has set the standard for delivering
superior performance while minimizing environmental
impact. Our fully recyclable composite matting systems
allow customers to reduce their carbon footprint and
eliminate deforestation associated with competitor
wood mat products while enhancing environmental
protection on their worksites. Our high-performance
water-based fluids systems provide environmentally
sensitive alternatives to traditional oil-based drilling
fluids. While many see sustainability as a new initiative,
at Newpark, our long-standing commitment to
environmentally sound operations has been continually
demonstrated through our products and services.
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2 0 1 8 A N N UA L R E P O RT 9
Culture
Thinking as a team
Blake Herbert
Communications
Manager
Catherine Matsumura
Talent Sourcing
Manager
Roger Gordon
Talent Development
Manager
The Woodlands, Texas
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Culture
Thinking as a team
People join Newpark because of our reputation. They
stay because of our culture. We operate on the
foundation of our core values – Safety, Integrity,
Respect, Excellence and Accountability. These values
guide our interactions with our customers, our suppliers,
our communities, and each other. We encourage
calculated risk taking and the unleashing of ideas to
empower our people and propel our business, yet always
with a humble tone that begins with our leadership
and emanates across the organization. Simply put, our
culture is a differentiator.
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2 0 1 8 A N N UA L R E P O RT 1 1
Fluids Systems
Despite navigating through one of the most economically challenging environments
our industry has ever faced, Newpark maintained the course in our strategy to become
the recognized global technology leader in Fluids Systems. Our perseverance has paid
off. As the third largest supplier of drilling and completion fluids chemistries in the
world, we are in a position of strength. For years we have made key investments
in capabilities, developed an expansive global market presence, and built an ever-
growing resumé of proven performance. We look to leverage these strengths, targeting
new customers for growth and executing our Total Fluids Solutions strategy to expand
Newpark technology and expertise across the full range of drilling, completion and
stimulation chemistries.
2018 Revenues by Region
2018 Customer Base
United States
Eastern Hemisphere
Canada
Latin America
Independent E&P Companies
International and National
Oil Companies
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Deepwater Technology
Leveraging Our Investments
A key objective for 2018 was to break into the deepwater Gulf of
Mexico market with our Kronos TM synthetic-based drilling fluid
system. Collaborating across multiple functions, the Newpark
team devoted countless hours to understanding customers’ detailed
requirements, then qualifying every aspect of our technology,
systems, and facilities to these exacting standards. Our focus has
led to a robust system that has now proven itself across multiple
wells in the deepwater Gulf of Mexico and offshore Australia.
With these successes, we now see opportunities to expand our
presence in the Gulf of Mexico, providing customers with the full
suite of drilling and completion fluids chemistries.
Newpark has made significant capital
investments to support our Total Fluids
Solutions strategy, including our Gulf of
Mexico Drilling Fluids & Completion Fluids
facilities in Port Fourchon, Louisiana, the
Fluids Manufacturing and Distribution
facility in Conroe, Texas, and our state-of-
the-art Newpark Technology Center in Katy,
Texas. These investments are paving the way in
our quest to become the clear industry leader
in developing, producing, and delivering the
highest-quality products and services to our
growing customer base.
Recognized Leader in Service Quality
In 2018, Shell Oil honored Newpark as its global Wells Services Supplier
of the Year, for service companies under 100,000 operating hours. Newpark
began working with Shell when we were awarded a technically challenging
contract in Albania, and more recently our relationship expanded into the
deepwater Gulf of Mexico. We are extremely proud of this recognition, and
we see it as a reflection of the unique value and exceptional service quality we
aim to deliver for all of our customers wherever they need us worldwide.
The Living Wall
A thriving symbol of what we stand for
One of the first things visitors see when they enter the Newpark Technology
Center in Katy, Texas, is a beautiful Living Wall – one of the largest of its kind
in the world. The Living Wall recycles water through an advanced hydroponic
system to give life to 700 plants. The installation represents our ongoing
commitment to the partnership between technological innovation
and the environment.
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Mats & Integrated Services
20 years ago, we introduced the DURA-BASE® Advanced Composite Matting
System, the market’s first engineered thermoplastic worksite access system. At the time,
DURA-BASE set the new standard for safe, cost-effective, all-weather performance.
Today, it remains the industry standard for durability and environmental protection.
For the past two decades, we’ve continually invested in capabilities and expanded
our portfolio of products and services. Building upon our oilfield presence, we’ve
targeted new markets, including power transmission and distribution, pipeline, and
construction, where we’ve seen revenues nearly double in the past two years. With
a diversified presence across industries, we stand well positioned to build upon our
leading capabilities and further penetrate targeted markets around the world.
2018 Revenue by
End Market
2018 Revenue by Type
North American E&P
North American Non-E&P
Services
Rental
International Non-E&P
Product Sales
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Mats & Integrated Services
Mats & Integrated Services
Modular Above-Ground Storage Tank
Modular Above-Ground Storage Tank
In 2018, we increased investments in R&D and expanded
In 2018, we increased investments in R&D and expanded
our portfolio of intellectual property. We continue to develop
our portfolio of intellectual property. We continue to develop
next-generation products to meet more customer needs in an
next-generation products to meet more customer needs in an
efficient, safe and environmentally sound manner. Our latest
efficient, safe and environmentally sound manner. Our latest
product highlights this ingenuity – a modular above-ground
product highlights this ingenuity – a modular above-ground
storage tank utilizing our DURA-BASE matting system. This
storage tank utilizing our DURA-BASE matting system. This
innovation was developed to solve customer needs for safe and
innovation was developed to solve customer needs for safe and
cost-efficient on-site water storage, which we offer in capacities
cost-efficient on-site water storage, which we offer in capacities
up to 80,000 barrels.
up to 80,000 barrels.
Reducing Customers’ Operating Risks
Reducing Customers’ Operating Risks
While we have made meaningful
While we have made meaningful
strides on R&D, manufacturing,
strides on R&D, manufacturing,
and operating fronts, we remain
and operating fronts, we remain
vigilant in ensuring that everything
vigilant in ensuring that everything
we deliver is aligned with our value
we deliver is aligned with our value
proposition for customers. By focusing
proposition for customers. By focusing
on safety, efficiency, reliability, and
on safety, efficiency, reliability, and
environmental sensitivity, we are
environmental sensitivity, we are
lowering our customers’ operating
lowering our customers’ operating
risks. We remain committed to this
risks. We remain committed to this
value proposition, and it is reflected
value proposition, and it is reflected
in everything we do.
in everything we do.
Organized Around
Organized Around
Customer Needs
Customer Needs
Along with our expanding geographic presence,
Along with our expanding geographic presence,
we’ve continued to build out our organization
we’ve continued to build out our organization
with industry-specific expertise aligned to the oil
with industry-specific expertise aligned to the oil
and gas, utility transmission and distribution,
and gas, utility transmission and distribution,
and pipeline markets. By focusing intently
and pipeline markets. By focusing intently
on these industries, we are better positioned
on these industries, we are better positioned
to understand customer requirements, align
to understand customer requirements, align
our product development process, and deliver
our product development process, and deliver
superior value through innovation and
superior value through innovation and
enhanced service. We believe that success in
enhanced service. We believe that success in
these areas will drive further penetration of
these areas will drive further penetration of
these markets and ultimately provide more
these markets and ultimately provide more
value to our customers and shareholders.
value to our customers and shareholders.
DURA-BASE mats and pins are 100%
DURA-BASE mats and pins are 100%
recyclable. Manufacturing of DURA-BASE
recyclable. Manufacturing of DURA-BASE
requires 75%-95% less energy than timber
requires 75%-95% less energy than timber
mat manufacturing, and the typical expected
mat manufacturing, and the typical expected
life for the product is 10 years or more.
life for the product is 10 years or more.
2018 ANNUAL REPORT 15
2018 ANNUAL REPORT 15
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To Our Shareholders
2018 was a landmark year for Newpark, a
year in which we delivered strong results
and exceeded customer expectations.
We successfully entered the deepwater
Gulf of Mexico market, diversified our
Mats business, and integrated our largest
acquisition ever. We improved revenues by
27% and operating cash flow by 65% over
2017. We also executed plans to further
expand our business segments.
Throughout the year Newpark made great
Fluids Systems
Revenues (millions)
forward progress, all while continuing to
$1,000
navigate the uncertainty and volatility that
$800
remain the norm in the oilfield industry.
We recognize that market uncertainty
$600
will be a constant, and we are taking the
$400
necessary actions to further diversify and
$200
stabilize the business in order to create
long-term value for our shareholders.
14 15 16 17 18
$0
Cash From Operations
(millions)
$125
$100
$75
$50
$25
$0
We recognize that
market uncertainty
will be a constant,
and we are taking
the necessary actions
to further diversify
and stabilize the
business in order
to create long-
term value for our
shareholders.
Total Revenues (millions)
$1,200
$900
$600
$300
$0
14
15 16 17 18
North America
International
16 NEWPARK
Mats and Integrated
Services Revenues
(millions)
$250
$200
$150
$100
$50
$0
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14 15 16 17 18
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Total Revenues (millions)
14
15 16 17 18
North America
International
Mats and Integrated
Services Revenues
(millions)
$1,200
$900
$600
$300
$0
$250
$200
$150
$100
$50
$0
Fluids Systems
Revenues (millions)
$1,000
We believe that
$800
safety is central
$600
to everything we
do and critical to
$400
our success. Our
commitment to
$200
fostering a strong
safety culture will
$0
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never change.
Before diving deeper into our 2018 performance, I would like to
address safety. We believe that safety is central to everything we do
and critical to our success. Our commitment to fostering a strong
safety culture will never change. In 2018, we achieved a TRIR of
0.62. While this is a modest increase from previous years, we are
confident that the tools and resources available to our employees will
aid in our quest for improvement. Our Core Value of Safety says it
all – Protecting each other like family, while sustaining the environment
in which we work.
Cash From Operations
(millions)
Expanding Our Reach
$125
$100
$75
$50
$25
$0
14 15 16 17 18
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Newpark has long developed and commercialized premier drilling
fluids solutions tailored to meet the demands of changing markets
and customer needs. Along with these solutions we have focused
on delivering outstanding service, and our customers have noticed.
In 2018, Shell Oil recognized Newpark as its global Wells Services
Supplier of the Year for service companies under 100,000 operating
hours. Our success with Shell reflects the great progress we are
making with International and National Oil Companies around
the world. In Australia, we’ve had success on the Woodside offshore
drilling campaign, where we’ve partnered with Baker Hughes as
part of their integrated service offering. In the EMEA region, we’ve
received multi-year contracts from Sonatrach in Algeria and Kuwait
Oil Company.
But there’s more to our growth story than new customer reach. We
remain focused on executing our Total Fluids Solutions strategy,
leveraging on our strong market position as second in North America
2018 ANNUAL REPORT 1 7
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We anchor our
service in safety,
efficiency, reliability,
and environmental
sensitivity, and our
commitment has
been rewarded.
Total Revenues (millions)
Fluids Systems
Revenues (millions)
$1,000
$800
$600
$400
$200
$0
and third globally to expand our product offerings into completion
and stimulation chemicals. We will bring the same focus that made
us a drilling fluids leader to these new product lines, utilizing our
infrastructure and expanded offering to grow revenue in markets we
already serve.
Within the Mats segment, a similar shift is occurring. In recent
years we have focused on expanding our business beyond oil and
gas exploration to include utilities (transmission and distribution of
electricity), pipeline (construction and maintenance), and general
construction markets. We also have focused on expanding the
geographies we serve to fill the needs of our customers across markets.
We continuously challenge ourselves to innovate in this segment by
developing new uses for our mats and new tools to make installation
more efficient, and we are succeeding in this strategy. Much like our
Fluids business, this success is equally due to our commitment to
service. We anchor our service in safety, efficiency, reliability, and
environmental sensitivity, and our commitment has been rewarded.
In 2018, our Mats business reached new heights, posting record
revenues of $231 million. We believe these results validate our
course, and we’re confident that strong opportunities lie ahead.
14
15 16 17 18
14 15 16 17 18
Financial Performance
We are very pleased with the improvements in both Newpark
segments throughout 2018, but also recognize that there’s more work
to be done to improve our returns on invested capital, particularly in
Fluids. Along with marked increases in revenues and profitability, we
Cash From Operations
(millions)
$125
$100
18 NEWPARK
$75
$50
$25
$0
14 15 16 17 18
14 15 16 17 18
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$1,200
$900
$600
$300
$0
$250
$200
$150
$100
$50
$0
North America
International
Mats and Integrated
Services Revenues
(millions)
Total Revenues (millions)
Fluids Systems
Revenues (millions)
$1,200
$900
$600
$300
$0
$1,000
$800
$600
$400
$200
14
15 16 17 18
14 15 16 17 18
also continued to strengthen our balance sheet in 2018. We ended
$0
North America
International
Mats and Integrated
Services Revenues
(millions)
$250
$200
$150
$100
$50
$0
the year with a total debt balance of $162 million and a leverage ratio
of less than 1.5 times EBITDA.
In closing, I would like to thank each of our employees for the many
Cash From Operations
(millions)
achievements throughout 2018. Their commitment to Newpark is
$125
what makes our ship sail and their efforts do not go unnoticed or
unappreciated. I also thank our shareholders for your confidence in
$100
Newpark. Lastly, I thank our customers for trusting us to successfully
$75
execute their projects. Newpark is well positioned to continue its
path of growth and innovation, and I am very eager to see what we
$50
will think of next.
Sincerely,
$25
$0
14 15 16 17 18
14 15 16 17 18
Paul L. Howes
President and Chief Executive Officer
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2 0 1 8 A N N UA L R E P O RT 1 9
Think Newpark
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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, 2018
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: 001-02960
Newpark Resources, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
9320 Lakeside Boulevard, Suite 100
The Woodlands, Texas
(Address of principal executive offices)
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
Securities registered pursuant to Section 12(g) of the Act: None
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
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
No ___
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes
No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer ___
Accelerated filer ___
Smaller reporting company ___
Emerging growth 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, 2018, was $957.0 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 19, 2019, a total of 90,274,914 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 2019 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, 2018
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
1
3
3
6
13
14
14
14
14
15
17
18
33
35
68
68
72
73
73
73
73
73
73
73
74
78
79
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 statements in other materials
we release to the public. Words such as “will,” “may,” “could,” “would,” “should,” “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.
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 on Form 10-K 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 "Risk Factors" 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 natural
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 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 utilized for temporary worksite access,
along with site construction and related site services to customers in various markets including E&P, electrical transmission &
distribution, pipeline, solar, petrochemical, and construction industries across North America and Europe. We also sell composite
mats to customers around the world.
Our principal executive offices are located at 9320 Lakeside Boulevard, Suite 100, The Woodlands, Texas 77381. Our
telephone number is (281) 362-6800. You can find more information about us on 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. 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 Resources, Inc. (“Newpark,” the “Company,” “we,” “our,” or “us”), the 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. The reference to a “Note” herein refers to the accompanying Notes to Consolidated Financial Statements contained in
Item 8 “Financial Statements and Supplementary Data.”
Industry Fundamentals
Our operating results depend, to a large extent, on oil and natural 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 levels, in turn, depend on a
variety of factors, including oil and natural gas commodity pricing, inventory levels, product demand, and regulatory restrictions.
Oil and natural gas prices and activity are cyclical and volatile and this market volatility has a significant impact on our operating
results. Beginning late 2014 and continuing through early 2016, the price of oil declined dramatically from the price levels in prior
years. As a result, E&P drilling activity levels significantly declined in North America and many global markets over this period.
Oil prices and drilling activity have since improved from the lows reached in early 2016, but remain lower than pre-downturn
levels and continue to be volatile. 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. The average Baker Hughes North America Rotary
Rig Count was 1,223 in 2018, compared to 1,083 in 2017, and 639 in 2016.
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 on
longer-term economic projections and multi-year drilling programs, which tends to reduce the impact of short-term changes in
commodity prices on overall drilling activity. Although drilling activity levels in certain of our international markets have declined
in recent years, as a whole, our international activities have remained relatively stable, primarily driven by key contracts with
national oil companies. International expansion, including the penetration of international oil companies ("IOCs") and national
oil companies ("NOCs"), is a key element of our Fluids Systems strategy.
In addition to our international expansion efforts, we are also expanding our presence in North America, capitalizing on
our capabilities, infrastructure, and strong market position in the North American land drilling fluids markets to expand our drilling
fluids presence within the deepwater Gulf of Mexico, as well as our presence in adjacent product offerings, including completion
fluids and stimulation chemicals.
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Our Mats and Integrated Services segment serves a variety of industries in addition to the E&P industry, including the
electrical transmission & distribution, pipeline, solar, petrochemical, and construction industries. The demand for our products
and services from customers in these industries is driven, in part, by infrastructure construction and maintenance activity levels
in these industries within the U.S.
Reportable Segments
Fluids Systems
Our Fluids Systems segment provides drilling and completion 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 of chemistry, including stimulation chemicals, which are
utilized extensively by E&P operators in the U.S. to stimulate hydrocarbon production.
We also have industrial mineral grinding operations for barite, a critical raw material in drilling fluids products, which
serve to support our activities 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 natural 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 significant
shortages or delays in obtaining these raw materials.
Technology — Proprietary technology and systems, such as our Kronos™ deepwater drilling fluid 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, Schlumberger, and Baker Hughes, a
GE Company, 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 primarily
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, and that our competitive
position is enhanced by our proprietary products and services.
Customers — Our customers are principally major integrated and independent oil and natural gas E&P companies
operating in the markets that we serve. During 2018, 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 57% of
its revenues domestically during 2018. In North America, we primarily 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.
Mats and Integrated Services
Our Mats and Integrated Services segment provides composite mat rentals utilized for temporary worksite access, along
with site construction and related site services to customers in various markets including E&P, electrical transmission & distribution,
pipeline, solar, petrochemical, and construction industries across North America and Europe. We also sell composite mats to
customers around the world. The Mats and Integrated Services segment revenues from non-E&P markets represented approximately
half of our segment revenues in 2018.
We manufacture our DURA-BASE® Advanced Composite Mats for use in our rental operations as well as for third-party
sales. Our matting systems provide environmental protection and ensure all-weather access to sites with unstable soil conditions.
We continue to expand our product offerings, which now include the EPZ Grounding System™ for enhanced safety and efficiency
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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.
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 had 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.
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. 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 significant shortages or delays in obtaining any raw materials.
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 2020, and competitors may begin offering mats that include features
described in those patents. We believe that our reputation in the industry, the range of services we offer, ongoing technical
development and know-how, responsiveness to customers, and understanding of regulatory requirements also have competitive
significance in the markets we serve.
Competition — Our market is fragmented and competitive, with 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
components with only a few competitors providing various alternatives to our DURA-BASE mat products, such as Signature
Systems Group and ISOKON. 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, and that our competitive position is enhanced by our proprietary products, services, and experience.
Customers — Our customers are principally oil and natural gas E&P companies, utility companies, and infrastructure
construction companies operating in the markets that we serve. During 2018, approximately 70% of our segment revenues were
derived from the 20 largest segment customers, of which the two largest customers represented 12% and 11%, respectively, of our
segment revenues. The segment also generated 94% of its revenues domestically during 2018. As a result of our efforts to expand
beyond our traditional oilfield customer base, revenues from non-E&P markets represented approximately half of our segment
revenues in 2018. 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.
Employees
At January 31, 2019, we employed approximately 2,500 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 natural 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, as well as maintaining insurance coverage.
We also employ a corporate-wide web-based health, safety, and environmental management system (“HSEMS”). 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 performed to validate the findings of our internal monitoring and auditing procedures.
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ITEM 1A. Risk Factors
The following summarizes the most significant risk factors to our business. In addition to these risks, we are subject to
a variety of risks that affect many other companies generally, as well as other risks and uncertainties that are not known to us as
of the date of this Annual Report. 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 a material adverse effect on our results of
operations or financial condition, or prevent us from meeting our profitability or growth objectives. If you hold our securities or
are considering an investment in our securities, you should carefully consider the following risks, together with the other information
contained in this Annual Report.
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 products and services, and consequently, our revenues 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 products and 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 regulations, 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 could reduce our revenues and operating results.
Supply of oil and natural gas is subject to factors beyond our control
Supply of oil and natural gas can be affected by the availability of quality drilling prospects, exploration success, and the
number and productivity of new wells drilled and completed, as well as the rate of production and resulting depletion of existing
wells. Oil and natural gas storage inventory levels are indicators of the relative balance between supply and demand. In recent
years, advancements in drilling and completion methods and technologies have contributed to a significant increase in oil production,
particularly in the U.S. market. 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. 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 natural gas
prospects. In recent years, limited access to external sources of funding has, at times, caused 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.
A heightened focus by our customers on cost-saving measures rather than the quality of products and services, which
is one of the ways we seek to differentiate ourselves from our competition, could reduce the demand for our products and
services
Our customers are continually seeking to implement measures aimed at greater cost savings, which may include the
acceptance of lesser quality products and services in order to improve short term cost efficiencies as opposed to total cost efficiencies.
The continued implementation of these kinds of cost saving measures could reduce the demand or pricing for our products and
services and have a material adverse effect on our business, financial condition, and results of operations.
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Risks Related to Customer Concentration and Reliance on the U.S. Exploration and Production Market
In 2018, approximately 44% of our consolidated revenues were derived from our 20 largest customers, although no
customer accounted for more than 10% of our consolidated revenues. While we are not dependent on any one customer or group
of customers, the loss of one or more of our significant customers could have an adverse effect on our results of operations and
cash flows. In addition, approximately 66% of our consolidated revenues were derived from our U.S. operations, including
approximately $500 million from the exploration and production market.
Beginning late 2014 and continuing through early 2016, the price of oil declined dramatically from the price levels in
prior 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. Oil prices
and drilling activity have since improved from the lows reached in early 2016, but remain lower than pre-downturn levels and
continue to be volatile, and there are no assurances that the price for oil or activity levels will not experience a significant decline
again in the future. Due in part 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 could have a material adverse effect on our business, financial
condition, and results of operations.
While diversification into non-oil and natural gas markets is intended over the long term to grow the business and offset
the cyclical nature of the underlying oil and natural gas business, we cannot be certain of the diversification benefits associated
with those lines of business.
Risks Related to International Operations
We have significant operations outside of the U.S., including Canada and certain areas of Europe, the Middle East, Africa,
Latin America, and Asia Pacific. In 2018, these international operations generated approximately 34% of our consolidated revenues.
Substantially all of our cash balance at December 31, 2018 resides within our international subsidiaries. Algeria represented our
largest international market with our total Algerian operations representing 9% of our consolidated revenues for 2018 and 8% of
our total assets at December 31, 2018, including 22% of our total cash balance at December 31, 2018.
In addition, we may seek to expand to other areas outside the U.S. 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;
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.
Risks Related to Our Ability to Attract, Retain, and Develop Qualified Leaders, Key Employees, and Skilled Personnel
Our failure to attract, retain, and develop qualified leaders and key employees at our corporate, divisional, or regional
headquarters could have a material adverse effect on our business. In addition, all of our businesses are highly dependent on our
ability to attract and retain highly-skilled engineers, technical sales personnel, and service personnel. In recent years, the labor
market in the U.S. has continued to tighten, with national unemployment levels reaching the lowest level experienced in decades.
Consequently, the market for qualified employees has become extremely competitive. If we cannot attract and retain qualified
7
personnel, our ability to compete effectively and grow our business will be severely limited. Also, a significant increase in wages
paid by competing employers could result in a reduction in our skilled labor force or an increase in our operating costs.
Risks Related to the Availability of Raw Materials
Our ability to provide products and services to our customers is dependent upon our ability to obtain raw materials
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, U.S. tariffs, 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 our customers' 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 composite 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 the
cost of HDPE increase, we may not be able to increase our customer pricing to cover our costs, which could result in a reduction
in future profitability.
Risks Related to the Cost and Continued Availability of Borrowed Funds, including Risks of Noncompliance with Debt
Covenants
We use 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 $150.0 million asset-based revolving credit facility (as amended, the
“ABL Facility”). Borrowing availability under the 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 also includes 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 ABL Facility. Availability
associated with eligible rental mats is also subject to maintaining a minimum consolidated fixed charge coverage ratio and a
minimum level of operating income for the Mats and Integrated Services segment.
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 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 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 agreement 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 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 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.
In addition, credit rating agencies continually review their ratings for the companies that they follow, including us. Credit
rating agencies also evaluate the industries in which we operate as a whole and may change their credit rating for us based on their
overall view of such industries. There can be no assurance that any rating assigned to our currently outstanding public debt securities
will remain in effect for any given period of time or that any such ratings will not be lowered, suspended, or withdrawn entirely
by a rating agency if, in that rating agency’s judgment, circumstances so warrant.
A downgrade of our credit ratings could, among other things:
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limit our ability to access capital or otherwise adversely affect the availability of other new financing on favorable
terms, if at all;
result in more restricted covenants in agreements governing the terms of any future indebtedness that we may incur;
cause us to refinance indebtedness with less favorable terms and conditions, which debt may require collateral and
restrict, among other things, our ability to pay dividends or repurchase shares;
increase our cost of borrowing; and
adversely affect the market price of our outstanding debt securities.
Risks Related to Operating Hazards Present in the Oil and Natural Gas Industry and Substantial Liability Claims,
Including Catastrophic Well Incidents
We are exposed to significant health, safety, and environmental risks. Our operations are subject to hazards present in the
oil and natural gas industry, such as fires, explosions, 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. 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 occurs.
Generally, we rely on contractual indemnities, releases, limitations on liability with our customers, and insurance to protect
us from potential liability related to such events. However, our insurance and contractual indemnification may not be sufficient
or effective to protect us under all circumstances or against all risks. In addition, our customers’ changing views on risk allocation
together with deteriorating market conditions could force us to accept greater risks to obtain new business, retain renewing business
or could result in us losing business if we are not prepared to take such risks. Moreover, we may not be able to maintain insurance
at levels of risk coverage or policy limits that we deem adequate. Any damages caused by our services or products that are not
covered by insurance or contractual indemnification, or are in excess of policy limits or subject to substantial deductibles, could
adversely affect our financial condition, results of operations, and cash flows. See “Risks Related to the Inherent Limitations of
Insurance Coverage” below 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. Our 2019 capital expenditures are expected to range between
$35 million to $45 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;
insufficient revenues to offset liabilities assumed;
potential loss of significant revenue and income streams;
increased or unexpected expenses;
inadequate return of capital;
regulatory or compliance issues;
the triggering of certain covenants in our debt agreements (including accelerated repayment);
unidentified issues not discovered in due diligence;
failure to complete a planned acquisition transaction or to successfully integrate the operations or management of any
acquired businesses or assets in a timely manner;
diversion of management’s attention from existing operations or other priorities;
unanticipated disruptions to our business associated with the implementation of our enterprise-wide operational and
financial system; 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.
9
Risks Related to Market Competition
We face competition in the Fluids Systems business from larger companies, including Halliburton, Schlumberger, and
Baker Hughes, a GE Company, which compete vigorously on fluids performance and/or price. In addition, these companies have
broad product and service offerings in addition to their drilling and completion fluids. At times, these larger companies attempt to
compete by offering discounts to customers to use multiple products and services, 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 worksite access 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 products provide a differentiated value to our customers, many of our competitors seek
to compete on pricing. In addition, 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 for additional patents,
but there is no assurance that these patents will be granted or that competitors will not be able to offer products that are substantially
similar to the DURA-BASE mat system.
Risks Related to Contracts that Can Be Terminated or Downsized by Our Customers Without Penalty
Many of our fixed-term contracts contain provisions permitting early termination by the customer at their convenience,
generally without penalty, and with limited notice requirements. In addition, many of our contracts permit our customers to decrease
the products/services with a corresponding decrease in our revenues without penalty. As a result, you should not place undue
reliance on the strength of our customer contracts or the terms of those contracts.
Risks Related to Product Offering Expansion
As a key component of our long-term strategy to diversify our revenue streams generated from 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 require additional capital investment and include inherent
uncertainties regarding customer expectations, industry-specific regulatory requirements, product performance, and customer-
specific risk profiles. In addition, we likely will not have the same level of operational experience with respect to the new customer
and product markets as will our competitors. 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. We could
be exposed to strict, joint and several liability for cleanup costs, natural resource damages and other damages as a result of our
conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties.
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). In recent years, the topic of climate change has received 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 natural gas. To the extent that laws and regulations enacted as part of climate change legislation increase the costs of drilling
for or producing such fossil fuels, limit or restrict oil and natural gas exploration and production, or reduce the demand for fossil
fuels, such legislation could have a material adverse effect on our operations and profitability.
10
Hydraulic fracturing is a common practice used by E&P operators to stimulate production of hydrocarbons, particularly
from shale oil and natural gas formations in the U.S. The process of hydraulic fracturing, which involves the injection of sand (or
other forms of proppants) laden fluids into oil and natural gas bearing zones, has come under increased 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 chemicals 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 material adverse effect on
both the drilling and stimulation activity levels of our customers, and, therefore, the demand for our products and services.
Risks Related to Legal Compliance
As a global business, we are subject to complex laws and regulations in the U.S., the U.K. and other countries in which
we operate. These laws and regulations relate to a number of aspects of our business, including anti-bribery and anti-corruption
laws, sanctions against business dealings with certain countries and third parties, the payment of taxes, employment and labor
relations, fair competition, data privacy protections, securities regulation, and other regulatory requirements affecting trade and
investment. The application of these laws and regulations to our business is often unclear and may sometimes conflict. Compliance
with these laws and regulations may involve significant costs or require changes in our business practices that could result in
reduced revenue and profitability. Non-compliance could also result in significant fines, damages, and other criminal sanctions
against us, our officers or our employees, prohibitions or additional requirements on the conduct of our business and damage our
reputation. Certain violations of law could also result in suspension or debarment from government contracts. We also incur
additional legal compliance costs associated with global regulations. In some foreign countries, particularly those with developing
economies, it may be customary for others to engage in business practices that are prohibited by laws such as the U.S. Foreign
Corrupt Practices Act, the U.K. Bribery Act, the Italian Criminal Code in Italy, Brazil’s Clean Companies Act, India’s Prevention
of Corruption Act and The Companies Act, and Mexico’s Anti-Corruption Law. Although we implement policies and procedures
designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors, agents, and
business partners will not take action in violation with our internal policies. Any such violation of the law or even internal policies
could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Material Weaknesses in Our Internal Control Over Financial Reporting
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to document and test our internal control procedures and to
provide a report by management on internal control over financial reporting, including management’s assessment of the
effectiveness of such control. We had a material weakness in our internal control over financial reporting identified during 2018
and can give no assurances that material weaknesses will not arise in the future. Although we are working to remedy the material
weakness identified in 2018, there can be no assurance as to when the remediation will be completed. Deficiencies, including any
material weakness, in our internal control over financial reporting that have not been remediated or that may occur in the future
could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or
otherwise materially adversely affect our business, reputation, results of operations and financial condition.
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 business.
Risks Related to Income Taxes
Our future effective tax rates could be adversely affected by changes in tax laws, both domestically and internationally,
or the interpretation or application thereof. From time to time, the U.S. Congress and foreign, state and local governments consider
legislation that could increase our effective tax rate. We cannot determine whether, or in what form, legislation will ultimately be
11
enacted or what the impact of any such legislation could have on our profitability. If these or other changes to tax laws are enacted,
our profitability could be negatively impacted.
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted in December 2017, resulting in broad and complex changes to
U.S. income tax law. Following the enactment of the Tax Act, the U.S. Treasury Department, the U.S. Internal Revenue Service
(“IRS”), and other standard-setting bodies have continued to issue new guidance regarding the application or administration of
the Tax Act. However, many aspects of the Tax Act remain subject to interpretation, and additional Tax Act guidance is expected
to continue to be issued in the future. Any future guidance may differ from our current interpretation, which may result in fluctuations
in our effective tax rate in the period in which adjustments are made.
Our future effective tax rates could also be adversely affected by changes in the valuation of our deferred tax assets and
liabilities, changes in the mix of earnings in countries with differing statutory tax rates, or by changes in tax treaties, regulations,
accounting principles or interpretations thereof in one or more countries in which we operate. In addition, we are subject to the
potential examination of our income tax returns by the IRS and other tax authorities where we file tax returns. We regularly assess
the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
There can be no assurance that such examinations will not have a material adverse effect on our business, financial condition, or
results of operations.
Risks Related to Potential Impairments of Goodwill and Long-lived Intangible Assets
As of December 31, 2018, our consolidated balance sheet includes $43.8 million of goodwill and $25.2 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 2018, 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 could have a material adverse effect on our results of operations and financial condition.
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 expensive and time-consuming 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.
The tools, techniques, methodologies, programs, and components we use to provide our services may infringe upon the
intellectual property rights of others. Infringement claims generally result in significant legal and other costs, and may distract
management from running our business. Royalty payments under licenses from third parties, if available, could increase our costs.
Additionally, developing non-infringing technologies could increase our costs. If a license were not available, we might not be
12
able to continue providing a particular service or product, which could adversely affect our financial condition, results of operations
and cash flows.
Risks Related to Severe Weather and Seasonality
We have significant operations located in market areas around the world that are negatively impacted by severe adverse
weather events such as hurricanes in the U.S. Gulf of Mexico, typhoons in Australia, droughts across the U.S. and excessive rains
outside of the U.S. Additionally, there are market areas around the world in which our operations are subject to seasonality such
as Canada where the Spring “break-up” (an industry term used to describe the time of year when the frost comes out of the ground
causing the earth to become soft and muddy and strict weight restrictions are implemented by the government to prevent potholes
forming on roads) results in a significant slowdown in the oil and natural gas industry and our drilling fluids business each year.
Such adverse weather events and seasonality can disrupt our operations and result in damage to our properties, as well as negatively
impact the activity and financial condition of our customers.
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 transaction errors, processing inefficiencies, the loss of sales and customers, data privacy breaches
and damage 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. We do not carry insurance
against these risks, although we do invest in security technology, perform penetration tests from time to time, and design our
business processes to attempt to mitigate the risk of such breaches. However, there can be no assurance that security breaches will
not occur.
Additionally, the development and maintenance of these measures requires continuous monitoring as technologies change
and efforts to overcome security measures evolve. We have experienced, and expect to continue to experience, cybersecurity threats
and incidents, none of which have been material to us to date. However, a successful breach or attack could have a material negative
impact on our operations or business reputation, harm our reputation and relationships with our customers, business partners,
employees or other third parties, and subject us to consequences such as litigation and direct costs associated with incident response.
In addition, these risks could have a material adverse effect on our business, results of operations, and financial condition.
Risks Related to Fluctuations in the Market Value of Our Publicly Traded Securities
The market price of our publicly traded securities 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.
13
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 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 11 acres of industrial space in Fourchon, Louisiana which houses
drilling and completion fluids blending, storage, and transfer stations to serve the Gulf of Mexico deepwater market. Additionally,
we own five warehouse facilities and have 15 leased warehouses and 10 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 own two warehouses and lease 35 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 6.0 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 seven facilities and lease 16 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
Claims Related to the Sale of the Environmental Services Business
Newpark Resources, Inc. v. Ecoserv, LLC. 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. 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. In July 2015 we filed a declaratory action against Ecoserv in the District Court in Harris County, Texas (80th
Judicial District) 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. Following commencement of the trial in December 2017,
we reached a settlement agreement with Ecoserv in the first quarter of 2018, under which Ecoserv received $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. As a result of the settlement,
we recognized a charge to discontinued operations in the fourth quarter of 2017 for $22.0 million ($17.4 million net of tax) to
reduce the previously recognized gain from the sale of the Environmental Services business. The reduction in sales price was
funded in the first quarter of 2018 with a cash payment of $14.0 million and release of the $8.0 million that had been held in escrow
since the March 2014 transaction. In March 2018, the lawsuit was dismissed with prejudice. Litigation expenses related to this
matter were included in corporate office expenses in operating income.
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.
14
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.”
As of February 1, 2019, we had 1,256 stockholders of record as determined by our transfer agent.
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 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.”
Stock Performance Graph
The following graph reflects a comparison of the cumulative total stockholder return of our common stock from January
1, 2014 through December 31, 2018, 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, 2014 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.
15
Issuer Purchases of Equity Securities
The following table details our repurchases of shares of our common stock for the three months ended December 31,
2018:
Period
October 2018
November 2018
December 2018
Total
Total Number of
Shares Purchased (1)
2,556
3,783
Average Price
Paid Per Share
10.64
$
8.19
$
—
— $
9.18
$
6,339
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) (2)
— $
— $
— $
—
33.5
100.0
100.0
(1) During the three months ended December 31, 2018, we purchased an aggregate of 6,339 shares surrendered in lieu of taxes
under vesting of restricted stock awards.
(2) In November 2018, our Board of Directors authorized changes to our existing securities repurchase program, which it first
authorized in 2013. The authorization increased the authorized amount under the repurchase program to $100.0 million,
available for repurchases of any combination of our common stock and our 2021 Convertible Notes, from the $33.5 million
that was remaining under the previous repurchase program.
Our repurchase program authorizes us to purchase our outstanding shares of common stock or 2021 Convertible Notes
in the open market or as otherwise determined by management, subject to certain limitations under the 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 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 repurchases under the program during 2018. At December
31, 2018, there was $100.0 million of authorization remaining under the program. During 2018, we repurchased 362,190 of shares
surrendered in lieu of taxes under vesting of restricted stock awards. All of the shares repurchased are held as treasury stock.
In January 2019, we repurchased an aggregate of 655,666 shares of our common stock under our Board authorized
repurchase program for a total cost of $5.0 million.
16
ITEM 6. Selected Financial Data
The selected financial data presented below for the five years ended December 31, 2018 is derived from our consolidated
financial statements. The following data should be read in conjunction with the consolidated financial statements and notes thereto
in Item 8. “Financial Statements and Supplementary Data” and with Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
(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,
2016
2015
2017
2014
2018
$ 946,548
63,558
14,864
32,281
—
$ 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
—
32,281
(17,367)
(6,148)
—
(40,712)
—
(90,828)
22,117
102,278
Income (loss) per share from continuing operations -
basic
Net income (loss) per share - basic
Income (loss) per share from continuing operations -
diluted
Net income (loss) per share - diluted
$
$
$
$
0.36
0.36
0.35
0.35
$
$
$
$
0.13
$
(0.07) $
(0.49) $
(0.49) $
(1.10) $
(1.10) $
0.13
$
(0.07) $
(0.49) $
(0.49) $
(1.10) $
(1.10) $
0.95
1.23
0.84
1.07
Consolidated Balance Sheets Data:
Working capital
Total assets
Foreign bank lines of credit
Other current debt
Long-term debt, less current portion
Stockholders' equity
Consolidated Cash Flows Data:
Net cash provided by operations
Net cash used in investing activities
Net cash used in financing activities
$ 381,386
915,854
1,137
1,385
159,225
569,681
$ 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
$
$
63,403
(55,752)
(4,513)
$
38,381
(68,374)
(2,290)
11,095
(38,320)
(650)
$ 121,517
(66,881)
(6,730)
$
89,173
(14,002)
(49,158)
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, and $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 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, $2.6 million non-cash impairment of assets, $2.2 million charge to reduce the carrying value of inventory, and $5.0
million charge for the resolution of certain wage and hour litigation claims and related costs.
17
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
in conjunction with the consolidated financial statements and notes thereto included in Item 8 “Financial Statements and
Supplementary Data.”
Overview
We are a geographically diversified supplier providing products, rentals, and services primarily to the oil and natural gas
exploration and production (“E&P”) industry. We operate our business through two reportable segments: Fluids Systems and Mats
and Integrated Services. In addition to the E&P industry, our Mats and Integrated Services segment 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 natural 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 levels, in turn, depend on a
variety of factors, including oil and natural gas commodity pricing, inventory levels, product demand, and regulatory restrictions.
Oil and natural gas prices and activity are cyclical and volatile and this market volatility has a significant impact on our operating
results.
Beginning late 2014 and continuing through early 2016, the price of oil declined dramatically from the price levels in
prior years. As a result, E&P drilling activity levels significantly declined in North America and many global markets over this
period. Oil prices and drilling activity have since improved from the lows reached in early 2016, but remain lower than pre-
downturn levels and continue to be volatile. 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 American rig count data for
the last three years is as follows:
U.S. Rig Count
Canada Rig Count
North America Rig Count
________________
Source: Baker Hughes, a GE Company
Year Ended December 31,
2016
2017
2018
2018 vs 2017
%
Count
2017 vs 2016
%
Count
1,032
191
1,223
877
206
1,083
509
130
639
155
(15)
140
18%
(7%)
13%
368
76
444
72%
58%
69%
As of February 15, 2019, the U.S. and Canadian rig counts were 1,051 and 224, 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 is generally more stable as drilling activity in many countries is based on
longer-term economic projections and multi-year drilling programs, which tends to reduce the impact of short-term changes in
commodity prices on overall drilling activity. Although drilling activity levels in certain of our international markets have declined
in recent years, as a whole, our international activities have remained relatively stable, primarily driven by key contracts with
national oil companies.
Segment Overview
Our Fluids Systems segment, which generated 76% of consolidated revenues for 2018, 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. International expansion, including the penetration of international oil companies
(“IOCs”) and national oil companies (“NOCs”), is a key element of our Fluids Systems strategy, which in recent years has helped
to stabilize revenues as North American oil and natural gas exploration activities have fluctuated significantly. During 2018,
approximately one third of our Fluids Systems segment revenues were derived from IOC and NOC customers. Significant
international contract awards with recent developments include:
18
•
•
•
•
In Kuwait, we provide drilling and completion fluids and related services for land operations under a multi-year
contract with Kuwait Oil Company (“KOC”), which began in 2014. Following a recent tender process with KOC,
we have received notification of two new contract awards to provide drilling and completion fluids, along with related
services, covering a five-year term. The initial revenue value of the combined awards is approximately $165 million
and expands our presence to include a second base of operations in Northern Kuwait. The awards remain subject to
contract execution, which is expected to be completed in the first quarter of 2019. While we expect some near-term
fluctuations in revenues associated with the transition to the new contracts, based on the customer plans currently in
place, we expect the revenue levels of the new awards to eventually surpass the levels achieved on the previous
contract.
In Algeria, we provide drilling and completion fluids and related services to Sonatrach under a multi-year contract.
Work under Lot 1 and Lot 3 of a three-year contract awarded in 2015 (“2015 Contract”) was completed in the fourth
quarter of 2018. During 2018, Sonatrach initiated a new tender (“2018 Tender”), for a three-year term succeeding
the 2015 Contract. For the 2018 Tender, Sonatrach adopted a change in its procurement process, limiting the number
of Lots that could be awarded to major service providers. We were awarded a new contract pursuant to the 2018
Tender. As a consequence of the change in the procurement process, the new award under the 2018 Tender will result
in lower revenues from Sonatrach. Based upon the new contract award, we expect that revenue from Sonatrach under
the 2018 Tender will be approximately $125 million over the three-year term, which would result in a reduction of
approximately $25 million per year as compared to the prior activity levels. The transition from the 2015 Contract
to the contract awarded under the 2018 Tender is currently underway.
In Australia, we provide drilling and completion fluids and related services under a contract with Baker Hughes, a
GE Company (“Baker Hughes”), as part of its integrated service offering in support of the Greater Enfield project
in offshore Western Australia. Work under this contract began in the first quarter of 2018 and is expected to continue
through 2019.
In Brazil, we provided drilling fluids and related services under a multi-year contract with Petrobras for both onshore
and offshore locations. Work under this contract began in the first half of 2009 and concluded in December 2018.
For 2018, our Brazilian subsidiary generated revenues of $22.6 million and an operating loss of $1.4 million,
substantially all of which related to the Petrobras contract. As a result of the conclusion of the Petrobras contract, we
recognized charges of $1.2 million in Brazil during 2018 primarily related to severance costs associated with workforce
reductions.
In addition to our international expansion efforts, we are also expanding our presence in North America, capitalizing on
our capabilities, infrastructure, and strong market position in the North American land drilling fluids markets to expand our drilling
fluids presence within the deepwater Gulf of Mexico, as well as our presence in adjacent product offerings, including completion
fluids and stimulation chemicals. To support this effort, we have incurred start-up costs, including costs associated with additional
personnel and facility-related expenses, and have made additional capital investments.
Our Mats and Integrated Services segment, which generated 24% of consolidated revenues for 2018, provides composite
mat rentals utilized for temporary worksite access, along with site construction and related site services to customers in various
markets including E&P, electrical transmission & distribution, pipeline, solar, petrochemical, and construction industries across
North America and Europe. We also sell composite mats to customers around the world. The Mats and Integrated Services segment
revenues from non-E&P markets represented approximately half of our segment revenues for 2018.
In November 2017, we acquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility
Access Solutions, Inc. (together, “WSG”) for approximately $77 million. Since 2012, WSG had 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.
The WSG acquisition was the primary driver of the growth in service revenues for the Mats and Integrated Services segment for
2018.
Impact of U.S. Tax Reform
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted in December 2017 resulting in broad and complex changes to
U.S. income tax law. The Tax Act included a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not
previously subject to U.S. income tax, reduced the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018,
generally eliminated U.S. federal income tax on dividends from foreign subsidiaries, created new tax on certain foreign-sourced
earnings, made other changes to limit certain deductions and changed 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
19
Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our 2017 financial statements, and such
estimates were finalized during 2018. The net tax benefit recognized in 2017 related to the Tax Act was $3.4 million. As we
completed our analysis of the Tax Act in 2018 for purposes of finalizing our 2017 U.S. federal income tax return, including
assessment of additional guidance provided by regulatory bodies, we revised the cumulative net tax benefit related to the Tax Act
to $5.0 million by recognizing an additional $1.6 million net tax benefit in 2018. See Note 8 for additional information.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Consolidated Results of Operations
Summarized results of operations are as follows:
(In thousands)
Revenues
Cost of revenues
Selling, general and administrative expenses
Other operating (income) loss, net
Operating income
Foreign currency exchange loss
Interest expense, net
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Year Ended December 31,
2018 vs 2017
2018
2017
$
%
$
946,548
$
747,763
$
198,785
766,975
115,127
888
63,558
1,416
14,864
47,278
14,997
32,281
607,899
108,838
(410)
31,436
2,051
13,273
16,112
4,893
11,219
159,076
6,289
1,298
32,122
(635)
1,591
31,166
10,104
21,062
(17,367)
(6,148) $
17,367
38,429
27%
26%
6%
NM
102%
NM
12%
193%
206%
188%
NM
NM
Loss from disposal of discontinued operations, net of tax
—
Net income (loss)
Revenues
$
32,281
$
Revenues increased 27% to $946.5 million in 2018, compared to $747.8 million in 2017. This $198.8 million increase
includes a $177.6 million (34%) increase in revenues in North America, comprised of an $81.4 million increase in the Fluids
Systems segment and a $96.2 million increase in the Mats and Integrated Services segment. Revenues from our international
operations increased by $21.2 million (9%), primarily driven by increases in our Asia Pacific and EMEA regions, partially offset
by a decrease in our Latin America region. Additional information regarding the change in revenues is provided within the operating
segment results below.
Cost of revenues
Cost of revenues increased 26% to $767.0 million in 2018, compared to $607.9 million in 2017. This $159.1 million
increase in cost of revenues was primarily driven by the 27% increase in revenues as well as costs associated with our North
American market expansion efforts. Additional information regarding the change in cost of revenues is provided within the operating
segment results below.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $6.3 million to $115.1 million in 2018, compared to $108.8 million
in 2017. The increase in expenses was primarily driven by the growth in the Mats and Integrated Services segment, including costs
attributable to the WSG acquisition. Selling, general and administrative expenses also includes a corporate office charge of $1.8
million associated with the retirement and transition of our former Senior Vice President, General Counsel and Chief Administrative
Officer, primarily reflecting the impact of modifications to certain outstanding stock-based and other incentive awards. In addition,
lower spending related to legal matters, strategic planning efforts, and performance-based incentive compensation were partially
offset by higher severance costs and other increases in personnel costs. Selling, general and administrative expenses as a percentage
of revenues decreased to 12.2% in 2018 from 14.6% in 2017.
Other operating (income) loss, net
20
In July 2018, a fire occurred at our Kenedy, Texas drilling fluids facility, destroying the distribution warehouse, including
inventory and surrounding equipment. In addition, nearby residences and businesses were evacuated as part of the response to the
fire. In order to avoid any customer service disruptions, we implemented contingency plans to supply products from alternate
facilities in the area and region. While this event and related claims are covered by our property, business interruption, and general
liability insurance programs, these programs contain self-insured retentions, which remain our financial obligations.
Based on the provisions of our insurance policies and initial insurance claims filed, we recognized a charge of $0.8 million
in other operating (income) loss, net, for 2018. As of December 31, 2018, the claims related to the fire under our property, business
interruption, and general liability insurance programs have not been finalized.
Foreign currency exchange
Foreign currency exchange was a $1.4 million loss in 2018 compared to a $2.1 million loss in 2017, and reflects 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 was $14.9 million in 2018 compared to $13.3 million in 2017. Interest expense for 2018 and 2017 includes
$5.5 million and $5.3 million, respectively, in noncash amortization of original issue discount and debt issuance costs. The increase
in interest expense was primarily related to higher average outstanding debt in 2018 compared to 2017, along with an increase in
average borrowing rates on our ABL Facility. See Note 6 for further discussion of the accounting treatment for the 2021 Convertible
Notes.
Provision for income taxes
The provision for income taxes was $15.0 million for 2018, reflecting an effective tax rate of 32%, compared to $4.9
million in 2017, reflecting an effective tax rate of 30%. The provision for income taxes for 2018 includes a $1.6 million net benefit
related to the Tax Act, as described above. In addition, the 2018 effective tax rate was favorably impacted by excess tax benefits
related to the vesting of certain stock-based compensation awards and a reduction in the valuation allowance related to our U.K.
subsidiary. The provision for income taxes in 2017 includes a $3.4 million benefit resulting from the provisional accounting for
the Tax Act. The 2017 effective tax rate was negatively impacted primarily by non-deductible expenses relative to the amount of
pre-tax income.
Although the Tax Act reduced the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018, our
provision for income taxes in 2018 also includes the estimated expense for any U.S. federal and state income taxes from the new
tax on certain foreign-sourced earnings as well as any additional foreign withholding taxes related to future repatriation of current
year earnings from our non-U.S. subsidiaries. Due to the relative contribution of our domestic and foreign earnings, these taxes
on certain foreign-sourced earnings and the impact of changes to deduction limitations from the Tax Act effectively offset the
benefit of the lower U.S. corporate statutory tax rate in our 2018 provision for income taxes. The impact of the Tax Act on our
effective tax rate in future periods will depend in large part on the relative contribution of our domestic and foreign earnings.
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 litigation matter related to the March 2014 sale of our Environmental Services business. See Note 14 and Note 15 for additional
information.
21
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,
2018 vs 2017
2018
2017
$
%
16%
75%
27%
$ 715,813
230,735
$ 946,548
$ 615,803
131,960
$ 747,763
$
$
40,337
60,604
(37,383)
63,558
$
$
27,580
40,491
(36,635)
31,436
$
$
$
$
100,010
98,775
198,785
12,757
20,113
(748)
32,122
5.6%
26.3%
4.5%
30.7%
Total revenues for this segment consisted of the following:
(In thousands)
United States
Canada
Total North America
EMEA
Asia Pacific
Latin America
Total International
Year Ended December 31,
2018 vs 2017
$
2018
410,410
66,416
476,826
$
2017
341,075
54,322
395,397
$
192,537
17,733
28,717
238,987
179,360
4,081
36,965
220,406
$
69,335
12,094
81,429
13,177
13,652
(8,248)
18,581
%
20%
22%
21%
7%
335%
(22%)
8%
Total Fluids Systems revenues
$
715,813
$
615,803
$
100,010
16%
North America revenues increased 21% to $476.8 million in 2018, compared to $395.4 million in 2017. This increase
was primarily attributable to the 13% increase in North American average rig count along with market share gains in both the
North American land markets and the offshore Gulf of Mexico market.
Internationally, revenues increased 8% to $239.0 million in 2018, compared to $220.4 million in 2017. This increase was
primarily attributable to a $15.0 million improvement in Romania, as higher oil prices resulted in an increase in drilling activity,
along with a $13.4 million increase in Australia related to the Baker Hughes Greater Enfield project, as well as increased activity
in Albania and Germany, partially offset by declines from Brazil, Algeria, and Italy.
22
Operating income
The Fluids Systems segment generated operating income of $40.3 million in 2018 compared to $27.6 million in 2017.
The increase in operating income includes an $8.7 million improvement from North American operations, reflecting the incremental
income generated from the $81.4 million increase in revenues discussed above, partially offset by an increase in operating expenses.
Operating expenses for 2018 include $3.0 million of charges primarily related to severance costs associated with cost optimization
efforts, $0.8 million of charges associated with the Kenedy, Texas facility fire discussed above, as well as increased start-up costs
associated with our product line expansion into stimulation chemicals and completion fluids, including $1.1 million of non-
capitalizable expenses related to the upgrade and conversion of a drilling fluids facility into a completion fluids facility. Operating
income from international operations increased by $4.0 million, primarily related to the increase in revenues described above,
partially offset by a $1.2 million charge in Brazil primarily related to severance costs associated with workforce reductions, as
discussed above.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
(In thousands)
Service revenues
Rental revenues
Product sales revenues
Total Mats and Integrated Services revenues
Year Ended December 31,
2018 vs 2017
2018
2017
$
$
93,056
81,784
55,895
230,735
$
$
34,943
61,124
35,893
131,960
$
$
$
58,113
20,660
20,002
98,775
%
166%
34%
56%
75%
Service revenues increased $58.1 million to $93.1 million in 2018, compared to $34.9 million in 2017 with substantially
all of this increase attributable to the WSG acquisition completed in November 2017. Rental revenues increased $20.7 million to
$81.8 million in 2018, compared to $61.1 million in 2017, primarily attributable to increased customer activity in pressure pumping
applications as well as the impact of our continuing efforts to expand into non-E&P rental markets.
Product sales revenues were $55.9 million in 2018 compared to $35.9 million in 2017. Revenues from product sales have
typically fluctuated based on the timing of mat orders from customers; however, the improvement in 2018 is primarily attributable
to our continued efforts to expand our sales into non-E&P markets.
Operating income
The mats and integrated services segment generated operating income of $60.6 million in 2018 compared to $40.5 million
in 2017, primarily attributable to the increases in revenues as described above. As described above, revenues associated with the
WSG acquisition primarily consist of site services, as opposed to product sales and rentals, which has shifted the revenue mix
toward service revenues in 2018, as compared to 2017. While the incremental service revenues provide a positive impact to segment
operating income, this shift in revenue mix, along with depreciation and amortization expense related to the purchase accounting
allocation, reduced the overall segment operating margin in 2018 as compared to 2017. See Note 2 for further discussion of the
acquisition.
Corporate Office
Corporate office expenses increased $0.7 million to $37.4 million in 2018, compared to $36.6 million in 2017. This
increase was driven by $1.8 million in charges associated with the retirement and transition of our former Senior Vice President,
General Counsel and Chief Administrative Officer, primarily reflecting the impact of modifications to certain outstanding stock-
based and other incentive awards. In addition, lower spending related to legal matters, strategic planning efforts, and performance-
based incentive compensation were partially offset by an increase in personnel costs.
23
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Consolidated Results of Operations
Summarized results of operations 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
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
—
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
59%
39%
23%
NM
NM
155%
NM
35%
NM
125%
120%
128%
NM
85%
Income (loss) from continuing operations before income taxes
16,112
Provision (benefit) for income taxes
Income (loss) from continuing operations
4,893
11,219
Loss from disposal of discontinued operations, net of tax
Net Loss
Revenues
(17,367)
(6,148) $
—
(40,712) $
(17,367)
34,564
$
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.
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 2016.
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 2016, we recognized $6.7 million of impairments and other charges. These charges primarily included $6.9 million
of non-cash impairments in our Asia Pacific region resulting from the unfavorable industry market conditions and outlook for the
region in 2016 and 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. See Note 12 for additional information related to these
24
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 noncash 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 2016 for the write-off of
debt issuance costs related to the termination and replacement of our revolving Credit Agreement.
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 in 2017 was $4.9 million, reflecting an effective tax rate of 30%, compared to a $24.0
million benefit in 2016, reflecting an effective tax rate of 37%. 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 litigation matter related to the March 2014 sale of our Environmental Services business.
25
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
EMEA
Asia Pacific
Latin America
Total International
Year Ended December 31,
2017 vs 2016
$
2017
341,075
54,322
395,397
$
2016
149,876
33,050
182,926
$
$
191,199
21,272
212,471
179,360
4,081
36,965
220,406
167,130
4,669
40,736
212,535
12,230
(588)
(3,771)
7,871
%
128%
64%
116%
7%
(13%)
(9%)
4%
Total Fluids Systems revenues
$
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 2016. 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.
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. The $15.5 million of charges
in 2016 included $6.9 million of non-cash impairments in the Asia Pacific region resulting from the unfavorable industry market
26
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 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)
Service revenues
Rental revenues
Product sales revenues
Total Mats and Integrated Services revenues
Year Ended December 31,
2017 vs 2016
2017
2016
$
$
34,943
61,124
35,893
131,960
$
$
17,641
40,748
17,646
76,035
$
$
$
17,302
20,376
18,247
55,925
%
98%
50%
103%
74%
Service revenues increased 98% to $34.9 million in 2017, compared to $17.6 million in 2016 and includes approximately
$8 million of service revenues from the WSG acquisition in mid-November 2017. Rental revenues increased 50% to $61.1 million
in 2017, compared to $40.7 million in 2016. These improvements include an increase in revenues 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.
Product sales revenues were $35.9 million in 2017 compared to $17.6 million in 2016. Revenues from product sales have
typically fluctuated based on the timing of mat orders from customers. The improvement in 2017 is primarily attributable to our
efforts to expand into non-E&P markets.
Operating income
Segment operating income increased by $25.8 million to $40.5 million in 2017 as compared to $14.7 million in 2016,
attributable to the increases in 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.
Corporate Office
Corporate office expenses increased $8.3 million to $36.6 million in 2017, compared to $28.3 million in 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. The
2017 operating results also include a $1.0 million increase in acquisition related costs, primarily attributable to the WSG acquisition.
Liquidity and Capital Resources
Net cash provided by operating activities was $63.4 million in 2018 compared to $38.4 million in 2017. Net cash provided
by operating activities in 2017 included the receipt of a $37.2 million tax refund received in the second quarter of 2017. The
increase in net cash provided by operating activities in 2018 compared to 2017 was primarily due to an improvement in operating
results and decreases in the growth of working capital. During 2018, net income adjusted for non-cash items provided cash of
$94.7 million, while changes in working capital used $31.3 million of cash, substantially all of which was attributable to increases
in inventory.
Net cash used in investing activities was $55.8 million in 2018, including capital expenditures of $45.1 million and the
$14 million payment to refund a portion of the net sales price of the Environmental Services business (see Note 15 for further
discussion). Capital expenditures during 2018 included $27.0 million for the Mats and Integrated Services segment, including
$18.4 million of investments in the mat rental fleet, and $15.4 million for the Fluids Systems segment. Net cash used in investing
activities was $68.4 million in 2017, including $44.8 million associated with the WSG acquisition.
27
Net cash used in financing activities was $4.5 million in 2018 and primarily related to net repayment of borrowings on
our ABL Facility.
As of December 31, 2018, we had cash on-hand of $56.1 million, substantially all of which resides within our international
subsidiaries. As a result of the Tax Act as previously described, we began repatriating excess cash from certain of our international
subsidiaries in 2018 and we intend to continue repatriating excess cash from these international subsidiaries, subject to cash
requirements to support the strategic objectives of these international subsidiaries. We anticipate that future working capital
requirements for our operations will fluctuate directionally with revenues. In addition, we expect total 2019 capital expenditures
to be approximately $35 million to $45 million, depending in part on the investment requirements to support further growth in the
mats rental business as well as the timing of a capital investment to support expansion in Northern Kuwait, where we expect to
invest approximately $8 million to construct a second base of operations. Availability under our ABL Facility also provides
additional liquidity as discussed further below. Total availability under the 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 ABL Facility to be adequate to fund current operations during the next 12 months. In January 2019, we used
$5 million of cash to repurchase shares of our common stock under our existing Board authorized repurchase program. We may
continue to make repurchases under this authorization from time to time during 2019.
Our capitalization is as follows:
(In thousands)
2021 Convertible Notes
ABL Facility
Other debt
Unamortized discount and debt issuance costs
Total debt
Stockholder's equity
Total capitalization
December 31, 2018
100,000
76,300
3,199
(17,752)
161,747
569,681
731,428
$
$
$
$
$
$
December 31, 2017
100,000
81,600
1,518
(22,643)
160,475
547,480
707,955
Total debt to capitalization
22.1%
22.7%
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 19,
2019, 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.
28
Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement which replaced our
previous credit agreement. In October 2017, we entered into an Amended and Restated Credit Agreement (as amended, the "ABL
Facility") which amended and restated the May 2016 agreement. The ABL Facility provides financing of up to $150.0 million
available for borrowings (inclusive of letters of credit) and can be increased up to a maximum capacity of $225.0 million, subject
to certain conditions. As of December 31, 2018, our total borrowing base availability under the ABL Facility was $150.0 million,
of which $76.3 million was drawn, resulting in remaining availability of $73.7 million.
The ABL Facility terminates in October 2022; however, the ABL Facility has a springing maturity date that will accelerate
the maturity of the 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 ABL Facility. The 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 ABL Facility towards funding the repayment of the 2021 Convertible Notes.
Borrowing availability under the 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 also
includes 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 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.
Under the terms of the 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 ABL Facility. As of December 31, 2018, the applicable margin for
borrowings under our ABL Facility was 175 basis points with respect to LIBOR borrowings and 75 basis points with respect to
base rate borrowings. The weighted average interest rate for the ABL Facility was 4.2% at December 31, 2018. In addition, we
are required to pay a commitment fee on the unused portion of the ABL Facility ranging from 25 to 37.5 basis points, based on
the ratio of debt to consolidated EBITDA, as defined in the ABL Facility. The applicable commitment fee as of December 31,
2018 was 25 basis points.
The 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 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 ABL Facility also requires compliance with a fixed charge coverage ratio if availability under the ABL Facility falls below
$22.5 million. In addition, the 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, India, and Canada 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. We had $1.1 million and $1.0 million, respectively, outstanding under these arrangements
at December 31, 2018 and December 31, 2017.
At December 31, 2018, we had letters of credit issued and outstanding of $5.7 million that are collateralized by $6.1
million in restricted cash. Additionally, our foreign operations had $26.6 million outstanding in letters of credit and other guarantees,
primarily issued under a credit arrangement in Italy as well as certain letters of credit that are collateralized by $2.0 million in
restricted cash. At December 31, 2018 and December 31, 2017, prepaid expenses and other current assets in the consolidated
balance sheets include total restricted cash related to letters of credit of $8.1 million and $9.1 million, respectively.
Off-Balance Sheet Arrangements
In conjunction with our insurance programs, we had established letters of credit in favor of certain insurance companies
of $2.2 million at both December 31, 2018 and 2017. We also had $0.4 million of guarantee obligations in connection with facility
closure bonds and other performance bonds issued by insurance companies outstanding as of December 31, 2018 and 2017. In
addition, we had a bond of $4.2 million outstanding as of December 31, 2018 related to a Mexican Federal Tax Court appeal (see
Note 8 for additional information).
29
Other than normal operating leases for office and warehouse space, as well as 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, 2018 is as follows:
(In thousands)
Current debt
2021 Convertible Notes
Interest on 2021 Convertible Notes
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
2019
2020
2021
2022
2023
Thereafter
Total
$
$
2,522
—
4,581
—
9,112
— $
— $
— 100,000
4,000
—
4,630
4,000
—
5,707
— $
—
—
76,300
3,816
— $
—
—
—
3,144
— $
2,522
— 100,000
12,581
—
76,300
—
30,916
4,507
138,527
19,768
—
4,685
25,688
$ 204,883
—
—
—
—
1,558
$ 11,265
—
—
—
—
2,539
$ 111,169
—
—
—
—
1,383
$ 81,499
$
—
—
—
—
92
3,236
$
— 138,527
19,768
—
7,536
7,536
4,685
—
32,242
982
$ 425,077
13,025
(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. See Note 8 for additional
discussion on uncertain tax positions.
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 ABL Facility, subject to covenant
compliance and certain restrictions as further discussed above. The specific timing of settlement for certain long-term obligations
cannot be reasonably estimated.
30
Critical Accounting Policies
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the reported amounts
and disclosures. Significant estimates used in preparing our consolidated financial statements include the following: allowances
for doubtful accounts, reserves for self-insured retention under insurance programs, estimated performance and values associated
with employee incentive programs, fair values used for impairments of long-lived assets, including goodwill and other intangibles,
accounting for the Tax Act, and valuation allowances for deferred tax assets. See Note 1 for a discussion of the accounting policies
for each of these matters. Our estimates are based on historical experience and on our future expectations that we believe to be
reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from our current estimates and those differences may
be material.
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. Provisions for uncollectible accounts
receivable were $2.8 million, $1.5 million, and $2.4 million for 2018, 2017, and 2016, respectively.
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 estimate 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, 2018 and 2017 evaluations, 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, 2018, we had $43.8 million of
goodwill, substantially all of which relates to the Mats and Integrated Services segment.
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
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 unfavorable industry market conditions and outlook for the
region in 2016 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.
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
and a material impairment could result.
31
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, 2018 and 2017, total insurance reserves were
$3.0 million and $3.8 million, respectively.
Income Taxes
The Tax Act was enacted in December 2017, resulting in broad and complex changes to U.S. income tax law. The Tax
Act included a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not previously subject to U.S. income
tax, reduced the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018, generally eliminated U.S. federal
income tax on dividends from foreign subsidiaries, created new tax on certain foreign-sourced earnings, made other changes to
limit certain deductions and changed 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, and such estimates were finalized during 2018.
The net tax benefit recognized in 2017 related to the Tax Act was $3.4 million. As we completed our analysis of the Tax Act in
2018 for purposes of finalizing our 2017 U.S. federal income tax return, including assessment of additional guidance provided by
regulatory bodies, we revised the cumulative net tax benefit related to the Tax Act to $5.0 million by recognizing an additional
$1.6 million net tax benefit in 2018.
Although the Tax Act reduced the U.S. corporate statutory tax rate effective January 1, 2018, our provision for income
taxes in 2018 also includes the estimated expense for any U.S. federal and state income taxes from the new tax on certain foreign-
sourced earnings as well as any additional foreign withholding taxes related to future repatriation of current year earnings from
our non-U.S. subsidiaries. Due to the relative contribution of our domestic and foreign earnings, these taxes on certain foreign-
sourced earnings and the impact of changes to deduction limitations from the Tax Act effectively offset the benefit of the lower
U.S. corporate statutory tax rate in our 2018 provision for income taxes. The impact of the Tax Act on our effective tax rate in
future periods will depend in large part on the relative contribution of our domestic and foreign earnings.
We had total deferred tax assets of $42.2 million and $61.9 million at December 31, 2018 and 2017, 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. We have considered future taxable income and tax planning strategies in
assessing the need for our valuation allowance. At December 31, 2018, a total valuation allowance of $23.8 million was recorded,
which includes a valuation allowance on $12.8 million of net operating loss carryforwards for certain U.S. state and foreign
jurisdictions, including Australia, as well as a valuation allowance of $4.6 million for certain tax credits recognized related to the
accounting for the impact of the Tax Act. Changes in the expected future generation of qualifying taxable income within these
jurisdictions or in the realizability of other tax assets may result in an adjustment to the valuation allowance, which would be
charged or credited to income in the period this determination was made. In 2018, we recognized a decrease in the valuation
allowance for certain deferred tax assets related to our U.K. subsidiary that are now expected to be realized. 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 2014–2016. 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 had an initial tax appeals hearing in June 2018. In
the third quarter of 2018, the Appeals Officer provided a favorable notification recommending that no additional tax should be
assessed on our 2015 tax return which is subject to approval by the Joint Committee on Taxation. Although the tax appeals process
has not concluded, we believe our tax position is properly reported in accordance with applicable U.S. tax laws and regulations
and will continue to vigorously defend our position through the tax appeals process.
Following an audit in 2015, the treasury authority in Mexico issued a tax assessment (inclusive of interest and penalties)
in the amount of 60 million pesos (approximately $3.3 million) to our Mexico subsidiary primarily in connection with the export
of mats from Mexico which took place in 2010. The mats that are the subject of this assessment were owned by a U.S. subsidiary
and leased to our Mexico subsidiary for matting projects in the Mexican market. In 2010, we made the decision to move these
32
mats out of Mexico to markets with higher demand. The Mexican treasury authority determined the export of the mats was the
equivalent of a sale, and assessed taxes on the gross declared value of the exported mats to our Mexico subsidiary. We retained
outside legal counsel and filed administrative appeals with the treasury authority, but we were notified on April 13, 2018, that the
last administrative appeal had been rejected. In the second quarter of 2018, we filed an appeal in the Mexican Federal Tax Court,
which required that we post a bond in the amount of the assessed taxes (plus additional interest). In the fourth quarter of 2018, the
Mexican Federal Tax Court issued a favorable judgment nullifying in full the tax assessment which has been subsequently appealed
by the treasury authority in Mexico. Although the tax appeals process has not concluded, we believe our tax position is properly
reported in accordance with applicable tax laws and regulations in Mexico 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 uncertain tax positions 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 accruals.
New Accounting Pronouncements
See Note 1 in Item 8. “Financial Statements and Supplementary Data” for a discussion of new accounting pronouncements.
33
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, 2018, we had total principal amounts outstanding under financing arrangements of $179.5 million,
including $100.0 million of borrowings under our 2021 Convertible Notes which bear interest at a fixed rate of 4.0% and $76.3
million of borrowings under our ABL Facility. Borrowings under our ABL Facility are subject to a variable interest rate as determined
by the ABL Facility. The weighted average interest rate at December 31, 2018 for the ABL Facility was 4.2%. Based on the balance
of variable rate debt at December 31, 2018, a 100 basis-point increase in short-term interest rates would have increased annual
pre-tax interest expense by $0.8 million.
Foreign Currency Risk
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, British
pounds, Australian dollars, and Brazilian reais. Historically, we have not used off-balance sheet financial hedging instruments to
manage foreign currency risks when we enter into a transaction denominated in a currency other than our local currencies.
34
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Newpark Resources, Inc.
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018, 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, 2018, 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 22, 2019, expressed an adverse opinion on the Company's internal control over financial
reporting because of a material weakness.
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 22, 2019
We have served as the Company’s auditor since 2008.
35
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 106,362,991 and
104,571,839 shares issued, respectively)
Paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock, at cost (15,530,952 and 15,366,504 shares, respectively)
Total stockholders’ equity
Total liabilities and stockholders' equity
2018
2017
$
$
$
56,118
254,394
196,896
15,904
523,312
316,293
43,832
25,160
4,516
2,741
915,854
2,522
90,607
48,797
141,926
159,225
37,486
7,536
346,173
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
1,064
617,276
(67,673)
148,802
(129,788)
569,681
915,854
$
1,046
603,849
(53,219)
123,375
(127,571)
547,480
902,716
$
$
$
$
See Accompanying Notes to Consolidated Financial Statements
36
Newpark Resources, Inc.
Consolidated Statements of Operations
Years Ended December 31,
(In thousands, except per share data)
Revenues
Product sales revenues
Rental and service revenues
Total revenues
Cost of revenues
Cost of product sales revenues
Cost of rental and service revenues
Total cost of revenues
Selling, general and administrative expenses
Other operating (income) loss, 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 income (loss)
Income (loss) per common share - basic:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Income (loss) per common share - diluted:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
2018
2017
2016
$
$
743,342
203,206
946,548
$
628,401
119,362
747,763
633,847
133,128
766,975
115,127
888
—
63,558
1,416
14,864
—
47,278
14,997
32,281
—
32,281
0.36
—
0.36
0.35
—
0.35
$
$
$
$
$
539,243
68,656
607,899
108,838
(410)
—
31,436
2,051
13,273
—
16,112
4,893
11,219
(17,367)
(6,148) $
$
0.13
(0.20)
(0.07) $
$
0.13
(0.20)
(0.07) $
$
$
$
$
$
390,306
81,190
471,496
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)
—
(40,712)
(0.49)
—
(0.49)
(0.49)
—
(0.49)
See Accompanying Notes to Consolidated Financial Statements
37
Newpark Resources, Inc.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31,
(In thousands)
Net income (loss)
Foreign currency translation adjustments (net of tax benefit of $413,
$0, $0)
Comprehensive income (loss)
2018
2017
2016
$
$
32,281
$
(6,148) $
(40,712)
(14,454)
17,827
$
9,989
3,841
$
(4,932)
(45,644)
See Accompanying Notes to Consolidated Financial Statements
38
Newpark Resources, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common
Stock
Balance at January 1, 2016
$
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
Cumulative effect of accounting changes
Net income
Employee stock options, restricted stock
and employee stock purchase plan
Stock-based compensation expense
Foreign currency translation
Balance at December 31, 2018
Paid-In
Capital
$ 533,746
—
(478)
12,056
(1,558)
15,200
—
994
—
4
—
—
—
—
998
558,966
—
14
—
34
—
—
1,636
10,843
32,404
—
1,046
603,849
—
—
18
—
—
—
—
3,066
10,361
—
$
1,064
$ 617,276
$
Accumulated
Other
Comprehensive
Loss
$
Retained
Earnings
(58,276) $ 171,788
(40,712)
—
Treasury
Stock
Total
$ (127,993) $ 520,259
— (40,712)
—
—
—
—
(4,932)
(63,208)
—
—
—
9,989
(53,219)
—
—
—
(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)
—
—
123,375
(6,764)
32,281
—
—
(127,571)
—
—
10,843
32,438
9,989
547,480
(6,764)
32,281
(90)
(2,217)
777
—
—
(14,454)
—
(67,673) $ 148,802
10,361
—
— (14,454)
$ (129,788) $ 569,681
See Accompanying Notes to Consolidated Financial Statements
39
Newpark Resources, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
2018
2017
2016
$
32,281
$
(6,148) $
(40,712)
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (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
Gain on insurance recovery
Amortization of original issue discount and debt issuance costs
Change in assets and liabilities:
Increase in receivables
(Increase) decrease in inventories
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
Refund of proceeds from sale of a business
Proceeds from sale of property, plant and equipment
Proceeds from insurance property claim
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
Proceeds from employee stock plans
Purchases of treasury stock
Other financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
—
45,899
10,361
236
2,849
—
(1,821)
—
(606)
5,510
(7,388)
(30,352)
1,055
2,449
2,930
63,403
(45,141)
(13,974)
2,612
1,000
(249)
(55,752)
347,613
(352,582)
—
—
—
(149)
3,874
(3,870)
601
(4,513)
(4,332)
—
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)
2,424
(3,239)
165
(2,290)
2,444
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)
725
(1,226)
357
(650)
(1,449)
(29,324)
124,623
95,299
Net 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
(1,194)
65,460
64,266
$
(29,839)
95,299
65,460
$
$
See Accompanying Notes to Consolidated Financial Statements
40
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 natural 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 utilized for temporary worksite access,
along with site construction and related site services to customers in various markets including E&P, electrical transmission &
distribution, pipeline, solar, petrochemical, and construction industries across North America and Europe. We also sell composite
mats to customers around the world.
Use of Estimates and Market Risks. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Estimates used in preparing our consolidated financial statements include, but are not limited to the following: allowances for
doubtful accounts, reserves for self-insured retention under insurance programs, estimated performance and values associated with
employee incentive programs, fair values used for impairments of long-lived assets, including goodwill and other intangibles,
accounting for the U.S. Tax Cuts and Jobs Act enacted in December 2017, and valuation allowances for deferred tax assets.
Our operating results depend, to a large extent, on oil and natural 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 levels, in turn, depend on a
variety of factors, including oil and natural gas commodity pricing, inventory levels, product demand, and regulatory restrictions.
Oil and natural gas prices and activity are cyclical and volatile and 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 consolidated balance sheets.
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.
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.
41
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 and light trucks
Furniture, fixtures, and 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
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. 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 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. In May 2014, the Financial Accounting Standards Board (“FASB”) amended the guidance for
revenue from contracts with customers. See "New Accounting Pronouncements" below for details about the amended guidance
and about our adoption. Results for reporting periods beginning after December 31, 2017 are presented under the new guidance,
while prior period amounts were not adjusted and continue to be reported in accordance with previous guidance. The adoption of
this new guidance primarily affected the timing of revenue recognition for drilling fluid additive products provided to customers
in the delivery of an integrated fluid system in our U.S. drilling fluids business. Under previous guidance, we recognized revenue
for these products upon shipment of materials and passage of title, with a reserve for estimated product returns. Under the new
guidance, we recognize revenue for these products when they are utilized, which generally occurs at the time of consumption by
the customer. The following provides a summary of our significant accounting policies for revenue recognition under the new
guidance for periods beginning after December 31, 2017.
Revenue Recognition - Fluids Systems. Revenues for drilling fluid additive products and engineering services, when
provided to customers in the delivery of an integrated fluid system, are recognized as product sales revenues when utilized by the
customer. Revenues for formulated liquid systems are recognized as product sales revenues when utilized or lost downhole while
drilling. Revenues for equipment rentals and other services provided to customers that are ancillary to the fluid system product
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
delivery are recognized in rental and service revenues when the services are performed. For direct sales of drilling fluid products,
revenues are recognized when control passes to the customer, which is generally upon shipment of materials.
Revenue Recognition - Mats and Integrated Services. Revenues for rentals and services are generated from both fixed-
price and unit-priced contracts, which are generally short-term in duration. The activities under these contracts include the
installation and rental of matting systems for a period of time and services such as access road construction, site planning and
preparation, environmental protection, fluids and spill storage/containment, erosion control, and site restoration services. Rental
revenues are recognized over the rental term and service revenues are recognized when the specified services are performed.
Revenues from any subsequent extensions to the rental agreements are recognized over the extension period. Revenues from the
direct sale of mats are recognized when control passes to the customer, which is upon shipment or delivery, depending on the terms
of the underlying sales contract.
For both segments, the amount of revenue we recognize for products sold and services performed reflects the consideration
to which we expect to be entitled in exchange for such goods or services, which generally reflects the amount we have the right
to invoice based on agreed upon unit rates. While billing requirements vary, many of our customer contracts require that billings
occur periodically or at the completion of specified activities, even though our performance and right to consideration occurs
throughout the contract. As such, we recognize revenue as performance is completed in the amount to which we have the right to
invoice. We do not disclose the value of our unsatisfied performance obligations for (i) contracts with an original expected length
of one year or less and (ii) contracts for which we recognize revenue for the amount to which we have the right to invoice for
products sold and services performed.
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 statement of operations 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, 2018 and 2017, accumulated other comprehensive loss related
to foreign subsidiaries reflected in stockholders’ equity was $67.7 million and $53.2 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.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
New Accounting Pronouncements
Standards Adopted in 2018
Revenue from Contracts with Customers. In May 2014, the FASB amended the guidance for revenue from contracts
with customers. 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. We adopted this new guidance as of January 1, 2018 using the modified retrospective transition method,
and recorded a net reduction of $2.3 million to opening retained earnings to reflect the cumulative effect of adoption for contracts
not completed as of December 31, 2017. Results for reporting periods beginning after December 31, 2017 are presented under the
new guidance, while prior period amounts were not adjusted and continue to be reported in accordance with previous guidance.
The adoption of this new guidance primarily affected the timing of revenue recognition for drilling fluid additive products
provided to customers in the delivery of an integrated fluid system in our U.S. drilling fluids business. There was no material
impact on reported revenues for 2018 as a result of applying the new revenue recognition guidance. The adoption of this guidance
also requires additional disclosures for disaggregated revenues, which are included in Note 12. See above for a summary of our
significant accounting policies for revenue recognition under the new guidance for periods beginning after December 31, 2017.
Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, the FASB
amended the guidance related to the accounting for income tax consequences of intra-entity transfers of assets other than inventory.
The new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs, rather than the previous requirement to defer recognition of current and deferred income taxes
for an intra-entity asset transfer until the asset had been sold to an outside party. 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. We adopted this new guidance as of
January 1, 2018 using the modified retrospective transition method, and recorded a net reduction of $4.5 million to opening retained
earnings to reflect the cumulative effect of adoption for the current and deferred income tax consequences of an intra-entity sale
of mats from the U.S. to the U.K. completed prior to 2018.
The cumulative effect of the changes made to our consolidated balance sheet for the adoption of the new guidance for
revenue from contracts with customers and the income tax consequences of intra-entity transfers of assets other than inventory
were as follows:
(In thousands)
Receivables, net
Inventories
Deferred tax liabilities
Retained earnings
Balance at
December 31, 2017
265,866
165,336
31,580
123,375
Impact of
Adoption of New
Revenue
Recognition
Guidance
Impact of
Adoption of New
Intra-Entity
Transfers of Assets
Guidance
(8,441)
5,483
(679)
(2,279)
—
—
4,485
(4,485)
Balance at
January 1, 2018
257,425
170,819
35,386
116,611
Statement of Cash Flows. In August 2016, the FASB issued new 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. We adopted this new guidance as of January 1, 2018. The adoption of this new guidance had no impact on our historical
financial statements or related disclosures.
Standards Not Yet Adopted
Leases. In February 2016, the FASB amended the guidance related to the accounting for leases. The new guidance 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. This guidance is effective for us in the first quarter of 2019 and we will adopt the new guidance using a modified
retrospective transition method effective January 1, 2019. We have elected the package of practical expedients permitted under
the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting
relating to lease identification and classification for existing leases upon adoption. We have also made an accounting policy election
to not recognize in the consolidated balance sheets leases with an initial term of 12 months or less. We are finalizing our evaluation
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
of the impacts of adoption, and estimate that we will recognize approximately $30 million of operating lease assets and operating
lease liabilities as of January 1, 2019, with no cumulative effect adjustment to retained earnings. We will include incremental
disclosures in our 2019 consolidated financial statements regarding our lease accounting policies and related amounts.
Credit Losses. In June 2016, the FASB issued new guidance which requires financial assets measured at amortized cost
basis, including trade receivables, to be presented at the net amount expected to be collected. The new guidance 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. This guidance is effective for us in the first quarter of 2020 with early adoption permitted, and will be applied
using a modified retrospective transition method through a cumulative-effect adjustment, if any, to retained earnings as of the date
of adoption. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related
disclosures.
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”). The purchase price for this acquisition was approximately $77.4 million, net of cash
acquired, which included $45.0 million of cash consideration and the issuance of 3,361,367 shares of our common equity valued
at $32.4 million. 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 recognition
of $27.0 million in other intangible assets consisting primarily of customer relationships, technology, and tradename. All of the
other intangibles are finite-lived intangible assets that are 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.
The following table summarizes the amounts recognized for the assets acquired and liabilities assumed as of the November
13, 2017 acquisition date, updated for changes to the purchase price allocation in 2018.
(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 in 2017
Equity issued at closing in 2017
Cash conveyed at working capital settlement in 2018
Total purchase consideration
$
$
$
$
14,527
3,207
114
16,002
26,970
60,820
7,133
7,133
53,687
23,750
77,437
44,750
32,438
249
77,437
In August 2016, we completed the acquisition of Pragmatic Drilling Fluids Additives, Ltd. (“Pragmatic”), a Canadian
provider of specialty chemicals for the oil and natural gas industry, which further expanded our fluids technology portfolio and
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
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
2018
2017
$
$
148,737
1,485
150,222
38,088
8,586
196,896
$
$
123,022
1,419
124,441
30,495
10,400
165,336
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 blending facilities or purchased from third party vendors. These base drilling fluid systems require raw materials
to be added, as needed to meet specified customer requirements. As described in Note 1, the adoption of the new revenue recognition
guidance resulted in a $5.5 million increase in inventories as of January 1, 2018.
Note 4 — Property, Plant and Equipment
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
$
2018
2017
$
11,338
131,128
291,081
35,730
5,725
12,960
487,962
(239,643)
248,319
120,644
(52,670)
67,974
11,504
132,322
284,337
33,738
5,926
8,607
476,434
(215,419)
261,015
101,968
(47,663)
54,305
Property, plant and equipment, net
$
316,293
$
315,320
Depreciation expense was $41.2 million, $36.4 million, and $34.6 million in 2018, 2017 and 2016, respectively. Capital
expenditures in 2018 included $27.0 million for the Mats and Integrated Services segment, primarily reflecting investments in the
mat rental fleet, and $15.4 million for the Fluids Systems segment.
Note 5 — Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill by reportable segment are as follows:
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
(In thousands)
Balance at December 31, 2016
Acquisition
Effects of foreign currency
Balance at December 31, 2017
Acquisition
Effects of foreign currency
Balance at December 31, 2018
Fluids
Systems
Mats and
Integrated
Services
Total
$
$
1,666
—
116
1,782
—
(141)
1,641
$
$
18,329
23,188
321
41,838
562
(209)
42,191
$
$
19,995
23,188
437
43,620
562
(350)
43,832
We completed our annual evaluation of the carrying values of our goodwill and other indefinite-lived intangible assets
as of November 1, 2018 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.
Other intangible assets consisted of the following:
December 31, 2018
December 31, 2017
(In thousands)
Technology related
Customer related
Employment related
Total amortizing intangible assets
Gross
Carrying
Amount
$ 17,380
40,662
1,845
59,887
Accumulated
Amortization
$
(5,509) $
(27,891)
(1,845)
(35,245)
Other
Intangible
Assets,
Net
11,871
12,771
—
24,642
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
Permits and licenses
Total indefinite-lived intangible assets
Total intangible assets
518
518
$ 60,405
$
—
—
(35,245) $
518
518
25,160
541
541
$ 60,904
$
—
—
(30,900) $
541
541
30,004
Total amortization expense related to other intangible assets was $4.7 million, $3.3 million and $3.4 million in 2018,
2017 and 2016, 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 $27.0 million and $1.7 million, respectively. See Note 2 for additional
information.
Estimated future amortization expense for the years ended December 31 is as follows:
(In thousands)
Technology related
Customer related
Total future amortization expense
2019
2020
2021
2022
2023
Thereafter
Total
$
$
1,140
2,656
3,796
$
$
1,112
2,150
3,262
$
$
1,061
1,652
2,713
$
$
1,002
1,348
2,350
$
$
836
1,198
2,034
$
$
6,720
$ 11,871
3,767
12,771
10,487
$ 24,642
The weighted average amortization period for technology related and customer related intangible assets is 15 years and
11 years, respectively.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Note 6 — Financing Arrangements
Financing arrangements consisted of the following:
December 31, 2018
Unamortized
Discount and
Debt Issuance
Costs
Principal
Amount
Total Debt
Principal
Amount
December 31, 2017
Unamortized
Discount and
Debt Issuance
Costs
Total Debt
(In thousands)
2021 Convertible Notes
$
100,000
$
(17,752) $
82,248
$
100,000
$
ABL Facility
Other debt
Total debt
Less: current portion
76,300
3,199
179,499
(2,522)
—
—
(17,752)
—
Long-term debt
$
176,977
$
(17,752) $
76,300
3,199
161,747
(2,522)
159,225
$
81,600
1,518
183,118
(1,518)
181,600
$
(22,643) $
—
—
(22,643)
—
(22,643) $
77,357
81,600
1,518
160,475
(1,518)
158,957
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 19,
2019, 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.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
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, 2018, the carrying
amount of the debt component was $82.2 million, which is net of the unamortized debt discount and issuance costs of $15.9 million
and $1.8 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%.
Events of Default. Under the terms of the indenture governing the 2021 Convertible Notes, in the event certain actions
were not taken by December 5, 2017 to remove the Rule 144A restrictive legend included on the notes at the time of their issuance,
the 2021 Convertible Notes would begin to accrue additional interest of 0.5% per year (“Additional Interest”) until such time the
restrictive legend was removed. We did not remove the Rule 144A restrictive legend by December 5, 2017. We also failed to pay
the Additional Interest due to holders on the interest payment dates in 2018, which constituted a default on the 2021 Convertible
Notes. The occurrence of the default on the 2021 Convertible Notes also resulted in certain cross-defaults under our ABL Facility
(as defined below). In January 2019, in order to remedy the events of default, we paid $0.5 million of interest to the holders,
representing all of the overdue Additional Interest under the terms of the 2021 Convertible Notes and obtained a limited waiver
permanently waiving any implications of the resulting cross-defaults under the ABL Facility. As a result, the default conditions
have been remedied. Further, the Rule 144A restrictive legend was subsequently removed from the 2021 Convertible Notes on
January 25, 2019, thereby eliminating the Additional Interest going forward.
Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement which replaced our
previous credit agreement. In October 2017, we entered into an Amended and Restated Credit Agreement (as amended, the “ABL
Facility”) which amended and restated the May 2016 agreement. The ABL Facility provides financing of up to $150.0 million
available for borrowings (inclusive of letters of credit) and can be increased up to a maximum capacity of $225.0 million, subject
to certain conditions. As of December 31, 2018, our total borrowing base availability under the ABL Facility was $150.0 million,
of which $76.3 million was drawn, resulting in remaining availability of $73.7 million.
The ABL Facility terminates in October 2022; however, the ABL Facility has a springing maturity date that will accelerate
the maturity of the 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 ABL Facility. The 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 ABL Facility towards funding the repayment of the 2021 Convertible Notes.
Borrowing availability under the 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 also
includes 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 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.
Under the terms of the 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 ABL Facility. As of December 31, 2018, the applicable margin for
borrowings under our ABL Facility was 175 basis points with respect to LIBOR borrowings and 75 basis points with respect to
base rate borrowings. The weighted average interest rate for the ABL Facility was 4.2% at December 31, 2018. In addition, we
are required to pay a commitment fee on the unused portion of the ABL Facility ranging from 25 to 37.5 basis points, based on
the ratio of debt to consolidated EBITDA, as defined in the ABL Facility. The applicable commitment fee as of December 31,
2018 was 25 basis points.
The 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 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 ABL Facility also requires compliance with a fixed charge coverage ratio if availability under the ABL Facility falls below
$22.5 million. In addition, the ABL Facility contains customary events of default, including, without limitation, a failure to make
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
payments under the facility, acceleration of more than $25.0 million of other indebtedness, certain bankruptcy events and certain
change of control events.
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.
We terminated the Credit Agreement in May 2016, replacing it with an asset-based revolving loan facility as discussed above. 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.
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
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 was repaid upon maturity in October 2017.
Other Debt. Our foreign subsidiaries in Italy, India, and Canada 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. We had $1.1 million and $1.0 million, respectively, outstanding under these agreements
at December 31, 2018 and December 31, 2017.
At December 31, 2018, we had letters of credit issued and outstanding of $5.7 million that are collateralized by $6.1
million in restricted cash. Additionally, our foreign operations had $26.6 million outstanding in letters of credit and other guarantees,
primarily issued under a credit arrangement in Italy as well as certain letters of credit that are collateralized by $2.0 million in
restricted cash. At December 31, 2018 and December 31, 2017, prepaid expenses and other current assets in the consolidated
balance sheets include total restricted cash related to letters of credit of $8.1 million and $9.1 million, respectively.
We incurred net interest expense of $14.9 million, $13.3 million and $9.9 million for the years ended December 31, 2018,
2017 and 2016, respectively. The increase in interest expense in 2018 was primarily related to higher average outstanding debt
along with an increase in average borrowing rates on our ABL Facility. The increase in interest expense in 2017 was primarily
related to amortization of the debt discount related to the 2021 Convertible Notes as discussed above. There was no capitalized
interest for the year ended December 31, 2018. Capitalized interest was $0.1 million and $0.9 million for the years ended
December 31, 2017 and 2016, respectively. Scheduled repayment of long-term debt as of December 31, 2018 was $100.0 million
in 2021 and $76.3 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 2021 Convertible Notes, approximated their fair values at December 31,
2018 and 2017. The estimated fair value of our 2021 Convertible Notes was $120.9 million and $127.3 million at December 31,
2018 and 2017, respectively, 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 and
trade accounts receivable. At December 31, 2018, substantially all of our cash deposits were held by our international subsidiaries
in accounts at numerous financial institutions across the various regions in which we operate. A majority of the cash was 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.
Receivables
Receivables consisted of the following at December 31:
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
(In thousands)
Trade receivables:
Gross trade receivables
Allowance for doubtful accounts
Net trade receivables
Income tax receivables
Other receivables
Total receivables, net
2018
2017
$
$
248,176
(10,034)
238,142
9,027
7,225
254,394
$
$
256,851
(9,457)
247,394
6,905
11,567
265,866
Other receivables included $6.3 million and $10.8 million for value added, goods and service taxes related to foreign
jurisdictions as of December 31, 2018 and 2017, respectively. As described in Note 1, the adoption of the new revenue recognition
guidance resulted in an $8.4 million reduction in gross trade receivables as of January 1, 2018.
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 2018, 2017 and 2016, revenues from our 20 largest customers represented approximately
44%, 45% and 53%, respectively, of our consolidated revenues. For 2018 and 2017, no single customer accounted for more than
10% of our consolidated revenues. For 2016, revenues from Sonatrach, our primary customer in Algeria, represented approximately
14% of consolidated revenues.
We maintain an allowance for doubtful accounts based upon the expected collectability of accounts receivable. Changes
in this allowance were 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
2018
2017
2016
$
$
9,457
2,849
(2,272)
10,034
$
$
8,849
1,481
(873)
9,457
$
$
7,189
2,416
(756)
8,849
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted in December 2017 resulting in broad and complex changes to
U.S. income tax law. The Tax Act included a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not
previously subject to U.S. income tax, reduced the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018,
generally eliminated U.S. federal income tax on dividends from foreign subsidiaries, created new tax on certain foreign-sourced
earnings, made other changes to limit certain deductions and changed 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.
The following summarizes the provisional amounts for the income tax effects of the Tax Act that were recorded as of
December 31, 2017 and the measurement-period adjustments related to these items recognized during 2018 based on additional
guidance provided by regulatory bodies as well as the preparation of our 2017 U.S. federal income tax return.
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 of $6.9 million in 2017 for our one-time transitional tax liability and income tax
expense based on estimates of the effects of the Tax Act. In 2018, we finalized our one-time transitional tax liability in the amount
of $4.6 million in connection with the completion of our 2017 U.S. federal income tax return and recognized a $2.3 million decrease
to tax expense for 2018.
Taxes on Repatriation of Foreign Earnings
Prior to the Tax Act, we considered the unremitted earnings in our non-U.S. subsidiaries held directly by a U.S. parent
to be indefinitely reinvested and, accordingly, had not provided any deferred income taxes. As a result of the Tax Act, we now
intend to pursue repatriation of unremitted earnings in our non-U.S. 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
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
strategic objectives of the non-U.S. subsidiary. As such, we recorded a provisional amount of $7.0 million 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. In addition, 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. In 2018, we finalized this estimated
liability with no significant change to the $7.0 million amount provisionally recognized in 2017. Based on additional interpretive
guidance by regulatory bodies, we adjusted the foreign tax credits related to the repatriation of foreign earnings to $5.7 million
and also adjusted the related full valuation allowance. As a result, there was no significant impact of these adjustments included
in income tax expense in 2018.
In 2018, our income tax provision includes the estimated expense for any U.S. federal and state income taxes from the
new tax on certain foreign-sourced earnings as well as any additional foreign withholding taxes related to future repatriation of
current year earnings in our non-U.S. subsidiaries held directly by a U.S. parent.
Deferred Tax Effects
The Tax Act reduced the U.S. corporate statutory tax rate from 35% to 21% for years after 2017. Accordingly, we
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 those deferred taxes are settled or realized. We recognized a provisional deferred tax benefit of $17.4 million in 2017 to
reflect the reduced U.S. tax rate on our estimated U.S. net deferred tax liabilities. Although the tax rate reduction was known, we
had not completed our analysis of the effect of the Tax Act on the underlying deferred taxes for the items discussed above, and as
such, the amounts recorded as of December 31, 2017 were provisional. In 2018, we finalized our U.S. net deferred tax liabilities
in connection with the completion of our 2017 U.S. federal income tax return and recognized a $0.7 million increase to tax expense
for 2018 related to the reduced U.S. tax rate on the changes to the underlying deferred taxes.
The net tax benefit recognized in 2017 related to the Tax Act was $3.4 million. As we completed our analysis of the Tax
Act in 2018 for purposes of finalizing our 2017 U.S. federal income tax return, including assessment of additional guidance
provided by regulatory bodies, we revised the cumulative net tax benefit related to the Tax Act to $5.0 million by recognizing an
additional $1.6 million net tax benefit for 2018.
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,
2017
2016
2018
$
$
805
1,384
12,572
14,761
(331)
66
501
236
14,997
$
$
(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)
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,
2017
2016
2018
$
$
14,997
—
14,997
$
$
4,893
(4,616)
277
$
$
(24,042)
—
(24,042)
Income (loss) from continuing operations before income taxes was as follows:
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
(In thousands)
U.S.
Foreign
Income (loss) from continuing operations before income taxes
Year Ended December 31,
2017
2016
2018
$
$
4,084
43,194
47,278
$
$
(27,282) $
43,394
16,112
$
(76,805)
12,051
(64,754)
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 executive compensation
Other nondeductible expenses
Stock-based compensation
Different rates on earnings of foreign operations
Dividend taxes on unremitted earnings
U.S. tax on foreign earnings
Change in valuation allowance
State tax expense (benefit), net
Net impact of Tax Act
Worthless stock deduction - Brazil
Goodwill and other asset impairments
Manufacturing deduction
Other items, net
Total income tax expense (benefit)
Year Ended December 31,
2017
2016
2018
21.0%
2.5%
2.6%
(1.7%)
1.9%
6.4%
0.7%
(1.7%)
2.7%
(3.4%)
—
—
—
0.7%
31.7%
35.0%
4.8%
8.5%
2.9%
(13.3%)
9.3%
—
1.5%
(1.8%)
(22.3%)
—
—
—
5.8%
30.4%
(35.0%)
0.3%
2.5%
—
(1.2%)
2.2%
—
6.9%
(2.5%)
—
(14.4%)
3.5%
0.8%
(0.2%)
(37.1%)
The provision for income taxes was $15.0 million for 2018, reflecting an effective tax rate of 32%, compared to $4.9
million for 2017, reflecting an effective tax rate of 30%. The provision for income taxes for 2018 includes a $1.6 million net benefit
related to the Tax Act as discussed above. In addition, the 2018 effective tax rate was favorably impacted by excess tax benefits
related to the vesting of certain stock-based compensation awards and a reduction in the valuation allowance related to our U.K.
subsidiary. Although the Tax Act reduced the U.S. corporate statutory tax rate effective January 1, 2018, our provision for income
taxes in 2018 also includes the estimated expense for any U.S. federal and state income taxes from the new tax on certain foreign-
sourced earnings as well as any additional foreign withholding taxes related to future repatriation of current year earnings from
our non-U.S. subsidiaries. Due to the relative contribution of our domestic and foreign earnings, these taxes on certain foreign-
sourced earnings and the impact of changes to deduction limitations from the Tax Act effectively offset the benefit of the lower
U.S. corporate statutory tax rate in our 2018 provision for income taxes. The impact of the Tax Act on our effective tax rate in
future periods will depend in large part on the relative contribution of our domestic and foreign earnings.
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).
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Temporary differences and carryforwards which give rise to deferred tax assets and liabilities consisted of the following
at December 31:
(In thousands)
Deferred tax assets:
Net operating losses
Foreign tax credits
Accruals not currently deductible
Unrealized foreign exchange losses, net
Stock-based compensation
Capitalized inventory costs
Alternative minimum tax carryforwards
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of allowances
Deferred tax liabilities:
Accelerated depreciation and amortization
Tax on unremitted earnings
Original issue discount on 2021 Convertible Notes
Other
Total deferred tax liabilities
Total net deferred tax liabilities
Noncurrent deferred tax assets
Noncurrent deferred tax liabilities
Net deferred tax liabilities
2018
2017
$
$
$
$
$
14,054
7,304
3,209
3,575
3,266
1,972
2,198
6,631
42,209
(23,842)
18,367
(29,656)
(16,174)
(3,347)
(2,160)
(51,337)
(32,970) $
$
4,516
(37,486)
(32,970) $
23,490
9,262
7,730
2,595
3,793
4,581
1,626
8,825
61,902
(30,154)
31,748
(34,265)
(16,821)
(4,299)
(3,190)
(58,575)
(26,827)
4,753
(31,580)
(26,827)
As described in Note 1, the adoption of the new accounting guidance for the income tax consequences of intra-entity
transfers of assets other than inventory resulted in a $4.5 million increase in deferred tax liabilities as of January 1, 2018.
For state income tax purposes, we have net operating loss carryforwards (“NOLs”) of approximately $158.2 million
available to reduce future state taxable income. These NOLs expire in varying amounts beginning in 2019 through 2038. Foreign
NOLs of approximately $18.2 million are available to reduce future taxable income, some of which expire beginning in 2019.
The realization of our net deferred tax assets is dependent on our ability to generate taxable income in future periods. At
December 31, 2018 and 2017, we have recorded a valuation allowance in the amount of $23.8 million and $30.2 million, respectively,
primarily related to certain U.S. state and foreign NOL carryforwards, including Australia, as well as for certain tax credits
recognized related to the accounting for the impact of the Tax Act, which may not be realized. The 2018 decreases in NOL
carryforwards and related valuation allowance were primarily attributable to the expiration of certain state NOLs.
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 2014–2016. 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 had an initial tax appeals hearing in June 2018. In
the third quarter of 2018, the Appeals Officer provided a favorable notification recommending that no additional tax should be
assessed on our 2015 tax return which is subject to approval by the Joint Committee on Taxation. Although the tax appeals process
has not concluded, we believe our tax position is properly reported in accordance with applicable U.S. tax laws and regulations
and will continue to vigorously defend our position through the tax appeals process.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Following an audit in 2015, the treasury authority in Mexico issued a tax assessment (inclusive of interest and penalties)
in the amount of 60 million pesos (approximately $3.3 million) to our Mexico subsidiary primarily in connection with the export
of mats from Mexico which took place in 2010. The mats that are the subject of this assessment were owned by a U.S. subsidiary
and leased to our Mexico subsidiary for matting projects in the Mexican market. In 2010, we made the decision to move these
mats out of Mexico to markets with higher demand. The Mexican treasury authority determined the export of the mats was the
equivalent of a sale, and assessed taxes on the gross declared value of the exported mats to our Mexico subsidiary. We retained
outside legal counsel and filed administrative appeals with the treasury authority, but we were notified on April 13, 2018, that the
last administrative appeal had been rejected. In the second quarter of 2018, we filed an appeal in the Mexican Federal Tax Court,
which required that we post a bond in the amount of the assessed taxes (plus additional interest). In the fourth quarter of 2018, the
Mexican Federal Tax Court issued a favorable judgment nullifying in full the tax assessment which has been subsequently appealed
by the treasury authority in Mexico. Although the tax appeals process has not concluded, we believe our tax position is properly
reported in accordance with applicable tax laws and regulations in Mexico 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 uncertain tax positions 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 accruals.
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
2018
2017
2016
257
(3)
—
—
(31)
223
$
$
665
(399)
—
—
(9)
257
$
$
419
477
—
—
(231)
665
$
$
Approximately $0.2 million of unrecognized tax benefits at December 31, 2018, if recognized, would favorably impact
the effective tax rate.
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
2018
2017
2016
104,572
603
1,188
—
106,363
99,843
416
952
3,361
104,572
99,377
125
341
—
99,843
Outstanding shares of common stock include shares held as treasury stock totaling 15,530,952, 15,366,504 and 15,162,050
as of December 31, 2018, 2017 and 2016, 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 as of December 31, 2018, 2017 or 2016.
Treasury Stock
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
During 2018, 2017 and 2016, we repurchased 362,190, 415,418 and 234,901 shares, respectively, for an aggregate price
of $3.9 million, $3.2 million and $1.2 million, respectively, representing employee shares surrendered in lieu of taxes under vesting
of restricted stock awards. All of the shares repurchased are held as treasury stock.
During 2018, 2017 and 2016, we reissued 197,742, 210,964 and 375,196 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
In November 2018, our Board of Directors authorized changes to our existing securities repurchase program, which it
first authorized in 2013. The authorization increased the authorized amount under the repurchase program to $100.0 million,
available for repurchases of any combination of our common stock and our 2021 Convertible Notes, from the $33.5 million that
was remaining under the previous repurchase program. Previously, our Board of Directors had approved a repurchase program
that authorized 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 ABL Facility or other factors.
There were no shares repurchased under the program during 2018, 2017 or 2016. 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, 2018, we had $100.0 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 January 2019, we repurchased an aggregate of 655,666 shares of our common stock under our Board authorized
repurchase program for a total cost of $5.0 million.
In December 2016, our Board of Directors 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.
Note 10 — Earnings Per Share
The following table presents the reconciliation of the numerator and denominator for calculating net income (loss) from
continuing operations per share:
(In thousands, except per share data)
Numerator
Income (loss) from continuing operations - basic and diluted
Denominator
Weighted average common shares outstanding - basic
Dilutive effect of stock options and restricted stock awards
Dilutive effect of 2021 Convertible Notes
Weighted average common shares outstanding - diluted
Year Ended December 31,
2017
2016
2018
$
32,281
$
11,219
$
(40,712)
89,996
2,385
544
92,925
85,421
2,554
—
87,975
83,697
—
—
83,697
Income (loss) from continuing operations per common share
Basic
Diluted
$
$
0.36
0.35
$
$
0.13
0.13
$
$
(0.49)
(0.49)
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 awards
2017 Convertible Notes
Year Ended December 31,
2018
2017
2016
1,495
—
7,419
5,702
7,482
14,295
The 2017 Convertible Notes were repaid upon maturity in October 2017. The 2021 Convertible Notes only impact the
calculation of diluted net income per share in periods that the average price of our common stock, as calculated in accordance with
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
the terms of the indenture governing the 2021 Convertible Notes, exceeds the conversion price of $9.33 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 us 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 was 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 2018, non-employee directors received shares of restricted stock totaling
85,578 shares at a weighted average grant-date fair value of $10.75 per share.
The maximum number of shares of common stock issuable under the 2014 Director Plan is 1,000,000 leaving 418,680
shares available for grant as of December 31, 2018.
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 employees, 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, 2018, 1,313,255 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 employees, 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. In connection with the retirement of our former Senior Vice President, General Counsel
and Chief Administrative Officer on September 30, 2018, the Compensation Committee modified certain outstanding stock-based
and other incentive awards. During 2018, we modified the vesting conditions of outstanding unvested restricted stock units,
performance-based restricted stock units, stock options, and time-based and performance-based cash awards to allow for continued
vesting after his retirement date, and to extend the exercise period of all of his outstanding options from 90 days from the date of
retirement to the earlier of (a) 2 years from his retirement date or (b) the original expiration date of the award. As a result of the
above modifications, we recognized a charge of $1.5 million for 2018.
In February 2019, the Compensation Committee modified our retirement policy applicable to cash and equity awards
granted under either the 2015 Plan or the Cash Plan to include our Chief Executive Officer and those officers who report to our
Chief Executive Officer, whom were previously excluded from the retirement policy. In addition, the Compensation Committee
also modified the retirement policy for any vested stock options that remain outstanding under the 2006 Plan to extend the exercise
period available following the qualifying retirement of eligible employees. As a result of these modifications, we expect to recognize
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
a pretax charge of approximately $4.2 million in the first quarter of 2019. This charge primarily includes the acceleration of expense
for previously granted awards for retirement eligible executive officers as well as the incremental value associated with the
modifications to extend the exercise period of applicable outstanding options.
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. There were no options granted during 2018 or 2017.
The following table summarizes activity for our outstanding stock options for the year ended December 31, 2018:
Stock Options
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
(In
thousands)
$
$
$
$
7.03
—
6.43
8.04
7.13
7.13
7.47
4.61
4.61
4.32
$
$
$
4,065
4,060
3,137
Shares
3,965,525
—
(602,853)
(50,946)
3,311,726
3,309,559
2,947,589
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
1.38%
5.22
50.5%
—%
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
$
$
2016
4.32
1.97
All stock options granted for 2016 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 $2.3 million, $1.1 million, and $0.1 million for the years ended
December 31, 2018, 2017 and 2016, while cash from option exercises totaled $3.9 million, $2.6 million, and $0.7 million,
respectively.
The following table summarizes activity for outstanding cash-settled stock appreciation rights for the year-ended
December 31, 2018:
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
Cash-Settled Stock Appreciation Rights
Outstanding at beginning of period
Exercised
Expired or cancelled
Outstanding at end of period
Rights
43,000
(18,900)
(24,100)
—
There were no cash-settled stock appreciation rights granted during 2018, and as of December 31, 2018 there were no
cash-settled stock appreciation rights outstanding.
Total compensation cost recognized for stock options and cash-settled stock appreciation rights during the years ended
December 31, 2018, 2017 and 2016 was $1.5 million, $1.7 million and $2.3 million, respectively. For the years ended December 31,
2018, 2017 and 2016, we recognized tax benefits resulting from the exercise of stock options totaling $0.5 million, $0.3 million
and $0.1 million, respectively.
Performance-Based Restricted Stock Units
There were no performance-based restricted stock units granted during 2018 or 2017. In 2016, 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
Range of payout of shares for each executive
Performance period begin date
Performance period end date
Estimated fair value at date of grant
2016
230,790
0% - 150%
June 1, 2016
May 31, 2019
$
5.18
We estimated the fair value of performance-based restricted stock units 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
0.95%
4.69
46.9%
—%
(1) Average closing price of our shares over the 30-calendar days ending May 16, 2016.
The following table summarizes activity for outstanding performance-based restricted stock units for the year-ended
December 31, 2018:
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
353,940
—
(123,150)
—
230,790
$
$
6.88
—
10.06
—
5.18
Total compensation cost recognized for performance-based restricted stock units was $0.8 million, $1.0 million and $1.0
million for the years ended December 31, 2018, 2017 and 2016 respectively. During the year ended December 31, 2018, the total
fair value of performance-based restricted stock units vested was $1.9 million.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
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.
The following tables summarize the activity for our outstanding time-vested restricted stock awards and restricted stock
units for the year ended December 31, 2018:
Nonvested Restricted Stock Awards (Time-Vesting)
Nonvested at January 1, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2018
Nonvested Restricted Stock Units (Time-Vesting)
Nonvested at January 1, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2018
Weighted-
Average
Grant Date
Fair Value
7.24
10.38
7.29
—
9.56
Weighted-
Average
Grant Date
Fair Value
6.38
10.59
6.45
8.01
8.33
$
$
$
$
Shares
168,714
135,578
(123,714)
—
180,578
Shares
1,990,637
917,901
(953,572)
(157,428)
1,797,538
Total compensation cost recognized for restricted stock awards and restricted stock units was $7.8 million, $8.0 million
and $8.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total unrecognized compensation cost at
December 31, 2018 related to restricted stock awards and restricted stock units was approximately $10.9 million which is expected
to be recognized over the next 1.8 years. During the years ended December 31, 2018, 2017 and 2016, the total fair value of shares
vested was $11.6 million, $10.4 million and $3.9 million, respectively. For the years ended December 31, 2018, 2017 and 2016,
we recognized tax benefits resulting from the vesting of restricted stock awards and units of $2.8 million, $1.9 million and $1.5
million, respectively.
Cash-Based Awards
The Compensation Committee also approved the issuance of cash-based awards during 2018 and 2017. The 2018 awards
included $1.3 million of time-based cash awards and a target amount of $1.3 million of performance-based cash awards. The 2017
awards included $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 our TSR as compared to the TSR of our designated peer group. The performance period began June 1, 2018
and ends May 31, 2021 for the 2018 awards, and began June 1, 2017 and ends May 31, 2020 for the 2017 awards, with the ending
TSR price being equal to the average closing price of our shares over the 30-calendar days ending May 31, 2021 and May 31,
2020, respectively, 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. As of December 31, 2018 and 2017, the total
liability for cash-based awards was $3.0 million and $1.4 million, respectively.
Defined Contribution Plan
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
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 $3.9 million, $1.4 million and $0.9 million for 2018, 2017 and 2016,
respectively. In connection with the cost reduction programs implemented in early 2016, we temporarily eliminated our 401(k)
matching contribution beginning in March 2016, and this temporary elimination was lifted in the second quarter of 2017.
Note 12 — Segment and Related Information
We operate our business through two reportable segments: Fluids Systems and Mats and Integrated Services. All
intercompany revenues and related profits have been eliminated.
Fluids Systems — Our Fluids Systems segment provides drilling and completion fluids solutions to E&P customers
globally, operating through four geographic regions: North America, EMEA, Latin America, and Asia Pacific. 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 of chemistry, including
stimulation chemicals, which are utilized extensively by E&P operators in the U.S. to stimulate hydrocarbon production.
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 natural gas) markets.
Mats and Integrated Services — Our Mats and Integrated Services segment provides composite mat rentals utilized for
temporary worksite access, along with site construction and related site services to customers in various markets including E&P,
electrical transmission & distribution, pipeline, solar, petrochemical, and construction industries across North America and Europe.
We also sell composite mats to customers around the world. We manufacture our DURA-BASE® Advanced Composite Mats for
use in our rental operations as well as for third-party sales. Our matting systems 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
Total operating income (loss)
Segment assets
Fluids systems
Mats and integrated services
Corporate office
Total assets
Capital expenditures
Fluids systems
Mats and integrated services
Corporate office
Total capital expenditures
Year Ended December 31,
2017
2016
2018
$
$
$
$
$
$
$
$
$
$
715,813
230,735
946,548
20,922
21,321
3,656
45,899
40,337
60,604
(37,383)
63,558
617,615
270,248
27,991
915,854
15,356
27,043
2,742
45,141
$
$
$
$
$
$
$
$
$
$
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
(43,631)
14,741
(28,323)
(57,213)
522,488
164,515
111,180
798,183
32,310
4,637
1,493
38,440
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 our 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
for the year ended December 31, 2016 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
2016
3,647
925
4,572
4,125
285
162
4,572
$
$
$
$
The temporary reduction in salaries, suspension of our 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 operating losses include net charges of $14.8 million 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 of these charges in 2016, and the remaining $0.7 million benefit was included in Corporate
office expenses in 2016 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 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.
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.
The following table presents further disaggregated revenues for the Fluids Systems segment:
(In thousands)
United States
Canada
Total North America
EMEA
Asia Pacific
Latin America
Total International
Year Ended December 31,
2017
2016
2018
$
$
410,410
66,416
476,826
$
341,075
54,322
395,397
192,537
17,733
28,717
238,987
179,360
4,081
36,965
220,406
149,876
33,050
182,926
167,130
4,669
40,736
212,535
Total Fluids Systems revenues
$
715,813
$
615,803
$
395,461
The following table presents further disaggregated revenues for the Mats and Integrated Services segment:
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
(In thousands)
Service revenues
Rental revenues
Product sales revenues
Total Mats and Integrated Services revenues
Year Ended December 31,
2017
2016
2018
$
$
93,056
81,784
55,895
230,735
$
$
34,943
61,124
35,893
131,960
$
$
17,641
40,748
17,646
76,035
The Mats and Integrated Services segment includes the impact of the WSG acquisition completed in November 2017.
The following table sets forth geographic information for all of 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)
Revenues
United States
Canada
Algeria
All Other EMEA
Latin America
Asia Pacific
Total revenues
Long-lived assets
United States
Canada
EMEA
Latin America
Asia Pacific
Total long-lived assets
Year Ended December 31,
2017
2016
2018
$
$
$
$
626,656
67,374
81,508
124,510
28,767
17,733
946,548
338,475
3,284
41,774
1,595
2,898
388,026
$
$
$
$
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
For 2018 and 2017, no single customer accounted for more than 10% of our consolidated revenues. For 2016, revenues
from Sonatrach, our primary customer in Algeria, was approximately 14% of our consolidated revenues.
Note 13 — Supplemental Cash Flow and Other Information
Accounts payable and accrued liabilities at December 31, 2018, 2017, and 2016, included accruals for capital expenditures
of $4.2 million, $2.7 million, and $2.0 million, respectively.
Accrued liabilities at December 31, 2018 and 2017 were $48.8 million and $68.2 million, respectively. The balance at
December 31, 2018 and 2017 included $28.9 million and $31.4 million, respectively, for employee incentives and other
compensation related expenses. The balance at December 31, 2017 also included $14.0 million for the settlement of claims in
connection with the sale of the Environmental Services business that was funded in the first quarter of 2018 through available cash
on hand and borrowings under our ABL Facility. Further discussion of the claims and related settlement is contained in Note 15
below.
Supplemental disclosures to the statements of cash flows are presented below:
(in thousands)
Cash paid (received) for:
Income taxes (net of refunds)
Interest
2018
2017
2016
$
$
15,627
8,741
$
$
(20,396) $
$
8,718
(20,709)
8,802
Cash, cash equivalents, and restricted cash in the consolidated statements of cash flows consisted of the following:
64
(in thousands)
Cash and cash equivalents
Restricted cash (included in other current assets)
Cash, cash equivalents, and restricted cash
2018
2017
2016
$
$
56,118
8,148
64,266
$
$
56,352
9,108
65,460
$
$
87,878
7,421
95,299
Impairments and other non-cash charges in the consolidated statements of cash flows consisted of the following:
(In thousands)
Other intangible asset impairments
Property, plant and equipment impairments
Inventory write-downs
Write-off of debt issuance costs on termination of Credit Agreement
Impairments and other non-cash charges in the consolidated statements of cash flows
There were no impairments and other non-cash charges in 2018 or 2017.
Note 14 — Discontinued Operations
2016
3,104
4,286
4,075
1,058
12,523
$
$
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 resulted in a charge to discontinued operations of $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, 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. 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. 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. Following
commencement of the trial in December 2017, we reached a settlement agreement with Ecoserv in the first quarter of 2018, under
which Ecoserv received $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
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
2014 transaction. As a result of the settlement, we recognized a charge to discontinued operations in the fourth quarter of 2017 for
$22.0 million ($17.4 million net of tax) to reduce the previously recognized gain from the sale of the Environmental Services
business. The reduction in sales price was funded in the first quarter of 2018 with a cash payment of $14.0 million and release of
the $8.0 million that had been held in escrow since the March 2014 transaction. In March 2018, the lawsuit was dismissed with
prejudice. Litigation expenses related to this matter were included in corporate office expenses in operating income.
Kenedy, Texas Drilling Fluids Facility Fire
In July 2018, a fire occurred at our Kenedy, Texas drilling fluids facility, destroying the distribution warehouse, including
inventory and surrounding equipment. In addition, nearby residences and businesses were evacuated as part of the response to the
fire. In order to avoid any customer service disruptions, we implemented contingency plans to supply products from alternate
facilities in the area and region. During the third quarter of 2018, we received a petition filed on behalf of 23 plaintiffs seeking a
total of $1.5 million for alleged bodily injuries and property damage claimed to have been incurred as a result of the fire and the
subsequent efforts we undertook to remediate any potential smoke damage. In December 2018, the plaintiffs' counsel filed an
amended petition that increased the number of plaintiffs to 39 and also seeks punitive damages. While no trial date has been set
for the matter at this time, we have been advised by our insurer that these claims are insured under our general liability insurance
program. While this event and related claims are covered by our property, business interruption, and general liability insurance
programs, these programs contain self-insured retentions, which remain our financial obligations.
During 2018, we incurred fire-related costs of $4.8 million, which includes $1.9 million for inventory and property, plant
and equipment, $2.1 million in property-related cleanup and other costs, and $0.8 million relating to our self-insured retention for
third-party claims. Based on the provisions of our insurance policies and initial insurance claims filed, we estimated $4.0 million
in expected insurance recoveries and recognized a charge of $0.8 million in other operating (income) loss, net, for 2018. The
insurance receivable balance included in other receivables was $0.6 million as of December 31, 2018. As of December 31, 2018,
the claims related to the fire under our property, business interruption, and general liability insurance programs have not been
finalized.
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
$27.4 million, $23.9 million and $21.0 million for 2018, 2017 and 2016, 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)
2019
2020
2021
2022
2023
Thereafter
Other
$
$
9,112
5,707
4,630
3,816
3,144
4,507
30,916
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.
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 at both December 31, 2018 and 2017. We also had $0.4 million of guarantee obligations in connection
with facility closure bonds and other performance bonds issued by insurance companies outstanding as of December 31, 2018 and
2017. In addition, we had a bond of $4.2 million outstanding as of December 31, 2018 related to a Mexican Federal Tax Court
appeal (see Note 8 for additional information).
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. Based on historical experience, we had accrued liabilities of $0.8 million and $1.3
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NEWPARK RESOURCES, INC.
million for unpaid claims incurred as of December 31, 2018 and 2017, respectively. Substantially all of these estimated claims are
expected to be paid within six months of their occurrence. In addition, 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. Based
on historical experience, we had accrued liabilities of $2.2 million and $2.5 million for the uninsured portion of claims as of
December 31, 2018 and 2017, respectively.
We also 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 $1.1 million as of December 31, 2018 and 2017, respectively.
Note 16 — Supplemental Selected Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Fiscal Year 2018
Revenues
Operating income
Income from continuing operations
Net income
Income per common share - basic:
Income from continuing operations
Net income
Income per common share - diluted:
Income from continuing operations
Net income
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)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
227,293
13,838
7,222
7,222
0.08
0.08
0.08
0.08
158,691
3,746
(983)
(983)
236,262
19,143
10,846
10,846
0.12
0.12
0.12
0.12
183,020
7,968
1,632
1,632
(0.01) $
(0.01) $
(0.01) $
(0.01) $
0.02
0.02
0.02
0.02
$
$
$
$
$
$
$
$
$
$
235,329
10,054
3,644
3,644
0.04
0.04
0.04
0.04
201,663
9,882
2,653
2,653
0.03
0.03
0.03
0.03
$
$
$
$
$
$
$
$
$
$
247,664
20,523
10,569
10,569
0.12
0.12
0.11
0.11
204,389
9,840
7,917
(9,450)
0.09
(0.11)
0.09
(0.11)
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.
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 our disclosure controls and procedures as of the end of the period covered by this Annual
Report, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not
effective as of December 31, 2018, due to a material weakness in internal control over financial reporting as discussed below.
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 13a-15(f) and 15d-15(f). Our internal control system over financial reporting is
designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
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, 2018 as required by the Securities
and Exchange Act of 1934 Rule 13a-15(c). In making our 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 not effective as of
December 31, 2018, due to the material weakness described below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis.
Description of Material Weakness
We did not properly design and operate adequate monitoring control activities to identify material terms and conditions
included in infrequent, material complex financing arrangements to ensure compliance with all material obligations. As a result,
we failed to timely pay in 2018 the $0.5 million of additional interest on our 2021 Convertible Notes under the terms of the
indentures, which constituted a default on the 2021 Convertible Notes and certain cross-defaults under our ABL Facility. As a
result of these defaults, which have now subsequently been remedied, the amounts outstanding under our 2021 Convertible Notes
and ABL Facility could have been accelerated under the terms of the arrangements. Accordingly, our management determined that
these deficiencies represent a material weakness in our internal control over financial reporting.
Notwithstanding the material weakness in our internal control over financial reporting, management concluded that the
financial statements and other financial information included in this report fairly present in all material respects our financial
condition, results of operations, and cash flows as of, and for, the periods presented in this report.
The effectiveness of our internal control over financial reporting as of December 31, 2018 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 and Chief Executive Officer
/s/ Gregg S. Piontek
Gregg S. Piontek
Senior Vice President and Chief Financial Officer
68
Remediation Efforts to Address the Material Weakness
In January 2019, we undertook remediation measures to design new controls to monitor activities with respect to infrequent
and material complex financing arrangements, including the design of a compliance checklist to aid in the identification of material
terms and compliance requirements, respective due dates, along with the assignment of responsible personnel to appropriately
review the compliance checklist. If these new control and monitoring activities are effectively implemented for any new or modified
infrequent, material complex financing arrangement, we believe this would remediate the material weakness and provide reasonable
assurance to timely identify all material terms and provide adequate monitoring activities to reasonably ensure compliance with
all material administrative obligations with respect to infrequent, material complex financing arrangements. The material weakness
cannot be considered completely remediated, however, until the applicable controls and monitoring activities have operated for a
sufficient period of time and management has concluded through testing that these controls are operating effectively. Accordingly,
despite identifying the above controls to be used going forward, the identified material weakness cannot be considered remediated
at December 31, 2018.
Changes in Internal Control Over Financial Reporting
Except for the continued remediation efforts of the previously identified material weakness, there were no changes in our
internal control over financial reporting that occurred during the quarter ended December 31, 2018 that materially affected, or
were reasonably likely to materially affect, our internal control over financial reporting.
69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Newpark Resources, Inc.
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, 2018, 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, because of the effect of the material weakness
identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal
control over financial reporting as of December 31, 2018, 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, 2018, of the Company and our report
dated February 22, 2019, 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.
70
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis. The following material weakness has been identified and included in management's
assessment:
The Company did not properly design and operate adequate monitoring control activities to identify material terms and
conditions included in infrequent, material complex financing arrangements to ensure compliance with all material obligations.
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the
consolidated financial statements as of and for the year ended December 31, 2018, of the Company, and this report does not
affect our report on such financial statements.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 22, 2019
71
ITEM 9B. Other Information
As previously disclosed in our proxy statement, the Compensation Committee (the “Committee”) of the Board of Directors
of Newpark Resources, Inc. (the “Company”) adopted a Retirement Policy in April 2015. The Retirement Policy was applicable
to all U.S. employees of the Company other than the Company’s chief executive officer and those officers of the Company who
report to the chief executive officer (collectively, the “Reporting Officers”). On February 19, 2019, the Committee adopted
amendments to the Retirement Policy (as amended, the “Amended Retirement Policy”) and the Amended Retirement Policy is
now applicable to the Company’s chief executive officer and each of the Reporting Officers. The Amended Retirement Policy also
made other amendments to the original Retirement Policy, including the extension of the exercise period after a Qualifying
Retirement (as herein defined) for any vested stock options that remain outstanding under the Company’s Amended and Restated
2006 Equity Incentive Plan. The Amended Retirement Policy as more fully described below was effective upon adoption by the
Committee and remains only applicable to the U.S. employees of the Company.
The benefits provided by the Amended Retirement Policy are available to all U.S. employees whose employment ends
as a result of a “Qualifying Retirement.” Qualifying Retirement will be met for an employee who (i) retires with a combined sum
of the employee’s age and full years of continuous service equal to at least 70 years and (ii) is at least 60 years of age. Employees
are required to provide six (6) months’ written notice in advance of the employee’s planned retirement date, although the Committee
may, in its discretion, waive this requirement. The Amended Retirement Policy is applicable to all outstanding and future cash and
equity awards under the Company’s Annual Cash Incentive Plan and Long-Term Incentive Plans.
Pursuant to the Amended Retirement Policy, cash and equity awards will continue to vest and, as applicable, be exercisable,
following a Qualifying Retirement as follows:
• Annual Cash Incentive Plan Awards - In the event a Qualifying Retirement occurs during the performance year, the
employee will receive a pro-rated settlement amount paid at the same time as other participants to the extent the applicable
performance objectives are met. If the Qualifying Retirement occurs after the completion of the performance year but
before the award is paid, the employee will receive a settlement amount that is not pro-rated, but instead paid in full at
the same time as other participants to the extent the applicable performance objectives are met.
• Long-Term Incentive Plan Performance Awards - For long-term incentive performance awards such as performance-
based restricted stock units (“RSUs”) and cash awards, in the event a Qualifying Retirement occurs during the performance
year, the employee will receive a pro-rated settlement amount paid at the same time as other participants to the extent (i)
the applicable performance objectives are met, and (ii) the Qualifying Retirement occurs at least six (6) months following
the date the award was granted. If the Qualifying Retirement occurs less than six (6) months following the date the award
was granted, the award is forfeited unless otherwise determined by the Committee. If the Qualifying Retirement occurs
after the completion of the performance period but before the award is paid, the employee will receive a settlement amount
that is not pro-rated, but instead paid in full at the same time as other participants to the extent the applicable performance
objectives are met.
• Long-Term Incentive Plan Time-Vested Stock Options - Unvested stock options will continue to vest after the Qualifying
Retirement pursuant to the original vesting schedule to the extent the Qualifying Retirement occurs at least six (6) months
following the date the award was granted. If the Qualifying Retirement occurs less than six (6) months following the date
the award was granted, the stock option, to the extent it is not vested as of the date of the Qualifying Retirement, will be
forfeited unless otherwise determined by the Committee. To the extent any vested stock options under the Company’s
Amended and Restated 2006 Equity Incentive Plan are outstanding upon a Qualifying Retirement, the vested stock option
will remain exercisable for a period equal to the shorter of (a) the remaining term of such stock option or (b) two (2) years
for our chief executive officer and each of our Reporting Officers or one (1) year for all other employees. If any stock
option awarded under the Company’s 2015 Employee Equity Incentive Plan becomes exercisable before or after a
Qualifying Retirement, the stock option will remain exercisable for the remaining term of such stock option.
• Long-Term Incentive Plan Time-Vested Restricted Stock Awards, Restricted Stock Units and Cash Awards - The
restrictions on unvested restricted stock awards, RSUs and cash awards will continue to lapse pursuant to the original
vesting schedule to the extent the Qualifying Retirement occurs at least six (6) months following the date the award was
granted. If the Qualifying Retirement occurs less than six (6) months following the date the award was granted, the award,
to the extent it is not vested as of the date of the Qualifying Retirement, will be forfeited unless otherwise determined by
the Committee.
As a condition to the receipt of the retirement benefits under the Amended Retirement Policy, the employee shall be
required to execute and deliver to the Company a release agreement including non-compete covenants in a form satisfactory to
the Company. If subsequent to a Qualifying Retirement, an individual commences employment with, or otherwise provides services
to, a competitor of the Company in violation of the non-compete covenants, the benefits under the Amended Retirement Policy
will be forfeited and no longer available.
72
Paul L. Howes and Bruce C. Smith are the only executive officers of the Company who currently are eligible or will
become eligible to retire from the Company and obtain any of the benefits of the Amended Retirement Policy for currently
outstanding cash and equity awards. In addition to Messrs. Howes and Smith, certain additional employees of the Company are
eligible or will become eligible to retire from the Company and obtain any the benefits of the Amended Retirement Policy for
vested options outstanding under the Company’s Amended and Restated 2006 Equity Incentive Plan. As a result of these
modifications included in the Amended Retirement Policy, the Company expects to recognize a pretax charge of approximately
$4.2 million in the first quarter of 2019. This charge primarily includes the acceleration of expense for previously granted awards
for retirement eligible executive officers as well as the incremental value associated with the modifications to extend the exercise
period of applicable outstanding options.
The foregoing summary of the Amended Retirement Policy in this Annual Report on Form 10 K does not purport to be
complete and is qualified by reference to the Amended Retirement Policy, a copy of which is filed as Exhibit 10.59 hereto and
incorporated herein by reference.
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 2019 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 2019 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 2019 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 2019 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 2019 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 2019 Annual Meeting of Stockholders.
73
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
35
36
37
38
39
40
41
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.
2.1
2.2
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
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).
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).
74
4.2
4.3
†10.1
†10.2
†10.3
†10.4
†10.5
†10.6
†10.7
†10.8
†10.9
†10.10
†10.11
†10.12
†10.13
†10.14
†10.15
†10.16
†10.17
†10.18
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).
Amended and Restated Employment Agreement, dated as of December 31, 2008, between the Newpark Resources,
Inc. 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).
Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes
dated as of 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 Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes
dated as of February 16, 2016, 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).
Employment Agreement, dated as of October 18, 2011, between Newpark Resources, Inc. and Gregg Steven Piontek,
incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 21, 2011
(SEC File No. 001-02960).
Amendment to Employment Agreement between Newpark Resources, Inc. and Gregg S. Piontek dated as of February
16, 2016, 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).
Employment Agreement, dated as of April 20, 2007, between Newpark Resources, Inc. and Bruce Smith, 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 Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated as of 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 Bruce Smith dated as of December
31, 2012, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January
4, 2013 (SEC File No. 001-02960).
Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated as of February
16, 2016, 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).
Amended and Restated Employment Agreement between Newpark Resources, Inc. and Bruce Smith dated as of July
1, 2017, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 3,
2017 (SEC File No. 001-02960).
First Amendment to the Amended and Restated Employment Agreement between Newpark Resources, Inc. and
Bruce C. Smith, dated as of November 15, 2018, incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on November 16, 2018 (SEC File No. 001-02960).
Employment Agreement, dated as of April 22, 2016, 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).
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).
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).
Amendment to Employment Agreement, dated December 31, 2012, between Mark Airola and Newpark Resources,
Inc., incorporated by reference to Exhibit 10.1 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 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).
Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola, dated as of August
15, 2018, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August
21, 2018 (SEC File No. 001-02960).
Retirement Agreement and General Release between Newpark Resources, Inc. and Mark J. Airola, dated October
2, 2018, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October
4, 2018 (SEC File No. 001-02960).
75
†10.19
†10.20
10.21
10.22
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
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 on Form 8-K filed on July 3, 2017 (SEC
File No. 001-02960).
Separation Agreement and General Release between Newpark Resources, Inc. and Phillip T. Vollands, dated
December 3, 2018, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on December 10, 2018 (SEC File No. 00-02960).
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).
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).
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 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).
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).
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).
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).
Director Compensation Summary, incorporated by reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2017 filed on February 23, 2018 (SEC File No. 001-02960).
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 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).
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).
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).
76
†10.41
†10.42
†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
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).
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).
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 on 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 on Form 8-K filed on June 15,
2017 (SEC File No. 001-02960).
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).
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).
†*10.59
Newpark Resources, Inc. Retirement Policy for U.S. Employees, approved and adopted April 6, 2015, amended as
of February 19, 2019.
*21.1
*23.1
*31.1
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Paul L. Howes pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
77
*31.2
**32.1
**32.2
Certification of Gregg S. Piontek pursuant to Rule 13a-14(a) or 15d-14(a) 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
† Management compensation plan or agreement.
* Filed herewith.
** Furnished herewith.
ITEM 16. Form 10-K Summary
None.
78
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 22, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and 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/ 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)
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President, Corporate Controller and Chief
Accounting Officer
(Principal Accounting Officer)
February 22, 2019
February 22, 2019
February 22, 2019
Chairman of the Board
February 22, 2019
Director, Member of the Audit Committee
February 22, 2019
Director, Member of the Audit Committee
February 22, 2019
Director, Member of the Audit Committee
February 22, 2019
Director, Member of the Audit Committee
February 22, 2019
Director, Member of the Audit Committee
February 22, 2019
79
DIRECTORS
ANTHONY J. BEST
G. STEPHEN FINLEY
Chairman of the Board,
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 Executive Officer,
Oceaneering International, Inc.
JOHN C. MINGÉ
Former Chairman and President,
BP America
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.
EXECUTIVE OFFICERS
PAUL L. HOWES
GREGG S. PIONTEK
E. CHIPMAN EARLE
MATTHEW S. LANIGAN
BRUCE C. SMITH
DOUGLAS L. WHITE
President and
Chief Executive Officer
Senior Vice President and
Chief Financial Officer
Vice President,
General Counsel,
Chief Administrative Officer,
Chief Compliance Officer
and Corporate Secretary
Vice President and President,
Mats and Integrated Services
Executive Vice President and
President, Fluids Systems
Vice President,
Corporate Controller and
Chief Accounting Officer
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
ANNUAL MEETING
The Annual Meeting of Shareholders
of Newpark Resources, Inc. will be held on
Thursday, May 23, 2019 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
CORE VALUES
SAFETY
INTEGRITY
RESPECT
EXCELLENCE
Protecting each other like family,
while sustaining the environment
in which we work
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
ACCOUNTABILITY
Using good judgment and taking
responsibility for our actions
CORPORATE HEADQUARTERS
9320 Lakeside Blvd., Suite 100
The Woodlands, TX 77381
281-362-6800 newpark.com
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