Correspondence 0000071829-23-000007 from NEWPARK RESOURCES INC (NR) (CIK 0000071829) (NPKI)
NEWPARK RESOURCES INC (NR) (CIK 0000071829)
Date: Feb. 3, 2023 · CIK: 0000071829 · Accession: 0000071829-23-000007
AI Filing Summary & Sentiment
File numbers found in text: 001-02960
Referenced dates: September 2, 2022
Letter
VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance Office of Energy & Transportation Attention: Robert Babula and Gus Rodriguez Filed February 25, 2022 Form 10-Q for the Quarterly Period Ended June 30, 2022 Filed August 3, 2022 File No. 001-02960
Dear Messrs. Babula and Rodriguez:
Newpark Resources, Inc. (the “Company”) hereby submits via EDGAR the Company’s responses to the comments received from the staff (the “Staff”) of the United States Securities and Exchange Commission (the “Commission”) set forth in the Staff’s letter to the Company, dated September 2, 2022 (the “Comment Letter”), with respect to the Company’s Form 10-K for the Fiscal Year ended December 31, 2021 filed with the Commission via the Commission’s EDGAR system on February 25, 2022 (the “2021 Form 10-K”) and the Company’s Form 10-Q for the Quarterly Period ended June 30, 2022 filed with the Commission via the Commission’s EDGAR system on August 3, 2022 (the “Q2 2022 Form 10-Q”).
Set forth below are the Company’s responses to the Staff’s comments. The Company’s responses are preceded by the Staff’s comments for ease of reference.
Newpark Resources, Inc. • 9320 Lakeside Blvd., Suite 100, The Woodlands, Texas 77381 • (281) 362-6800 • FAX (281) 362-6801
Messrs. Babula and Rodriguez
U.S. Securities and Exchange Commission
February 3, 2023
Page 2
Form 10-K for the Fiscal Year Ended December 31, 2021
Item 1A. Risk Factors, page 8
1.Tell us how management considered including a risk factor addressing inflation and the impact that higher interest rates and increased costs will have on interest expense, materials and other aspects of your business operations that may be materially impacted by inflation.
Response: Based on the evaluation of our business model and financial exposure, management considers the potential inflationary effects of raw material and personnel costs to represent significant risks to the Company’s financial performance, though in both cases, we attempt to neutralize any inflationary effects through pricing adjustments to our customers or management of other operating costs. These specific risks were addressed within the Risk Factors section of our 2021 Form 10-K within the following excerpts (bold font added for emphasis):
Item 1A. (Page 11) – 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 product specialists, technical sales personnel, and service personnel. The market for qualified employees is extremely competitive. If we cannot attract and retain qualified 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.
We have experienced, and expect to continue to experience, a shortage of labor for certain functions, including due to concerns around COVID-19 and other factors, which has increased our labor costs and negatively impacted our profitability. The extent and duration of the effect of these labor market challenges are subject to numerous factors, including the continuing effect of the COVID-19 pandemic, vaccine mandates that may be announced in jurisdictions in which our businesses operate, availability of qualified persons in the markets where we and our contracted service providers operate and unemployment levels within these markets, behavioral changes, prevailing wage rates and other benefits, inflation, adoption of new or revised employment and labor laws and regulations (including increased minimum wage requirements) or government programs, safety levels of our operations, and our reputation within the labor market.
Item 1A. (Page 11) – Risks Related to the Price and 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. Certain of the raw materials essential to our business are sourced globally and require various freight services to transport the materials to our jobsites. These services may be impacted by current supply chain disruptions and, particularly during times of high demand, may cause delays in the arrival of or otherwise constrain our supply of raw materials. These constraints could have a material adverse effect on our business and consolidated results of operations. In addition, price increases imposed by our vendors for raw materials used in our business and the inability to pass these increases through to our customers could have a material adverse effect on our business and results of operations.
Messrs. Babula and Rodriguez
U.S. Securities and Exchange Commission
February 3, 2023
Page 3
Our Industrial Solutions business is highly dependent on the availability of high-density polyethylene (“HDPE”), which is the primary raw material used in the manufacture of our recyclable composite mats. The cost of HDPE increased significantly in 2021, and our costs can vary based on the energy costs of the producers of HDPE, demand for this material, and the capacity or operations of the plants used to make HDPE. We may not be able to increase our customer pricing to cover the cost increases that we have experienced, which could result in a reduction in future profitability.
In addition to the above, our material risks related to indebtedness were addressed within the Risk Factors section of our 2021 Form 10-K within the following excerpt (bold font added for emphasis):
Item 1A. (Page 13) – 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, or restrictions on lenders ability or willingness to lend to companies that have significant exposure to customers in the oil and natural gas industry, 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 generate sufficient cash flow to 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.
Note: remainder of this risk factor included in our 2021 Form 10-K not included here.
In addition, we quantified this interest rate exposure within the Quantitative and Qualitative Disclosures About Market Risk section of our 2021 Form 10-K, within the following excerpt (bold font added for emphasis):
Item 7A. (Page 38) – Interest Rate Risk - At December 31, 2021, we had total principal amounts outstanding under financing arrangements of $115.0 million, including $86.5 million of borrowings under our ABL Facility and $6.0 million of borrowings under a U.K. term loan which are subject to variable interest rates as determined by the respective debt agreements. The weighted average interest rate at December 31, 2021 for the ABL Facility and the U.K. term loan was 1.6% and 3.4%, respectively. Based on the balance of variable rate debt at December 31, 2021, a 100 basis-point increase in short-term interest rates would have increased annual pre-tax interest expense by $0.9 million.
Throughout 2022, we considered the market changes and their potential impact on our business performance, and added the following Risk Factor within our Form 10-Q for the Quarterly Period Ended March 31, 2022 to address potential impacts, including inflationary impacts, from the new development related to the conflict between Russia and Ukraine (bold font added for emphasis):
Risks Related to the Ongoing Conflict Between Russia and Ukraine - Given the nature of our business and our global operations, the current conflict between Russia and Ukraine may adversely affect our business and results of operations.
Messrs. Babula and Rodriguez
U.S. Securities and Exchange Commission
February 3, 2023
Page 4
Although we do not have any operations in Russia or Ukraine, the broader consequences of this conflict, which may include embargoes, supply chain disruptions, regional instability, and geopolitical shifts, and the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted.
The current conflict between Russia and Ukraine may also have the effect of heightening many other risks disclosed in our public filings, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, the volatility of oil and natural gas prices that can adversely affect demand for our products and services; our customers’ activity levels, spending for our products and services, and ability to pay amounts owed us that could be impacted by the ability of our customers to access equity or credit markets; the price and availability of raw materials; the cost and continued availability of borrowed funds; and cybersecurity breaches or business system disruptions.
To the extent that inflation impacts our operating costs, there are typically offsetting benefits either inherent in our business or that result from other steps we take to reduce the impact of inflation on our net operating results. Additionally, we take measures to mitigate the impact of cost increases in certain commodities.
In response to the foregoing comment, the Company intends to include an additional Risk Factor in our Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2022 substantially as follows:
Risks Related to Inflation - Increases in the cost of wages, materials, parts, equipment and other operational components has the potential to adversely affect our results of operations, cash flows and financial position by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers for our products and services. In addition, inflation has also resulted in higher interest rates, which could cause an increase in the cost of debt borrowing in the future, as well as supply chain shortages, an increase in the costs of labor, currency fluctuations and other similar effects.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 21
2.You disclose in your August 2022 investor presentation that you are reshaping your balance sheet to support growth plans. Please discuss and analyze your financial condition and changes in your financial condition, and to the extent applicable, the impact of inflation. Also discuss material events and uncertainties, including any changes expected to result from your “reshaping” efforts, that may impact your future financial condition. Refer to Item 303(a) of Regulation S-K.
Response: Our “reshaping” efforts, as referenced in the August 2022 investor materials, is referring to our strategic focus on operating cost and balance sheet discipline to responsibly fund our growth plans while balancing these growth investments with return of capital to our shareholders, which includes certain strategic actions identified by management. Our 2021 Form 10-K included the following specific disclosure related to our growth plans, and the strategic actions identified by management (bold font added for emphasis):
Item 1. (Page 4) – “To help reduce our dependency on customers in the volatile E&P industry, improve the stability in cash flow generation and returns on invested capital, and provide growth opportunities into new markets, we have focused our efforts over the past several years on diversifying our presence
Messrs. Babula and Rodriguez
U.S. Securities and Exchange Commission
February 3, 2023
Page 5
outside of our historical E&P customer base. These efforts have been primarily focused within our Site and Access Solutions business, where we have prioritized growth in power transmission, pipeline, renewable energy, and construction markets.”
Item 7. (Page 21) – “In February 2022, in consideration of broader strategic priorities and the timeline and efforts required to further develop the industrial blending business, our management recommended and our Board of Directors approved a plan to exit our Industrial Blending operations. As part of the exit plan, we expect to complete the wind down of the Industrial Blending business by the end of the second quarter 2022 and pursue the sale of the industrial blending and warehouse facility located in Conroe, Texas, as well as the sale or other disposal of the blending and packaging equipment and other related assets currently used in these operations. The Industrial Blending business contributed $9 million of revenues in 2021 and incurred an operating loss of $2 million. As of December 31, 2021, the carrying value of the long-lived assets associated with the Industrial Blending business was $20 million. As a result of the plan to exit and dispose of the assets used in the industrial Blending business, we may incur pre-tax charges in the range of approximately $4 million to $8 million primarily related to the non-cash impairment of long-lived assets.”
Item 7. (Page 23) – “In February 2022, our Board of Directors approved management’s plan to explore strategic options for our U.S. mineral grinding business, which contributed total third-party revenues of $36 million in 2021 yielding approximately break-even operating income and ended the year with $47 million of net capital employed, including approximately $25 million of net working capital. We continue to evaluate other under-performing areas of our business, particularly within the U.S. and Gulf of Mexico oil and natural gas markets, which necessitates consideration of broader structural changes to transform this business for the new market realities. In the absence of a longer-term increase in activity levels, we may incur future charges related to these efforts or potential asset impairments, which may negatively impact our future results. In the absence of a longer-term increase in activity levels, we may incur future charges related to these efforts or potential asset impairments, which may negatively impact our future results.”
Item 7. (Page 32) – “In February 2022, we initiated a plan to wind down our Industrial Blending operations and pursue the sale of the industrial blending and warehouse facility and related equipment, and also made the decision to explore strategic options for our U.S. mineral grinding business. Although the timing of any such transactions is not determinable, we expect to use any proceeds for general corporate purposes in support of our strategic initiatives. We also continue to evaluate additional sources of liquidity to support our longer-term needs.”
As our plans related t
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CORRESP 1 filename1.htm Document February 3, 2023 VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance Office of Energy & Transportation 100 F Street, N.E. Washington, D.C. 20549 Attention: Robert Babula and Gus Rodriguez RE: Newpark Resources, Inc. Form 10-K for the Fiscal Year Ended December 31, 2021 Filed February 25, 2022 Form 10-Q for the Quarterly Period Ended June 30, 2022 Filed August 3, 2022 File No. 001-02960 Dear Messrs. Babula and Rodriguez: Newpark Resources, Inc. (the “Company”) hereby submits via EDGAR the Company’s responses to the comments received from the staff (the “Staff”) of the United States Securities and Exchange Commission (the “Commission”) set forth in the Staff’s letter to the Company, dated September 2, 2022 (the “Comment Letter”), with respect to the Company’s Form 10-K for the Fiscal Year ended December 31, 2021 filed with the Commission via the Commission’s EDGAR system on February 25, 2022 (the “2021 Form 10-K”) and the Company’s Form 10-Q for the Quarterly Period ended June 30, 2022 filed with the Commission via the Commission’s EDGAR system on August 3, 2022 (the “Q2 2022 Form 10-Q”). Set forth below are the Company’s responses to the Staff’s comments. The Company’s responses are preceded by the Staff’s comments for ease of reference. Newpark Resources, Inc. • 9320 Lakeside Blvd., Suite 100, The Woodlands, Texas 77381 • (281) 362-6800 • FAX (281) 362-6801 Messrs. Babula and Rodriguez U.S. Securities and Exchange Commission February 3, 2023 Page 2 Form 10-K for the Fiscal Year Ended December 31, 2021 Item 1A. Risk Factors, page 8 1.Tell us how management considered including a risk factor addressing inflation and the impact that higher interest rates and increased costs will have on interest expense, materials and other aspects of your business operations that may be materially impacted by inflation. Response: Based on the evaluation of our business model and financial exposure, management considers the potential inflationary effects of raw material and personnel costs to represent significant risks to the Company’s financial performance, though in both cases, we attempt to neutralize any inflationary effects through pricing adjustments to our customers or management of other operating costs. These specific risks were addressed within the Risk Factors section of our 2021 Form 10-K within the following excerpts (bold font added for emphasis): Item 1A. (Page 11) – 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 product specialists, technical sales personnel, and service personnel. The market for qualified employees is extremely competitive. If we cannot attract and retain qualified 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. We have experienced, and expect to continue to experience, a shortage of labor for certain functions, including due to concerns around COVID-19 and other factors, which has increased our labor costs and negatively impacted our profitability. The extent and duration of the effect of these labor market challenges are subject to numerous factors, including the continuing effect of the COVID-19 pandemic, vaccine mandates that may be announced in jurisdictions in which our businesses operate, availability of qualified persons in the markets where we and our contracted service providers operate and unemployment levels within these markets, behavioral changes, prevailing wage rates and other benefits, inflation, adoption of new or revised employment and labor laws and regulations (including increased minimum wage requirements) or government programs, safety levels of our operations, and our reputation within the labor market. Item 1A. (Page 11) – Risks Related to the Price and 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. Certain of the raw materials essential to our business are sourced globally and require various freight services to transport the materials to our jobsites. These services may be impacted by current supply chain disruptions and, particularly during times of high demand, may cause delays in the arrival of or otherwise constrain our supply of raw materials. These constraints could have a material adverse effect on our business and consolidated results of operations. In addition, price increases imposed by our vendors for raw materials used in our business and the inability to pass these increases through to our customers could have a material adverse effect on our business and results of operations. Messrs. Babula and Rodriguez U.S. Securities and Exchange Commission February 3, 2023 Page 3 Our Industrial Solutions business is highly dependent on the availability of high-density polyethylene (“HDPE”), which is the primary raw material used in the manufacture of our recyclable composite mats. The cost of HDPE increased significantly in 2021, and our costs can vary based on the energy costs of the producers of HDPE, demand for this material, and the capacity or operations of the plants used to make HDPE. We may not be able to increase our customer pricing to cover the cost increases that we have experienced, which could result in a reduction in future profitability. In addition to the above, our material risks related to indebtedness were addressed within the Risk Factors section of our 2021 Form 10-K within the following excerpt (bold font added for emphasis): Item 1A. (Page 13) – 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, or restrictions on lenders ability or willingness to lend to companies that have significant exposure to customers in the oil and natural gas industry, 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 generate sufficient cash flow to 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. Note: remainder of this risk factor included in our 2021 Form 10-K not included here. In addition, we quantified this interest rate exposure within the Quantitative and Qualitative Disclosures About Market Risk section of our 2021 Form 10-K, within the following excerpt (bold font added for emphasis): Item 7A. (Page 38) – Interest Rate Risk - At December 31, 2021, we had total principal amounts outstanding under financing arrangements of $115.0 million, including $86.5 million of borrowings under our ABL Facility and $6.0 million of borrowings under a U.K. term loan which are subject to variable interest rates as determined by the respective debt agreements. The weighted average interest rate at December 31, 2021 for the ABL Facility and the U.K. term loan was 1.6% and 3.4%, respectively. Based on the balance of variable rate debt at December 31, 2021, a 100 basis-point increase in short-term interest rates would have increased annual pre-tax interest expense by $0.9 million. Throughout 2022, we considered the market changes and their potential impact on our business performance, and added the following Risk Factor within our Form 10-Q for the Quarterly Period Ended March 31, 2022 to address potential impacts, including inflationary impacts, from the new development related to the conflict between Russia and Ukraine (bold font added for emphasis): Risks Related to the Ongoing Conflict Between Russia and Ukraine - Given the nature of our business and our global operations, the current conflict between Russia and Ukraine may adversely affect our business and results of operations. Messrs. Babula and Rodriguez U.S. Securities and Exchange Commission February 3, 2023 Page 4 Although we do not have any operations in Russia or Ukraine, the broader consequences of this conflict, which may include embargoes, supply chain disruptions, regional instability, and geopolitical shifts, and the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted. The current conflict between Russia and Ukraine may also have the effect of heightening many other risks disclosed in our public filings, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, the volatility of oil and natural gas prices that can adversely affect demand for our products and services; our customers’ activity levels, spending for our products and services, and ability to pay amounts owed us that could be impacted by the ability of our customers to access equity or credit markets; the price and availability of raw materials; the cost and continued availability of borrowed funds; and cybersecurity breaches or business system disruptions. To the extent that inflation impacts our operating costs, there are typically offsetting benefits either inherent in our business or that result from other steps we take to reduce the impact of inflation on our net operating results. Additionally, we take measures to mitigate the impact of cost increases in certain commodities. In response to the foregoing comment, the Company intends to include an additional Risk Factor in our Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2022 substantially as follows: Risks Related to Inflation - Increases in the cost of wages, materials, parts, equipment and other operational components has the potential to adversely affect our results of operations, cash flows and financial position by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers for our products and services. In addition, inflation has also resulted in higher interest rates, which could cause an increase in the cost of debt borrowing in the future, as well as supply chain shortages, an increase in the costs of labor, currency fluctuations and other similar effects. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 21 2.You disclose in your August 2022 investor presentation that you are reshaping your balance sheet to support growth plans. Please discuss and analyze your financial condition and changes in your financial condition, and to the extent applicable, the impact of inflation. Also discuss material events and uncertainties, including any changes expected to result from your “reshaping” efforts, that may impact your future financial condition. Refer to Item 303(a) of Regulation S-K. Response: Our “reshaping” efforts, as referenced in the August 2022 investor materials, is referring to our strategic focus on operating cost and balance sheet discipline to responsibly fund our growth plans while balancing these growth investments with return of capital to our shareholders, which includes certain strategic actions identified by management. Our 2021 Form 10-K included the following specific disclosure related to our growth plans, and the strategic actions identified by management (bold font added for emphasis): Item 1. (Page 4) – “To help reduce our dependency on customers in the volatile E&P industry, improve the stability in cash flow generation and returns on invested capital, and provide growth opportunities into new markets, we have focused our efforts over the past several years on diversifying our presence Messrs. Babula and Rodriguez U.S. Securities and Exchange Commission February 3, 2023 Page 5 outside of our historical E&P customer base. These efforts have been primarily focused within our Site and Access Solutions business, where we have prioritized growth in power transmission, pipeline, renewable energy, and construction markets.” Item 7. (Page 21) – “In February 2022, in consideration of broader strategic priorities and the timeline and efforts required to further develop the industrial blending business, our management recommended and our Board of Directors approved a plan to exit our Industrial Blending operations. As part of the exit plan, we expect to complete the wind down of the Industrial Blending business by the end of the second quarter 2022 and pursue the sale of the industrial blending and warehouse facility located in Conroe, Texas, as well as the sale or other disposal of the blending and packaging equipment and other related assets currently used in these operations. The Industrial Blending business contributed $9 million of revenues in 2021 and incurred an operating loss of $2 million. As of December 31, 2021, the carrying value of the long-lived assets associated with the Industrial Blending business was $20 million. As a result of the plan to exit and dispose of the assets used in the industrial Blending business, we may incur pre-tax charges in the range of approximately $4 million to $8 million primarily related to the non-cash impairment of long-lived assets.” Item 7. (Page 23) – “In February 2022, our Board of Directors approved management’s plan to explore strategic options for our U.S. mineral grinding business, which contributed total third-party revenues of $36 million in 2021 yielding approximately break-even operating income and ended the year with $47 million of net capital employed, including approximately $25 million of net working capital. We continue to evaluate other under-performing areas of our business, particularly within the U.S. and Gulf of Mexico oil and natural gas markets, which necessitates consideration of broader structural changes to transform this business for the new market realities. In the absence of a longer-term increase in activity levels, we may incur future charges related to these efforts or potential asset impairments, which may negatively impact our future results. In the absence of a longer-term increase in activity levels, we may incur future charges related to these efforts or potential asset impairments, which may negatively impact our future results.” Item 7. (Page 32) – “In February 2022, we initiated a plan to wind down our Industrial Blending operations and pursue the sale of the industrial blending and warehouse facility and related equipment, and also made the decision to explore strategic options for our U.S. mineral grinding business. Although the timing of any such transactions is not determinable, we expect to use any proceeds for general corporate purposes in support of our strategic initiatives. We also continue to evaluate additional sources of liquidity to support our longer-term needs.” As our plans related t