Newpark Resources(NR) - 2021 Q4 - Annual Report

PART I Business Overview Newpark Resources, Inc operates through Industrial Solutions and Fluids Systems segments, focusing on end-market diversification and sustainable products - Newpark Resources, Inc operates through two reportable segments: Industrial Solutions and Fluids Systems, providing environmentally-sensitive products, rentals, and services across multiple industries[21][126][245] - The company's long-term strategy includes end-market diversification to reduce dependency on the volatile E&P industry and a focus on providing products that enhance environmental sustainability[28][128] - In February 2022, management approved plans to wind down Industrial Blending operations and explore strategic options for the U.S. mineral grinding business[28][31][36][130][138] General Company Information - Newpark Resources, Inc was organized in 1932 as a Nevada corporation and changed its state of incorporation to Delaware in 1991[22][244] - The principal executive offices are located at 9320 Lakeside Boulevard, Suite 100, The Woodlands, Texas 77381[22] - The company's website, www.newpark.com, provides access to annual, quarterly, and current reports, proxy statements, and other SEC filings[22] Industry Fundamentals and Market Dynamics - Demand for Industrial Solutions products and services is driven by infrastructure construction and maintenance, particularly in power transmission, E&P, pipeline, renewable energy, petrochemical, and construction industries, including investments supporting energy transition[23] - Fluids Systems operating results are dependent on oil and natural gas drilling activity levels, which are influenced by commodity pricing, inventory levels, product demand, and regulatory restrictions, leading to cyclical and volatile market impacts[24][131][247] - The COVID-19 pandemic significantly impacted business in 2020, causing customer delays and project disruptions, though international Fluids Systems revenues gradually recovered in 2021, approaching pre-COVID levels by the fourth quarter[23][26][27][129][134] North American Rig Count (2019-2021) | Year | U.S. Rig Count | Canada Rig Count | North America Rig Count | | :--- | :--- | :--- | :--- | | 2019 | 943 | 134 | 1,077 | | 2020 | 433 | 89 | 522 | | 2021 | 475 | 131 | 606 | Company Strategy - A key strategic priority is end-market diversification, focusing on growth in power transmission, pipeline, renewable energy, and construction markets to reduce dependency on the volatile E&P industry and improve cash flow stability[28][128] - The company is committed to providing environmentally-sensitive products, including recyclable DURA-BASE® matting systems (reducing deforestation and CO2 emissions) and high-performance water-based drilling fluids (Evolution®, DeepDrill®, TerraTherm, Transition)[28] - Ongoing portfolio reviews have led to a plan to wind down Industrial Blending operations and explore strategic options for the U.S. mineral grinding business, aiming to emphasize markets with strong returns and long-term viability[28][138] Reportable Segments Details Industrial Solutions Segment - The Industrial Solutions segment provides temporary worksite access solutions, including rental and sale of recyclable composite matting systems (DURA-BASE®) and related site services, primarily in the United States and Europe[21][30][245] - This segment serves diverse markets such as power transmission, E&P, pipeline, renewable energy, petrochemical, and construction, with power transmission being the primary end-market for mat sales[21][30][34] - In 2021, approximately 61% of segment revenues were derived from the 20 largest customers, with the largest customer representing 10%, and 90% of revenues generated domestically[34] Fluids Systems Segment - The Fluids Systems segment offers customized drilling, completion, and stimulation fluids products and technical services for oil, natural gas, and geothermal projects, primarily in North America, EMEA, Asia Pacific, and Latin America[21][35][245] - The segment also includes industrial mineral grinding operations for barite, a critical raw material for drilling fluids, supporting U.S. activities and selling products to third parties[21][36] - In 2021, approximately 48% of segment revenues came from the 20 largest customers, with no single customer exceeding 10%, and 54% of revenues generated domestically[39] Human Capital - The company is committed to providing a diverse and inclusive environment, recognizing its people as its greatest asset for long-term sustainability and business strategy implementation[41] - As of December 31, 2021, the company employed approximately 1,565 full and part-time personnel across more than 20 countries, with none represented by labor unions[42] - Newpark reinforces its commitment to Core Values of safety, integrity, respect, excellence, and accountability through various company-culture initiatives[42] Governmental Regulations - The business is exposed to regulatory risks from various industries, including governmental regulations related to the oil and natural gas industry, as well as environmental, health, and safety regulations[43] - Procedures are implemented to ensure compliance and reduce risk, including specified handling guidelines, ongoing employee training, monitoring, insurance coverage, and a corporate-wide Health, Safety, and Environmental Management System (HSEMS)[44] Risk Factors The company faces significant risks from industry volatility, indebtedness, regulations, and general business challenges that could impact financial results - The company's success is dependent on its ability to anticipate and effectively manage a variety of risks, which, individually or combined, could materially adversely affect results of operations or financial condition[45] - Risks are grouped into Business and Industry, Indebtedness, Legal and Regulatory, Financial, and General categories, with many risks affecting multiple categories[46] Business and Industry Risks - The COVID-19 pandemic significantly reduced economic activity, adversely affecting demand and prices for oil and natural gas, leading to reduced demand for the company's products and services, project delays, and supply chain disruptions[47][48][51] - The company derives a significant portion of revenues from the worldwide oil and natural gas industry, making it highly susceptible to volatility in demand, supply, and prices of hydrocarbons, which are influenced by global economic growth, energy transition, and geopolitical factors[50][51][53][54][55] - Customer concentration is a risk, with 39% of 2021 consolidated revenues from the 20 largest customers and 65% from U.S. operations, including $250 million from the E&P market, making the company vulnerable to spending reductions or loss of key customers[58] - International operations (35% of 2021 consolidated revenues) are subject to risks including complex foreign laws, regulatory changes, political instability, currency fluctuations, and health emergencies[61][62][64] - The company faces significant health, safety, and environmental risks inherent in the oil and natural gas and electrical utility industries, with potential for personal injury, death, property damage, or environmental harm, and insurance/indemnification may not be sufficient[63][65] - The ability to obtain raw materials (e.g., HDPE for mats, barite for fluids) is critical, and supply chain disruptions, price increases, or inability to pass costs to customers could materially affect business and results of operations[70][71][72] Indebtedness Risks - The company's future success depends on continued access to borrowed funds, which is subject to credit market conditions and lenders' willingness to finance companies exposed to the oil and natural gas industry[84] - Compliance with debt covenants, particularly under the $200 million ABL Facility, is crucial; failure to meet requirements could lead to default, acceleration of debt, and adverse effects on financial condition[87][88] - Borrowing availability under the ABL Facility is calculated based on eligible U.S. accounts receivable, inventory, and composite mats, subject to financial covenants like a minimum consolidated fixed charge coverage ratio[86][191][302] Legal and Regulatory Risks - The company is responsible for complying with numerous federal, state, local, and foreign environmental laws and regulations, with non-compliance potentially resulting in fines, penalties, cleanup costs, or operational suspensions[90] - Existing or future climate change legislation and environmental activism, aimed at limiting greenhouse gas emissions and promoting alternative energy, could increase costs, restrict oil and natural gas exploration, or reduce demand for fossil fuels, materially affecting operations and profitability[91][92] - As a global business, the company is subject to complex laws and regulations, including anti-bribery, anti-corruption, sanctions, tax, employment, and data privacy laws, with non-compliance potentially leading to significant fines, sanctions, and reputational damage[94] Financial Risks - Liability insurance is subject to coverage limitations, including self-insured retentions, exclusions, and policy limits, and the ability to obtain coverage on reasonable terms is uncertain, potentially leading to material adverse effects from uninsured claims or cost increases[95] - Future effective tax rates could be adversely affected by changes in domestic and international tax laws, their interpretation, or the valuation of deferred tax assets and liabilities, with potential legislative proposals (e.g., global minimum tax) possibly increasing the effective tax rate[96][97][98] General Risks - The company's reliance on management information systems and IT infrastructure exposes it to cybersecurity threats and business system disruptions, which could lead to data misuse, operational disruptions, reputational harm, and litigation, despite investments in security technology[99][100] - Ongoing restructuring activities, including plans to wind down Industrial Blending and explore options for U.S. mineral grinding, may not achieve expected results and could lead to future charges or asset impairments[101][102] - Campaigns by activist stockholders can be costly and time-consuming, diverting management and Board attention and potentially adversely affecting results of operations and financial condition[103] - Failure to comply with NYSE continued listing standards, such as maintaining a minimum stock price, could result in delisting, negatively impacting stock liquidity, market price, and ability to raise equity financing[104][105] Unresolved Staff Comments There are no unresolved staff comments to report for the period - The company has no unresolved staff comments[108] Properties The company's properties include owned and leased facilities across its segments, primarily in the U.S. and U.K - The Fluids Systems segment owns a 103,000 square foot facility in Katy, Texas, housing its divisional headquarters and technology center, and leases industrial space in Fourchon, Louisiana for drilling and completion fluids operations[110] - The Fluids Systems segment also operates four specialty mineral grinding facilities in the U.S. and owns or leases various global facilities and warehouses[110] - The Industrial Solutions segment owns a 93,000 square foot facility in Carencro, Louisiana for manufacturing and its technology center, and owns or leases various facilities in the U.S. and U.K. for field operations[111] - An industrial blending facility and distribution warehouse in Conroe, Texas, owned by the Industrial Solutions segment, is planned for sale[111] Legal Proceedings The company is involved in routine litigation and claims with no anticipated material adverse financial impact - The company is involved in litigation and other claims in the ordinary course of business[112][383] - Management does not expect any loss from such proceedings, in excess of accrued amounts or insurance coverage, to have a material adverse impact on consolidated financial statements[112][383] Mine Safety Disclosures Information regarding mine safety violations is provided in Exhibit 95.1 of this Annual Report on Form 10-K - Information concerning mine safety violations and other regulatory matters is included in Exhibit 95.1 of this Annual Report on Form 10-K[113] PART II Market for Common Equity, Stockholder Matters & Equity Purchases The company's stock trades on the NYSE, with no recent dividends paid and an active securities repurchase program - The company's common stock is traded on the New York Stock Exchange under the symbol "NR"[116] - As of February 1, 2022, there were 1,155 stockholders of record[116] - The company has not paid dividends in the last three fiscal years and does not intend to in the foreseeable future, partly due to limitations from its ABL Facility[117] - A securities repurchase program, authorized for $100.0 million, had $23.8 million remaining as of December 31, 2021[121][122] Common Equity Market and Stockholder Information - The company's common stock is traded on the New York Stock Exchange under the symbol "NR"[116] - As of February 1, 2022, there were 1,155 stockholders of record[116] - The company has not paid any dividends during the three most recent fiscal years or any subsequent interim period, and does not intend to pay any cash dividends in the foreseeable future, due to ABL Facility covenants[117] Issuer Purchases of Equity Securities - During 2021, the company purchased an aggregate of 419,114 shares surrendered in lieu of taxes under vesting of restricted stock awards, which are held as treasury stock[120][337] - The Board of Directors authorized changes to the securities repurchase program in November 2018, increasing the authorized amount to $100.0 million for common stock and Convertible Notes[121][338] - As of December 31, 2021, $23.8 million remained under the repurchase program[122][339] - During 2021, $28.3 million of Convertible Notes were repurchased in the open market under the program for a total cost of $28.1 million; no common stock was repurchased under the program in 2021[123][340][341] Issuer Repurchases of Common Stock (Q4 2021) | Period | Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | October 2021 | — | — | | November 2021 | 3,043 | $2.72 | | December 2021 | 1,424 | $2.70 | | Total | 4,467 | | [Reserved] This item is reserved and contains no information - Item 6 is reserved and contains no information[124] Management's Discussion and Analysis of Financial Condition and Results of Operations A 2021 revenue increase was driven by segment growth, though a net loss persisted amid strategic operational changes and capital investments - Revenues increased 25% to $614.8 million in 2021 compared to $492.6 million in 2020, driven by growth in North America's Industrial Solutions and Fluids Systems segments[140][141] - The operating loss significantly improved by 89% from $(78.6) million in 2020 to $(8.8) million in 2021[140] - The company is implementing strategic actions, including winding down Industrial Blending operations and exploring options for its U.S. mineral grinding business, to enhance liquidity and focus on higher-returning businesses[130][138][187] Overview of Operations and Financial Performance - The Industrial Solutions segment generated 32% of consolidated revenues and $40 million of operating income in 2021, with 80% of total capital expenditures directed to this segment to support growth in power transmission and other industrial markets[127][128] - Industrial Solutions segment revenues from power transmission and other industrial markets increased by $47 million (43%) to $157 million in 2021, while E&P customer revenues decreased by $53 million (59%) to $37 million since 2019[129] - The Fluids Systems segment generated 68% of consolidated revenues but incurred a $19 million operating loss in 2021, with results highly dependent on volatile oil and natural gas drilling activity[131] - In 2020, the company implemented cost reduction programs, including a 30% reduction in its global employee base (approximately 650 employees), and recognized $29.2 million in charges, primarily in Fluids Systems[135][136] - In 2021, the company recognized $5.5 million in charges, primarily related to self-insured costs from Hurricane Ida damage to its Fourchon, Louisiana Fluids Systems operating base, facility exit, and severance costs[137] North American Rig Count (2019-2021) | Year | U.S. Rig Count | Canada Rig Count | North America Rig Count | | :--- | :--- | :--- | :--- | | 2019 | 943 | 134 | 1,077 | | 2020 | 433 | 89 | 522 | | 2021 | 475 | 131 | 606 | Financial Performance: 2021 vs. 2020 Consolidated Results of Operations (2021 vs. 2020) - Revenues increased by $122.2 million (25%) in 2021, driven by a $97.9 million (28%) increase in North America (Industrial Solutions growth in power transmission, Fluids Systems rig count improvement) and a $24.3 million (17%) increase internationally[141] - Cost of revenues increased by 12%, primarily due to higher revenues, partially offset by cost reduction programs; 2021 included $3.0 million in charges (facility exit, severance), while 2020 included $14.1 million in charges (inventory write-downs, severance, facility exit)[142] - Selling, general and administrative expenses increased by $7.8 million (9%) due to higher performance-based incentives, stock-based compensation, and personnel costs, but decreased as a percentage of revenues from 17.6% in 2020 to 15.4% in 2021[143] - The provision for income taxes was $7.3 million in 2021 despite a pretax loss, mainly reflecting tax expense from international operations where U.S. loss tax benefits could not be recognized[150] Consolidated Results of Operations (2021 vs. 2020) | (In thousands) | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $614,781 | $492,625 | $122,156 | 25 % | | Cost of revenues | $529,552 | $473,258 | $56,294 | 12 % | | Selling, general and administrative expenses | $94,445 | $86,604 | $7,841 | 9 % | | Operating loss | $(8,825) | $(78,634) | $69,809 | 89 % | | Loss before income taxes | $(18,233) | $(92,579) | $74,346 | 80 % | | Net loss | $(25,526) | $(80,696) | $55,170 | 68 % | Operating Segment Results (2021 vs. 2020) - Fluids Systems revenues increased 19% to $420.8 million, with North America up 21% (U.S. land markets up $51.7 million, Canada up $23.2 million) and international up 14% due to higher activity post-COVID-19[153][154] - Industrial Solutions revenues increased 41% to $194.0 million, driven by a 129% increase in product sales ($37.6 million) and a 17% increase in rental and service revenues ($17.1 million), reflecting growth in power transmission and other industrial markets[157][158] - Fluids Systems operating loss improved by $47.4 million to $(19.0) million, benefiting from revenue growth and cost reductions, despite $5.5 million in charges related to Hurricane Ida, facility exit, and severance[156] - Industrial Solutions operating income increased to $39.7 million from $13.5 million, primarily attributable to the segment's revenue growth[159] Operating Segment Performance (2021 vs. 2020) | (In thousands) | 2021 Revenues | 2020 Revenues | Change ($) | Change (%) | 2021 Op. Income (Loss) | 2020 Op. Income (Loss) | Change ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fluids Systems | $420,789 | $354,608 | $66,181 | 19 % | $(19,012) | $(66,403) | $47,391 | | Industrial Solutions | $193,992 | $138,017 | $55,975 | 41 % | $39,733 | $13,459 | $26,274 | | Corporate office | - | - | - | - | $(29,546) | $(25,690) | $(3,856) | | Total | $614,781 | $492,625 | $122,156 | 25 % | $(8,825) | $(78,634) | $69,809 | Financial Performance: 2020 vs. 2019 Consolidated Results of Operations (2020 vs. 2019) - Revenues decreased 40% ($327.5 million) in 2020, primarily due to a $263.8 million (43%) decrease in North America (52% reduction in rig count) and a $63.7 million (31%) decrease in international operations (COVID-19 and lower oil prices)[163] - Cost of revenues decreased 31% ($211.5 million) in line with the revenue decline, with 2020 including $14.1 million in charges (inventory write-downs, severance, facility exit) compared to $6.8 million in 2019[164] - Selling, general and administrative expenses decreased $26.8 million (24%) due to reduced personnel costs and lower legal spending, though as a percentage of revenues, it increased from 13.8% in 2019 to 17.6% in 2020[165] - The company recognized $14.7 million in impairments and other charges in 2020, including $11.7 million for foreign currency translation losses related to the Brazil subsidiary liquidation and $3.0 million for fixed asset abandonment[167] - The benefit for income taxes was $11.9 million in 2020, reflecting an effective tax benefit rate of 13%, primarily due to the Brazil liquidation charges and the geographic composition of pretax loss[171] Consolidated Results of Operations (2020 vs. 2019) | (In thousands) | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $492,625 | $820,119 | $(327,494) | (40)% | | Cost of revenues | $473,258 | $684,738 | $(211,480) | (31)% | | Selling, general and administrative expenses | $86,604 | $113,394 | $(26,790) | (24)% | | Operating income (loss) | $(78,634) | $10,395 | $(89,029) | NM | | Income (loss) before income taxes | $(92,579) | $(3,158) | $(89,421) | NM | | Net loss | $(80,696) | $(12,946) | $(67,750) | NM | Operating Segment Results (2020 vs. 2019) - Fluids Systems revenues decreased 43% to $354.6 million, with North America down 47% (U.S. land markets down $200.3 million due to a 54% decline in U.S. rig count) and international down 34% due to COVID-19 disruptions and lower oil prices[174][175] - Industrial Solutions revenues decreased 31% to $138.0 million, primarily due to a 29% decrease in rental and service revenues from E&P customers, partially offset by a $1.6 million increase from non-E&P markets[178] - Fluids Systems incurred an operating loss of $(66.4) million, a $70.2 million decline from 2019, primarily due to revenue decreases, despite cost reduction programs and including $28.6 million in charges[176][177] - Industrial Solutions operating income decreased to $13.5 million from $47.5 million, mainly attributable to the change in revenues[179] Operating Segment Performance (2020 vs. 2019) | (In thousands) | 2020 Revenues | 2019 Revenues | Change ($) | Change (%) | 2020 Op. Income (Loss) | 2019 Op. Income (Loss) | Change ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fluids Systems | $354,608 | $620,317 | $(265,709) | (43)% | $(66,403) | $3,814 | $(70,217) | | Industrial Solutions | $138,017 | $199,802 | $(61,785) | (31)% | $13,459 | $47,466 | $(34,007) | | Corporate office | - | - | - | - | $(25,690) | $(40,885) | $15,195 | | Total | $492,625 | $820,119 | $(327,494) | (40)% | $(78,634) | $10,395 | $(89,029) | Liquidity and Capital Resources - Net cash used in operating activities was $3.0 million in 2021, a significant shift from $55.8 million provided in 2020, primarily due to a net increase in working capital driven by increased receivables from higher revenues[182] - Net cash used in investing activities was $17.5 million in 2021, including $21.8 million in capital expenditures (mostly for Industrial Solutions' mat rental fleet) and $13.4 million for the Lentzcaping acquisition, partially offset by $16.0 million from asset sales[183] - Net cash provided by financing activities was $21.4 million in 2021, primarily from $77.6 million in net borrowings on the ABL Facility and foreign lines of credit, and $8.1 million from a U.K. term loan, partially offset by $66.7 million for Convertible Notes repurchases and repayment[184] - The company expects available cash on-hand, cash generated by operations, and availability under the ABL Facility to be adequate to fund current operations for the next 12 months, with future capital expenditures focused on industrial end-market opportunities[186] Capitalization Structure Capitalization (Dec 31, 2021 vs. 2020) | (In thousands) | December 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Convertible Notes | $0 | $66,912 | | ABL Facility | $86,500 | $19,100 | | Other debt | $28,491 | $5,371 | | Unamortized discount and debt issuance costs | $(188) | $(4,221) | | Total debt | $114,803 | $87,162 | | Stockholders' equity | $462,386 | $488,032 | | Total capitalization | $577,189 | $575,194 | | Total debt to capitalization | 19.9 % | 15.2 % | Asset-Based Loan Facility (ABL) - The ABL Facility provides financing of up to $200.0 million (inclusive of letters of credit), with a maximum capacity of $275.0 million, and terminates in March 2024[189][298] - As of December 31, 2021, total availability under the ABL Facility was $116.3 million, with $86.5 million drawn and $28.7 million remaining[190][299] - Borrowing availability is based on eligible U.S. accounts receivable, inventory, and composite mats, subject to maintaining a minimum consolidated fixed charge coverage ratio of 1.5 to 1.0 and at least $1.0 million of operating income for the Site and Access Solutions business[191][302] Other Debt Obligations - In August 2021, the company completed sale-leaseback transactions for vehicles and equipment, resulting in $7.9 million net proceeds and $6.7 million in financing obligations outstanding at December 31, 2021, with a weighted average annual interest rate of 5.4%[194][305] - A U.K. subsidiary entered a £6.0 million (approximately $8.3 million) term loan facility in February 2021, maturing in February 2024, with $6.1 million outstanding at December 31, 2021[195][306] - Foreign subsidiaries maintain local credit arrangements, with $11.8 million outstanding at December 31, 2021, up from $3.5 million at December 31, 2020[196][307] Off-Balance Sheet Arrangements - The company does not have any special purpose entities[197][384] - As of December 31, 2021, the company had $45.3 million in outstanding letters of credit, performance bonds, and other guarantees, with certain letters of credit collateralized by $5.4 million in restricted cash[197][384] - These off-balance sheet arrangements are not expected to have a material effect on the company's financial statements[197][384] Contractual Obligations and Commitments - Obligations due in less than one year are expected to be paid from available cash, cash generated by operations, and estimated availability under the ABL Facility and other existing financing arrangements[200] - The specific timing of settlement for certain long-term obligations, such as expected tax payments, asset retirement obligations, and uncertain tax positions, cannot be reasonably estimated[200] Summary of Contractual Obligations (Dec 31, 2021) | (In thousands) | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | ABL Facility | $0 | $0 | $86,500 | $0 | $0 | $0 | $86,500 | | Other debt | $15,334 | $2,031 | $2,715 | $0 | $0 | $0 | $20,080 | | Financing obligation | $3,436 | $2,359 | $1,090 | $169 | $0 | $0 | $7,054 | | Finance lease liabilities | $722 | $587 | $325 | $156 | $2 | $0 | $1,792 | | Operating lease liabilities | $7,678 | $5,066 | $3,629 | $2,999 | $2,951 | $11,763 | $34,086 | | Trade accounts payable and accrued liabilities | $124,688 | $0 | $0 | $0 | $0 | $0 | $124,688 | | Other long-term liabilities | $0 | $1,680 | $1,651 | $0 | $0 | $7,013 | $10,344 | | Performance bond obligations | $9,356 | $7,754 | $16,941 | $566 | $0 | $1,727 | $36,344 | | Letter of credit commitments | $7,060 | $91 | $157 | $1,383 | $0 | $235 | $8,926 | | Total contractual obligations | $168,274 | $19,568 | $113,008 | $5,273 | $2,953 | $20,738 | $329,814 | Critical Accounting Policies and Estimates Critical Accounting Estimates - The preparation of financial statements requires management to make significant estimates and assumptions, including estimated cash flows and fair values for impairments of long-lived assets and valuation allowances for deferred tax assets[201][246] - Actual results may differ materially from these estimates, which are based on historical experience and future expectations[201] Impairment of Long-lived Assets - Property, plant and equipment and finite-lived intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable, based on undiscounted future net cash flows[203][256] - In December 2021, a review of Industrial Blending assets determined no impairment was required, but a subsequent plan to exit the business in February 2022 is expected to result in $4 million to $8 million in pre-tax impairment charges in Q1 2022[204][207] - Goodwill, totaling $47.3 million at December 31, 2021 (all in Industrial Solutions), is tested annually as of November 1, with no impairment required in the 2021 annual review[209][210][288] - In 2019, an $11.4 million non-cash impairment charge was recognized to write-off all goodwill related to the Fluids Systems reporting unit due to declining drilling activities and market softness[167][290] Income Taxes - Deferred tax assets totaled $70.2 million at December 31, 2021, primarily related to U.S. federal net operating loss carryforwards[211][327] - A valuation allowance of $38.4 million was established at December 31, 2021, primarily for net operating loss carryforwards in certain U.S. federal, state, and foreign jurisdictions, as well as foreign tax credits, due to uncertainty of realization[211][328] - The company is subject to examination of its income tax returns by U.S. and foreign tax authorities and assesses potential exposure for uncertain tax positions[212][213][329][330] New Accounting Pronouncements - Refer to Note 1 in Item 8, "Financial Statements and Supplementary Data" for a discussion of new accounting pronouncements[214] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates and foreign currency exchange rates - The company is exposed to market risk from changes in interest rates and foreign currency exchange rates[216] Interest Rate Risk - At December 31, 2021, the company had $115.0 million in total principal outstanding under financing arrangements subject to variable interest rates, including $86.5 million from the ABL Facility and $6.0 million from a U.K. term loan[217] - The weighted average interest rate for the ABL Facility was 1.6% and for the U.K. term loan was 3.4% at December 31, 2021[217] - A 100 basis-point increase in short-term interest rates would have increased annual pre-tax interest expense by $0.9 million, based on the variable rate debt balance at December 31, 2021[217] Foreign Currency Risk - The company has foreign currency exchange risks associated with its principal foreign operations in EMEA, Canada, Asia Pacific, and Latin America, which are conducted in local currencies such as European euros, Canadian dollars, and British pounds[218] - Historically, the company has not used off-balance sheet financial hedging instruments to manage foreign currency risks[218] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and the independent auditor's report - The section includes the 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, and Notes to Consolidated Financial Statements[421] Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2021, 2020, and 2019, stating they present fairly, in all material respects, the financial position and results of operations[222] - The firm also expressed an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[223] - A critical audit matter identified was the evaluation of long-lived asset impairment for the Industrial Blending asset group, due to the materiality of property, plant and equipment and the complexity of management's assumptions for future cash flows[227][228][229] Consolidated Financial Statements Consolidated Balance Sheets (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total current assets | $388,512 | $328,180 | | Property, plant and equipment, net | $260,256 | $277,696 | | Goodwill | $47,283 | $42,444 | | Other intangible assets, net | $24,959 | $25,428 | | Total assets | $752,886 | $709,192 | | Total current liabilities | $150,392 | $153,658 | | Long-term debt, less current portion | $95,593 | $19,690 | | Total liabilities | $290,500 | $221,160 | | Total stockholders' equity | $462,386 | $488,032 | Consolidated Statements of Operations (Years Ended Dec 31) | (In thousands, except per share data) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenues | $614,781 | $492,625 | $820,119 | | Operating income (loss) | $(8,825) | $(78,634) | $10,395 | | Net loss | $(25,526) | $(80,696) | $(12,946) | | Net loss per common share - basic | $(0.28) | $(0.89) | $(0.14) | | Net loss per common share - diluted | $(0.28) | $(0.89) | $(0.14) | Consolidated Statements of Cash Flows (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(3,013) | $55,791 | $72,286 | | Net cash used in investing activities | $(17,475) | $(3,395) | $(49,764) | | Net cash provided by (used in) financing activities | $21,408 | $(77,941) | $(29,526) | | Cash, cash equivalents, and restricted cash at end of year | $29,489 | $30,348 | $56,863 | Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies - The company's financial statements are prepared in accordance with U.S. GAAP, requiring management to make significant estimates and assumptions, particularly for impairments of long-lived assets and deferred tax assets[246] - The company adopted new accounting guidance for credit losses as of January 1, 2020, resulting in a net reduction of $0.7 million to opening retained earnings to reflect the cumulative effect of adoption[249][273] - The functional currency for substantially all international subsidiaries is their respective local currency, with foreign currency translation adjustments reflected in accumulated other comprehensive loss until liquidation[267] - The substantial liquidation of the Brazil subsidiary in the fourth quarter of 2020 resulted in an $11.7 million non-cash charge for the reclassification of cumulative foreign currency translation losses[136][268] Note 2: Business Combinations - In December 2021, the company acquired certain assets and assumed liabilities of Lentzcaping, Inc. and Lentzcaping, LLC for $13.5 million, net of cash acquired, funded by the ABL Facility[277] - The Lentzcaping acquisition resulted in the recognition of $3.3 million in other intangible assets (customer relationships, tradename) and a $2.1 million intangible liability, with $4.9 million recorded as goodwill[278][280] - In October 2019, the company acquired Cleansorb Limited, a U.K.-based provider of specialty chemicals, for $18.7 million, net of cash acquired, expanding its completion fluids technology portfolio[280] Note 3: Inventories - Raw materials for Fluids Systems primarily consist of barite, chemicals, and other additives, while Industrial Solutions raw materials include resins, chemicals for mats and cleaning products[283] - Fluids Systems segment cost of revenues for 2020 included $10.3 million of charges for inventory write-downs, primarily due to reductions in carrying values to net realizable value[284] Inventories (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Raw materials: Fluids Systems | $119,242 | $98,974 | | Raw materials: Industrial Solutions | $4,939 | $6,315 | | Blended fluids systems components | $27,793 | $31,744 | | Finished goods — mats | $3,367 | $10,824 | | Total inventories | $155,341 | $147,857 | Note 4: Property, Plant and Equipment - Depreciation expense was $38.5 million in 2021, $40.9 million in 2020, and $42.8 million in 2019[285] - The Fluids Systems segment included a $3.0 million impairment charge in 2020, attributable to the abandonment of certain property, plant and equipment[285] Property, Plant and Equipment, Net (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Land | $11,820 | $11,901 | | Buildings and improvements | $118,395 | $122,961 | | Machinery and equipment | $282,258 | $285,678 | | Computer hardware and software | $48,389 | $46,801 | | Furniture and fixtures | $5,879 | $5,955 | | Construction in progress | $8,194 | $6,958 | | Less accumulated depreciation | $(287,046) | $(268,862) | | Composite mats (rental fleet) | $135,975 | $126,617 | | Less accumulated depreciation - composite mats | $(63,608) | $(60,313) | | Property, plant and equipment, net | $260,256 | $277,696 | Note 5: Goodwill and Other Intangible Assets - The company completed its annual goodwill impairment evaluation as of November 1, 2021, and determined that no impairment was required for the Industrial Solutions segment[288][289][290] - In 2019, an $11.4 million non-cash impairment charge was recognized to write-off all goodwill related to the Fluids Systems reporting unit due to declining drilling activities and projected market softness[290] - Total amortization expense related to other intangible assets was $3.7 million in 2021, $4.5 million in 2020, and $4.4 million in 2019[292] Goodwill Carrying Amount by Segment (Dec 31) | (In thousands) | Fluids Systems | Industrial Solutions | Total | | :--- | :--- | :--- | :--- | | Balance at December 31, 2019 | $0 | $42,332 | $42,332 | | Effects of foreign currency | $0 | $112 | $112 | | Balance at December 31, 2020 | $0 | $42,444 | $42,444 | | Acquisition | $0 | $4,871 | $4,871 | | Effects of foreign currency | $0 | $(32) | $(32) | | Balance at December 31, 2021 | $0 | $47,283 | $47,283 | Other Intangible Assets, Net (Dec 31, 2021) | (In thousands) | Gross Carrying Amount | Accumulated Amortization | Other Intangible Assets, Net | | :--- | :--- | :--- | :--- | | Technology related | $20,315 | $(9,201) | $11,114 | | Customer related | $37,176 | $(23,843) | $13,333 | | Permits and licenses | $512 | $0 | $512 | | Total intangible assets | $58,003 | $(33,044) | $24,959 | Note 6: Financing Arrangements - The $100.0 million Convertible Notes, issued in December 2016, matured on December 1, 2021, with the remaining $38.6 million repaid at maturity[296][297] - The ABL Facility, with a $200.0 million capacity and terminating in March 2024, had $86.5 million drawn and $28.7 million remaining availability as of December 31, 2021[298][299] - Other debt includes $6.7 million in financing obligations from sale-leaseback transactions and a $6.1 million U.K. term loan outstanding at December 31, 2021[305][306] Financing Arrangements (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 Principal Amount | 2021 Total Debt | 2020 Principal Amount | 2020 Total Debt | | :--- | :--- | :--- | :--- | :--- | | Convertible Notes | $0 | $0 | $66,912 | $62,691 | | ABL Facility | $86,500 | $86,500 | $19,100 | $19,100 | | Term loan | $6,094 | $5,984 | $0 | $0 | | Financing obligation | $6,688 | $6,610 | $0 | $0 | | Other debt | $15,709 | $15,709 | $5,371 | $5,371 | | Total debt | $114,991 | $114,803 | $91,383 | $87,162 | Note 7: Fair Value of Financial Instruments and Credit Risk - The carrying values of most financial instruments, including cash, receivables, and payables, approximated their fair values at December 31, 2021 and 2020, with the exception of Convertible Notes at December 31, 2020, which had an estimated fair value of $61.1 million[309] - The company's financial instruments are subject to concentrations of credit risk, primarily from cash and trade accounts receivable, with a significant portion of revenues derived from customers in the energy industry[310][311] - For 2021, 39% of consolidated revenues came from the 20 largest customers, with no single customer accounting for more than 10% of consolidated revenues[311] Receivables, Net (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Gross trade receivables | $185,065 | $133,717 | | Allowance for credit losses | $(4,587) | $(5,024) | | Net trade receivables | $180,478 | $128,693 | | Income tax receivables | $4,167 | $6,545 | | Other receivables | $9,651 | $5,807 | | Total receivables, net | $194,296 | $141,045 | Changes in Allowance for Credit Losses (2019-2021) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Balance at beginning of year | $5,024 | $6,007 | $10,034 | | Cumulative effect of accounting change | $0 | $959 | $0 | | Credit loss expense | $664 | $1,427 | $1,792 | | Write-offs, net of recoveries | $(1,101) | $(3,369) | $(5,819) | | Balance at end of year | $4,587 | $5,024 | $6,007 | Note 8: Leases - Total operating lease expenses were $24.4 million in 2021, $25.8 million in 2020, and $30.1 million in 2019[317] - The weighted-average remaining lease term for operating leases was 7.1 years and for finance leases was 2.8 years at December 31, 2021[320] Lease Assets and Liabilities (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Operating lease assets | $27,569 | $30,969 | | Finance lease assets | $1,709 | $942 | | Total lease assets | $29,278 | $31,911 | | Current operating lease liabilities | $6,494 | $6,888 | | Current finance lease liabilities | $682 | $353 | | Noncurrent operating lease liabilities | $22,352 | $25,068 | | Noncurrent finance lease liabilities | $1,041 | $590 | | Total lease liabilities | $30,569 | $32,899 | Maturity of Lease Liabilities (Dec 31, 2021) | (In thousands) | Operating Leases | Finance Leases | Total | | :--- | :--- | :--- | :--- | | 2022 | $7,678 | $722 | $8,400 | | 2023 | $5,066 | $587 | $5,653 | | 2024 | $3,629 | $325 | $3,954 | | 2025 | $2,999 | $156 | $3,155 | | 2026 | $2,951 | $2 | $2,953 | | Thereafter | $11,763 | $0 | $11,763 | | Total lease payments | $34,086 | $1,792 | $35,878 | Note 9: Income Taxes - The provision for income taxes was $7.3 million in 2021 despite a pretax loss, primarily due to earnings from international operations where U.S. loss tax benefits could not be recognized[322] - The company has U.S. federal net operating loss carryforwards of approximately $100.9 million that do not expire, and state NOLs of $208.0 million, with $147.8 million not expiring[327] - A valuation allowance of $38.4 million was recorded at December 31, 2021, primarily against certain U.S. federal, state, and foreign NOL carryforwards and foreign tax credits, as their realization is not more likely than not[328] Provision (Benefit) for Income Taxes (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Current | $8,502 | $6,967 | $14,038 | | Deferred | $(1,209) | $(18,850) | $(4,250) | | Total provision (benefit) | $7,293 | $(11,883) | $9,788 | Deferred Tax Assets and Liabilities (Dec 31, 2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total deferred tax assets | $70,155 | $56,356 | | Valuation allowance | $(38,406) | $(26,250) | | Total deferred tax assets, net of allowances | $31,749 | $30,106 | | Total deferred tax liabilities | $(41,252) | $(41,768) | | Total net deferred tax liabilities | $(9,503) | $(11,662) | Note 10: Capital Stock - As of December 31, 2021, 16,981,147 shares of common stock were held as treasury stock[335] - The company's securities repurchase program, authorized for $100.0 million, had $23.8 million remaining as of December 31, 2021[338][339] - During 2021, $28.3 million of Convertible Notes were repurchased under the program for $28.1 million; no common stock was repurchased under the program in 2021[340][341] Common Stock Outstanding (In thousands of shares) | Year | Outstanding, beginning of year | Outstanding, end of year | | :--- | :--- | :--- | | 2019 | 106,363 | 106,697 | | 2020 | 106,697 | 107,588 | | 2021 | 107,588 | 109,331 | Note 11: Earnings Per Share - All potentially dilutive stock options and restricted stock awards were excluded from diluted net loss per share calculations for 2021, 2020, and 2019 because their inclusion would have been anti-dilutive due to the net losses incurred[344] Net Loss Per Common Share (Years Ended Dec 31) | (In thousands, except per share data) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net loss - basic and diluted | $(25,526) | $(80,696) | $(12,946) | | Weighted average common shares outstanding - basic | 91,460 | 90,198 | 89,782 | | Weighted average common shares outstanding - diluted | 91,460 | 90,198 | 89,782 | | Net loss per common share - basic | $(0.28) | $(0.89) | $(0.14) | | Net loss per common share - diluted | $(0.28) | $(0.89) | $(0.14) | Note 12: Stock-Based Compensation and Other Benefit Plans - The 2014 Non-Employee Directors' Restricted Stock Plan and the 2015 Employee Equity Incentive Plan authorize various equity-based compensation grants, with 146,527 and 1,673,140 shares remaining available for grant, respectively, at December 31, 2021[346][348] - Total compensation cost recognized for restricted stock awards and units was $7.7 million in 2021, $6.3 million in 2020, and $9.8 million in 2019, with $8.7 million in unrecognized cost remaining at December 31, 2021[357] - Cash-based awards, including time-based and performance-based awards, resulted in a total liability of $5.7 million at December 31, 2021, up from $4.0 million in 2020[358][362] - Company cash contributions to the 401(k) Plan were $2.2 million in 2021, $1.2 million in 2020, and $4.3 million in 2019, with matching contributions temporarily eliminated in April 2020 and reinstituted in Q2 2021[363] Note 13: Segment and Related Information - In 2021, the Fluids Systems segment incurred $5.5 million in hurricane-related, facility exit, and severance costs, partially offset by a $0.8 million gain from an insurance settlement[369] - In 2020, the company recognized $29.2 million in total charges, primarily related to the Brazil exit, inventory write-downs, severance costs, and fixed asset impairments, with $28.6 million in the Fluids Systems segment[374] Summarized Financial Information by Segment (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues: | | | | | Fluids Systems | $420,789 | $354,608 | $620,317 | | Industrial Solutions | $193,992 | $138,017 | $199,802 | | Total revenues | $614,781 | $492,625 | $820,119 | | Operating income (loss): | | | | | Fluids Systems | $(19,012) | $(66,403) | $3,814 | | Industrial Solutions | $39,733 | $13,459 | $47,466 | | Corporate office | $(29,546) | $(25,690) | $(40,885) | | Total operating income (loss) | $(8,825) | $(78,634) | $10,395 | | Capital expenditures: | | | | | Fluids Systems | $3,644 | $6,237 | $18,416 | | Industrial Solutions | $17,402 | $7,831 | $23,535 | | Corporate office | $747 | $1,726 | $2,855 | | Total capital expenditures | $21,793 | $15,794 | $44,806 | Revenues by Geographic Location (Years Ended Dec 31) | (In thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | United States | $402,246 | $327,598 | $578,698 | | Canada | $48,007 | $24,762 | $37,496 | | EMEA | $151,228 | $128,362 | $183,124 | | Asia Pacific | $7,629 | $6,561 | $15,273 | | Latin America | $5,671 | $5,342 | $5,528 | | Total revenues | $614,781 | $492,625 | $820,119 | Note 14: Supplemental Cash Flow and Other Information - Accruals for employee incentives and other compensation-related expenses were $23.1 million at December 31, 2021, compared to $16.4 million at December 31, 2020[381] Cash Paid for Income Taxes and Interest (Years Ended Dec 31) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Income taxes (net of refunds) | $6,912 | $6,350 | $12,165 | | Interest | $5,339 | $6,054 | $8,718 | Cash, Cash Equivalents, and Restricted Cash (Dec 31) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $24,088 | $24,197 | $48,672 | | Restricted cash | $5,401 | $6,151 | $8,191 | | Total | $29,489 | $30,348 | $56,863 | Note 15: Commitments and Contingencies - The company is involved in litigation and other claims in the ordinary course of business, but management does not expect any material adverse impact on consolidated financial statements beyond amounts accrued or covered by insurance[383] - As of December 31, 2021, the company had $45.3 million in outstanding letters of credit, performance bonds, and other guarantees, with $5.4 million in restricted cash collateralizing certain letters of credit[384] - The company is self-insured for health claims (up to $250,000 per incident) and for certain workers' compensation, auto, and general liability claims (up to $750,000), maintaining accrued liabilities for the uninsured portions[385] - Accrued asset retirement obligations were $1.1 million at December 31, 2021, primarily related to required expenditures for owned and leased facilities[386] Note 16: Subsequent Events - In January 2022, the company completed the restructuring of certain international subsidiary legal entities in Europe, expecting to recognize an income tax benefit of approximately $3 million in Q1 2022[387] - In February 2022, management approved a plan to exit Industrial Blending operations by Q2 2022 and sell related assets, expecting pre-tax impairment charges of $4 million to $8 million in Q1 2022[389] - The Board of Directors also approved management's plan to explore strategic options for the U.S. mineral grinding business, which contributed $36 million in third-party revenues in 2021[390] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - There are no changes in and disagreements with accountants on accounting and financial disclosure[391] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2021, and concluded they were effective[392] - There were no changes in internal control over financial reporting during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[393] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on criteria set forth by COSO, and this effectiveness was audited by Deloitte & Touche LLP, who issued an unqualified opinion[396][397][400] Evaluation of Disclosure Controls and Procedures - The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the company's disclosure controls and procedures as of December 31, 2021, and concluded they were effective[392] Changes in Internal Control Over Financial Reporting - There were no changes in the company's internal control over financial reporting during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[393] Management's Report on Internal Control Over Financial Reporting - Management is responsible for establishing and maintaining adequate internal control over financial reporting, designed to provide reasonable assurance regarding the reliability of financial reporting[394] - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[396] - The effectiveness of internal control over financial reporting as of December 31, 2021, was audited by Deloitte & Touche LLP, who issued an unqualified opinion[397][400](index