NPK International Inc (NPKI) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by.

Welcome to the Newpark Resources fourth quarter earnings conference call.

During today's presentation all parties will be in a listen-only mode. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded today, Friday, the 9th of March, 2007.

I would now like to turn the conference over to Mr. Ken Dennard, of DRG&E.

Please go ahead.

Thank you, Michael.

Good morning, everyone.

We appreciate your joining us for Newpark Resources conference call to review fourth quarter 2006 results.

We would also like to welcome our Internet participants listening to the call over the Web.

Before I turn the call over to management I have the normal housekeeping details to run through.

We are currently building the e-mail distribution list for Newpark and so if you didn't receive an e-mail of the release yesterday afternoon, please call our offices at DRG&E -- that number is 713-529-6600 -- to provide us your contact information.

Or, you can e-mail me at my e-mail address with that information as well.

Either way, we want to get you added to the e-mail list if you so choose.

There will be a replay of today's call, it will be available by webcast going to the Company's website, at www.Newpark.com.

There will also be a telephonic recorded replay; be available until March 16, that information is in the press release yesterday.

Please note that information reported on this call speaks only as of today, March 9th, 2007; therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay listening.

In addition, the comments made today by the management of Newpark during the conference call may contain forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933 as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended.

These forward-looking statements reflect the current views of the management of Newpark; however, various risks, uncertainties and contingencies could cause Newpark's actual results, performance or achievements to differ materially from those expressed in the statements made by management.

The listener is encouraged to read the Company's amendment number 2 to annual report form 10-K A for the year ended December 31st, 2005, and the Company's quarterly report on form 10-Q for the quarterly period ended September 30th, 2006, to understand certain of those risks, uncertainties and contingencies.

The Company expects to file its annual report on form 10-K for the year ended December 31st, 2006 next week.

Listeners are also encouraged to read this annual report once it's filed with the SEC.

Now, with all that said I'd like to turn the call over to Newpark's President and CEO, Mr. Paul Howes.

Good morning to everyone.

We're very happy to be having this conference call today.

Thank you all for joining us here at our new corporate offices in The Woodlands, Texas.

With me today is Jim Braun, our Vice President and Chief Financial Officer.

Over the next several minutes, Jim and I will give a quick review of our operational and financial highlights for the quarter and full year.

But before we discuss that I'd like to give you an update on our long-term strategy that was just recently approved by the Board of Directors.

As you may remember from our third quarter call, we have been diligently evaluating our business line and reviewing our strategy to enhance the Company's competitive positioning and to drive future growth.

I'm happy to share with you some information that would give you additional clarity on the Company's focus and direction going forward.

The strategic plan that we've set forward is based on our analysis of the energy market that we currently serve, where we fit in the competitive landscape of those markets, and our realistic assessment of where we can create value for our customers and shareholders, given our competency and our resources.

We will focus on and build our businesses that participate in markets with strong fundamentals, and in which we maintain strong, competitive positions through technical and service differentiation.

Our go-forward strategy has two key elements.

First, growing the fluids business, both organically and through acquisitions.

Second, expand the scope and geographic positioning of our strong site service business, which we currently call Mats and Integrated Services.

The first element is the expansion of our Fluid Systems and engineering business through continued investment in technology and acquisitions to diversify our geography and to extend our relationship with majors, while increasing our presence in oil-producing regions.

The fluids group has been and remains the core of our business, and it will continue to be the main platform on which we will grow the Company.

We intend to leverage the strength of our fluids group to gain greater exposure to markets beyond the natural gas-producing regions of the Gulf Coast and midcontinent areas of North America.

Our European Company, Ava, which services the North African and Mediterranean markets, posted exceptionally strong growth this past year, and we continue to seek additional opportunities to expand there.

We look forward to building our footprint in South America over the coming years, building on our technical successes and customer relationships from our US and Mediterranean businesses.

We've recently set up an operation and have moved inventory into Brazil.

We're also evaluating some possible acquisition opportunities in the fluids group and will look to add new talent and expertise to expand our technological edge and providing specialized Fluid Systems for the drilling industry.

As discussed in last quarter's call, our land work with the major oil company that we disclosed is outperforming our initial expectations.

The second element of our strategy entails the building out of our Mats business.

The Mats business has been a good cash generator, and has the potential to grow, which is why we'd like to expand its scope in conjunction with the fluids group as part of our long-term vision.

Just recently we formally reorganized our Mats business, whereby the five units were combined into one, organized along functional lines to drive efficiency and strengthen our marketing and customer service.

This reorganization resulted in a reduction in workforce of 60 people, about 15%, which we expect will yield approximately $3 million in annualized savings.

We have also initiated a broader performance plan to improve our efficiency and effectiveness in procurement and supply chain, which will further improve Mats operating performance over the coming quarters.

From this improved operating performance platform, we plan to leverage our market position in Mats to facilitate our long-term strategy of growing this business and doing more than just Mats.

In short, we don't want to let the moniker 'Mats' constrain our scope of service and geography.

Rather, we will seek to enhance our service offering to become a more complete infrastructure provider for our customers.

This new strategy is essential in shifting the Company's focus, thereby opening up new opportunities to drive growth to an extent not possible under the old paradigm.

To execute on this strategic plan, we have added several key management and board members over the past several months.

We're also hired a number of knowledgeable and talented individuals in the areas of finance, risk management, and human resources to help bring our vision for the Company to fruition.

We're confident that we have the leadership and operational know-how to successfully move the Company in a new direction.

As part of our overall strategic planning process, we've reached the conclusion that the environmental service business no longer fits our long-term strategy.

This decision has been reached based on management's full evaluation of our portfolio of assets, the market in competitive positions of [NESI], and the future growth potential within Newpark for this business.

Although it has been and remains a solid performing business, and is a leader in the Gulf Coast E&P waste disposal market, environmental services no longer fits our long-term goals for growing the Company.

Based on our analysis and recommendation, the board has decided to explore strategic alternatives for the environmental service business, including the potential sale.

We will keep you abreast of any significant developments.

Before turning the call over to Jim, I would like to provide a brief update on the class action and shareholder derivative litigation that has been filed against the Company.

As noted in our press release, we continue to incur a significant amount of expenses in investigating and preparing for this litigation.

As you might guess I am limited in the detail I can offer at this time.

We've placed our D&O insurance carrier on notice.

The carriers participating in the case is subject to a reservation of rights.

And with that I would like now turn the call over to Jim Braun who will review fourth quarter and year end results.

Thanks, Paul, and good morning.

Before I cover the highlights of the fourth quarter and the year, let me take care of a little housekeeping.

We are now reporting the Newpark Environmental Water Solutions, or NEWS business, as discontinued operations.

Consequently, its results for historical periods have been removed from continuing operations.

Most notably the previously reported impairment charge of $17.8 million recorded in the third quarter of 2006 is now part of discontinued operations.

Now for the highlights of the fourth quarter of 2006.

We reported revenues of $167.3 million, up 15.5% from the fourth quarter of last year.

Sequentially, revenues were down 1.5%.

Adjusted income from continuing operations was $8.8 million, or $0.10 per share.

This compares with the fourth quarter 2005 income of $7 million, or $0.8 per diluted share.

The $0.10 per share in the fourth quarter excludes a pretax charge of $72.6 million related to the impairment of certain goodwill, tangible and intangible assets of the Environmental Services business.

This non-cash charge was a product of our annual review of goodwill, which indicated that the value of certain business units of this segment had declined from prior years.

This value was lower than our recorded goodwill and required an impairment charge.

This impairment charge, in turn, necessitated evaluation of other tangible and intangible assets of the effective units.

That evaluation also indicated and impairment charge for certain fixed and intangible assets.

The breakdown of the $72.6 million pretax charge is goodwill $62.7 million, property plant and equipment $9.2 million, and intangible assets $700,000.

The adjusted quarterly earnings also exclude $1.3 million of legal and investigation costs associated with the 2005 accounting restatement and resulting litigation.

The press release has a summary of segment data but some of the key points are as follows.

On a sequential basis, revenues for the Fluid Systems and Engineering business in the fourth quarter grew 3.2% to $129.1 million.

Operating margins for fluids improved to 16.2% compared to third quarter margins of 13.5%, which was adjusted to exclude third quarter 2006 hurricane insurance gains, which I will refer to as hurricane-adjusted.

A strong fourth quarter for the Mediterranean region more than offset a decrease in the Gulf Coast and Canada, which experienced lower drilling activity.

In addition, our completion fluids, rental and transportation business in Oklahoma also delivered strong fourth quarter performance.

Compared to the fourth quarter of 2005, revenues grew 27%.

Mats and Integrated Services reported a sequential decrease in revenues of 17.9% to $21.7 million in the fourth quarter.

Mats had a difficult third [quarter] comparison with a number of jobs deferred and certain orders canceled during the fourth quarter.

We anticipate that the revenues and margins will rebound in the first quarter of 2007.

The process of bringing the five business units together continues; the most recent action was the previously mentioned reorganization which produced a 15% reduction in the workforce.

The quarterly savings of that reduction, approximately $750,000, should start to be realized during the beginning of the second quarter.

We also halted the production of composite mats during the quarter to work off high inventory levels although this had a negative impact on the profitability for the quarter.

On a year-over-year basis, revenues declined 20.3%, operating margins were 10.6% in the fourth quarter.

In the Environmental Services business, revenues were down 9.8% sequentially to $16.5 million, but operating margins improved to 10.4% from a hurricane-adjusted 8.1% in the third quarter of 2006.

Lower volumes of waste received were mitigated by improved pricing and favorable product mix.

Our G&A expense of $6.2 million for the quarter was higher than a year ago [in] sequential levels, as we continue to occur incur additional costs related to legal expenses, as well as the fees incurred as part of our strategic planning process.

Going forward, we would expect normalized G&A to run around $4 to 4.5 million per quarter, once we get past our pending legal matters and strategic planning initiatives.

For the full-year 2006, we reported revenues of $668 million, which was up 20.7% from 2005.

Adjusted income from continuing operations was $0.34 per diluted share for 2006, compared with $0.26 in 2005.

On a full-year basis, fluids revenues grew 25.3% and operating margins expanded to a hurricane-adjusted 13.2%, up from 10.4%.

Mats and Integrated Services revenues grew 6.7%, while operating margins increased to 12.5%, up from 11.8%.

Environmental Services revenues grew by 16.7%, and hurricane-adjusted operating margins increased slightly to 10.7% from 9.9%.

Now let's turn to our balance sheet.

At December 31st, 2006, working capital stood at $218 million, with a cash balance of $13 million.

Total debt ended the year at $213 million, and our long-term debt to capital ratio was 38%.

We have shown improvement in our balance sheet and cash management since the end of the third quarter.

On a sequential basis, net debt decreased by $15 million, DSOs improved by four days, and inventory levels declined by $2 million from September 2006.

This area continues to be a focus for us and we continue to see improvement in early 2007.

In December 2006, we secured a new $100 million revolving line of credit, which replaced our $70 million revolver and extended the maturity date out three years to 2011.

This facility gives us additional flexibility and liquidity to pursue opportunities and expand our business, both domestically and internationally.

At December 31st, 2006, our borrowing base under the revolving credit facility was $87 million and $45 million was outstanding.

As a further indicator of our improving cash management, we had reduced the borrowings on the credit facility to $32 million at the end of February 2007, which is a reduction of $13 million.

And finally, for the year, our capital expenditures totaled $36 million, which included investments in NEWS in the first part of 2006.

We expect our capital expenditures will be between $26 and $28 million in 2007.

And with that I'd like to turn the call back to Paul.

Our core businesses remain strong, and we see continued strength in the drilling market and a solid pricing environment for our fluids group.

But there is still room for improvement which reinforces our view of having a strategy where drilling fluids leads the way with the technology and service-focused model, complemented by Mats and Integrated Services, creating a broad-based service offering with greater geographical reach.

We believe this strategy should help drive earnings growth and mitigate volatility in the future.

Additionally, we will continue to focus on improving our operating performance and strengthening our balance sheet.

This is an exciting time for Newpark as it represents a new direction and a clean break from the old way of doing things.

By executing our strategy and by remaining disciplined in examining potential opportunities that fit our strategic vision, we believe the Company will be better positioned to grow and command a larger share of the drilling market.

Exploring and evaluating our options has given us a new sense of purpose that we believe will make Newpark a more competitive, more capable and faster growing company.

We have a lot of work to do.

And as the new stewards of this organization, we want to assure our stakeholders that their confidence is well-placed, and their interests are being properly served.

That is why we're excited to undertake these new initiatives I have outlined today, and to put the Company on a new track that we believe will benefit our customers, shareholders, and employees.

We will now take your questions.

Operator?

(OPERATOR INSTRUCTIONS). [Colin Gery], Raymond James.

Good morning.

Just got a quick question -- on the fluids business, it looks like margins came in pretty strong there.

Could you give us a sense of what was going on?

Was that product mix, was that price, or efficiency gains from the [cost] side with what you all are doing what kind of squeezing out some of the efficiency?

A couple of things you mentioned there.

Certainly there's a revenue mix issue that benefited the quarter.

We talked about the strong performance of Ava in North [Africa], as well as the completions business in Oklahoma.

Those are two of the higher margins revenue streams that we had.

We also experienced some improved pricing as well in some of our key markets.

And those are the things that help drive the improved margins for the quarter.

So as I look forward, is that a fair margin expectation going forward in 2007?

The fourth quarter was a special quarter for us in that regard, because of those revenue mixes.

Some of those revenue opportunities were accelerated into the fourth quarter, and I would expect to see that the margins would be at levels that would be slightly below that, but not any higher than that.

That's fair.

And switching gears, you mentioned international expansion as part of your platform.

What percentage of the revenue in this past quarter was international?

Internationally, it's been relatively small.

Did you ask on a quarterly basis?

Quarterly and annually.

It runs anywhere 15 to 20%.

And if you look out kind of '07, '08 and beyond, what would be one of your benchmarks?

One of your goals?

We're not at this point not really sharing any future goals.

But clearly, the opportunities for us to expand internationally are there.

We obviously want to be less dominated by the North American business, and we like to expand more in the Mediterranean market.

Really not setting any goals at this time.

Okay.

Last question, just housekeeping.

Did you give D&A for the quarter?

No.

I did not give it for the quarter.

But it was $6 million.

And what would you expect your tax rate in your depreciation run rate to be in 2007?

The tax rate we expect to be between 37 and 38%.

And you asked about depreciation?

Yes, on an annualized basis for '07.

We would expect that to be in the $25 to $26 million range.

Okay, thanks.

Corey Greendale, First Analysis.

Good morning.

Congratulations.

I have several questions, I'll try to keep quick and get back in queue.

It sounded like you're giving some thoughts on specific measures for next year.

Can you offer any broader thoughts, and I assume you're not giving complete guidance, but anything kind of directionally in terms of guidance for '07?

You're exactly right, we wanted to provide a little insight where we thought some of the key metrics were going.

We're not -- continue to be in a position to be prepared to give specific earnings guidance.

We certainly believe that the market, although it slowed down recently, will continue to be favorable.

And we would expect to participate in that as we move forward.

So is it fair to think you're expecting both revenue and BPS be -- excluding all the onetime items to be up from '07 to '06?

Absolutely.

Okay.

Just wanted to clarify that.

And my other question is -- I guess it's a multipart question.

I'm interested in the thinking behind where the strategic plan came out.

If you could talk to each of the three lines, in the fluids, what kinds of acquisitions you're talking about, what that business is going to look like, in the Mats business, what kind of services you're thinking of adding, and why you decided to keep that.

And then in the environmental business, why you think that didn't fit what the strategy is going forward.

Let me comment first on your question concerning acquisitions.

It's not our position that we're going to comment on acquisitions at this time.

But certainly as things develop we would communicate with the market.

So that would be our position on acquisitions.

With respect to the Mats business and other services we may look at, we may look at [man] housing and other types of activities, communications, generators, other rental equipment that are sold along the same relationships.

And providing a more full-service model then we currently have.

And on the environmental business, why -- I guess because it's a different type of structure and organization required for that that doesn't fit the models?

No, that's a good question and really is an issue that we as a management team and the board wrestled with for a long time.

As you know, environmental has a long history in the foundation of Newpark in many ways.

And as we looked at that business, with our charge of trying to grow this Company, we felt that the other two businesses provided us a greater opportunity to grow profitably.

It doesn't mean that the environmental business can't grow.

As we noted it's an extremely solid business with good positions.

But we needed to grow faster, and those two businesses provided us that alternative.

The other key element is we are an organization that has a limited amount of capital and resources by which we can grow.

And we view, and our preferred course of action would be a disposition of an environmental business that would provide us the cash and the liquidity to grow and focus on the other businesses.

Actually if I could sneak one more in.

That gets to my other question, which is your thoughts on capital structure.

Obviously one of the concerns about the Company over the past several years has been the lack of cash generation and the balance sheet.

If you could speak to what your targets are there and how you think about the balance between getting free cash flow positive, and redeploying the cash in that position to maybe having to lever out on that end of it.

We work those issues -- we work the cash generation, the cash creation very strongly.

And as we noted in the comments we're done a very nice job, and our people have responded very well to the challenge about reducing our debt levels.

We will continue to reduce those debt levels, because it provides us not only the opportunity to re-arm and go out and acquire something, but it also provides us the ability to lower our interest costs, which is a significant part of our cost structure.

So we're going to keep pushing the debt down, and as acquisitions and opportunities come up, we will go utilize our ability to make those happen.

We feel very good about our ability to generate free cash in this Company.

Again, as it relates to where our capital is going to be spent in the future, we are going to be very focused on what drives this Company.

We essentially have the two elements that we're going to drive along, the Fluids group and our Mats and Integrated Services.

One of the issues the Company has had historically is a lack of focus.

And with this new strategy, we believe we will have focus, and we will improve the cash flow, and -- .

So.

(OPERATOR INSTRUCTIONS).

Stephen Mead, Anchor Capital Advisors.

Can you talk a little bit more about North America?

I know Baker Hughes talked about the weakness, and also the decline in drilling activity.

But how do you think you did from a share standpoint in terms of North America, and what did the mix look like?

And as you look ahead into '07, what's your sort of sense of the '07 outlook for you?

In North America in the quarter we experienced some down revenues in some of the key markets where we saw rig activity go down.

That being the Gulf Coast as well as Canada.

Where we did see some improvement, maybe differentiate us from some of the other companies, is our ability in our [midcon] completions fluid business to grow that much more of a service and rental element, tied to some activities other than just strictly drilling.

So it benefited from that.

But we saw very similar things to some of the other companies that you mentioned.

And then, in terms of pricing in North America?

I think again, as Jim mentioned, it's a combination of both mix and some pricing.

Obviously, we continue to press the organization for pricing.

We're seeing some improvement there. but the mix as its related to our Oklahoma business and the completions fluid side was stronger in the fourth quarter.

But we again feel there's some market dynamics that allow us to continue to push pricing here in 2007.

If I could follow up, in your outlook for '07, as I look at the individual sort of E&P companies, or midsize, the EOGs and the XTOs of the world, they're fairly positive drilling programs.

I was just wondering sort of what your outlook for '07 is on the North American side?

We feel pretty positive about the outlook in 2007.

We see activity running pretty solid for us in the first couple months, and we believe we're going to have a good year.

Thanks.

Karen Green, Oppenheimer.

Good morning.

Congratulations.

Just had a couple of follow-ups with regards to the drilling fluids business, and Paul, if you could touch upon -- maybe give us a little more color on potential acquisitions and what your hurdle rates are, some geographic markets you may be targeting.

And also maybe hit on Brazil in terms of timing and awards in that market.

I know you mentioned you recently opened a facility down there.

I won't comment on specific acquisitions we may or may not be looking at, but with respect to where we're looking, certainly we would like to diversify our business to the international market.

We're obviously very dependent upon natural gas here in North America.

So our first priority really is to look into the international markets, and what we'd really like to do there is to kind of leverage the beachhead we've established with Ava in Mediterranean and North African markets.

So that would be one of our primary thrusts, though I would say, too, that we will be opportunistic here in the North American market if we can find some businesses that fit in with the drilling fluids business, that hopefully -- obviously would be accretive earnings from our perspective.

And then with respect to Brazil, as I mentioned in the read at the beginning, we have moved inventory down into Brazil.

We're beginning to work more closely with some of the major accounts down there, trying to leverage some of our relationships and successes that we've had here in the deepwater, in the Gulf and some other work we've been doing in the Mediterranean.

So we feel pretty good about where the business is positioned.

You mentioned hurdles, and -- just at a very high level we like acquisitions to be accretive, earn their cost of capital and have a nice strategic fit with the direction of the Company.

So --

And are you currently biding any fluids projects in Brazil right now?

We did bid on some projects last year, and we're obviously looking at bids this year.

And I really can't comment on where we are in a particular bidding process at this time.

How about an idea of Ava contribution for '06 in terms of percentage of revenue that it generated out of the fluids business.

It's a nice contributor.

They've had a revenue growth of 50% year-over-year.

And as you look at the fluids business itself, they're about 15% of that segment.

Thank you.

Just one other question.

Could you give us an idea of when the contract started in the US with the major that you announced on your last conference call?

Yes.

In 2006, last quarter, we really started working on the third quarter, and also pushing very hard in the fourth quarter.

Are you currently bidding anything offshore from that particular major?

We're not at this time.

But I would say that we have been approached by another major where we're currently working on being qualified, and -- so it continues to move forward for us.

Thank you very much, gentlemen.

(OPERATOR INSTRUCTIONS).

Corey Greendale.

Thanks for taking the follow-up.

I have a couple more questions.

On the mat business can you just talk a little bit more about -- you said there were some cancellations and deferrals in the quarter.

Just what the issues were, and why you're confident that [reloan's] going forward.

It was work that some of the operators just pushed off until after the first of the year, that have started to come to fruition in the first quarter.

Some of the others were some canceled orders of some mats that probably will not recur.

When you say rebound, obviously revenue there has kind of moved around a lot from quarter-to-quarter.

Rebounds meaning north of 30 million, or back to 25 million, or what should we be thinking about there?

We're not going to the specific number.

The thing to remember in that mattes business, as we said in a prior conference call them the sales are fairly lumpy as we sell these composite mats that range and average $1500 a piece.

They create some lumpy sales from quarter-to-quarter.

That's one of the areas that my management team is focusing on and trying to create a little more stable earnings growth in that business.

Okay.

That's fine.

Then on the G&A you said I think 4 to 4.5 million quarterly as the run rate.

If you look historically, the run rate was more like 2.5 million, something like that.

Can you talk about what's changed there?

One of the things we're doing and making a concerted effort as part of our strategy is to beef up and provide some corporate resources that didn't previously exist.

And we talked about -- in the areas of HR and risk management, particularly two areas that have recently been put under way.

And we've already identified and are going to see some positive things come out of those moves.

Sorry if I missed this, but did you say there is a charge associated with headcount reductions?

I did not say.

And there was not a significant charge associated with the severance of those 60 people.

Okay.

And I hope you don't mind, just a couple more.

On the cost structure, do you have any sense what kind of savings you're talking from the procurement and supply chain initiatives, eventually?

Not at this time.

Okay.

And actually, on the mat business, or are you still looking at -- recently they had started going after some markets outside the oilfield.

Is that still part of the strategy?

They continue to look at two other markets.

Really the primary one would be the utility market.

That's the one they're focused on.

They've had some smaller subsegments like the military, but much smaller in nature.

But utility market is one they're focusing on.

And Paul, if I could, last summary question.

On if you look at -- my understanding of what happened at [Astares] could you talk about -- I think it was a successful outcome for you there.

Can you talk about how this is similar and different then whether you think an endgame like the one at Astares is a possibility at Newpark?

I don't -- I wouldn't want to comment on what endgame is here at Newpark.

Really the endgame for us is to grow sustainable earnings growth and create shareholder value.

We're excited about the strategy that we announced today and the initiatives to grow this Company.

And we look forward to driving along that path.

Thanks and good luck.

Bill [Doyle], [Winger] Asset Management.

CapEx for next year, 26, 27 we said?

(multiple speakers)

26 to 28 in capital expenditures, that is correct.

Free cash flow, then.

Both from operations, most likely to be redeployed into a combination of debt reduction and acquisitions?

Or is debt reduction on that -- ?

That's correct.

So reduced debt as well as keep an eye out.

Absolutely.

Stephen Mead.

Do you have a number on what the tax loss carryforward ended up at the year end at this point?

And whether you add it to that in the course of 2006?

We actually utilize from tax loss carryforward, it's still over $100 million.

And also, in terms of working capital management, what do you think you can do going forward in terms of days receivable and days inventory in the business?

We certainly believe there's opportunities for improvement there.

In fact, that's one of the management incentives that will be on the table for 2007.

So we expect continued improvement on the balance sheet.

And on the cost of -- what's that stuff, Baywright or whatever --

That's correct, the ore.

Where are we as far as that consideration?

Baywright costs are heavily influenced by transportation, as most of the Baywright comes from overseas and we continue to see increases in transportation costs with a heavy demand on ocean freight.

And those costs, we're working diligently to pass on to our end customers.

Do you think you will be out -- no problem -- what's the situation or ability to pass that on at this point?

We've been passing on cost increases in the fourth quarter, and we continue to have announced price increases here in the first quarter of '07 as well.

So we think the market is tight, opportunities are good, and we'll keep pushing forward with it.

We don't see it as a concern lurking on the horizon for us.

Thanks.

Karen Green.

Thank you.

Paul, I was wondering if you could give us an idea of the potential timing of the monetization of the Environmental Services?

Our hope would be that we would monetize that by the end of this year.

And it's still fair to assume that you guys have about 50 plus percent of the Gulf Coast market share?

That is correct.

Can you also comment a little bit on Canada and what you're seeing on that market from an overall perspective?

Certainly the Canadian market in the fourth quarter was soft, while rigs were laying down as the price of natural gas dropped.

We've seen a little more activity in the January February timeframe, but it's going to be continued softness we think here in 2007.

Jim, would you like to add anything to that?

I think the first quarter will continue to be soft in Canada, and we'll have the Q2 breakup and it'll be Q3 before we see any activity returning to levels that we really like.

And you guys still own about 48 of the barges along the US Gulf Coast?

Is that fair (multiple speakers)

No --

We lease those.

We lease, we have some barges that won, the number is less than that.

But we lease more than we own.

Do you have that specific -- do you have those numbers available?

Are you looking for the lease barges?

Leased versus owned.

Least barges are 48 and there's probably seven or eight that we own.

But there are different sizes and types.

Large ones are leased.

Thank you.

Thank you.

Management, please continue with any closing comments.

Thank you very much.

We would like to thank everyone once again for joining us on this call and for your interest in Newpark Resources.

We look forward to talking to you again at the conclusion of our first quarter.

Take care.

Thank you very much.

Ladies and gentlemen, this does conclude the Newpark Resources fourth quarter earnings conference call.

You may now disconnect.

Thank you for much for using [ACC] Conferencing.

Have a very pleasant day.