UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-2960

Newpark Resources, Inc.

(Exact name of registrant as specified in its charter)

Delaware		72-1123385
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
2700 Research Forest Drive, Suite 100
The Woodlands, Texas		77381
(Address of principal executive offices)		(Zip Code)

(281) 362-6800
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of April 19, 2011, a total of 90,390,302 shares of common stock, $0.01 par value per share, were outstanding.

 

 

NEWPARK RESOURCES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED
MARCH 31, 2011

Item						Page
Number				Description		Number
				PART I-FINANCIAL INFORMATION
	1			Financial Statements (Unaudited):
				Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			3
				Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010			4
				Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2011 and 2010			5
				Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010			6
				Notes to Unaudited Condensed Consolidated Financial Statements			7
	2			Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
	3			Quantitative and Qualitative Disclosures About Market Risk			21
	4			Controls and Procedures			21
				PART II-OTHER INFORMATION
	1			Legal Proceedings			21
	1A			Risk Factors			21
	2			Unregistered Sales of Equity Securities and Use of Proceeds			22
	3			Defaults Upon Senior Securities			22
	4			[Removed and Reserved]			22
	5			Other Information			22
	6			Exhibits			22
				Signatures			23
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also may provide oral or written forward-looking statements in other materials we release to the public. The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management; however, various risks, uncertainties and contingencies, including the risks identified in Item 1A in Part II of this Quarterly Report, Item 1A, “Risk Factors,” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2010, and those set forth from time to time in our filings with the Securities and Exchange Commission, could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements, including the success or failure of our efforts to implement our business strategy.

We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities laws. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.

For further information regarding these and other factors, risks and uncertainties affecting us, we refer you to the risk factors set forth in Part I of our Annual Report on Form 10-K for the year ended December 31, 2010.

PART I FINANCIAL INFORMATION

ITEM 1.		Financial Statements

Newpark Resources, Inc.

Condensed Consolidated Balance Sheets
(Unaudited)

		March 31,				December 31,
(In thousands, except share data)		2011				2010
ASSETS
Cash and cash equivalents		$	95,366			$	83,010
Receivables, net			200,200				196,799
Inventories			122,911				123,028
Deferred tax asset			21,041				27,654
Prepaid expenses and other current assets			10,097				10,036
Total current assets			449,615				440,527
Property, plant and equipment, net			212,792				212,655
Goodwill			63,008				62,307
Other intangible assets, net			12,664				13,072
Other assets			8,372				8,781
Total assets		$	746,451			$	737,342
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt		$	359			$	1,606
Accounts payable			62,861				66,316
Accrued liabilities			34,009				43,234
Total current liabilities			97,229				111,156
Long-term debt, less current portion			172,996				172,987
Deferred tax liability			32,225				31,549
Other noncurrent liabilities			4,661				4,303
Total liabilities			307,111				319,995
Commitments and contingencies (Note 5)
Common stock, $0.01 par value, 200,000,000 shares authorized 93,153,576 and 93,143,102 shares issued, respectively			932				931
Paid-in capital			469,547				468,503
Accumulated other comprehensive income			13,679				8,581
Retained deficit			(29,180	)			(45,034	)
Treasury stock, at cost; 2,763,274 and 2,766,912 shares, respectively			(15,638	)			(15,634	)
Total stockholders’ equity			439,340				417,347
Total liabilities and stockholders’ equity		$	746,451			$	737,342

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Newpark Resources, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

		Three Months Ended March 31,
(In thousands, except per share data)		2011				2010
Revenues		$	202,651			$	160,798
Cost of revenues			159,002				133,518
Selling, general and administrative expenses			15,818				14,413
Other operating income, net			(117	)			(842	)
Operating income			27,948				13,709
Foreign currency exchange loss (gain)			323				(611	)
Interest expense, net			2,257				2,148
Income from operations before income taxes			25,368				12,172
Provision for income taxes			9,514				4,390
Net income		$	15,854			$	7,782
Income per common share — basic		$	0.18			$	0.09
Income per common share — diluted		$	0.16			$	0.09

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Newpark Resources, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

		Three Months Ended March 31,
(In thousands)		2011				2010
Net income		$	15,854			$	7,782
Changes in fair value of interest rate swap, net of tax			—				(10	)
Foreign currency translation adjustments			5,098				(2,382	)
Comprehensive income		$	20,952			$	5,390

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Newpark Resources, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

		Three Months Ended March 31,
(In thousands)		2011				2010
Cash flows from operating activities:
Net income		$	15,854			$	7,782
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization			6,430				6,711
Stock-based compensation expense			975				870
Provision for deferred income taxes			7,567				3,147
Net (recovery) provision for doubtful accounts			(44	)			239
(Gain) loss on sale of assets			(17	)			348
Change in assets and liabilities:
Increase in receivables			(1,063	)			(32,724	)
Decrease in inventories			1,453				9,183
Decrease (increase) in other assets			285				(261	)
Decrease in accounts payable			(3,895	)			(1,134	)
(Decrease) increase in accrued liabilities and other			(9,648	)			3,470
Net cash provided by (used in) operating activities			17,897				(2,369	)
Cash flows from investing activities:
Capital expenditures			(6,188	)			(2,029	)
Proceeds from sale of property, plant and equipment			66				48
Net cash used in investing activities			(6,122	)			(1,981	)
Cash flows from financing activities:
Borrowings on lines of credit			1,193				45,409
Payments on lines of credit			(2,332	)			(39,564	)
Other borrowings (payments)			9				(186	)
Proceeds from employee stock plans			87				48
Purchase of treasury stock			(95	)			(86	)
Net cash (used in) provided by financing activities			(1,138	)			5,621
Effect of exchange rate changes on cash			1,719				(539	)
Net increase in cash and cash equivalents			12,356				732
Cash and cash equivalents at beginning of period			83,010				11,534
Cash and cash equivalents at end of period		$	95,366			$	12,266
Cash paid for:
Income taxes		$	3,582			$	1,132
Interest		$	234			$	2,269

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

NEWPARK RESOURCES, INC.

Note 1 — Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Newpark Resources, Inc. and our wholly-owned subsidiaries, which we refer to as “we,” “our” or “us,” have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission (“SEC”), and do not include all information and footnotes required by the accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010. Our fiscal year end is December 31 and our first quarter represents the three month period ended March 31. The results of operations for the first quarter of 2011 are not necessarily indicative of the results to be expected for the entire year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2011, the results of our operations for the first quarter of 2011 and 2010, and our cash flows for the first quarter of 2011 and 2010. All adjustments are of a normal recurring nature. Our balance sheet at December 31, 2010 is derived from the audited consolidated financial statements at that date.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For further information, see Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2010.

New Accounting Standards

In October 2009, the Financial Accounting Standards Board (“FASB“) issued additional guidance on multiple-deliverable revenue arrangements. The guidance provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. It replaces the term “fair value” in the revenue allocation guidance with “selling price” to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant, and they establish a selling price hierarchy for determining the selling price of a deliverable. The amendments eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, and they significantly expand the required disclosures related to multiple-deliverable revenue arrangements. The amendments were effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010. The impact of this additional guidance has not had a material impact on our consolidated financial statements.

In December 2010, the FASB issued updated accounting guidance related to the calculation of the carrying amount of a reporting unit when performing the first step of a goodwill impairment test. Specifically, this update requires an entity to use an equity premise when performing the first step of a goodwill impairment test and if a reporting unit has a zero or negative carrying amount, the entity must assess and consider qualitative factors and whether it is more likely than not that a goodwill impairment exists. The new accounting guidance is effective for impairment tests performed during entities’ fiscal years (and interim periods within those years) that begin after December 15, 2010. The impact of this updated guidance has not had a material impact on our consolidated financial statements.

In December 2010, the FASB issued updated accounting guidance to clarify that pro forma disclosures should be presented as if a business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting period and the prior reporting period pro forma financial information. These disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. The new accounting guidance is effective for business combinations consummated in periods beginning after December 15, 2010, and should be applied prospectively as of the date of adoption. The impact of this guidance has not had a material impact on our consolidated financial statements.

Note 2 — Earnings per Share

The following table presents the reconciliation of the numerator and denominator for calculating earnings per share:

		First Quarter
(In thousands, except per share data)		2011				2010
Basic EPS:
Net income		$	15,854			$	7,782
Weighted average number of common shares outstanding			89,621				88,654
Basic income per common share		$	0.18			$	0.09
Diluted EPS:
Net income		$	15,854			$	7,782
Assumed conversion of Senior Notes			1,194				—
Adjusted net income		$	17,048			$	7,782
Weighted average number of common shares outstanding-basic			89,621				88,654
Add: Dilutive effect of stock options and restricted stock awards			823				213
Dilutive effect of Senior Notes			15,682				—
Diluted weighted average number of common shares outstanding			106,126				88,867
Diluted income per common share		$	0.16			$	0.09
Stock options and warrants excluded from calculation of diluted earnings per share because anti-dilutive for the period			3,826				4,561

For the first quarter of 2011 and 2010, we had weighted average dilutive stock options and restricted stock outstanding of approximately 3.0 million shares and 2.8 million shares respectively. The resulting net effect of stock options and restricted stock were used in calculating diluted earnings per share for the period.

In June 2000, we completed the sale of 120,000 shares of Series B Convertible Preferred Stock, $0.01 par value per share (the “Series B Preferred Stock”), and a warrant (the “Series B Warrant”) to purchase up to 1,900,000 shares of our common stock at an exercise price of $10.075 per share, subject to anti-dilution adjustments. As of March 31, 2011, the Series B Warrant, as adjusted for anti-dilution provisions, remains outstanding and provides for the right to purchase up to approximately 2.1 million shares of our common stock at an exercise price of $8.97, and expires in February 2012.

Note 3 — Receivables and Inventories

Receivables — Receivables consist of the following:

		March 31,				December 31,
(In thousands)		2011				2010
Gross trade receivables		$	197,212			$	193,349
Allowance for doubtful accounts			(5,796	)			(5,839	)
Net trade receivables			191,416				187,510
Other receivables			8,784				9,289
Total receivables, net		$	200,200			$	196,799

Inventories — Our inventories include $121.6 million and $122.5 million of raw materials and components for our drilling fluids systems at March 31, 2011 and December 31, 2010, respectively. The remaining balance consists primarily of composite mat finished goods.

Note 4 — Financing Arrangements and Fair Value of Financial Instruments

Our financing arrangements include $172.5 million of unsecured convertible senior notes (“Senior Notes”) and a $150.0 million revolving credit facility, of which no borrowings were outstanding at March 31, 2011. The Senior Notes bear interest at a rate of 4.0% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning April 1, 2011. Holders may convert the Senior Notes at their option at any time prior to the close of business on the business day immediately preceding the October 1, 2017 maturity date. The conversion rate is initially 90.8893 shares of our common stock per $1,000 principal amount of Senior Notes (equivalent to an initial conversion price of $11.00 per share of common stock), subject to adjustment in certain circumstances. Upon conversion, the Senior Notes will be settled in shares of our common stock. We may not redeem the Senior Notes at our election prior to their maturity date.

Our financial instruments include cash and cash equivalents, receivables, payables, and debt. We believe the carrying values of these instruments, with the exception of our debt, approximated their fair values at March 31, 2011 and December 31, 2010. The estimated fair value of our outstanding debt is $172.5 million at March 31, 2011 and $159.1 million at December 31, 2010. The estimated fair value of the Senior Notes at these respective dates is based on quoted market prices.

Note 5 — Commitments and Contingencies

In the ordinary course of conducting our business, we become involved in litigation and other claims from private party actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state and local levels. In the opinion of management, any liability in these matters should not have a material effect on our consolidated financial statements.

Note 6 — Segment Data

Summarized operating results for our reportable segments is shown in the following table (net of inter-segment transfers):

		First Quarter
(In thousands)		2011				2010
Revenues
Fluids systems and engineering		$	170,467			$	136,310
Mats and integrated services			23,063				13,620
Environmental services			9,121				10,868
Total revenues		$	202,651			$	160,798
Operating income (loss)
Fluids systems and engineering		$	19,199			$	12,414
Mats and integrated services			11,784				2,714	(1)
Environmental services			1,620				2,679
Corporate office			(4,655	)			(4,098	)
Operating income		$	27,948			$	13,709

(1)		Includes $0.9 million of other income reflecting proceeds from insurance claims related to Hurricane Ike in 2008.

Note 7 — Subsequent Event

In April 2011, we completed the acquisition of the drilling fluids and engineering services business from Rheochem PLC, a publicly-traded Australian-based oil and gas company. The acquired business provides drilling fluids and related engineering services to the oil and gas exploration and geothermal industries with operations in Australia, New Zealand and India. Total cash paid at closing was AUD$24.0 million ($25.4 million), and total consideration is subject to typical adjustments for working capital conveyed at closing. Additional consideration may be payable based on financial results of the acquired business over a one-year earnout period, up to a maximum total consideration of AUD$45 million. In the most recently completed fiscal year ended June 30, 2010, Rheochem PLC’s drilling fluid services segment reported revenues of AUD$20.3 million. Our operating results for the first quarter of 2011 include $0.4 million of acquisition-related costs. Proforma results of operations have not been presented as the effects of this acquisition is not material to our consolidated financial statements.

Note 8 — Guarantor and Non-Guarantor Financials

In May 2010, we filed a “shelf” registration statement on Form S-3 (“Form S-3”) registering up to $200 million in securities that may be issued by the Company from time to time. In October 2010, we completed our offering of Senior Notes under this “shelf” registration statement. While our Senior Notes did not include subsidiary guarantees, under our remaining “shelf” registration statement, we may in the future issue additional debt securities registered pursuant to the Form S-3 that are fully and unconditionally guaranteed by certain subsidiaries of the Company, as identified in the Form S-3 and primarily consisting of our U.S. subsidiaries. As a result, we are required to present consolidating financial information regarding the guarantors and non-guarantors of the securities in accordance with SEC Regulation S-X Rule 3-10. As specified in Rule 3-10, the unaudited condensed consolidating balance sheets, results of operations, and statements of cash flows presented on the following pages meet the requirements for financial statements of the issuer and each guarantor of the debt securities because the guarantors are all direct or indirect wholly-owned subsidiaries of Newpark Resources, Inc., and all of the guarantees are full and unconditional on a joint and several basis. The unaudited condensed consolidating balance sheets as of March 31, 2011 and December 31, 2010, and unaudited condensed consolidating statements of operations and statements of cash flows for the quarters ended March 31, 2011 and 2010 are as follows:

Condensed Consolidating Balance Sheets

		March 31, 2011
(in thousands)						Guarantor				Non-guarantor				Consolidating
(unaudited)		Parent				subsidiaries				subsidiaries				entries				Consolidated
ASSETS
Cash and cash equivalents		$	80,886			$	(9,083	)		$	23,563			$	—			$	95,366
Receivables, net			586				127,355				72,259				—				200,200
Inventories			—				83,503				39,408				—				122,911
Deferred tax asset			10,383				10,350				308				—				21,041
Prepaid expenses and other current assets			752				2,477				6,868				—				10,097
Total current assets			92,607				214,602				142,406				—				449,615
Property, plant and equipment, net			9,011				178,606				25,175				—				212,792
Goodwill			—				38,237				24,771				—				63,008
Other intangible assets, net			—				10,135				2,529				—				12,664
Other assets			7,252				590				1,601				(1,071	)			8,372
Investment in subsidiaries			188,554				29,283				—				(217,837	)			—
Total assets		$	297,424			$	471,453			$	196,482			$	(218,908	)		$	746,451
LIABILITIES AND STOCKHOLDERS’ EQUITY
Foreign lines of credit and other short-term debt		$	—			$	—			$	359			$	—			$	359
Accounts payable			1,998				36,840				24,023				—				62,861
Accrued liabilities			12,285				9,544				12,180				—				34,009
Total current liabilities			14,283				46,384				36,562				—				97,229
Long-term debt, less current portion			172,500				—				496				—				172,996
Deferred tax liability			—				31,785				1,511				(1,071	)			32,225
Other noncurrent liabilities			2,307				10				2,344				—				4,661
Net intercompany (receivable) payable			(331,006	)			255,823				75,183				—				—
Total liabilities			(141,916	)			334,002				116,096				(1,071	)			307,111
Common stock			932				24,557				29,110				(53,667	)			932
Paid-in capital			469,547				56,417				3				(56,420	)			469,547
Accumulated other comprehensive income			13,679				—				19,470				(19,470	)			13,679
Retained (deficit) earnings			(29,180	)			56,477				31,803				(88,280	)			(29,180	)
Treasury stock, at cost			(15,638	)			—				—				—				(15,638	)
Total stockholders’ equity			439,340				137,451				80,386				(217,837	)			439,340
Total liabilities and stockholders’ equity		$	297,424			$	471,453			$	196,482			$	(218,908	)		$	746,451

		December 31, 2010
(in thousands)						Guarantor				Non-guarantor				Consolidating
(unaudited)		Parent				subsidiaries				subsidiaries				entries				Consolidated
ASSETS
Cash and cash equivalents		$	68,128			$	(4,290	)		$	19,172			$	—			$	83,010
Receivables, net			789				122,827				73,183				—				196,799
Inventories			—				83,434				39,594				—				123,028
Deferred tax asset			16,572				10,351				731				—				27,654
Prepaid expenses and other current assets			2,121				2,279				5,636				—				10,036
Total current assets			87,610				214,601				138,316				—				440,527
Property, plant and equipment, net			6,991				180,743				24,921				—				212,655
Goodwill			—				38,237				24,070				—				62,307
Other intangible assets, net			—				10,562				2,510				—				13,072
Other assets			8,316				594				1,621				(1,750	)			8,781
Investment in subsidiaries			180,700				29,283				—				(209,983	)			—
Total assets		$	283,617			$	474,020			$	191,438			$	(211,733	)		$	737,342
LIABILITIES AND STOCKHOLDERS’ EQUITY
Foreign lines of credit and other short-term debt		$	—			$	—			$	1,606			$	—			$	1,606
Accounts payable			2,083				38,516				25,717				—				66,316
Accrued liabilities			16,470				11,094				15,670				—				43,234
Total current liabilities			18,553				49,610				42,993				—				111,156
Long-term debt, less current portion			172,500				—				487				—				172,987
Deferred tax liability			—				31,785				1,514				(1,750	)			31,549
Other noncurrent liabilities			2,043				10				2,250				—				4,303
Net intercompany (receivable) payable			(326,826	)			254,541				72,285				—				—
Total liabilities			(133,730	)			335,946				119,529				(1,750	)			319,995
Common stock			931				24,557				29,110				(53,667	)			931
Paid-in capital			468,503				56,417				3				(56,420	)			468,503
Accumulated other comprehensive income			8,581				—				14,826				(14,826	)			8,581
Retained (deficit) earnings			(45,034	)			57,100				27,970				(85,070	)			(45,034	)
Treasury stock, at cost			(15,634	)			—				—				—				(15,634	)
Total stockholders’ equity			417,347				138,074				71,909				(209,983	)			417,347
Total liabilities and stockholders’ equity		$	283,617			$	474,020			$	191,438			$	(211,733	)		$	737,342

Condensed Consolidated Statements of Operations

		First Quarter 2011
(in thousands)						Guarantor				Non-guarantor				Consolidating
(unaudited)		Parent				subsidiaries				subsidiaries				entries				Consolidated
Revenues		$	—			$	144,801			$	57,850			$	—			$	202,651
Cost of revenues			—				112,349				46,653				—				159,002
Selling, general and administrative expenses			4,655				6,865				4,298				—				15,818
Other operating income, net			—				(80	)			(37	)			—				(117	)
Operating (loss) income			(4,655	)			25,667				6,936				—				27,948
Foreign currency exchange (gain) loss			—				(11	)			334				—				323
Interest expense (income), net			2,304				(5	)			(42	)			—				2,257
Intercompany interest (income) expense			—				(730	)			730				—				—
(Loss) income from operations before income taxes			(6,959	)			26,413				5,914				—				25,368
Provision for income taxes			(2,952	)			11,204				1,262				—				9,514
Equity in income of subsidiaries			19,861				3,625				—				(23,486	)			—
Net income		$	15,854			$	18,834			$	4,652			$	(23,486	)		$	15,854

		First Quarter 2010
(in thousands)						Guarantor				Non-guarantor				Consolidating
(unaudited)		Parent				subsidiaries				subsidiaries				entries				Consolidated
Revenues		$	—			$	113,703			$	47,095				—			$	160,798
Cost of revenues			—				94,462				39,056				—				133,518
Selling, general and administrative expenses			4,107				6,183				4,123				—				14,413
Other (income) expense, net			(11	)			(961	)			130				—				(842	)
Operating (loss) income			(4,096	)			14,019				3,786				—				13,709
Foreign currency exchange loss (gain)			—				19				(630	)			—				(611	)
Interest expense (income), net			2,079				(9	)			78				—				2,148
Intercompany interest (income) expense			—				(709	)			709				—				—
(Loss) income from operations before income			(6,175	)			14,718				3,629				—				12,172
Provision for income taxes			(2,735	)			6,482				643				—				4,390
Equity in income of subsidiaries			11,222				1,938				—				(13,160	)			—
Net income		$	7,782			$	10,174			$	2,986			$	(13,160	)		$	7,782

Condensed Consolidated Statements of Cash Flows

		First Quarter 2011
(in thousands)						Guarantor				Non-guarantor
(unaudited)		Parent				subsidiaries				subsidiaries				Consolidated
Net cash (used in) provided by operating activitites		$	(4,752	)		$	19,816			$	2,833			$	17,897
Net cash used in investing activities			(2,142	)			(2,575	)			(1,405	)			(6,122	)
Borrowings on lines of credit			—				—				1,193				1,193
Payments on lines of credit			—				—				(2,332	)			(2,332	)
Other borrowings			—				—				9				9
Inter-company borrowings (repayments)			19,660				(22,034	)			2,374				—
Other financing activities			(8	)			—				—				(8	)
Net cash (used in) provided by financing activities			19,652				(22,034	)			1,244				(1,138	)
Effect of exchange rate changes on cash			—				—				1,719				1,719
Net increase (decrease) in cash			12,758				(4,793	)			4,391				12,356
Cash at the beginning of the period			68,128				(4,290	)			19,172				83,010
Cash at the end of the period		$	80,886			$	(9,083	)		$	23,563			$	95,366

		First Quarter 2010
(in thousands)						Guarantor				Non-guarantor
(unaudited)		Parent				subsidiaries				subsidiaries				Consolidated
Net cash (used in) provided by operating activitites		$	(3,054	)		$	7,684			$	(6,999	)		$	(2,369	)
Net cash used in investing activities			(20	)			(722	)			(1,239	)			(1,981	)
Borrowings on lines of credit			36,000				—				9,409				45,409
Payments on lines of credit			(31,000	)			—				(8,564	)			(39,564	)
Inter-company (repayments) borrowings			(1,810	)			(6,880	)			8,690				—
Other financing activities			(38	)			(82	)			(104	)			(224	)
New cash provided by (used in) financing activities			3,152				(6,962	)			9,431				5,621
Effect of exchange rate changes on cash			—				—				(539	)			(539	)
Net increase in cash			78				—				654				732
Cash at the beginning of the period			162				—				11,372				11,534
Cash at the end of the period		$	240			$	—			$	12,026			$	12,266

ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition, results of operations, liquidity and capital resources should be read together with our unaudited condensed consolidated financial statements and notes to unaudited condensed consolidated financial statements contained in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2010. Our first quarter represents the three month period ended March 31.

Overview

We are a diversified oil and gas industry supplier with three reportable segments: Fluids Systems and Engineering, Mats and Integrated Services, and Environmental Services. We provide these products and services primarily to the oil and gas exploration (“E&P”) industry domestically in the U.S. Gulf Coast, West Texas, Oklahoma, East Texas, North Louisiana, Rocky Mountains and Northeast regions, as well as internationally in certain areas of Europe, North Africa, Brazil, Canada and Mexico. Further, we established a presence outside the E&P sector, particularly in Mats and Integrated Services, where we are marketing to utilities, municipalities and government sectors. Our North American operations generated 77% of total reported revenues for the first quarter 2011, and our consolidated revenues by segment are as follows:

		First Quarter
(In thousands)		2011 Revenues				%
Fluids systems and engineering		$	170,467				84	%
Mats and integrated services			23,063				11	%
Environmental services			9,121				5	%
Total revenues		$	202,651				100	%

Our operating results depend, to a large extent, on oil and gas drilling activity levels in the markets we serve, as well as the depth of drilling, which governs the revenue potential of each well. The drilling activity in turn, depends on oil and gas commodity pricing, inventory levels and demand, and more recently, regulatory actions affecting operations in the Gulf of Mexico.

Rig count data is the most widely accepted indicator of drilling activity. Average North American rig count data for the first quarter of 2011, as compared to the first quarter of 2010 is as follows:

		First Quarter								2011 vs 2010
		2011				2010				Count				%
U.S. Rig Count			1,716				1,333				383				29	%
Canadian Rig Count			587				449				138				31	%
North America			2,303				1,782				521				29	%

In April 2010, the Deepwater Horizon drilling rig sank in the Gulf of Mexico after an explosion and fire, resulting in the discharge of oil from the well. Following the Deepwater Horizon oil spill, the Department of Interior of the U.S. government took several actions aimed at restricting and temporarily prohibiting certain drilling activity in the Gulf of Mexico. While the Department of Interior has since announced the formal end of the drilling moratorium placed in effect in May 2010, increased permitting requirements are applicable to both shallow water and deepwater drilling activities. As a result, the near-term outlook for drilling activity in the Gulf of Mexico remains uncertain.

In April 2011, we completed the acquisition of the drilling fluids and engineering services business from Rheochem PLC, a publicly-traded Australian-based oil and gas company. The acquired business provides drilling fluids and related engineering services to the oil and gas exploration and geothermal industries with operations in Australia, New Zealand and India. Total cash paid at closing was AUD$24.0 million ($25.4 million), and total consideration is subject to typical adjustments for working capital conveyed at closing. Additional consideration may be payable based on financial results of the acquired business over a one-year earnout period, up to a maximum total consideration of AUD$45 million. In the most recently completed fiscal year ended June 30, 2010, Rheochem PLC’s drilling fluid services segment reported revenues of AUD$20.3 million.

First Quarter of 2011 Compared to First Quarter of 2010

Results of Operations

Summarized results of operations for the first quarter of 2011 compared to the first quarter of 2010 are as follows:

		First Quarter								2011 vs 2010
(In thousands)		2011				2010				$				%
Revenues		$	202,651			$	160,798			$	41,853				26	%
Cost of revenues			159,002				133,518				25,484				19	%
Selling, general and administrative expenses			15,818				14,413				1,405				10	%
Other operating income, net			(117	)			(842	)			725				(86	)%
Operating income			27,948				13,709				14,239				104	%
Foreign currency exchange loss (gain)			323				(611	)			934			NM
Interest expense, net			2,257				2,148				109				5	%
Income from operations before income taxes			25,368				12,172				13,196				108	%
Provision for income taxes			9,514				4,390				5,124				117	%
Net income		$	15,854			$	7,782			$	8,072				104	%

NM — not meaningful

Revenues

Revenues increased 26% to $202.7 million in the first quarter of 2011, compared to $160.8 million in the first quarter of 2010. This $41.9 million improvement includes a $32.5 million (26%) increase in revenues in North America, largely driven by the 29% improvement in the U.S. rig count. Revenues from our international operations increased by $9.3 million (25%) reflecting continued growth in Brazil along with improvements in our Eastern Europe operations. Additional information regarding the change in revenues is provided within the operating segment results below.

Cost of revenues

Cost of revenues increased 19% to $159.0 million in the first quarter of 2011, as compared to $133.5 million in the first quarter of 2010. The increase is primarily driven by the 26% increase in revenues. Additional information regarding the change in cost of revenues is provided within the operating segment results below.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $1.4 million to $15.8 million in the first quarter of 2011 from $14.4 million for the first quarter of 2010. The increase is primarily attributable to higher costs associated with the increase in revenues, along with $0.4 million of legal and related costs associated with the April 2011 acquisition of Rheochem.

Foreign currency exchange

Foreign currency exchange primarily reflects the impact of currency translations on assets and liabilities held in our foreign operations that are denominated in currencies other than functional currencies. Our foreign operations have a portion of their cash and accounts receivable that are denominated in U.S. dollars. During the first quarter of 2011, foreign currency exchange was unfavorably impacted by the weakening U.S. dollar as compared to other currencies in our foreign operations, while the first quarter of 2010 benefitted from the strengthening U.S. dollar as compared to such currencies.

Interest expense, net

Interest expense totaled $2.3 million for the first quarter of 2011, reflecting a 5% increase from $2.1 million for the first quarter of 2010. The increase in interest expense is due to increased debt levels following the October 2010 issuance of $172.5 million in convertible senior notes, bearing interest at 4.0% (“Senior Notes”). Following the Senior Notes offering, total debt at March 31, 2011 was $173.4 million, reflecting a 35% increase from the $128.3 million of total debt outstanding at March 31, 2010. The impact of the increased debt balance is largely offset by lower interest rates, as the 4.0% rate on the Senior Notes is down from the 5.4% weighted average borrowing rate at March 31, 2010.

Provision for income taxes

The provision for income taxes for the 1st quarter of 2011 was $9.5 million of expense, reflecting an effective tax rate of 37.5%, compared to $4.4 million in the first quarter of 2010 with an effective tax rate of 36.1%.

Operating Segment Results

Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):

		First Quarter								2011 vs 2010
(In thousands)		2011				2010				$				%
Revenues
Fluids systems and engineering		$	170,467			$	136,310			$	34,157				25	%
Mats and integrated services			23,063				13,620				9,443				69	%
Environmental services			9,121				10,868				(1,747	)			(16	)%
Total revenues		$	202,651			$	160,798			$	41,853				26	%
Operating income (loss)
Fluids systems and engineering		$	19,199			$	12,414			$	6,785
Mats and integrated services			11,784				2,714				9,070
Environmental services			1,620				2,679				(1,059	)
Corporate office			(4,655	)			(4,098	)			(557	)
Operating income		$	27,948			$	13,709			$	14,239
Segment operating margin
Fluids systems and engineering			11.3	%			9.1	%
Mats and integrated services			51.1	%			19.9	%
Environmental services			17.8	%			24.7	%