UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20162019
For the Transition Period Fromtransition period from __________ to __________
Commission File Number 001-2960Number: 001-02960
Newpark Resources, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 72-1123385 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 9320 Lakeside | Suite 100 | |
| The Woodlands, | Texas | 77381 |
| (Address of principal executive | (Zip Code) | |
Registrant’s telephone number, including area code (281) code: (281) 362-6800
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | NR | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ___☐ No √ ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ___☐ No √ ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes √ ☑ No ___☐
Indicate by check mark whether the registrant has submitted electronically 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes √ ☑ No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “small reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
| ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Act).
Yes ___☐ No √ ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the common equity was last sold as of June 30, 2016,2019, was $476.0$651.3 million. The aggregate market value has been computed by reference to the closing sales price on such date, as reported by The New York Stock Exchange.
As of February 21, 2017,18, 2020, a total of 84,746,09889,897,646 shares of Common Stock,common stock, $0.01 par value per share, were outstanding.
Documents Incorporated by ReferenceReference:
Pursuant to General Instruction G(3) to this Form 10-K, the information required by Items 10, 11, 12, 13 and 14 of Part III hereof is incorporated by reference from the registrant’s definitive Proxy Statement for its 20172020 Annual Meeting of Stockholders.
NEWPARK RESOURCES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20162019
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also may provide oral or written forward-looking informationstatements in other materials we release to the public. Words such as “will”, “may”, “could”, “would”, “anticipates”, “believes”, “estimates”, “expects”, “plans”, “intends”,“will,” “may,” “could,” “would,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management; however, various risks, uncertainties, contingencies and other factors, some of which are beyond our control, are difficult to predict and could cause our actual results, performance, or achievements to differ materially from those expressed in, or implied by, these statements, including the success or failure of our efforts to implement our business strategy. statements.
We assume no obligation to update, amend, or clarify publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities laws. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this Annual Report on Form 10-K might not occur.
For further information regarding these and other factors, risks, and uncertainties affecting us, we refer you to the risk factors set forth in Item 1A "Risk Factors" of this Annual Report on Form 10-K.
PART I
ITEM 1. Business
General
Newpark Resources, Inc. was organized in 1932 as a Nevada corporation. In 1991, we changed our state of incorporation to Delaware. We are a geographically diversified supplier providing products, as well as rentals and services primarily to the oil and natural gas exploration and production (“E&P”) industry. We operate our business through two reportable segments: Fluids Systems and Mats and Integrated Services. Our Fluids Systems segment provides customized drilling, completion, and stimulation fluids products and technical servicessolutions to E&P customers primarily in the North America and Europe, the Middle East and Africa (“EMEA”), Latin America andas well as certain countries in Asia Pacific regions.and Latin America. Our Mats and Integrated Services segment provides composite mat rentals as well as location construction andutilized for temporary worksite access, along with related site construction services to customers at well, production, transportation and refinery locations in the United States (“U.S.”). In addition, mat rental and services activity is expanding into applications in othervarious markets including E&P, electrical transmission & distribution, pipeline, solar, petrochemical, and construction industries across the U.S., CanadaNorth America and United Kingdom.Europe. We also manufacture and sell composite mats to customers outside ofaround the U.S., and to domestic customers outside of the oil and gas exploration market. In March 2014, we completed the sale of our Environmental Services business, which was historically reported as a third operating segment. For a detailed discussion of this matter, see “Note 14 - Discontinued Operations” in our Notes to Consolidated Financial Statements. world.
Our principal executive offices are located at 9320 Lakeside Blvd.,Boulevard, Suite 100, The Woodlands, Texas 77381. Our telephone number is (281) 362-6800. You can find more information about us aton our website located at www.newpark.com. We file or furnish annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports are available free of charge through our website. These reports are available as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission (“SEC”).SEC. Our Code of Ethics, our Corporate Governance Guidelines, our Audit Committee Charter, our Compensation Committee Charter and our Nominating and Corporate Governance Committee Charter are also posted to the corporate governance section of our website. We make our website content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this Form 10-K. Information filed with the SEC may be read or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C., 20549. Information on operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
When referring to “Newpark” and using phrases such as “we”Newpark Resources, Inc. (“Newpark,” the “Company,” “we,” “our,” or “us”), “us” and “our”, ourthe intent is to refer to Newpark Resources, Inc. and its subsidiaries as a whole or on a segment basis, depending on the context in which the statements are made. The reference to a “Note” herein refers to the accompanying Notes to Consolidated Financial Statements contained in Item 8 “Financial Statements and Supplementary Data.”
Industry Fundamentals
While our revenue potential is driven by a number of factors including those described above, rig count data remains the fourth quarter of 2014 and continuing throughout 2015 and into early 2016, the price of oil declined dramatically from the price levels in recent years. As a result, E&P drilling activity significantly declined in North America and many global markets over this period. While oil prices have since improved from the lows reached in the first quarter of 2016, price levels remain lower than in recent years. The most widely accepted measureindicator of activity for ourdrilling activity. The average Baker Hughes Company North American operations is the Baker Hughes Rotary Rig Count. The average North America rig countCount was 6391,077 in 2016,2019, compared to 1,1701,223 in 2015,2018, and 2,2411,083 in 2014. The North America rig count continually declined in 2015 and early 2016, reaching a low point of 447 in May 2016, and has since recovered to 1,082 as of February 17, 2017. With the improvement in rig counts from the lows reached in May 2016, average activity levels are expected to improve in 2017 compared to 2016 but remain below 2015 levels.
Outside of North America, drilling activity is generally more stable as drilling activity in many countries is based upon longer termon longer-term economic projections and multiple yearmulti-year drilling programs, which tendtends to reduce the impact of short termshort-term changes in commodity prices on overall drilling activity. While drilling activity in certain
International expansion, including the penetration of international oil companies (“IOCs”) and national oil companies (“NOCs”), is a key element of our Fluids Systems strategy, which has historically helped to stabilize segment revenues, particularly as North American oil and natural gas exploration activities have fluctuated significantly.
In addition to our international markets, including Brazilexpansion efforts, we are also selectively expanding our presence in North America, capitalizing on our capabilities, infrastructure, and Australia, has declined dramatically following the decline in oil prices, our activitiesstrong market position in the EMEA region have continued to growNorth American land drilling fluids markets, both through the geographic entry in recent years, driven by expansion into new geographic markets,the deepwater Gulf of Mexico as well as through product line extensions into adjacent product offerings, including completion fluids and stimulation chemicals. As part of the completion fluids product line extension, in October 2019, we acquired Cleansorb Limited (“Cleansorb”), a U.K. based provider of specialty chemicals for the oil and natural gas industry, which further expands our fluids technology portfolio and capabilities.
Our Mats and Integrated Services segment serves a variety of industries in addition to the E&P industry, including the electrical transmission & distribution, pipeline, solar, petrochemical, and construction industries. The expansion of our rental and service activities in non-E&P markets remains a strategic priority for us due to the magnitude of this market share gainsgrowth opportunity as well as the market’s relative stability compared to E&P. The demand for our products and services from customers in existing markets.these industries is driven, in part, by infrastructure construction and maintenance activity levels in these industries within the U.S and the United Kingdom.
Reportable Segments
Fluids Systems
Our Fluids Systems businesssegment provides drilling and completion fluids products and technical services to customers primarily in the North America and EMEA Latin America, andregions, as well as certain countries in Asia Pacific regions.and Latin America. We offer customized solutions for highly technical drilling projects involving complex subsurface conditions such as horizontal, directional, geologically deep, or drilling in deep water drilling.water. These projects require increasedhigh levels of monitoring and critical engineeringtechnical support of the fluids system during the drilling process. In addition, our Fluids Systems offering is expanding into adjacent areas of chemistry, including stimulation chemicals, which are utilized extensively by E&P operators to stimulate hydrocarbon production.
We also have industrial mineral grinding operations for barite, a critical raw material in drilling fluids products,systems, which serve to support our activityactivities in the North American drilling fluids market. We grind barite and other industrial minerals at four facilities, including locations in Texas, Louisiana, and Tennessee. We use the resulting products in our drilling fluids business,systems and also sell themthe products to third party users, including other drilling fluids companies. We also sell a variety of other minerals, principally to third partythird-party industrial (non-oil and natural gas) markets.
Raw Materials — We believe that our sources of supply for materials and equipment used in our drilling fluids business are adequate for our needs,needs; however, we have experienced periods of short-term scarcity of barite ore, which have resulted in significant cost increases. Our specialty milling operation is our primary supplier of barite used in our North American drilling fluids business. Our mills obtain raw barite ore under supply agreements from foreign sources, primarily China and India. We obtain other materials used in the drilling fluids business from various third partythird-party suppliers. We have encountered no serioussignificant shortages or delays in obtaining these raw materials.
Technology — Proprietary technology and systems, such as our Kronos™ deepwater drilling fluid systems, are an important aspect of our business strategy. We seek patents and licenses on new developments whenever we believe it creates a competitive advantage in the marketplace. We own patent rights in a family of high-performance water-based fluids systems, which we market as Evolution®,and DeepDrill®, and FlexDrill™systems, which are designed to enhance drilling performance and provide environmental benefits. We also rely on a variety of unpatented proprietary technologies and know-how in many of our applications. We believe that our reputation in the industry, the range of services we offer, ongoing technical development and know-how, responsiveness to customers, and understanding of regulatory requirements are of equal or greater competitive significance than our existing proprietary rights.
Competition — We face competition from larger companies, including Halliburton, Schlumberger, and Baker Hughes, which compete vigorously on fluids performance and/or price. In addition, these companies have broad product and service offerings in addition to their drilling fluids. We also have smaller regional competitors competing with us mainlyprimarily on price and local relationships. We believe that the principal competitive factors in our businesses include a combination of technical proficiency, reputation, price, reliability, quality, breadth of services offered, and experience. We believeexperience, and that our competitive position is enhanced by our proprietary products and services.
Customers — Our customers are principally major integrated and independent oil and natural gas E&P companies operating in the markets that we serve. During 2016,2019, approximately 60%53% of segment revenues were derived from the 20 largest segment customers, and 38% of segment revenues were generated domestically. For the year ended December 31, 2016, revenue from Sonatrach, our primarycustomers. No single customer in Algeria, was approximately 17%accounted for more than 10% of our segment revenues. The segment also generated 64% of its revenues and 14% of our consolidated revenues. Typically,domestically during 2019. In North America, we primarily perform services either under short-term standard contracts or under “master” service agreements. Internationally, some customers issue multi-year contracts, but many are on a well-by-well or project basis. As most agreements with our customers can be terminated upon short notice, our backlog is not significant. We do not derive a significant portion of our revenues from government contracts. See “Note 12 - Segment and Related Information” in our Consolidated Financial Statements for additional information on financial and geographic data.
Mats and Integrated Services
Our Mats and Integrated Services segment provides composite mat rentals utilized for temporary worksite access, along with related site construction and services to customers in various markets including E&P, electrical transmission & distribution, pipeline, solar, petrochemical, and construction industries across North America and Europe. We also sell composite mats to customers around the world.
We manufacture our DURA-BASE® Advanced Composite Mats for use in our rental operations as well as for third-party sales. Our matsmatting systems provide environmental protection and ensure all-weather access to sites with unstable soil conditions. We provide mat rentals to customers in the E&P, electrical transmission & distribution, pipeline, solar, petrochemical and construction industries across the U.S., Canada and United Kingdom. We also offer location construction and related services to customers, primarily in the U.S. Gulf Coast region. We continue to expand our product offerings, which now include the EPZ Grounding System™ for enhanced safety and efficiency for contractors working on power line maintenance and construction projects and the Defender™ spill containmentT-REX™ automated mat cleaning system to provide customers with an alternativea cost effective system to the use of plastic liners for spill containment.
In November 2017, we acquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility Access Solutions, Inc. (together, “WSG”). Since 2012, WSG had been a strategic logistics and installation service provider for the sale
our Mats and Integrated Service segment, offering a variety of complementary services to our composite mats focused on oilmatting systems, including access road construction, site planning and gas exploration markets outside the U.S.,preparation, environmental protection, fluids and spill containment, erosion control, and site restoration services. This acquisition expanded our service offering as well as markets outsideour geographic footprint across the E&P sectorNortheast, Midwest, Rockies, and West Texas regions of the U.S.
Raw Materials — The resins, chemicals, and other materials used to manufacture composite mats are widely available. Resin is the largest material component in the U.S. and Europe. We believe these mats have worldwide applications outside our traditional oilfield market, primarily in infrastructure construction, maintenance and upgrades of pipelines and electric utility transmission lines, and as temporary roads for movement of oversized or unusually heavy loads. In order to support our efforts to expand our markets globally, we completed an expansionmanufacturing of our mats manufacturing facility in 2015 which nearly doubled our manufacturing capacity and significantly expanded our research and development capabilities.
Technology — We have obtained patents related to the design and manufacturing of our DURA-BASE mats and several of the components, as well as other products and systems related to these mats (including the connecting pins and the EPZ Grounding System™ and the Defender™ spill containment system)). Using proprietary technology and systems is an important aspect of our business strategy. We believe that these products provide us with a distinct advantage over our competition. While we continue to add to our patent portfolio, two patents related to our DURA-BASE matting system will expire in May 2020, and competitors may begin offering mats that include features described in those patents. We believe that our scale and reputation in the industry, the range of services we offer, ongoing technical development and know-how, responsiveness to customers, and understanding of regulatory requirements also have competitive significance in the markets we serve.
Competition — Our market is fragmented and competitive, with many competitors providing various forms of site preparation products and services. The composite mat sales component of our business is not as fragmented as the rental and services segmentcomponents with only a few competitors providing various alternatives to our DURA-BASE mat products, such as Signature Systems Group and Checkers Group.ISOKON. This is due to many factors, including large capital start-up costs and proprietary technology associated with this product. We believe that the principal competitive factors in our businesses include reputation, product capabilities, price, reputation,innovation through R&D, and reliability. We also believereliability, and that our competitive position is enhanced by our proprietary products, manufacturing expertise, services, and experience.
Customers — Our customers are principally infrastructure construction and oil and natural gas E&P companies, utility companies, and infrastructure construction companies operating in the markets that we serve. Approximately 56%During 2019, approximately 55% of our segment revenues in 2016 were derived from the 20 largest segment customers, of which, the largestcustomers. No single customer represented 11%accounted for more than 10% of our segment revenues. The segment also generated 92% of its revenues domestically during 2019. As a result of our recent efforts to expand beyond our traditional oilfieldE&P customer base, revenues from non Enon-E&P customers continued to increase in 2016 andmarkets represented approximately 70%55% of our total segment revenues in 2016.2019. Typically, we perform services either under short-term contracts or rental service agreements. As most agreements with our customers are cancelable upon short notice, our backlog is not significant. We do not derive a significant portion of our revenues from government contracts. See “Note 12 - Segment and Related Information” in our Consolidated Financial Statements for additional information on financial and geographic data.
Employees
At January 31, 2017,2020, we employed approximately 1,8002,200 full and part-time personnel, none of which are represented by unions. We consider our relations with our employees to be satisfactory.
Environmental Regulation
Our business exposes us to environmental risks. We seek to comply with all applicable legal requirements concerning environmental matters. Our business is affected by governmental regulations relating to the oil and natural gas industry in general, as well as environmental, health, and safety regulations that have specific application to our business. Our activities are impacted by various federal and state regulatory agencies, and provincial pollution control, health, and safety programs that are administered and enforced by regulatory agencies.
We also employutilize a corporate-wide web-based health, safety, and environmental management system (“HSEMS”), which is ISO 14001:2004 compliant.. The HSEMS is designed to capture information related to the planning, decision-making, and general operations of environmental regulatory activities within our operations. We also use the HSEMS to capture the information generated by regularly scheduled independent audits that are doneperformed to validate the findings of our internal monitoring and auditing procedures.
ITEM 1A. Risk Factors
The following summarizes the most significant risk factors to our business. In addition to these risks, we are subject to a variety of risks that affect many other companies generally, as well as other risks and uncertainties that are not known to us as of the date of this Annual Report. Our success will depend, in part, on our ability to anticipate and effectively manage these and other risks. Any of these risk factors, either individually or in combination, could have significanta material adverse impacts toeffect on our results of operations andor financial condition, or prevent us from meeting our profitability or growth objectives. If you hold our securities or are considering an investment in our securities, you should carefully consider the following risks, together with the other information contained in this Annual Report.
Risks Related to the Worldwide Oil and Natural Gas Industry
We derive a significant portion of our revenues from customers in the worldwide oil and natural gas industry; therefore, our risk factors include those factors that impact the demand for oil and natural gas. Spending by our customers for exploration, development, and production of oil and natural gas is based on a number of factors, including expectations of future hydrocarbon demand, energy prices, the risks associated with developing reserves, our customer’scustomers’ ability to finance exploration and development of reserves, regulatory developments, and the future value of the reserves. Reductions in customer spending levels adversely affect the demand for our products and services, and consequently, our revenue and operating results; and the presence of these market conditions negatively affects our revenuerevenues and operating results. The key risk factors that we believe influence the worldwide oil and natural gas markets are discussed below.
Demand for oil and natural gas is subject to factors beyond our control
Demand for oil and natural gas, as well as the demand for our products and services, is highly correlated with global economic growth and in particular by the economic growth of countries such as the U.S., India, China, and developing countries in Asia and the Middle East. Weakness in global economic activity could reduce demand for oil and natural gas and result in lower oil and natural gas prices. In addition, demand for oil and natural gas could be impacted by the effects of global health epidemics and concerns (such as the coronavirus (“COVID-19”)) and by environmental regulation,regulations, including cap and trade legislation, regulation of hydraulic fracturing, and carbon taxes. Weakness or deterioration of the global economy could reduce our customers’ spending levels and could reduce our revenuerevenues and operating results.
Supply of oil and natural gas is subject to factors beyond our control
Volatility of oil and natural gas prices can adversely affect demand for our products and services
Volatility inof oil and natural gas prices can also impact our customers’ activity levels and spending for our products and services. The level of energy prices is important to the cash flow for our customers and their ability to fund exploration and development activities. Compared to 2011 to 2014 levels, oil prices have declined significantly due in large part to increasing supplies, weakening demand growth and the decision by OPEC countries to maintain production levels throughout 2015 and most of 2016. Expectations about future commodity prices and price volatility are important for determining future spending levels. Our customers also take into account the volatility of energy prices and other risk factors by requiring higher returns for individual projects if there is higher perceived risk.
Our customers’ activity levels, spending for our products and services, and ability to pay amounts owed us could be impacted by the ability of our customers to access equity or credit markets
Our customers’ access to capital isactivity levels are dependent on their ability to access the funds necessary to develop oil and natural gas prospects. Limitedprospects and their ability to generate sufficient returns on investments. In recent years, limited access to external sources of funding and pressures from their investors to generate consistent cash flow has, and may continue to causeat times, caused customers to reduce their capital spending plans. In addition, a reduction of cash flow to our customers resulting from declines in commodity prices or the lack of available debt or equity financing may impact the ability of our customers to pay amounts owed to us.
A heightened focus by our customers on cost-saving measures rather than the quality of products and services could reduce the demand for our products and services
Our customers are continually seeking to implement measures aimed at greater cost savings, which may include the acceptance of lesser quality products and services in order to improve short term cost efficiencies as opposed to total cost efficiencies. The continued implementation of these kinds of cost saving measures could reduce the demand or pricing for our products and services and have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to our Customer Concentration and relianceReliance on the U.S. Exploration and ProductionE&P Market
In 2016,2019, approximately 53%42% of our consolidated revenues were derived from our 20 largest customers, which includes 14% from Sonatrach,although no customer accounted for more than 10% of our primaryconsolidated revenues. While we are not dependent on any one customer in Algeria.or group of customers, the loss of one or more of our significant customers could have an adverse effect on our results of operations and cash flows. In addition, approximately 45%71% of our consolidated revenues were derived from our U.S. operations.
Over the past five years, we have experienced periods of significant declines in recent years. While oil prices have since improved from the lows reached in the first quarter of 2016, price levels remain lower than in recent years and there are no assurances that the price for oil will not further decline. Following this decline, North American drilling activity has decreased significantly, which has reduced the demand for our services and negatively impacted customer pricing in our North American operations. Due in part to these changes, our quarterly and annual operating results have been negatively impactedfluctuated significantly and may continue to fluctuate in future periods. Because our business has substantial fixed costs, including significant facility and personnel expenses, downtime or low productivity due to reduced demand cancould have a significantmaterial adverse impacteffect on our profitability.business, financial condition, and results of operations.
While geographic diversification into the U.S. offshore and foreign E&P markets, as well as our expansion into non-E&P markets, is intended over the long term to grow the business and offset the cyclical nature of the underlying oil and natural gas business, we cannot be certain that these efforts will be sufficient to offset this volatility.
Risks Related to International Operations
We have significant operations outside of the United States,U.S., including Canada and certain areas of Canada, EMEA,Europe, the Middle East, Africa, Asia Pacific, and Latin America, and Asia Pacific.America. In 2016,2019, these international operations generated approximately 55%29% of our consolidated revenues. Substantially all of our cash balance at December 31, 2019 resides within our international subsidiaries. Algeria representsrepresented our largest international market with our total Algerian operations representing 17%7% of our consolidated revenues in 2016for 2019 and 8%6% of our total assets at December 31, 2016.2019, including 35% of our total cash balance at December 31, 2019.
In addition, we may seek to expand to other areas outside the United StatesU.S. in the future. International operations are subject to a number of risks and uncertainties, including:
| ▪ | difficulties and cost associated with complying with a wide variety of complex foreign laws, treaties, and regulations; |
| ▪ | uncertainties in or unexpected changes in regulatory environments or tax laws; |
| ▪ | legal uncertainties, timing delays, and expenses associated with tariffs, export licenses, and other trade barriers; |
| ▪ | difficulties enforcing agreements and collecting receivables through foreign legal systems; |
| ▪ | risks associated with failing to comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, export laws, and other similar laws applicable to our operations in international markets; |
| ▪ | exchange controls or other limitations on international currency |
| ▪ | sanctions imposed by the U.S. government that prevent us from engaging in business in certain countries or with certain counter-parties; |
| ▪ | expropriation or nationalization of assets; |
| ▪ | inability to obtain or preserve certain intellectual property rights in the foreign countries in which we operate; |
| ▪ | our inexperience in certain international markets; |
| ▪ | fluctuations in foreign currency exchange rates; |
| ▪ | political and economic instability; and |
| ▪ | acts of terrorism. |
In addition, several North African markets in which we operate, including Tunisia, Egypt, Libya, and Algeria have experienced social and political unrest in past years, which, when they occur, negatively impactedimpact our operating results includingand can include the temporary suspension of our operations. More recently
Risks Related to Our Ability to Attract, Retain, and Develop Qualified Leaders, Key Employees, and Skilled Personnel
Our failure to attract, retain, and develop qualified leaders and key employees at our corporate, divisional, or regional headquarters could have a material adverse effect on our business. In addition, all of our businesses are highly dependent on our ability to attract and retain highly-skilled product specialists, technical sales personnel, and service personnel. In recent years, the labor market in Brazil,the U.S. has continued to tighten, with national unemployment levels reaching the lowest level experienced in decades. Consequently, the market for qualified employees has become extremely competitive. If we cannot attract and retain qualified personnel, our ability to compete effectively and grow our business will be severely limited. Also, a widely-publicized corruption investigation, along with general social unrest, has ledsignificant increase in wages paid by competing employers could result in a reduction in our skilled labor force or an increase in our operating costs.
Risks Related to disruptionsthe Availability of Raw Materials
Our ability to provide products and services to our customers is dependent upon our ability to obtain raw materials necessary to operate our business.
Barite is a naturally occurring mineral that constitutes a significant portion of our drilling fluids systems. We currently secure the majority of our barite ore from foreign sources, primarily China and India. The availability and cost of barite ore is dependent on factors beyond our control, including transportation, political priorities, U.S. tariffs, and government-imposed export fees in Petrobras’ operations.the exporting countries, as well as the impact of weather and natural disasters. The future supply of barite ore from existing sources may be inadequate to meet the market demand, particularly during periods of increasing world-wide demand, which could ultimately restrict industry activity or our ability to meet our customers’ needs. Additionally, the recent outbreak of COVID-19 first identified in Wuhan, Hubei Province, China, could cause disruption to our supply of barite ore sourced from China and elsewhere. Our suppliers could be disrupted by worker absenteeism, quarantines, or other travel or health-related restrictions as a result of or concern over the outbreak. If our suppliers are so affected, our supply of barite ore could be disrupted, which could adversely affect our Fluids Systems business.
Our mats business is highly dependent on the availability of high-density polyethylene (“HDPE”), which is the primary raw material used in the manufacture of our composite mats. The cost of HDPE can vary significantly based on the energy costs of the producers of HDPE, demand for this material, and the capacity or operations of the plants used to make HDPE. Should the cost of HDPE increase, we may not be able to increase our customer pricing to cover our costs, which could result in a reduction in future profitability.
Risks Related to the Cost and Continued Availability of Borrowed Funds, including Risks of Noncompliance with Debt Covenants
We employuse borrowed funds as an integral part of our long-term capital structure and our future success is dependent upon continued access to borrowed funds to support our operations. The availability of borrowed funds on reasonable terms is dependent on the condition of credit markets and financial institutions from which these funds are obtained. Adverse events in the financial markets may significantly reduce the availability of funds, which may have an adverse effect on our cost of borrowings and our ability to fund our business strategy. Our ability to meet our debt service requirements and the continued availability of funds under our existing or future loan agreements is dependent upon our ability to generate operating income and remain in compliance with the covenants in our debt agreements. This, in turn, is subject to the volatile nature of the oil and natural gas industry, and to competitive, economic, financial, and other factors that are beyond our control.
If we are unable to make required payments under the ABL Facility or other indebtedness of more than $25.0 million, or if we fail to comply with the various covenants and other requirements of the ABL Facility, including the June 30, 2017 funding requirement for the Convertible Notes due 2017, we would be in default thereunder, which would permit the holders of the indebtedness to accelerate the maturity thereof unless we are able to obtain, on a timely basis, a necessary waiver or amendment. Any waiver or amendment may require us to revise the terms of our agreements which could increase the cost of our borrowings, require the payment of additional fees, and adversely impact the results of our operations. Upon the occurrence of any event of default that is not waived, the lenders could elect to exercise any of their available remedies, which include the right to not lend any additional amounts or, in the event we have outstanding indebtedness under the ABL Facility, to declare any outstanding indebtedness, together with any accrued interest and other fees, to be immediately due and payable. If we are unable to repay the outstanding indebtedness, if any, under the ABL Facility when due, the lenders would be permitted to proceed against their collateral. In the event any outstanding indebtedness in excess of $25.0 million is accelerated, this could also cause an event of default under our 2021 Convertible Notes due 2017 and our convertible notes due 2021 (“Convertible Notes due 2021”)(as defined below). The acceleration of any of our indebtedness and the election to exercise any remedies could have a material adverse effect on our business and financial condition.
In addition, our $100.0 million of unsecured convertible senior notes (“2021 Convertible Notes”) mature in December 2021. Our ABL Facility has a springing maturity date that will accelerate the maturity of the ABL Facility from March 2024 to September 1, 2021 if, prior to such remediesdate, the 2021 Convertible Notes have not been repurchased, redeemed, refinanced, exchanged or otherwise satisfied in full or we have not escrowed an amount of funds, that together with the amount that we establish as a reserve against our borrowing capacity, is sufficient for the future settlement of the 2021 Convertible Notes at their maturity. We cannot make any assurance that our cash flow from operations, combined with any additional borrowings available to us, will be sufficient to enable us to repay the 2021 Convertible Notes prior to September 1, 2021, or to fund other liquidity needs.
If we are unable to generate sufficient cash flows to repay the 2021 Convertible Notes and our other indebtedness when due or to fund our other liquidity needs, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional financing. Our ability to refinance the 2021 Convertible Notes or our other indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations and could have a material adverse effect on our business and financial condition.
Risks Related to Operating Hazards Present in the Oil and Natural Gas Industry and Substantial Liability Claims, Including Catastrophic Well Incidents
We are exposed to significant health, safety, and environmental risks. Our operations are subject to hazards present in the oil and natural gas industry, such as fire, explosion,fires, explosions, blowouts, oil spills, and leaks or spills of hazardous materials (both onshore and offshore). These incidents as well as accidents or problems in normal operations can cause personal injury or death and damage to property or the environment. The customer’s operations can also be interrupted and it is possible that such incidents can interrupt our ongoing operations and the ability to provide our services. From time to time, customers seek recovery for damage to their equipment or property that occurred during the course of our service obligations. Damage to the customer’sour customers’ property and any related spills of hazardous materials could be extensive if a major problem occurred. We purchaseoccurs.
Generally, we rely on contractual indemnities, releases, limitations on liability with our customers, and insurance which may provide coverage for incidentsto protect us from potential liability related to such as those described above, however, the policiesevents. However, our insurance and contractual indemnification may not providebe sufficient or effective to protect us under all circumstances or against all risks. In addition, our customers’ changing views on risk allocation together with deteriorating market conditions could force us to accept greater risks to obtain new business, retain renewing business or could result in us losing business if we are not prepared to take such risks. Moreover, we may not be able to maintain insurance at levels of risk coverage or a sufficient amountpolicy limits that we deem adequate. Any damages caused by our services or products that are not covered by insurance or contractual indemnification, or are in excess of coverage for all typespolicy limits or subject to substantial deductibles, could adversely affect our financial condition, results of damage claims that could be asserted against us.operations, and cash flows. See the section entitled “Risks Related to the Inherent Limitations of Insurance Coverage” below for additional information.
Risks Related to Business Acquisitions and Capital Investments
Our ability to successfully execute our business strategy will depend, among other things, on our ability to make capital investments and acquisitions which provide us with financial benefits. In 2017, our capital expenditures are expected to range between $15.0 million to $20.0 million (exclusive of any acquisitions), including expenditures for the completion of the facility upgradeThese acquisitions and expansion of our Fourchon, Louisiana facility serving the Gulf of Mexico deepwater market in the Fluids Systems segment. These investments are subject to a number of risks and uncertainties, including:
| ▪ | incorrect assumptions regarding business activity levels or results from our capital investments, acquired operations, or assets; |
| ▪ | insufficient revenues to offset liabilities assumed; |
| ▪ | potential loss of significant revenue and income streams; |
| ▪ | increased or unexpected expenses; |
| ▪ | inadequate return of capital; |
| ▪ | regulatory or compliance issues; |
| ▪ | the triggering of certain covenants in our debt agreements (including accelerated repayment); |
| ▪ | unidentified issues not discovered in due diligence; |
| ▪ | failure to complete a planned acquisition transaction or to successfully integrate the operations or management of any acquired businesses or assets in a timely manner; |
| ▪ | diversion of |
| ▪ | unanticipated disruptions to our business associated with the implementation of our enterprise-wide operational and financial system; and |
| ▪ | delays in completion and cost overruns associated with large |
Any of the factors above could have an adverse effect on our business, financial condition, or results of operations.
Risks Related to the Availability of Raw Materials and Skilled Personnel
We face competition in the Fluids Systems business from larger companies, including Halliburton, Schlumberger, and Baker Hughes, which compete vigorously on fluids performance and/or price. In addition, these companies have broad product and service offerings in addition to their drilling and completion fluids. At times, these larger companies attempt to compete by offering discounts to customers to use multiple products and services, from our competitor, some of which we do not offer. We also have smaller regional competitors competing with us mainly on price and local relationships.
Our competition in the Mats and Integrated Services business is fragmented, with many competitors providing various forms of matworksite access products and services. More recently, several competitors have begun marketing composite products to compete with our DURA-BASE mat system. We have obtained patents related to the design and manufacturing of our DURA-BASE mats and several of the components, as well as other products and systems related to these mats. While we believe the design and manufacture of our mat products provide a differentiated value to our customers, many of our competitors seek to compete on pricing. Further,In addition, some of the weaknessearly patents we received related to our DURA-BASE mat system will expire in North American drilling activity2020 and competitors may begin offering mats that include features described in recent years has resulted in significant reductions in pricing from manythose patents. We have additional patents and pending patent applications on improvements to, features of, and uses of the DURA-BASE mat system, but there is no assurance that our competitors in bothwill not be able to offer products that are similar to these improvements, features, or uses of the Fluids Systems and Mats and Integrated Services segments.DURA-BASE mat system.
Risks Related to LegalContracts that Can Be Terminated or Downsized by Our Customers Without Penalty
Many of our fixed-term contracts contain provisions permitting early termination by the customer at their convenience, generally without penalty, and Regulatory Matters, Includingwith limited notice requirements. In addition, many of our contracts permit our customers to decrease the products or services without penalty, which could result in a decrease in our revenues and profitability. As a result, you should not place undue reliance on the strength of our customer contracts or the terms of those contracts.
Risks Related to Product Offering Expansion
As a key component of our long-term strategy to diversify our revenue streams generated from both operating segments, we seek to continue to expand our product and service offerings and enter new customer markets with our existing products. As with any market expansion effort, new customer and product markets require additional capital investment and include inherent uncertainties regarding customer expectations, industry-specific regulatory requirements, product performance, and customer-specific risk profiles. In addition, we likely will not have the same level of operational experience with respect to the new customer and product markets as will our competitors. As such, new market entry is subject to a number of risks and uncertainties, which could have an adverse effect on our business, financial condition, or results of operations.
Risks Related to Environmental Laws and Regulations
We are responsible for complying with numerous federal, state, local, and foreign laws, regulations and policies that govern environmental protection, zoning and other matters applicable to our current and past business activities, including the activities of our former subsidiaries. Failure to remain compliant with these laws, regulations and policies may result in, among other things, fines, penalties, costs of cleanup of contaminated sites and site closure obligations, or other expenditures. We could be exposed to strict, joint and several liability for cleanup costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties. Further, any changes in the current legal and regulatory environment could impact industry activity and the demands for our products and services, the scope of products and services that we provide, or our cost structure required to provide our products and services, or the costs incurred by our customers.
Hydraulic fracturing is an increasinglya common practice used by E&P operators to stimulate production of hydrocarbons, particularly from shale oil and natural gas formations in the United States.U.S. The process of hydraulic fracturing, which involves the injection of sand (or other forms of proppants) laden fluids into oil and natural gas bearing zones, has come under increasingincreased scrutiny from a variety of regulatory agencies, including the EPA and various state authorities. Several states have adopted regulations requiring operators to identify the chemicals used in fracturing operations, others have adopted moratoriums on the use of fracturing, and the State of New York has banned the practice altogether. The EPA is studyingIn addition, concerns have been raised about whether injection of waste associated with hydraulic fracturing operations, or from the potentialfracturing operations themselves, may cause or increase the impact of earthquakes. Studies are in process regarding the correlation between hydraulic fracturing on drinking water including impacts from the disposal of waste fluid by underground injection.and earthquakes. Although we do not provide hydraulic fracturing services, and our drilling fluids products are notwe offer stimulation chemicals used in such services, regulationsthe hydraulic fracturing process. Regulations which have the effect of limiting the use or significantly increasing the costs of hydraulic fracturing could have a significant negative impactmaterial adverse effect on both the drilling and stimulation activity levels of our customers, and, therefore, the demand for our products and services.
Risks Related to Legal Compliance
As a global business, we are subject to complex laws and regulations in the U.S., the U.K. and other countries in which we operate. These laws and regulations relate to a number of aspects of our business, including anti-bribery and anti-corruption laws, sanctions against business dealings with certain countries and third parties, the payment of taxes, employment and labor relations, immigration, fair competition, data privacy protections, securities regulation, and other regulatory requirements affecting trade and investment. The application of these laws and regulations to our business is often unclear and may sometimes conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that could result in reduced revenue and profitability. Non-compliance could also result in significant fines, damages, and other criminal sanctions against us, our officers or our employees, prohibitions or additional requirements on the conduct of our business and damage our reputation. Certain violations of law could also result in suspension or debarment from government contracts. We also incur additional legal compliance costs associated with global regulations. In some foreign countries, particularly those with developing economies, it may be customary for others to engage in business practices that are prohibited by laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the Italian Criminal Code in Italy, Brazil’s Clean Companies Act, India’s Prevention of Corruption Act and The Companies Act, and Mexico’s Anti-Corruption Law. Although we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors, agents, and business partners will not take action in violation with our internal policies. In the U.S., there have been increasing instances of opioid and other illicit drug usage as well as illegal immigration in certain of the regions in which we operate. While we have taken steps we believe appropriate to ensure that our employees comply with our internal drug and alcohol policy as well as all applicable immigration laws, we cannot assure you there will not be violations in the future. Any such violation of our internal policies or the law could have a material adverse effect on our reputation, business, financial condition, or results of operations.
Risks Related to the Inherent Limitations of Insurance Coverage
While we maintain liability insurance, this insurance is subject to coverage limitations. Specific risks and limitations of our insurance coverage include the following:
| ▪ | self-insured retention limits on each claim, which are our responsibility; |
| ▪ | exclusions for certain types of liabilities and limitations on coverage for damages resulting from pollution; |
| ▪ | coverage limits of the policies, and the risk that claims will exceed policy limits; and |
| ▪ | the financial strength and ability of our insurance carriers to meet their obligations under the policies. |
In addition, our ability to continue to obtain insurance coverage on commercially reasonable terms is dependent upon a variety of factors impacting the insurance industry in general, which are outside our control. Any of the issues noted above, including insurance cost increases, uninsured or underinsured claims, or the inability of an insurance carrier to meet their financial obligations could have a material adverse effect on our business.
Risks Related to Income Taxes
Our future effective tax rates could be adversely affected by changes in tax laws, both domestically and internationally, or the interpretation or application thereof. From time to time, U.S. and foreign tax authorities, including state and local governments consider legislation that could increase our effective tax rate. We cannot determine whether, or in what form, legislation will ultimately be enacted or what the impact of any such legislation could have on our profitability. If such changes to tax laws are enacted, our profitability could be negatively impacted.
Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets and liabilities, changes in the mix of earnings in countries with differing statutory tax rates, or by changes in tax treaties, regulations, accounting principles or interpretations thereof in one or more countries in which we operate. In addition, we are subject to the potential examination of our income tax returns by the U.S. Internal Revenue Service and by other tax authorities in jurisdictions where we file tax returns. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine
the adequacy of our provision for income taxes. There can be no assurance that such examinations will not have a material adverse effect on our business, financial condition, or results of operations.
Risks Related to Potential Impairments of Goodwill and Long-lived Intangible Assets
As of December 31, 2016,2019, our consolidated balance sheet includes $20.0$42.3 million inof goodwill and $6.1$29.7 million of intangible assets, net. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently as the circumstances require, using a combination of market multiple and discounted cash flow approaches. Duringif any qualitative factors exist. In completing this annual evaluation during the fourth quarter of 2015,2019, we determined that our drilling fluidsFluids Systems reporting unit had a fair value below its net carrying value, and we recognized a goodwillan impairment of $70.7 million. During the second quarter of 2016, we$11.4 million was recognized a $3.1 million charge to fully impair the customergoodwill related intangible assets forto this reporting unit. We also determined that the Asia Pacific region.
Risks Related to Technological Developments and Intellectual Property in ourOur Industry
The market for our products and services is characterized by continual technological developments that generate substantial improvements in product functions and performance.performance or service delivery. If we are not successful in continuing to develop productnew products, enhancements, or new productsimproved service delivery that are accepted in the marketplace or that comply with industry standards, we could lose market share to competitors, which would negatively impactcould have a material adverse effect on our results of operations and financial condition.
Our success can be affected by our development and implementation of new product designs and improvements, or software developments, and by our ability to protect and maintain critical intellectual property assets related to these developments. Although in many cases our products are not protected by any registered intellectual property rights, in other cases we rely on a combination of patents and trade secret laws to establish and protect this proprietary technology. While patent rights give the owner of a patent the right to exclude third parties from making, using, selling, and offering for sale the inventions claimed in the patents, they do not necessarily grant the owner of a patent the right to practice the invention claimed in a patent. It may also be possible for a third party to design around our patents. We hold U.S.do not have patents in every country in which we conduct business and foreign patents for certainour patent portfolio will not protect all aspects of our drilling fluids componentsbusiness. When patent rights expire, competitors are generally free to offer the technology and our mat systems. However, these patents are not a guaranteeproducts that we will have a meaningful advantage over our competitors, and there is a risk that others may develop systems that are substantially equivalent to thosewere covered by the patents. Additionally, the trade secret laws of some foreign countries may not protect our patents. Ifproprietary technology in the same manner as the laws of the United States.
We also protect our trade secrets by customarily entering into confidentiality and/or license agreements with our employees, customers and potential customers, and suppliers. Our rights in our confidential information, trade secrets, and confidential know-how will not prevent third parties from independently developing similar information. Publicly available information (such as information in expired patents, published patent applications, and scientific literature) can also be used by third parties to independently develop technology. We cannot provide assurance that werethis independently developed technology will not be equivalent or superior to happen, we would face increased competitionour proprietary technology.
We may from both a service and a pricing standpoint. In addition, costlytime to time engage in expensive and time-consuming litigation could be necessaryto determine the enforceability, scope, and validity of our patent rights. In addition, we can seek to enforce our rights in trade secrets, or “know-how,” and determineother proprietary information and technology in the scopeconduct of our patents and proprietary rights. Itbusiness. However, it is possible that future innovationour competitors may infringe upon, misappropriate, violate or challenge the validity or enforceability of our intellectual property, and we may not able to adequately protect or enforce our intellectual property rights in the future.
The tools, techniques, methodologies, programs, and components we use to provide our services may infringe upon the intellectual property rights of others. Infringement claims generally result in significant legal and other costs, and may distract management from running our business. Royalty payments under licenses from third parties, if applicable, could change the way companies drill for oil and gas,increase our costs. Additionally, developing non-infringing technologies could increase our costs. If a license were not available, we might not be able to continue providing a particular service or utilize matting systems,product, which could reduce the competitive advantages we may derive fromadversely affect our patentsfinancial condition, results of operations and other proprietary technology.cash flows.
Risks Related to Severe Weather, Particularly in the U.S. Gulf CoastNatural Disasters, and Seasonality
We have significant operations located in market areas around the world that are negatively impacted by severe adverse weather events or natural disasters such as hurricanes in the U.S. Gulf of Mexico, fires and related near-shore areas whichtyphoons in Australia, droughts across the U.S. and excessive rains outside of the U.S. A potential result of climate change is more frequent or more severe weather events or natural disasters. To the extent such weather events or natural disasters become more frequent or severe, disruptions to our business and costs to repair damaged facilities could increase. Additionally, there are susceptible to hurricanes and other adverse weather events. In these market areas we generated approximately 14%around the world in which our operations are subject to seasonality such as Canada where the Spring “break-up” (an industry term used to describe the time of year when the frost comes out of the ground causing the earth to become soft and muddy and strict weight restrictions are implemented by the government to prevent potholes forming on roads) results in a significant slowdown in the oil and natural gas
industry and our consolidated revenue in 2016 and had approximately $200 million of inventory and property, plant and equipment as of December 31, 2016.drilling fluids business each year. Such adverse weather events and seasonality can disrupt our operations and result in damage to our properties, as well as negatively impact the activity and financial condition of our customers. Our business may be adversely affected by these and other negative effects of future hurricanes or other adverse weather events in regions in which we operate.
Risks Related to Cybersecurity Breaches or Business System Disruptions
We utilize various management information systems and information technology infrastructure to manage or support a variety of our business operations, and to maintain various records, which may include confidential business or proprietary information as well as information regarding our customers, business partners, employees or other third parties. Failures of or interference with access to these systems, such as communication disruptions, could have an adverse effect on our ability to conduct operations or directly impact consolidated financial reporting. Security breaches pose a risk to confidential data and intellectual property, which could result in damagestransaction errors, processing inefficiencies, the loss of sales and customers, data privacy breaches and damage to our competitiveness and reputation. We have policies and procedures in place, including system monitoring and data back-up processes, to prevent or mitigate the effects of these potential disruptions or breaches, howeverbreaches. We do not carry insurance against these risks, although we do invest in security technology, perform penetration tests from time to time, and design our business processes to attempt to mitigate the risk of such breaches. However, there can be no assurance that existing or emerging threatssecurity breaches will not occur.
Additionally, the development and maintenance of these measures requires continuous monitoring as technologies change and efforts to overcome security measures evolve. We have an adverseexperienced, and expect to continue to experience, cybersecurity threats and incidents, none of which have been material to us to date. However, a successful breach or attack could have a material negative impact on our systemsoperations or communications networks. These risks couldbusiness reputation, harm our reputation and our relationships with our customers, business partners, employees or other third parties, and may result in claims against us.subject us to consequences such as litigation and direct costs associated with incident response. In addition, these risks could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.
Risks Related to Fluctuations in the Market Value of our Common StockOur Publicly Traded Securities
The market price of our common stockpublicly traded securities may fluctuate due to a number of factors, including the general economy, stock market conditions, general trends in the E&P industry, changes in government or environmental regulations, commodity prices, announcements made by us or our competitors, and variations in our operating results. Investors may not be able to predict the timing or extent of these fluctuations.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
We lease office space to support our operating segments as well as our corporate offices. All material domestic owned properties are subject to liens and security interests under our ABL Facility.
Fluids Systems. We own a facility containing approximately 103,000 square feet of office space on approximately 11 acres of land in Katy, Texas, which houses the divisional headquarters and technology center for this segment. We also own a distribution warehouse and fluids blending facility containing approximately 65,000 square feet of office and industrial space on approximately 21 acres of land in Conroe, Texas. Additionally, we own six warehouse facilities and have 15 leased warehouses and 10 contract warehouses to support our customers and operations in the U.S. We own two warehouse facilities and have 19 contract warehouses in Canada to support our Canadian operations. Additionally, we lease 19 warehouses and own one warehouse in the EMEA region, lease five warehouses in the Latin America region, and own one warehouse and lease five warehouses in the Asia Pacific region to support our international operations. This leased space is located in several cities primarily in the United States, Canada, Italy, Eastern Europe, North Africa, Kuwait, Brazil, and Australia. We also own buildings providing officeapproximately 11 acres of industrial space in OklahomaFourchon, Louisiana which houses drilling and office/warehouse space in Henderson, Australia. Somecompletion fluids blending, storage, and transfer stations to serve the deepwater Gulf of the warehouses listedMexico market. We also include blending facilities.
Mats and Integrated Services. We own a facility containing approximately 93,000 square feet of office and industrial space on approximately 34 acres of land in Carencro, Louisiana, which houses our manufacturing facilities the divisional headquarters, and technology center for this segment. We also own or lease eight sitesvarious facilities and warehouses throughout Texas, Pennsylvania, Colorado, Illinois and Wisconsin which servethe U.S., as bases for our well site service activities. Additionally, we own two facilities which are located in Louisiana and Texas and lease twoas facilities in the United Kingdom, to support our field operations.
ITEM 3. Legal Proceedings
consolidated financial statements.
ITEM 4. Mine Safety Disclosures
The information concerning mine safety violations and other regulatory matters required by section 1503 (a)Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 of this Annual Report on Form 10-K, which is incorporated by reference.
PART II
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol “NR.”
| Period | High | Low | ||||||
| 2016 | ||||||||
| Fourth Quarter | $ | 8.20 | $ | 5.80 | ||||
| Third Quarter | $ | 7.72 | $ | 5.48 | ||||
| Second Quarter | $ | 5.89 | $ | 3.74 | ||||
| First Quarter | $ | 5.47 | $ | 3.35 | ||||
| 2015 | ||||||||
| Fourth Quarter | $ | 6.60 | $ | 4.83 | ||||
| Third Quarter | $ | 8.03 | $ | 5.09 | ||||
| Second Quarter | $ | 10.61 | $ | 7.43 | ||||
| First Quarter | $ | 9.85 | $ | 8.34 | ||||
As of February 1, 2017,2020, we had 1,3901,230 stockholders of record as determined by our transfer agent.
| Period | Total Number of Shares Purchased (1) | Average Price per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value of Shares and Convertible Notes due 2017 that May Yet be Purchased Under Plans or Programs | ||||||||||
| October 2016 | 303 | $ | 7.30 | — | $ | 33.5 | ||||||||
| November 2016 | — | $ | — | — | $ | 33.5 | ||||||||
| December 2016 | — | — | — | $ | 33.5 | |||||||||
| Total | 303 | $ | 7.30 | — | ||||||||||
We have not paid any dividends during the three most recent fiscal years or any subsequent interim period, and we do not intend to pay any cash dividends in the foreseeable future. In addition, our ABL Facility contains covenants which limit the payment of dividends on our common stock. See “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Asset BasedAsset-Based Loan Facility.”
Stock Performance Graph
The following graph reflects a comparison of the cumulative total stockholder return of our common stock from January 1, 20122015 through December 31, 2016,2019, with the New York Stock Exchange Market Value Index, a broad equity market index, and the Morningstar Oil & Gas Equipment & Services Index, an industry group index. The graph assumes the investment of $100 on January 1, 20122015 in our common stock and each index and the reinvestment of all dividends, if any. This information shall be deemed furnished but not filed in this Form 10-K, and shall not be deemed incorporated by reference into any filing under the Securities Exchange Act of 1933, or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference.
Issuer Purchases of Equity Securities
The following table details our repurchases of shares of our common stock for the three months ended December 31, 2019:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs ($ in Millions) | ||||||||||
| October 2019 | 974 | $ | 7.44 | — | $ | 81.0 | ||||||||
| November 2019 | 5,471 | $ | 6.76 | — | $ | 81.0 | ||||||||
| December 2019 | 2,531 | $ | 5.86 | — | $ | 81.0 | ||||||||
| Total | 8,976 | $ | 6.58 | — | ||||||||||
During the three months ended December 31, 2019, we purchased an aggregate of 8,976 shares surrendered in lieu of taxes under vesting of restricted stock awards. During 2019, we purchased an aggregate of 381,041 shares surrendered in lieu of taxes under vesting of restricted stock awards. All of the shares purchased are held as treasury stock.
In November 2018, our Board of Directors authorized changes to our securities repurchase program. These changes increased the authorized amount under the repurchase program to $100.0 million, available for repurchases of any combination of our common stock and our 2021 Convertible Notes.
Our repurchase program authorizes us to purchase our outstanding shares of common stock or 2021 Convertible Notes in the open market or as otherwise determined by management, subject to certain limitations under the ABL Facility and other factors. The repurchase program has no specific term. Repurchases are expected to be funded from operating cash flows, available cash on hand, and borrowings under our ABL Facility. As part of the repurchase program, our management has been authorized to establish trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934. There were no share repurchases under the program during the three months ended December 31, 2019. During 2019, we repurchased an aggregate of 2,537,833 shares of our common stock under our Board authorized repurchase program for a total cost of $19.0 million. All of the shares repurchased are held as treasury stock. As of December 31, 2019, we had $81.0 million remaining under the program.
ITEM 6. Selected Financial Data
The selected consolidated historical financial data presented below for the five years ended December 31, 20162019 is derived from our consolidated financial statements. The following data should be read in conjunction with the consolidated financial statements and notes thereto in Item 8. “Financial Statements and Supplementary Data” and with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Items 7 and 8 below.Operations.”
| As of and for the Year Ended December 31, | As of and for the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||
| (In thousands, except share data) | 2016 | 2015 | 2014 | 2013 | 2012 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||
| Consolidated Statements of Operations Data: | ||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 471,496 | $ | 676,865 | $ | 1,118,416 | $ | 1,042,356 | $ | 983,953 | $ | 820,119 | $ | 946,548 | $ | 747,763 | $ | 471,496 | $ | 676,865 | ||||||||||||||||||
| Operating income (loss) | (57,213 | ) | (99,099 | ) | 130,596 | 94,445 | 92,275 | 10,395 | 63,558 | 31,436 | (57,213 | ) | (99,099 | ) | ||||||||||||||||||||||||
| Interest expense, net | 9,866 | 9,111 | 10,431 | 11,279 | 9,727 | 14,369 | 14,864 | 13,273 | 9,866 | 9,111 | ||||||||||||||||||||||||||||
| Income (loss) from continuing operations | (40,712 | ) | (90,828 | ) | 79,009 | 52,622 | 50,453 | (12,946 | ) | 32,281 | 11,219 | (40,712 | ) | (90,828 | ) | |||||||||||||||||||||||
| Income from discontinued operations, net of tax | — | — | 1,152 | 12,701 | 9,579 | |||||||||||||||||||||||||||||||||
| Gain from disposal of discontinued operations, net of tax | — | — | 22,117 | — | — | |||||||||||||||||||||||||||||||||
| Loss from disposal of discontinued operations, net of tax | — | — | (17,367 | ) | — | — | ||||||||||||||||||||||||||||||||
| Net income (loss) | (40,712 | ) | (90,828 | ) | 102,278 | 65,323 | 60,032 | (12,946 | ) | 32,281 | (6,148 | ) | (40,712 | ) | (90,828 | ) | ||||||||||||||||||||||
| Basic income (loss) per share from continuing operations | $ | (0.49 | ) | $ | (1.10 | ) | $ | 0.95 | $ | 0.62 | $ | 0.58 | ||||||||||||||||||||||||||
| Basic net income (loss) per share | $ | (0.49 | ) | $ | (1.10 | ) | $ | 1.23 | $ | 0.77 | $ | 0.69 | ||||||||||||||||||||||||||
| Income (loss) per share from continuing operations - basic | $ | (0.14 | ) | $ | 0.36 | $ | 0.13 | $ | (0.49 | ) | $ | (1.10 | ) | |||||||||||||||||||||||||
| Net income (loss) per share - basic | $ | (0.14 | ) | $ | 0.36 | $ | (0.07 | ) | $ | (0.49 | ) | $ | (1.10 | ) | ||||||||||||||||||||||||
| Diluted income (loss) per share from continuing operations | $ | (0.49 | ) | $ | (1.10 | ) | $ | 0.84 | $ | 0.56 | $ | 0.53 | ||||||||||||||||||||||||||
| Diluted net income (loss) per share | $ | (0.49 | ) | $ | (1.10 | ) | $ | 1.07 | $ | 0.69 | $ | 0.62 | ||||||||||||||||||||||||||
| Income (loss) per share from continuing operations - diluted | $ | (0.14 | ) | $ | 0.35 | $ | 0.13 | $ | (0.49 | ) | $ | (1.10 | ) | |||||||||||||||||||||||||
| Net income (loss) per share - diluted | $ | (0.14 | ) | $ | 0.35 | $ | (0.07 | ) | $ | (0.49 | ) | $ | (1.10 | ) | ||||||||||||||||||||||||
| Consolidated Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||
| Consolidated Balance Sheets Data: | ||||||||||||||||||||||||||||||||||||||
| Working capital | $ | 283,139 | $ | 380,950 | $ | 440,098 | $ | 395,159 | $ | 433,728 | $ | 349,947 | $ | 381,386 | $ | 346,623 | $ | 283,139 | $ | 380,950 | ||||||||||||||||||
| Total assets | 798,183 | 848,893 | 1,007,672 | 954,918 | 979,750 | 900,079 | 915,854 | 902,716 | 798,183 | 848,893 | ||||||||||||||||||||||||||||
| Foreign bank lines of credit | — | 7,371 | 11,395 | 12,809 | 2,546 | 4,849 | 1,137 | 1,000 | — | 7,371 | ||||||||||||||||||||||||||||
| Other current debt | 83,368 | 11 | 253 | 58 | 53 | 1,486 | 1,385 | 518 | 83,368 | 11 | ||||||||||||||||||||||||||||
| Long-term debt, less current portion | 72,900 | 171,211 | 170,462 | 170,009 | 253,315 | 153,538 | 159,225 | 158,957 | 72,900 | 171,211 | ||||||||||||||||||||||||||||
| Stockholders' equity | 500,543 | 520,259 | 625,458 | 581,054 | 513,578 | |||||||||||||||||||||||||||||||||
| Stockholders’ equity | 548,645 | 569,681 | 547,480 | 500,543 | 520,259 | |||||||||||||||||||||||||||||||||
| Consolidated Cash Flow Data: | ||||||||||||||||||||||||||||||||||||||
| Net cash provided by operations | $ | 11,095 | $ | 121,517 | $ | 89,173 | $ | 151,903 | $ | 110,245 | ||||||||||||||||||||||||||||
| Consolidated Cash Flows Data: | ||||||||||||||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 72,286 | $ | 63,403 | $ | 38,381 | $ | 11,095 | $ | 121,517 | ||||||||||||||||||||||||||||
| Net cash used in investing activities | (28,260 | ) | (84,366 | ) | (14,002 | ) | (60,063 | ) | (96,167 | ) | (49,764 | ) | (55,752 | ) | (68,374 | ) | (38,320 | ) | (66,881 | ) | ||||||||||||||||||
| Net cash provided by (used in) financing activities | (650 | ) | (6,730 | ) | (49,158 | ) | (72,528 | ) | 5,853 | |||||||||||||||||||||||||||||
| Net cash used in financing activities | (29,526 | ) | (4,513 | ) | (2,290 | ) | (650 | ) | (6,730 | ) | ||||||||||||||||||||||||||||
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition, results of operations, liquidity, and capital resources should be read togetherin conjunction with our Consolidated Financial Statementsthe consolidated financial statements and Notes to Consolidated Financial Statementsnotes thereto included in Item 8 of this Annual Report.“Financial Statements and Supplementary Data.”
Overview
We are a geographically diversified supplier providing products, as well as rentals and services primarily to the oil and natural gas exploration and production (“E&P”) industry. We operate our business through two reportable segments: Fluids Systems and Mats and Integrated Services.
Our operating results, particularly for the Fluids Systems segment, depend to a large extent, on oil and natural gas drilling activity levels in the markets we serve and particularly for the Fluids Systems segment, the nature of the drilling operations (including the depth and whether the wells are drilled vertically or horizontally), which governs the revenue potential of each well. Drilling activity levels, in turn, dependsdepend on a variety of factors, including oil and natural gas commodity pricing, inventory levels, product demand, and regulatory restrictions. Oil and natural gas prices and activity are cyclical and volatile. Thisvolatile, and this market volatility has a significant impact on our operating results.
| Year Ended December 31, | 2016 vs 2015 | 2015 vs 2014 | |||||||||||||||||||
| 2016 | 2015 | 2014 | Count | % | Count | % | |||||||||||||||
| U.S. Rig Count | 509 | 978 | 1,862 | (469 | ) | (48 | %) | (884 | ) | (47 | %) | ||||||||||
| Canadian Rig Count | 130 | 192 | 379 | (62 | ) | (32 | %) | (187 | ) | (49 | %) | ||||||||||
| Total | 639 | 1,170 | 2,241 | (531 | ) | (45 | %) | (1,071 | ) | (48 | %) | ||||||||||
| Year Ended December 31, | 2019 vs 2018 | 2018 vs 2017 | |||||||||||||||||||
| 2019 | 2018 | 2017 | Count | % | Count | % | |||||||||||||||
| U.S. Rig Count | 943 | 1,032 | 877 | (89 | ) | (9 | %) | 155 | 18 | % | |||||||||||
| Canada Rig Count | 134 | 191 | 206 | (57 | ) | (30 | %) | (15 | ) | (7 | %) | ||||||||||
| North America Rig Count | 1,077 | 1,223 | 1,083 | (146 | ) | (12 | %) | 140 | 13 | % | |||||||||||
Source: Baker Hughes IncorporatedCompany
Spring break-up. Outside of North America, drilling activity is generally more stable as drilling activity in many countries is based upon longer termon longer-term economic projections and multiple yearmulti-year drilling programs, which tendtends to reduce the impact of short termshort-term changes in commodity prices on overall drilling activity. While
Segment Overview
Our Fluids Systems segment, which generated 76% of consolidated revenues for 2019, provides customized drilling, activitycompletion, and stimulation fluids solutions to E&P customers primarily in North America and Europe, the Middle East and Africa (“EMEA”), as well as certain countries in Asia Pacific and Latin America. International expansion, including the penetration of international oil companies (“IOCs”) and national oil companies (“NOCs”), is a key element of our international markets including BrazilFluids Systems strategy, which has historically helped to stabilize segment revenues, particularly as North American oil and Australia has declined dramatically, our internationalnatural gas exploration activities have continuedfluctuated significantly. Revenues from IOC and NOC customers represented approximately one-third of Fluids Systems segment revenues for 2019.
Significant international contract awards with recent developments include:
In Kuwait, we provide drilling and completion fluids and related services for land operations under a multi-year contract with Kuwait Oil Company (“KOC”), which began in 2014. Following a tender process with KOC, we received two new contract awards to growprovide drilling and completion fluids, along with related services, covering a five-year term which began in recent years driven primarilythe first quarter of 2019. The initial revenue value of the combined awards is approximately $165 million and expands our presence to include a second base of operations in Northern Kuwait. Based on the customer plans currently in place, we expect the revenue levels of the new awards to ultimately surpass the levels achieved on the previous contract; however, 2019 revenues from KOC were relatively consistent with 2018 levels, impacted in part by fluctuations during the contract transition.
In Algeria, we provide drilling and completion fluids and related services to Sonatrach under a multi-year contract. Work under Lot 1 and Lot 3 of a three-year contract awarded in 2015 (“2015 Contract”) was completed in the fourth quarter of 2018. During 2018, Sonatrach initiated a new tender (“2018 Tender”), for a three-year term succeeding the 2015 Contract. For the 2018 Tender, Sonatrach adopted a change in its procurement process, limiting the number of Lots that could be awarded to major service providers, which consequently reduced the potential revenue of the 2018 Tender as compared to the 2015 Contract. The contract awarded under the 2018 Tender is expected to generate revenue of approximately $125 million over the three-year term. Following the transition to the new contract awards described above, which include geographical expansion into new markets as well as market share gains in existing markets.late 2018, 2019 revenues from Sonatrach reflect a $26 million decline from 2018.
In responseAustralia, we provided drilling and completion fluids and related services under a contract with Baker Hughes Company, as part of its integrated service offering in support of the Greater Enfield project in offshore Western Australia. Work under this contract began in the first quarter of 2018 and was substantially completed in the third quarter of 2019.
In Brazil, we provided drilling fluids and related services under a multi-year contract with Petrobras which concluded in December 2018. For 2018, our Brazilian subsidiary generated revenues of $23 million and an operating loss of $1.4 million, substantially all of which related to the significant declines in industry activity in North America, we implemented cost reduction programs in 2015 including workforce reductions, reduced discretionary spending, and temporary salary freezes for substantially all employees, including executive officers. In September 2015, we also implemented a voluntary early retirement program with certain eligible employees in the United States.Petrobras contract. As a result of the further declinesconclusion of the Petrobras contract, we recognized charges of $1.2 million in activityBrazil during 2018 primarily related to severance costs associated with workforce reductions. In 2019, we maintained a reduced infrastructure in the Brazilian market to support our efforts to pursue contract opportunities in the offshore IOC market. During the fourth quarter of 2019, we made the decision to wind down our Brazil operations. For 2019, our Brazilian subsidiary generated revenues of $1 million and an operating loss of $4.1 million, including a charge of $0.7 million primarily related to severance costs and asset write-downs.
Our Fluids Systems business was also successful in securing other international tender awards in 2019, which are expected to begin in the first half of 2016,2020. These include a new three-year contract for combined drilling and completion fluids with ENI to support its offshore drilling campaign in Cyprus and a two-year contract with PTT Exploration and Production in Algeria. Both of these contracts are expected to begin in the first half of 2020, and combined generate additional revenues of $15 million to $20 million per year.
In addition to our international expansion efforts, we implemented further cost reduction actions including additional workforce reductionsare also selectively expanding our presence in North America, capitalizing on our capabilities, infrastructure, and beginningstrong market position in March 2016, a temporary salary reduction for a significant number ofthe North American employees, including executive officers, suspensionland drilling fluids markets, both through the geographic entry in the deepwater Gulf of the Company’s matching contribution to the U.S. defined contribution planMexico as well as a reduction in cash compensation paidthrough product line extensions into adjacent product offerings, including completion fluids and stimulation chemicals. To support this effort, we have incurred start-up costs, including costs associated with additional personnel and facility-related expenses, and have made additional capital investments. Revenues for drilling and completion fluids from the deepwater Gulf of Mexico increased to our Board of Directors in order$37 million for 2019 compared to further align our cost structure to activity levels. These temporary reductions are expected to remain in place until the second quarter of 2017.
$8 million for 2018.
As part of thesethe completion fluids product line extension, in October 2019, we acquired Cleansorb Limited (“Cleansorb”), a U.K. based provider of specialty chemicals for the oil and natural gas industry, which further expands our fluids technology portfolio and capabilities, for cash consideration of approximately $19 million. See Note 2 for additional information.
We continue to evaluate under-performing areas within our Fluids Systems business as well as opportunities to further enable a more efficient and scalable cost reduction programs, we reduced our North American employee base by 626 (approximately 48%) from the first quarter of 2015 through the third quarter of 2016, including reductions of 436 employees in 2015 and 190 employeesstructure, particularly in the first nine months of 2016. As a result of these termination programs,U.S. land market. During 2019, we recognized charges for employee termination coststook certain actions to reduce our workforce and cost structure as shownactivity levels declined, primarily in the table below:
| Year Ended December 31, | |||||||
| (In thousands) | 2016 | 2015 | |||||
| Fluids systems | $ | 4,125 | $ | 7,218 | |||
| Mats and integrated services | 285 | 717 | |||||
| Corporate office | 162 | 228 | |||||
| Total employee termination costs | $ | 4,572 | $ | 8,163 | |||
Our Mats and Integrated Services segment, which generated 24% of consolidated revenues for 2019, provides composite mat rentals utilized for temporary worksite access, along with related site construction and services to customers in various markets
including E&P, electrical transmission & distribution, pipeline, solar, petrochemical, and construction industries across North America and Europe. We also sell composite mats to customers around the world. The expansion of our rental and service activities in non-E&P markets remains a strategic priority for us due to the magnitude of this market growth opportunity, as well as the market’s relative stability compared to E&P. The Mats and Integrated Services segment rental and service revenues from non-E&P markets increased to approximately $65 million for 2019 compared to approximately $61 million for 2018. Product sales revenues largely reflect sales to non-E&P and international E&P markets, and typically fluctuate based on the timing of customer orders. Including product sales, total revenues to non-E&P markets represented approximately 55% of total segment revenues for 2019 compared to approximately half of total segment revenues for 2018.
In November 1, 2015 annual evaluation,2017, we acquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility Access Solutions, Inc. (together, “WSG”) for approximately $77 million. Since 2012, WSG had been a $2.6 million non-cash impairmentstrategic logistics and installation service provider for our Mats and Integrated Service segment, offering a variety of assets, followingcomplementary services to our decisioncomposite matting systems, including access road construction, site planning and preparation, environmental protection, fluids and spill containment, erosion control, and site restoration services. The completion of the WSG acquisition expanded our service offering as well as our geographic footprint across the Northeast, Midwest, Rockies, and West Texas regions of the U.S. The WSG acquisition was the primary driver of the growth in service revenues for the Mats and Integrated Services segment for 2018 compared to exit a facility, and a $2.2 million charge to reduce the carrying value of diesel-based drilling fluid inventory, resulting from lower of cost or market adjustments.2017.
Year Ended December 31, 20162019 Compared to Year Ended December 31, 20152018
Consolidated Results of Operations
Summarized results of operations for the year ended December 31, 20162019 compared to the year ended December 31, 20152018 are as follows:
| Year Ended December 31, | 2016 vs 2015 | |||||||||||||
| (In thousands) | 2016 | 2015 | $ | % | ||||||||||
| Revenues | $ | 471,496 | $ | 676,865 | $ | (205,369 | ) | (30 | %) | |||||
| Cost of revenues | 437,836 | 599,013 | (161,177 | ) | (27 | %) | ||||||||
| Selling, general and administrative expenses | 88,473 | 101,032 | (12,559 | ) | (12 | %) | ||||||||
| Other operating income, net | (4,345 | ) | (2,426 | ) | (1,919 | ) | NM | |||||||
| Impairments and other charges | 6,745 | 78,345 | (71,600 | ) | NM | |||||||||
| Operating loss | (57,213 | ) | (99,099 | ) | 41,886 | 42 | % | |||||||
| Foreign currency exchange (gain) loss | (710 | ) | 4,016 | (4,726 | ) | NM | ||||||||
| Interest expense, net | 9,866 | 9,111 | 755 | 8 | % | |||||||||
| Gain on extinguishment of debt | (1,615 | ) | — | (1,615 | ) | NM | ||||||||
| Loss from operations before income taxes | (64,754 | ) | (112,226 | ) | 47,472 | NM | ||||||||
| Benefit for income taxes | (24,042 | ) | (21,398 | ) | (2,644 | ) | (12 | %) | ||||||
| Net loss | $ | (40,712 | ) | $ | (90,828 | ) | $ | 50,116 | NM | |||||
| Year Ended December 31, | 2019 vs 2018 | |||||||||||||
| (In thousands) | 2019 | 2018 | $ | % | ||||||||||
| Revenues | $ | 820,119 | $ | 946,548 | $ | (126,429 | ) | (13 | %) | |||||
| Cost of revenues | 684,738 | 766,975 | (82,237 | ) | (11 | %) | ||||||||
| Selling, general and administrative expenses | 113,394 | 115,127 | (1,733 | ) | (2 | %) | ||||||||
| Other operating loss, net | 170 | 888 | (718 | ) | NM | |||||||||
| Goodwill impairment | 11,422 | — | 11,422 | NM | ||||||||||
| Operating income | 10,395 | 63,558 | (53,163 | ) | (84 | %) | ||||||||
| Foreign currency exchange (gain) loss | (816 | ) | 1,416 | (2,232 | ) | NM | ||||||||
| Interest expense, net | 14,369 | 14,864 | (495 | ) | (3 | %) | ||||||||
| Income (loss) from continuing operations before income taxes | (3,158 | ) | 47,278 | (50,436 | ) | (107 | %) | |||||||
| Provision for income taxes | 9,788 | 14,997 | (5,209 | ) | (35 | %) | ||||||||
| Income (loss) from continuing operations | $ | (12,946 | ) | $ | 32,281 | $ | (45,227 | ) | (140 | %) | ||||
Revenues
Revenues decreased 30%13% to $471.5$820.1 million in 2016,for 2019, compared to $676.9$946.5 million in 2015.for 2018. This $205.4$126.4 million decrease includes a $189.1$77.9 million (43%(11%) decrease in revenues in North America, includingcomprised of a $169.0$49.6 million declinedecrease in ourthe Fluids Systems segment and a $20.1$28.3 million declinedecrease in ourthe Mats and Integrated Services segment. Revenues from our international operations decreased by $16.3$48.5 million (7%(19%), primarily driven by transitions in key contracts in Algeria and Brazil, as a $12.3 million revenue contribution from the offshore Uruguay project and activity gains in our EMEA region were more than offset by reduced drilling activity in Brazil and Asia Pacific, as well as a $12.0 million unfavorable impact of currency exchange related to the stronger U.S. dollar.described above. Additional information regarding the change in revenues is provided within the operating segment results below.
Cost of Revenuesrevenues
Cost of revenues decreased 27%11% to $437.8$684.7 million in 2016,for 2019, compared to $599.0$767.0 million in 2015. Thefor 2018. This $82.2 million decrease was primarily driven by the decline13% decrease in revenues described above, as well as $6.8 million of charges in the benefits of cost reduction programs, a $6.1 million reductionFluids Systems segment in depreciation expense2019 associated with the January 2016 change in estimated useful livesfacility closures and residual values of our composite mats rental fleetrelated exit costs, inventory write-downs, and a $2.0 million reduction in employee terminationseverance costs. These decreases were partially offset by a $1.9 million increase in inventory impairments primary resulting from lower of cost or market adjustments. Additional information regarding the change in cost of revenues is provided within the operating segment results below.
Selling, Generalgeneral and Administrative Expensesadministrative expenses
Selling, general and administrative expenses decreased $12.6$1.7 million to $88.5$113.4 million in 2016 from $101.0for 2019, compared to $115.1 million in 2015. Thefor 2018. This decrease iswas primarily attributable to the benefits of cost reduction programs, a $2.4 million decline indriven by lower performance-based incentive compensation, partially offset by $4.0 million in charges associated with the February 2019 retirement policy modification (as discussed in Note 12), a $1.9$3.2 million declineincrease in spendingprofessional fees primarily related to legal matters, including the wage and hour litigation, a $1.6 million decrease in employee termination costs and lower spending onour long-term strategic planning projects.project and the Cleansorb acquisition, as well as higher personnel costs. Selling, general and administrative expenses for 2018 included a corporate office charge of $1.8 million associated with the retirement and transition of our former Senior Vice President, General Counsel and Chief Administrative Officer. Selling, general and administrative expenses as a percentage of revenues was 13.8% for 2019 compared to 12.2% for 2018.
Other Operating Income,operating loss, net
Other operating income was $4.3 million in 2016 as comparedloss for 2018 primarily relates to $2.4 million in 2015, primarily reflecting gains on the sale of assets in both periods. The increase is primarily attributableJuly 2018 fire at our Kenedy, Texas drilling fluids facility (see Note 16 for additional information).
Goodwill impairment
Goodwill impairment for 2019 relates to a $1.4 million increase in gains recognized on the sale of used composite mats from the rental fleet.
Foreign Currency Exchangecurrency exchange
Foreign currency exchange was a $0.7$0.8 million gain in 2016for 2019 compared to a $4.0$1.4 million loss in 2015,for 2018, and reflects the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies. The foreign exchange loss in 2015 was primarily due to the strengthening of the U.S. dollar against the Brazilian real. In September 2015, approximately 70% of the inter-company balances due from our Brazilian subsidiary with foreign currency exposure were forgiven, which reduced the foreign currency volatility in 2016 in comparison to 2015.
Interest expense, net
Interest expense which primarily reflects the 4% interest associated with our unsecured Convertible Notes due 2017, totaled $9.9was $14.4 million for 20162019 compared to $9.1$14.9 million for 2018. Interest expense for 2019 and 2018 includes $6.2 million and $5.5 million, respectively, in 2015. The increase in 2016 was primarily attributable to a non-cash chargenoncash amortization of $1.1 million in the second quarter of 2016 for the write-off oforiginal issue discount and debt issuance costs related to the termination and replacement of our revolving Credit Agreement partially offset by the benefit from the repurchase of $11.2 million of our Convertible Notes due 2017 in the first quarter of 2016. In December 2016, we issued $100 million of 4% Convertible Notes due 2021 and repurchased an additional $78.1 million of our Convertible Notes due 2017. As discussed further in Note 6 - Financing Arrangements in our Consolidated Financial Statements, interest expense associated with the Convertible Notes due 2021 will include the non-cash amortization of debt discount and deferred debt issuance costs which will increase our reported interest expense in 2017.
Provision for income taxes
The provision for income taxes was $9.8 million for 2016 was2019 despite reporting a $24.0small pretax loss for the year. This result reflects the impact of the $11.4 million benefit, reflecting an effectivenon-deductible goodwill impairment as well as the impact of the geographic composition of our pretax loss, where tax rate of 37.1%, comparedexpense related to a $21.4 million benefit in 2015, reflecting an effective tax rate of 19.1%. The benefit for income taxes in 2016 includes a $9.3 million benefit associated with a worthless stock deduction and related impactsearnings from restructuring the investment in our Brazilian subsidiary,international operations is only partially offset by the unfavorable impact of pretax losses incurred in Australia for which the recording of a tax benefit is not permitted.
Although the U.S. corporate statutory tax rate was reduced from 35% to 21% effective January 1, 2018, our provision for income taxes beginning in 2018 also includes the new tax on certain foreign-sourced earnings as well as any additional foreign withholding taxes related to future repatriation of current year earnings from our Brazilian subsidiarynon-U.S. subsidiaries. Due to the relative contribution of our domestic and a $2.2 million benefit fromforeign earnings, these taxes on certain foreign-sourced earnings effectively serve to increase our effective tax rate. Our effective tax rate in future periods will depend in large part on the releaserelative contribution of U.S. tax reserves following the expiration of statutes of limitation.our domestic and foreign earnings.
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):
| Year ended December 31, | 2016 vs 2015 | Year Ended December 31, | 2019 vs 2018 | |||||||||||||||||||||||||
| (In thousands) | 2016 | 2015 | $ | % | 2019 | 2018 | $ | % | ||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| Fluids systems | $ | 395,461 | $ | 581,136 | $ | (185,675 | ) | (32 | %) | $ | 620,317 | $ | 715,813 | $ | (95,496 | ) | (13 | %) | ||||||||||
| Mats and integrated services | 76,035 | 95,729 | (19,694 | ) | (21 | %) | 199,802 | 230,735 | (30,933 | ) | (13 | %) | ||||||||||||||||
| Total revenues | $ | 471,496 | $ | 676,865 | $ | (205,369 | ) | (30 | %) | $ | 820,119 | $ | 946,548 | $ | (126,429 | ) | (13 | %) | ||||||||||
| Operating income (loss) | ||||||||||||||||||||||||||||
| Fluids systems | $ | (43,631 | ) | $ | (86,770 | ) | $ | 43,139 | $ | 3,814 | $ | 40,337 | $ | (36,523 | ) | |||||||||||||
| Mats and integrated services | 14,741 | 24,949 | (10,208 | ) | 47,466 | 60,604 | (13,138 | ) | ||||||||||||||||||||
| Corporate office | (28,323 | ) | (37,278 | ) | 8,955 | (40,885 | ) | (37,383 | ) | (3,502 | ) | |||||||||||||||||
| Operating loss | $ | (57,213 | ) | $ | (99,099 | ) | $ | 41,886 | ||||||||||||||||||||
| Total operating income | $ | 10,395 | $ | 63,558 | $ | (53,163 | ) | |||||||||||||||||||||
| Segment operating margin | ||||||||||||||||||||||||||||
| Fluids systems | (11.0 | %) | (14.9 | %) | 0.6 | % | 5.6 | % | ||||||||||||||||||||
| Mats and integrated services | 19.4 | % | 26.1 | % | 23.8 | % | 26.3 | % | ||||||||||||||||||||
Fluids Systems
Revenues
Total revenues for this segment consisted of the following:
| Year ended December 31, | 2016 vs 2015 | Year Ended December 31, | 2019 vs 2018 | |||||||||||||||||||||||||
| (In thousands) | 2016 | 2015 | $ | % | 2019 | 2018 | $ | % | ||||||||||||||||||||
| United States | $ | 149,876 | $ | 299,266 | $ | (149,390 | ) | (50 | %) | $ | 395,618 | $ | 410,410 | $ | (14,792 | ) | (4 | %) | ||||||||||
| Canada | 33,050 | 52,673 | (19,623 | ) | (37 | %) | 31,635 | 66,416 | (34,781 | ) | (52 | %) | ||||||||||||||||
| Total North America | 182,926 | 351,939 | (169,013 | ) | (48 | %) | 427,253 | 476,826 | (49,573 | ) | (10 | %) | ||||||||||||||||
| Latin America | 40,736 | 46,668 | (5,932 | ) | (13 | %) | ||||||||||||||||||||||
| Total Western Hemisphere | 223,662 | 398,607 | (174,945 | ) | (44 | %) | ||||||||||||||||||||||
| EMEA | 167,130 | 164,426 | 2,704 | 2 | % | 172,263 | 192,537 | (20,274 | ) | (11 | %) | |||||||||||||||||
| Asia Pacific | 4,669 | 18,103 | (13,434 | ) | (74 | %) | 15,273 | 17,733 | (2,460 | ) | (14 | %) | ||||||||||||||||
| Total Eastern Hemisphere | 171,799 | 182,529 | (10,730 | ) | (6 | %) | ||||||||||||||||||||||
| Latin America | 5,528 | 28,717 | (23,189 | ) | (81 | %) | ||||||||||||||||||||||
| Total International | 193,064 | 238,987 | (45,923 | ) | (19 | %) | ||||||||||||||||||||||
| Total Fluids Systems | $ | 395,461 | $ | 581,136 | $ | (185,675 | ) | (32 | %) | |||||||||||||||||||
| Total Fluids Systems revenues | $ | 620,317 | $ | 715,813 | $ | (95,496 | ) | (13 | %) | |||||||||||||||||||
North AmericanAmerica revenues decreased 48%10% to $182.9$427.3 million in 2016,for 2019, compared to $351.9$476.8 million in 2015.for 2018. This decrease in revenues iswas primarily attributable to lower customer drilling activity in Canada, as reflected by the 45%30% decline in North Americanaverage rig count. Despite the 9% decline in the United States average rig count, along with lower pricing and customer spending per well, partially offset byrevenues in the U.S. only declined 4% benefiting from market share gains over this period.in the offshore Gulf of Mexico market as discussed above. For U.S. land markets, the revenue decrease was relatively in line with the average rig count, with a reduction from lower market share offset by an increase in footage drilled per rig due to improvements in customer drilling efficiency.
Internationally, revenues decreased 7%19% to $212.5$193.1 million in 2016for 2019, compared to $229.2$239.0 million in 2015, which included a $10.7 million reduction from currency rate changes compared to 2015. The increase in the EMEA regionfor 2018. This decrease was primarily driven by a $39.8 million increase for activity in Algeria, Kuwait, and the Republic of the Congo, partially offset by a $16.6 million decrease following the completion of customer drilling activity in the deepwater Black Sea and other reductions in customer drilling activity related to the current commodity price environment, as well as an $8.5 million reduction from the impact of currency exchange. The decrease in revenues in Latin America is primarily attributable to declines related to the contract transitions described above in Petrobras drillingAlgeria, Brazil, and offshore Australia as well as lower customer activity in BrazilRomania and the impact of currency exchangeAlbania, partially offset by the $12.3 million revenue contribution from the offshore Uruguay project in the first half of 2016. The decline in Asia Pacific isgrowth across several EMEA countries, primarily attributable to reduced drilling activity in Australia.reflecting market share gains with IOC and NOC customers.
Operating Incomeincome
The Fluids Systems segment incurred angenerated operating lossincome of $43.6$3.8 million in 2016for 2019 compared to $40.3 million for 2018. Fluids Systems operating income for 2019 includes an operating loss$11.4 million non-cash impairment of $86.8 million in 2015. The operating losses in 2016goodwill and 2015 included $15.5 million and $75.5a total of $7.3 million of charges respectively,associated with facility closures and related exit costs, inventory write-downs, and severance costs, as well as the modification of the Company’s retirement policy. Operating income for 2018 included a total of $5.0 million of charges associated with severance costs, the impairmentKenedy, Texas facility fire, and expenses related to the upgrade and conversion of assets as discussed above. The remaining $16.8 million net increasea drilling fluids facility into a completion fluids facility. Excluding these charges, the decrease in operating loss in 2016 compared to 2015income includes a $13.3$10.8 million increase indecline from North American operating lossoperations and a $3.5 million decrease in international operating income. The increase in North American operating loss is largely attributable to the $169.0$11.8 million decline from international operations. This decline in revenues described above, partially offset by the benefits of cost reduction programs and a $3.1 million reduction in employee termination costs. The $3.5 million decrease in international operating income is primarily attributable to an unfavorable changethe decreases in customer mix in EMEA along with the revenue declines in Asia Pacific and Latin America and a $1.8 million negative impact of currency exchange.revenues described above.
As discussed above, we made the decision during the fourth quarter of 2019 to wind down our Brazil operations. We may incur additional operating losses and asset write-downs as we wind down these operations. In addition, at December 31, 2019, we had $10.3 million of accumulated translation losses related to our ability to penetrate the Gulf of Mexico deepwater market, activity levels remain subject to the level and stability of commodity prices. Outside of North America, improvements in operating results will largely depend on further recovery in commodity prices.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
| Year ended December 31, | 2016 vs 2015 | |||||||||||||
| (In thousands) | 2016 | 2015 | $ | % | ||||||||||
| Mat rental and services | $ | 58,389 | $ | 73,037 | $ | (14,648 | ) | (20 | %) | |||||
| Mat sales | 17,646 | 22,692 | (5,046 | ) | (22 | %) | ||||||||
| Total | $ | 76,035 | $ | 95,729 | $ | (19,694 | ) | (21 | %) | |||||
| Year Ended December 31, | 2019 vs 2018 | |||||||||||||
| (In thousands) | 2019 | 2018 | $ | % | ||||||||||
| Rental and service revenues | $ | 143,337 | $ | 174,840 | $ | (31,503 | ) | (18 | %) | |||||
| Product sales revenues | 56,465 | 55,895 | 570 | 1 | % | |||||||||
| Total Mats and Integrated Services revenues | $ | 199,802 | $ | 230,735 | $ | (30,933 | ) | (13 | %) | |||||
service revenues. Revenues from matproduct sales declined by $5.0 million compared to 2015increased 1% and typically fluctuate based on the timing of mat orders from customers.
The Mats and construction. Revenues from customers in these markets represented approximately 70%Integrated Services segment generated operating income of total segment revenues in 2016$47.5 million for 2019 compared to approximately half in 2015.
Corporate officeOffice
Corporate office expenses decreased $9.0increased $3.5 million to $28.3$40.9 million for 2019 compared to $37.4 million for 2018. This increase was primarily driven by $3.4 million in 2016, compared to $37.3 million in 2015. The decrease is primarily attributable to a $5.7 million improvement from the settlement of the wage and hour litigation claims as described above and a $2.0 million decrease in legal costs, primarilycharges associated with such claims.the February 2019 retirement policy modification, as discussed in Note 12. The remaining $1.3change primarily reflects a $3.2 million decrease isincrease in professional fees primarily attributablerelated to reduced spending onour long-term strategic projectsplanning project and the benefitsCleansorb acquisition, as well as higher severance and personnel costs, partially offset by lower performance-based incentive compensation. In addition, 2018 included a $1.8 million charge associated with the retirement and transition of cost reduction programs.our former Senior Vice President, General Counsel and Chief Administrative Officer.
Year Ended December 31, 20152018 Compared to Year Ended December 31, 20142017
Consolidated Results of Operations
Summarized results of operations for the year ended December 31, 20152018 compared to the year ended December 31, 20142017 are as follows:
| Year Ended December 31, | 2015 vs 2014 | |||||||||||||
| (In thousands) | 2015 | 2014 | $ | % | ||||||||||
| Revenues | $ | 676,865 | $ | 1,118,416 | $ | (441,551 | ) | (39 | %) | |||||
| Cost of revenues | 599,013 | 876,999 | (277,986 | ) | (32 | %) | ||||||||
| Selling, general and administrative expenses | 101,032 | 112,648 | (11,616 | ) | (10 | %) | ||||||||
| Other operating income, net | (2,426 | ) | (1,827 | ) | (599 | ) | (33 | %) | ||||||
| Impairments and other charges | 78,345 | — | 78,345 | NM | ||||||||||
| Operating income (loss) | (99,099 | ) | 130,596 | (229,695 | ) | (176 | %) | |||||||
| Foreign currency exchange loss | 4,016 | 108 | 3,908 | NM | ||||||||||
| Interest expense, net | 9,111 | 10,431 | (1,320 | ) | (13 | %) | ||||||||
| Income (loss) from continuing operations before income taxes | (112,226 | ) | 120,057 | (232,283 | ) | (193 | %) | |||||||
| Provision (benefit) for income taxes | (21,398 | ) | 41,048 | (62,446 | ) | (152 | %) | |||||||
| Income (loss) from continuing operations | (90,828 | ) | 79,009 | (169,837 | ) | (215 | %) | |||||||
| Income from discontinued operations, net of tax | — | 1,152 | (1,152 | ) | (100 | %) | ||||||||
| Gain from disposal of discontinued operations, net of tax | — | 22,117 | (22,117 | ) | (100 | %) | ||||||||
| Net income (loss) | $ | (90,828 | ) | $ | 102,278 | $ | (193,106 | ) | (189 | %) | ||||
| Year Ended December 31, | 2018 vs 2017 | |||||||||||||
| (In thousands) | 2018 | 2017 | $ | % | ||||||||||
| Revenues | $ | 946,548 | $ | 747,763 | $ | 198,785 | 27 | % | ||||||
| Cost of revenues | 766,975 | 607,899 | 159,076 | 26 | % | |||||||||
| Selling, general and administrative expenses | 115,127 | 108,838 | 6,289 | 6 | % | |||||||||
| Other operating (income) loss, net | 888 | (410 | ) | 1,298 | NM | |||||||||
| Operating income | 63,558 | 31,436 | 32,122 | 102 | % | |||||||||
| Foreign currency exchange loss | 1,416 | 2,051 | (635 | ) | NM | |||||||||
| Interest expense, net | 14,864 | 13,273 | 1,591 | 12 | % | |||||||||
| Income from continuing operations before income taxes | 47,278 | 16,112 | 31,166 | 193 | % | |||||||||
| Provision for income taxes | 14,997 | 4,893 | 10,104 | 206 | % | |||||||||
| Income from continuing operations | 32,281 | 11,219 | 21,062 | 188 | % | |||||||||
| Loss from disposal of discontinued operations, net of tax | — | (17,367 | ) | 17,367 | NM | |||||||||
| Net income (loss) | $ | 32,281 | $ | (6,148 | ) | $ | 38,429 | NM | ||||||
Revenues
Revenues decreased 39%increased 27% to $676.9$946.5 million in 2015,for 2018, compared to $1,118.4$747.8 million in 2014.for 2017. This $441.6$198.8 million decreaseincrease includes a $391.4$177.6 million (47%(34%) decreaseincrease in revenues in North America, including a $335.0comprised of an $81.4 million declineincrease in ourthe Fluids Systems segment and a $56.4$96.2 million declineincrease in ourthe Mats and Integrated Services segment. Revenues from our international operations decreasedincreased by $50.2$21.2 million (17%(9%), as activity gainsprimarily driven by increases in our Asia Pacific and EMEA region were more thanregions, partially offset by the unfavorable impact of currency exchange related to the strengthening U.S. dollar, along with reduced drilling activitya decrease in Brazil and Asia Pacific.our Latin America region. Additional information regarding the change in revenues is provided within the operating segment results below.
Cost of Revenuesrevenues
Cost of revenues decreased 32%increased 26% to $599.0$767.0 million in 2015,for 2018, compared to $877.0$607.9 million for 2017. This $159.1 million increase in 2014. The decrease iscost of revenues was primarily driven by the decline27% increase in revenues and the benefits of cost reduction programs taken in 2015, partially offset by charges in 2015 for approximately $5.7 millionas well as costs associated with employee termination costs and $2.2 million for lower of cost orour North American market adjustments to diesel-based drilling fluid inventories recognized in the fourth quarter of 2015. Additional information regarding the change in cost of revenues is provided within the operating segment results below.
Selling, general and administrative expenses decreased $11.6
Selling, general and administrative expenses increased $6.3 million to $101.0$115.1 million for 2018, compared to $108.8 million for 2017. The increase in 2015 from $112.6 millionexpenses was primarily driven by the growth in 2014. The decrease is primarilythe Mats and Integrated Services segment, including costs attributable to the WSG acquisition. Selling, general and administrative expenses also includes a $6.9corporate office charge of $1.8 million decline in performance-basedassociated with the retirement and transition of our former Senior Vice President, General Counsel and Chief Administrative Officer, primarily reflecting the impact of modifications to certain outstanding stock-based and other incentive compensation, the benefits of cost reduction programs taken in 2015, and $2.0 million inawards. In addition, lower spending related to legal matters, strategic planning projects,efforts, and performance-based incentive compensation were partially offset by higher severance costs and other increases in personnel costs. Selling, general and administrative expenses as a $1.9 million increase in costspercentage of revenues decreased to 12.2% for legal matters, including the wage and hour litigation, and a $1.9 million increase in employee termination costs.2018 from 14.6% for 2017.
Other Operating Income,operating (income) loss, net
Other operating income was $2.4 million in 2015 as compared to $1.8 million in 2014 largely reflecting gains recognized on the sale of assets in both periods.
Foreign Currency Exchangecurrency exchange
Foreign currency exchange was a $4.0$1.4 million loss in 2015,for 2018 compared to a $0.1$2.1 million loss in 2014. The currency exchange loss in 2015 primarilyfor 2017, and reflects the impact of the strengthening U.S. dollarcurrency translation on assets and liabilities (including intercompany balances) held in our international operations, particularly Brazil, that are denominated in currencies other than functional currencies. In September 2015, approximately 70% of the intercompany balances due from our Brazilian subsidiary with foreign currency exposure were forgiven.
Interest expense, net
Interest expense which primarily reflects the 4% interest associated with the Convertible Notes due 2017, totaled $9.1was $14.9 million for 20152018 compared to $10.4$13.3 million for 2017. Interest expense for 2018 and 2017 includes $5.5 million and $5.3 million, respectively, in 2014.noncash amortization of original issue discount and debt issuance costs. The decreaseincrease in 2015interest expense was primarily attributablerelated to lowerhigher average borrowingsoutstanding debt in 2018 compared to 2017, along with an increase in average borrowing rates on our international subsidiaries.ABL Facility.
Provision for income taxes
The provision for income taxes was $15.0 million for 2015 was a $21.4 million benefit,2018, reflecting an effective tax rate of 19.1%32%, compared to a $41.0$4.9 million expense in 2014,for 2017, reflecting an effective tax rate of 34.2%30%. The decreaseprovision for income taxes for 2018 includes a $1.6 million net benefit related to U.S. tax reform and was also favorably impacted by excess tax benefits related to the vesting of certain stock-based compensation awards and a reduction in the valuation allowance related to our U.K. subsidiary. The provision for income taxes in 2017 includes a $3.4 million benefit resulting from the provisional accounting related to U.S. tax reform. The 2017 effective tax rate iswas negatively impacted primarily relatedby non-deductible expenses relative to the impairmentamount of non-deductible goodwill in 2015. In 2015, the income tax provision alsopre-tax income.
Loss from disposal of discontinued operations
Loss from disposal of discontinued operations includes a $4.4 million benefit associated with the forgiveness of certain inter-company balances due from our Brazilian subsidiary and a $2.2 million benefit from the release of U.S. tax reserves, following the expiration of statutes of limitation. In addition, the 2015 income tax provision includes a $4.6$17.4 million charge, net of tax, in 2017 for increases to the valuation allowance for certain deferred tax assets, primarilysettlement of a litigation matter related to our Australian subsidiary and certain U.S. state net operating losses, which may not be realized, as well as a $1.6 million charge relating to management’s election to carry back the 2015 U.S. federal tax losses to prior years.
Operating Segment Results
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):
| Year ended December 31, | 2015 vs 2014 | Year Ended December 31, | 2018 vs 2017 | |||||||||||||||||||||||||
| (In thousands) | 2015 | 2014 | $ | % | 2018 | 2017 | $ | % | ||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| Fluids systems | $ | 581,136 | $ | 965,049 | $ | (383,913 | ) | (40 | %) | $ | 715,813 | $ | 615,803 | $ | 100,010 | 16 | % | |||||||||||
| Mats and integrated services | 95,729 | 153,367 | (57,638 | ) | (38 | %) | 230,735 | 131,960 | 98,775 | 75 | % | |||||||||||||||||
| Total revenues | $ | 676,865 | $ | 1,118,416 | $ | (441,551 | ) | (39 | %) | $ | 946,548 | $ | 747,763 | $ | 198,785 | 27 | % | |||||||||||
| Operating income (loss) | ||||||||||||||||||||||||||||
| Fluids systems | $ | (86,770 | ) | $ | 95,600 | $ | (182,370 | ) | $ | 40,337 | $ | 27,580 | $ | 12,757 | ||||||||||||||
| Mats and integrated services | 24,949 | 70,526 | (45,577 | ) | 60,604 | 40,491 | 20,113 | |||||||||||||||||||||
| Corporate office | (37,278 | ) | (35,530 | ) | (1,748 | ) | (37,383 | ) | (36,635 | ) | (748 | ) | ||||||||||||||||
| Operating income (loss) | $ | (99,099 | ) | $ | 130,596 | $ | (229,695 | ) | ||||||||||||||||||||
| Total operating income | $ | 63,558 | $ | 31,436 | $ | 32,122 | ||||||||||||||||||||||
| Segment operating margin | ||||||||||||||||||||||||||||
| Fluids systems | (14.9 | %) | 9.9 | % | 5.6 | % | 4.5 | % | ||||||||||||||||||||
| Mats and integrated services | 26.1 | % | 46.0 | % | 26.3 | % | 30.7 | % | ||||||||||||||||||||
Fluids Systems
Revenues
Total revenues for this segment consisted of the following:
| Year ended December 31, | 2015 vs 2014 | Year Ended December 31, | 2018 vs 2017 | |||||||||||||||||||||||||
| (In thousands) | 2015 | 2014 | $ | % | 2018 | 2017 | $ | % | ||||||||||||||||||||
| United States | $ | 299,266 | $ | 607,411 | $ | (308,145 | ) | (51 | %) | $ | 410,410 | $ | 341,075 | $ | 69,335 | 20 | % | |||||||||||
| Canada | 52,673 | 79,516 | (26,843 | ) | (34 | %) | 66,416 | 54,322 | 12,094 | 22 | % | |||||||||||||||||
| Total North America | 351,939 | 686,927 | (334,988 | ) | (49 | %) | 476,826 | 395,397 | 81,429 | 21 | % | |||||||||||||||||
| Latin America | 46,668 | 84,555 | (37,887 | ) | (45 | %) | ||||||||||||||||||||||
| Total Western Hemisphere | 398,607 | 771,482 | (372,875 | ) | (48 | %) | ||||||||||||||||||||||
| EMEA | 164,426 | 166,000 | (1,574 | ) | (1 | %) | 192,537 | 179,360 | 13,177 | 7 | % | |||||||||||||||||
| Asia Pacific | 18,103 | 27,567 | (9,464 | ) | (34 | %) | 17,733 | 4,081 | 13,652 | 335 | % | |||||||||||||||||
| Total Eastern Hemisphere | 182,529 | 193,567 | (11,038 | ) | (6 | %) | ||||||||||||||||||||||
| Latin America | 28,717 | 36,965 | (8,248 | ) | (22 | %) | ||||||||||||||||||||||
| Total International | 238,987 | 220,406 | 18,581 | 8 | % | |||||||||||||||||||||||
| Total Fluids Systems | $ | 581,136 | $ | 965,049 | $ | (383,913 | ) | (40 | %) | |||||||||||||||||||
| Total Fluids Systems revenues | $ | 715,813 | $ | 615,803 | $ | 100,010 | 16 | % | ||||||||||||||||||||
North AmericanAmerica revenues decreased 49%increased 21% to $351.9$476.8 million in 2015,for 2018, compared to $686.9$395.4 million in 2014.for 2017. This decrease in revenues isincrease was primarily attributable to the 48% decline13% increase in North AmericanAmerican average rig count along with pricing declines,market share gains in both the North American land markets and the offshore Gulf of Mexico market.
Internationally, revenues increased 8% to $239.0 million for 2018, compared to $220.4 million for 2017. This increase was primarily attributable to a $15.0 million improvement in Romania, as higher oil prices resulted in an increase in drilling activity, along with a $13.4 million increase in Australia related to the Baker Hughes Greater Enfield project, as well as increased activity in Albania and Germany, partially offset by market share gains over this period. In addition, revenues in Canada included an $8 million reductiondeclines from the unfavorable impact of currency exchange related to the strengthening U.S. dollar.
Operating Incomeincome
The Fluids Systems segment incurred an operating loss of $86.8 million in 2015, compared togenerated operating income of $95.6$40.3 million in 2014.for 2018 compared to $27.6 million for 2017. The operating loss in 2015 includes $75.5 million of charges for the impairment of goodwill and other assets as discussed above. The remaining changeincrease in operating resultsincome includes a $110.7an $8.7 million decreaseimprovement from North American operations, largely attributable toreflecting the declineincremental income generated from the $81.4 million increase in revenues describeddiscussed above, alongpartially offset by an increase in operating expenses. Operating expenses for 2018 include $3.0 million of charges primarily related to severance costs associated with $7.2cost optimization efforts, $0.8 million of charges associated with employee terminationthe Kenedy, Texas facility fire, as well as increased start-up costs partially offset byassociated with our product line expansion into stimulation chemicals and completion fluids, including $1.1 million of non-capitalizable expenses
related to the benefitsupgrade and conversion of cost reduction programs.a drilling fluids facility into a completion fluids facility. Operating income from international operations increased $3.8by $4.0 million, primarily reflectingrelated to the benefit of improved profitabilityincrease in the EMEA and Latin America regions,revenues described above, partially offset by the negative impact of currency exchangea $1.2 million charge in Brazil primarily related to severance costs associated with workforce reductions, as well as a small operating loss in Asia Pacific.discussed above.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:
| Year ended December 31, | 2015 vs 2014 | |||||||||||||
| (In thousands) | 2015 | 2014 | $ | % | ||||||||||
| Mat rental and services | $ | 73,037 | $ | 125,861 | $ | (52,824 | ) | (42 | %) | |||||
| Mat sales | 22,692 | 27,506 | (4,814 | ) | (18 | %) | ||||||||
| Total | $ | 95,729 | $ | 153,367 | $ | (57,638 | ) | (38 | %) | |||||
| Year Ended December 31, | 2018 vs 2017 | |||||||||||||
| (In thousands) | 2018 | 2017 | $ | % | ||||||||||
| Rental and service revenues | $ | 174,840 | $ | 96,067 | $ | 78,773 | 82 | % | ||||||
| Product sales revenues | 55,895 | 35,893 | 20,002 | 56 | % | |||||||||
| Total Mats and Integrated Services revenues | $ | 230,735 | $ | 131,960 | $ | 98,775 | 75 | % | ||||||
$35.9 million for 2017. Revenues from product sales typically fluctuate based on the timing of mat orders from customers; however, the improvement in 2018 was primarily attributable to our continued efforts to expand our sales into non-E&P markets.
Operating Incomeincome
Corporate officeOffice
Corporate office expenses increased $0.7 million to $37.4 million for 2018 compared to $36.6 million for 2017. This increase was primarily driven by a $1.8 million to $37.3 millioncharge in 2015, compared to $35.5 million in 2014. The increase is2018 associated with the retirement and transition of our former Senior Vice President, General Counsel and Chief Administrative Officer, primarily attributable to a $5 million charge reflecting the estimated resolutionimpact of modifications to certain wageoutstanding stock-based and hour litigation claims as described above and $2.4 million of increased costsother incentive awards. In addition, lower spending related to legal matters, including the wagestrategic planning efforts, and hour litigation claims,performance-based incentive compensation were partially offset by $2.0 millionan increase in reduced spending related to strategic planning projects and $1.3 million in lower performance-based incentive compensation along with workforce reductions and other cost control efforts.personnel costs.
Liquidity and Capital Resources
Net cash provided by operating activities during 2016 totaled $11.1was $72.3 million for 2019 compared to $121.5$63.4 million during 2015. In 2016,for 2018. The $8.9 million increase in net loss adjusted for non-cash itemscash provided cash of $23.2 million, while changes inby operating assets used $12.1 million, including $9.0 million from the increase to U.S. income tax receivables related to the carryback of U.S. federal tax losses incurred in 2016. The operating cash flow generated in 2015activities was primarily attributable to the decrease in working capital resulting from the 2019 decline in revenues, related topartially offset by the slow-downimpact from the lower cash generated from operating results. During 2019, net income adjusted for non-cash items provided cash of $50.2 million, while changes in North American drilling activity.working capital provided cash of $22.1 million. During 2018, net income adjusted for non-cash items provided cash of $94.7 million, while changes in working capital used cash of $31.3 million.
Net cash used in investing activities during 2016 was $28.3$49.8 million for 2019, including capital expenditures of $38.4$44.8 million as well as $4.4and $18.7 million to fundassociated with the acquisition of Pragmatic Drilling Fluids Additives, Ltd. These outflows wereCleansorb, partially offset by a $10.1$13.7 million reduction in restricted cash and $4.5 million of proceeds from the sale of assets. Capital expenditures during 2019 included $23.5 million for the Mats and Integrated Services segment, including $15.5 million of investments in 2016 included $32.3the mat rental fleet, and $18.4 million infor the Fluids Systems segment,segment. These capital expenditures were partially offset by the proceeds from elevated sales of mats from the rental fleet. Net cash used in investing activities was $55.8 million for 2018, including a total$14 million payment to refund a portion of $27.8 million related to the facility upgrade and expansionnet sales price of our Fourchon, Louisiana facility, our new fluids blending facility and distribution center in Conroe, Texas, and equipment to support the contract with Total S.A. in Uruguay. Capital expenditures in the Mats & IntegratedEnvironmental Services segment totaled $4.6 million in 2016, mainly associated with additions to the mat rental fleet.business (see Note 16 for further discussion).
Net cash used in financing activities during 2016 was $0.7 million. Cash used$29.5 million for 2019, which includes $19.0 million in financing activities includes $87.3share purchases under our repurchase program and a net payment of $11.3 million used for the repurchase of $89.3 million aggregate principal amount ofon our Convertible Notes due 2017 and net repayments on foreign lines of credit of $7.8 million. These cash outflows were largely offset by the net proceeds from the December 2016 issuance of the Convertible Notes due 2021.ABL Facility.
We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. In addition, we expect total 20172020 capital expenditures to range between $15 millionbe below 2019 levels, depending in part on the investment requirements to $20 million,support further growth in the mats rental business, as well as investment requirements for IOC and NOC contracts in the Fluids Systems business, including remaining expenditures for the completiontiming of investment to support the facility upgrade and expansion of our Fourchon, Louisiana facility serving the Gulf of Mexico deepwater market.
We expect our available cash on-hand, cash generated by operations, including U.S. income tax refunds, and estimatedremaining availability under our ABL Facility to be adequate to fund current operations during the next 12 months and the June 2017 provision relatedmonths. In addition, we may continue to the maturity ofpurchase our common stock or 2021 Convertible Notes due 2017 as discussed further below.
under our existing repurchase program from time to time.
Our capitalization wasis as follows:
| (In thousands) | December 31, 2016 | December 31, 2015 | December 31, 2019 | December 31, 2018 | ||||||||||
| Convertible Notes due 2017 | $ | 83,256 | $ | 172,497 | ||||||||||
| Convertible Notes due 2021 | 100,000 | — | ||||||||||||
| Revolving credit facility | — | — | ||||||||||||
| 2021 Convertible Notes | $ | 100,000 | $ | 100,000 | ||||||||||
| ABL Facility | — | — | 65,000 | 76,300 | ||||||||||
| Other debt | 380 | 7,392 | 7,164 | 3,199 | ||||||||||
| Unamortized discount and debt issuance costs | (27,368 | ) | (1,296 | ) | (12,291 | ) | (17,752 | ) | ||||||
| Total debt | 156,268 | 178,593 | $ | 159,873 | $ | 161,747 | ||||||||
| Stockholder's equity | 500,543 | 520,259 | ||||||||||||
| Stockholder’s equity | 548,645 | 569,681 | ||||||||||||
| Total capitalization | $ | 656,811 | $ | 698,852 | $ | 708,518 | $ | 731,428 | ||||||
| Total debt to capitalization | 23.8 | % | 25.6 | % | 22.6 | % | 22.1 | % | ||||||