UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] annual report pursuant to sectionANNUAL REPORT PURSUANT TO SECTION 13 orOR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

2017

OR

[  ] TranSITIONTRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 1-2960

001-2960

Newpark Resources, Inc.

(Exact name of registrant as specified in its charter)

Delaware

72-1123385

Delaware72-1123385
(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

(I.R.S. Employer Identification No.)

9320 Lakeside Blvd., Suite 100

The Woodlands, Texas

77381

(Address of principal executive office

office)

(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each className of each exchange

Title of each class

on which registered

Common Stock, $0.01 par value

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 if disclosure of delinquent filers pursuant to Item 405 of RegulationsRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K

___

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 definitions of “large accelerated filer”, “accelerated filer”, “small reporting company” and “small reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

___

Accelerated filer   ___ 

√   

Non-accelerated filer ___ (Do not check if a smaller reporting company)

Smaller Reporting Company ___

Emerging growth 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, 2015,2017, was $665.5$613.1 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 19, 2016,16, 2018, a total of 84,139,36389,218,581 shares of Common Stock, $0.01 par value per share, were outstanding.

Documents Incorporated by Reference

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 20162018 Annual Meeting of Stockholders.




NEWPARK RESOURCES, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2015

2017

PART I

 3

ITEM 1. 

Business 

ITEM 1A.

Risk Factors

 6

 13

 13

 13

 15

 15

 15

 18

 19

 38

 39

 73

 73

 75

 75

 75

 75

 75

 75

 75

PART IV

 76

ITEM 15.Exhibits and Financial Statement Schedules76
  Signatures82



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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 information in other materials we release to the public. Words such as “will”, “may”, “could”, “would”, “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.

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 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 of this Annual Report on Form 10-K. 




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PART I
ITEM 1.

ITEM 1.

Business

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 oil and gas industry supplier providing products, rentals and services primarily to the oil and 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 fluids solutionsproducts and technical services to E&P customers globally, operating through four geographic regions:in the North America, Europe, the Middle East and Africa (“EMEA”), Latin America and Asia Pacific.Pacific regions. Our Mats and Integrated Services segment provides composite mat rentals, well site construction and related site services to customers in various markets including oil and gas customers at well,exploration and production, transportationelectrical transmission & distribution, pipeline, solar, petrochemical and refinery locations inconstruction across the U.S. In addition, mat rental activity is expanding into applications in other industries, including petrochemicals, utilities,, Canada and pipeline.Europe. We also sell composite mats to E&P customers outside of the U.S., and to domestic customers outside of the oil and gas industry. 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 2 - Discontinued Operations” to our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

E&P market.

Our principal executive offices are located at 9320 Lakeside Blvd., Suite 100, The Woodlands, Texas 77381. Our telephone number is (281) 362-6800. You can find more information about us at our website located at www.newpark.com. 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”). 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 the “Company”, “we”, “us” and “our”, our 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.

Industry Fundamentals

Historically, several factors have driven demand for our products and services, including the supply, demand and pricing of oil and gas commodities, which drive E&P drilling and development activity. Demand for most of our Fluids Systems’ products and services is also driven, in part, by the level, type, depth and complexity of oil and gas drilling. Historically, drilling activity levels in North America have been volatile, primarily driven by the price of oil and natural gas. StartingBeginning in the fourth quarter of 2014 and continuing throughout 2015 and into the first quarter ofthrough early 2016, the price of oil declined dramatically from the price levels in recentprevious years. As a result, E&P drilling activity has significantly declined in North America and many global markets over this period. While oil prices and drilling activity have improved from the lows reached in early 2016, both oil price and activity levels remain significantly lower than pre-downturn levels. The most widely accepted measure of activity for our North American operations is the Baker Hughes Rotary Rig Count. The average North America rig count was 1,083 in 2017, compared to 639 in 2016, 1,170 in 2015, compared toand 2,241 in 2014, and 2,114 in 2013. 2014.
The weakness in North American rig activity has continued into 2016, and as of February 19, 2016, the North American rig count was at 720. The lower activity levels are expected to remain below prior year levels for the foreseeable future.


The lowerdeclining E&P drilling activity levels in 2015 and 2016 reduced the demand for our services, and negatively impacted customer pricing and resulted in our North American operations in 2015. The lower customer demand and elevated costs associated with workforce reductions, all of which negatively impacted our profitability in 2015.profitability. Further, due to the fact that our business contains highsubstantial levels of fixed costs, including significant facility and personnel expenses, North American operating margins in both operating segments arewere negatively impacted by the lower customer demand.

demand during this period.

Outside of North America, drilling activity is generally more stable, as drilling activity in many countries is based upon longer term economic projections and multiple year drilling programs, which tend to reduce the impact of short termshort-term changes in commodity prices on overall drilling activity. While drilling activity in certain of our international markets including(including Brazil Australia, and India,Australia) has declined dramatically following the decline in oil prices,recent years, as a whole, our international activities have continued to grow in recent years,remained relatively stable. This stability is primarily driven by new contract awards, which include geographical expansion into new markets as well as market share gains in existing markets.

In addition to our ongoing activity in the E&P industry, our Mats and Integrated Services segment is continuing to expand into other industries in North America, including electrical transmission & distribution and pipeline construction and maintenance. The demand for our composite matting systems from customers in these industries, is driven in part, by the level of construction and maintenance activity associated with the electrical transmission & distribution grid, as well as the oil and natural gas pipeline infrastructure within the U.S.


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Reportable Segments

Fluids Systems

Our Fluids Systems business offersprovides drilling fluids products and technical services to customers in the North America, EMEA, Latin America, and Asia Pacific regions. We offer customized solutions includingfor highly technical drilling projects involving complex subsurface conditions such as horizontal, directional, geologically deep or drilling in deep water drilling.water. These projects require increased monitoring and critical engineering support of the fluids system during the drilling process. We provideIn addition, our Fluids Systems offering is expanding into adjacent areas to drilling fluids, productsincluding completion and technical services to markets in North America, EMEA, Latin America, and Asia Pacific regions. stimulation chemistry, which are typically utilized by customers following the drilling process.
We also have industrial mineral grinding operations for barite, a critical raw material in drilling fluids products, which serve to support our activity 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, and also sell them 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 gas) markets. Our Fluids Systems business also historically included a completion services and equipment rental business; however, during the fourth quarter of 2013, we completed the sale of substantially all of the assets of this business.

Raw Materials — We believe that our sources of supply for materials and equipment used in our drilling fluids business are adequate for our 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 party suppliers. We have encountered no serious shortages or delays in obtaining these raw materials.

Technology — Proprietary technology and 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 the patent rights toin a family of high-performance water-based fluids systems, which we market as Evolution®,and DeepDrill® and FlexDrillsystems, which are designed to enhance drilling performance and provide environmental benefits. Proprietary technology and systems are an important aspect of our business strategy. 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 Schlumberger, Halliburton and Baker Hughes,Schlumberger, 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 mainly 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 believe that our competitive position is enhanced by our proprietary products and services.


Customers — Our customers are principally major integrated and independent oil and gas E&P companies operating in the markets that we serve. During 2015,2017, approximately 54%51% of segment revenues were derived from the 20 largest segment customers, and 51% of which the largest customer represented 10% of our segment revenues. The segment also generated 55% of revenues were generated domestically.domestically during 2017. Typically, in North America, we 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 Item 8.our Consolidated Financial Statements and Supplementary Data for additional information on financial and geographic data.

Mats and Integrated Services

Our Mats and Integrated Services segment provides composite mat rentals, site construction and related site services to customers in various markets including oil and gas exploration and production (“E&P”), electrical transmission & distribution, pipeline, solar, petrochemical and construction across North America and Europe. We also sell composite mats to customers outside of the U.S. and to domestic customers outside of the E&P market. Following our efforts in recent years to diversify our customer base, Mats and Integrated Services segment revenues from non-E&P markets represented approximately two-thirds of our segment revenues in 2017.
We manufacture our DURA-BASE® Advanced Composite Mats for use in our rental operations as well as for third partythird-party sales. Our mats provide environmental protection and ensure all-weather access to sites with unstable soil conditions. In order to support our efforts to expand our markets globally, we completed an expansion of our mats manufacturing facility in 2015 which nearly doubled our manufacturing capacity and significantly expanded our research and development capabilities. We sell composite mats directcontinue to customers in areas around the world where we do not maintain an infrastructure forexpand our mat rental activities. In addition, we provide mat rentals to E&P customers in the Northeast U.S., onshore U.S. Gulf Coast, and Rocky Mountain Regions, and to non-E&P customers in the U.S., Canada and the United Kingdom. We also offer location construction and related well site services to E&P customers in the Gulf Coast Region. We recently began offering the Defender™ spill containment system to provide customers with an alternative to the use of plastic liners for spill containment andproduct offerings, which now include the EPZ Grounding System™ for enhanced safety and efficiency for contractors working on power line maintenance and construction projects.

Historically, our marketing efforts forprojects and the sale ofT-REX™ automated mat cleaning system to provide customers with a cost effective system to clean composite mats remained focused in principal oilon site.



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In November 2017, we acquired certain assets and gas industry markets outsideassumed certain liabilities of Well Service Group, Inc. and Utility Access Solutions, Inc. (together, “WSG”). Since 2012, WSG has been a strategic logistics and installation service provider for our Mats and Integrated Service segment, offering a variety of complementary services to our composite matting systems, including access road construction, site planning and preparation, environmental protection, fluids and spill storage/containment, erosion control, and site restoration services. The completion of the U.S.,WSG acquisition expanded our service offering as well as markets outsideour U.S. geographic footprint across the E&P sector inNortheast, Midwest, Rockies, and West Texas regions of 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 late 2013, we announced plans to significantly expand our manufacturing facility, in order to support our efforts to expand our markets globally. This project was completed in 2015, which nearly doubled our manufacturing capacity and significantly expanded our research and development capabilities.

Raw Materials — We believe that our sources of supply for materials and equipment used in our business are adequate for our needs. We are not dependent upon any one supplier and we have encountered no serious shortages or delays in obtaining any raw materials. The resins, chemicals and other materials used to manufacture composite mats are widely available. Resin is the largest raw material component in the manufacturing of our composite mat products.

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 Defender spill containment systemconnecting pins and the EPZ Grounding System).UsingSystem™). 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 of 2020, and competitors may begin offering mats that include features described in those patents. We also 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 also have competitive significance in the markets we serve.
Competition

Competition — Our market is fragmented and competitive, with many competitors providing various forms of site preparation products and services. The mat sales component of our business is not as fragmented as the rental and services segment with only a few competitors providing various alternatives to our DURA-BASE mat products, such as Signature Systems Group and Checkers Group. 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 product capabilities, price, reputation, and reliability. We also believe that our competitive position is enhanced by our proprietary products, services and experience.

Customers — Our customers are principally integratedinfrastructure construction and independent oil and gas E&P companies operating in the markets that we serve. Approximately 72%63% of our segment revenues in 20152017 were derived from the 20 largest segment customers, of which, the largest customer represented 16%15% of our segment revenues. The segment generated 91% of its revenues domestically during 2017. As a result of our recent efforts to expand beyond our traditional oilfield customer base, revenues from non-explorationnon E&P customers increased in 2015 and represented approximately 44%67% of segment revenues in 2015, as compared to approximately 25% in 2014.2017. 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 Item 8.our Consolidated Financial Statements and Supplementary Data for additional information on financial and geographic data.


Employees

Sale of Environmental Services Segment

In March 2014, we completed the sale of our Environmental Services business, which was historically reported as a third operating segment. For further discussion of this matter, see “Note 2 - Discontinued Operations” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

The Environmental Services business processed and disposed of waste generated by our oil and gas customers that was treated as exempt under the Resource Conservation and Recovery Act (“RCRA”). The Environmental Services business also processed E&P waste contaminated with naturally occurring radioactive material. In addition, the business received and disposed of non-hazardous industrial waste, principally from generators of such waste in the U.S. Gulf Coast market, which produced waste that was not regulated under RCRA.

Employees

At January 31, 2016,2018, we employed approximately 1,9802,400 full and part-time personnel none of which are represented by unions. We consider our relations with our employees to be satisfactory.

Environmental Regulation

We seek to comply with all applicable legal requirements concerning environmental matters. Our business is affected by governmental regulations relating to the oil and 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.

Additionally, our business exposes us to environmental risks. We have implemented various procedures designed to ensure compliance with applicable regulations and reduce the risk of damage or loss. These include specified handling procedures and guidelines for waste, ongoing employee training, and monitoring and maintaining insurance coverage.

We also employ 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 done to validate the findings of our internal monitoring and auditing procedures.

ITEM 1A.

Risk Factors



5



ITEM 1A. Risk Factors
The following summarizes the most significant risk factors to our business. 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 significant adverse impacts to our results of operations and financial condition, or prevent us from meeting our profitability or growth objectives.


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 have adversely affectedaffect the demand for our services and consequently, our revenue and operating resultsresults; and a continuationthe presence of these market conditions will continue to negatively affectaffects our revenue 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 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 has reduced and incremental weakness could continue to reduce demand for oilandoil and natural gas and result in lower oil and natural gas prices. In addition, demand for oil and natural gas could be impacted by environmental regulation, including cap and trade legislation, regulation of hydraulic fracturing, and carbon taxes. Weakness or deterioration of the global economy or credit markets could reduce our customers’ spending levels and reduce our revenue and operating results.

Supply of oil and natural gas is subject to factors beyond our control

The ability to produce oil and natural gas can be affected by the number and productivity of new wells drilled and completed, as well as the rate of production and resulting depletion of existing wells. Productive capacity in excess of demand is also an important factor influencing energy prices and spending by oil and natural gas explorationcompanies.exploration companies. Oil and natural gas storage inventory levels are indicators of the relative balance between supply and demand. Supply can also be impacted by the degree to which individual Organization of Petroleum Exporting Countries (“OPEC”) nations and other large oil and natural gas producing countries are willing and able to control production and exports of hydrocarbons, to decrease or increase supply and to support their targeted oil price or meet market share objectives. Any of these factors could affect the supply of oil and natural gas and could have a material effect on our results of operations.

Volatility of oil and natural gas prices can adversely affect demand for our products and services

Volatility in 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 tofundto fund exploration and development activities. Since lateCompared to 2011 to 2014 levels, oil prices have declined significantly due in large part to increasing supplies, weakening demand growth and OPEC’s positionthe decision by OPEC countries to not cut production. Expectationsmaintain production levels throughout 2015 and most of 2016. While OPEC production limits were put in place in late 2016 and maintained throughout 2017, expectations about future commodity prices and price volatility are important for determining future spending levels.

Lower oil andnatural gas prices generally lead to decreased spending by our customers. 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 is dependent on their ability to access the funds necessary to develop oil and gas prospects. Limited access to external sources of funding has and may continue to cause 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.


Risks Related to our Customer Concentration and relianceReliance on the U.S. Exploration and Production Market

In 2015,2017, approximately 49%45% of our consolidated revenues were derived from our 20 largest customers, although no single customer accounted for more than 10% of our consolidated revenues. In addition, approximately 57%62% of our consolidated revenues were derived from our U.S. operations.



6



Beginning in the fourth quarter of 2014 and continuing through 2015 into early 2016, the price forof oil has declined dramatically from the price levels in recent years and there are no assurances that the price for oil will not continue to decline.previous years. 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.operations, relative to pre-downturn levels. While oil prices and drilling activity have since improved from the lows reached in early 2016, there are no assurances that the price for oil or activity levels will not decline again in the future. Due 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 highsubstantial fixed costs, including significant facility and personnel expenses, downtime or low productivity due to reduced demand can have a significant adverse impact on our profitability.

Risks Related to International Operations
We have significant operations outside of the United States, including certain areas of Canada, EMEA, Latin America, and Asia Pacific. In 2017, these international operations generated approximately 38% of our consolidated revenues. Algeria represents our largest international market with our total Algerian operations representing 12% of our consolidated revenues in 2017 and 8% of our total assets at December 31, 2017, including 28% of our total cash balance at December 31, 2017.
In addition, we may seek to expand to other areas outside the United States 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 movements, including restrictions on the repatriation of funds to the U.S. from certain countries, such as Algeria;
sanctions imposed by the U.S. government that prevent us from engaging in business in certain countries or with certain counter-parties;
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 impact our operating results, and can include the temporary suspension of our operations. More recently in Brazil, the ongoing widely-publicized corruption investigation has continued to disrupt Petrobras’ operations, which could negatively impact our operating results in Brazil.
Risks Related to the Cost and Continued Availability of Borrowed Funds, including Risks of Noncompliance with Debt Covenants

We employ 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 creditloan agreements is dependent upon our ability to continue generatinggenerate 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.

We fund our ongoing operational needs through a $150 million asset-based revolving credit agreements. In December 2015, we entered into a First Amendment to our Third Amended and Restated Credit Agreement (“Amendment”), amending provisions of our existing Third Amended and Restated Credit Agreement (“Credit Agreement”facility (the “Amended ABL Facility”). Borrowing availability under the Amended ABL Facility is calculated based on eligible accounts receivable, inventory, and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base calculation shall also include the amount of eligible pledged cash. The Amendment was principally entered into aslender may establish reserves, in part based on appraisals of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the Amended ABL Facility. Availability associated with eligible rental mats will also be subject to maintaining a resultminimum consolidated fixed charge coverage ratio and a minimum level of operating income for the Mats and Integrated Services segment. The availability under the


7



Amended ABL Facility is expected to fluctuate directionally with changes in our anticipationdomestic accounts receivable, inventory, and composite mat rental fleet.
The Amended ABL Facility terminates on October 17, 2022; however, the Amended ABL Facility has a springing maturity date that will accelerate the maturity of non-compliancethe Amended ABL Facility to September 1, 2021 if, prior to such date, the convertible notes due 2021 (“2021 Convertible Notes”) have not either been repurchased, redeemed, converted or we have not provided sufficient funds to repay the 2021 Convertible Notes in full on their maturity date. For this purpose, funds may be provided in cash to an escrow agent or a combination of cash to an escrow agent and the assignment of a portion of availability under the Amended ABL Facility. The Amended ABL Facility requires compliance with a minimum fixed charge coverage ratio and minimum unused availability of $25.0 million to utilize borrowings or assignment of availability under the Amended ABL Facility towards funding the repayment of the 2021 Convertible Notes.
We are subject to compliance with a fixed charge coverage ratio covenant if our borrowing availability falls below $22.5 million. If we are unable to make required payments under the Amended ABL Facility or other indebtedness of more than $25.0 million, or if we fail to comply with the consolidated leverage ratio financial covenant under our Credit Agreement.  While no amounts are currently outstanding under our Credit Agreement, a breachvarious covenants and other requirements of anythe Amended ABL Facility, we would be in default thereunder, which would permit the holders of these covenants would result in a default under the Credit Agreementindebtedness to accelerate the maturity thereof, unless we are able to obtain, on a timely basis, thea necessary waiver or amendment to the Credit Agreement.amendment. Any waiver or amendment to our Credit Agreement may require us to revise the terms of our Credit Agreementagreements 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 under the Credit Agreement 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 Credit Agreement,Amended 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 Credit AgreementAmended ABL Facility when due, the lenders would be permitted to proceed against their collateral. In the event any outstanding indebtedness in excess of $25$25.0 million is accelerated, this could also cause aan event of default under our unsecured convertible senior notes.2021 Convertible Notes. The acceleration of any of our indebtedness and the election to exercise any such remedies could have a material adverse effect on our business and financial condition.

Risks Related to International Operations

We have significant operations outside of the United States, including certain areas of Canada, EMEA, Latin America, and Asia Pacific. In 2015, these international operations generated approximately 43% of our consolidated revenues. In addition, we may seek to expand to other areas outside the United States 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 Foreign Corrupt Practices Act, export laws, and other similar U.S. laws applicable to our operations in international markets

exchange controls or other limitations on international currency movements

sanctions imposed by the U.S. government that prevent us from engaging in business in certain countries

inability to obtain or preserve certain intellectual property rights in the foreign countries in which we operate

our inexperience in new international markets

fluctuations in foreign currency exchange rates

political and economic instability

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 negatively impacted our operating results, including the temporary suspension of our operations. More recently in Brazil, a widely-publicized corruption investigation has led to disruptions in Petrobras’ operations.

Risks Related to Operating Hazards Present in the Oil and Natural Gas Industry

Our operations are subject to hazards present in the oil and natural gas industry, such as fire, explosion, 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’sOur customers’ 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 purchase insurance which may provide coverage for incidents such as those described above, however, the policies may not provide coverage or a sufficient amount of coverage for all types of damage claims that could be asserted against us. See the section entitled “Risks Related to the Inherent Limitations of Insurance Coverage” 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 2016,November 2017, we acquired certain assets and assumed certain liabilities of WSG for approximately $78 million. WSG has been a strategic logistics and installation service provider for our Mats and Integrated Service segment, offering a variety of complementary services to the composite matting systems, including access road construction, site planning and preparation, environmental protection, fluids and spill storage/containment, erosion control, and site restoration services. In addition, our 2018 capital expenditures are expected to be approximately $30range between $20 million to $45$25 million including additional investments for the facility upgrade(exclusive of any acquisitions). These acquisitions and expansion of our Fourchon, Louisiana facility serving the Gulf of Mexico deepwater market, as well as infrastructure investments required to support the expansion of our international operations. 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

assets;

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,

including the WSG acquisition mentioned above;

diversion of management'smanagement’s attention from existing operations or other priorities

priorities;

unanticipated disruptions to our business associated with the implementation of our enterprise-wide operational and financial system

system; and

delays in completion and cost overruns associated with large construction projects, including the project mentioned above

capital investments.

Any of the factors above could have an adverse effect on our business, financial condition or results of operations.



8



Risks Related to the Availability of Raw Materials and Skilled Personnel

Our ability to provide products and services to our customers is dependent upon our ability to obtain the raw materials and qualified personnel 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 and government imposed export fees in the exporting countries, as well as the impact of weather and natural disasters. The future supply of barite ore from existing sources could be inadequate to meet the market demand, particularly during periods of increasing world-wide demand, which could ultimately result in a reduction inrestrict industry activity or our inabilityability to meet customer’s needs.

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 theour DURA-BASE mat.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/operations of the plants used to make HDPE. Should our cost of HDPE increase, we may not be able to increase our customer pricing to cover our costs, which may result in a reduction in future profitability.

All of our businesses are also highly dependent on our ability to attract and retain highly-skilled engineers, technical sales and service personnel. The market for these employees is very competitive, and if we cannot attract and retain quality personnel, our ability to compete effectively and to grow our business will be severely limited. Also, a significant increase in the wages paid by competing employers could result in a reduction in our skilled labor force or an increase in our operating costs.

Risk Related to our Market Competition

We face competition in the Fluids Systems business from larger companies, including Halliburton and Schlumberger, 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. At times, these larger companies attempt to compete by offering discounts to customers to use multiple products and services from our competitor,competitors, 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 mat products and services. More recently, several competitors have begun marketing composite products to compete with our DURA-BASEmat system. 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,Some of the current weaknessearly patents we received related to our DURA-BASE mat system will expire in 2020 and competitors may begin offering mats that include features described in those patents. We have filed legal actions against competitors in the North American drilling activity has resultedU.S. to enforce our patents, and have filed for additional patents, but there is no assurance that these actions will be successful or that competitors will not be able to offer matting products that are substantially similar to the DURA-BASE mat system.
Risk Related to Offering New Products and Offering Existing Products in significant reductions in pricing from manyNew Markets
As a key component of our competitors,long-term strategy in both in the Fluids Systemsoperating segments, we seek to continue to expand our product and Matsservice offerings and Integrated Services segment.

enter new customer markets with our existing products. As with any market expansion effort, new customer and product markets include inherent uncertainties regarding customer expectations, industry-specific regulatory requirements, product performance and customer-specific risk profiles. 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 Legal and Regulatory Matters, Including Environmental Regulations

We are responsible for complying with numerous federal, state, local and localforeign 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 regulationspolicies may result in, among other things, fines, penalties, costs of cleanup of contaminated sites and site closure obligations, or other expenditures. 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.

The

Many of the markets for our products and services are dependent on the continued exploration for and production of fossil fuels (predominantly oil and natural gas). Climate change is receiving increased attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide attributed to the use of fossil fuels, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. The Environmental Protection Agency (the “EPA”) hasand other domestic and foreign regulatory agencies have adopted regulations that potentially limit greenhouse gas emissions and impose reporting obligations on large greenhouse gas emission sources. In addition, the EPA has adopted rules that could require the reduction of certain air emissions during exploration and production of oil and gas. To the extent that laws and regulations enacted as part of climate change legislation increase the costs of drilling for or


9



producing such fossil fuels, limit or restrict oil and natural gas exploration and production, or reduce the demand for fossil fuels, such legislation could have a material adverse impact on our operations and profitability.

Hydraulic fracturing is an increasinglya common practice used by E&P operators to stimulate production of hydrocarbons, particularly from shale oil and gas formations in the United States. The process of hydraulic fracturing, which involves the injection of sand (or other forms of proppants) laden fluids into oil and gas bearing zones, has come under increasing 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 has commenced a studyIn 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 the disposal of waste fluid by underground injection. Further, the EPA has announced plans to develop effluent limitations associated with wastewater generated by hydraulic fracturing.and earthquakes. Although we do not provide hydraulic fracturing services, and our drillingwe have begun to offer stimulation fluids products are not used in such services, regulationsthe hydraulic fracturing process. Regulations which have the effect of limiting the use or availabilitysignificantly increasing the costs of hydraulic fracturing, could have a significant negative impact on both the drilling and stimulation activity levels of our customers, and, therefore, the demand for our products and services.

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

responsibility;

exclusions for certain types of liabilities and limitations on coverage for damages resulting from pollution

pollution;

coverage limits of the policies, and the risk that claims will exceed policy limits

limits; and

the financial strength and ability of our insurance carriers to meet their obligations under the policies

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 profitability.

Risks Related to the Ongoing Effects of the U.S. Tax Cuts and Jobs Act and the Refinement of Provisional Estimates
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017, resulting in broad and complex changes to U.S. income tax law. Our effective tax rate may fluctuate in the future as a result of the Tax Act, which introduces significant changes to U.S. income tax law that will have a meaningful impact on our provision for income taxes. Accounting for the income tax effects of the Tax Act requires significant judgments and estimates in the interpretation and calculations of the provisions of the Tax Act. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. The U.S. Treasury Department, the U.S. Internal Revenue Service (“IRS”), and other standard-setting bodies may issue guidance on how the provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation. As we finalize the necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, we may make adjustments to the provisional amounts that could materially affect our financial position and results of operations as well as our effective tax rate in the period in which the adjustments are made.
Risks Related to Potential Impairments of Long-lived Intangible Assets

As of December 31, 2015,2017, our consolidated balance sheet includes $19.0$43.6 million in goodwill relatedand $30.0 million of intangible assets, net, substantially all of which relates to ourthe Mats and Integrated Services segment and $11.1 million of intangible assets, net.segment. 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.if any qualitative factors exist. In completing this annual evaluation during the fourth quarter of 2015,2017, we determined that our drilling fluidsno reporting unit hadhas a fair value below its net carrying value, and antherefore, no impairment of $70.7 million was recognized, to fully impair the goodwill related to the drilling fluids reporting unit. In early 2016, oil and natural gas prices and U.S. drilling activity remain significantly below the levels of recent years. Continued softening in the market conditions may further deteriorateis required.
However, if the financial performance or future projections for our operating segments deteriorate from current levels, which may result in ana future impairment of goodwill or indefinite-lived intangible assets andmay be required, which would negatively impact our financial results in the period of impairment.

Risks Related to Technological Developments and Intellectual Property in our Industry

The market for our products and services is characterized by continual technological developments that generate substantial improvements in product functions and performance. If we are not successful in continuing to develop product enhancements or new products that are accepted in the marketplace or that comply with industry standards, we could lose market share to competitors, which would negatively impact our results of operations and financial condition.



10



Our success can be affected by our development and implementation of new product designs and improvements 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.
We also protect our patents. Iftrade 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 servicetime to time engage in litigation to determine the enforceability, scope and a pricing standpoint.validity of our patent rights. In addition, costly and time-consuming litigation could be necessarywe 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 innovation could changeour competitors may infringe upon, misappropriate, violate or challenge the way companies drill for oilvalidity or enforceability of our intellectual property, and gas which could reduce the competitive advantages we may derive fromnot able to adequately protect or enforce our patentsintellectual property rights in the future.
Risks Related to Severe Weather, Particularly in the U.S. Gulf Coast
We have significant operations located in market areas in the U.S. Gulf of Mexico and related near-shore areas which are susceptible to hurricanes and other proprietary technology.

adverse weather events. In these market areas, we generated approximately 16% of our consolidated revenue in 2017 and had approximately $215 million of inventory and property, plant and equipment as of December 31, 2017. Such adverse weather events 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 damages to our competitiveness and reputation. The company hasWe 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, however there can be no assurance that existing or emerging threats will not have an adverse impact on our systems or communications networks. These risks could harm our reputation and our relationships with our customers, business partners, employees or other third parties, and may result in claims against us. In addition, these risks could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

Risks Related to Severe Weather, Particularly in the U.S. Gulf Coast

Approximately 12% of our consolidated revenue from continuing operations in 2015 was generated in market areas in the U.S. Gulf of Mexico and related near-shore areas, which are susceptible to hurricanes and other adverse weather events. These weather events 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 Fluctuations in the Market Value of our Common Stock

The market price of our common stock may fluctuate due to a number of factors, including the general economy, stock market conditions, general trends in the E&P industry, 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

ITEM 1B. Unresolved Staff Comments
None.

ITEM 2.

Properties




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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 Third Amended and Restated Credit Agreement, as amended (“Credit Amendment”).

ABL Facility.

Fluids Systems.  We own a facility containing approximately 102,685103,000 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. We lease approximately 9 acres of industrial space in Fourchon, Louisiana which houses a drilling fluids blending, storage, and transfer station to serve the Gulf of Mexico deepwater market. Additionally, we own eightsix warehouse facilities and have 1812 leased warehouses and 1213 contract warehouses to support our customers and operations in the U.S. We own two warehouse facilities and have 1522 contract warehouses in Western Canada to support our Canadian operations. Additionally,For our international operations in the EMEA, Latin America and Asia Pacific regions, we lease 1835 warehouses and own one warehouse in the EMEA region, lease sixtwo warehouses in the Latin America region, and own one warehouse and lease nine warehouses in the Asia Pacific region to support our internationalthese operations. This leased space is located in several cities throughout Texas and Louisiana, Denver, Colorado, Calgary, Alberta, Rome, Italy and Rio de Janeiro, Brazil. We also own buildings providing office space in Oklahoma City, Oklahoma and office/warehouse space in Henderson, Australia. Some of thesethe warehouses also include blending facilities as well.facilities.

We operate four specialty product grinding facilities in the U.S. These facilities are located in Houston, Texas on approximately 18 acres of owned land, in New Iberia, Louisiana on 15.7 acres of leased land, in Corpus Christi, Texas on 6 acres of leased land, and in Dyersburg, Tennessee on 13.2 acres of owned land.

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 three facilities and lease six18 sites throughout Texas, Louisiana, Colorado, Wisconsin and Pennsylvaniathe U.S. which serve as bases for our well site service activities. Additionally, we own two facilities which are located in Louisiana and Texas and lease two facilities in the United Kingdom to support field operations.

ITEM 3.

Legal Proceedings

Wage and Hour Litigation

Davida v. Newpark Drilling Fluids LLC. On June 18, 2014, Jesse Davida, a former employee of Newpark Drilling Fluids LLC filed a purported class action lawsuit in the U.S. District Court for the Western District of Texas, San Antonio Division, alleging violations of the Fair Labor Standards Act (“FLSA”). The plaintiff seeks damages and penalties for the Company’s alleged failure to: properly classify its fluid service employees as “non-exempt” under the FLSA; and, pay them on an hourly basis (including overtime). The plaintiff seeks recovery on his own behalf, and seeks certification of a class of similarly situated employees. On January 6, 2015, the Court granted the plaintiff’s motion to “conditionally” certify the class of fluid service technicians that have worked for Newpark Drilling Fluids over the prior three years. Notification was given to 658 current and former fluid service technician employees of Newpark regarding this litigation and those individuals were given the opportunity to “opt-in” to the Davida litigation. The opt-in period closed in early May of 2015 and a total of 91 individuals joined the Davida litigation. Counsel for the plaintiffs moved to add state law class action claims for current and former fluid service technicians that worked for Newpark Drilling Fluids in New York, North Dakota, Ohio and Pennsylvania. The Court granted the motion, but gave Newpark the right to file a motion to dismiss these state law claims, and that motion is pending. Among other reasons, we sought dismissal of those state law claims on the basis that an insufficient number of employees are located in those states to support a class action. We expect that the effect of the additional state law claims (excluding New York and Ohio claims) would be to include in the litigation approximately 48 current and former fluid services technicians who worked in Pennsylvania, and approximately 41 current and former fluid services technicians who worked in North Dakota. Discovery is in process with the trial currently being scheduled for September 2016.


ITEM 3. Legal Proceedings

Christiansen v. Newpark Drilling Fluids LLC. On November 11, 2014, Josh Christiansen (represented by the same counsel that represents Davida) filed a purported class action lawsuit in the U.S. District Court for the Southern District of Texas, Houston Division, alleging violations of the FLSA. The plaintiff seeks damages and penalties for the Company’s alleged failure to: properly classify him as an employee rather than an independent contractor; properly classify its field service employees as “non-exempt” under the FLSA; and, pay them on an hourly basis (including overtime) and seeks damages and penalties for the Company’s alleged failure to pay him and the others in the proposed class on an hourly basis (including overtime). Following the filing of this lawsuit, five additional plaintiffs joined the proceedings. The plaintiff seeks recovery on his own behalf, and sought certification of a class of similarly situated individuals. In March of 2015, the Court denied the plaintiffs’ motion for conditional class certification. Counsel for the plaintiffs did not appeal that ruling and have now filed individual cases for each of the original opt-in plaintiffs plus two new plaintiffs, leaving a total of eight separate independent contractor cases pending. Preliminary discovery has occurred in these cases.

Additional Individual FLSA cases. In the fourth quarter of 2015, the same counsel representing the plaintiff’s inDavida and theChristiansen-related cases filed two additional individual FLSA cases on behalf of former fluid service technician employees. These cases are similar in nature to theDavidacase discussed above.

Pending Resolution of Wage and Hour Litigation.Beginning in November 2015, we engaged in settlement discussions with counsel for the plaintiffs in the pending wage and hour litigation cases described above. Following mediation in January of 2016, the parties reached an agreement to settle all of the pending matters, subject to a number of conditions, including approval by the Court in theDavida case, and the dismissal of the other FLSA cases (Christiansen-related lawsuits and individual FLSA cases). Subject to these conditions, current and former fluid service technician employees that are eligible for the settlement will be notified of the pending resolution and given an opportunity to participate in the settlement. The amount paid to any eligible individual will vary based on a formula that takes into account the number of workweeks and salary for the individual during the time period covered by the settlement (which can vary based upon several factors). Any eligible individual that elects to participate in the settlement will release all wage and hour claims against the Company. As a result of the settlement negotiations, we recognized a $5.0 million charge in the fourth quarter of 2015 related to the pending resolution of these wage and hour litigation claims, which is included in impairments and other charges. We expect to fund the settlement amount in the first half of 2016, subject to the conditions described above. The settlement fund will be administered by a third party who will make payments to eligible individuals that elect to participate, in accordance with a formula incorporated into the pending settlement agreement. In addition, under the terms of the pending settlement agreement, if settlement funds remain after all payments are made to eligible individuals that elect to participate in the settlement, such excess amount will be shared by the participating individuals and Newpark Drilling Fluids. The amount of excess funds, if any, is not currently determinable.

Escrow Claims Related to the Sale of the Environmental Services Business

Newpark Resources, Inc.Inc. v. Ecoserv,LLC. On July 13, 2015, we filed a declaratory action in the District Court in Harris County, Texas (80th(80th Judicial District) seeking release of $8$8.0 million of funds placed in escrow by Ecoserv LLC (“Ecoserv”) in connection with its 2014 purchase of our Environmental Services business. Ecoserv has filed a counter claimcounterclaim asserting that we breached certain representations and warrantiescovenants contained in the purchase/sale agreement including, among other things, the condition of certain assets. In addition, Ecoserv has alleged that Newpark committed fraud in connection with the saleMarch 2014 transaction.

Under the terms of the March 2014 sale of the Environmental Services business to Ecoserv, $8$8.0 million of the sales price was withheld and placed in an escrow account to satisfy claims for possible breaches of representations and warranties contained in the purchase/sale agreement. For the amount withheld in escrow, $4$4.0 million was scheduled for release to Newpark at each of the nine-month and 18-month anniversary of the closing. In December 2014, we received a letter from counsel for Ecoserv asserting that we had breached certain representations and warranties contained in the purchase/sale agreement;agreement, including failing to disclose operational problems and service work performed on injectioninjection/disposal wells and increased barge rental costs. The letter indicated that Ecoserv expected the costsdamages associated with these claims to exceed the escrow amount. Following a further exchange of letters, in July of 2015, we filed the declaratory judgment action against Ecoserv referenced above. We believe there is no basisThereafter, Ecoserv filed a counterclaim seeking recovery in excess of the escrow funds based on the alleged breach of representations and covenants in the purchase/sale agreement. Ecoserv also alleged that we committed fraud in connection with the March 2014 transaction. Discovery in the case provided more information about Ecoserv’s claims, which included, among other things, alleged inadequate disclosures regarding the condition of a disposal cavern (at the time of the execution of the purchase/sale agreement orand as it relates to the time period between execution of the purchase/sale agreement and at closing) and the lack of appropriate reserves/accruals/provisions in the financial statements of the business relating to certain regulatory obligations (such as plug and abandonment costs for injection wells and costs associated with a solids drying facility). Ecoserv sought to use a damage model for most of its damages based on its calculation of the factsdifference between (a) the value of the business at closing, and (b) the sales price ($100.0 million), and had claimed damages of approximately $20.0 million. Following commencement of the trial in December 2017, we reached a settlement agreement with Ecoserv, under which Ecoserv will receive $22.0 million in cash effectively reducing the net sales price of the Environmental Services business by such amount in exchange for dismissal of the pending claims in the lawsuit, and release of any future claims related to support the claims asserted by Ecoserv and intendMarch 2014 transaction.  The impact of this settlement results in a $17.4 million loss from disposal of discontinued operations, net of tax in 2017 to vigorously defend our position, while pursuingreduce the previously recognized gain from the sale of the Environmental Services business. The reduction in sales price will be funded, in part, through the release of the entire $8$8.0 million escrow. Discoverythat has commenced betweenbeen held in escrow since the parties.

March 2014 transaction. The remaining $14 million will be funded in the first quarter of 2018 through available cash on hand and borrowings under our Amended ABL Facility. Litigation expenses related to this matter are included in corporate office expenses in operating income.


ITEM 4.

Mine Safety Disclosures

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ITEM 4. Mine Safety Disclosures
The information concerning mine safety violations and other regulatory matters required by sectionSection 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.

ITEM 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for 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.”

The following table sets forth the range of the high and low sales prices for our common stock for the periods indicated: 

Period

  

High

  

Low

 
          

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 
          

2014

         
          

Fourth Quarter

  $12.65  $8.23 

Third Quarter

  $13.60  $11.50 

Second Quarter

  $12.65  $10.90 

First Quarter

  $12.56  $10.43 

Period High Low
2017    
Fourth Quarter $10.05
 $8.20
Third Quarter $10.15
 $7.00
Second Quarter $8.25
 $6.65
First Quarter $8.45
 $6.75
     
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
As of February 1, 2016,2018, we had 1,4131,305 stockholders of record as determined by our transfer agent.

In April 2013,

The following table details our repurchases of shares of our common stock for the three months ended December 31, 2017:
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 that May Yet be Purchased Under Plans or Programs ($ in millions)
October 2017 8,195
 $8.54
 
 $33.5
November 2017 41,950
 $9.45
 
 $33.5
December 2017 
 
 
 $33.5
Total 50,145
 $9.30
 
  
(1)During the three months ended December 31, 2017, we purchased an aggregate of 50,145 shares surrendered in lieu of taxes under vesting of restricted stock awards.
Our Board of Directors has approved a share repurchase program that authorizes the Companyus to purchase up to $50.0$100.0 million of itsour outstanding shares of common stock. This authorization was subsequently increasedstock and prior to $100.0 million in February 2014. In September 2015,their maturity, our Board of Directors expanded the repurchase program to include the repurchase of our convertible senior notes, in addition to outstanding shares of common stock. The repurchase program has no specific term. The Company may repurchase shares or convertible senior notes2017 Convertible Notes in the open market or as otherwise determined by management, subject to market conditions, business opportunities,certain limitations under our existing Credit Agreementthe Amended ABL Facility and other factors. The repurchase program has no specific term. Repurchases are expected to be funded from operating cash flows and available cash on-hand. Subject to continued covenant compliance, funds could also be available under our existing Credit Agreement for such repurchases. As part of the share repurchase program, the Company’sour management has been authorized to establish trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934.

There were no share or 2017 Convertible Notes repurchases under the program during 2015.2017. At December 31, 2015,2017, there was $42.7$33.5 million of authorization remaining under the program. During 2015,2017, we repurchased $2.3 million415,418 of shares surrendered in lieu of taxes under vesting of restricted stock awards. All of the shares repurchased are held as treasury stock.


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 credit facilities containAmended ABL Facility contains covenants which prohibitlimit the payment of dividends on our common stock.

The following table details our repurchases See “Management’s Discussion and Analysis of sharesFinancial Condition and Results of our common stock for the three months ended December 31, 2015:

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

Senior Notes that May Yet be

Purchased Under Plans or Programs

 

October 1 - 31, 2015

  7,101  $6.19   -  $42.7 

November 1 - 30, 2015

  41,950  $6.22   -  $42.7 

December 1 - 31, 2015

  38,881   5.33   -  $42.7 

Total

  87,932  $5.82   -     

(1)

During the three months ended December 31, 2015, we purchased an aggregate of 87,932 shares surrendered in lieu of taxes under vesting of restricted stock awards.

In February 2016, we repurchased $11.2 million of our convertible senior notes in the open market for $9.2 million. This repurchase was made under our existing Board authorized repurchase program discussed above. As of February 26, 2016, we had $33.5 million of authorization remaining under the program.

Operations - Liquidity and Capital Resources - Asset-Based Loan Facility.”


13



Performance Graph

The following graph reflects a comparison of the cumulative total stockholder return of our common stock from January 1, 20112013 through December 31, 2015,2017, 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, 20112013 in our common stock and each index and the reinvestment of all dividends, if any. This information shall be deemed furnished 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.

 



ITEM 6.

Selected Financial Data



14



ITEM 6. Selected Financial Data
The selected consolidated historical financial data presented below for the five years ended December 31, 20152017 is derived from our consolidated financial statements and is not necessarily indicative of results to be expected in the future.

statements. The following data should be read in conjunction with the consolidated financial statements and notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Items 7 and 8 below. In

 As of and for the Year Ended December 31,
(In thousands, except share data)2017 2016 2015 2014 2013
Consolidated Statements of Operations Data:         
Revenues$747,763
 $471,496
 $676,865
 $1,118,416
 $1,042,356
Operating income (loss)31,436
 (57,213) (99,099) 130,596
 94,445
Interest expense, net13,273
 9,866
 9,111
 10,431
 11,279
Income (loss) from continuing operations11,219
 (40,712) (90,828) 79,009
 52,622
Income from discontinued operations, net of tax
 
 
 1,152
 12,701
Gain (loss) from disposal of discontinued operations, net of tax(17,367) 
 
 22,117
 
Net income (loss)(6,148) (40,712) (90,828) 102,278
 65,323
          
Basic income (loss) per share from continuing operations$0.13
 $(0.49) $(1.10) $0.95
 $0.62
Basic net income (loss) per share$(0.07) $(0.49) $(1.10) $1.23
 $0.77
          
Diluted income (loss) per share from continuing operations$0.13
 $(0.49) $(1.10) $0.84
 $0.56
Diluted net income (loss) per share$(0.07) $(0.49) $(1.10) $1.07
 $0.69
          
Consolidated Balance Sheet Data:         
Working capital$346,623
 $283,139
 $380,950
 $440,098
 $395,159
Total assets902,716
 798,183
 848,893
 1,007,672
 954,918
Foreign bank lines of credit1,000
 
 7,371
 11,395
 12,809
Other current debt518
 83,368
 11
 253
 58
Long-term debt, less current portion158,957
 72,900
 171,211
 170,462
 170,009
Stockholders' equity547,480
 500,543
 520,259
 625,458
 581,054
          
Consolidated Cash Flow Data:         
Net cash provided by operations$38,381
 $11,095
 $121,517
 $89,173
 $151,903
Net cash used in investing activities(68,374) (28,260) (84,366) (14,002) (60,063)
Net cash used in financing activities(2,290) (650) (6,730) (49,158) (72,528)
During 2016 and 2015, we elected to early adopt with retrospective application updated authoritative guidance related to the presentation of debt issuance costsoperating loss includes charges totaling $14.8 million and deferred taxes in our consolidated balance sheets. Debt issuance costs related to non-revolving debt arrangements are now presented as a direct deduction$80.5 million, respectively, resulting from the related debt liability rather than as an asset. In addition, net deferred taxes relatedreduction in value of certain assets, the wind-down of our operations in Uruguay and the resolution of certain wage and hour litigation claims. Charges in 2016 include $6.9 million of non-cash impairments in the Asia Pacific region, $4.1 million of charges for the reduction in carrying values of certain inventory, $4.5 million of charges in the Latin America region associated with the wind-down of our operations in Uruguay, partially offset by a $0.7 million gain in 2016 associated with the change in final settlement amount of certain wage and hour litigation claims. Charges in 2015 include a $70.7 million non-cash impairment of goodwill, a $2.6 million non-cash impairment of assets, a $2.2 million charge to each taxpaying jurisdiction are now presented as either a non-current asset or liability. These presentation changes are reflected in our consolidated balance sheet data for all periods presented below, but did not have any impact on our consolidated financial condition, resultsreduce the carrying value of operations or cash flows. 

  

As of and for the Year Ended December 31,

 

(In thousands, except share data)

 

2015

  

2014

  

2013

  

2012

  

2011

 

Consolidated Statements of Operations:

                    

Revenues

 $676,865  $1,118,416  $1,042,356  $983,953  $909,368 
                     

Operating income (loss)(1)

  (99,099)  130,596   94,445   92,275   120,855 
                     

Interest expense, net

  9,111   10,431   11,279   9,727   9,226 
                     

Income (loss) from continuing operations

 $(90,828) $79,009  $52,622  $50,453  $71,233 

Income from discontinued operations, net of tax

  -   1,152   12,701   9,579   8,784 

Gain from disposal of discontinued operations, net of tax

  -   22,117   -   -   - 
                     

Net income (loss)

 $(90,828) $102,278  $65,323  $60,032  $80,017 
                     

Net income (loss) from continuing operations per common share (basic):

                    

Income (loss) from continuing operations

 $(1.10) $0.95  $0.62  $0.58  $0.79 

Net income (loss) per common share

 $(1.10) $1.23  $0.77  $0.69  $0.89 
                     

Net income (loss) from continuing operations per common share (diluted):

                    

Income (loss) from continuing operations

 $(1.10) $0.84  $0.56  $0.53  $0.71 

Net income (loss) per common share

 $(1.10) $1.07  $0.69  $0.62  $0.80 
                     

Consolidated Balance Sheet Data:

                    

Working capital

 $380,950  $440,098  $395,159  $433,728  $394,604 

Total assets

  848,893   1,007,672   954,918   979,750   869,753 

Foreign bank lines of credit

  7,371   11,395   12,809   2,546   2,174 

Current maturities of long-term debt

  11   253   58   53   58 

Long-term debt, less current portion

  171,211   170,462   170,009   253,315   185,619 

Stockholders' equity

  520,259   625,458   581,054   513,578   497,846 
                     

Consolidated Cash Flow Data:

                    

Net cash provided by (used in) operations

 $121,517  $89,173  $151,903  $110,245  $(13,558)

Net cash used in investing activities

  (84,366)  (14,002)  (60,063)  (96,167)  (63,150)

Net cash provided by (used in) financing activities

  (6,730)  (49,158)  (72,528)  5,853   18,338 

(1)

During the fourth quarter of 2015, we recorded a total of $80.5 million of charges for the reduction in value of certain assetsinventory and the pending resolution of certain wage and hour litigation claims. The Fluids Systems segment operating results include $75.5 million of these charges including a $70.7 million non-cash impairment of goodwill, a $2.6 million non-cash impairment of assets, following our decision to exit a facility, and a $2.2 million charge to reduce the carrying value of diesel-based drilling fluid inventory. In addition, corporate office expenses include a $5.0 million charge for the pending resolution of certain wage and hour litigation claims and related costs. In our 2015 consolidated statement of operations, a total of $78.3 million of these charges are reported in impairments and other charges with the $2.2 million charge for the write-down of inventory being reported in cost of revenues.



ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15



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 together with our Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.

Overview

We are a geographically diversified oil and gas industry supplier providing products, rentals and services primarily to the oil and gas exploration and production (“E&P”) industry. We operate our business through two reportable segments: Fluids Systems and Mats and Integrated Services.

In March 2014, we completed the sale ofrecent years, our Environmental Services business, which was historically reported as a third operating segment, for $100 million in cash. The proceeds were used for general corporate purposes, including investments in our core drilling fluids and mats segments, along with share purchases under our share repurchase program. See “Note 2 - Discontinued Operations” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for additional information.

Our Fluids Systems segment, which generated 86% of consolidated revenues in 2015, provides customized drilling fluids solutions to E&P customers globally, operating through four geographic regions: North America, Europe, the Middle East and Africa (“EMEA”), Latin America, and Asia Pacific.

In the fourth quarter of 2013, we sold substantially all assets of the completion services and equipment rental business, generating total proceeds of $13.3 million and a gain on disposal of $2.7 million. For the full year 2013, this business generated $16.7 million of revenues and $0.9 million of operating income, including the gain on disposal.

International expansion is a key element of our corporate strategy. In 2014, we began work on several international contract awards within the EMEA region. We were awarded a contract to provide drilling fluids and related services for a series of wells in the deepwater Black Sea. In addition, we were awarded two contracts to provide drilling fluids and related services for land operations, including a five year contract with the Kuwait Oil Company (“Kuwait”) and a four year contract with Cairn Energy in India. Total revenue generated under these contracts was approximately $44 million in 2015 and $23 million in 2014. Revenues under these contracts in 2015, as compared to 2014, were negatively impacted by approximately $6 million for currency exchange related to the strengthening U.S. dollar.

In 2015, we were awarded three additional international contracts. We were awarded Lot 1 and Lot 3 of a restricted tender by Sonatrach to provide drilling fluids and related services in Algeria. The maximum value of the two lots of the Sonatrach tender is approximately 31 billion Algerian dinar (approximately $290 million at current exchange rates), covering a term of three years. Work under this contract began in the second quarter of 2015 with activity levels ramping-up during the second half of 2015. We were also awarded a contract by ENI S.p.A. to provide drilling fluids and related services for onshore and offshore drilling in the Republic of Congo. The initial term of this contract is three years and includes an option for up to an additional two year extension. Work under this contract began in the fourth quarter of 2015. Total revenue generated under these contracts, including our prior contract with Sonatrach, was approximately $58 million in 2015 compared to $48 million in 2014. Revenues under these contracts in 2015, as compared to 2014, were unfavorably impacted by approximately $13 million for currency exchange related to the strengthening U.S. dollar. In addition, during the third quarter of 2015, we were awardeda contract by Total S.A. to provide drilling fluids and related services for an exploratory ultra-deepwater well in Block 14 of offshore Uruguay. This project is expected to begin late in the first quarter of 2016.

In 2016, we have been awarded a two year contract by Shell Oil to provide drilling fluids and related services for onshore drilling activity in Albania. Work under this contract is expected to begin in the second half of 2016.


We are continuing to focus on the development and commercialization of new drilling fluids technologies, including Evolution®, our family of high performance water-based drilling fluid systems, which we believe provide superior performance and environmental benefits to our customers, as compared to traditional fluid systems used in the industry. Total revenues from wells using Evolution systems were approximately $105 million in 2015 compared to $251 million in 2014. The decrease in revenues in 2015 is primarily attributable to lower drilling activity as well as customers in North America tending to favor lower-cost product offerings in the current market environment.

In 2014, we announced two capital investment projects within the Fluids Systems segment. Since then, we invested approximately $20 million in a new fluids blending facility and distribution center located in Conroe, Texas, which will support the manufacturing of our proprietary fluid technologies, including our Evolution systems. This project was substantially completed in 2015 with the start-up of blending operations in early 2016. In addition, we are investing approximately $30 million to significantly expand existing capacity and upgrade the drilling fluids blending, storage, and transfer capabilities in Fourchon, Louisiana, which serves the Gulf of Mexico deepwater market. This project is expected to be completed in 2016. Capital expenditures related to these projects totaled $26.1 million and $3.9 million in 2015 and 2014, respectively.

Our Mats and Integrated Services segment which generated 14%has expanded beyond the E&P industry, and now serves a variety of consolidated revenues in 2015, provides composite mat rentals, well siteindustries, including the electrical transmission & distribution, pipeline, solar, petrochemical and construction and related site services primarily to oil and gas customers. In addition, mat rental and services activity is expanding into applications in other markets, including electrical transmission/distribution, pipelines and petrochemical plants. We also manufacture and sell composite mats to E&P customers outside of the U.S., and to domestic customers outside of the oil and gas industry. Revenues from markets outside of oil and gas exploration represented approximately 34% of our mat rental and services revenues and approximately 77% of revenues from mat sales in 2015.

During most of 2013 and 2014, revenues from mat sales were constrained by our manufacturing capacity limitations, along with our efforts to meet growing demand for mat rentals. During 2014, we allocated the majority of our composite mat production toward the expansion of our rental fleet, leaving fewer mats available for sale to customers. In order to address the manufacturing capacity limitations, we initiated a project in late 2013 to expand our mat manufacturing facility, located in Carencro, Louisiana. The project was completed in the second quarter of 2015 and nearly doubled our production capacity, which supports our expansion into new markets, both domestically and internationally. The expanded facility also includes a research and development center that was substantially completed by the end of 2015, intended to drive continued new product development efforts. Capital expenditures related to this project totaled $12.8 million, $28.8 million and $4.9 million in 2015, 2014, and 2013, respectively.

In December 2013, we completed the acquisition of Terrafirma Roadways (“Terrafirma”), a provider of temporary roadways and worksites based in the United Kingdom, for total cash consideration of $6.8 million, net of cash acquired. Prior to the acquisition, Terrafirma had been operating as a partner to the Company since 2008, developing a rental business with DURA-BASE composite mats, primarily focused in the utility industry in the U.K.

industries.

Our operating results depend, to a large extent, on oil and 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. The drillingDrilling activity, in turn, depends on oil and gas commodity pricing, inventory levels, andproduct demand and regulatory actions, such as those affecting operations in the Gulf of Mexico in recent years.

restrictions. Oil and gas prices and activity are cyclical and volatile. This market volatility has a significant impact on our operating results.

StartingBeginning in the fourth quarter of 2014 and continuing throughout 2015 and into the first quarter ofthrough early 2016, the price of oil declined dramatically from the price levels in recentprevious years. As a result, E&P drilling activity has significantly declined sharply in North America and many global markets over this period. RigSince reaching a low point in early 2016, oil prices and North American drilling activity have steadily improved, although both remain significantly lower than pre-downturn levels. While our revenue potential is driven by a number of factors including those described above, rig count data isremains the most widely accepted indicator of drilling activity. Average North AmericanAmerica rig count data for the last three years ended December 31 is as follows:

  

Year ended December 31,

  

2015 vs 2014

  

2014 vs 2013

 
  

2015

  

2014

  

2013

  

Count

  

%

  

Count

  

%

 
                             

U.S. Rig Count

  978   1,862   1,761   (884)  (47%)  101   6% 

Canadian Rig Count

  192   379   353   (187)  (49%)  26   7% 

Total

  1,170   2,241   2,114   (1,071)  (48%)  127   6% 

  Year Ended December 31, 2017 vs 2016 2016 vs 2015
  2017 2016 2015 Count % Count %
U.S. Rig Count 877
 509
 978
 368
 72% (469) (48%)
Canadian Rig Count 206
 130
 192
 76
 58% (62) (32%)
Total 1,083
 639
 1,170
 444
 69% (531) (45%)
________________

Source: Baker Hughes, Incorporated

The weakness in North American rig activity has continued into 2016, and asa GE Company

As of February 19, 2016,16, 2018, the North AmericanU.S. and Canadian rig counts were 975 and 318, respectively. The Canadian rig count was at 720. The lower activityreflects the normal seasonality for this market, with the highest rig count levels are expectedgenerally observed in the first quarter of each year, prior to remain below prior year levels for the foreseeable future.

The lower E&P drilling activity levels reduced the demand for our services and negatively impacted customer pricing in our North American operations in 2015. The lower customer demand and elevated costs associated with workforce reductions negatively impacted our profitability in 2015. Further, due to the fact that our business contains high levels of fixed costs, including significant facility and personnel expenses, North American operating margins in both operating segments have been negatively impacted by the lower customer demand.

Spring break-up.

Outside of North America, drilling activity ishas remained generally more stable during this period as drilling activity in many countries is based upon longer term economic projections and multiple year drilling programs, which tendtends to reduce the impact of short term changes in commodity prices on overall drilling activity. While drilling activity in certain of our international markets including(including Brazil Australia, and India,Australia) has declined dramatically,in recent years, as a whole, our international activities have continued to grow in recent years,remained relatively stable. This stability is primarily driven primarily by the new contract awards, including those described above,below, which include geographical expansion into new markets as well as market share gains in existing markets.

While our international contracts vary in revenue potential and duration, certain international contracts are scheduled to conclude in 2018, including those with Sonatrach and Petrobras. Our future revenue levels in international markets are largely dependent on our ability to maintain existing market share upon contract renewals which may be subject to a competitive bid process and can be impacted by our customers’ procurement strategies and allocation of contract awards.

Segment Overview
Our Fluids Systems segment, which generated 82% of consolidated revenues in 2017, provides customized fluids solutions to E&P customers globally, operating through four geographic regions: North America, Europe, the Middle East and Africa (“EMEA”), Latin America, and Asia Pacific.





16



International expansion is a key element of our Fluids Systems strategy, which in recent years, has helped to stabilize revenues as North American oil and gas exploration activities have fluctuated significantly. Significant international contract awards in recent years include:
A five year contract with Kuwait Oil Company to provide drilling fluids and related services for land operations. Work under this contract began in the second half of 2014.
Lot 1 and Lot 3 of a restricted tender by Sonatrach to provide drilling fluids and related services, which expanded our market share with Sonatrach in Algeria. Work under this three-year contract began in the second quarter of 2015, with activity levels ramping up during the second half of 2015 and early 2016. While revenues from this contract represented less than 10% of consolidated revenues in 2017, the contract contributed approximately 14% of our consolidated revenues in 2016.
A contract with Total S.A. to provide drilling fluids and related services for an exploratory ultra-deepwater well in Block 14 of offshore Uruguay. This project was completed in 2016, contributing approximately $12 million of revenue for the year in 2016.
A two-year contract with Shell Oil in Albania to provide drilling fluids and related services for onshore drilling activity. Work under this contract began in 2016.
A three-year contract with Cairn Oil & Gas to provide drilling and completion fluids, along with associated services, in support of Cairn’s onshore drilling in India. Work under this contract began in the third quarter of 2017.
A contract with Baker Hughes, a GE Company, to provide drilling fluids and related services as part of Baker Hughes’ integrated service offering in support of the Greater Enfield project in offshore Western Australia. Work under this contract began in January 2018.
Within the U.S. operations of our Fluids Systems segment we invested approximately $40 million in recent years to significantly expand existing capacity and upgrade the drilling fluids blending, storage, and transfer capabilities in our Fourchon, Louisiana facility which serves customers in the Gulf of Mexico deepwater market. This project is part of our Fluids Systems strategy to penetrate the Gulf of Mexico deepwater market and was substantially completed in the second quarter of 2017. Capital expenditures related to the Fourchon expansion totaled $6.9 million, $22.2 million and $10.1 million in 2017, 2016 and 2015, respectively.
Our Mats and Integrated Services segment, which generated 18% of consolidated revenues in 2017, provides composite mat rentals, site construction and related site services to customers in various markets including oil and gas exploration and production, electrical transmission & distribution, pipeline, solar, petrochemical and construction across North America and Europe. We also sell composite mats to customers outside of the U.S. and to domestic customers outside of the E&P market. Following our efforts in recent years to diversify our customer base, Mats and Integrated Services segment revenues from non-E&P markets represented approximately two-thirds of our segment revenues in 2017.
In November 2017, we acquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility Access Solutions, Inc. (together, “WSG”) for $77.9 million, which included $45.5 million of cash consideration and $32.4 million of our common equity. Since 2012, WSG has been a strategic logistics and installation service provider for our Mats and Integrated Service segment, offering a variety of complementary services to our composite matting systems, including access road construction, site planning and preparation, environmental protection, fluids and spill storage/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. Following the mid-November acquisition, WSG contributed approximately $9 million of revenues to the Mats and Integrated Services segment in 2017, reflecting an annualized revenue level of approximately $70 million.
Impact of U.S. Tax Reform
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017, resulting in broad and complex changes to U.S. income tax law. The Tax Act includes a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not previously subject to U.S. income tax, reduces the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018, generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, creates new tax on certain foreign-sourced earnings, makes other changes to limit certain deductions and changes rules on how certain tax credits and net operating loss carryforwards can be utilized.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our 2017 financial statements. As we finalize the necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, or other standard-setting bodies, we may make adjustments to the provisional amounts.


17



We recorded a net tax benefit of $3.4 million in 2017, reflecting provisional amounts for the following income tax effects of the Tax Act:
One-time transition tax — The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. We recorded a provisional amount in 2017 for our one-time transitional tax liability and income tax expense of $6.9 million.
Taxes on repatriation of foreign earnings — We previously considered the unremitted earnings in our non-US subsidiaries held directly by a U.S. parent to be indefinitely reinvested and, accordingly, had not provided any deferred income taxes. We intend to pursue repatriation of unremitted earnings in our non-US subsidiaries held directly by a U.S. parent to the extent that such earnings have been included in the one-time transition tax discussed above, and subject to cash requirements to support the strategic objectives of the non-US subsidiary. We recorded a provisional amount in 2017 for the estimated liability and income tax expense for any U.S. federal or state income taxes or additional foreign withholding taxes related to repatriation of such earnings of $7.0 million.
Deferred tax effects The Tax Act reduces the U.S. corporate statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have remeasured our U.S. net deferred tax liabilities as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a provisional deferred tax benefit in 2017 of $17.4 million to reflect the reduced U.S. tax rate on our estimated U.S. net deferred tax liabilities.
While we have not completed our analysis of the impacts of the Tax Act on our effective tax rate going forward, we anticipate the overall impacts of the Tax Act described above will reduce our effective tax rate in 2018 compared to 2017, excluding the $3.4 million net benefit included in our 2017 income tax provision as described above. The impact of the Tax Act on our effective tax rate in 2018 will depend in large part on the relative contribution of our domestic earnings and finalization of the provisional accounting for the Tax Act.
2016 and 2015 Impairments and Restructuring Charges
After achieving an average North America rig count of 2,241 in 2014, the declining E&P drilling activity levels throughout 2015 through early 2016 reduced the demand for our services, negatively impacted customer pricing and resulted in elevated costs associated with workforce reductions, negatively impacting our profitability. Further, due to the fact that our business contains substantial levels of fixed costs, including significant facility and personnel expenses, North American operating margins in both operating segments were negatively impacted by the lower customer demand during these years.
In response to thethese significant activity declines in activity,North America, we initiatedimplemented cost reduction programs in the first quarter of 2015 including workforce reductions, reduced discretionary spending, and implemented temporary salary freezes for substantially all employees, including executive officers in the first quarter of 2015 and have continued these efforts throughout 2015.officers. In September 2015, we also initiatedimplemented a voluntary early retirement program with certain eligible employees in the United States for retirement dates ranging from the fourth quarter of 2015 through the third quarter of 2016. As part of these cost reduction programs, we have reduced our North American employee base by 436 (approximately 34%) in 2015 in addition to eliminating substantially all contract positions. As a result of these workforce reductions, our 2015 operating results include $8.2 million of charges associated with employee termination costs with $5.7 million reported in cost of revenues and $2.5 million reported in selling, general and administrative expenses. The employee termination costs include $7.2 million in Fluids Systems, $0.7 million in Mats and Integrated Services and $0.3 million in our corporate office. Accrued employee termination costs at December 31, 2015 are $3.3 million and are expected to be substantially paid in the first half of 2016. Additional employee termination costs of $0.7 million associated with the voluntary retirement program will be recognized in 2016.

During the fourth quarter of 2015, we also recorded a total of $80.5 million of charges for the reduction in value of certain assets and the pending resolution of certain wage and hour litigation claims. The Fluids Systems segment operating results include $75.5 million of these charges including a $70.7 million non-cash impairment of goodwill, following our November 1, 2015 annual evaluation, a $2.6 million non-cash impairment of assets, following our decision 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 due to the decline in selling prices for our diesel-based drilling fluid products coupled with declines in replacement costs of diesel fuel. In addition, corporate office expenses include a $5.0 million charge for the pending resolution of certain wage and hour litigation claims and related costs as described in“Note 14 – Commitments and Contingencies” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. In our 2015 consolidated statement of operations, a total of $78.3 million of these charges are reported in impairments and other charges with the $2.2 million charge for the write-down of inventory being reported in cost of revenues.


States. As a result of the continuing declines in activity in the first quarterhalf of 2016, we have initiatedimplemented further cost reduction actions including additional workforce reductions and beginning in March 2016, a temporary salary reduction for a significant number of North American employees, including executive officers, suspension of the Company’s matching contribution to the U.S. defined contribution plan as well as a reduction in cash compensation paid to our Board of Directors in order to further align our cost structure to the current activity levels. In the second quarter of 2017, we restored salaries to pre-reduction levels for our North American employees, as well as the Company matching contribution to the U.S. defined contribution plan.

As a resultpart of these workforce reductions, we expect to recognize additional severancerecognized charges for employee termination costs of at least $1 millionas shown in the first quartertable below:
 Year Ended December 31,
(In thousands)2016 2015
Fluids systems$4,125
 $7,218
Mats and integrated services285
 717
Corporate office162
 228
Total employee termination costs$4,572
 $8,163
During 2016 and 2015 we also recorded charges totaling $14.8 million and $80.5 million, respectively, resulting from the reduction in value of 2016. Incertain assets, the absencewind-down of a longer-term increaseour operations in drilling activity, we may incur additionalUruguay and the resolution of certain wage and hour litigation claims. The Fluids Systems segment operating results included $15.5 million and $75.5 million of these charges in 2016 and 2015, respectively. The remaining $0.7 million benefit and $5.0 million charge was included in Corporate Office expenses in 2016 and 2015, respectively, related to furtherthe resolution of certain wage and hour litigation claims.


18



The $15.5 million of Fluids Systems charges in 2016 included $6.9 million of non-cash impairments in the Asia Pacific region resulting from the continuing unfavorable industry market conditions and outlook for the region in 2016, $4.1 million of charges for the reduction in carrying values of certain inventory, primarily resulting from lower of cost reduction efforts, or potential asset impairments.

market adjustments and $4.5 million of charges in the Latin America region associated with the wind-down of our operations in Uruguay, including $0.5 million to write-down property, plant and equipment. The $6.9 million of impairments in the Asia Pacific region included a $3.8 million charge to write-down property, plant and equipment to its estimated fair value and a $3.1 million charge to fully impair the customer related intangible assets in the region.

The $75.5 million of Fluids Systems charges in 2015 included $70.7 million of non-cash charges for the impairment of goodwill, following our November 1, 2015 annual evaluation, a $2.6 million non-cash impairment of assets, following our decision 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.
Year Ended December 31, 20152017 Compared to Year Ended December 31, 20142016

Consolidated Results of Operations

Summarized results of operations for the year ended December 31, 20152017 compared to the year ended December 31, 20142016 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   - 
                 

Operating income (loss)

  (99,099)  130,596   (229,695)  (176%)
                 

Foreign currency exchange loss

  4,016   108   3,908   3619%

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)  - 

Gain from disposal of discontinued operations, net of tax

  -   22,117   (22,117)  - 
                 

Net income (loss)

 $(90,828) $102,278  $(193,106)  (189%)

 Year Ended December 31, 2017 vs 2016
(In thousands)2017 2016  %
Revenues$747,763
 $471,496
 $276,267
 59%
Cost of revenues607,899
 437,836
 170,063
 39%
Selling, general and administrative expenses108,838
 88,473
 20,365
 23%
Other operating income, net(410) (4,345) 3,935
 91%
Impairments and other charges
 6,745
 (6,745) NM
Operating income (loss)31,436
 (57,213) 88,649
 155%
        
Foreign currency exchange (gain) loss2,051
 (710) 2,761
 NM
Interest expense, net13,273
 9,866
 3,407
 35%
Gain on extinguishment of debt
 (1,615) 1,615
 NM
Income (loss) from continuing operations before income taxes16,112
 (64,754) 80,866
 125%
        
Provision (benefit) for income taxes4,893
 (24,042) 28,935
 120%
Income (loss) from continuing operations11,219
 (40,712) 51,931
 128%
        
Loss from disposal of discontinued operations, net of tax(17,367) 
 (17,367) NM
Net Loss$(6,148) $(40,712) $34,564
 85%
Revenues
Revenues increased 59% to $747.8 million in 2017, compared to $471.5 million in 2016. This $276.3 million increase includes a $268.0 million (108%) increase in revenues in North America, comprised of a $212.5 million increase in our Fluids Systems segment and a $55.5 million increase in the Mats and Integrated Services segment. Revenues from our international operations increased by $8.3 million (4%), as activity gains in the EMEA region, Brazil and Chile were mostly offset by the completion of the offshore Uruguay project, which contributed $12.3 million of revenue in 2016. Additional information regarding the change in revenues is provided within the operating segment results below.
Cost of Revenues
Cost of revenues increased 39% to $607.9 million in 2017, compared to $437.8 million in 2016. This increase was primarily driven by the 59% increase in revenues; however, cost of revenues contain substantial levels of fixed costs in each business, including significant depreciation, facility costs and personnel expenses, resulting in the lower increase in cost of revenues relative to the change in revenues. In addition, 2016 included $4.6 million of employee severance costs which did not recur in 2017.


19



Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $20.4 million to $108.8 million in 2017 from $88.5 million in 2016. The increase in expenses is primarily attributable to a $10.6 million increase in performance-based incentive compensation as well as elevated spending related to strategic planning efforts and legal matters, including the WSG acquisition described above. Selling, general and administrative expenses as a percentage of revenues decreased to 14.6% in 2017 from 18.8% in the prior year.
Other Operating Income, net
Other operating income was $0.4 million in 2017 as compared to $4.3 million in 2016, primarily reflecting gains on the sale of assets in both periods.
Impairments and Other Charges
During 2017, we did not recognize any impairments and other charges. During 2016, we recognized $6.7 million of impairments and other charges. As previously described, these charges primarily included $6.9 million of non-cash impairments in our Asia Pacific region including a $3.8 million charge to write-down property, plant and equipment to its estimated fair value and a $3.1 million charge to fully impair the customer related intangible assets. See “Note 12 – Segment Data” for additional information related to these charges. In addition, we recorded a $0.5 million charge in 2016 in the Latin America region of our Fluids Systems segment to write-down property, plant and equipment associated with the wind-down of our operations in Uruguay. These charges were partially offset by a $0.7 million gain in 2016 in our corporate office associated with the change in the final settlement amount of the wage and hour litigation claims.
Foreign Currency Exchange
Foreign currency exchange was a $2.1 million loss in 2017 compared to a $0.7 million gain in 2016, reflecting the impact of currency translation on assets and liabilities (including intercompany balances) that are denominated in currencies other than functional currencies.
Interest Expense, net
Interest expense totaled $13.3 million in 2017 compared to $9.9 million in 2016. This increase was primarily attributable to a $3.7 million increase in non-cash amortization of debt discount associated with the 2021 Convertible Notes and lower capitalized interest in 2017 as compared to 2016. These increases were partially offset by $1.1 million of charges in the second quarter of 2016 for the write-off of debt issuance costs related to the termination and replacement of our revolving Credit Agreement. See “Note 6 – Financing Arrangements” for further discussion of the accounting treatment for the 2021 Convertible Notes.
Gain on Extinguishment of Debt
The $1.6 million gain on extinguishment of debt in 2016 reflects the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs, related to the repurchase of $89.3 million aggregate principal amount of our 2017 Convertible Notes.
Provision (Benefit) for Income Taxes
The provision for income taxes for 2017 was $4.9 million, reflecting an effective tax rate of 30.4%, compared to a $24.0 million benefit in 2016, reflecting an effective tax rate of 37.1%. The provision for income taxes in 2017 includes a $3.4 million benefit resulting from the provisional accounting for the Tax Act as previously described. In addition, the 2017 effective tax rate was negatively impacted primarily by non-deductible expenses relative to the amount of pre-tax income.
The benefit for income taxes in 2016 included a $9.3 million benefit associated with a worthless stock deduction and related impacts from restructuring the investment in our Brazilian subsidiary, partially offset by the unfavorable impact of pretax losses incurred in Australia, including $6.9 million of impairment charges, for which the recording of a tax benefit is not permitted.
Loss from Disposal of Discontinued Operations
Loss from disposal of discontinued operations includes a $17.4 million charge, net of tax, in 2017 for the settlement of a pending litigation matter related to the March 2014 sale of our Environmental Services business. See “Note 14 – Discontinued Operations” and “Note 15 – Commitments and Contingencies” in our consolidated financial statements for additional information.







20





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, 2017 vs 2016
(In thousands)2017 2016 $ %
Revenues       
Fluids systems$615,803
 $395,461
 $220,342
 56%
Mats and integrated services131,960
 76,035
 55,925
 74%
Total revenues$747,763
 $471,496
 $276,267
 59%
        
Operating income (loss)       
Fluids systems$27,580
 $(43,631) $71,211
  
Mats and integrated services40,491
 14,741
 25,750
  
Corporate office(36,635) (28,323) (8,312)  
Operating income (loss)$31,436
 $(57,213) $88,649
  
        
Segment operating margin       
Fluids systems4.5% (11.0%)  
  
Mats and integrated services30.7% 19.4%  
  
Fluids Systems
Revenues
Total revenues for this segment consisted of the following:  
 Year ended December 31, 2017 vs 2016
(In thousands)2017 2016 $ %
United States$341,075
 $149,876
 $191,199
 128%
Canada54,322
 33,050
 21,272
 64%
Total North America395,397
 182,926
 212,471
 116%
Latin America36,965
 40,736
 (3,771) (9%)
Total Western Hemisphere432,362
 223,662
 208,700
 93%
        
EMEA179,360
 167,130
 12,230
 7%
Asia Pacific4,081
 4,669
 (588) (13%)
Total Eastern Hemisphere183,441
 171,799
 11,642
 7%
        
Total Fluids Systems$615,803
 $395,461
 $220,342
 56%
North America revenues increased 116% to $395.4 million in 2017 compared to $182.9 million in 2016. This increase in revenues is primarily attributable to the 69% increase in North American average rig count along with market share gains and higher customer spending per well in 2017 compared to the prior year. Canadian revenues also included a $4.8 million increase from the August 2016 acquisition of Pragmatic Drilling Fluids Additives, Ltd.
Internationally, revenues increased 4% to $220.4 million in 2017 compared to $212.5 million in 2016. The increase in the EMEA region is primarily attributable to an increase in customer activity levels in Algeria and Romania. The decrease in the Latin America region is attributable to completion of the offshore Uruguay project which contributed $12.3 million of revenue in 2016 partially offset by increased activity with Petrobras in Brazil and an increase in revenue from a customer contract in Chile which started in the fourth quarter of 2016.


21



Operating Income
The Fluids Systems segment generated operating income of $27.6 million in 2017 compared to an operating loss of $43.6 million in 2016, representing a $71.2 million improvement in operating results. The operating loss in 2016 includes $15.5 million of charges related to asset impairments and $4.1 million of charges related to workforce reductions, as previously described.
The remaining $51.6 million increase in operating results includes a $48.7 million improvement from North American operations and a $2.9 million increase in operating income from international operations. The improvement in North American operating results is largely attributable to the $212.5 million increase in revenues described above. The increase in international operating income is primarily attributable to the increase in revenues as well as the benefit of cost reduction programs in the Asia Pacific region.
Mats and Integrated Services
Revenues
Total revenues for this segment consisted of the following:  
 Year ended December 31, 2017 vs 2016
(In thousands)2017 2016  %
Mat rental and services$96,067
 $58,389
 $37,678
 65%
Mat sales35,893
 17,646
 18,247
 103%
Total$131,960
 $76,035
 $55,925
 74%
Mat rental and services revenues for 2017 increased $37.7 million compared to 2016. This improvement includes an increase in revenue from E&P customer activity, attributable to the improvement in oil prices, as well as increases in non-E&P customer activity associated with our continued efforts to expand beyond our traditional oilfield customer base and strong weather-related demand for rental mats. The 2017 operating results also include approximately $9 million of services revenue from the WSG acquisition in mid-November.
Revenues from mat sales were $35.9 million in 2017 compared to $17.6 million in 2016. Revenues from mat sales have typically fluctuated based on the timing of mat orders from customers. The improvement in 2017 is primarily attributable to our continued efforts to further expand our sales into non-E&P markets.
Operating Income
Segment operating income increased by $25.8 million to $40.5 million for 2017 as compared to $14.7 million in 2016, attributable to the increases in both mat sales and rental and services revenues as described above. Due to the relatively fixed nature of operating expenses, increases in revenue have a higher incremental impact on segment operating margin.
As noted above, the 2017 operating results include approximately $9 million of revenues associated with the WSG acquisition completed in mid-November 2017. The acquired business is predominately focused on site services, as opposed to product sales and rentals, which we expect will drive a shift in sales mix toward service revenues in 2018, as compared to 2017. While we expect the incremental service revenues to provide a positive impact to segment operating income, the mix shift and higher depreciation and amortization expense related to the purchase accounting allocation is expected to reduce the overall segment operating margin from the 30.7% operating margin achieved in 2017. See “Note 2 - Business Combinations” for further discussion of the acquisition.
Corporate office
Corporate office expenses increased $8.3 million to $36.6 million in 2017, compared to $28.3 million for 2016. The increase is primarily attributable to a $2.7 million increase in performance-based incentive compensation and a $2.0 million increase in spending related to strategic planning efforts and legal matters, including the Ecoserv lawsuit described further in “Note 15 - Commitments and Contingencies.” The 2017 operating results also include a $1.0 million increase in acquisition related costs, primarily attributable to the WSG acquisition.


22



Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Consolidated Results of Operations
Summarized results of operations for the year ended December 31, 2016 compared to the year ended December 31, 2015 are as follows:  
 Year Ended December 31, 2016 vs 2015
(In thousands)2016 2015  %
Revenues$471,496
 $676,865
 $(205,369) (30%)
Cost of revenues437,836
 599,013
 (161,177) (27%)
Selling, general and administrative expenses88,473
 101,032
 (12,559) (12%)
Other operating income, net(4,345) (2,426) (1,919) (79%)
Impairments and other charges6,745
 78,345
 (71,600) NM
Operating loss(57,213) (99,099) 41,886
 42%
        
Foreign currency exchange loss(710) 4,016
 (4,726) NM
Interest expense, net9,866
 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
 42%
        
Benefit for income taxes(24,042) (21,398) (2,644) (12%)
Net Loss$(40,712) $(90,828) $50,116
 55%
Revenues

Revenues decreased 39%30% to $471.5 million in 2016, compared to $676.9 million in 2015, compared to $1,118.4 million in 2014.2015. This $441.6$205.4 million decrease includesincluded a $391.4$189.1 million (47%(43%) decrease in revenues in North America, including a $335.0$169.0 million decline in our Fluids Systems segment and a $56.4$20.1 million decline in our Mats and Integrated Services segment. Revenues from our international operations decreased by $50.2$16.3 million (17%(7%), as a $12.3 million revenue contribution from the offshore Uruguay project in 2016, along with activity gains in our EMEA region were more than offset by thereduced drilling activity in Brazil and Asia Pacific, as well as a $12.0 million unfavorable impact of currency exchange related to the strengtheningstronger U.S. dollar along with reduced drilling activity in Brazil and Asia Pacific.2016. Additional information regarding the change in revenues is provided within the operating segment results below.

Cost of Revenues

Cost of revenues decreased 32%27% to $437.8 million in 2016, compared to $599.0 million in 2015, compared to $877.0 million in 2014.2015. The decrease iswas primarily driven by the decline in revenues, and the benefits of cost reduction programs, takena $6.1 million reduction in 2015,depreciation expense associated with the January 2016 change in estimated useful lives and residual values of our composite mats rental fleet and a $2.0 million reduction in employee termination costs. These decreases were partially offset by chargesa $1.9 million increase in 2015 for approximately $5.7 million associated with employee termination costs and $2.2 million forinventory impairments primary resulting from lower of cost or market adjustments to diesel-based drilling fluid inventories recognized in the fourth quarter of 2015 as described above.adjustments. Additional information regarding the change in cost of revenues is provided within the operating segment results below.


Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $11.6$12.6 million to $88.5 million in 2016 from $101.0 million in 2015 from $112.6 million in 2014.2015. The decrease is primarily attributable to the benefits of cost reduction programs, a $6.9$2.4 million decline in performance-based incentive compensation, the benefits of cost reduction programs takena $1.9 million decline in 2015, and $2.0 million in lower spending related to strategic planning projects, partially offset by a $1.9 million increase in costs for legal matters, including the wage and hour litigation, and a $1.9$1.6 million increasedecrease in employee termination costs.

costs and lower spending on strategic planning projects.

Other Operating Income, net

Other operating income was $4.3 million in 2016 as compared to $2.4 million in 2015, as compared to $1.8 million in 2014 largelyprimarily reflecting gains recognized on the sale of assets in both periods.



23



Impairments and Other Charges

During

As previously described, we recognized $6.7 million of impairments and other charges in 2016, which included $6.9 million of non-cash impairments in the fourth quarterAsia Pacific region of our Fluids Systems segment, reflecting a $3.8 million charge to write-down property, plant and equipment to its estimated fair value and a $3.1 million charge to fully impair the customer related intangible assets in the region. In addition, we recorded a $0.5 million charge in 2016 in the Latin America region of our Fluids Systems segment to write-down property, plant and equipment associated with the wind-down of our operations in Uruguay, partially offset by a $0.7 million gain in 2016 in our corporate office associated with the change in the final settlement amount of the wage and hour litigation claims.
In 2015, a total ofwe recognized $78.3 million of impairments and other charges were recordedincluding $70.7 million of non-cash charges in the Fluids Systems segment for the impairment of certain assetsgoodwill and the pending resolution of certain wage and hour litigation claims. These charges include a $70.7$2.6 million non-cashfor the impairment of goodwill related to the Fluids Systems segment and a $2.6 million non-cash impairment ofcertain assets following our decision to exit a drilling fluids facility. In addition, we recognizedcorporate office expenses in 2015 included a $5.0 million charge in December 2015 for the pending resolution of certain wage and hour litigation claims and related costs.See “Note 5 – Goodwill and Other Intangible Assets”, “Note 4 – Property, Plant and Equipment” and “Note 14 – Commitments and Contingencies” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for additional information related to these charges.

costs.

Foreign Currency Exchange

Foreign currency exchange was a $0.7 million gain in 2016 compared to a $4.0 million loss in 2015, compared to a $0.1 million loss in 2014. The currency exchange loss in 2015 primarily reflectsreflecting 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. 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 intercompanyinter-company balances due from our Brazilian subsidiary with foreign currency exposure were forgiven, which we expect will reducereduced the foreign currency exchange volatility going forward.

in 2016 in comparison to 2015.

Interest expense,Expense, net

Interest expense, which primarily reflectsreflected the 4% interest associated with our $172.5unsecured 2017 Convertible Notes, totaled $9.9 million for 2016 compared to $9.1 million in unsecured convertible notes (“Senior Notes”), totaled $9.1 million for 2015 compared to $10.4 million2015. The increase in 2014. The decrease in 20152016 was primarily attributable to lower average borrowingsa non-cash charge of $1.1 million in the second quarter of 2016 for the write-off of debt issuance costs related to the termination and replacement of our international subsidiaries.

revolving Credit Agreement partially offset by the benefit from the repurchase of $11.2 million of our 2017 Convertible Notes in the first quarter of 2016.

Gain on Extinguishment of Debt
The $1.6 million gain in 2016 reflects the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs, related to the repurchase of $89.3 million aggregate principal amount of our 2017 Convertible Notes.
Provision (Benefit) for income taxes

Income Taxes

The provision for income taxes for 20152016 was a $21.4$24.0 million benefit, reflecting an effective tax rate of 19.1%37.1%, compared to a $41.0$21.4 million expensebenefit in 2014,2015, reflecting an effective tax rate of 34.2%19.1%. The decreasebenefit for income taxes in 2016 included a $9.3 million benefit associated with a worthless stock deduction and related impacts from restructuring the effectiveinvestment in our Brazilian subsidiary, partially offset by the unfavorable impact of pretax losses incurred in Australia for which the recording of a tax ratebenefit is primarily related tonot permitted.
The benefit for income taxes in 2015 was unfavorably impacted by the impairment of non-deductible goodwill in 2015.goodwill. In addition, the 2015 the income tax provision also includesincluded a $4.6 million charge for increases to the valuation allowance for certain deferred tax assets which may not be realized (primarily related to our Australian subsidiary and certain U.S. state net operating losses). These 2015 charges were partially offset by 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 million charge for increases to the valuation allowance for certain deferred tax assets, primarily 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.



Discontinued operations

Income from our discontinued Environmental Services operations that was sold in March 2014 was $1.2 million in 2014.  In addition, 2014 includes a $22.1 million gain from the March 2014 sale of the business as described above.  See “Note 2- Discontinued Operations” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for additional information.










24



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

 

(In thousands)

 

2015

  

2014

    $  

%

 
                 

Revenues

                

Fluids systems

 $581,136  $965,049  $(383,913)  (40%) 

Mats and integrated services

  95,729   153,367   (57,638)  (38%) 

Total revenues

 $676,865  $1,118,416  $(441,551)  (39%) 
                 

Operating income (loss)

                

Fluids systems

 $(86,770) $95,600  $(182,370)    

Mats and integrated services

  24,949   70,526   (45,577)    

Corporate office

  (37,278)  (35,530)  (1,748)    

Operating income (loss)

 $(99,099) $130,596  $(229,695)    
                 

Segment operating margin

                

Fluids systems

  (14.9%)  9.9%        

Mats and integrated services

  26.1%  46.0%        

 Year ended December 31, 2016 vs 2015
(In thousands)2016 2015 $ %
Revenues       
Fluids systems$395,461
 $581,136
 $(185,675) (32%)
Mats and integrated services76,035
 95,729
 (19,694) (21%)
Total revenues$471,496
 $676,865
 $(205,369) (30%)
        
Operating income (loss)       
Fluids systems$(43,631) $(86,770) $43,139
  
Mats and integrated services14,741
 24,949
 (10,208)  
Corporate office(28,323) (37,278) 8,955
  
Operating loss$(57,213) $(99,099) $41,886
  
        
Segment operating margin       
Fluids systems(11.0%) (14.9%)  
  
Mats and integrated services19.4% 26.1%  
  
Fluids Systems

Revenues

Total revenues for this segment consisted of the following:  

  

Year ended December 31,

  

2015 vs 2014

 

(In thousands)

 

2015

  

2014

    $  

%

 
                 

United States

 $299,266  $607,411  $(308,145)  (51%) 

Canada

  52,673   79,516   (26,843)  (34%) 

Total North America

  351,939   686,927   (334,988)  (49%) 

EMEA

  164,426   166,000   (1,574)  (1%) 

Latin America

  46,668   84,555   (37,887)  (45%) 

Asia Pacific

  18,103   27,567   (9,464)  (34%) 

Total

 $581,136  $965,049  $(383,913)  (40%) 

 Year ended December 31, 2016 vs 2015
(In thousands)2016 2015 $ %
United States$149,876
 $299,266
 $(149,390) (50%)
Canada33,050
 52,673
 (19,623) (37%)
Total North America182,926
 351,939
 (169,013) (48%)
Latin America40,736
 46,668
 (5,932) (13%)
Total Western Hemisphere223,662
 398,607
 (174,945) (44%)
        
EMEA167,130
 164,426
 2,704
 2%
Asia Pacific4,669
 18,103
 (13,434) (74%)
Total Eastern Hemisphere171,799
 182,529
 (10,730) (6%)
        
Total Fluids Systems$395,461
 $581,136
 $(185,675) (32%)
North AmericanAmerica revenues decreased 49%48% to $182.9 million in 2016, compared to $351.9 million in 2015, compared to $686.9 million in 2014.2015. This decrease in revenues is primarily attributable to the 48%45% decline in North American average rig count along with lower pricing declines,and customer spending per well, partially offset by market share gains over this period. In addition, revenues in Canada included an $8 million reduction from the unfavorable impact of currency exchange related to the strengthening U.S. dollar.


Internationally, revenues decreased 18%7% to $212.5 million in 2016 compared to $229.2 million in 2015, aswhich included a $10.7 million reduction from currency rate changes compared to $278.1 million in 2014, with activity gains in our EMEA region being more than offset by the unfavorable impact of currency exchange related to the strengthening U.S. dollar, along with reduced drilling activity in Brazil and Asia Pacific.2015. The decline in revenuesincrease in the EMEA region includedwas primarily driven by a $34$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, partially offset by a $31 million increase in revenues from the contracts mentioned above, including Kuwait, the deepwater Black Sea, Algeria and the Republic of Congo.exchange. The decrease in revenues in Latin America is primarily attributable to lower customerdeclines in Petrobras drilling activity in Brazil and $19 million from the negative impact of currency exchange.exchange partially offset by the $12.3 million revenue contribution from the offshore Uruguay project in 2016. The decline in Asia Pacific is primarily relatedattributable to lower revenues for landreduced drilling customers, along with a $4 million negative impact from currency exchange.

activity in Australia.



25



Operating Income

The Fluids Systems segment incurred an operating loss of $43.6 million in 2016 compared to an operating loss of $86.8 million in 2015, compared to operating income of $95.6 million in 2014.2015. The operating losslosses in 2016 and 2015 includesincluded $15.5 million and $75.5 million of charges, respectively, for the impairment of goodwill and other assets as discussed above.Thepreviously discussed. The remaining change$16.8 million net increase in operating results includesloss in 2016 compared to 2015 included a $110.7$13.3 million increase in the North American operating loss and a $3.5 million decrease fromin international operating income. The increase in North American operationsoperating loss is largely attributable to the $169.0 million decline in revenues described above, along with $7.2 million of charges associated with employee termination costs, partially offset by the benefits of cost reduction programs. Operatingprograms and a $3.1 million reduction in employee termination costs. The $3.5 million decrease in international operating income from international operations increased $3.8 millionis primarily reflectingattributable to an unfavorable change in customer mix in EMEA along with the benefit of improved profitabilityrevenue declines in the EMEAAsia Pacific and Latin America regions, partially offset by theand a $1.8 million negative impact of currency exchange as well as a small operating loss in Asia Pacific.

As a result of the decline in commodity prices as described above, we expect drilling activity to remain below 2015 levels in 2016, reducing the demand for our services and negatively impacting customer pricing primarily in our North American operations. Further, while we have executed actions to reduce our workforce and cost structure, our business contains high levels of fixed costs, including significant facility and personnel expenses. Therefore, we expect operating income in our North American operations to be negatively impacted by the lower revenues in 2016, as compared to 2015. In the absence of a longer-term increase in drilling activity, we may incur additional charges related to further cost reduction efforts, or potential asset impairments, which may negatively impact our future operating results.

Also, in recent years, the business environment in Brazil has become increasingly challenging, particularly as Petrobras, our primary customer in the region, has focused more efforts on well completions and workover activities, and less on drilling activities. In addition, the lack of timely payment of Petrobras-related invoicing has caused periodic increases in invested working capital associated with participation in this market. More recently, a significant number of senior executives at Petrobras resigned their positions in connection with a widely-publicized corruption investigation and Petrobras has announced further reductions in drilling activities. We expect these developments to continue to disrupt Petrobras’ operations in the near term. In response to these changes in the business environment, we have taken actions to reduce the cost structure of this operation and are continuing to evaluate further actions. While the Brazilian deepwater drilling market remains an important component of our long-term strategy, the profitability of our business in Brazil remains highly dependent on increasing levels of drilling activity by Petrobras and other E&P customers. In the absence of a longer-term increase in drilling activity, we may incur additional charges related to further cost reduction efforts, or potential asset impairments, which may negatively impact our future operating results.

exchange.

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, 2016 vs 2015
(In thousands)2016 2015  %
Mat rental and services$58,389
 $73,037
 $(14,648) (20%)
Mat sales17,646
 22,692
 (5,046) (22%)
Total$76,035
 $95,729
 $(19,694) (21%)
Mat rental and services revenues decreased $52.8$14.6 million in 2016, as compared to 2014.2015. The decrease is primarily due to weakness in North American drilling markets, including the U.S. Northeast U.S. region which has historically been the segment’s largest rental market, as a 31%market. A 49% decline in this region'sthe U.S. Northeast region’s drilling activity, along with a significant decline in completions activity, has resulted in lower rental fleet utilization and customer pricing from prior year levels. In addition, 2014 results benefittedThe revenue decline from North American drilling markets was partially offset by a large site preparation project$5.7 million increase in the Gulf Coast region that did not recur. Mat sales decreased by $4.8 million compared to 2014. revenues from non-E&P customers in North America and Europe.
Revenues from mat sales havedeclined by $5.0 million compared to 2015 and typically fluctuatedfluctuates based on the timing of mat orders from customers along with management’s allocation of plant capacity. As described above, due to the weakness in E&P customer activity during 2015, we increased efforts to expand into applications in other markets, including electrical transmission/distribution, pipelines and petrochemical plants. Revenues in 2015 from markets outside of oil and gas exploration represented approximately 34% of mat rental and services revenues and approximately 77% of revenues from mat sales compared to approximately 23% and 31%, respectively in 2014.

customers.

Operating Income

Segment operating income decreaseddeclined by $45.6$10.2 million to $14.7 million in 2016, as compared to $24.9 million as compared to $70.5 million in 2014,2015, largely attributable to the decline in rental and services revenuerevenues described above. Due to the relatively fixed nature of operating expenses in our rental business, including depreciation expense associated with our mat rental fleet, declines in rental and services revenue have a higher decremental impact on the segmentsegment’s operating margin. In addition to theThe impact of the lower revenue operating income was further impactedpartially offset by costs associated witha $6.1 million reduction in depreciation expense and a $1.4 million increase in gains recognized on the start-upsale of used composite mats from our expanded manufacturing facility and lower utilization of our production capacity compared to 2014.

As noted above, we completed the expansion of our mat manufacturing facilityrental fleet. The reduction in 2015, significantly increasing our production capacity. While the expansion project has relieved production capacity limitations that limited our revenues from mat sales in 2014, the recent decline in commodity prices has resulted, and is expected to continue to result, in lower drilling activity for our E&P customers. This lower drilling activity has reduced the demand for our services and negatively impacted customer pricing in our North American operations in 2015 as compared to 2014. Asdepreciation expense was a result of the lower customer demanda change in estimated useful lives and more competitive pricing environment, we expect operating income fromresidual values of our North American exploration markets to be lowercomposite mats included in rental fleet fixed assets in 2016 as compared to 2015 levels, with our ability to mitigate this impact dependent upon the further expansion into applicationsdiscussed in other markets. Further, dueNote 1 to the fact that our business contains high levels of fixed costs, including significant facility and personnel expenses, we expect North American operating margins to remain below those achieved in recent years in the absence of a longer-term increase in revenues.

Consolidated Financial Statements.

Corporate office

Corporate office expenses increased $1.8decreased $9.0 million to $28.3 million in 2016, compared to $37.3 million in 2015, compared to $35.5 million in 2014.2015. The increasedecrease is primarily attributable to a $5$5.7 million charge related toimprovement from the pending resolutionsettlement of certain wage and hour litigation claims as described above and$2.4 million of increased costs related to legal matters, including the wage and hour litigation claims being settled, partially offset byand a $2.0 million decrease in reduced spending related to strategic planning projects andlegal costs, primarily associated with such claims. The remaining $1.3 million in lower performance-based incentive compensation along with workforce reductions and other cost control efforts.


Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Consolidated Results of Operations

Summarized results of operations for the year ended December 31, 2014 compared to the year ended December 31, 2013 are as follows: 

  

Year Ended December 31,

  

2014 vs 2013

 

(In thousands)

 

2014

  

2013

    $  

%

 
                 

Revenues

 $1,118,416  $1,042,356  $76,060   7% 
                 

Cost of revenues

  876,999   858,467   18,532   2% 

Selling, general and administrative expenses

  112,648   93,657   18,991   20% 

Other operating income, net

  (1,827)  (4,213)  2,386   (57%) 
                 

Operating income

  130,596   94,445   36,151   38% 
                 

Foreign currency exchange loss

  108   1,819   (1,711)  (94%) 

Interest expense, net

  10,431   11,279   (848)  (8%) 
                 

Income from continuing operations before income taxes

  120,057   81,347   38,710   48% 

Provision for income taxes

  41,048   28,725   12,323   43% 

Income from continuing operations

  79,009   52,622   26,387   50% 

Income from discontinued operations, net of tax

  1,152   12,701   (11,549)  (91%) 

Gain from disposal of discontinued operations, net of tax

  22,117   -   22,117   - 
                 

Net income

 $102,278  $65,323  $36,955   57% 

Revenues

Revenues increased 7% to $1,118.4 million in 2014, compared to $1,042.4 million in 2013. This $76.1 million increase includes a $63.5 million (8%) increase in revenues in North America, including a $33.1 million increase in our Fluids Systems segment and a $30.4 million increase in our Mats and Integrated Services segment. Revenues from our international operations increased by $12.5 million (5%), primarily attributable to increases in the Fluids Systems EMEA region, partially offset by declines in the Asia Pacific and Latin America regions. International revenues in 2014 also include a $6.8 million increase resulting from the December 2013 acquisition of Terrafirma. Additional information regarding the change in revenues is provided within the operating segment results below.

Cost of Revenues

Cost of revenues increased 2% to $877.0 million in 2014, compared to $858.5 million in 2013. Despite a 7% increase in revenues, cost of revenues only increased 2% in 2014, benefitting from an improved sales mix, including continued growth in our higher margin family of Evolution drilling fluid systems and higher growth in the Mats and Integrated Services segment, which provides a stronger margin relative to the Fluids Systems segment. Additional information regarding the change in cost of revenues is provided within the operating segment results below.


Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $19.0 million to $112.6 million in 2014 from $93.7 million in 2013. The increasedecrease is primarily attributable to increases in personnelreduced spending on strategic projects and administrative costs associated with company growth, a $5.1 million increase in performance-based incentive compensation, a $3.1 million increase in stock-based compensation, and a $3.8 million increase in spending related to strategic planning projects, including the development of our deepwater market penetration strategy and other growth initiatives, offset partially by a $1.1 million decrease in spending related to acquisition and divesture activity.

Other Operating Income, net

Other operating income was $1.8 million in 2014 compared to $4.2 million in 2013. The 2014 fiscal year includes $1.2 million of gains recognized on the sale of two properties, while 2013 included the sale of the completion services and equipment rental business assets, which generated a gain of $2.7 million.

Foreign Currency Exchange

Foreign currency exchange was a $0.1 million loss in 2014, compared to a $1.8 million loss in 2013, and primarily reflects the impact of the fluctuating U.S. dollar on currency translations on assets and liabilities (including intercompany balances) held in our international operations that are denominated in currencies other than our functional currencies.

Interest expense, net

Interest expense totaled $10.4 million for 2014 compared to $11.3 million in 2013. The decrease in 2014 was primarily attributable to $0.8 million of interest capitalization associated with the mat manufacturing facility expansion project. The remaining decrease was attributable to lower average borrowings under our U.S. revolving credit facility, partially offset by higher average borrowings in our international subsidiaries.

Provision for income taxes

The provision for income taxes for 2014 was $41.0 million, reflecting an effective tax rate of 34.2%, compared to $28.7 million in 2013, reflecting an effective tax rate of 35.3%. The decrease in the effective tax rate is primarily related to increased tax credits and other benefits identified with the completion of U.S. and foreign tax filings, along with a reduced impact of nondeductible expenses partially offset by an increase in the provision for uncertain tax positions.

Discontinued operations

Income from our discontinued Environmental Services operations that was sold in March 2014 was $1.2 million in 2014 compared to $12.7 million in 2013.  In addition, 2014 includes a $22.1 million gain from the March 2014 sale of the business as described above.  See “Note 2 - Discontinued Operations” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for additional information.


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,

  

2014 vs 2013

 

(In thousands)

 

2014

  

2013

     

%

 
                 

Revenues

                

Fluids systems

 $965,049  $926,392  $38,657   4% 

Mats and integrated services

  153,367   115,964   37,403   32% 

Total revenues

 $1,118,416  $1,042,356  $76,060   7% 
        ��        

Operating income (loss)

                

Fluids systems

 $95,600  $72,604  $22,996     

Mats and integrated services

  70,526   49,394   21,132     

Corporate office

  (35,530)  (27,553)  (7,977)    

Operating income

 $130,596  $94,445  $36,151     
                 

Segment operating margin

                

Fluids systems

  9.9%  7.8%        

Mats and integrated services

  46.0%  42.6%        

Fluids Systems

Revenues

Total revenues for this segment consisted of the following: 

  

Year ended December 31,

  

2014 vs 2013

 

(In thousands)

 

2014

  

2013

    $  

%

 
                 

United States

 $607,411  $606,261  $1,150   - 

Canada

  79,516   47,559   31,957   67% 

Total North America

  686,927   653,820   33,107   5% 

EMEA

  166,000   137,044   28,956   21% 

Latin America

  84,555   99,116   (14,561)  (15%) 

Asia Pacific

  27,567   36,412   (8,845)  (24%) 

Total

 $965,049  $926,392  $38,657   4% 

North American revenues increased 5% to $686.9 million in 2014, compared to $653.8 million in 2013. While the North American rig count improved by 6% over this period, the benefits of market share gains in Canada, strong demand for wholesale barite and increases in U.S. drilling activity were partially offset by market share losses in South Texas and reduced drilling activity of a key customer in the U.S. In addition, our U.S. completion services and equipment rental business, which was sold in December of 2013, contributed $16.7 million of revenue to 2013.

Internationally, revenues increased 2% to $278.1 million in 2014, as compared to $272.6 million in 2013 as increases in the EMEA region were partially offset by decreases in the Latin America and Asia Pacific regions. In 2014, international revenues were negatively impacted by approximately $11 million from the impact of currency exchange, primarily in Latin America and Asia Pacific. The increase in the EMEA region is primarily attributable to approximately $23 million in revenues from the new contracts described above, including in the Black Sea, India and Kuwait. The decline in the Asia Pacific region is primarily attributable to lower customer drilling activities under an offshore contract in Australia and lower land drilling revenues. The decrease in the Latin America region is primarily attributable to declines in Petrobras drilling activity and the impact of currency exchange.

cost reduction programs.

Operating Income

Operating income increased $23.0 million in 2014, as compared to 2013, and included a $15.0 million increase from North American operations. While North American revenues increased 5% as described above, operating income in North America increased $15.0 million primarily attributable to improved sales mix, including approximately $109 million increase in revenues from our proprietary Evolution drilling fluid systems, which generate higher margins relative to our traditional product offering. North American operating income in 2014 also benefitted from the increased revenues in Canada and from the strong demand for wholesale barite.

Our international operating income increased by $8.0 million, primarily reflecting the benefit from the increased revenues in the EMEA region described above.

Mats and Integrated Services

Revenues

Total revenues for this segment consisted of the following: 

  

Year ended December 31,

  

2014 vs 2013

 

(In thousands)

 

2014

  

2013

     

%

 
                 

Mat rental and services

 $125,861  $71,429  $54,432   76% 

Mat sales

  27,506   44,535   (17,029)  (38%) 

Total

 $153,367  $115,964  $37,403   32% 

Mat rental and services revenues increased $54.4 million in 2014, compared to 2013, largely due to increased demand for our composite mat products in the Northeast U.S. region, a large site preparation project in the Gulf Coast region and our expansion into the utility and pipeline markets. In addition, 2014 benefitted from a $6.8 million increase from the U.K. rental operation, following the December 2013 acquisition of Terrafirma described above. Mat sales decreased by $17.0 million in 2014, as we allocated the majority of our 2014 composite mat production toward the expansion of our rental fleet, leaving fewer mats available for sale to customers.

Operating Income

Segment operating income in 2014 increased by $21.1 million, as compared to 2013, attributable to the $37.4 million increase in revenues described above. The strong segment operating margin in both 2014 and 2013 was driven by high utilization of mats in our rental fleet, and high utilization of our production facility, which was running at maximum production capacity levels during both periods.

Corporate office

Corporate office expenses increased $8.0 million to $35.5 million in 2014, compared to $27.6 million in 2013.  The increase is attributable to increases in personnel and administrative costs related to company growth, higher performance-based incentive compensation, higher stock-based compensation, and a $3.5 million increase in spending related to strategic planning projects, including the development of our deepwater market penetration strategy, international tax planning projects, and other growth initiatives, offset partially by a $1.1 million decrease in spending related to acquisition and divestiture activity. Corporate office expenses for 2014 also include $1.0 million in incremental costs associated with our corporate office relocation and employee separation costs.


Liquidity and Capital Resources

Net cash provided by operating activities during 20152017 totaled $121.5$38.4 million compared to $89.2$11.1 million during 2014.2016. The increase in operating cash flow generated in 2015 is primarily attributable to the decreaseimprovements in working capital resulting from the decline in revenues related to the slow-downoperational performance in North American drilling activity. NetAmerica. As a result of the 59% improvement in consolidated revenues, net income adjusted for non-cash items provided $42.6$57.4 million of operating cash in 2017, while an increase in working capital required to support the growth used $19.1 million of cash in 2015, while changes2017, primarily reflecting increases in operating assets provided $78.9trade receivables offset by a $37.2 million tax refund received in the second quarter of cash, including $122.4 million from the reduction in accounts receivable.

2017.

Net cash used in investing activities during 20152017 was $84.4$68.4 million, primarily consisting ofincluding $44.8 million associated with the WSG acquisition. Investing activities also included capital expenditures of $69.4$31.4 million, and $17.5 million used to collateralize letters of credit. Capital expenditures in 2015 included $40.5including $17.6 million in the Fluids Systems segment, including $16.0 million related to our new fluids blending facility and distribution center in Conroe, Texas, $10.1of which $6.9 million related to the facility upgrade and expansion of our Fourchon, Louisiana facility serving the Gulf of Mexico deepwater market, and $5.1 million to support new customer contracts in EMEA.facility. The Mats &and Integrated Services segment capital expenditures totaled $27.5$12.0 million during 2017, primarily reflecting investments in 2015, including $12.8 million related to the completion of the manufacturing plant expansion and new research and development center at our Carencro, Louisiana facility and $12.6 million related to the deployment of produced mats into themat rental fleet.



26



Net cash used in financing activities during 20152017 was $6.7$2.3 million. We borrowed a net $81.6 million primarily reflecting shares repurchasedon our Amended ABL Facility in lieu2017, which largely funded repayment of taxes under vestingthe $83.3 million 2017 Convertible Notes that matured in October 2017.
As of restricted stock awardsDecember 31, 2017, we had cash on-hand of $56.4 million, substantially all of which resides within our international subsidiaries. As a result of the Tax Act as previously described, we intend to pursue repatriation of available cash in certain of our international subsidiaries subject to cash requirements to support the strategic objectives of these international subsidiaries and costs associated with amendments related tofinalization of our U.S. revolving credit facility.

analysis of the impacts of the Tax Act. We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. In the first half of 2016, we anticipate that our working capital requirements will decrease as a result of on-going efforts to reduce inventory levels, following the declines in customer activity experienced in 2015 and continuing into 2016. In the first half of 2016, we expect to fund approximately $8 million for accrued severance obligations as well as the pending resolution of the wage and hour litigation. In addition, we expect to receive a cash refund for income taxes of approximately $29 million in the first half of 2016 upon filing amended returns to carryback the U.S. federal tax losses incurred in 2015. We expect total 20162018 capital expenditures to range between $30be approximately $20 million to $45 million, including expenditures for$25 million. Availability under our Amended ABL Facility also provides additional liquidity as discussed further below. Total availability under the completionAmended ABL Facility will fluctuate directionally based on the level of the facility upgradeeligible accounts receivable, inventory, and, expansionsubject to satisfaction of our Fourchon, Louisiana facility serving the Gulf of Mexico deepwater market,certain financial covenants as well as required infrastructure investments to support our international growthdescribed below, composite mats included in the Fluids Systems segment. As of December 31, 2015, we had cash on-hand of $107.1 million of which $57.2 million resides within our foreign subsidiaries that we intend to leave permanently reinvested abroad. In February 2016, we used $9.2 million of cash to purchase $11.2 million of our convertible senior notes in the open market under our existing Board authorized repurchase program. We may continue to make repurchases under this authorization from time to time during 2016.rental fleet. We expect our available cash on-hand, as well as cash generated by operations and anticipated decreases in working capital levelsremaining availability under our Amended ABL Facility to be adequate to fund current operations and our anticipated capital needs during the next 12 months. Availability under our existing credit agreement, subject to continued covenant compliance as discussed further below, could also provide additional liquidity.


Our capitalization was as follows as of December 31: 

(In thousands)

 

2015

  

2014

 
         

Senior Notes

 $172,497  $172,498 

Debt issuance costs - Senior Notes

  (1,296)  (2,036)

Revolving credit facility

  -   - 

Other

  7,392   11,648 

Total

  178,593   182,110 

Stockholder's equity

  520,259   625,458 
         

Total capitalization

 $698,852  $807,568 
         

Total debt to capitalization

  25.6%  22.6%

follows:  

(In thousands)December 31, 2017 December 31, 2016
Convertible Notes due 2017$
 $83,256
Convertible Notes due 2021100,000
 100,000
Amended ABL Facility81,600
 
Other debt1,518
 380
Unamortized discount and debt issuance costs(22,643) (27,368)
Total debt$160,475
 $156,268
    
Stockholder's equity547,480
 500,543
Total capitalization$707,955
 $656,811
    
Total debt to capitalization22.7% 23.8%
Our financing arrangements include2017 Convertible Notes. In September 2010, we issued $172.5 million of unsecured convertible senior notes (“Senior2017 Convertible Notes”) and a $150.0that matured on October 1, 2017. As of December 31, 2016, $83.3 million revolving credit facilityaggregate principal amount remained outstanding, all of which subjectwere repaid upon maturity in October 2017.
2021 Convertible Notes. In December 2016, we issued $100.0 million of unsecured convertible senior notes (“2021 Convertible Notes”) that mature on December 1, 2021, unless earlier converted by the holders pursuant to the conditions contained therein can be increased to a maximum capacityterms of $275.0 million. At December 31, 2015, we had no outstanding borrowings under the revolving credit facility. Additionally, our foreign operations had $7.4 million outstanding under lines of credit and other borrowings.notes. The Senior Notesnotes bear interest at a rate of 4.0% per year, payable semi-annuallysemiannually in arrears on AprilJune 1 and OctoberDecember 1 of each year.
Holders may convert the Senior Notesnotes at their option at any time prior to the close of business on the business day immediately preceding June 1, 2021, only under the Octoberfollowing circumstances:
during any calendar quarter (and only during such calendar quarter) if the last reported sale price of our common stock for at least 20 trading days (regardless of whether consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the notes in effect on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day was less than 98% of the last reported sale price of our common stock on such date multiplied by the conversion rate on each such trading day; or
upon the occurrence of specified corporate events, as described in the indenture governing the notes, such as a consolidation, merger, or share exchange.
On or after June 1, 20172021 until the close of business on the business day immediately preceding the maturity date.date, holders may convert their notes at any time, regardless of whether any of the foregoing conditions have been satisfied. As of February 23, 2018, the notes were not convertible.
The notes are convertible into, at our election, cash, shares of common stock, or a combination of both, subject to satisfaction of specified conditions and during specified periods, as described above. If converted, we currently intend to pay cash for the principal amount of the notes converted. The conversion rate is initially 90.8893107.1381 shares of our common stock per $1,000 principal amount of Senior Notesnotes (equivalent to an initial conversion price of $11.00$9.33 per share of common stock), subject to adjustment in certain circumstances. Upon conversion, the Senior Notes will be settled in shares of our common stock. In 2015, holders converted an insignificant amount of Senior Notes into shares of our common stock. We may not redeem the Senior Notesnotes prior to their maturity date.


27



In February 2016,accordance with accounting guidance for convertible debt with a cash conversion option, we repurchased $11.2 millionseparately accounted for the debt and equity components of our convertible seniorthe notes in a manner that reflected our estimated nonconvertible debt borrowing rate. We estimated the open market for $9.2 million under our existing Board authorized repurchase programand will recognize a gain in 2016 for the difference in the amount paid and the net carryingfair value of the extinguished debt.debt component of the notes to be $75.2 million at the issuance date, assuming a 10.5% non-convertible borrowing rate. The carrying amount of the equity component was determined to be approximately $24.8 million by deducting the fair value of the debt component from the principal amount of the notes, and was recorded as an increase to additional paid-in capital, net of the related deferred tax liability of $8.7 million. The excess of the principal amount of the debt component over its carrying amount (the “debt discount”) is being amortized as interest expense over the term of the notes using the effective interest method. See “Note 6 – Financing Arrangements” in our consolidated financial statements for further discussion of the accounting treatment for the 2021 Convertible Notes.
Revolving Credit Facility.

In March 2015, we entered into a Third Amended and Restated Credit Agreement (the "Credit Agreement"“Credit Agreement”) which providesprovided for a $200$200.0 million revolving loan facility available for borrowings and letters of credit and expires inthrough March 2020. In December 2015, the Credit Agreement was amended, decreasing the revolving credit facility to $150.0 million and subsequently, we terminated the Credit Agreement in May 2016, replacing it with an asset-based revolving loan facility as discussed further below. As of the date of termination, we had no outstanding borrowings under the Credit Agreement. In the second quarter of 2016, we recognized a non-cash charge of $1.1 million in interest expense for the write-off of debt issuance costs in connection with the termination.

Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement (the “ABL Facility”) which replaced the terminated Credit Agreement. The ABL Facility had a First Amendmenttermination date of March 6, 2020 and provided financing of up to Third$90.0 million available for borrowings (inclusive of letters of credit) and subject to certain conditions, could be increased to a maximum capacity of $150.0 million. In October 2017, we entered into an Amended and Restated Credit Agreement (“Amendment”(the “Amended ABL Facility”) decreasing the revolving loan facility to $150 million, modifying certain financial covenants through the first quarter of 2017,which amends and modifyingrestates our previous ABL Facility and increases the borrowing costcapacity from $90.0 million to $150.0 million, while also reducing applicable borrowing rates and fee provisions. terms. Subject to certain conditions, the Amended ABL Facility can be increased up to a maximum capacity of $225.0 million.
The Credit AgreementAmended ABL Facility terminates on October 17, 2022; however, the Amended ABL Facility has a springing maturity date that will accelerate the maturity of the credit facilityAmended ABL Facility to June 2017September 1, 2021 if, prior to such date, the Senior2021 Convertible Notes have not either been repurchased, redeemed, converted and/or refinanced in full or the Company haswe have not provided sufficient funds to an escrow agent to repay the Senior2021 Convertible Notes in full on their maturity date. For this purpose, funds may be provided in cash to an escrow agent or a combination of cash to an escrow agent and the assignment of a portion of availability under the Amended ABL Facility. The Amended ABL Facility requires compliance with a minimum fixed charge coverage ratio and minimum unused availability of $25.0 million to utilize borrowings or assignment of availability under the Amended ABL Facility towards funding the repayment of the 2021 Convertible Notes.
Borrowing availability under the Amended ABL Facility is calculated based on eligible accounts receivable, inventory, and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base calculation shall also include the amount of eligible pledged cash. The lender may establish reserves, in part based on appraisals of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the Amended ABL Facility. Availability associated with eligible rental mats will also be subject to maintaining a minimum consolidated fixed charge coverage ratio and a minimum level of operating income for the Mats and Integrated Services segment. As of December 31, 2017, our total borrowing base availability under the Amended ABL Facility was $136.2 million, of which, $81.6 million was drawn, resulting in remaining availability of $54.6 million.
Under the terms of the Amendment,Amended ABL Facility, we canmay elect to borrow at a variable interest rate either based on LIBOR plus aan applicable margin based on our consolidated leverage ratio, ranging from 175either, (1) LIBOR subject to 325 basis points,a floor of zero or at(2) a variable interestbase rate based onequal to the greatesthighest of: (a) prime rate, (b) the federal funds rate in effect plus 50 basis points, (b) the prime rate of Bank of America, N.A. or (c) the Eurodollar rate forLIBOR, subject to a Eurodollar Loan with a one-month interest periodfloor of zero, plus 100 basis points, in each case plus apoints. The applicable margin rangingranges from 75175 to 225275 basis points based on our consolidated leverage ratio. The applicable margins onfor LIBOR borrowings, and Eurodollar75 to 175 basis points for base rate borrowings, based on the ratio of debt to consolidated EBITDA as defined in the Amended ABL Facility. As of December 31, 2015 were 250 and 1502017, the applicable margin for borrowings under our Amended ABL Facility is 200 basis points respectively.with respect to LIBOR borrowings and 100 basis points with respect to base rate borrowings. The weighted average interest rate for the Amended ABL Facility is 3.9% at December 31, 2017. In addition, we are required to pay a commitment fee on the unused portion of the Credit Agreement, as amended,Amended ABL Facility ranging from 37.525 to 50.037.5 basis points, based on ourthe ratio of debt to consolidated leverage ratio.EBITDA, as defined in the Amended ABL Facility. The applicable commitment fee onas of December 31, 20152017 was 37.5 basis points.
The Credit Agreement contains customary financial and operating covenants, including a consolidated leverage ratio, a senior secured leverage ratio and an interest coverage ratio. The Credit Agreement also limits the payment of dividends on our common stock, the repurchase of our common stock and the conversion, redemption, defeasance or refinancing of the Senior Notes.


Pursuant to the Amendment, a temporary increase has been made to the consolidated leverage ratio covenant, increasing the ratio from 4.0:1.0 to 5.5:1.0 through 2016, then reducing to 4.5 in the first quarter of 2017, and returning to 4.0 thereafter. During the same period, the senior secured leverage ratio covenant is being reduced from 3.0:1.0 to 2.0:1.0 through 2016, then increasing to 2.5 in the first quarter of 2017, and returning to 3.0 thereafter. The calculation for these two ratios has also been modified to allow for up to $10 million of adjustments for severance costs, as well as foreign exchange impacts related to our Brazilian intercompany financial restructuring. At December 31, 2015, we have not utilized any of this $10 million adjustment allowance in determining the available borrowing capacity under the Credit Agreement or in the calculation of the financial ratios disclosed below.

At December 31, 2015, considering our current financial covenant ratios disclosed below, we had $16.7 million of borrowing capacity available under our Credit Agreement, without taking into account any available adjustments described above, which, if utilized, could increase the availability under our Credit Agreement.  The Credit AgreementAmended ABL Facility is a senior secured obligation, secured by first liens on all of our U.S. tangible and intangible assets. Additionally, the Credit Agreement is guaranteed by certain of our U.S. subsidiariesassets and a portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral.

The financialAmended ABL Facility contains customary operating covenants under our Credit Agreement followingand certain restrictions including, among other things, the December 2015 Amendmentincurrence of additional debt, liens, dividends, asset sales, investments, mergers, acquisitions, affiliate transactions, stock repurchases and the applicable ratios as of the dates indicated, are as follows: 

  

Covenant

  

December 31, 2015

  

September 30, 2015

  

December 31, 2014

 
                 

Interest coverage ratio

 2.50  3.90  9.62  17.63 
  

minimum

             
                 

Consolidated leverage ratio

 5.50  5.03  2.07  1.12 
  

maximum

             
                 

Senior Secured leverage ratio

 2.00  0.21  0.07  0.19 
  

maximum

             

We were inother restricted payments. The Amended ABL Facility also requires compliance with all financial covenants asa fixed charge coverage ratio if availability under the Amended ABL Facility falls below $22.5 million. In addition, the Amended ABL Facility contains customary events of December 31, 2015. However, continued compliance with our covenants, particularly the consolidated leverage ratio, is largely dependent on our ability to generate sufficient levels of EBITDA, as defined in the Credit Agreement, as amended, or reduce our debt levels. Based upon our current and expected financial condition, and our forecasted results of operations, we anticipate having difficulty remaining in compliance with the financial covenants as of the end of the first quarter and throughout 2016, particularly if market conditions deteriorate further. Asdefault, including,



28



without limitation, a result, we have initiated discussions with our lead bank in an effort to explore our options, which may include a waiver or amendment to our Credit Agreement. Any waiver or amendment to the Credit Agreement may increase the cost of our borrowings and impose additional limitations over certain types of activities. However, there is no certainty that we will be able to obtain any such relief. Any failure to comply with such financial covenants would result in an eventmake payments under the facility, acceleration of default under our Credit Agreement if we are unable to obtain a waiver or amendment on a timely basis. While no amounts are currently outstanding under our Credit Agreement, an eventmore than $25.0 million of default would prevent us from borrowing under our Credit Agreementother indebtedness, certain bankruptcy events and could result in our having to immediately repay all amounts outstanding, if any, under our Credit Agreement. In the event any outstanding amountscertain change of indebtedness in excess of $25 million are accelerated, this could also cause a default under our Senior Notes.

At December 31, 2015, we had letters of credit issued and outstanding which totaled $14.8 million that are collateralized by $15.5 million in restricted cash. Additionally, our foreign operations had $7.4 million outstanding under lines of credit and other borrowings, as well as $10.4 million outstanding in letters of credit and other guarantees, with certain letters of credit that are collateralized by $2.0 million in restricted cash. At December 31, 2015, this restricted cash totaling $17.5 million was included in other current assets in the accompanying balance sheet.

control events.

Other Debt.Our foreign subsidiaries primarily those in Italy Brazil and India maintain local credit arrangements consisting primarily of lines of credit with several banks, which are renewed on an annual basis. We utilize local financing arrangements in our foreign operations in order to provide short-term local liquidity needs, as well as to reduce the net investment in foreign operations subject to foreign currency risk.needs. Advances under these short-term credit arrangements are typically based on a percentage of the subsidiary’s accounts receivable or firm contracts with certain customers. The weighted average interest rateWe had $1.0 million outstanding under these arrangements was 14.9% and 15.1% on total outstanding balances of $7.4 million and $11.4 million at December 31, 20152017, and 2014,there were no balances outstanding at December 31, 2016.
At December 31, 2017, we had letters of credit issued and outstanding which totaled $7.2 million that are collateralized by $7.6 million in restricted cash.  Additionally, our foreign operations had $21.6 million outstanding in letters of credit and other guarantees, primarily issued under the line of credit in Italy as well as certain letters of credit that are collateralized by $1.5 million in restricted cash. At December 31, 2017 and December 31, 2016, prepaid expenses and other current assets in the accompanying balance sheet include total restricted cash related to letters of credit of $9.1 million and $7.4 million, respectively.


Off-Balance Sheet Arrangements

In conjunction with our insurance programs, we had established letters of credit in favor of certain insurance companies in the amount of $3.3$2.2 million and $3.5$3.0 million at December 31, 20152017 and 2014,2016, respectively. We also had $0.4 million and $0.4 million in guarantee obligations in connection with facility closure bonds and other performance bonds issued by insurance companies outstanding as of December 31, 20152017 and 2014.

2016.

Other than normal operating leases for office and warehouse space, rolling stock and other pieces of operating equipment, we do not have any off-balance sheet financing arrangements or special purpose entities. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

Contractual Obligations

A summary of our outstanding contractual and other obligations and commitments at December 31, 20152017 is as follows: 

(In thousands)

 

2016

   2017-2018   2019-2020  

Thereafter

  

Total

 
                     

Current maturities of long term debt

 $11  $-  $-  $-  $11 

Long-term debt including capital leases

  -   172,507   -   -  ��172,507 

Interest on 4.0% Senior Notes

  6,900   5,232   -   -   12,132 

Foreign bank lines of credit

  7,371   -   -   -   7,371 

Operating leases

  8,648   11,118   7,612   12,688   40,066 

Trade accounts payable and accrued liabilities(1)

  116,321   -   -   -   116,321 

Purchase commitments, not accrued

  4,913   2,000   -   -   6,913 

Other long-term liabilities(2)

  -   -   -   5,627   5,627 

Performance bond obligations

  384   -   -   -   384 

Letter of credit commitments

  17,994   6,382   898   -   25,274 

Total contractual obligations

 $162,542  $197,239  $8,510  $18,315  $386,606 

(In thousands)2018 2019 2020 2021 2022 Thereafter Total
Current debt$1,518
 $
 $
 $
 $
 $
 $1,518
2021 Convertible Notes
 
 
 100,000
 
 
 100,000
Interest on 2021 Convertible Notes4,000
 4,000
 4,000
 4,000
 
 
 16,000
Amended ABL Facility
 
 
 
 81,600
 
 81,600
Operating leases13,318
 6,877
 4,611
 3,764
 3,251
 7,689
 39,510
Trade accounts payable and accrued liabilities (1)
156,813
 
 
 
 
 
 156,813
Purchase commitments, not accrued15,005
 1,800
 
 
 
 
 16,805
Other long-term liabilities (2)

 
 
 
 
 6,285
 6,285
Performance bond obligations444
 
 
 
 
 
 444
Letter of credit commitments23,889
 1,815
 1,494
 213
 1,383
 
 28,794
Total contractual obligations$214,987
 $14,492
 $10,105
 $107,977
 $86,234
 $13,974
 $447,769

(1)

Excludes accrued interest on the Senior Notes

2021 Convertible Notes.

(2)

Table does not allocate by year expected tax payments and uncertain tax positions due to the inability to make reasonably reliable estimates of the timing of future cash settlements with the respective taxing authorities. For additional discussion on uncertain tax positions, see “Note 8 - Income Taxes” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data in this report.

Statements.

We anticipate that the obligations and commitments listed above that are due in less than one year will be paid from operating cash flows and available cash on-hand. Subjecton-hand, cash generated by operations, and estimated availability under our Amended ABL Facility, subject to continued covenant compliance funds under our existing Credit Agreement could also be available for the payment of such obligations and commitments.certain restrictions as discussed further above. The specific timing of settlement for certain long-term obligations cannot be reasonably estimated.



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Critical Accounting Policies

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted within the United States (“U.S. GAAP”), which requires us to make assumptions, estimates and judgments that affect the amounts and disclosures reported. Significant estimates used in preparing our consolidated financial statements include the following: allowances for product returns, allowances for doubtful accounts, reserves for self-insured retentions under insurance programs, estimated performance and values associated with employee incentive programs, fair values used for goodwill impairment testing, undiscounted future cash flows used for impairment testing of long-lived assets, the provisional accounting for the Tax Act, and valuation allowances for deferred tax assets. See “Note 1-1 – Summary of Significant Accounting Policies” in our Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data for a discussion of the accounting policies governing each of these matters. Our estimates are based on historical experience and on our future expectations that are believed to be reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our current estimates and those differences may be material.

We believe the critical accounting policies described below affect our more significant judgments and estimates used in preparing our consolidated financial statements.

Allowance for Doubtful Accounts

Reserves for uncollectible accounts receivable are determined on a specific identification basis when we believe that the required payment of specific amounts owed to us is not probable. The majority of our revenues are from mid-sized and international oil companies as well as government-owned or government-controlled oil companies, and we have receivables in several foreign jurisdictions. Changes in the financial condition of our customers or political changes in foreign jurisdictions could cause our customers to be unable to repay these receivables, resulting in additional allowances. For 2015, 20142017, 2016, and 2013,2015, provisions for uncollectible accounts receivable related to continuing operations were $1.5 million, $2.4 million and $1.9 million, $1.2 million and $0.3 million, respectively.

Allowance for Product Returns

We maintain reserves for estimated customer returns of unused products in our Fluids Systems segment. The reserves are established based upon historical customer return levels and estimated gross profit levels attributable to product sales. Future customer return levels may differ from the historical return rate.

Impairment of Long-lived Assets

Goodwill and other indefinite-lived intangible assets are tested for impairment annually as of November 1, or more frequently, if an indication of impairment exists. TheWhen there are qualitative indicators of impairment, we use an impairment test which includes a comparison of the carrying value of net assets of our reporting units, including goodwill, with their estimated fair values, which we determine using a combination of a market multiple and discounted cash flow approach. We also compare the aggregate fair values of our reporting units with our market capitalization. If the carrying value exceeds the estimated fair value, an impairment charge is recorded in the period in which such review is performed. We identify our reporting units based on our analysis of several factors, including our operating segment structure, evaluation of the economic characteristics of our geographic regions within each of our operating segments, and the extent to which our business units share assets and other resources.

In the third quarter of 2015, primarily as a result of the ongoing weakness in commodity prices, further decreases in U.S. drilling activities, and increased expectations that the current weakness in U.S. drilling activities would persist for a longer period, along with a significant decline in the quoted market prices ofcompleting our common stock,November 1, 2017 evaluation, we considered these developments at that time to be an indicator of impairment that required us to complete an interim goodwill impairment evaluation. As such, during the third quarter of 2015, we estimated the fair values for each of our reporting units based on our current forecasts and expectations for market conditions at that time and determined that even though the estimated fair values for each reporting unit had decreased in 2015, each reporting unit’s fair value remainedwas in excess of itsthe net carrying value and therefore, no impairment was required. Based on this fair value estimate inAt December 31, 2017, we had $43.6 million of goodwill, substantially all of which relates to the third quarter of 2015, the estimated fair value for our drilling fluids reporting unit was approximately 10% above the reporting unit’s carrying value. For our matsMats and integrated services reporting unit, our estimated fair value in the third quarter of 2015 was significantly in excess of that reporting unit’s carrying value.

Integrated Services segment.

In the fourth quarter of 2015, we completed the annual evaluation of the carrying values of our goodwill and other indefinite-lived intangible assets as of November 1, 2015. As a result of the further decline in commodity prices and drilling activities in the fourth quarter of 2015, including the more prolonged projection of lower commodity prices and drilling activities, as well as the further decline in the quoted market prices of our common stock, we determined that the carrying value of our drilling fluids reporting unit exceeded its estimated fair value such that goodwill was potentially impaired. As a result, we completed the step two of the evaluation to measure the amount of goodwill impairment determining a full impairment of goodwill related to the drilling fluids reporting unit was required. As such, in the fourth quarter of 2015, we recorded a $70.7 million non-cash impairment charge to write-off the goodwill related to the drilling fluids reporting unit, which is included in impairments and other charges.

In completing this annual evaluation as of November 1, 2015, we also determined that the mats &and integrated services reporting unit did not have a fair value below its net carrying value and therefore, no impairment was required. For our mats and integrated services reporting unit, our fair value estimate remains significantly in excess of that reporting unit’s carrying value.

There are significant inherent uncertainties and management judgment in estimating the fair value of a reporting unit. While we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units, it is possible that a material change could occur. If actual results are not consistent with our current estimates and assumptions, or if changes in macroeconomic conditions outside the control of management change such that it results in a significant negative impact on


30



our estimated fair values, the fair value of a reporting unit may decrease below its net carrying value, which could result in a material impairment of our goodwill.

We review property, plant and equipment, finite-lived intangible assets and certain other assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In 2016, we recognized $6.9 million of non-cash impairments in the fourth quarterAsia Pacific region resulting from the continuing unfavorable industry market conditions and outlook for the region and a $0.5 million charge in the Latin America region to write-down property, plant and equipment associated with the wind-down of our operations in Uruguay. In 2015, we recognized a $2.6 million non-cash impairment charge for assets, following our decision to exit a drilling fluids facility.Wefacility.
We assess recoverability based on expected undiscounted future net cash flows. In estimating expected cash flows, we use a probability-weighted approach. Should the review indicate that the carrying value is not fully recoverable;recoverable, the amount of impairment loss is determined by comparing the carrying value to the estimated fair value. Estimating future net cash flows requires us to make judgments regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about demand for our products and services, future market conditions and technological developments. If changes in these assumptions occur, our expectations regarding future net cash flows may change such that a material impairment could result.

Insurance

We maintain reserves for estimated future payments associated with our self-insured employee healthcare programs, as well as the self-insured retention exposures under our general liability, auto liability and workers compensation insurance policies. Our reserves are determined based on historical experience under these programs, including estimated development of known claims and estimated incurred-but-not-reported claims. Required reserves could change significantly based upon changes in insurance coverage, loss experience or inflationary impacts. As of December 31, 20152017 and 2014,2016, total insurance reserves were $3.8 million and $2.7 million, respectively.
Income Taxes
The Tax Act was enacted on December 22, 2017, resulting in broad and complex changes to U.S. income tax law. The Tax Act includes a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not previously subject to U.S. income tax, reduces the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018, generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, creates new tax on certain foreign-sourced earnings, makes other changes to limit certain deductions and changes rules on how certain tax credits and net operating loss carryforwards can be utilized.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our 2017 financial statements. As we finalize the necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, or other standard-setting bodies, we may make adjustments to the provisional amounts.
The net tax benefit recognized in 2017 related to the Tax Act was $3.4 million. As we complete our analysis of the Tax Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, we may identify additional effects not reflected as of December 31, 2017. Those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.
While we have not completed our analysis of the impacts of the Tax Act on our effective tax rate going forward, we anticipate the overall impacts of the Tax Act described above will reduce our effective tax rate in 2018 compared to 2017, excluding the $3.4 million net benefit included in our 2017 income tax provision. The impact of the Tax Act on our effective tax rate in 2018 will depend in large part on the relative contribution of our domestic earnings and $4.2 million, respectively.

Income Taxes

finalization of the provisional accounting for the Tax Act.

We had total deferred tax assets of $40.3$61.9 million and $39.4$51.2 million at December 31, 20152017 and 2014,2016, respectively. A valuation allowance must be established to offset a deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. In 2017, we recognized certain foreign tax credits of $5.5 million in the U.S. related to the provisional accounting for taxes on repatriation of foreign earnings, however, we also recognized a full valuation allowance related to such tax assets as it is more likely than not that these assets will not be realized. We have considered future taxable income and tax planning strategies in assessing the need for our valuation allowance. At December 31, 2015,2017, a total valuation allowance of $16.8$30.2 million was recorded, which includes a valuation allowance on $13.1$22.2 million of net operating loss carryforwards for certain U.S. state and foreign jurisdictions, including Brazil and Australia.Australia, as well as a valuation allowance of $5.5 million for certain tax credits recognized in 2017 related to the provisional accounting for the impact of the Tax Act as described above. Changes in the expected future generation of qualifying taxable income within these jurisdictions or in the realizability of other tax assets may result in an adjustment to the valuation allowance, which would be charged or credited to income in the period this


31



determination was made. In 2015, we decreased the valuation allowance related to Brazil as we were able to utilize certain net operating loss carryforwards related to income in 2015 from the forgiveness of certain inter-company balances due from our Brazilian subsidiary. In addition, in 2015,2016, we recognized an increase in the valuation allowance for deferred tax assets, primarily related to our Australian subsidiary and certain U.S. state net operating losses, which are no longernot expected to be realized.

In addition, we decreased the valuation allowance in 2016 related to Brazil as we were able to utilize certain net operating loss carryforwards related to income in 2016 from the forgiveness of certain inter-company balances due from our Brazilian subsidiary.

We file income tax returns in the United States and several non-U.S. jurisdictions and are subject to examination in the various jurisdictions in which we file. We are no longer subject to income tax examinations for U.S. federal and substantially all state jurisdictions for years prior to 20112012 and for substantially all foreign jurisdictions for years prior to 2007.2008. We are not currently under examination by anythe United States federal or state tax authorities howeverfor tax years 2014 and 2015. During the second quarter of 2017, we received a Revenue Agent Report from the IRS disallowing a deduction claimed on our 2015 tax return associated with the forgiveness of certain inter-company balances due from our Brazilian subsidiary and assessing tax due of approximately $3.9 million. We submitted our response to the IRS in the third quarter of 2017 and are proceeding with the tax appeals process. We believe our tax position is properly reported in accordance with applicable U.S. tax laws and regulations and intend to vigorously defend our position through the tax appeals process.

We are also under examination by various tax authorities in other countries.countries, and certain foreign jurisdictions have challenged the amounts of taxes due for certain tax periods. These audits are in various stages of completion. We fully cooperate with all audits, but defend existing positions vigorously. These audits are in various stages of completion and certain foreign jurisdictions have challenged the amount of taxes due for certain tax periods. We evaluate the potential exposure associated with various filing positions and record a liability for tax contingencies as circumstances warrant. Although we believe all tax positions are reasonable and properly reported in accordance with applicable tax laws and regulations in effect during the periods involved, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and tax contingency accruals.

New Accounting Standards

accounting pronouncements

In AprilMay 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance that changes the criteria for reporting discontinued operations including enhanced disclosure requirements. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. The new guidance was effective for us in the first quarter of 2015; however, the adoption did not have a material effect on our consolidated financial statements.

In April and August 2015, the FASB issued updated guidance that changes the presentation of debt issuance costs in financial statements. Under the new guidance, an entity is required to present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset, except for debt issuance costs related to revolving debt agreements, which may continue to be presented as an asset. Amortization of the costs will continue to be reported as interest expense. The new guidance would have been effective for us in the first quarter of 2016, however, as permitted, we elected to early adopt the new guidance retrospectively in 2015. As such, we have reclassified the presentation of debt issuance costs as a direct deduction from the related debt liability, except for debt issuance costs related to our revolving debt agreements, in each of the accompanying balance sheets and related disclosures.

In November 2015, the FASB issued updated guidance to simplify the balance sheet classification of deferred taxes. Under the new guidance, an entity is required to present deferred tax assets and liabilities as noncurrent in the balance sheet based on an analysis of each taxpaying component within a jurisdiction. The new guidance would have been effective for us in the first quarter of 2017, however, as permitted, we elected to early adopt the new guidance retrospectively in 2015. As such, we have reclassified the presentation of deferred tax assets and liabilities as noncurrent in each of the accompanying balance sheets and related disclosures.

In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of the new guidance by one year and provided entities the optionThe amendments are to early adopt the new guidance.be applied using a retrospective or modified retrospective approach. The new guidance is effective for us in the first quarter of 2018 with early adoption permitted in the first quarter of 2017. The amendments may be applied retrospectively2018. In order to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We are currently evaluatingdetermine the impact of the new guidance on our financial statements, we formed an implementation work team and completed assessments of the new guidance across our revenue streams. Our process included performing reviews of representative contracts across our revenue streams and comparing historical accounting practices to the new standard.

We have completed our evaluation of the impacts of these amendments, includingamendments. As our performance obligations under customer contracts are primarily short-term in nature, we do not expect the adoption and transition alternativesnew guidance to have a material impact on the amounts of revenue recognized in our consolidated financial statements.

We will include incremental disclosures in our 2018 consolidated financial statements regarding our revenue recognition policies and related amounts. We have adopted the new guidance utilizing the modified retrospective method effective January 1, 2018. The cumulative-effect adjustment to retained earnings upon adoption is not material.

In July 2015,October 2016, the FASB issued updatedamended the guidance related to the recognition of current and deferred income taxes for intra-entity asset transfers. Under current U.S. GAAP, recognition of income taxes on intra-entity asset transfers is prohibited until the asset has been sold to an outside party. This update requires that simplifiesentities recognize the subsequent measurementincome tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update does not change U.S. GAAP for the pre-tax effects of an intra-entity asset transfer or for an intra-entity transfer of inventory. It replaces the current lower of cost or market test with the lower of cost or net realizable value test. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The newThis guidance is effective prospectively for us in the first quarter of 20172018 and should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We have adopted the new guidance utilizing the modified retrospective method effective January 1, 2018. The cumulative-effect adjustment to retained earnings upon adoption is not material.

In August 2016, the FASB issued updated guidance that clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight specific cash flow issues. This guidance is effective for us in the first quarter of 2018 and should be applied using the retrospective transition method to each period presented. Early adoption is permitted but all changes must be adopted in the same period. We do not expect the adoption of this new guidance to have a material impact on the presentation of our consolidated statements of cash flows.


32



In February 2016, the FASB issued updated guidance regarding accounting for leases. The new accounting standard provides principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize both assets and liabilities arising from financing and operating leases. The classification as either a financing or operating lease will determine whether lease expense is recognized based on an effective interest method basis or on a straight-line basis over the term of the lease, respectively. The new guidance is effective for us in the first quarter of 2019 with early adoption permitted. Based on our current lease portfolio, we anticipate the new guidance will require us to reflect additional assets and liabilities in our consolidated balance sheet; however, we have not yet completed an estimation of such amount and we are still evaluating the overall impact of the new guidance on our consolidated financial statements.
In June 2016, the FASB issued new guidance which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, including trade receivables. The new standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception which will generally result in the earlier recognition of allowances for losses. The new guidance is effective for us in the first quarter of 2020 with early adoption permitted in 2019. This guidance should be applied using a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

In September 2015, the FASB issued updated guidance that eliminates the requirement to restate prior periods to reflect adjustments made to provisional amounts recognized in a business combination. The new guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The new guidance is effective prospectively for us in the first quarter of 2016.

ITEM 7A.

Quantitative and Qualitative Disclosures about Market Risk

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and changes in foreign currency exchange rates. A discussion of our primary market risk exposure in financial instruments is presented below.

Interest Rate Risk

At December 31, 2015,2017, we had total debtprincipal amounts outstanding under financing arrangements of $178.6$183.1 million, including $172.5$100.0 million of borrowings under our Senior2021 Convertible Notes bearingwhich bear interest at a fixed rate of 4.0%4% and $81.6 million of borrowings under the Amended ABL Facility. Borrowings under our Amended ABL Facility are subject to a variable interest rate as determined by the credit agreement. The weighted average interest rate at December 31, 2017 for the Amended ABL Facility is 3.9%. VariableBased upon the balance of variable rate debt totaled $7.4 million which relates to our foreign operations under lines of credit and other borrowings. At theat December 31, 2015 balance,2017, a 200 basis point100 basis-point increase in marketshort-term interest rates during 2015 would cause our annualhave increased pre-tax interest expense to increase approximately $0.1by $0.8 million.

Foreign Currency

Our principal foreign operations are conducted in certain areas of EMEA, Latin America, Asia Pacific, and Canada. We have foreign currency exchange risks associated with these operations, which are conducted principally in the foreign currency of the jurisdictions in which we operate including European euros, Algerian dinar, Romanian new leu, Canadian dollars, Australian dollars, British poundpounds and Brazilian reais. Historically, we have not used off-balance sheet financial hedging instruments to manage foreign currency risks when we enter into a transaction denominated in a currency other than our local currencies.

Unremitted foreign earnings permanently reinvested abroad upon which deferred income taxes have not been provided aggregated approximately $142.8 million and $133.3 million at December 31, 2015 and 2014, respectively. It is not practicable to determine the amount of federal income taxes, if any, that might become due if such earnings are repatriated. We have the ability and intent to leave these foreign earnings permanently reinvested abroad. 



ITEM 8.

Financial Statements and Supplementary Data


33



ITEM 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Newpark Resources, Inc.

The Woodlands, Texas


Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Newpark Resources, Inc. and subsidiaries (the “Company”"Company") as of December 31, 20152017 and 2014, and2016, the related consolidated statements of income,operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2015. These financial statements are2017, and the responsibility ofrelated notes (collectively referred to as the Company’s management. Our responsibility is to express an"financial statements"). In our opinion, on the financial statements based on our audits.

present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Newpark Resources, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.


As discussed in Note 1to the financial statements, the Company changed its method of accounting for debt issuance costs effective January 1, 2014 due to the adoption of FASB ASU 2015-03,Simplifying the Presentation of Debt Issuance Costs. Additionally, as discussed in Note 1 to the financial statements, the Company changed its method of accounting for deferred income taxes effective January 1, 2014 due to the adoption of FASB ASU 2015-17,Balance Sheet Classification of Deferred Taxes./

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas

February 26, 2016 

 
Houston, Texas
February 23, 2018 

We have served as the Company’s auditor since 2008.



34



Newpark Resources, Inc.

Consolidated Balance Sheets
December 31,

(In thousands, except share data)

 

2015

  

2014

 
         

ASSETS

        

Cash and cash equivalents

 $107,138  $85,052 

Receivables, net

  206,364   318,600 

Inventories

  163,657   196,556 

Prepaid expenses and other current assets

  29,219   12,615 

Total current assets

  506,378   612,823 
         

Property, plant and equipment, net

  307,632   283,361 

Goodwill

  19,009   91,893 

Other intangible assets, net

  11,051   15,666 

Deferred tax assets

  1,821   1,857 

Other assets

  3,002   2,072 

Total assets

 $848,893  $1,007,672 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Short-term debt

 $7,382  $11,648 

Accounts payable

  72,211   108,242 

Accrued liabilities

  45,835   52,835 

Total current liabilities

  125,428   172,725 
         

Long-term debt, less current portion

  171,211   170,462 

Deferred tax liabilities

  26,368   27,787 

Other noncurrent liabilities

  5,627   11,240 

Total liabilities

  328,634   382,214 
         

Commitments and contingencies (Note 14)

        
         

Common stock, $0.01 par value, 200,000,000 shares authorizedand 99,377,391 and 99,204,318 shares issued, respectively

  994   992 

Paid-in capital

  533,746   521,228 

Accumulated other comprehensive loss

  (58,276)  (31,992)

Retained earnings

  171,788   262,616 

Treasury stock, at cost; 15,302,345 and 15,210,233 shares, respectively

  (127,993)  (127,386)

Total stockholders’ equity

  520,259   625,458 

Total liabilities and stockholders' equity

 $848,893  $1,007,672 

(In thousands, except share data)2017 2016
ASSETS   
Cash and cash equivalents$56,352
 $87,878
Receivables, net265,866
 214,307
Inventories165,336
 143,612
Prepaid expenses and other current assets17,483
 17,143
Total current assets505,037
 462,940
    
Property, plant and equipment, net315,320
 303,654
Goodwill43,620
 19,995
Other intangible assets, net30,004
 6,067
Deferred tax assets4,753
 1,747
Other assets3,982
 3,780
Total assets$902,716
 $798,183
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current debt$1,518
 $83,368
Accounts payable88,648
 65,281
Accrued liabilities68,248
 31,152
Total current liabilities158,414
 179,801
    
Long-term debt, less current portion158,957
 72,900
Deferred tax liabilities31,580
 38,743
Other noncurrent liabilities6,285
 6,196
Total liabilities355,236
 297,640
    
Commitments and contingencies (Note 15)

 

    
Common stock, $0.01 par value, 200,000,000 shares authorized and 104,571,839 and 99,843,094 shares issued, respectively1,046
 998
Paid-in capital603,849
 558,966
Accumulated other comprehensive loss(53,219) (63,208)
Retained earnings123,375
 129,873
Treasury stock, at cost; 15,366,504 and 15,162,050 shares, respectively(127,571) (126,086)
Total stockholders’ equity547,480
 500,543
Total liabilities and stockholders' equity$902,716
 $798,183
See Accompanying Notes to Consolidated Financial Statements



35



Newpark Resources, Inc.

Consolidated Statements of Operations
Years Ended December 31,  

(In thousands, except per share data)

 

2015

  

2014

  

2013

 
             

Revenues

 $676,865  $1,118,416  $1,042,356 
             

Cost of revenues

  599,013   876,999   858,467 
             

Selling, general and administrative expenses

  101,032   112,648   93,657 

Other operating income, net

  (2,426)  (1,827)  (4,213)

Impairments and other charges

  78,345   -   - 
             

Operating income (loss)

  (99,099)  130,596   94,445 
             

Foreign currency exchange loss

  4,016   108   1,819 

Interest expense, net

  9,111   10,431   11,279 
             

Income (loss) from continuing operations before income taxes

  (112,226)  120,057   81,347 

Provision (benefit) for income taxes

  (21,398)  41,048   28,725 

Income (loss) from continuing operations

  (90,828)  79,009   52,622 

Income from discontinued operations, net of tax

  -   1,152   12,701 

Gain from disposal of discontinued operations, net of tax

  -   22,117   - 
             

Net income (loss)

 $(90,828) $102,278  $65,323 
             
             
             

Income (loss) per common share -basic:

            

Income (loss) from continuing operations

 $(1.10) $0.95  $0.62 

Income from discontinued operations

  -   0.28   0.15 

Net income (loss)

 $(1.10) $1.23  $0.77 
             

Income (loss) per common share -diluted:

            

Income (loss) from continuing operations

 $(1.10) $0.84  $0.56 

Income from discontinued operations

  -   0.23   0.13 

Net income (loss)

 $(1.10) $1.07  $0.69 

(In thousands, except per share data)2017 2016 2015
Revenues     
    Product sales$628,401
 $390,306
 $569,290
    Rental and services119,362
 81,190
 107,575
Total Revenues747,763
 471,496
 676,865
Cost of revenues     
    Cost of product sales539,243
 386,085
 533,040
    Cost of rental and services68,656
 51,751
 65,973
Total Cost of revenues607,899
 437,836
 599,013
Selling, general and administrative expenses108,838
 88,473
 101,032
Other operating income, net(410) (4,345) (2,426)
Impairments and other charges
 6,745
 78,345
Operating income (loss)31,436
 (57,213) (99,099)
      
Foreign currency exchange (gain) loss2,051
 (710) 4,016
Interest expense, net13,273
 9,866
 9,111
Gain on extinguishment of debt
 (1,615) 
Income (loss) from continuing operations before income taxes16,112
 (64,754) (112,226)
      
Provision (benefit) for income taxes4,893
 (24,042) (21,398)
Income (loss) from continuing operations11,219
 (40,712) (90,828)
      
Loss from disposal of discontinued operations, net of tax(17,367) 
 
Net loss$(6,148) $(40,712) $(90,828)
      
      
Income (loss) per common share - basic:     
Income (loss) from continuing operations$0.13
 $(0.49) $(1.10)
Loss from discontinued operations(0.20) 
 
Net loss$(0.07) $(0.49) $(1.10)
      
Income (loss) per common share - diluted:     
Income (loss) from continuing operations$0.13
 $(0.49) $(1.10)
Loss from discontinued operations(0.20) 
 
Net loss$(0.07) $(0.49) $(1.10)
See Accompanying Notes to Consolidated Financial Statements



36



Newpark Resources, Inc.

Consolidated Statements of Comprehensive Income
(Loss)
Years Ended December 31, 

(In thousands)

 

2015

  

2014

  

2013

 
             

Net income (loss)

 $(90,828) $102,278  $65,323 
             

Foreign currency translation adjustments

  (26,284)  (22,508)  (8,750)
             

Comprehensive income (loss)

 $(117,112) $79,770  $56,573 

(In thousands)2017 2016 2015
      
Net loss$(6,148) $(40,712) $(90,828)
      
Foreign currency translation adjustments9,989
 (4,932) (26,284)
      
Comprehensive income (loss)$3,841
 $(45,644) $(117,112)
See Accompanying Notes to Consolidated Financial Statements



37



Newpark Resources, Inc.

Consolidated Statements of Stockholders’ Equity 

(In thousands)

 

Common

Stock

  

Paid-In

Capital

  

Accumulated

Other

Compre-

hensive

Income

(Loss)

  

Retained

Earnings

  

Treasury

Stock

  

Total

 
                         

Balance at January 1, 2013

 $957  $484,962  $(734) $95,015  $(66,622)  513,578 

Net income

  -   -   -   65,323   -   65,323 

Employee stock options, restricted stock andemployee stock purchase plan

  23   8,284   -   -   (2,120)  6,187 

Stock-based compensation expense

  -   9,699   -   -   -   9,699 

Income tax effect, net, of employee stock related activity

  -   1,730   -   -   -   1,730 

Treasury shares purchased at cost

  -   -   -   -   (6,713)  (6,713)

Foreign currency translation

  -   -   (8,750)  -   -   (8,750)

Balance at December 31, 2013

  980   504,675   (9,484)  160,338   (75,455)  581,054 

Net income

  -   -   -   102,278   -   102,278 

Employee stock options, restricted stock andemployee stock purchase plan

  12   2,970   -   -   (1,335)  1,647 

Stock-based compensation expense

  -   12,411   -   -   -   12,411 

Income tax effect, net, of employee stock related activity

  -   1,172   -   -   -   1,172 

Treasury shares purchased at cost

  -   -   -   -   (50,596)  (50,596)

Foreign currency translation

  -   -   (22,508)  -   -   (22,508)

Balance at December 31, 2014

  992   521,228   (31,992)  262,616   (127,386)  625,458 

Net loss

  -   -   -   (90,828)  -   (90,828)

Employee stock options, restricted stock andemployee stock purchase plan

  2   (402)  -   -   (607)  (1,007)

Stock-based compensation expense

  -   14,202   -   -   -   14,202 

Income tax effect, net, of employee stock related activity

  -   (412)  -   -   -   (412)

Foreign currency translation

  -   -   (26,284)  -   -   (26,284)

Other

  -   (870)  -   -   -   (870)

Balance at December 31, 2015

 $994  $533,746  $(58,276) $171,788  $(127,993) $520,259 

(In thousands)Common
Stock
 Paid-In
Capital
 Accumulated
Other
Comprehensive
Loss
 Retained
Earnings
 Treasury
Stock
 Total
Balance at January 1, 2015$992
 $521,228
 $(31,992) $262,616
 $(127,386) $625,458
Net loss
 
 
 (90,828) 
 (90,828)
Employee stock options, restricted stock and employee stock purchase plan2
 (402) 
 
 (607) (1,007)
Stock-based compensation expense
 14,202
 
 
 
 14,202
Income tax effect, net, of employee stock related activity
 (412) 
 
 
 (412)
Foreign currency translation
 
 (26,284) 
 
 (26,284)
Other
 (870) 
 
 
 (870)
Balance at December 31, 2015994
 533,746
 (58,276) 171,788
 (127,993) 520,259
Net loss
 
 
 (40,712) 
 (40,712)
Employee stock options, restricted stock and employee stock purchase plan4
 (478) 
 (1,203) 1,907
 230
Stock-based compensation expense
 12,056
 
 
 
 12,056
Income tax effect, net, of employee stock related activity
 (1,558) 
 
 
 (1,558)
Issuance of Convertible Notes due 2021
 15,200
 
 
 
 15,200
Foreign currency translation
 
 (4,932) 
 
 (4,932)
Balance at December 31, 2016998
 558,966
 (63,208) 129,873
 (126,086) 500,543
Net loss
 
 
 (6,148) 
 (6,148)
Employee stock options, restricted stock and employee stock purchase plan14
 1,636
 
 (350) (1,485) (185)
Stock-based compensation expense
 10,843
 
 
 
 10,843
Issuance of shares for acquisition34
 32,404
 

 

 

 32,438
Foreign currency translation
 
 9,989
 
 
 9,989
Balance at December 31, 2017$1,046
 $603,849
 $(53,219) $123,375
 $(127,571) $547,480
See Accompanying Notes to Consolidated Financial Statements



38



Newpark Resources, Inc.

Consolidated Statements of Cash Flows
Years Ended December 31,  

(In thousands)

 

2015

  

2014

  

2013

 

Cash flows from operating activities:

            

Net income (loss)

 $(90,828) $102,278  $65,323 

Adjustments to reconcile net income to net cash provided by operations:

            

Impairments and other non-cash charges

  75,508   -   176 

Depreciation and amortization

  43,917   42,030   44,198 

Stock-based compensation expense

  14,202   12,304   9,699 

Provision for deferred income taxes

  (503)  (2,328)  (7,832)

Net provision for doubtful accounts

  1,886   1,252   416 

Gain on sale of a business

  -   (33,974)  - 

Gain on sale of assets

  (1,364)  (1,369)  (3,178)

Excess tax benefit from stock-based compensation

  (204)  (1,278)  (2,146)

Change in assets and liabilities:

            

(Increase) decrease in receivables

  122,399   (53,494)  32,172 

(Increase) decrease in inventories

  21,309   (14,136)  16,431 

(Increase) decrease in other assets

  1,191   (546)  4,574 

Increase (decrease) in accounts payable

  (31,974)  23,606   (17,733)

Increase (decrease) in accrued liabilities and other

  (34,022)  14,828   9,803 

Net cash provided by operating activities

  121,517   89,173   151,903 
             

Cash flows from investing activities:

            

Capital expenditures

  (69,404)  (106,973)  (67,929)

Increase in restricted cash

  (17,485)  -   - 

Proceeds from sale of property, plant and equipment

  2,523   3,205   1,313 

Proceeds from sale of a business

  -   89,766   13,329 

Business acquisitions, net of cash acquired

  -   -   (6,776)

Net cash used in investing activities

  (84,366)  (14,002)  (60,063)
             

Cash flows from financing activities:

            

Borrowings on lines of credit

  11,036   62,164   254,390 

Payments on lines of credit

  (12,544)  (62,445)  (328,086)

Debt issuance costs

  (2,023)  -   - 

Other financing activities

  (1,673)  (467)  (25)

Proceeds from employee stock plans

  553   3,442   8,328 

Purchases of treasury stock

  (2,283)  (53,130)  (9,281)

Excess tax benefit from stock-based compensation

  204   1,278   2,146 

Net cash used in financing activities

  (6,730)  (49,158)  (72,528)
             

Effect of exchange rate changes on cash

  (8,335)  (6,801)  (318)
             

Net increase in cash and cash equivalents

  22,086   19,212   18,994 

Cash and cash equivalents at beginning of year

  85,052   65,840   46,846 

Cash and cash equivalents at end of year

 $107,138  $85,052  $65,840 
             

Cash paid for:

            

Income taxes (net of refunds)

 $10,866  $56,568  $31,101 

Interest

 $8,464  $9,865  $10,189 

(In thousands)2017 2016 2015
Cash flows from operating activities:     
Net loss$(6,148) $(40,712) $(90,828)
Adjustments to reconcile net loss to net cash provided by operations:     
Impairments and other non-cash charges
 12,523
 75,508
Depreciation and amortization39,757
 37,955
 43,917
Stock-based compensation expense10,843
 12,056
 14,202
Provision for deferred income taxes(10,350) 3,352
 (503)
Net provision for doubtful accounts1,481
 2,416
 1,886
Loss on sale of a business21,983
 
 
Gain on sale of assets(5,478) (2,820) (1,364)
Gain on extinguishment of debt
 (1,615) 
Amortization of original issue discount and debt issuance costs5,345
 1,618
 1,842
Excess tax benefit from stock-based compensation
 
 (204)
Change in assets and liabilities:     
(Increase) decrease in receivables(73,722) (1,699) 122,399
(Increase) decrease in inventories(15,097) 16,044
 21,309
(Increase) decrease in other assets986
 1,708
 (651)
Increase (decrease) in accounts payable14,153
 (5,213) (31,974)
Increase (decrease) in accrued liabilities and other54,628
 (24,518) (34,022)
Net cash provided by operating activities38,381
 11,095
 121,517
      
Cash flows from investing activities:     
Capital expenditures(31,371) (38,440) (69,404)
Proceeds from sale of property, plant and equipment7,747
 4,540
 2,523
Business acquisitions, net of cash acquired(44,750) (4,420) 
Net cash used in investing activities(68,374) (38,320) (66,881)
      
Cash flows from financing activities:     
Borrowings on lines of credit176,267
 6,437
 11,036
Payments on lines of credit(93,700) (14,269) (12,544)
Proceeds from 2021 Convertible Notes
 100,000
 
Purchases of 2017 Convertible Notes
 (87,271) 
Payment on 2017 Convertible Notes(83,252) 
 
Debt issuance costs(955) (5,403) (2,023)
Other financing activities165
 357
 (1,673)
Proceeds from employee stock plans2,424
 725
 553
Purchases of treasury stock(3,239) (1,226) (2,283)
Excess tax benefit from stock-based compensation
 
 204
Net cash used in financing activities(2,290) (650) (6,730)
      
Effect of exchange rate changes on cash2,444
 (1,449) (8,335)
      
Net increase (decrease) in cash, cash equivalents, and restricted cash(29,839) (29,324) 39,571
Cash, cash equivalents, and restricted cash at beginning of year95,299
 124,623
 85,052
Cash, cash equivalents, and restricted cash at end of year$65,460
 $95,299
 $124,623
      
Cash paid (received) for:     
Income taxes (net of refunds)$(20,396) $(20,709) $10,866
Interest$8,718
 $8,802
 $8,464
See Accompanying Notes to Consolidated Financial Statements

 


39


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 




Note 1 — Summary of Significant Accounting Policies

Organization and Principles of Consolidation.  Newpark Resources, Inc. was organized in 1932 as a Nevada corporation. In 1991, we changed our state of incorporation to Delaware. The consolidated financial statements include our company and our wholly-owned subsidiaries (“we”, “our” or “us”). All intercompany transactions are eliminated in consolidation.

We are a geographically diversified oil and gas industry supplier providing products, rentals and services primarily to the oil and 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 fluids solutions to E&P customers globally, operating through four geographic regions: North America, Europe, the Middle East and Africa (“EMEA”), Latin America, and Asia Pacific. Our Mats and Integrated Services segment provides composite mat rentals as well siteas location construction and related site services to oil and gas 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 other markets, including electrical transmission & distribution, pipeline, solar, petrochemical and construction industries including petrochemicals, utilities,across North America and pipeline.Europe. We also manufacture and sell composite mats to E&P customers outside of the U.S., and to domestic customers outside of the oil and gas industry.

E&P market.

Use of Estimates and Market Risks.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates used in preparing our consolidated financial statements include, but are not limited to the following: allowances for product returns, allowances for doubtful accounts, reserves for self-insured retentions under insurance programs, estimated performance and values associated with employee incentive programs, fair values used for goodwill impairment testing, undiscounted future cash flows used for impairment testing of long-lived assets, the provisional accounting for the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 and valuation allowances for deferred tax assets.

Our operating results depend, primarilyto a large extent, on oil and gas drilling activity levels in the markets we serve.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, in turn, depends on oil and gas commodity pricing, inventory levels, product demand and regulatory restrictions. Oil and gas prices and activity are cyclical and volatile. This market volatility has a significant impact on our operating results.

Cash Equivalents.  All highly liquid investments with a remaining maturity of three months or less at the date of acquisition are classified as cash equivalents.

RestrictedCash.  Cash that is restricted as to withdrawal or usage is recognized as restricted cash.cash and is included in other current assets in the accompanying balance sheet.

Allowance for Doubtful Accounts.  Reserves for uncollectible accounts receivable are determined on a specific identification basis when we believe that the required payment of specific amounts owed to us is not probable. The majority of our revenues are from mid-sized and international oil companies as well as government-owned or government-controlled oil companies, and we have receivables in several foreign jurisdictions. Changes in the financial condition of our customers or political changes in foreign jurisdictions could cause our customers to be unable to repay these receivables, resulting in additional allowances.

Allowance for Product Returns.  We maintain reserves for estimated customer returns of unused products in our Fluids Systems segment. The reserves are established based upon historical customer return levels and estimated gross profit levels attributable to product sales.

Inventories.  Inventories are stated at the lower of cost (principally average cost) or market.net realizable value. Certain conversion costs associated with the acquisition, production, blending and storage of inventory in our Fluids Systems segment as well as in the manufacturing operations in the Mats and Integrated Services segment are capitalized as a component of the carrying value of the inventory and expensed as a component of cost of revenues as the products are sold. Reserves for inventory obsolescence are determined based on the fair value of the inventory using factors such as our historical usage of inventory on-hand, future expectations related to our customers’ needs, market conditions and the development of new products.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Property, Plant and Equipment.  Property, plant and equipment are recorded at cost. Additions and improvements that extend the useful life of the assetsan asset are capitalized. We capitalize interest costs on significant capital projects. Maintenance and repairs are charged to expenseexpensed as incurred. The costSales and disposals of property, plant and equipment sold or otherwise disposed of and theare removed at carrying cost less accumulated depreciation thereon are eliminated from the property and related accumulated depreciation accounts, andwith any resulting gain or loss is credited or charged to income.reflected in earnings.

For financial reporting purposes, depreciation



40


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Depreciation is provided on property, plant and equipment, including assets held under capital leases, primarily utilizing the straight-line method over the following estimated useful service lives or lease term: 

Computer hardware and office equipment

3

-

5years

Computer software

3

-

10years

Autos & light trucks

5

-

7years

Furniture, fixtures & trailers

7

-

10years

Composite mats (rental fleet)

7

-

12years

Machinery and heavy equipment

5

-

15years

Owned buildings

20

-

39years

Leasehold improvements

Lease term, including reasonably assured renewal periods

Computer hardware and office equipment3-5 years
Computer software3-10 years
Autos & light trucks5-7 years
Furniture, fixtures & trailers7-10 years
Composite mats (rental fleet)10-12 years
Machinery and heavy equipment5-15 years
Owned buildings20-39 years
Leasehold improvementsLease term, including reasonably assured renewal periods
In 2016, we revised our estimates of the useful lives and residual values of certain of our composite mats included in rental fleet fixed assets within the Mats and Integrated Services segment. We now estimate that certain composite mats which were originally estimated to have a useful life of 7 years with zero residual value will have estimated useful lives ranging from 10 to 12 years with an estimated residual value of 20%. These changes in estimates were recognized prospectively beginning January 1, 2016 resulting in a reduction in depreciation expense for the Mats and Integrated Services segment of approximately $6.1 million, or $0.05 per share, for the year ended December 31, 2016. We expect these changes to have a similar effect on annual results going forward.
Goodwill and Other Intangible Assets.  Goodwill represents the excess of the purchase price of acquisitions over the fair value of the net identifiable assets acquired.acquired in business combinations. Goodwill and other intangible assets with indefinite lives are not amortized. Intangible assets with finite useful lives are amortized either on a straight-line basis over the asset’s estimated useful life or on a basis that reflects the pattern in which the economic benefits of the asset are realized. Any period costs of maintaining intangible assets are expensed as incurred.

Impairment of Long-Lived Assets.  Goodwill and other indefinite-lived intangible assets are tested for impairment annually as of November 1, or more frequently, if an indication of impairment exists. TheAs part of our annual goodwill review we first perform a qualitative assessment based on company performance and future business outlook to determine if indicators of impairment test includes a comparisonexist. If there are any indicators of impairment present after performing the qualitative assessment, we then determine any impairment of goodwill by comparing the carrying value of net assetsamounts of our reporting units including goodwill, with their estimated fair values, which we determineestimate using a combination of a market multiple and discounted cash flow approach.approach (classified within level 3 of the fair value hierarchy). We also compare the aggregate fair values of our reporting units with our market capitalization. If the carrying value exceeds the estimated fair value, an impairment charge is recorded in the period in which such review is performed. We identify our reporting units based on our analysis of several factors, including our operating segment structure, evaluation of the economic characteristics of our geographic regions within each of our operating segments, and the extent to which our business units share assets and other resources.

We review property, plant and equipment, finite-lived intangible assets and certain other assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We assess recoverability based on expected undiscounted future net cash flows. In estimating expected cash flows, we use a probability-weighted approach. Should the review indicate that the carrying value is not fully recoverable; the amount of impairment loss is determined by comparing the carrying value to the estimated fair value.

Insurance.  We maintain reserves for estimated future payments associated with our self-insured employee healthcare programs, as well as the self-insured retention exposures under our general liability, auto liability and workers compensation insurance policies. Our reserves are determined based on historical experience under these programs, including estimated development of known claims and estimated incurred-but-not-reported claims.

Treasury Stock.Stock.   Treasury stock is carried at cost, which includes the entire cost of the acquired stock.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Revenue Recognition.  The Fluids Systems segment recognizes sack and bulk material additive revenues upon shipment of materials and passage of title. Formulated liquid systems revenues are recognized when utilized or lost downhole while drilling. An allowance for product returns is maintained, reflecting estimated future customer product returns. Engineering and related services are provided to customers as an integral component of the fluid system delivery, at agreed upon hourly or daily rates, and revenues are recognized when the services are performed.



41


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


For the Mats and Integrated Services segment, revenues from the sale of mats are recognized when title passes to the customer, which is upon shipment or delivery, depending upon the terms of the underlying sales contract. Revenues for services and rentals provided by this segment are generated from both fixed-price and unit-priced contracts, which are short-term in duration. The activities under these contracts include site preparation, pit design, construction, drilling waste management, and the installation and rental of mat systems for a period of time generally not to exceed 60 days. Revenues from services provided under these contracts are recognized as the specified services are completed. Revenues from any subsequent extensions to the rental agreements are recognized over the extension period.

Shipping and handling costs are reflected in cost of revenues, and all reimbursements by customers of shipping and handling costs are included in revenues.

Income Taxes.  We provide for deferred taxes using an asset and liability approach by measuring deferred tax assets and liabilities due to temporary differences existing at year end using currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. We reduce deferred tax assets by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances. We present deferred tax assets and liabilities as noncurrent in the balance sheet based on an analysis of each taxpaying component within a jurisdiction. We evaluate uncertain tax positions and record a liability as circumstances warrant.

Stock-BasedShare-Based Compensation.  All share-based payments to employees, including grantsShare-based compensation cost is measured at the grant date based on the fair value of employee stock options, are recognizedthe award, net of an estimated forfeiture rate. We recognize these costs in the income statement based on their fair values. We useusing the straight-line method over the vesting term. Fair value at the grant date is determined using the Black-Scholes option-pricing model for measuring the fair value of stock options granted and recognize stock-based compensation based on the grant date fair value, net of an estimated forfeiture rate, for all share-based awards, on a straight-line basis over the vesting term. Performance-based restricted stock units are valued at the date of grant using the Monte Carlo valuation model.model for performance-based restricted stock units.

Foreign CurrencyTranslation.  The functional currency for substantially all international subsidiaries is their respective local currency. Financial statements for these international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the average exchange rates in effect during the respective period for revenues and expenses. Exchange rate adjustments resulting from translation of foreign currency financial statements are reflected in accumulated other comprehensive loss in stockholders’ equity whereas exchange rate adjustments resulting from foreign currency denominated transactions are recorded in income. At December 31, 20152017 and 2014,2016, accumulated other comprehensive loss related to foreign subsidiaries reflected in stockholders’ equity amounted to $58.3$53.2 million and $32.0$63.2 million, respectively.

Fair Value Measurement. Fair value is measured as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1: The use of quoted prices in active markets for identical financial instruments.
Level 2: The use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or other inputs that are observable in the market or can be corroborated by observable market data.
Level 3: The use of significantly unobservable inputs that typically require the use of management’s estimates of assumptions that market participants would use in pricing.
Derivative Financial Instruments.  We monitor our exposure to various business risks including interest rates and foreign currency exchange rates and occasionally use derivative financial instruments to manage the impact of certain of these risks. At the inception of a new derivative, we designate the derivative as a cash flow or fair value hedge or we determine the derivative to be undesignated as a hedging instrument based on the underlying facts. We do not enter into derivative instruments for trading purposes.

Reclassifications. CertainIn 2017, we separately presented in the consolidated statements of operations revenue and cost of revenue for product sales and rental and service categories. As a result, we recast the presentation of revenue and cost of revenue by such categories in the 2016 and 2015 presentation to conform to the current presentation. In addition, certain amounts reported in the consolidated statements of cash flows for prior year amountsperiods have been reclassified to conform to the current yearreporting presentation.



42


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


New Accounting Pronouncements
Standards. adopted in 2017
Inventory Measurement. In April 2014,July 2015, the Financial Accounting Standards Board (“FASB”) issued updated guidance that changessimplifies the criteria for reporting discontinued operations including enhanced disclosure requirements. Undersubsequent measurement of inventory. It replaced the former lower of cost or market test with the lower of cost or net realizable value test. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this new guidance only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization´s operations and financial results. The new guidance was effective for usprospectively in the first quarter of 2015;2017; however, the adoption did not have a material effectimpact on our consolidated financial statements.


NEWPARK RESOURCES, INC.Share-based Compensation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In April and August 2015,March 2016, the FASB issued updated guidance that changes the presentationsimplified several aspects of debt issuance costs in financial statements. Under theaccounting for share-based payments transactions, including income tax consequences. We adopted this new guidance an entity is required to present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset, except for debt issuance costs related to revolving debt agreements, which may continue to be presented as an asset. Amortization of the costs will continue to be reported as interest expense. The new guidance would have been effective for us in the first quarter of 2016, however, as permitted, we elected to early adopt the2017.

The most significant impact of adopting this new guidance retrospectivelyis the required change in 2015. As such, we have reclassified the presentation of debt issuance costs as a direct deduction from the related debt liability, exceptaccounting for debt issuance costsexcess tax benefits (“windfalls”) and deficiencies (“shortfalls”) related to our revolving debt agreements, in each of the accompanying balance sheets and related disclosures.

In November 2015, the FASB issued updated guidance to simplify the balance sheet classification of deferred taxes. Under the new guidance, an entity is required to present deferred tax assets and liabilities as noncurrent in the balance sheet based on an analysis of each taxpaying component within a jurisdiction. The new guidance would have been effective for usshare-based compensation. Beginning in the first quarter of 2017, however,such windfalls and shortfalls are now reflected in the consolidated statements of operations as permitted,a tax benefit or expense, respectively, whereas previously, they were generally recognized in additional paid in capital in the condensed consolidated balance sheets. For the twelve months ended December 31, 2017, we recognized $0.5 million of expense in the provision for income taxes related to net shortfall tax deficiencies from share-based payments. For the twelve months ended December 31, 2016 and 2015, $1.6 million and $0.4 million respectively, of net shortfall tax deficiencies were recognized in additional paid-in capital.

The new guidance also impacts the calculation of diluted earnings per share. When applying the treasury stock method to share-based payment awards, entities shall no longer include tax windfalls or shortfalls when calculating assumed proceeds to determine the awards dilutive effect on earnings per share. The adoption of this guidance did not materially impact our diluted earnings per share in each of the periods presented.
In addition to the income tax consequences described above, the new guidance requires all windfall tax benefits related to share-based payments be reported as cash flows from operating activities along with all other income tax cash flows. Previously, windfall tax benefits from share-based payment arrangements were reported as cash flows from financing activities. The new guidance allows companies to elect either a prospective or retrospective application with respect to this statement of cash flows presentation. We have elected to apply this classification amendment prospectively. Since we did not have any material windfall tax benefits in 2016 or 2015, the prospective adoption did not significantly impact comparability with the prior year.
Finally, the new guidance allows for the accounting policy option to account for forfeitures as they occur or continue estimating expected forfeitures over the course of the vesting period as required under previous guidance. We have elected the accounting policy option to continue estimating forfeitures in determining share-based compensation expense resulting in no impact to our financial statements from the adoption of the new guidance.
Restricted Cash Presentation. In November 2016, the FASB issued updated guidance that requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We elected to early adopt this new guidance in the fourth quarter of 2017 using the retrospective transition method to each period presented. The adoption of this new guidance changed the presentation of our consolidated statement of cash flows to include the amount of restricted cash with cash and cash equivalents when reconciling the beginning and end of period amounts shown on the consolidated statements of cash flows. See Note 13 for restricted cash balances.
Goodwill Impairment Test. In January 2017, the FASB amended the guidance related to the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Under the new guidance, retrospectivelyif the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in 2015. As such, wean amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective for us for goodwill impairment tests beginning after December 15, 2019 with early adoption permitted. We elected to adopt this new guidance prospectively in 2017; however, the adoption did not have reclassified the presentation of deferred tax assets and liabilities as noncurrent in each of the accompanying balance sheets and related disclosures.

any impact on our consolidated financial statements.

Standards not yet adopted
Revenue Recognition.In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are to be applied using a retrospective or modified retrospective approach. The new guidance is effective


43


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


for us in the first quarter of 2018. In July 2015,order to determine the FASB deferred the effective dateimpact of the new guidance by one yearon our financial statements, we formed an implementation work team and provided entities the option to early adoptcompleted assessments of the new guidance.guidance across our revenue streams. Our process included performing reviews of representative contracts across our revenue streams and comparing historical accounting practices to the new standard.
We have completed our evaluation of the impacts of these amendments. As our performance obligations under customer contracts are primarily short-term in nature, we do not expect the new guidance to have a material impact on the amounts of revenue recognized in our consolidated financial statements. We will include incremental disclosures in our 2018 consolidated financial statements regarding our revenue recognition policies and related amounts. We have adopted the new guidance utilizing the modified retrospective method effective January 1, 2018. The cumulative-effect adjustment to retained earnings upon adoption is not material.
Deferred Taxes on Intra-Entity Asset Transfers. In October 2016, the FASB amended the guidance related to the recognition of current and deferred income taxes for intra-entity asset transfers. Under current U.S. GAAP, recognition of income taxes on intra-entity asset transfers is prohibited until the asset has been sold to an outside party. This update requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update does not change U.S. GAAP for the pre-tax effects of an intra-entity asset transfer or for an intra-entity transfer of inventory. This guidance is effective for us in the first quarter of 2018 and should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We have adopted the new guidance utilizing the modified retrospective method effective January 1, 2018. The cumulative-effect adjustment to retained earnings upon adoption is not material.
Statement of Cash Flows. In August 2016, the FASB issued updated guidance that clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight specific cash flow issues. This guidance is effective for us in the first quarter of 2018 and should be applied using the retrospective transition method to each period presented. Early adoption is permitted but all changes must be adopted in the same period. We do not expect the adoption of this new guidance to have a material impact on the presentation of our consolidated statements of cash flows.
Leases. In February 2016, the FASB issued updated guidance regarding accounting for leases. The new accounting standard provides principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize both assets and liabilities arising from financing and operating leases. The classification as either a financing or operating lease will determine whether lease expense is recognized based on an effective interest method basis or on a straight-line basis over the term of the lease, respectively. The new guidance is effective for us in the first quarter of 20182019 with early adoption permittedpermitted. Based on our current lease portfolio, we anticipate the new guidance will require us to reflect additional assets and liabilities in our consolidated balance sheet; however, we have not yet completed an estimation of such amount and we are still evaluating the first quarter of 2017. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized asoverall impact of the date of initial application. We are currently evaluating the impact of these amendments, including the adoption and transition alternativesnew guidance on our consolidated financial statements.

Credit Losses.In July 2015,June 2016, the FASB issued updatednew guidance that simplifieswhich requires financial assets measured at amortized cost basis to be presented at the subsequent measurement of inventory. It replaces the current lower of cost or market test with the lower of cost or net realizable value test. Net realizable value is defined as the estimated selling pricesamount expected to be collected, including trade receivables. The new standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception which will generally result in the ordinary courseearlier recognition of business, less reasonably predictable costs of completion, disposal, and transportation.allowances for losses. The new guidance is effective prospectively for us in the first quarter of 20172020 with early adoption permitted.permitted in 2019. This guidance should be applied using a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

In September 2015, the FASB issued updated guidance that eliminates the requirement to restate prior periods to reflect adjustments made to provisional amounts recognized in a business combination. The new guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The new guidance is effective prospectively for us in the first quarter of 2016.

Note 2 — Discontinued Operations

Business Combinations

In 2013,November 2017, we initiatedacquired certain assets and assumed certain liabilities of Well Service Group, Inc. and Utility Access Solutions, Inc. (together, “WSG”). Since 2012, WSG has been a process to sellstrategic logistics and installation service provider for the Mats and Integrated Services segment. The acquisition of WSG further expands our Environmental Services business,range of site construction and in March of 2014 we completedrelated services and geographic footprint across the saleNortheast, Midwest, Rockies and West Texas regions of the businessU.S. With the acquisition of WSG, we are now able to offer a range of complimentary services to our composite matting systems, including access road construction, site planning and preparation, environmental protection, fluids and spill storage/containment, erosion control, and site restoration services. The purchase price for $100this acquisition was approximately $77.9 million, net of cash acquired, which included $44.8 million of cash conveyed at closing, the issuance of 3,361,367 shares of our common equity valued at $32.4 million and an estimated $0.7 million to be paid in cash, subject to adjustment based on2018 upon finalization of actual working capital conveyed at closing. Cash proceeds from the sale were $89.8 million in 2014, net of transaction related expenses, including the adjustment related to final working capital conveyed at closing. The agreement significantly limits our post-closing environmental obligations, including those related to the waste transfer and disposal facilities. In addition, $8 million of the sales price was withheld in escrow associated with transaction representations, warranties and indemnities, with $4 million scheduled to be released at each of the nine-month and 18-month anniversary of the closing. In December 2014, the buyer made certain claims for indemnification under the terms of the agreement, which defers the release of the escrow funds until such claims are resolved. Further discussion of the buyer’s claims and related litigation is contained in Note 14. As a result of the sale transaction, we recorded a gain on the disposal of the business of $34.0 million ($22.1 million after-tax) in the first quarter of 2014. The results of operations of WSG are reported within the Mats and Integrated Services segment for this business havethe period subsequent to the date of the acquisition.
The WSG transaction has been classifiedrecorded using the acquisition method of accounting and accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values as discontinued operations for all periods presented.

of the acquisition date. The acquisition resulted in the preliminary recognition of $27.1 million in other intangible assets consisting primarily of customer relationships, technology and tradename.


44


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Summarized



All of the other intangibles are finite-lived intangible assets that are preliminarily expected to be amortized over periods of 10 to 15 years with a weighted average amortization period of approximately 13 years. The excess of the total consideration was recorded as goodwill, which is deductible for tax purposes, and includes the value of the assembled workforce. The fair values of the identifiable assets acquired and liabilities assumed were based on the Company’s estimates and assumptions using various market, income and cost valuation approaches, which are classified within level 3 of the fair value hierarchy. While the initial purchase price allocation has been completed, the allocation of the purchase price is subject to change for a period of one year following the acquisition.
The following table summarizes the preliminary amounts recognized for the assets acquired and liabilities assumed as of the November 13, 2017 acquisition date:
(in thousands)
Receivables14,854
Inventories3,207
Other current assets114
Property, plant and equipment16,313
Intangible assets27,050
  Total Assets Acquired61,538
  
Current Liabilities6,833
  Total Liabilities Assumed6,833
  
Net Assets Purchased54,705
Goodwill23,188
Total Purchase Consideration$77,894
  
Cash conveyed at closing$44,750
Equity issued at closing32,438
Due to seller706
Total Purchase Consideration$77,894
In August 2016, we completed the acquisition of Pragmatic Drilling Fluids Additives, Ltd. (“Pragmatic”), a Canadian provider of specialty chemicals for the oil and gas industry, which further expands our fluids technology portfolio and capabilities. The purchase price for this acquisition was $4.4 million, net of cash acquired. The purchase price allocation resulted in amortizable intangible assets of $1.7 million and goodwill of approximately $1.7 million. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. The results of operations from discontinuedof Pragmatic are reported within the Fluids Systems segment for the period subsequent to the date of the acquisition.
Results of operations and pro-forma combined results of operations for these acquired businesses have not been presented as the effect of these acquisitions are as follows:

not material to our consolidated financial statements.

(In thousands)

 

2014

  

2013

 
         

Revenues

 $11,744  $65,002 
         

Income from discontinued operations before income taxes

  1,770   17,773 

Income from discontinued operations, net of tax

  1,152   12,701 

Gain from disposal of discontinued operations before income taxes

  33,974   - 

Gain from disposal of discontinued operations, net of tax

  22,117   - 

Note 3 — Inventories

Inventories consisted of the following items at December 31:

(In thousands)

  2015   2014 
         
         

Raw materials:

        

Drilling fluids

 $133,934  $152,076 

Mats

  657   1,531 

Total raw materials

  134,591   153,607 
         

Blended drilling fluids components

  25,343   40,971 
         

Finished goods- mats

  3,723   1,978 
         

Total inventories

 $163,657  $196,556 

(In thousands)2017 2016
Raw materials:   
Drilling fluids$123,022
 $115,399
Mats1,419
 1,137
Total raw materials124,441
 116,536
Blended drilling fluids components30,495
 23,762
Finished goods - mats10,400
 3,314
Total inventories$165,336
 $143,612


45


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Raw materials consist primarily of barite, chemicals, and other additives that are consumed in the production of our drilling fluid systems. Our blended drilling fluids components consist of base drilling fluid systems that have been either mixed internally at our mixing plants or purchased from third party vendors. These base drilling fluid systems require raw materials to be added, as requiredneeded to meet specified customer requirements.

In the fourth quarter of 2015, we recognized a $2.2 million charge reported in cost of revenues to reduce the carrying value of diesel-based drilling fluid inventory in the Fluids Systems segment. The charge resulted from lower of cost or market adjustments due to the decline in selling prices for our diesel-based drilling fluid products coupled with declines in replacement costs of diesel fuel.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 4 — Property, Plant and Equipment

Our investment in property, plant and equipment consisted of the following at December 31:

(In thousands)

 

2015

  

2014

 2017 2016
        

Land

 $11,613  $11,736 $11,504
 $11,505

Buildings and improvements

  122,514   98,492 132,322
 121,967

Machinery and equipment

  224,974   188,987 284,337
 248,229

Computer hardware and software

  29,688   27,431 33,738
 30,544

Furnitures and fixtures

  5,788   5,466 
Furniture and fixtures5,926
 5,829

Construction in progress

  20,950   40,628 8,607
 19,417
  415,527   372,740 476,434
 437,491

Less accumulated depreciation

  (164,818)  (146,860)(215,419) (186,700)
  250,709   225,880 261,015
 250,791
           

Composite mats (rental fleet)

  100,341   90,321 101,968
 100,543

Less accumulated depreciation-mats

  (43,418)  (32,840)
Less accumulated depreciation - composite mats(47,663) (47,680)
  56,923   57,481 54,305
 52,863
           

Property, plant and equipment, net

 $307,632  $283,361 $315,320
 $303,654

Depreciation expense was $36.4 million, $34.6 million and $39.3 million $33.2 millionin 2017, 2016 and $29.42015, respectively. Capital expenditures in 2017 included approximately $17.6 million in 2015, 2014the Fluids Systems segment, including a total of $6.9 million related to completion of the facility upgrade and 2013, respectively.

In 2015, we incurred approximately $13 million of capital expenditures to complete the expansion of our mat manufacturing facility, located in Carencro, Louisiana, including a new research and development center, bringing our cumulative investment for this expansion project to approximately $46 million. In addition, we continued two capital investment projects announced in 2014 within the Fluids Systems segment. We invested approximately $20 million in a new fluid blending facility and distribution center located in Conroe, Texas, which will support the increasing demand for our proprietary fluid technologies, including our Evolution systems. This project was substantially completed in 2015 with the start-up of blending operations in early 2016. In addition, we are investing approximately $30 million to significantly expand existing capacity and upgrade the drilling fluids blending, storage and transfer capabilities in Fourchon, Louisiana which serves the Gulf of Mexico deepwater market. This project is expected to be completed in 2016.facility. Capital expenditures related to these two Fluids Systems projects were approximately $26for the Mats and Integrated Services segment totaled $12.0 million during 2017, primarily reflecting investments in 2015.

In the fourth quarter of 2015, we recognized a $2.6 million charge reported in impairments and other charges related to assets at a Fluids Systems segment facility, following our decision to exit this facility.

mat rental fleet.

NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 5 — Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill by reportable segment are as follows:

(In thousands)

 

Fluids

Systems

  

Mats and

Integrated

Services

  

Total

 
             

Balance at December 31, 2013

 $74,591  $19,473  $94,064 

Effects of foreign currency

  (1,907)  (264)  (2,171)

Balance at December 31, 2014

  72,684   19,209   91,893 

Impairment

  (70,720)  -   (70,720)

Effects of foreign currency

  (1,964)  (200)  (2,164)

Balance at December 31, 2015

 $-  $19,009  $19,009 

Goodwill and other indefinite-lived intangible assets are tested for impairment annually as of November 1, or more frequently, if an indication of impairment exists.

(In thousands)Fluids
Systems
 Mats and
Integrated
Services
 Total
Balance at December 31, 2015$
 $19,009
 $19,009
Acquisition1,720
 
 1,720
Effects of foreign currency(54) (680) (734)
Balance at December 31, 20161,666
 18,329
 19,995
Acquisition
 23,188
 23,188
Effects of foreign currency116
 321
 437
Balance at December 31, 2017$1,782
 $41,838
 $43,620
We determine any impairment of goodwill by comparing the carrying amounts ofcompleted our reporting units with fair values, which we estimate using a combination of a market multiple and discounted cash flow approach. We also compare the aggregate fair values of our reporting units with our market capitalization. In the third quarter of 2015, primarily as a result of the ongoing weakness in commodity prices, further decreases in U.S. drilling activities, and increased expectations that the current weakness in U.S. drilling activities would persist for a longer period, along with a significant decline in the quoted market prices of our common stock, we considered these developments at that time to be an indicator of impairment that required us to complete an interim goodwill impairment evaluation. As such, during the third quarter of 2015, we estimated the fair values for each of our reporting units based on our current forecasts and expectations for market conditions at that time and determined that even though the estimated fair values for each reporting unit had decreased in 2015, each reporting unit’s fair value remained in excess of its net carrying value, and therefore, no impairment was required.

In the fourth quarter of 2015, we completed the annual evaluation of the carrying values of our goodwill and other indefinite-lived intangible assets as of November 1, 2015. As a result of the further decline in commodity prices2017 and drilling activities in the fourth quarter, including the more prolonged projection of lower commodity prices and drilling activities, as well as the further decline in the quoted market prices of our common stock, we determined that the carrying valuevalues of each of our drilling fluids reporting unit exceeded its estimatedunits were less than their respective fair value such that goodwill was potentially impaired. As a result, we completed the step two evaluation to measure the amount of goodwill impairment determining a full impairment of goodwill related to the drilling fluids reporting unit was required. As such, in the fourth quarter of 2015, we recorded a $70.7 million non-cash impairment charge to write-off the goodwill related to the drilling fluids reporting unit, which is included in impairments and other charges. In completing this annual evaluation as of November 1, 2015, we also determined that the Mats & Integrated Services reporting unit did not have a fair value below its net carrying valuevalues and therefore, no impairment was required.



46


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Other intangible assets consistconsisted of the following:

  

December 31, 2015

  

December 31, 2014

 

(In thousands)

 

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Other

intangible

assets, net

  

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Other

intangible

assets, net

 
                         

Technology related

 $5,077  $(3,600) $1,477  $5,087  $(3,277) $1,810 

Customer related

  28,069   (19,638)  8,431   35,910   (24,403)  11,507 

Employment related

  1,625   (975)  650   1,625   (650)  975 

Total amortizing intangible assets

  34,771   (24,213)  10,558   42,622   (28,330)  14,292 
                         

Permits and licenses

  493   -   493   549   -   549 

Trademarks

  -   -   -   825   -   825 

Total indefinite-lived intangible assets

  493   -   493   1,374   -   1,374 
                         

Total intangible assets

 $35,264  $(24,213) $11,051  $43,996  $(28,330) $15,666 

 December 31, 2017 December 31, 2016
(In thousands)Gross
Carrying
Amount
 Accumulated
Amortization
 Other
intangible
assets, net
 Gross
Carrying
Amount
 Accumulated
Amortization
 Other
intangible
assets, net
Technology related$15,596
 $(4,427) $11,169
 $5,766
 $(3,873) $1,893
Customer related42,903
 (24,679) 18,224
 25,158
 (21,962) 3,196
Employment related1,864
 (1,794) 70
 1,848
 (1,346) 502
Total amortizing intangible assets60,363
 (30,900) 29,463
 32,772
 (27,181) 5,591
            
Permits and licenses542
 
 541
 476
 
 476
Total indefinite-lived intangible assets542
 
 541
 476
 
 476
Total intangible assets$60,905
 $(30,900) $30,004
 $33,248
 $(27,181) $6,067
Total amortization expense in 2015, 20142017, 2016 and 20132015 related to other intangible assets was $3.3 million, $3.4 million and $4.6 million, $8.0respectively.
In November 2017, we completed the acquisition of WSG, and in August 2016, we completed the acquisition of Pragmatic, which resulted in additions to amortizable intangible assets of $27.1 million and $10.4$1.7 million, respectively.

In the fourth quarter of 2015, we reclassified $0.7 million of indefinite-lived trademarks to definite-lived intangible assets subject to future amortization, following our decision to transition from the use of these trademarks in certain international markets over the next few years.

See Note 2 for further discussion.

Estimated future amortization expense for the years ended December 31 is as follows:

(In thousands)

 

2016

  

2017

  

2018

  

2019

  

2020

  

Thereafter

  

Total

 
                             

Technology related

 $223  $223  $223  $223  $195  $390  $1,477 

Customer related

  3,183   2,362   1,035   738   533   580   8,431 

Employment related

  325   325   -   -   -   -   650 

Total future amortization expense

 $3,731  $2,910  $1,258  $961  $728  $970  $10,558 

(In thousands)2018 2019 2020 2021 2022 Thereafter Total
Technology related$1,013
 $1,019
 $991
 $940
 $878
 $6,328
 $11,169
Customer related3,877
 2,975
 2,414
 1,863
 1,518
 5,577
 18,224
Employment related70
 
 
 
 
 
 70
Total future amortization expense$4,960
 $3,994
 $3,405
 $2,803
 $2,396
 $11,905
 $29,463
The weighted average amortization period for technology related, customer related and employment related intangible assets is 15 years, 911 years and 5 years, respectively.

Note 6 — Financing arrangements

Financing arrangements consisted of the following at December 31, 2015 and 2014:

(In thousands)

 

2015

  

2014

 
         

Senior Notes

 $172,497  $172,498 

Debt issuance costs - Senior Notes

  (1,296)  (2,036)

Revolving credit facility

  -   - 

Other

  7,392   11,648 

Total debt

 $178,593  $182,110 

Less: current portion

  (7,382)  (11,648)

Long-term portion

 $171,211  $170,462 
following:

 December 31, 2017 December 31, 2016
(In thousands)Principal Amount Unamortized Discount and Debt Issuance Costs Total Debt Principal Amount Unamortized Discount and Debt Issuance Costs Total Debt
2017 Convertible Notes$
 $
 $
 $83,256
 $(268) $82,988
2021 Convertible Notes100,000
 (22,643) 77,357
 100,000
 (27,100) 72,900
Amended ABL Facility81,600
 
 81,600
 
 
 
Other debt1,518
 
 1,518
 380
 
 380
Total debt183,118
 (22,643) 160,475
 183,636
 (27,368) 156,268
Less: current portion(1,518) 
 (1,518) (83,636) 268
 (83,368)
Long-term debt$181,600
 $(22,643) $158,957
 $100,000
 $(27,100) $72,900
 

NEWPARK RESOURCES, INC.2017 Convertible Notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Our financing arrangements include In September 2010, we issued $172.5 million of unsecured convertible senior notes (“Senior2017 Convertible Notes”) and a $150.0 million revolving credit facility which, subject to the conditions contained therein can be increased to a maximum capacity of $275.0 million. At December 31, 2015, we had no outstanding borrowings under the revolving credit facility. Additionally, our foreign operations had $7.4 million outstanding under lines of credit and other borrowings.that matured on October 1, 2017. The Senior Notes bearnotes bore interest at a rate of 4.0% per year, payable semi-annuallysemiannually in arrears on April 1 and October 1 of each year. The conversion rate was 90.8893 shares of our common stock per $1,000 principal amount of notes (equivalent to a conversion price of $11.00 per share of common stock). In 2016, we repurchased $89.3 million aggregate principal amount of our 2017 Convertible Notes for $87.3 million and recognized a net gain of $1.6 million reflecting



47


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs. As of December 31, 2016, $83.3 million aggregate principal amount remained outstanding, all of which were repaid upon maturity in October 2017.
2021 Convertible Notes. In December 2016, we issued $100.0 million of unsecured convertible senior notes (“2021 Convertible Notes”) that mature on December 1, 2021, unless earlier converted by the holders pursuant to the terms of the notes. The notes bear interest at a rate of 4.0% per year, payable semiannually in arrears on June 1 and December 1 of each year.
Holders may convert the Senior Notesnotes at their option at any time prior to the close of business on the business day immediately preceding June 1, 2021, only under the Octoberfollowing circumstances:
during any calendar quarter commencing after the calendar quarter ending on March 31, 2017 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (regardless of whether consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the notes in effect on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day was less than 98% of the last reported sale price of our common stock on such date multiplied by the conversion rate on each such trading day; or
upon the occurrence of specified corporate events, as described in the indenture governing the notes, such as a consolidation, merger, or share exchange.
On or after June 1, 20172021 until the close of business on the business day immediately preceding the maturity date.date, holders may convert their notes at any time, regardless of whether any of the foregoing conditions have been satisfied. As of February 23, 2018, the notes were not convertible.
The notes are convertible into, at our election, cash, shares of common stock, or a combination of both, subject to satisfaction of specified conditions and during specified periods, as described above. If converted, we currently intend to pay cash for the principal amount of the notes converted. The conversion rate is initially 90.8893107.1381 shares of our common stock per $1,000 principal amount of Senior Notesnotes (equivalent to an initial conversion price of $11.00$9.33 per share of common stock), subject to adjustment in certain circumstances. Upon conversion, the Senior Notes will be settled in shares of our common stock. In 2015, holders converted an insignificant amount of Senior Notes into shares of our common stock. We may not redeem the Senior Notesnotes prior to their maturity date.
In February 2016,accordance with accounting guidance for convertible debt with a cash conversion option, we repurchased $11.2 millionseparately accounted for the debt and equity components of our convertible seniorthe notes in a manner that reflected our estimated nonconvertible debt borrowing rate. We estimated the open market for $9.2 million under our existing Board authorized repurchase programand will recognize a gain in 2016 for the difference in the amount paid and the net carryingfair value of the extinguished debt.debt component of the notes to be $75.2 million at the issuance date, assuming a 10.5% non-convertible borrowing rate. The carrying amount of the equity component was determined to be approximately $24.8 million by deducting the fair value of the debt component from the principal amount of the notes, and was recorded as an increase to additional paid-in capital, net of the related deferred tax liability of $8.7 million. The excess of the principal amount of the debt component over its carrying amount (the “debt discount”) is being amortized as interest expense over the term of the notes using the effective interest method.
We allocated transaction costs related to the issuance of the notes, including underwriting discounts, of $0.9 million and $2.7 million to the equity and debt components, respectively. Issuance costs attributable to the equity component were netted against the equity component recorded in additional paid-in capital. The amount of the equity component was $15.2 million at the time of issuance (net of issuance costs and the deferred tax liability related to the conversion feature) and is not remeasured as long as it continues to meet the conditions for equity classification.
The $2.7 million of issuance costs attributable to the debt component were netted against long-term debt and are being amortized to interest expense over the term of the notes using the effective interest method. As of December 31, 2017, the carrying amount of the debt component was $77.4 million, which is net of the unamortized debt discount and issuance costs of $20.4 million and $2.2 million, respectively. Including the impact of the debt discount and related deferred debt issuance costs, the effective interest rate on the notes is approximately 11.3%.
Revolving Credit Facility.

In March 2015, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) which providesprovided for a $200$200.0 million revolving loan facility available for borrowings and letters of credit and expires inthrough March 2020. In December 2015, the Credit Agreement was amended, decreasing the revolving credit facility to $150.0 million and subsequently, we terminated the Credit Agreement in May 2016, replacing it with an asset-based revolving loan facility as discussed further below. As of the date of termination, we had no outstanding borrowings under the Credit Agreement. In the second quarter of 2016, we recognized a non-cash charge of $1.1 million in interest expense for the write-off of debt issuance costs in connection with the termination.



48


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Asset-Based Loan Facility. In May 2016, we entered into an asset-based revolving credit agreement (the “ABL Facility”) which replaced the terminated Credit Agreement. The ABL Facility had a First Amendmenttermination date of March 6, 2020 and provided financing of up to Third$90.0 million available for borrowings (inclusive of letters of credit) and subject to certain conditions, could be increased to a maximum capacity of $150.0 million. In October 2017, we entered into an Amended and Restated Credit Agreement (“Amendment”(the “Amended ABL Facility”) decreasing the revolving loan facility to $150 million, modifying certain financial covenants through the first quarter of 2017,which amends and modifyingrestates our previous ABL Facility and increases the borrowing costcapacity from $90.0 million to $150.0 million, while also reducing applicable borrowing rates and fee provisions. terms. Subject to certain conditions, the Amended ABL Facility can be increased up to a maximum capacity of $225.0 million.
The Credit AgreementAmended ABL Facility terminates on October 17, 2022; however, the Amended ABL Facility has a springing maturity date that will accelerate the maturity of the credit facilityAmended ABL Facility to June 2017September 1, 2021 if, prior to such date, the Senior2021 Convertible Notes have not either been repurchased, redeemed, converted and/or refinanced in full or the Company haswe have not provided sufficient funds to an escrow agent to repay the Senior2021 Convertible Notes in full on their maturity date. For this purpose, funds may be provided in cash to an escrow agent or a combination of cash to an escrow agent and the assignment of a portion of availability under the Amended ABL Facility. The Amended ABL Facility requires compliance with a minimum fixed charge coverage ratio and minimum unused availability of $25.0 million to utilize borrowings or assignment of availability under the Amended ABL Facility towards funding the repayment of the 2021 Convertible Notes.
Borrowing availability under the Amended ABL Facility is calculated based on eligible accounts receivable, inventory, and, subject to satisfaction of certain financial covenants as described below, composite mats included in the rental fleet, net of reserves and limits on such assets included in the borrowing base calculation. To the extent pledged by us, the borrowing base calculation shall also include the amount of eligible pledged cash. The lender may establish such reserves, in part based on appraisals of the asset base, and other limits at its discretion which could reduce the amounts otherwise available under the Amended ABL Facility. Availability associated with eligible rental mats will also be subject to maintaining a minimum consolidated fixed charge coverage ratio and a minimum level of operating income for the Mats and Integrated Services segment. As of December 31, 2017, our total borrowing base availability under the Amended ABL Facility was $136.2 million, of which, $81.6 million was drawn, resulting in remaining availability of $54.6 million.
Under the terms of the Amendment,Amended ABL Facility, we canmay elect to borrow at a variable interest rate either based on LIBOR plus aan applicable margin based on our consolidated leverage ratio, ranging from 175either, (1) LIBOR subject to 325 basis points,a floor of zero or at(2) a variable interestbase rate based onequal to the greatesthighest of: (a) prime rate, (b) the federal funds rate in effect plus 50 basis points, (b) the prime rate of Bank of America, N.A. or (c) the Eurodollar rate forLIBOR, subject to a Eurodollar Loan with a one-month interest periodfloor of zero, plus 100 basis points, in each case plus apoints. The applicable margin rangingranges from 75175 to 225275 basis points based on our consolidated leverage ratio. The applicable margins onfor LIBOR borrowings, and Eurodollar75 to 175 basis points for base rate borrowings, based on the ratio of debt to consolidated EBITDA as defined in the Amended ABL Facility. As of December 31, 2015 were 250 and 1502017, the applicable margin for borrowings under our Amended ABL Facility is 200 basis points respectively.with respect to LIBOR borrowings and 100 basis points with respect to base rate borrowings. The weighted average interest rate for the Amended ABL Facility is 3.9% at December 31, 2017. In addition, we are required to pay a commitment fee on the unused portion of the Credit Agreement, as amended,Amended ABL Facility ranging from 37.525 to 50.037.5 basis points, based on ourthe ratio of debt to consolidated leverage ratio.EBITDA, as defined in the Amended ABL Facility. The applicable commitment fee onas of December 31, 20152017 was 37.5 basis points.
The Credit Agreement contains customary financial and operating covenants, including a consolidated leverage ratio, a senior secured leverage ratio and an interest coverage ratio. The Credit Agreement also limits the payment of dividends on our common stock, the repurchase of our common stock and the conversion, redemption, defeasance or refinancing of the Senior Notes.

Pursuant to the Amendment, a temporary increase has been made to the consolidated leverage ratio covenant, increasing the ratio from 4.0:1.0 to 5.5:1.0 through 2016, then reducing to 4.5 in the first quarter of 2017, and returning to 4.0 thereafter. During the same period, the senior secured leverage ratio covenant is being reduced from 3.0:1.0 to 2.0:1.0 through 2016, then increasing to 2.5 in the first quarter of 2017, and returning to 3.0 thereafter. The calculation for these two ratios has also been modified to allow for up to $10 million of adjustments for severance costs, as well as foreign exchange impacts related to our Brazilian intercompany financial restructuring. At December 31, 2015, we have not utilized any of this $10 million adjustment allowance in determining the available borrowing capacity under the Credit Agreement or in the calculation of the financial ratios disclosed below.

At December 31, 2015, considering our current financial covenant ratios disclosed below, we had $16.7 million of borrowing capacity available under our Credit Agreement, without taking into account any available adjustments described above, which, if utilized, could increase the availability under our Credit Agreement.  The Credit AgreementAmended ABL Facility is a senior secured obligation, secured by first liens on all of our U.S. tangible and intangible assets. Additionally, the Credit Agreement is guaranteed by certain of our U.S. subsidiariesassets and a portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The financialAmended ABL Facility contains customary operating covenants under our Credit Agreement followingand certain restrictions including, among other things, the December 2015 Amendmentincurrence of additional debt, liens, dividends, asset sales, investments, mergers, acquisitions, affiliate transactions, stock repurchases and the applicable ratios as of the dates indicated, are as follows:

  

Covenant

  

December 31, 2015

  

September 30, 2015

  

December 31, 2014

 
                 

Interest coverage ratio

 2.50 minimum   3.90   9.62   17.63 
                 

Consolidated leverage ratio

 5.50 maximum   5.03   2.07   1.12 
                 

Senior Secured leverage ratio

 2.00 maximum   0.21   0.07   0.19 

We were inother restricted payments. The Amended ABL Facility also requires compliance with all financial covenants asa fixed charge coverage ratio if availability under the Amended ABL Facility falls below $22.5 million. In addition, the Amended ABL Facility contains customary events of December 31, 2015. However, continued compliance with our covenants, particularly the consolidated leverage ratio, is largely dependent on our ability to generate sufficient levels of EBITDA, as defined in the Credit Agreement, as amended, or reduce our debt levels. Based upon our current and expected financial condition, and our forecasted results of operations, we anticipate having difficulty remaining in compliance with the financial covenants as of the end of the first quarter and throughout 2016, particularly if market conditions deteriorate further. Asdefault, including, without limitation, a result, we have initiated discussions with our lead bank in an effort to explore our options, which may include a waiver or amendment to our Credit Agreement. Any waiver or amendment to the Credit Agreement may increase the cost of our borrowings and impose additional limitations over certain types of activities. However, there is no certainty that we will be able to obtain any such relief. Any failure to comply with such financial covenants would result in an eventmake payments under the facility, acceleration of default under our Credit Agreement if we are unable to obtain a waiver or amendment on a timely basis. While no amounts are currently outstanding under our Credit Agreement, an eventmore than $25.0 million of default would prevent us from borrowing under our Credit Agreementother indebtedness, certain bankruptcy events and could result in our having to immediately repay all amounts outstanding, if any, under our Credit Agreement. In the event any outstanding amountscertain change of indebtedness in excess of $25 million are accelerated, this could also cause a default under our Senior Notes.

At December 31, 2015, we had letters of credit issued and outstanding which totaled $14.8 million that are collateralized by $15.5 million in restricted cash. Additionally, our foreign operations had $7.4 million outstanding under lines of credit and other borrowings, as well as $10.4 million outstanding in letters of credit and other guarantees with certain letters of credit that are collateralized by $2.0 million in restricted cash. At December 31, 2015, this restricted cash totaling $17.5 million was included in other current assets in the accompanying balance sheet.

control events.

Other Debt.Our foreign subsidiaries primarily those in Italy Brazil and India, maintain local credit arrangements consisting primarily of lines of credit with several banks, which are renewed on an annual basis. We utilize local financing arrangements in our foreign operations in order to provide short-term local liquidity needs, as well as to reduce the net investment in foreign operations subject to foreign currency risk.needs. Advances under these short-term credit arrangements are typically based on a percentage of the subsidiary’s accounts receivable or firm contracts with certain customers. The weighted average interest rateWe had $1.0 million outstanding under these arrangements was 14.9% and 15.1% on total outstanding balances of $7.4 million and $11.4 millionagreements at December 31, 20152017, and 2014,no balances outstanding at December 31, 2016. In December 2016, we terminated our revolving line of credit in Brazil and repaid the outstanding balance.
At December 31, 2017, we had letters of credit issued and outstanding which totaled $7.2 million that are collateralized by $7.6 million in restricted cash. Additionally, our foreign operations had $21.6 million outstanding in letters of credit and other guarantees, primarily issued under the line of credit in Italy as well as certain letters of credit that are collateralized by $1.5 million in restricted cash. At December 31, 2017 and December 31, 2016, prepaid expenses and other current assets in the accompanying balance sheet include total restricted cash related to letters of credit of $9.1 million and $7.4 million, respectively.



49


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


We incurred net interest expense of $9.1$13.3 million, $10.4$9.9 million and $11.3$9.1 million for the years ended December 31, 2017, 2016 and 2015, 2014 and 2013, respectively. The increase in interest expense in 2017 is primarily related to amortization of the debt discount related to the 2021 Convertible Notes as discussed above. Capitalized interest was $1.1$0.1 million, $0.9 million and $0.8$1.1 million for the years ended December 31, 20152017, 2016 and 2014,2015 respectively. Scheduled repayment of all long-term debt as of December 31, 20152017 is $172.5$100.0 million in 2017.

2021 and $81.6 million in 2022.

NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note 7 — Fair Value of Financial Instruments and Concentrations of Credit Risk

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, receivables, payables and debt. We believe the carrying values of these instruments, with the exception of our Senior2017 Convertible Notes and our 2021 Convertible Notes, approximated their fair values at December 31, 20152017 and December 31, 2014.2016. The estimated fair value of our Senior2021 Convertible Notes was $154.4$127.3 million at December 31, 20152017 and $192.3$110.5 million at December 31, 2014,2016, and the estimated fair value of our 2017 Convertible Notes was $84.4 million at December 31, 2016, based on quoted market prices at these respective dates.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash, trade accounts and notes receivable.  At December 31, 2015,2017, substantially all of our cash deposits are held in accounts at numerous financial institutions across the various regions that we operate in. A majority of the cash is held in accounts that maintain deposit ratings of P-1 by Moody’s, A-1 by Standard and Poor’s, and F1 by Fitch. As part of our investment strategy, we perform periodic evaluations of the relative credit standing of these financial institutions.

Accounts Receivable

Accounts receivable consisted of the following at December 31, 2015 and 2014 include31:
(In thousands)2017 2016
Gross trade receivables$256,851
 $162,569
Allowance for doubtful accounts(9,457) (8,849)
Net trade receivables247,394
 153,720
Income tax receivables6,905
 39,944
Other receivables11,567
 20,643
Total receivables, net$265,866
 $214,307
Gross trade receivables increased $94.3 million, or 58%, in 2017 primarily due to the following:

increase in revenues.

(In thousands)

  2015   2014 
         

Gross trade receivables

 $159,119  $299,962 

Allowance for doubtful accounts

  (7,189)  (5,458)

Net trade receivables

  151,930   294,504 
         

Income tax receivables

  32,600   1,258 

Other receivables

  21,834   22,838 
         

Total receivables, net

 $206,364  $318,600 

At December 31, 2015,2016, income tax receivables includesincluded approximately $29$38.0 million related to our decision to amend prior U.S. federal income tax returns and request a refund for the carryback of therefund claims primarily for our U.S. federal tax losses incurred in 2015. 2016, substantially all of which was received in 2017.

Other receivables include $10.4includes $10.8 million and $13.3$11.5 million for value added, goods and service taxes related to foreign jurisdictions as of December 31, 20152017 and 2014,2016, respectively. In addition, other receivables included $8.0 million held in escrow at both December 31, 2015 and 2014 include $8.0 million associated2016 in connection with the March 2014 sale of the Environmental Services business that is held in escrowbusiness. In connection with the settlement of a dispute with the buyers, as described further in Note 2 above.

15 below, the escrow funds have been reclassified at December 31, 2017, reducing the settlement obligation reflected in accrued liabilities in the accompanying balance sheet.

Customer Revenue Concentration
We derive a significant portion of our revenues from companies in the E&P industry, and our customer base is highly concentrated in mid-sized and international oil companies as well as government-owned or government-controlled oil companies operating in the markets that we serve. During the years ended December 31,For 2017, 2016 and 2015, 2014 and 2013, revenues from our 20 largest customers represented approximately 49%45%, 40%53% and 50%49%, respectively, of our consolidated revenuesrevenues. For 2016, revenue from continuing operations, althoughSonatrach, our primary customer in Algeria, represented approximately 14% of consolidated revenues. For 2017 and 2015, no single customer accounted for more than 10% of our consolidated revenues.



50


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



We maintain an allowance for doubtful accounts based upon the expected collectability of accounts receivable. Changes in this allowance for 2015, 20142017, 2016 and 2013 related to continuing operations,2015 was as follows:

(In thousands)

  2015    2014    2013  

Balance at beginning of year

 $5,458  $4,142  $3,950 

Provision for uncollectible accounts

  1,886   1,246   309 

Write-offs, net of recoveries

  (155)  70   (117)

Balance at end of year

 $7,189  $5,458  $4,142 

The Consolidated Statements of Cash Flows included in this Item 8 of these Financial Statements and Supplementary Data also includes an insignificant provision for uncollectible accounts related to the Environmental Services business that is classified as discontinued operations.

(In thousands)2017 2016 2015
Balance at beginning of year$8,849
 $7,189
 $5,458
Provision for uncollectible accounts1,481
 2,416
 1,886
Write-offs, net of recoveries(873) (756) (155)
Balance at end of year$9,457
 $8,849
 $7,189

Note 8 — Income Taxes
The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 resulting in broad and complex changes to U.S. income tax law. The Tax Act includes a one-time transition tax in 2017 on accumulated foreign subsidiary earnings not previously subject to U.S. income tax, reduces the U.S. corporate statutory tax rate from 35% to 21% effective January 1, 2018, generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, creates new tax on certain foreign-sourced earnings, makes other changes to limit certain deductions and changes rules on how certain tax credits and net operating loss carryforwards can be utilized.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our 2017 financial statements. As we finalize the necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the United States Internal Revenue Service (“IRS”), or other standard-setting bodies, we may make adjustments to the provisional amounts.
Provisional amounts for the following income tax effects of the Tax Act have been recorded as of December 31, 2017 and are subject to change during 2018.
One-time transition tax
The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. We recorded a provisional amount in 2017 for our one-time transitional tax liability and income tax expense of $6.9 million. We have recorded provisional amounts based on estimates of the effects of the Tax Act as the analysis requires significant data from our foreign subsidiaries that is not regularly collected or analyzed.
Taxes on repatriation of foreign earnings
We previously considered the unremitted earnings in our non-US subsidiaries held directly by a U.S. parent to be indefinitely reinvested and, accordingly, had not provided any deferred income taxes. We intend to pursue repatriation of unremitted earnings in our non-US subsidiaries held directly by a U.S. parent to the extent that such earnings have been included in the one-time transition tax discussed above, and subject to cash requirements to support the strategic objectives of the non-US subsidiary. We recorded a provisional amount in 2017 for the estimated liability and income tax expense for any U.S. federal or state income taxes or additional foreign withholding taxes related to repatriation of such earnings of $7.0 million. In 2017, we recognized certain foreign tax credits of $5.5 million in the U.S. related to the provisional accounting for taxes on repatriation of foreign earnings, however, we also recognized a full valuation allowance related to such tax assets as it is more likely than not that these assets will not be realized.
Deferred tax effects
The Tax Act reduces the U.S. corporate statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have remeasured our U.S. net deferred tax liabilities as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a provisional deferred tax benefit in 2017 of $17.4 million to reflect the reduced U.S. tax rate on our estimated U.S. net deferred tax liabilities. Although the tax rate reduction is known, we have not completed our analysis of the effect of the Tax Act on the underlying deferred taxes and as such, the amounts recorded as of December 31, 2017 are provisional.
The net tax benefit recognized in 2017 related to the Tax Act was $3.4 million. As we complete our analysis of the Tax Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, we may identify additional effects not reflected as of December 31, 2017. Those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.


51


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


While we have not completed our analysis of the impacts of the Tax Act on our effective tax rate going forward, we anticipate the overall impacts of the Tax Act described above will reduce our effective tax rate in 2018 compared to 2017, excluding the $3.4 million net benefit included in our 2017 income tax provision. The impact of the Tax Act on our effective tax rate in 2018 will depend in large part on the relative contribution of our domestic earnings and finalization of the provisional accounting for the Tax Act.
The provision (benefit) for income taxes related to continuing operations was as follows:

 

Year Ended December 31,

 Year Ended December 31,

(In thousands)

 

2015

  

2014

  

2013

 2017 2016 2015
            

Current tax expense (benefit):

            
Current:     

U.S. Federal

 $(32,272) $17,086  $24,275 $(236) $(37,854) $(32,272)

State

  (34)  2,170   1,595 561
 20
 (34)

Foreign

  11,411   9,925   7,085 10,301
 10,440
 11,411

Total current

  (20,895)  29,181   32,955 10,626
 (27,394) (20,895)
            

Deferred tax expense (benefit):

            
Deferred:     

U.S. Federal

  (2,624)  12,237   (2,057)(3,848) 2,670
 (2,624)

State

  179   (174)  (598)(796) (181) 179

Foreign

  1,942   (196)  (1,575)(1,089) 863
 1,942

Total deferred

  (503)  11,867   (4,230)(5,733) 3,352
 (503)
            

Total provision (benefit)

 $(21,398) $41,048  $28,725 
Total income tax expense (benefit)$4,893
 $(24,042) $(21,398)

The total provision (benefit) was allocated to the following components of income (loss):

  

Year Ended December 31,

 

(In thousands)

 

2015

  

2014

  

2013

 
             

Income (loss) from continuing operations

 $(21,398) $41,048  $28,725 

Income from discontinued operations

  -   12,475   5,072 
             

Total provision (benefit)

 $(21,398) $53,523  $33,797 

 Year Ended December 31,
(In thousands)2017 2016 2015
Income (loss) from continuing operations$4,893
 $(24,042) $(21,398)
Loss from discontinued operations(4,616) 
 
Total provision (benefit)$277
 $(24,042) $(21,398)
 

NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Income (loss) from continuing operations before income taxes was as follows:

  

Year Ended December 31,

 

(In thousands)

 

2015

  

2014

  

2013

 
             

U.S.

 $(122,082) $88,964  $65,310 

Foreign

  9,856   31,093   16,037 
             

Income (loss) from continuing operations before income taxes

 $(112,226) $120,057  $81,347 

 Year Ended December 31,
(In thousands)2017 2016 2015
U.S.$(27,282) $(76,805) $(122,082)
Foreign43,394
 12,051
 9,856
Income (loss) from continuing operations before income taxes$16,112
 $(64,754) $(112,226)


52


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


The effective income tax rate for continuing operations is reconciled to the statutory federal income tax rate as follows:

  

Year Ended December 31,

 
  

2015

  

2014

  

2013

 
             
             

Income tax expense (benefit) at federal statuatory rate

  (35.0%)  35.0%  35.0%

Nondeductible expenses

  2.8%  2.9%  4.3%

Goodwill impairment

  15.7%  -   - 

Manufacturing deduction

  1.8%  (1.9%)  (2.5%)

Different rates on earnings of foreign operations

  (3.6%)  (4.3%)  (4.6%)

Change in valuation allowance

  2.8%  2.1%  3.0%

Uncertain tax positions

  (2.2%)  0.6%  (0.8%)

State tax expense (benefit), net

  (1.5%)  1.0%  0.5%

Other

  0.1%  (1.2%)  0.4%
             

Total income tax expense (benefit)

  (19.1%)  34.2%  35.3%

The Company’s

 Year Ended December 31,
 2017 2016 2015
Income tax expense (benefit) at federal statutory rate35.0% (35.0%) (35.0%)
Nondeductible expenses16.2% 2.8% 2.8%
Net impact of Tax Act(22.3%) 
 
Worthless stock deduction - Brazil
 (14.4%) 
Goodwill and other asset impairments
 3.5% 15.7%
Manufacturing deduction
 0.8% 1.8%
Different rates on earnings of foreign operations(13.3%) (1.2%) (3.6%)
Dividend taxes on unremitted earnings9.3% 2.2% 1.4%
Change in valuation allowance1.5% 6.9% 2.8%
Uncertain tax positions
 
 (2.2%)
State tax expense (benefit), net(1.8%) (2.5%) (1.5%)
Other items, net5.8% (0.2%) (1.3%)
Total income tax expense (benefit)30.4% (37.1%) (19.1%)

Our effective tax rate in 2017 includes a $3.4 million benefit resulting from the provisional accounting for the Tax Act as described above. In addition, the 2017 effective tax rate was negatively impacted primarily by non-deductible expenses relative to the amount of pre-tax income.
Our effective tax rate in 2016 includes a $9.3 million benefit associated with a worthless stock deduction and related impacts from restructuring the investment in our Brazilian subsidiary, partially offset by a $4.5 million charge for increases to the valuation allowance for certain deferred tax assets which may not be realized (primarily related to our Australian subsidiary and certain U.S. state net operating losses).
Our effective tax rate for 2015 was primarily impacted by the impairment of non-deductible goodwill. In addition, the 2015 the income tax provision also includes a $4.6 million charge for increases to the valuation allowance for certain deferred tax assets which may not be realized (primarily related to our Australian subsidiary and certain U.S. state net operating losses). These 2015 charges were partially offset by 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 million charge for increases to the valuation allowance for certain deferred tax assets, primarily 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.



53


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Temporary differences and carryforwards which give rise to deferred tax assets and liabilities at December 31 2015 and 2014 are as follows:

(In thousands)

 

2015

  

2014

 
         

Deferred tax assets:

        

Net operating losses

 $14,800  $15,097 

Capitalized inventory costs

  6,717   4,250 

Stock based compensation

  6,460   5,467 

Accruals not currently deductible

  6,157   9,401 

Unrealized foreign exchange

  3,013   3,145 

Foreign tax credits

  2,558   862 

Other

  599   1,214 

Total deferred tax assets

  40,304   39,436 

Valuation allowance

  (16,780)  (15,353)

Total deferred tax assets, net of allowances

  23,524   24,083 
         

Deferred tax liabilities:

        

Accelerated depreciation and amortization

  (38,034)  (40,308)

Tax on unremitted earnings

  (7,181)  (6,680)

Other

  (2,856)  (3,025)

Total deferred tax liabilities

  (48,071)  (50,013)
         

Total net deferred tax liabilities

 $(24,547) $(25,930)
         

Non current deferred tax assets

 $1,821  $1,857 

Non current deferred tax liabilities

  (26,368)  (27,787)

Net deferred tax liabilities

 $(24,547) $(25,930)

(In thousands)2017 2016
Deferred tax assets:   
Net operating losses$23,490
 $18,771
Capitalized inventory costs4,581
 12,378
Stock based compensation3,793
 6,955
Accruals not currently deductible7,730
 4,883
Unrealized foreign exchange losses, net2,595
 3,087
Foreign tax credits9,262
 3,269
Other10,451
 1,871
Total deferred tax assets61,902
 51,214
Valuation allowance(30,154) (21,847)
Total deferred tax assets, net of allowances31,748
 29,367
Deferred tax liabilities:   
Accelerated depreciation and amortization(34,265) (43,225)
Original issue discount on 2021 Convertible Notes(4,299) (8,553)
Tax on unremitted earnings(16,821) (8,555)
Other(3,190) (6,030)
Total deferred tax liabilities(58,575) (66,363)
Total net deferred tax liabilities$(26,827) $(36,996)
    
Non-current deferred tax assets$4,753
 $1,747
Non-current deferred tax liabilities(31,580) (38,743)
Net deferred tax liabilities$(26,827) $(36,996)
For state income tax purposes, we have net operating loss carryforwards (“NOLs”) of approximately $212.8$245.9 million available to reduce future state taxable income. These NOLs expire in varying amounts beginning in year 2018 through 2030.2037. Foreign NOLs of approximately $14.2$30.5 million are available to reduce future taxable income, some of which expire beginning in 2016.

2018.

The realization of our net deferred tax assets is dependent on our ability to generate taxable income in future periods. At December 31, 20152017 and December 31, 2014,2016, we have recorded a valuation allowance in the amount of $16.8$30.2 million and $15.4$21.8 million, respectively, primarily related to certain U.S. state and foreign NOL carryforwards, including Brazil and Australia, as well as for certain tax credits recognized in 2017 related to the provisional accounting for the impact of the Tax Act, which may not be realized.

Unremitted foreign earnings permanently reinvested abroad upon which deferred income taxes have not been provided aggregated approximately $142.8 million and $133.3 million at December 31, 2015 and 2014, respectively. It is not practicable to determine the amount of federal income taxes, if any, that might become due if such earnings are repatriated. We have the ability and intent to leave these foreign earnings permanently reinvested abroad.

We file income tax returns in the United States and several non-U.S. jurisdictions and are subject to examination in the various jurisdictions in which we file. We are no longer subject to income tax examinations for U.S. federal and substantially all state jurisdictions for years prior to 20112012 and for substantially all foreign jurisdictions for years prior to 2007.2008. We are not currently under examination by anythe United States federal or state tax authorities however,for tax years 2014 and 2015. During the second quarter of 2017, we received a Revenue Agent Report from the IRS disallowing a deduction claimed on our 2015 tax return associated with the forgiveness of certain inter-company balances due from our Brazilian subsidiary and assessing tax due of approximately $3.9 million. We submitted our response to the IRS in the third quarter of 2017 and are proceeding with the tax appeals process. We believe our tax position is properly reported in accordance with applicable U.S. tax laws and regulations and intend to vigorously defend our position through the tax appeals process.
We are also under examination by various tax authorities in other countries.countries, and certain foreign jurisdictions have challenged the amounts of taxes due for certain tax periods. These audits are in various stages of completion. We fully cooperate with all audits, but defend existing positions vigorously. These audits are in various stages of completion and certain foreign jurisdictions have challenged the amount of taxes due for certain tax periods. We evaluate the potential exposure associated with various filing positions and record a liability for tax contingencies as circumstances warrant. Although we believe all tax positions are reasonable and properly reported in accordance with applicable tax laws and regulations in effect during the periods involved, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and tax contingency accruals.



54


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



A reconciliation of the beginning and ending provision for uncertain tax positions is as follows:

(In thousands)

 

2015

  

2014

  

2013

 
             

Balance at January 1

 $3,786  $2,175  $2,753 

Additions (reductions) for tax positions of prior years

  (95)  1,604   (650)

Additions for tax positions of current year

  -   7   72 

Reductions for settlements with tax authorities

  (575)  -   - 

Reductions for lapse of statute of limitations

  (2,697)  -   - 

Balance at December 31

 $419  $3,786  $2,175 

(In thousands)2017 2016 2015
Balance at January 1$665
 $419
 $3,786
Additions (reductions) for tax positions of prior years(399) 477
 (95)
Additions (reductions) for tax positions of current year
 
 
Reductions for settlements with tax authorities
 
 (575)
Reductions for lapse of statute of limitations(9) (231) (2,697)
Balance at December 31$257
 $665
 $419
Approximately $0.1$0.3 million of unrecognized tax benefits at December 31, 2015,2017, if recognized, would favorably impact the effective tax rate. In 2015, we recognized a $2.2 million benefit to the income tax provision relating to uncertain tax positions for which the applicable statutes of limitation expired.

The Company recognizes

We recognize accrued interest and penalties related to uncertain tax positions in operating expenses. During the year ended December 31, 2015 and 2014, the Company recognized approximately $0.1 million and $0.4 million, respectively in interest and penalties. In 2013, there was noThe amount of interest and penalties recognized. The Company had approximately $0.1 million and $0.4 millionwas immaterial for interest and penalties accrued at December 31, 2015 and 2014, respectively.

all periods presented.

Note 9 — Capital Stock

Common stock

Changes in outstanding Common Stock were as follows:

(In thousands of shares)

 

2015

  

2014

  

2013

 
             

Outstanding, beginning of year

  99,204   98,031   95,734 

Shares issued upon exercise of options

  104   540   1,386 

Shares issued for grants of time vested restricted stock (netof cancellations)

  69   633   911 
             

Outstanding, end of year

  99,377   99,204   98,031 

(In thousands of shares)2017 2016 2015
Outstanding, beginning of year99,843
 99,377
 99,204
Shares issued for exercise of options416
 125
 104
Shares issued for time vested restricted stock (net of forfeitures)952
 341
 69
Shares issued for acquisition3,361
 
 
Outstanding, end of year104,572
 99,843
 99,377
Outstanding shares of common stock include shares held as treasury stock totaling 15,366,504, 15,162,050 and 15,302,345 as of December 31, 2017, 2016 and 2015, respectively.
Preferred stock

We are authorized to issue up to 1,000,000 shares of Preferred Stock, $0.01 par value. There waswere no outstanding shares of preferred stock at December 31, 2015, 20142017, 2016 or 2013.

2015.

Treasury stock

During 2015, 20142017, 2016 and 2013,2015, we repurchased 292,168, 215,760415,418, 234,901 and 222,175292,168 shares, respectively, for an aggregate price of $2.3$3.2 million, $2.5$1.2 million and $2.6$2.3 million, respectively, representing employee shares surrendered in lieu of taxes under vesting of restricted stock awards. All of the shares repurchased are held as treasury stock.

��

NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During 2015, 20142017, 2016 and 2013,2015, we reissued 200,056, 155,650210,964, 375,196 and 67,622200,056 shares of treasury stock pursuant to various stock plans, including our employee stock purchase plan and our 2014 Non-Employee Directors’ Restricted Stock Plan.

Repurchase program

In April 2013, our

Our Board of Directors has approved a share repurchase program that authorizes the Companyus to purchase up to $50.0$100.0 million of itsour outstanding shares of common stock. This authorization was subsequently increasedstock and prior to $100.0 million in February 2014. In September 2015,their maturity, our Board of Directors expanded the repurchase program to include the repurchase of our convertible senior notes, in addition to outstanding shares of common stock. The repurchase program has no specific term. The Company may repurchase shares or convertible senior notes2017 Convertible Notes in the open market or as otherwise determined by management, subject to market conditions, business opportunities, limiatationscertain limitations under our existing Credit Agreement andAmended ABL facility or other factors. There were no shares repurchased under the program during 2017, 2016 or 2015. In February 2016, we repurchased $11.2 million of our 2017 Convertible Notes in the open market for $9.2 million. As of December 31, 2017, we had $33.5 million of authorization remaining under the program. The repurchase program has no specific term. Repurchases are expected to be funded from operating cash flows and available cash on-hand. Subject to continued covenant compliance, funds under our existing Credit Agreement could also be available for such repurchases. As part of the share repurchase program, the Company’sour management has been authorized to establish trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934.

There were no repurchases under

In addition, the program during 2015. DuringBoard separately authorized the years ended December 31, 2014 and 2013, we repurchased sharesrepurchase of the Company’s common stock under this program totaling 4,317,278 and 562,341 shares, respectively for an average price per share, including commissions, of $11.72 and $11.94, respectively. As of December 31, 2015, there was $42.7 million of authorization remaining under the program.

In February 2016, we repurchased $11.2$78.1 million of our convertible senior notes2017 Convertible Notes then outstanding in connection with the open market for $9.2 million. This repurchase was made under our existing Board authorized repurchase program discussed above. AsDecember 2016 issuance of February 26, 2016, we had $33.5$100.0 million of authorization remaining under the program.

2021 Convertible Notes.


55


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



Note 10 — Earnings per Share

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

  

Year Ended December 31,

 

(In thousands, except per share data)

 

2015

  

2014

  

2013

 
             

Basic EPS:

            

Income (loss) from continuing operations

 $(90,828) $79,009  $52,622 
             

Weighted average number of common shares outstanding

  82,722   82,999   85,095 
             

Basic income (loss) from continuing operations per common share

 $(1.10) $0.95  $0.62 
             
             

Diluted EPS:

            

Income (loss) from continuing operations

 $(90,828) $79,009  $52,622 

Assumed conversions of Senior Notes

  -   5,091   5,005 

Adjusted income (loss) from continuing operations

 $(90,828) $84,100  $57,627 
             

Weighted average number of common shares outstanding-basic

  82,722   82,999   85,095 

Add:   Dilutive effect of stock options andrestricted stock awards

  -   1,733   1,767 

Dilutive effect of Senior Notes

  -   15,682   15,682 
             

Diluted weighted average number of common shares outstanding

  82,722   100,414   102,544 
             

Diluted income (loss) from continuing operations per common share

 $(1.10) $0.84  $0.56 
             

Stock options and restricted stock excluded from calculationof diluted earnings per share because anti-dilutivefor the period

  3,884   788   415 

For

 Year Ended December 31,
(In thousands, except per share data)2017 2016 2015
Numerator     
Income (loss) from continuing operations - basic$11,219
 $(40,712) $(90,828)
    Assumed conversions of 2017 Convertible Notes
 
 
Adjusted income (loss) from continuing operations - diluted$11,219
 $(40,712) $(90,828)
      
Denominator     
Basic - weighted average common shares outstanding85,421
 83,697
 82,722
     Dilutive effect of stock options and restricted stock awards2,554
 
 
     Dilutive effect of 2017 Convertible Notes
 
 
Dilutive effect of 2021 Convertible Notes
 
 
Diluted - weighted average common shares outstanding87,975
 83,697
 82,722
      
Income (loss) from continuing operations per common share     
     Basic$0.13
 $(0.49) $(1.10)
     Diluted$0.13
 $(0.49) $(1.10)
We excluded the year endedfollowing weighted-average potential shares from the calculations of diluted net income (loss) per share during the applicable periods because their inclusion would have been anti-dilutive:
 Year Ended December 31,
(In thousands)2017 2016 2015
Stock options and restricted stock-based awards7,419
 7,482
 3,884
2017 Convertible Notes5,702
 14,295
 15,682
2021 Convertible Notes
 
 
The 2021 Convertible Notes will not impact the calculation of diluted net income per share unless the average price of our common stock, as calculated in accordance with the terms of the indenture governing the 2021 Convertible Notes, exceeds the conversion price of $9.33 per share. At December 31, 2015, we excluded all potentially dilutive2017 the average price of our common stock options and restrictedwas $8.80 per share. We have the option to pay cash, issue shares of common stock, as well asor any combination thereof for the assumedaggregate amount due upon conversion of the Senior2021 Convertible Notes as further described in calculatingNote 6 above. If converted, we currently intend to settle the principal amount of the notes in cash and as a result, only the amounts payable in excess of the principal amount of the notes, if any, are assumed to be settled with shares of common stock for purposes of computing diluted earningsnet income from continuing operations per share as the effect was anti-dilutive.

share.

Note 11 — Stock Based Compensation and Other Benefit Plans

The following describes stockholder approved plans utilized by the Company for the issuance of stock based awards.

2014 Non-Employee Directors’ Restricted Stock Plan

In May 2014, our stockholders approved the 2014 Non-Employee Directors’ Restricted Stock Plan (the “2014 Director Plan”) which authorizes grants of restricted stock to non-employee directors based on a pre-determined dollar amount on the date of each annual meeting of stockholders. The pre-determined dollar amount for determining the number of restricted shares granted is subject to change by the Board of Directors or its committee but is initially set at $150,000 for each non-employee director, except for the Chairman of the Board who will receive an annual grant of restricted shares equal to $170,000. Each restricted share granted to a non-employee director vests in full on the earlier of the day prior to the next annual meeting of stockholders following the grant date or the first anniversary of the grant. During 2015,2017, non-employee directors received shares of restricted stock totaling 102,21898,714 shares at a weighted average fair value on the date of grant of $9.00$7.80 per share.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The maximum number of shares of common stock issuable under the 2014 Director Plan is 1,000,000 leaving 815,933504,258 shares available for grant as of December 31, 2015.

2017.



56


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


2015 Employee Equity Incentive Plan

In May 2015, our stockholders approved the 2015 Employee Equity Incentive Plan (“2015 Plan”), pursuant to which the Compensation Committee of our Board of Directors (“Compensation Committee”) may grant to key employees, including executive officers and other corporate and divisional officers, a variety of forms of equity-based compensation, including options to purchase shares of common stock, shares of restricted common stock, restricted stock units, stock appreciation rights, other stock-based awards, and performance-based awards. The maximumIn May 2016, our stockholders approved an amendment to the 2015 Plan which increased the number of shares of common stock issuableauthorized for issuance under the Plan from 6,000,000 to 7,800,000 shares. In May 2017, our stockholders approved a further amendment to the 2015 Plan is 6,000,000.which increased the number of shares authorized for issuance under the Plan from 7,800,000 to 9,800,000 shares. Under the 2015 Plan, as amended, grants of stock options and stock appreciation rights will reduce the number of available shares on a 11.00 to 11.00 basis, while full value awards will reduce the number of available shares on a 1.851.78 to 11.00 basis. At December 31, 2015, 2,975,5252017, 2,079,603 shares remained available for award under the 2015 Plan.

In June 2017, our Board of Directors approved the Long-Term Cash Incentive Plan (“Cash Plan”), a sub-plan to the 2015 Plan, pursuant to which the Compensation Committee may grant time-based cash awards or performance-based cash awards to key employees, including executive officers and other corporate and divisional officers, to provide an opportunity for employees to receive a cash payment upon either completion of a service period or achievement of predetermined performance criteria at the end of a performance period.
Prior to approval of the 2015 Plan, equity-based compensation was provided pursuant to the 2006 Equity Incentive Plan (“2006 Plan”). No additional grants of equity-based compensation may be granted under the 2006 Plan following approval of the 2015 Plan, however, unexpired options and other awards previously granted continue in effect in accordance with their terms until they vest or are otherwise exercised or expire.

The Compensation Committee approves the granting of all stock based compensation to employees, utilizing shares available under the 2015 Plan.Plan, as amended. Activity under each of these programs is described below.

Stock Options &and Cash-Settled Stock Appreciation Rights

Stock options granted by the Compensation Committee are generally granted with a three year vesting period and a term of ten years. During 2015, 695,6982017, no options were granted with a three year vesting period and a ten year term. The exercise price of each stock option granted was equal to the fair market value on the date of grant.

granted.

NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes activity for our outstanding stock options for the year ended December 31, 2015:

2017:
  

Shares

  

Weighted-

Average

Exercise Price

  

Weighted-

Average

Remaining

Contractual

Life (Years)

  

Aggregate

Intrinsic Value

 
                 

Outstanding at beginning of period

  3,342,015  $7.67         

Granted

  695,698   9.00         

Exercised

  (104,339)  5.30         

Expired or cancelled

  (45,541)  8.94         

Outstanding at end of period

  3,887,833  $7.96   6.20  $877,383 
                 

Vested or expected to vest at end of period

  3,831,985  $7.93   6.16  $877,383 

Options exercisable at end of period

  2,715,043  $7.10   5.06  $877,383 

 Shares Weighted-
Average
Exercise Price
 Weighted-
Average
Remaining
Contractual
Life (Years)
 Aggregate
Intrinsic Value
Outstanding at beginning of period4,684,839
 $7.02
    
Granted
 
    
Exercised(416,017) 5.83
    
Expired or canceled(303,297) 8.40
    
Outstanding at end of period3,965,525
 $7.03
 5.53 $6,172,506
        
Vested or expected to vest at end of period3,942,351
 $7.05
 5.51 $6,102,803
Options exercisable at end of period3,010,995
 $7.60
 4.70 $3,732,798
We estimated the fair value of options granted on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions:

  

Year Ended December 31,

 
  

2015

  

2014

  

2013

 
             

Risk-free interest rate

  1.57%  1.53%  1.02%

Expected life of the option in years

  5.22   5.22   5.22 

Expected volatility

  47.3%  48.6%  53.7%

Dividend yield

  -   -   - 

  
 2016 2015
Risk-free interest rate1.38% 1.57%
Expected life of the option in years5.22
 5.22
Expected volatility50.5% 47.3%
Dividend yield% %


57


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The expected life of the option is based on observed historical patterns. The expected volatility is based on historical volatility of the price of our common stock. The dividend yield is based on the projected annual dividend payment per share divided by the stock price at the date of grant, which is zero because we have not paid dividends for several years and do not expect to pay dividends in the foreseeable future.

The following table summarizes information about the weighted-average exercise price and the weighted-average grant date fair value of stock options granted:

  

Year Ended December 31,

 
  

2015

  

2014

  

2013

 
             

Weighted-average exercise price of the stock on the date of grant

 $9.00  $11.20  $11.43 

Weighted-average grant date fair value on the date of grant

 $3.91  $4.97  $5.42 

 2016 2015
Weighted-average exercise price of the stock on the date of grant$4.32
 $9.00
Weighted-average grant date fair value on the date of grant$1.97
 $3.91
All stock options granted for the years ended December 31,2016 and 2015 2014 and 2013 reflected an exercise price equal to the market value of the stock on the date of grant.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The total intrinsic value of options exercised was $0.3$1.1 million, $3.2$0.1 million and $6.1$0.3 million for the years ended December 31, 2015, 20142017, 2016 and 2013,2015, while cash from option exercises totaled $2.6 million, $0.7 million and $0.6 million, $3.4 million and $8.3 million, respectively.

The following table summarizes activity for outstanding cash-settled stock appreciation rights for the year-ended December 31, 2015:

2017:
 Rights
Outstanding at beginning of period

Rights

69,500

Exercised(25,000)
Expired or cancelled(1,500)
Outstanding at end of period43,000
  

Outstanding at beginning of period

107,133

Exercised

-

Expired or cancelled

(4,000)

Outstanding at end of period

103,133

Exercisable at end of period

43,000103,133

During 2015,2017, there were no additional grants of cash-settled stock appreciation rights. TheAll remaining outstanding cash-settled stock appreciation rights have a June 2018 expiration date, and if exercised, will ultimately be settled in cash for the difference between the market value of our outstanding shares at the date of exercise, and $7.89. As such, the projected cash settlement is adjusted each period based uponon the ending fair market value of the underlying stock. At December 31, 2015,2017, the fair market value of each cash-settled stock appreciation right was $1.04,$1.58, resulting in a liability of $0.1 million.

Total compensation cost recognized for stock options and cash-settled stock appreciation rights during the years ended December 31, 2017, 2016 and 2015 2014 and 2013 was $2.6$1.7 million, $2.6$2.3 million and $3.3$2.6 million, respectively. For the years ended December 31, 2015, 20142017, 2016 and 2013,2015, we recognized tax benefits resulting from the exercise of stock options totaling $0.3 million, $0.1 million $1.0and $0.1 million and $1.9 million,, respectively.

Performance-Based Restricted Stock Units & Cash-Settled Performance-Based Restricted Stock Units

The Compensation Committee may use various business criteria to set the performance objectives for awards of

There were no performance-based restricted stock units. Duringunits granted during 2017. In 2016 and 2015, 2014 and 2013, performance-based awardsrestricted stock units were awarded to executive officers. The performance-based restricted stock unitsofficers and will be settled in shares of common stock and will be based on the relative ranking of the Company’sour total shareholder return (“TSR”) as compared to the TSR of the Company’sour designated peer group over a three yearthree-year period. During 2015, a total of 136,881 performance-based restricted stock units at target were granted with the payout of shares for each executive ranging from 0%-150% of target. The performance period began June 1, 2015 and ends May 31, 2018, with the ending TSR price beingis equal to the average closing price of our shares over the last 30-calendar days ending May 31, 2018. During 2014, a total of 110,497 performance-based restricted stock units at target were granted with the payout of shares for each executive ranging from 0%-150% of target. The performance period began June 1, 2014 and ends May 31, 2017, withas set forth in the ending TSR price being equal to the average closing price of our shares over the 30-calendar days ending May 31, 2017. During 2013, a total of 149,532 performance-based restricted stock units were granted with the payout of shares for each executive ranging from 0%-150% of target. The performance period began May 3, 2013 and ends June 1, 2016, with the ending TSR price being equal to the average closing price of our shares over the 30-calendar days ending June 1, 2016.

following table:
 2016 2015
Number of performance-based restricted stock units issued, at target230,790
 136,881
Range of payout of shares for each executive0% - 150%
 0% - 150%
Performance period begin dateJune 1, 2016
 June 1, 2015
Performance period end dateMay 31, 2019
 May 31, 2018
Estimated fair value at date of grant$5.18
 $10.06


58


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes activity for outstanding performance-based restricted stock units for the year-ended December 31, 2015:

Nonvested Shares (Performance-Based)

 

Shares

  

Weighted-Average

Grant Date

Fair Value

 
         

Outstanding at beginning of period

  198,448  $12.82 

Granted

  136,881   10.06 

Forfeited

  -     

Outstanding at the end of period

  335,329  $11.69 

  

Year Ended December 31,

 
  

2015

  

2014

  

2013

 
             

Estimated fair value at date of grant

 $10.06  $12.55  $13.11 

We estimated the fair value of each performance-based restricted stock unit at the date of grant using the Monte Carlo valuation model, with the following weighted average assumptions:

  

Year Ended December 31,

 
  

2015

  

2014

  

2013

 
             

Risk-free interest rate

  1.02%  0.81%  0.52%

Average closing price

 $8.96 (1) $11.28 (2) $11.33(3) 

Expected volatility

  38.4%  44.5%  53.6%

Dividend yield

  -   -   - 

(1)

 2016 2015
Risk-free interest rate0.95% 1.02%
Average closing price(1)
$4.69
 $8.96
Expected volatility46.9% 38.4%
Dividend yield% %
(1)Average closing price of our shares over the 30-calendar days ending May 16, 2016, and May 19, 2015.

(2)

Average closing price of our shares over the 30-calendar days ending May 16, 2014.

(3)

Average closing price of our shares over the 30-calendar days ending June 3, 2013.

During 2015, 2014 and 2013, $1.1 million, $0.5 million and $0.4 million inrespectively.

The following table summarizes activity for outstanding performance-based restricted stock units for the year-ended December 31, 2017:
Nonvested Performance-Based Restricted Stock UnitsShares Weighted-Average
Grant Date
Fair Value
Outstanding at beginning of period447,184
 $8.06
Granted
 
Vested(93,244) 12.55
Forfeited
 
Outstanding at the end of period353,940
 $6.88
Total compensation cost was recognized for performance-based restricted stock units was $1.0 million, $1.0 million and $1.1 million for the years ended December 31, 2017, 2016 and 2015 respectively.

During the year ended December 31, 2017, the total fair value of performance-based restricted stock units vested was $1.0 million.

Restricted Stock Awards and Units

Time-vested restricted stock awards and restricted stock units are periodically granted to key employees, including grants for employment inducements, as well as to members of our Board of Directors. Employee awards provide for vesting periods ranging from three to four years. Non-employee director grants vest in full on the earlier of the day prior to the next annual meeting of stockholders following the grant date or the first anniversary of the grant. Upon vesting of these grants, shares are issued to award recipients.



59


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



The following tables summarize the activity for our outstanding time-vested restricted stock awards and restricted stock units for the year-endedyear ended December 31, 2015.

2017.

Nonvested Shares (Time-Vesting)

 

Shares

  

Weighted-Average

Grant Date

Fair Value

 
         

Nonvested at January 1, 2015

  1,722,899  $10.58 

Granted

  142,218   9.10 

Vested

  (932,161)  9.95 

Forfeited

  (51,611)  10.60 

Nonvested at December 31, 2015

  881,345  $11.00 

Nonvested Share Units (Time-Vesting)

 

Shares

  

Weighted-Average

Grant Date

Fair Value

 
        

Nonvested at January 1, 2015

  158,878  $10.22 
Nonvested Restricted Stock Awards (Time-Vesting)Shares Weighted-Average
Grant Date
Fair Value
Nonvested at January 1, 2017595,535
 $8.45

Granted

  1,074,937   8.95 98,714
 7.80

Vested

  (80,257)  9.20 (521,379) 8.70

Forfeited

  (20,015)  9.12 (4,156) 11.20

Nonvested at December 31, 2015

  1,133,543  $9.11 
Nonvested at December 31, 2017168,714
 $7.24

Nonvested Restricted Stock Units (Time-Vesting)Shares Weighted-Average
Grant Date
Fair Value
Nonvested at January 1, 20172,183,029
 $5.82
Granted768,661
 7.83
Vested(815,289) 6.36
Forfeited(145,764) 5.72
Nonvested at December 31, 20171,990,637
 $6.38
Total compensation cost recognized for restricted stock awards and restricted stock units was $10.1$8.0 million, $8.6 million and $6.7$10.1 million for the years ended December 31, 2015, 20142017, 2016 and 20132015, respectively. Total unrecognized compensation cost at December 31, 20152017 related to restricted stock awards and restricted stock units is approximately $14.0$8.8 million which is expected to be recognized over the next 1.91.8 years. During the years ended December 31, 2015, 20142017, 2016 and 2013,2015, the total fair value of shares vested was $10.4 million, $3.9 million and $8.1 million, $9.0 millionrespectively.
For 2017, 2016 and $9.5 million, respectively.

For the years ended December 31, 2015, 2014 and 2013, we recognized tax benefits resulting from the vesting of restricted sharestock awards and units totaling $1.9 million, $1.5 million and $2.0 million, $2.8respectively.

Cash-Based Awards
The Compensation Committee also approved the issuance of cash-based awards during the second quarter of 2017, including $5.3 million of time-based cash awards and $3.0a target amount of $1.3 million respectively.

of performance-based cash awards. The time-based cash awards were granted to executive officers and other key employees and primarily vest in equal installments over a three-year period. The performance-based cash awards were granted to executive officers and will be paid based on the relative ranking of the Company’s TSR as compared to the TSR of the Company’s designated peer group for 2017. The performance period began June 1, 2017 and ends May 31, 2020, with the ending TSR price being equal to the average closing price of our shares over the 30-calendar days ending May 31, 2020 with the cash payout for each executive ranging from 0% to 150% of target. The performance-based cash awards are accrued as a liability award over the performance period based on the estimated fair value. The fair value of the performance-based cash awards is remeasured each period using a Monte-Carlo valuation model with changes in fair value recognized in the consolidated statement of operations. At December 31, 2017, the total liability for cash-based awards was $1.4 million.

Defined Contribution Plan

Substantially all of our U.S. employees are covered by a defined contribution plan (“401(k) Plan”). Employees may voluntarily contribute up to 50% of compensation, as defined in the 401(k) Plan. Participants’ contributions, up to 3% of compensation, are matched 100% by us, and the participants’ contributions, from 3% to 6% of compensation, are matched 50% by us. Under the 401(k) Plan, our cash contributions were $1.4 million, $0.9 million and $3.2 million $3.6 millionin 2017, 2016 and $3.4 million in 2015, 2014 and 2013, respectively. In response toconnection with the continuing decline in activitycost reduction programs implemented in early 2016, we have initiated additional cost reduction programs which include the temporary elimination oftemporarily eliminated our 401(k) matching contribution beginning in March 2016.

This temporary elimination in the Company’s matching contribution to the U.S. defined contribution plan was lifted in the second quarter of 2017.



60


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Note 12 — Segment and Related Information

Our Company consists of two reportable segments, which offer different products and services to a relatively homogenoushomogeneous customer base. The reportable segments include: Fluids Systems and Mats and Integrated Services. Intersegment revenues are generally recorded at cost for items which are included in inventory of the purchasing segment, and at standard markups for items which are included in cost of revenues of the purchasing segment. All intersegmentintercompany revenues and related profits have been eliminated.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fluids Systems —Our Fluids Systems business offersprovides drilling fluids products and technical services to customers in the North America, EMEA, Latin America, and Asia Pacific regions. We offer customized solutions includingfor highly technical drilling projects involving complex subsurface conditions, such as horizontal, directional, geologically deep or drilling in deep water drilling.water. These projects require increased monitoring and critical engineering support of the fluids system during the drilling process. We provideIn addition, our Fluids Systems offering is expanding into adjacent areas to drilling fluids, productsincluding completion and technical services to markets in North America, EMEA, Latin America, andstimulation chemistry, which are typically utilized by customers following the Asia Pacific regions.drilling process.

We also have industrial mineral grinding operations for barite, a critical raw material in drilling fluids products, which serve to support our activity 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, and also sell them to third party users, including other drilling fluids companies. We also sell a variety of other minerals, principally to third party industrial (non-oil and gas) markets.

Mats and Integrated Services — Our Mats and Integrated Services segment provides composite mat rentals, site construction and related site services to customers in various markets including oil and gas exploration and production (“E&P”), electrical transmission & distribution, pipeline, solar, petrochemical and construction across North America and Europe. We also sell composite mats to customers outside of the U.S. and to domestic customers outside of the E&P market. We manufacture our DURA-BASE® Advanced Composite Mats for use in our rental operations as well as for third partythird-party sales. Our mats provide environmental protection and ensure all-weather access to sites with unstable soil conditions. We sell composite mats direct to customers in areas around the world where we do not maintain an infrastructure forThe November 2017 acquisition of WSG expanded our mat rental activities. In addition, we provide mat rentals to E&P customers in the Northeast U.S., onshore U.S. Gulf Coast, and Rocky Mountain Regions, and to non-E&P customers in the U.S., Canada and the United Kingdom. We also offer locationrange of site construction and related well siteservices we offer our customers across the U.S. to include a variety of complementary services to E&P customers in the Gulf Coast Region.

Historically, our marketing efforts for the sale of composite mats remained focused in principal oilmatting systems, including access road construction, site planning and gas industry markets outside the U.S., as well as markets outside the E&P sector in the U.S.preparation, environmental protection, fluids and Europe. We believe these mats have worldwide applications outside our traditional oilfield market, primarily in infrastructure construction, maintenancespill storage/containment, erosion control, and upgrades of pipelines and electric utility transmission lines, and as temporary roads for movement of oversized or unusually heavy loads. In late 2013, we announced plans to significantly expand our manufacturing facility, in order to support our efforts to expand our markets globally. This project was completed in 2015, which nearly doubled our manufacturing capacity and significantly expanded our research and development capabilities.

site restoration services.


61


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



Summarized financial information concerning our reportable segments is shown in the following tables:

  

Year Ended December 31,

 

(In thousands)

 

2015

  

2014

  

2013

 
             

Revenues

            

Fluids Systems

 $581,136  $965,049  $926,392 

Mats and Integrated Services

  95,729   153,367   115,964 

Total Revenues

 $676,865  $1,118,416  $1,042,356 
             

Depreciation and Amortization

            

Fluids Systems

 $22,108  $22,934  $26,679 

Mats and Integrated Services

  18,869   15,507   10,501 

Corporate Office

  2,940   2,734   2,584 

Total Depreciation and Amortization

 $43,917  $41,175  $39,764 
             

Operating Income (loss)

            

Fluids Systems

 $(86,770) $95,600  $72,604 

Mats and Integrated Services

  24,949   70,526   49,394 

Corporate Office

  (37,278)  (35,530)  (27,553)

Operating Income (loss)

 $(99,099) $130,596  $94,445 
             

Segment Assets

            

Fluids Systems

 $549,827  $778,148  $733,340 

Mats and Integrated Services

  172,415   175,318   112,619 

Assets of discontinued operations

  -   -   79,020 

Corporate

  126,651   54,206   29,939 

Total Assets

 $848,893  $1,007,672  $954,918 
             

Capital Expenditures

            

Fluids Systems

 $40,533  $36,626  $39,316 

Mats and Integrated Services

  27,456   64,101   26,455 

Corporate

  1,415   5,215   464 

Total Capital Expenditures

 $69,404  $105,942  $66,235 

In response to

 Year Ended December 31,
(In thousands)2017 2016 2015
      
Revenues     
Fluids systems$615,803
 $395,461
 $581,136
Mats and integrated services131,960
 76,035
 95,729
Total revenues$747,763
 $471,496
 $676,865
      
Depreciation and amortization     
Fluids systems$21,566
 $20,746
 $22,108
Mats and integrated Services14,991
 14,227
 18,869
Corporate office3,200
 2,982
 2,940
Total depreciation and amortization$39,757
 $37,955
 $43,917
      
Operating income (loss)     
Fluids systems$27,580
 $(43,631) $(86,770)
Mats and integrated services40,491
 14,741
 24,949
Corporate office(36,635) (28,323) (37,278)
Operating income (loss)$31,436
 $(57,213) $(99,099)
      
Segment Assets     
Fluids Systems$611,455
 $522,488
 $549,827
Mats and Integrated Services260,931
 164,515
 172,415
Corporate30,330
 111,180
 126,651
Total Assets$902,716
 $798,183
 $848,893
      
Capital Expenditures     
Fluids Systems$17,589
 $32,310
 $40,533
Mats and Integrated Services11,956
 4,637
 27,456
Corporate1,826
 1,493
 1,415
Total Capital Expenditures$31,371
 $38,440
 $69,404
As a result of the significant declines in industry activity in North America in 2015 and early 2016, we initiatedimplemented cost reduction programs in the first quarter of 2015, including workforce reductions, reduced discretionary spending, and beginning in March 2016, a temporary salary freezesreduction for substantially alla significant number of North American employees, including executive officers, and have continued these efforts throughout 2015. In September 2015, we also initiatedsuspension of the Company’s matching contribution to the U.S. defined contribution plan as well as a voluntary retirement program with certain eligible employeesreduction in the United States for retirement dates ranging from the fourth quartercash compensation paid to our Board of 2015 through the third quarter of 2016. Directors in order to align our cost structure to activity levels.


62


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


As part of these cost reduction programs, we have reduced our North American employee base by 626 (approximately 48%) from the first quarter 2015 through the third quarter of 2016, including reductions of 436 (approximately 34%)employees in 2015 and 190 employees in addition to eliminating substantially all contract positions.the first nine months of 2016. As a result of these termination programs, our 2015 operating results include $8.2 million ofwe recognized charges associated withfor employee termination costs with $5.7 million reportedas shown in costthe table below:
 Year Ended December 31,
(In thousands)2016 2015
Cost of revenues$3,647
 $5,664
Selling, general and administrative expenses925
 2,499
Total employee termination costs$4,572
 $8,163
    
Fluids systems$4,125
 $7,218
Mats and integrated services285
 717
Corporate office162
 228
Total employee termination costs$4,572
 $8,163
The temporary reduction in salaries, suspension of revenuesthe Company’s matching contribution to the U.S. defined contribution plan and $2.5 million reportedreduction in selling, generalcash compensation paid to our Board of Directors were lifted in the second quarter of 2017.
Our 2016 and administrative expenses. The employee termination costs2015 operating losses include $7.2 million in Fluids Systems, $0.7 million in Mats and Integrated Services and $0.3 million in our corporate office. Accrued employee termination costs at December 31, 2015 are $3.3net charges of $14.8 million and are expected to be substantially paid in the first half of 2016. Additional employee termination costs of $0.7 million associated with the voluntary retirement program will be recognized in 2016.

During the fourth quarter of 2015, a total of $80.5 million, of charges were included in operating loss forrespectively, resulting from the reduction in value of certain assets, the wind-down of our operations in Uruguay and the pending resolution of certain wage and hour litigation claims. The Fluids Systems segment operating results includeincluded $15.5 million and $75.5 million of these charges in 2016 and 2015, respectively. The remaining $0.7 million benefit and $5.0 million charge was included in Corporate Office expenses in 2016 and 2015, respectively, related to the resolution of certain wage and hour litigation claims.

The $15.5 million of Fluids Systems charges in 2016 included $6.9 million of non-cash impairments in the Asia Pacific region resulting from the continuing unfavorable industry market conditions and outlook for the region in 2016, $4.1 million of charges for the reduction in carrying values of certain inventory, primarily resulting from lower of cost or market adjustments and $4.5 million of charges in the Latin America region associated with the wind-down of our operations in Uruguay, including $0.5 million to write-down property, plant and equipment. The $6.9 million of impairments in the Asia Pacific region included a $3.8 million charge to write-down property, plant and equipment to its estimated fair value and a $3.1 million charge to fully impair the customer related intangible assets in the region.
The $75.5 million of Fluids Systems charges in 2015 included $70.7 million of non-cash charges for the impairment of goodwill, following our November 1, 2015 annual evaluation, a $2.6 million non-cash impairment of assets, following our decision to exit a facility, and a $2.2 million charge to reduce the carrying value of diesel-based drilling fluid inventory. inventory, resulting from lower of cost or market adjustments.
In addition, corporate office expenses include2016, a $5.0total of $6.7 million chargeof these charges are reported in impairments and other charges with the remaining $8.1 million reported in cost of revenues including the $4.1 million of charges for the pending resolutionwrite-down of certain wageinventory and hour litigation claims and related$4.0 million of the Uruguay exit costs. In our 2015, consolidated statement of operations, a total of $78.3 million of these charges are reported in impairments and other charges with the remaining $2.2 million chargeof charges for the write-down of inventory being reported in cost of revenues.

As described in Note 1, we revised our estimated useful lives and end-of-life residual values for composite mats included in our rental fleet as of January 1, 2016 resulting in a decrease in depreciation expense of approximately $6.1 million for the year ended December 31, 2016.


63


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Consolidated Statements of Cash Flows included in this Item 8 of these Financial Statements and Supplementary Data include $0.9 million and $4.4 million in depreciation and amortization expense and capital expenditures of $1.0 million and $1.7 million for 2014 and 2013, respectively, related to the Environmental Services business sold in 2014 that are classified as discontinued operations.



The following table sets forth geographic information for our operations. Revenues by geographic location are determined based on the operating location from which services are rendered or products are sold.

Long-lived assets include property, plant and equipment and other long-term assets based on the country in which the assets are located.
  

Year Ended December 31,

 

(In thousands)

 

2015

  

2014

  

2013

 
             

Revenue

            

United States

 $384,147  $748,845  $717,263 

Canada

  52,851   79,516   47,559 

EMEA

  174,524   177,244   141,535 

Latin America

  47,240   85,244   99,587 

Asia Pacific

  18,103   27,567   36,412 

Total Revenue

 $676,865  $1,118,416  $1,042,356 
             

Long-Lived Assets

            

United States

 $275,109  $294,762  $247,947 

Canada

  552   10,044   10,862 

EMEA

  50,759   55,560   44,262 

Latin America

  4,543   6,635   9,852 

Asia Pacific

  9,731   25,991   27,241 

Total Long-Lived Assets

 $340,694  $392,992  $340,164 


No

 Year Ended December 31,
(In thousands)2017 2016 2015
      
Revenue     
United States$460,872
 $214,026
 $384,147
Canada55,600
 34,176
 52,851
Algeria87,975
 80,936
 65,272
All Other EMEA102,247
 96,654
 109,252
Latin America36,988
 41,035
 47,240
Asia Pacific4,081
 4,669
 18,103
Total Revenue$747,763
 $471,496
 $676,865
      
Long-Lived Assets     
United States$337,190
 $274,746
 $275,109
Canada3,993
 3,922
 552
EMEA46,269
 48,047
 50,759
Latin America2,354
 4,842
 4,543
Asia Pacific3,120
 1,939
 9,731
Total Long-Lived Assets$392,926
 $333,496
 $340,694
For 2016, revenue from Sonatrach, our primary customer in Algeria, was approximately 14% of consolidated revenues. For 2017 and 2015 no single customer accounted for more than 10% of our consolidated revenues for the years ended December 31, 2015, 2014 or 2013.

revenues.

Note 13 — Supplemental Cash Flow and Other Information

Accounts payable and accrued liabilities at December 31, 2015, 2014,2017, 2016, and 2013,2015, included accruals for capital expenditures of $2.7 million, $2.0 million, and $3.9 million, $1.2 million, and $1.5 million, respectively.

Accrued liabilities at December 31, 20152017 and 20142016 were $45.8$68.2 million and $52.8$31.2 million, respectively. The balance at December 31, 20152017 and December 31, 20142016 included $15.1$31.4 million and $25.9$11.9 million, respectively, for employee incentives and other compensation related expenses, respectively.

expenses. The balance at December 31, 2017 also includes $14.0 million for the settlement of claims in connection with the sale of the Environmental Services business that will be funded in the first quarter of 2018 through available cash on hand and borrowings under our Amended ABL Facility. Further discussion of the claims and related settlement is contained in Note 15 below.

Cash, cash equivalents and restricted cash in the consolidated statements of cash flows included the following:

(in thousands)2017 2016 2015
Cash and cash equivalents$56,352
 $87,878
 $107,138
Restricted cash included in other current assets9,108
 7,421
 17,485
Cash, cash equivalents and restricted cash$65,460
 $95,299
 $124,623
Impairments and other non-cash charges in the consolidated statements of cash flows included the following:
(In thousands)2016 2015
Goodwill and other intangible asset impairments$3,104
 $70,720
Property, plant and equipment impairments4,286
 2,625
Inventory write-downs4,075
 2,163
Write-off of debt issuance costs on termination of Credit Agreement1,058
 
Impairments and other non-cash charges in the Consolidated Statements of Cash Flows$12,523
 $75,508
There were no impairments and other non-cash charges in 2017.


64


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Note 14 — Discontinued Operations
In March of 2014 we completed the sale of the Environmental Services business for $100 million in cash. Cash proceeds from the sale were $89.8 million in 2014, net of transaction related expenses, including the adjustment related to final working capital conveyed at closing. Following the sale, $8 million of the sales price was withheld in escrow associated with transaction representations, warranties and indemnities, with $4 million scheduled to be released at each of the nine-month and 18-month anniversary of the closing. As a result of the sale transaction, we recorded a gain on the disposal of the business of $34.0 million ($22.1 million after-tax) in the first quarter of 2014. Following completion of the March 2014 transaction, the buyer asserted that we had breached certain representations and warranties contained in the sale agreement.  The disputed matter went to trial in 2017 and following commencement of the trial, we reached a settlement agreement with the buyer to effectively reduce the sales price by $22.0 million. The impact of this settlement results in a charge to discontinued operations for $22.0 million ($17.4 million net of tax) in 2017 to reduce the previously recognized gain from the sale of the Environmental Services business. See further discussion of the buyer’s claims and related litigation in Note 15.
Summarized results of operations from discontinued operations are as follows:
(In thousands)2017
Loss from disposal of discontinued operations before income taxes$21,983
Loss from disposal of discontinued operations, net of tax$17,367
Note 15 — Commitments and Contingencies

In the ordinary course of conducting our business, we become involved in litigation and other claims from private party actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state and local levels.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Wage and Hour Litigation

During While the second quarteroutcome of 2014,litigation or other proceedings against us cannot be predicted with certainty, except as described below, management does not consider it reasonably possible that a lawsuit was filed by Jesse Davida, a former employee,loss resulting from such litigation or other proceedings, in Federal Court in Texas against Newpark Drilling Fluids LLC, alleging violationsexcess of the Fair Labor Standards Act (“FLSA”). The plaintiff seeks damages and penalties for the Company’s alleged failure to: properly classify its field service employees as “non-exempt” under the FLSA; and pay them on an hourly basis (including overtime). The plaintiff seeks recovery on his own behalf, and seeks certification of a class of similarly situated employees. The Court conditionally certified a class of plaintiffs as those working as fluid service technicians for Newpark Drilling Fluids for the prior three years. Notification was given to 658 current and former fluid service technician employees of Newpark regarding this litigation and those individuals were given the opportunity to “opt-in” to the Davida litigation. The opt-in period closed in early May of 2015 and a total of 91 individuals joined the Davida litigation. Counsel for the plaintiffs moved to add state law class action claims for current and former fluid service technicians that worked for Newpark Drilling Fluids in New York, North Dakota, Ohio and Pennsylvania. The Court granted the motion, but gave Newpark the right to file a motion to dismiss these state law claims, and that motion is pending. Among other reasons, we sought dismissal of those state law claims on the basis that an insufficient number of employees are located in those states to support a class action. We expect that the effect of the additional state law claims (excluding New York and Ohio claims) would be to include in the litigation approximately 48 current and former fluid service technicians who worked in Pennsylvania, and approximately 41 current and former fluid service technicians who worked in North Dakota. Discovery is in process with the trial currently being scheduled for September 2016.

A second case was filed by Josh Christensen in the fourth quarter of 2014, in Federal Court in Texas alleging that individuals treated as independent contractors should have been classified as employees and, as such, are entitled to assert claims for alleged violations of the FLSA (similar to the claims asserted in theDavida matter). Five additional plaintiffs joined this litigation after it was filed. In March of 2015, the Court denied the plaintiffs’ motion for conditional class certification. Counsel for the plaintiffs did not appeal that ruling and have now filed individual cases for each of the original opt-in plaintiffs plus two new plaintiffs, leaving a total of eight independent contractor cases pending. Preliminary discovery has occurred in these cases.

In the fourth quarter of 2015, the same counsel representing the plaintiff’s inDavida and theChristiansen-related cases filed two additional individual FLSA cases on behalf of former fluid service technician employees. These cases are similar in nature to theDavida case discussed above.

Beginning in November 2015, we engaged in settlement discussions with counsel for the plaintiffs in the pending wage and hour litigation cases described above. Following mediation in January of 2016, the parties reached an agreement to settle all of the pending matters, subject to a number of conditions, including approval by the Court in theDavida case, and the dismissal of the other FLSA cases (Christiansen-related lawsuits and individual FLSA cases). Subject to these conditions, current and former fluid service technician employees that are eligible for the settlement will be notified of the pending resolution and given an opportunity to participate in the settlement. The amount paid to any eligible individual will vary based on a formula that takes into account the number of workweeks and salary for the individual during the time periodamounts accrued or covered by the settlement (which can vary based upon several factors). Any eligible individualinsurance, has been incurred that electsis expected to participate in the settlement will release all wage and hour claims against the Company. Ashave a result of the settlement negotiations, we recognized a $5.0 million charge in the fourth quarter of 2015 related to the pending resolution of these wage and hour litigation claims, which is included in impairments and other charges. We expect to fund the settlement amount in the first half of 2016, subject to the conditions described above. The settlement fund will be administered by a third party who will make payments to eligible individuals that elect to participate, in accordance with a formula incorporated into the pending settlement agreement. In addition, under the terms of the pending settlement agreement, if settlement funds remain after all payments are made to eligible individuals that elect to participate in the settlement, such excess amount will be shared by the participating individuals and Newpark Drilling Fluids. The amount of excess funds, if any, is not currently determinable.

material adverse impact on our consolidated financial statements.

NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Escrow Claims Related to Sale of Environmental Services Business

Under the terms of the March 2014 sale of theour previous Environmental Services business to Ecoserv, LLC (“Ecoserv”), $8$8.0 million of the sales price was withheld and placed in an escrow account to satisfy claims for possible breaches of representations and warranties contained in the purchase/sale agreement. For the amount withheld in escrow, $4$4.0 million was scheduled for release to Newpark at each of the nine-month and 18-month anniversary of the closing. In December 2014, we received a letter from counsel for Ecoserv asserting that we had breached certain representations and warranties contained in the purchase/sale agreement;agreement, including failing to disclose operational problems and service work performed on injectioninjection/disposal wells and increased barge rental costs. The letter indicated that Ecoserv expected the costsdamages associated with these claims to exceed the escrow amount. Following a further exchange of letters, in July of 2015 we filed a declaratory judgmentan action against Ecoserv in state district court in Harris County, Texas, seeking release of the escrow funds. Thereafter, Ecoserv filed a counterclaim seeking recovery in excess of the escrow funds based on the alleged breach of representations and warranties.covenants in the purchase/sale agreement. Ecoserv also allegesalleged that we committed fraud in connection with the saleMarch 2014 transaction. We believe there is no basisDiscovery in the case provided more information about Ecoserv’s claims, which included, among other things, alleged inadequate disclosures regarding the condition of a disposal cavern (at the time of the execution of the purchase/sale agreement orand again as it relates to the time period between execution of the purchase/sale agreement and closing) and the lack of appropriate reserves/accruals/provisions in the financial statements of the business relating to certain regulatory obligations (such as plug and abandonment costs for injection wells and costs associated with a solids drying facility). Ecoserv sought to use a damage model for most of its damages based on its calculation of the factsdifference between (a) the value of the business at closing, and (b) the sales price ($100 million), and had claimed damages of approximately $20.0 million. Following commencement of the trial in December 2017, we reached a settlement agreement with Ecoserv, under which Ecoserv will receive $22.0 million in cash, effectively reducing the net sales price of the Environmental Services business by such amount in exchange for dismissal of the pending claims in the lawsuit, and release of any future claims related to support the claims asserted by Ecoserv and intend to vigorously defend our position, while pursuingMarch 2014 transaction. The reduction in sale price will be funded, in part, through the release of the entire $8$8.0 million escrow. Discoverythat has commenced betweenbeen held in escrow since the parties.

March 2014 transaction. The remaining $14.0 million will be funded in the first quarter of 2018 through available cash on hand and borrowings under our Amended ABL Facility. Litigation expenses related to this matter are included in corporate office expenses in operating income.



65


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Leases

We lease various manufacturing facilities, warehouses, office space, machinery and equipment including transportation equipment, under operating leases with remaining terms ranging from one1 to eleven9 years with various renewal options. Substantially all leases require payment of taxes, insurance and maintenance costs in addition to rental payments. Total rental expenses for all operating leases were approximately $23.9 million, $21.0 million and $22.6 million $25.5 millionin 2017, 2016 and $24.5 million in 2015, 2014 and 2013, respectively.

Future minimum payments under non-cancelable operating leases, with initial or remaining terms in excess of one year are included in the table below. Future minimum payments under capital leases are not significant.

(In thousands)

     

2016

 $8,648 

2017

  6,324 

2018

  4,794 $13,318

2019

  3,976 6,877

2020

  3,636 4,611
20213,764
20223,251

Thereafter

  12,688 7,689
 $40,066 $39,510

Other

In conjunction with our insurance programs, we had established letters of credit in favor of certain insurance companies in the amount of $3.3$2.2 million and $3.5$3.0 million at December 31, 20152017 and 2014,2016, respectively. We also had $0.4 million and $0.4 million in guarantee obligations in connection with facility closure bonds and other performance bonds issued by insurance companies outstanding as of December 31, 20152017 and 2014, respectively.

2016. 

Other than normal operating leases for office and warehouse space, rolling stock and other pieces of operating equipment, we do not have any off-balance sheet financing arrangements or special purpose entities. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

We are self-insured for health claims, subject to certain “stop loss” insurance policies. Claims in excess of $250,000 per incident are insured by third-party insurers. We had accrued liabilities of $1.0$1.3 million and $1.8$0.8 million for unpaid claims incurred, based on historical experience at December 31, 20152017 and 2014,2016, respectively. Substantially all of these estimated claims are expected to be paid within six months of their occurrence.


NEWPARK RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

We are self-insured for certain workers’ compensation, auto and general liability claims up to a certain policy limit. Claims in excess of $750,000 are insured by third-party reinsurers. At December 31, 20152017 and 2014,2016, we had accrued liabilities of $2.5 million and $2.4$1.9 million, respectively, for the uninsured portion of claims.

We maintain accrued liabilities for asset retirement obligations, which represent obligations associated with the retirement of tangible long-lived assets that result from the normal operation of the long-lived asset. Our asset retirement obligations primarily relate to required expenditures associated with owned and leased facilities. Upon settlement of the liability, a gain or loss for any difference between the settlement amount and the liability recorded is recognized. As of December 31, 2015 and 2014, weWe had accrued asset retirement obligations of $0.8$1.1 million and $0.6$1.0 million as of December 31, 2017 and 2016, respectively.



66


NEWPARK RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


Note 1516 — Supplemental Selected Quarterly Financial Data (Unaudited)

  

Quarter Ended

 

(In thousands, except per share amounts)

 

First

Quarter

  

Second

Quarter

  

Third

Quarter

  

Fourth

Quarter

 
                 

Fiscal Year 2015

                

Revenues

 $208,464  $163,644  $154,170  $150,587 

Operating income (loss)

  6,128   (1,682)  (9,263)  (94,282)

Income (loss) from continuing operations

  993   (4,254)  (4,471)  (83,096)

Net income (loss)

  993   (4,254)  (4,471)  (83,096)
                 

Income (loss) per common share -basic:

                

Income (loss) from continuing operations

  0.01   (0.05)  (0.05)  (1.00)

Net income (loss)

  0.01   (0.05)  (0.05)  (1.00)
                 

Income (loss) per common share -diluted:

                

Income (loss) from continuing operations

  0.01   (0.05)  (0.05)  (1.00)

Net income (loss)

  0.01   (0.05)  (0.05)  (1.00)
                 
                 

Fiscal Year 2014

                

Revenues

 $242,824  $272,466  $296,964  $306,162 

Operating income

  20,757   31,816   39,432   38,591 

Income from continuing operations

  11,742   20,329   23,492   23,446 

Net income

  35,011   20,329   23,492   23,446 
                 

Income per common share -basic:

                

Income from continuing operations

  0.14   0.24   0.29   0.29 

Net income

  0.41   0.24   0.29   0.29 
                 

Income per common share -diluted:

                

Income from continuing operations

  0.13   0.21   0.25   0.25 

Net income

  0.36   0.21   0.25   0.25 

During

(In thousands, except per share amounts)First
Quarter
 Second
Quarter
 Third
Quarter
 Fourth
Quarter
Fiscal Year 2017       
Revenues$158,691
 $183,020
 $201,663
 $204,389
Operating income3,746
 7,968
 9,882
 9,840
Income (loss) from continuing operations(983) 1,632
 2,653
 7,917
Net income (loss)(983) 1,632
 2,653
 (9,450)
        
Income (loss) per common share - basic:       
   Income (loss) from continuing operations$(0.01) $0.02
 $0.03
 $0.09
   Net income (loss)$(0.01) $0.02
 $0.03
 $(0.11)
        
Income (loss) per common share - diluted:       
Income (loss) from continuing operations$(0.01) $0.02
 $0.03
 $0.09
Net income (loss)$(0.01) $0.02
 $0.03
 $(0.11)
        
Fiscal Year 2016       
Revenues$114,544
 $115,315
 $104,554
 $137,083
Operating loss(18,825) (15,135) (15,055) (8,198)
Loss from continuing operations(13,300) (13,904) (13,451) (57)
Net loss(13,300) (13,904) (13,451) (57)
        
Net loss per common share - basic:       
   Loss from continuing operations$(0.16) $(0.17) $(0.16) $
   Net loss$(0.16) $(0.17) $(0.16) $
        
Net loss per common share - diluted:       
Loss from continuing operations$(0.16) $(0.17) $(0.16) $
Net loss$(0.16) $(0.17) $(0.16) $
Fourth quarter 2017 income from continuing operations and net loss includes the fourth$3.4 million net tax benefit recognized related to the Tax Act. Fourth quarter 2017 net loss also includes the $17.4 million loss from disposal of 2015, a totaldiscontinued operations, net of $80.5 million of charges were included intax.
Fourth quarter 2016 operating loss for the reduction in value of certain assets and the pending resolution of certain wage and hour litigation claims. The Fluids Systems segment operating results include $75.5 million of these charges including a $70.7 million non-cash impairment of goodwill,included a $2.6 million non-cash impairment of assets, following our decision to exit a facility, and a $2.2 million charge to reduce the carrying value of diesel-based drilling fluid inventory. In addition, corporate office expenses include a $5.0fluids inventory in our Asia Pacific region. Fourth quarter 2016 and third quarter 2016 operating loss included charges of $2.0 million charge forand $2.5 million, respectively, associated primarily with asset redeployment costs resulting from the pending resolutionexit of certain wage and hour litigation claims and related costs. In our 2015 consolidated statement ofFluids Systems operations in Uruguay. Second quarter 2016 operating loss included a total of $78.3$6.9 million of these charges are reported in impairments and other charges with the $2.2related to our Asia Pacific region, including a $3.8 million charge for thenon-cash impairment to write-down property, plant and equipment to its estimated fair value and a $3.1 million impairment of inventory being reported in cost of revenues.

customer related intangible assets.


ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



67



ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

ITEM 9A.

Controls and Procedures

ITEM 9A. Controls and Procedures
Evaluation of disclosure controls and procedures

Based on their evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this report,Annual Report, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company’s disclosure controls and procedures are effective as of December 31, 2015.

2017.

Changes in internal control over financial reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 20152017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities and Exchange Act Rule 13(a)-15(f). Our internal control system over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance, not absolute assurance with respect to the financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our internal control over financial reporting as of December 31, 20152017 as required by the Securities and Exchange Act of 1934 Rule 13a-15(c). In making its assessment, we have utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in a report entitled “InternalInternal Control — Integrated Framework (2013).” We concluded that based on our evaluation, our internal control over financial reporting was effective as of December 31, 2015.

2017.

The effectiveness of our internal control over financial reporting as of December 31, 20152017 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

                 /s/

/s/  Paul L. Howes

Paul L. Howes

President, Chief Executive Officer

                 /s/

/s/  Gregg S. Piontek

Gregg S. Piontek

Vice President and Chief Financial Officer





68



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Directors and Stockholders of 

Newpark Resources, Inc.

The Woodlands, Texas

Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Newpark Resources, Inc. and subsidiaries (the "Company"“Company”) as of December 31, 2015,2017, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated February 23, 2018 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’sManagement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.

Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015, of the Company and our report dated February 26, 2016 expressed an unqualified opinion on those financial statements.


/s/ DELOITTE & TOUCHE LLP

Houston, Texas

February 26, 2016

 
Houston, Texas
February 23, 2018



69


ITEM 9B.

Other Information

None.


ITEM 9B. Other Information
None

PART III
ITEM 10.

ITEM 10.

Directors, Executive Officers and Corporate Governance

Directors, Executive Officers and Corporate Governance

Executive Officers and Directors

The information required by this Item is incorporated by reference to the “Executive Officers” and “Election of Directors” sections of the definitive Proxy Statement relating to our 20162018 Annual Meeting of Stockholders.

Compliance with Section 16(a) of the Exchange Act

The information required by this Item is incorporated by reference to the “Section 16(a) Beneficial Ownership Reporting Compliance” section of the definitive Proxy Statement relating to our 20162018 Annual Meeting of Stockholders.

Code of Conduct and Ethics

We have adopted a Code of Ethics that applies to all of our directorsfor Senior Officers and senior officers,Directors, and a Corporate Compliance andCode of Business Ethics Manualand Conduct (“Ethics Manual”) that applies to all officers and employees. The Code of Ethics and Ethics Manual are publicly available in the investor relations area of our website at www.newpark.com. This Code of Ethics is incorporated in this reportAnnual Report by reference. Copies of our Code of Ethics may also be requested in print by writing to Newpark Resources, Inc., 9320 Lakeside Blvd., Suite 100, The Woodlands, Texas, 77381.

ITEM 11.

Executive Compensation


ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference to the “Executive Compensation” section of the definitive Proxy Statement relating to our 20162018 Annual Meeting of Stockholders.

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference to the “Ownership of Common Stock” section of the definitive Proxy Statement relating to our 20162018 Annual Meeting of Stockholders.

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the “Related Person Transactions” and “Director Independence” sections of the definitive Proxy Statement relating to our 20162018 Annual Meeting of Stockholders.

ITEM 14.

Principal Accounting Fees and Services

ITEM 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to the “Independent Auditor” section of the definitive Proxy Statement relating to our 20162018 Annual Meeting of Stockholders.




70



PART IV
ITEM 15.

ITEM 15.

Exhibits and Financial Statement Schedules

Exhibits and Financial Statement Schedules

(a)     List of documents filed as part of this reportAnnual Report or incorporated herein by reference.

1. Financial Statements

The following financial statements of the Registrant as set forth under Part II, Item 8 of this reportAnnual Report on Form  10-K on the pages indicated.

 

Page in this
Form 10-K

Report of Independent Registered Public Accounting Firm

39

Consolidated Balance Sheets as of December 31, 2015 and 2014

40

Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013

41

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013

(Loss)

42

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015, 2014 and 2013

43

Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013

44

Notes to Consolidated Financial Statements

45

2.

Financial Statement Schedules

2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

3. Exhibits
The exhibits listed are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

3.

Exhibits

3.1

The exhibits listed are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

3.1

Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K405 for the year ended December 31, 1998 filed on March 31, 1999 (SEC File No. 001-02960).

3.2

3.2

Certificate of Designation of Series A Cumulative Perpetual Preferred Stock of Newpark Resources, Inc. incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 27, 1999 (SEC File No. 001-02960).

3.3

3.3

Certificate of Designation of Series B Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 7, 2000 (SEC File No. 001-02960).

3.4

3.4

Certificate of Rights and Preferences of Series C Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 4, 2001 (SEC File No. 001-02960).

3.5

3.5

Certificate of Amendment to the Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 4, 2009 (SEC File No. 001-02960).

3.6

3.6

Certificate of Amendment to the Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on July 29, 2016 (SEC File No. 001-02960).
3.7

Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 13, 2007 (SEC File No. 001-02960).


4.1

4.1

Specimen form of common stock certificate of Newpark Resources, Inc., incorporated by reference to the exhibit filed with the Company’s Registration Statement on Form S-1 (SEC File No. 33-40716).

4.2

4.2

Indenture, dated October 4, 2010,December 5, 2016, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Company’sCompany's Current Report on Form 8-K filed on October 4, 2010December 5, 2016 (SEC File No. 001-02960).

4.3

4.3

First Supplemental Indenture, dated October 4, 2010, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee,Form of 4.00% Convertible Senior Note due 2021, incorporated by reference to Exhibit 4.2 toof the Company’sCompany's Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960).

4.4

Form of 4.00% Convertible Senior Note due 2017, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960).

*10.1

Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed on March 10, 2009December 5, 2016 (SEC File No. 001-02960).

*10.1

*10.2

Form of Non-Employee Director Restricted Stock Agreement under the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960).

*10.3

Amended and Restated Employment Agreement, dated as of December 31, 2008, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2009 (SEC File No. 001-02960).



71



10.4

10.2

Indemnification Agreement, dated June 7, 2006, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960).

*10.3

10.5

Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960).

*10.6

Employment Agreement, dated as of September 18, 2006, by and between Newpark Resources, Inc. and Mark J. Airola, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 20, 2006 (SEC File No. 001-02960).

*10.4

*10.7

Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 filed on March 26, 2007 (SEC File No. 333-0141577).

*10.5

*10.8

Employment Agreement between Newpark Resources, Inc. and Bruce Smith dated April 20, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed on May 8, 2007 (SEC File No. 001-02960).

10.6

10.9

Amendment to the Indemnification Agreement between Newpark Resources, Inc. and Paul L. Howes dated September 11, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 14, 2007 (SEC File No. 001-02960).

*10.7

*10.10

First Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 10, 2009 (SEC File No. 001-02960).

*10.11

Newpark Resources, Inc., 2008 Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 the Company’s Registration Statement on Form S-8 filed on December 9, 2008 (SEC File No. 333-156010).

*10.8

*10.12

Form of Change of Control Agreement, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008 filed on May 2, 2008 (SEC File No. 001-02960).


*10.9

*10.13

Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated April 20, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960).

*10.10

*10.14

Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated April 22, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960).

*10.11

*10.15

Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated April 22, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960).

*10.12

*10.16

Extension Letter Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated November 30, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960).

*10.17

Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated November 30, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960).

*10.18

Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated November 30, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960).

*10.19

Employment Agreement, dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960).

*10.20

Change in Control Agreement dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960).

*10.21

Newpark Resources, Inc. 2010 Annual Cash Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 2, 2010 (SEC File No. 001-02960).

†*10.22

Director Compensation Summary.

*10.14

*10.23

Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009), incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-8 filed on August 14, 2009 (SEC File No. 333-161378).

*10.15

*10.24

Amendment No. 1 to the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009), incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.16

*10.25

Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.17

*10.26

Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.18

*10.27

Form of Restricted Stock Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).


*10.19

*10.28

Form of Restricted Stock Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.20

*10.29

Employment Agreement, dated October 18, 2011, by and between Newpark Resources, Inc. and Gregg Steven Piontek, incorporated by reference to the Company’s Current Report on Form 8-K filed on October 21, 2011 (SEC File No. 001-02960).

10.21

10.30

Indemnification Agreement, dated October 26, 2011, between Gregg S. Piontek and Newpark Resources, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 31, 2011 (SEC File No. 001-02960).

*10.22

*10.31

Form of Restricted Stock Unit for Participants Outside the United States under the 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).



72



*10.32

10.23

Form of Non-Qualified Stock Option Agreement for Participants Outside the United States under the 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).

*10.24

*10.33

Second Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).

*10.34

Amendment to Employment Agreement, dated December 31, 2012, between Mark Airola and Newpark Resources, Inc., incorporated by reference to the Company’s Current Report on Form 8-K filed on January 4, 2013 (SEC File No. 001-02960).

*10.25

*10.35

Amendment to Employment Agreement, dated December 31, 2012, between Bruce Smith and Newpark Resources, Inc., incorporated by reference to the Company’s Current Report on Form 8-K filed on January 4, 2013 (SEC File No. 001-02960).

10.26

10.36

Membership Interests Purchase Agreement, dated February 10, 2014, by and among Newpark Resources, Inc., Newpark Drilling Fluids LLC and ecoserv, LLC, incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on April 25, 2014 (SEC File No. 001-02960).

*10.27

*10.37

Newpark Resources, Inc. 2014 Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 filed on May 22, 2014 (SEC File No. 333-196164).

*10.28

*10.38

Form of Non-Employee Director Restricted Stock Agreement under the Newpark Resources, Inc. 2014 Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed on May 22, 2014 (SEC File No. 333-196164).

10.29

10.39

Form of Indemnification Agreement, incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q filed on July 25, 2014 (SEC File No. 001-02960).

*10.30

10.40

Third Amended and Restated Credit Agreement dated March 6, 2015 by and among Newpark Resources, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo, National Association, as Documentation Agent, and lenders who are parties thereto, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 10, 2015 (SEC File No. 001-02960).

*10.41

Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333-204403).


*10.31

*10.42

Form of Restricted Stock Agreement (time vested) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333-204403).

*10.32

*10.43

Form of Restricted Stock Unit Agreement (performance-based) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333-204403).

*10.33

*10.44

Form of Restricted Stock Unit Agreement (retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.34

*10.45

Form of Restricted Stock Unit Agreement (not retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.35

*10.46

Form of Restricted Stock Unit Agreement (international) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.36

*10.47

Form of Non-Qualified Stock Option Agreement (retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.13 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.37

*10.48

Form of Non-Qualified Stock Option Agreement (not retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.14 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.38

*10.49

Form of Non-Qualified Stock Option Agreement (international) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.15 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.39

10.50

First Amendment to Third Amended and Restated Credit Agreement, dated December 18, 2015, by and among Newpark Resources, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo Bank, National Association, as Documentation Agent, and the lenders who are parties thereto, incorporate by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed December 21, 2015 (SEC File No. 001-02960).

*10.51

Amendment to Amended and Restated Employment Agreement dated as of February 16, 2016, between Newpark Resources, Inc. and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

*10.40

*10.52

Amendment to Employment Agreement dated as of February 16, 2016 between Newpark Resources, Inc. and Gregg S. Piontek, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

*10.41

*10.53

Amendment to Employment Agreement dated February 16, 2016 between Newpark Resources, Inc. and Bruce C. Smith, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

*10.42

*10.54

Amendment to Employment Agreement dated February 16, 2016 between Newpark Resources, Inc. and Mark J. Airola, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).



73



*10.55

10.43

Amendment to Employment Agreement, dated February 16,as of April 22, 2016, by and between Newpark Resources, Inc. and Matthew S. Lanigan, incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on July 29, 2016 (SEC File No. 001-02960).

*10.44Change in Control Agreement dated as of April 22, 2016 by and between Newpark Resources, Inc. and Matthew S. Lanigan, incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on July 29, 2016 (SEC File No. 001-02960).
*10.45Amendment No. 1 to Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-8 filed on May 19, 2016 (333-211459).
10.46Purchase Agreement, dated November 29, 2016, by and between Newpark Resources, Inc. and Credit Suisse Securities (USA) LLC, as representative of the several initial purchasers named therein, incorporated by reference to Exhibit 1.1 to the Company's Current Report on Form 8-K filed on December 5, 2016 (SEC File No. 001-02960).
*10.47Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and JefferyPaul L. Juergens,Howes, incorporated by reference to Exhibit 10.510.1 to the Company's Current Report on Form 8-K filed on December 15, 2016 (SEC File No. 001-02960).
*10.48Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and Gregg S. Piontek, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 15, 2016 (SEC File No. 001-02960).
*10.49Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and Bruce C. Smith, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on December 15, 2016 (SEC File No. 001-02960).
*10.50Letter Agreement dated as of December 13, 2016 between Newpark Resources, Inc. and Mark J. Airola, incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 15, 2016 (SEC File No. 001-02960).
*10.51
Amendment No. 2 to Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed on May 18, 2017 (SEC File No. 333-218072).

*10.52
Newpark Resources, Inc. Amended and Restated Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 filed on May 18, 2017 (SEC File No. 333-218074).

*10.53
Newpark Resources, Inc. Long-Term Cash Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2016June 15, 2017 (SEC File No. 001-02960).


*10.54

Form of Time-Based Cash Award Agreement under the Newpark Resources, Inc. Long-Term Cash Incentive Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report of Form 8-K filed on June 15, 2017 (SEC File No. 001-02960).

*10.55
Form of Performance-Based Cash Award Agreement under the Newpark Resources, Inc. Long-Term Cash Incentive Plan, incorporated by reference to Exhibit 10.3 to the Company’s Current Report of Form 8-K filed on June 15, 2017 (SEC File No. 001-02960).

*10.56Employment Agreement, dated as of July 1, 2017, by and between Newpark Resources, Inc. and Phillip T. Vollands, incorporated by reference to Exhibit 10.1 to the Company's Current Report of Form 8-K filed on July 3, 2017 (SEC File No. 001-02960)
*10.57
Amended and Restated Employment Agreement, dated as of July 1, 2017, by and between Newpark Resources, Inc. and Bruce Smith, incorporated by reference to Exhibit 10.2 to the Company’s Current Report of Form 8-K filed on July 3, 2017 (SEC File No. 001-02960).

10.58
Amended and Restated Credit Agreement dated October 17, 2017 by and among Newpark Resources, Inc., Newpark Drilling Fluids LLC, Newpark Mats & Integrated Services LLC, Excalibar Minerals LLC and Dura-Base Nevada, Inc., as borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other Lenders party hereto, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 18, 2017 (SEC File No. 001-02960).

10.59
Asset Purchase Agreement, dated as of October 27, 2017, by and among Well Service Group Inc., the stockholders designated therein, Newpark Resources, Inc. and Newpark Mats & Integrated Services LLC, incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on October 31, 2017 (SEC File No. 001-02960).

10.60
Asset Purchase Agreement, dated as of October 27, 2017, by and among Utility Access Solutions Inc., the stockholders designated therein, Newpark Resources, Inc. and Newpark Mats & Integrated Services LLC, incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on October 31, 2017 (SEC File No. 001-02960).

Subsidiaries of the Registrant.

†23.1

Consent of Independent Registered Public Accounting Firm.

†31.1

Certification of Paul L. Howes pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



74



Certification of Gregg S. Piontek pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

†32.1

Certification of Paul L. Howes pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†32.2

Certification of Gregg S. Piontek pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†95.1

Reporting requirements under the Mine Safety and Health Administration.


†101.INS

†101.INS

XBRL Instance Document

†101.SCH

†101.SCH

XBRL Schema Document

†101.CAL

†101.CAL

XBRL Calculation Linkbase Document

†101.LAB

†101.LAB

XBRL Label Linkbase Document

†101.PRE

†101.PRE

XBRL Presentation Linkbase Document

†101.DEF

†101.DEF

XBRL Definition Linkbase Document

_______


†     Filed herewith.

*     Management compensation plan or agreement

ITEM 16. Form 10-K Summary
None.


75



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NEWPARK RESOURCES, INC.

By: /s/ Paul L. Howes
Paul L. Howes
President and Chief Executive Officer

Dated: February 26, 2016

23, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signatures

 

Title

Date

    

/s/ Paul L. Howes

 

President, Chief Executive Officer and Director

February 26, 2016

23, 2018

Paul L. Howes

 (Principal Executive Officer) 
    

/s/ Gregg S. Piontek

 

Vice President and Chief Financial Officer

February 26, 2016

23, 2018

Gregg S. Piontek

 (Principal Financial Officer) 
    

/s/ Douglas L. White

 

Corporate Controller and Chief Accounting Officer

February 26, 2016

23, 2018

Douglas L. White

 (Principal Accounting Officer) 
    

/s/ David C. Anderson

 Chairman of the Board

February 26, 2016

23, 2018

David C. Anderson

   
    

/s/ Anthony J. Best

 

Director, Member of the Audit Committee

February 26, 2016

23, 2018

Anthony J. Best

   
    

/s/ G. Stephen Finley

 

Director, Member of the Audit Committee

February 26, 2016

23, 2018

G. Stephen Finley

   
    

/s/ Roderick A. Larson

 

Director, Member of the Audit Committee

February 26, 2016

23, 2018

Roderick A. Larson

   
    
/s/ John C. Mingé 

/s/ James W. McFarland

Director, Member of the Audit Committee

February 26, 2016

23, 2018

James W. McFarland

John C. Mingé
   
    

/s/ Gary L. Warren

Rose M. Robeson
 Director, Member of the Audit Committee

February 26, 2016

23, 2018

Rose M. Robeson

/s/ Gary L. Warren

Director, Member of the Audit CommitteeFebruary 23, 2018
Gary L. Warren   


NEWPARK RESOURCES, INC

EXHIBIT INDEX

The exhibits listed are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

3.1

Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K405 for the year ended December 31, 1998 filed on March 31, 1999 (SEC File No. 001-02960).

3.2

Certificate of Designation of Series A Cumulative Perpetual Preferred Stock of Newpark Resources, Inc. incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 27, 1999 (SEC File No. 001-02960).

3.3

Certificate of Designation of Series B Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 7, 2000 (SEC File No. 001-02960).

3.4

Certificate of Rights and Preferences of Series C Convertible Preferred Stock of Newpark Resources, Inc., incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 4, 2001 (SEC File No. 001-02960).

3.5

Certificate of Amendment to the Restated Certificate of Incorporation of Newpark Resources, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 4, 2009 (SEC File No. 001-02960).

3.6

Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 13, 2007 (SEC File No. 001-02960).

4.1

Specimen form of common stock certificate of Newpark Resources, Inc., incorporated by reference to the exhibit filed with the Company’s Registration Statement on Form S-1 (SEC File No. 33-40716).

4.2

Indenture, dated October 4, 2010, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-02960).

4.3

First Supplemental Indenture, dated October 4, 2010, between Newpark Resources, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960).

4.4

Form of 4.00% Convertible Senior Note due 2017, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 4, 2010 (SEC File No. 001-2960).

*10.1

Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960).

*10.2

Form of Non-Employee Director Restricted Stock Agreement under the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed on March 10, 2009 (SEC File No. 001-02960).

*10.3

Amended and Restated Employment Agreement, dated as of December 31, 2008, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2009 (SEC File No. 001-02960).

10.4

Indemnification Agreement, dated June 7, 2006, between the registrant and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960).


10.5

Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 13, 2006 (SEC File No. 001-02960).

*10.6

Employment Agreement, dated as of September 18, 2006, by and between Newpark Resources, Inc. and Mark J. Airola, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 20, 2006 (SEC File No. 001-02960).

*10.7

Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 filed on March 26, 2007 (SEC File No. 333-0141577).

*10.8

Employment Agreement between Newpark Resources, Inc. and Bruce Smith dated April 20, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007 filed on May 8, 2007 (SEC File No. 001-02960).

10.9

Amendment to the Indemnification Agreement between Newpark Resources, Inc. and Paul L. Howes dated September 11, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 14, 2007 (SEC File No. 001-02960).

*10.10

First Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 10, 2009 (SEC File No. 001-02960).

*10.11

Newpark Resources, Inc., 2008 Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 the Company’s Registration Statement on Form S-8 filed on December 9, 2008 (SEC File No. 333-156010).

*10.12

Form of Change of Control Agreement, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008 filed on May 2, 2008 (SEC File No. 001-02960).

*10.13

Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated April 20, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960).

*10.14

Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated April 22, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960).

*10.15

Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated April 22, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 23, 2009 (SEC File No. 001-02960).

*10.16

Extension Letter Amendment to Amended and Restated Employment Agreement between Newpark Resources, Inc. and Paul L. Howes dated November 30, 2009, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960).

*10.17

Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Bruce C. Smith dated November 30, 2009, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960).

*10.18

Extension Letter Amendment to Employment Agreement between Newpark Resources, Inc. and Mark J. Airola dated November 30, 2009, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 7, 2009 (SEC File No. 001-02960).

*10.19

Employment Agreement, dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960).

*10.20

Change in Control Agreement dated as of October 15, 2010, by and between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 18, 2010 (SEC File No. 001-02960).


76

*10.21

Newpark Resources, Inc. 2010 Annual Cash Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 2, 2010 (SEC File No. 001-02960).

†*10.22

Director Compensation Summary.

*10.23

Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009), incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-8 filed on August 14, 2009 (SEC File No. 333-161378).

*10.24

Amendment No. 1 to the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009), incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.25

Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.26

Form of Non-Qualified Stock Option Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.27

Form of Restricted Stock Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.28

Form of Restricted Stock Agreement under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8 filed on June 9, 2011 (SEC File No. 333-174807).

*10.29

Employment Agreement, dated October 18, 2011, by and between Newpark Resources, Inc. and Gregg Steven Piontek, incorporated by reference to the Company’s Current Report on Form 8-K filed on October 21, 2011 (SEC File No. 001-02960).

10.30

Indemnification Agreement, dated October 26, 2011, between Gregg S. Piontek and Newpark Resources, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 31, 2011 (SEC File No. 001-02960).

*10.31

Form of Restricted Stock Unit for Participants Outside the United States under the 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).

*10.32

Form of Non-Qualified Stock Option Agreement for Participants Outside the United States under the 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009) (as amended), incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).

*10.33

Second Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012 (SEC File No. 001-02960).

*10.34

Amendment to Employment Agreement, dated December 31, 2012, between Mark Airola and Newpark Resources, Inc., incorporated by reference to the Company’s Current Report on Form 8-K filed on January 4, 2013 (SEC File No. 001-02960).


*10.35

Amendment to Employment Agreement, dated December 31, 2012, between Bruce Smith and Newpark Resources, Inc., incorporated by reference to the Company’s Current Report on Form 8-K filed on January 4, 2013 (SEC File No. 001-02960).

10.36

Membership Interests Purchase Agreement, dated February 10, 2014, by and among Newpark Resources, Inc., Newpark Drilling Fluids LLC and ecoserv, LLC, incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on April 25, 2014 (SEC File No. 001-02960).

*10.37

Newpark Resources, Inc. 2014 Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 filed on May 22, 2014 (SEC File No. 333-196164).

*10.38

Form of Non-Employee Director Restricted Stock Agreement under the Newpark Resources, Inc. 2014 Non-Employee Directors’ Restricted Stock Plan, incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed on May 22, 2014 (SEC File No. 333-196164).

10.39

Form of Indemnification Agreement, incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q filed on July 25, 2014 (SEC File No. 001-02960).

10.40

Third Amended and Restated Credit Agreement dated March 6, 2015 by and among Newpark Resources, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo, National Association, as Documentation Agent, and lenders who are parties thereto, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 10, 2015 (SEC File No. 001-02960).

*10.41

Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333-204403).

*10.42

Form of Restricted Stock Agreement (time vested) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333-204403).

*10.43

Form of Restricted Stock Unit Agreement (performance-based) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333-204403).

*10.44

Form of Restricted Stock Unit Agreement (retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.45

Form of Restricted Stock Unit Agreement (not retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.11 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.46

Form of Restricted Stock Unit Agreement (international) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.47

Form of Non-Qualified Stock Option Agreement (retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.13 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

*10.48

Form of Non-Qualified Stock Option Agreement (not retirement eligible) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.14 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).


*10.49

Form of Non-Qualified Stock Option Agreement (international) under the Newpark Resources, Inc. 2015 Employee Equity Incentive Plan, incorporated by reference to Exhibit 4.15 to the Company’s Registration Statement on Form S-8 filed May 22, 2015 (SEC File No. 333.204403).

10.50

First Amendment to Third Amended and Restated Credit Agreement, dated December 18, 2015, by and among Newpark Resources, Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo Bank, National Association, as Documentation Agent, and the lenders who are parties thereto, incorporate by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed December 21, 2015 (SEC File No. 001-02960).

*10.51

Amendment to Amended and Restated Employment Agreement dated as of February 16, 2016, between Newpark Resources, Inc. and Paul L. Howes, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

*10.52

Amendment to Employment Agreement dated as of February 16, 2016 between Newpark Resources, Inc. and Gregg S. Piontek, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

*10.53

Amendment to Employment Agreement dated February 16, 2016 between Newpark Resources, Inc. and Bruce C. Smith, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

*10.54

Amendment to Employment Agreement dated February 16, 2016 between Newpark Resources, Inc. and Mark J. Airola, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

*10.55

Amendment to Employment Agreement dated February 16, 2016 between Newpark Resources, Inc. and Jeffery L. Juergens, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 18, 2016 (SEC File No. 001-02960).

†21.1

Subsidiaries of the Registrant.

†23.1

Consent of Independent Registered Public Accounting Firm.

†31.1

Certification of Paul L. Howes pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

†31.2

Certification of Gregg S. Piontek pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

†32.1

Certification of Paul L. Howes pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†32.2

Certification of Gregg S. Piontek pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†95.1

Reporting requirements under the Mine Safety and Health Administration.

†101.INS

XBRL Instance Document

†101.SCH

XBRL Schema Document

†101.CAL

XBRL Calculation Linkbase Document

†101.LAB

XBRL Label Linkbase Document

†101.PRE

XBRL Presentation Linkbase Document

†101.DEF

XBRL Definition Linkbase Document

_______

†     Filed herewith.

*     Management compensation plan or agreement

87