XNYS:NR Newpark Resources Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

Form 10-Q

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

  For the quarterly period ended June 30, 2012
or

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

  For the transition period from __________ to __________.

Commission File No. 1-2960

Newpark Resources, Inc.
(Exact name of registrant as specified in its charter)

 
 
  Delaware   72-1123385  
  (State or other jurisdiction of   (I.R.S. Employer  
  incorporation or organization)   Identification No.)  
         
         
 
2700 Research Forest Drive, Suite 100
     
  The Woodlands, Texas   77381  
  (Address of principal executive offices)    (Zip Code)  
 
(281) 362-6800
(Registrant’s telephone number, including area code)
 
      Not Applicable     
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes          Ö        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          Ö        No          

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   Ö                                                                    Accelerated filer     
 
Non-accelerated filer   _   (Do not check if a smaller reporting company)   Smaller reporting company     _
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes                                  No  Ö      

As of July 18, 2012, a total of 88,135,978 shares of common stock, $0.01 par value per share, were outstanding.
 


 
 

 
 
NEWPARK RESOURCES, INC.
 
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED
June 30, 2012
 
PART I
FINANCIAL INFORMATION
 
ITEM 1.
Financial Statements
 
 
Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011
2
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011
3
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011
4
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011
5
 
Notes to Unaudited Condensed Consolidated Financial Statements
6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
11
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
23
ITEM 4.
Controls and Procedures
23
PART II
OTHER INFORMATION
24
ITEM 1.
Legal Proceedings
24
ITEM 1A.
Risk Factors
24
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
24
ITEM 3.
Defaults Upon Senior Securities
24
ITEM 4.
Mine Safety Disclosures
25
ITEM 5.
Other Information
25
ITEM 6.
Exhibits
26
 
Signatures
27
 
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. We also may provide oral or written forward-looking statements in other materials we release to the public.  The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying them.  These forward-looking statements reflect the current views of our management; however, various risks, uncertainties and contingencies, including the risks identified in Item 1A, “Risk Factors,” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, and those set forth from time to time in our filings with the Securities and Exchange Commission, could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements, including the success or failure of our efforts to implement our business strategy.
 
We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities laws. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.
 
For further information regarding these and other factors, risks and uncertainties affecting us, we refer you to the risk factors set forth in Item 1A, “Risk Factors”, in Part I of our Annual Report on Form 10-K for the year ended December 31, 2011.
 
 
1

 
 
PART I                      FINANCIAL INFORMATION
 
 
ITEM 1.    Financial Statements
 
Newpark Resources, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
         
 
 
(In thousands, except share data)
 
June 30,
2012
   
December 31,
2011
 
             
ASSETS
           
Cash and cash equivalents
  $ 28,832     $ 25,247  
Receivables, net
    333,976       328,590  
Inventories
    174,820       175,929  
Deferred tax asset
    13,211       13,224  
Prepaid expenses and other current assets
    12,427       10,828  
Total current assets
    563,266       553,818  
                 
Property, plant and equipment, net
    247,856       231,055  
Goodwill
    75,166       71,970  
Other intangible assets, net
    19,077       20,850  
Other assets
    10,217       9,144  
Total assets
  $ 915,582     $ 886,837  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Short-term debt
  $ 792     $ 2,232  
Accounts payable
    84,161       97,168  
Accrued liabilities
    28,327       47,443  
Total current liabilities
    113,280       146,843  
                 
Long-term debt, less current portion
    238,843       189,876  
Deferred tax liability
    47,034       46,844  
Other noncurrent liabilities
    13,906       5,428  
Total liabilities
    413,063       388,991  
                 
Commitments and contingencies (Note 8)
               
                 
Common stock, $0.01 par value, 200,000,000 shares authorized and 95,496,604 and 94,497,526 shares issued, respectively
    955       945  
Paid-in capital
    480,414       477,204  
Accumulated other comprehensive income
    (3,133 )     789  
Retained earnings
    65,080       34,983  
Treasury stock, at cost; 6,407,673 and 2,803,987 shares, respectively
    (40,797 )     (16,075 )
Total stockholders’ equity
    502,519       497,846  
Total liabilities and stockholders' equity
  $ 915,582     $ 886,837  
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
2

 
 
Newpark Resources, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
(In thousands, except per share data)
 
2012
   
2011
   
2012
   
2011
 
                         
Revenues
  $ 245,756     $ 230,822     $ 508,092     $ 433,473  
                                 
Cost of revenues
    201,534       178,911       416,436       337,913  
Selling, general and administrative expenses
    19,944       21,150       41,257       36,968  
Other operating income, net
    (477 )     (835 )     (491 )     (952 )
                                 
Operating income
    24,755       31,596       50,890       59,544  
                                 
Foreign currency exchange loss (gain)
    461       (468 )     231       (145 )
Interest expense, net
    2,553       2,100       4,921       4,357  
                                 
Income from operations before income taxes
    21,741       29,964       45,738       55,332  
Provision for income taxes
    7,278       10,684       15,641       20,198  
                                 
Net income
  $ 14,463     $ 19,280     $ 30,097     $ 35,134  
                                 
                                 
                                 
Income per common share -basic:
  $ 0.16     $ 0.21     $ 0.34     $ 0.39  
Income per common share -diluted:
  $ 0.15     $ 0.19     $ 0.31     $ 0.35  
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
3

 
 
Newpark Resources, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
(In thousands)
 
2012
   
2011
   
2012
   
2011
 
                         
Net income
  $ 14,463     $ 19,280     $ 30,097     $ 35,134  
                                 
Foreign currency translation adjustments
    (7,917 )     1,903       (3,922 )     7,001  
                                 
Comprehensive income
  $ 6,546     $ 21,183     $ 26,175     $ 42,135  

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
4

 
 
Newpark Resources, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 

   
Six Months Ended June 30,
 
(In thousands)
 
2012
   
2011
 
Cash flows from operating activities:
           
Net income
  $ 30,097     $ 35,134  
Adjustments to reconcile net income to net cash provided by operations:
         
Depreciation and amortization
    15,808       13,575  
Stock-based compensation expense
    3,003       2,065  
Provision for deferred income taxes
    178       9,997  
Net provision for doubtful accounts
    1,073       699  
Loss (gain) on sale of assets
    104       (117 )
Change in assets and liabilities:
               
Increase in receivables
    (10,793 )     (32,334 )
Increase in inventories
    (870 )     (1,981 )
Increase in other assets
    (2,826 )     (5,729 )
(Decrease) increase in accounts payable
    (8,705 )     5,091  
Decrease in accrued liabilities and other
    (11,247 )     (5,273 )
Net cash provided by operating activities
    15,822       21,127  
                 
Cash flows from investing activities:
               
Capital expenditures
    (26,315 )     (16,842 )
Business acquisition, net of cash acquired
    -       (25,601 )
Proceeds from sale of property, plant and equipment
    371       280  
Net cash used in investing activities
    (25,944 )     (42,163 )
                 
Cash flows from financing activities:
               
Borrowings on lines of credit
    173,846       2,256  
Payments on lines of credit
    (126,233 )     (2,629 )
Proceeds from employee stock plans
    468       1,543  
Purchase of treasury stock
    (24,825 )     (598 )
Post-closing payment for business acquisition
    (11,892 )     -  
Other financing activities
    (53 )     (22 )
Net cash provided by financing activities
    11,311       550  
                 
Effect of exchange rate changes on cash
    2,396       1,780  
                 
Net increase (decrease) in cash and cash equivalents
    3,585       (18,706 )
Cash and cash equivalents at beginning of year
    25,247       83,010  
                 
Cash and cash equivalents at end of period
  $ 28,832     $ 64,304  
                 
Cash paid for:
               
Income taxes (net of refunds)
  $ 5,836     $ 11,380  
Interest
  $ 4,106     $ 3,602  
 
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
 
 
5

 
 
NEWPARK RESOURCES, INC.
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
Note 1 – Basis of Presentation and Significant Accounting Policies
 
The accompanying unaudited condensed consolidated financial statements of Newpark Resources, Inc. and our wholly-owned subsidiaries, which we refer to as “we,” “our” or “us,” have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission (“SEC”), and do not include all information and footnotes required by the accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011. Our fiscal year end is December 31, our second quarter represents the three month period ended June 30 and our first half represents the six month period ending June 30. The results of operations for the second quarter and first half of 2012 are not necessarily indicative of the results to be expected for the entire year. Unless otherwise stated, all currency amounts are stated in U.S. dollars.
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of June 30, 2012, the results of our operations for the second quarter and first half of 2012 and 2011, and our cash flows for the first half of 2012 and 2011. All adjustments are of a normal recurring nature. Our balance sheet at December 31, 2011 is derived from the audited consolidated financial statements at that date.
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. For further information, see Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2011.
 
New Accounting Standards
 
Each reporting period we consider all newly issued but not yet adopted accounting and reporting guidance applicable to our operations and the preparation of our consolidated financial statements. We do not believe that any issued accounting and reporting guidance we have not yet adopted will have a material impact on our financial statements at the time they may be adopted.
 
 
6

 
 
Note 2 – Earnings per Share
 
The following table presents the reconciliation of the numerator and denominator for calculating earnings per share:
 
   
Second Quarter
   
First Half
 
(In thousands, except per share data)
 
2012
   
2011
   
2012
   
2011
 
                         
Basic EPS:
                       
Net income
  $ 14,463     $ 19,280     $ 30,097     $ 35,134  
                                 
Weighted average number of common shares outstanding
    88,600       89,791       89,536       89,707  
                                 
Basic income per common share
  $ 0.16     $ 0.21     $ 0.34     $ 0.39  
                                 
                                 
Diluted EPS:
                               
Net income
  $ 14,463     $ 19,280     $ 30,097     $ 35,134  
Assumed conversions of Senior Notes
    1,283       1,241       2,539       2,438  
Adjusted net income
  $ 15,746     $ 20,521     $ 32,636     $ 37,572  
                                 
Weighted average number of common shares outstanding-basic
    88,600       89,791       89,536       89,707  
Add:   Dilutive effect of stock options and restricted stock awards
    457       1,061       561       739  
Dilutive effect of Senior Notes
    15,682       15,682       15,682       15,682  
                                 
Diluted weighted average number of common shares outstanding
    104,739       106,534       105,779       106,128  
                                 
Diluted income per common share
  $ 0.15     $ 0.19     $ 0.31     $ 0.35  
                                 
Stock options and warrants excluded from calculation of diluted earnings per share because anti-dilutive for the period
    2,440       2,536       2,123       3,731  
 
Weighted average dilutive stock options and restricted stock outstanding totaled approximately 2.9 million and 4.2 million shares for the second quarter of 2012 and 2011, respectively, and 2.9 million and 3.2 million for the first half of 2012 and 2011, respectively. The resulting net effect of stock options and restricted stock were used in calculating diluted earnings per share for the period.
 
Note 3 – Stock-Based Compensation
 
During the second quarter of 2012, the Compensation Committee of our Board of Directors approved equity-based compensation to executive officers and other key employees.  These awards included a grant of 871,181 time-vesting shares of stock, which vest equally over a three-year period.  The fair value on the date of grant for these awards was $5.57 per share.  Non-employee directors received shares of restricted stock totaling 117,115 shares, which will vest in full on the first anniversary of the grant date.
 
Additionally, 1,438,158 stock options were granted to executive officers and other key employees at an exercise price of $5.57, which provides for equal vesting over a three-year period with a term of ten years.  The estimated fair value of the stock options on the grant date using the Black-Scholes option-pricing model was $2.89.  The assumptions used in the Black-Scholes model included a risk free interest rate of 0.68%, expected life of 5.22 years and expected volatility of 60.3%.
 
 
7

 
 
Note 4 – Treasury Stock
 
In February 2012, our Board of Directors approved a share repurchase program that authorized the repurchase of up to $50.0 million of our outstanding shares of common stock.  As of June 30, 2012, we had repurchased 3,530,509 shares for an aggregate price of approximately $6.89 million. All of the shares repurchased are held as treasury stock. We record treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Repurchases may be suspended at any time.
 
Note 5 – Acquisition
 
In April 2011, we completed the acquisition of the drilling fluids and engineering services business from Rheochem PLC, a publicly-traded Australian-based oil and gas company.  The acquired business provides drilling fluids and related engineering services to the oil and gas exploration and geothermal industries with operations in Australia, New Zealand and India.  Total cash paid in 2011 was AUD$27.2 million ($28.8 million), including post-closing payments of AUD$0.8 million ($0.8 million) based on a true-up of the final working capital conveyed at closing and AUD$2.0 million ($2.1 million) related to a six month earn-out provision in the agreement.    During the second quarter of 2012, the final payment was made which totaled AUD$11.9 million ($11.9 million), reflecting additional consideration required based on financial results of the acquired business over a one year earn-out period ended February 2012.
 
The transaction has been accounted for using the acquisition method of accounting and accordingly, assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The excess of the total consideration, including projected additional consideration, was recorded as goodwill and includes the value of the access to markets in Asia Pacific and an assembled workforce.
 
The following table summarizes the amounts recognized for assets acquired and liabilities assumed, as of the April 2011 acquisition date.
 
(In thousands)
     
       
Cash and cash equivalents
  $ 315  
Receivables, net
    3,316  
Inventories
    7,166  
Prepaid expenses and other current assets
    773  
Property, plant and equipment, net
    9,465  
Goodwill
    13,842  
Customer relationships (11 year life)
    10,492  
Tradename (5 year life)
    700  
Other assets
    510  
Total assets acquired
  $ 46,579  
         
Accounts payable
  $ 717  
Accrued liabilities
    16,243  
Deferred tax liability
    3,432  
Other noncurrent liabilities
    271  
Total liabilities assumed
  $ 20,663  
         
Total cash conveyed at closing
  $ 25,916  
 
The accrued liabilities at the date of acquisition in the table above includes $14.8 million reflecting the post-closing payments to the seller under the terms of the agreement, including $2.9 million that was paid during the third quarter of 2011 and the final payment of $11.9 million paid in the second quarter of 2012.
 
 
8

 
 
Proforma results of operation for the acquired business have not been presented as the effect of this acquisition is not material to our consolidated financial statements.
 
Note 6 – Receivables and Inventories
 
Receivables - Receivables consist of the following:
             
(In thousands)
 
June 30,
2012
   
December 31,
2011
 
             
Gross trade receivables
  $ 324,800     $ 306,791  
Allowance for doubtful accounts
    (3,819 )     (3,161 )
Net trade receivables
    320,981       303,630  
                 
Other receivables
    12,995       24,960  
                 
Total receivables, net
  $ 333,976     $ 328,590  
 
Inventories - Our inventories include $173.1 million and $174.7 million of raw materials and components for our drilling fluids systems at June 30, 2012 and December 31, 2011, respectively.  The remaining balance consists primarily of composite mat finished goods.
 
Note 7 – Financing Arrangements and Fair Value of Financial Instruments
 
Our financing arrangements include $172.5 million of unsecured convertible senior notes (“Senior Notes”) and a $125.0 million revolving credit facility, of which $66.0 million was outstanding at June 30, 2012.  The Senior Notes bear interest at a rate of 4.0% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning April 1, 2011.  Holders may convert the Senior Notes at their option at any time prior to the close of business on the business day immediately preceding the October 1, 2017 maturity date.  The conversion rate is initially 90.8893 shares of our common stock per $1,000 principal amount of Senior Notes (equivalent to an initial conversion price of $11.00 per share of common stock), subject to adjustment in certain circumstances. Upon conversion, the Senior Notes will be settled in shares of our common stock.  We may not redeem the Senior Notes prior to their maturity date.
 
Our financial instruments include cash and cash equivalents, receivables, payables and debt. We believe the carrying values of these instruments, with the exception of our Senior Notes, approximated their fair values at June 30, 2012 and December 31, 2011. The estimated fair value of our Senior Notes is $158.6 million at June 30, 2012 and $195.8 million at December 31, 2011, based on Level 2 inputs including quoted market prices at these respective dates.
 
Note 8 – Commitments and Contingencies
 
In the ordinary course of conducting our business, we become involved in litigation and other claims from private party actions, as well as judicial and administrative proceedings involving governmental authorities at the federal, state and local levels. In the opinion of management, any liability in these matters should not have a material effect on our consolidated financial statements.
 
 
9

 
 
Note 9 – Segment Data
 
Summarized operating results for our reportable segments is shown in the following table (net of inter-segment transfers):
 
   
Second Quarter
   
First Half
 
(In thousands)
 
2012
   
2011
   
2012
   
2011
 
                         
Revenues
                       
Fluids Systems & Engineering
  $ 202,388     $ 191,205     $ 420,884     $ 361,672  
Mats & Integrated Services
    30,071       27,793       60,604       50,856  
Environmental Services
    13,297       11,824       26,604       20,945  
Total Revenues
  $ 245,756     $ 230,822     $ 508,092     $ 433,473  
                                 
Operating Income (loss)
                               
Fluids Systems & Engineering
  $ 13,480     $ 20,792     $ 27,475     $ 39,991  
Mats & Integrated Services
    13,075       14,730       27,414       26,514  
Environmental Services
    3,514       2,980       7,089       4,600  
Corporate Office
    (5,314 )     (6,906 )     (11,088 )     (11,561 )
Operating Income
  $ 24,755     $ 31,596     $ 50,890     $ 59,544  
 
 
10

 
 
ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion of our financial condition, results of operations, liquidity and capital resources should be read together with our unaudited condensed consolidated financial statements and notes to unaudited condensed consolidated financial statements contained in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2011. Our second quarter represents the three month period ended June 30 and our first half represents the six month period ending June 30.  Unless otherwise stated, all currency amounts are stated in U.S. dollars.
 
Overview
 
We are a diversified oil and gas industry supplier providing products and services primarily to the oil and gas exploration (“E&P”) industry. We operate our business through three reportable segments: Fluids Systems and Engineering, Mats and Integrated Services and Environmental Services.  Our Fluids Systems and Engineering segment, which generated 83% of consolidated revenues in the first half of 2012, 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 following our April 2011 acquisition (as described below), Asia Pacific.
 
Our Mats and Integrated Services segment, which generated 12% of consolidated revenues in the first half of 2012, provides composite mat rentals, well site construction and related well site services to E&P customers in the U.S.  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.  Our Environmental Services segment, which generated 5% of consolidated revenues in the first half of 2012, processes and disposes of waste generated by E&P customers along the U.S. Gulf Coast.  While we continue to expand our operations globally, particularly in our Fluids Systems and Engineering segment, our North American operations generated 78% of consolidated revenues in the first half of 2012.
 
In North America we have continued the roll-out of Evolution®, our high performance water-based drilling fluid system launched in 2010, which we believe provides superior performance and environmental benefits to our customers, as compared to traditional fluids systems used in the industry.  After the initial introduction into the Haynesville shale during 2010, the system is now being used by customers in several major North American drilling basins.  Revenues from wells using the Evolution system were approximately $50 million in the first half of 2012.
 
In April 2011, we completed the acquisition of the drilling fluids and engineering services business from Rheochem PLC, a publicly-traded Australian-based oil and gas company.  The acquired business provides drilling fluids and related engineering services with operations in Australia, New Zealand and India.  Total cash paid in 2011 was AUD$27.2 million ($28.8 million), including post-closing payments of AUD$0.8 million ($0.8 million) based on a true-up of the final working capital conveyed at closing and AUD$2.0 million ($2.1 million) related to a six month earn-out provision in the agreement.  During the second quarter of 2012, the final payment was made which totaled AUD$11.9 million ($11.9 million), reflecting additional consideration required based on financial results of the acquired business over a one year earn-out period ended February 2012.
 
Our operating results depend, to a large extent, on oil and gas drilling activity levels in the markets we serve, as well as the depth of drilling, which governs the revenue potential of each well. The drilling activity in turn, depends on oil and gas commodity pricing, inventory levels and demand, and more recently, regulatory actions such as those affecting operations in the Gulf of Mexico.
 
 
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Rig count data is the most widely accepted indicator of drilling activity.  Average North American rig count data for the second quarter and first half of 2012, as compared to the second quarter and first half of 2011 is as follows:
 
   
Second Quarter
   
2012 vs 2011
 
   
2012
   
2011
   
Count
   
%
 
                         
U.S. Rig Count
    1,970       1,826       144       8 %
Canadian Rig Count
    177       187       (10 )     (5 %)
North America
    2,147       2,013       134       7 %
 
 
   
First Half
   
2012 vs 2011
 
      2012       2011    
Count
   
%
 
                                 
U.S. Rig Count
    1,980       1,774       206       12 %
Canadian Rig Count
    380       379       1       0 %
North America
    2,360       2,153       207       10 %
 

Source: Baker Hughes Incorporated
 
 
While the average total U.S. rig count has increased by 8% from the second quarter of 2011 to the second quarter of 2012, there has been a significant regional shift in activity over this period. This shift from dry gas drilling to oil and liquid-rich drilling resulted in a significant decline in several key dry gas basins, including the Haynesville shale (East Texas), Barnett (East Texas) and areas in the Rockies, which was more than offset by increases in oil and liquid-rich basins, including the Bakken (North Dakota), Eagle Ford (South Texas), Mississippian Lime (mid-continent) and Permian Basin (West Texas).  During periods of transition such as the first half of 2012, operating expenses within our U.S. business units were elevated, as we re-deployed personnel and assets among regions and modify our regional business unit infrastructures to meet the changing activity levels.
 
 
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Second Quarter of 2012 Compared to Second Quarter of 2011
 
 
Consolidated Results of Operations
 
 
Summarized results of operations for the second quarter of 2012 compared to the second quarter of 2011 are as follows:
 
   
Second Quarter
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
Revenues
  $ 245,756     $ 230,822     $ 14,934       6 %
                                 
Cost of revenues
    201,534       178,911       22,623       13 %
Selling, general and administrative expenses
    19,944       21,150       (1,206 )     (6 %)
Other operating income, net
    (477 )     (835 )     358       (43 %)
                                 
Operating income
    24,755       31,596       (6,841 )     (22 %)
                                 
Foreign currency exchange loss (gain)
    461       (468 )     929       (199 %)
Interest expense, net
    2,553       2,100       453       22 %
                                 
Income from operations before income taxes
    21,741       29,964       (8,223 )     (27 %)
Provision for income taxes
    7,278       10,684       (3,406 )     (32 %)
                                 
Net income
  $ 14,463     $ 19,280     $ (4,817 )     (25 %)
 
Revenues
 
Revenues increased 6% to $245.8 million in the second quarter of 2012, compared to $230.8 million in the second quarter of 2011.  This $14.9 million improvement includes a $12.4 million (7%) increase in revenues in North America, largely driven by the 7% improvement in the North America rig count.  Revenues from our international operations increased by $2.6 million (5%).  Additional information regarding the change in revenues is provided within the operating segment results below.
 
Cost of revenues
 
Cost of revenues increased 13% to $201.5 million in the second quarter of 2012, as compared to $178.9 million in the second quarter of 2011. The increase is primarily driven by the 6% increase in revenues, along with elevated operating expenses driven by the shift in activity from dry gas to liquid rich regions in the U.S.  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 $1.2 million to $19.9 million in the second quarter of 2012 from $21.2 million in the second quarter of 2011, primarily due to lower performance-based employee incentive compensation.
 
Foreign currency exchange
 
Foreign currency exchange was a $0.5 million loss in the second quarter of 2012, compared to a $0.5 million gain in the second quarter of 2011, and primarily reflects the impact of currency translations on assets and liabilities held in our foreign operations that are denominated in currencies other than functional currencies.
 
 
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Interest expense, net
 
Interest expense totaled $2.6 million for the second quarter of 2012 compared to $2.1 million for the second quarter of 2011.  The increase is primarily attributable to the increased borrowings in the second quarter of 2012, as compared to the second quarter of 2011.
 
Provision for income taxes
 
The provision for income taxes for the second quarter of 2012 was $7.3 million, reflecting an effective tax rate of 33.5%, compared to $10.7 million in the second quarter of 2011 with an effective tax rate of 35.7%. The $3.4 million reduction is primarily attributable to the decrease in pretax income.
 
Operating Segment Results
 
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):
 
   
Second Quarter
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
Revenues
                         
Fluids systems and engineering
  $ 202,388     $ 191,205     $ 11,183       6 %
Mats and integrated services
    30,071       27,793       2,278       8 %
Environmental services
    13,297       11,824       1,473       12 %
Total revenues
  $ 245,756     $ 230,822     $ 14,934       6 %
                                 
Operating income (loss)
                               
Fluids systems and engineering
  $ 13,480     $ 20,792     $ (7,312 )        
Mats and integrated services
    13,075       14,730       (1,655 )        
Environmental services
    3,514       2,980       534          
Corporate office
    (5,314 )     (6,906 )     1,592          
Operating  income
  $ 24,755     $ 31,596     $ (6,841 )        
                                 
Segment operating margin
                               
Fluids systems and engineering
    6.7 %     10.9 %                
Mats and integrated services
    43.5 %     53.0 %                
Environmental services
    26.4 %     25.2 %                

 
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Fluids Systems and Engineering
 
Revenues
 
Total revenues for this segment consisted of the following:
 
   
Second Quarter
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
United States
  $ 142,486     $ 137,147     $ 5,339       4 %
Canada
    7,231       3,653       3,578       98 %
Total North America
    149,717       140,800       8,917       6 %
EMEA
    25,304       26,202       (898 )     (3 %)
Latin America
    18,153       17,609       544       3 %
Asia Pacific
    9,214       6,594       2,620       40 %
Total
  $ 202,388     $ 191,205     $ 11,183       6 %
 
North American revenues increased 6% to $149.7 million in the second quarter of 2012, as compared to $140.8 million in the second quarter of 2011, largely attributable to the 7% increase in the North American rig count, along with share gains in several regions.  The growth in several North American basins was partially offset by an $8.7 million decline in our completion services and equipment rental revenues in the mid-continent region, which was primarily attributable to increased competition arising from the shift of competitors’ equipment and personnel from dry gas areas to this mid-continent area.
 
Internationally, revenues were up 5% to $52.7 million in the second quarter of 2012, as compared to $50.4 million in second quarter 2011.  This increase is primarily attributable to the full period impact of the Asia Pacific business unit, which was acquired during the second quarter of 2011.
 
Operating Income
 
Operating income for this segment was $13.5 million, reflecting an operating margin of 6.7% in the second quarter of 2012, compared to $20.8 million and a 10.9% operating margin in the second quarter of 2011. Of this $7.3 million decrease in operating income, $5.8 million of the decrease was attributable to our North American business, despite an $8.9 million increase in revenues.  The decline in operating income includes a $4.3 million decrease in the completion services and equipment rental business associated with the $8.7 million revenue decline described above.  Due to the relatively fixed nature of operating expenses in this service and equipment rental business unit, the incremental operating income impact from the decline in revenues is higher than what is typically experienced in this segment. Operating expenses were also elevated during the second quarter of 2012 due to operating cost inefficiencies as customer activities transition away from dry gas regions into oil and liquid-rich regions.
 
Our international operating income declined $1.5 million on a $2.3 million increase in revenues.  This decrease in operating income is primarily due to the customer mix changes and elevated operating costs in preparation for new contracts in North Africa.
 
 
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Mats and Integrated Services
 
Revenues
 
Total revenues for this segment consisted of the following:
 
   
Second Quarter
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
Mat rental and integrated services
  $ 15,766     $ 18,574     $ (2,808 )     (15 %)
Mat sales
    14,305       9,219       5,086       55 %
Total
  $ 30,071     $ 27,793     $ 2,278       8 %
 
Mat rental and integrated services revenues decreased $2.8 million as compared to the prior year period, as a $1.7 million increase in the U.S. Gulf Coast, a $1.4 million increase in the Rocky Mountain region, along with small gains in our international rental business was offset by a $6.5 million decline in the Northeast U.S.  In addition, mat sales increased by $5.1 million over the prior year period due to increasing demand for our DurabaseTM composite mat products from international E&P customers and other industries.
 
Operating Income
 
Segment operating income decreased by $1.7 million on the $2.3 million increase in revenues.  The decline in operating income is primarily attributable to the higher mix of mat sales relative to mat rental activity.  Incremental margins on mat sales are less than mat rentals or service activities due to the fixed nature of operating expenses in the rental business, including depreciation expense on our rental mat fleet.
 
Environmental Services
 
Revenues
 
Total revenues for this segment consisted of the following:
 
   
Second Quarter
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
E&P waste
  $ 10,749     $ 9,393     $ 1,356       14 %
NORM and industrial waste
    2,548       2,431       117       5 %
Total
  $ 13,297     $ 11,824     $ 1,473       12 %
 
Environmental services revenues increased 12% to $13.3 million in the second quarter of 2012, as compared to the second quarter of 2011. Substantially all of the increase is attributable to higher E&P waste, due to the increased activity in state waters and land oil drilling activities along the U.S. Gulf Coast.
 
 
16

 
 
Operating Income
 
Operating income for this segment increased by $0.5 million in the second quarter of 2012, compared to the second quarter of 2011, primarily attributable to the $1.5 million increase in revenues described above.
 
Corporate Office
 
Corporate office expenses decreased $1.6 million to $5.3 million in the second quarter of 2012, compared to $6.9 million in second quarter 2011.  The decrease is primarily attributable to a $1.5 million decline in performance-based employee compensation and $0.6 million of transaction-related expenses incurred in the second quarter of 2011, associated with the April 2011 acquisition described above.
 
First Half of 2012 Compared to First Half of 2011
 
Consolidated Results of Operations
 
Summarized results of operations for the first half of 2012 compared to the first half of 2011 are as follows:
 
   
First Half
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
Revenues
  $ 508,092     $ 433,473     $ 74,619       17 %
                                 
Cost of revenues
    416,436       337,913       78,523       23 %
                                 
Selling, general and administrative expenses
    41,257       36,968       4,289       12 %
Other operating income, net
    (491 )     (952 )     461       (48 %)
                                 
Operating income
    50,890       59,544       (8,654 )     (15 %)
                                 
Foreign currency exchange loss (gain)
    231       (145 )     376       (259 %)
Interest expense, net
    4,921       4,357       564       13 %
                                 
Income from operations before income taxes
    45,738       55,332       (9,594 )     (17 %)
Provision for income taxes
    15,641       20,198       (4,557 )     (23 %)
                                 
Net income
  $ 30,097     $ 35,134     $ (5,037 )     (14 %)
 
Revenues
 
Revenues increased 17% to $508.1 million in the first half of 2012, compared to $433.5 million in the first half of 2011.  This $74.6 million improvement includes a $61.1 million (18%) increase in revenues in North America, largely driven by the 10% improvement in the North America rig count, along with market share gains in several regions.  Revenues from our international operations increased $13.6 million. Additional information regarding the change in revenues is provided within the operating segment results below.
 
 
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Cost of revenues
 
Cost of revenues increased 23% to $416.4 million in the first half of 2012, as compared to $337.9 million in the first half of 2011.  The increase is primarily driven by the 17% increase in revenues along with elevated operating expenses in the first half of 2012 driven by the shift in activity from dry gas to liquid rich regions in the U.S.  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 $4.3 million to $41.3 million in the first half of 2012 from $37.0 million in the first half of 2011.  The first half of 2012 includes $4.1 million of spending associated with the enterprise resource planning (“ERP”) system conversion in the U.S. operations.
 
Foreign currency exchange
 
Foreign currency exchange was a $0.2 million loss in the first half of 2012, compared to a $0.1 million gain in the first half of 2011, and primarily reflects the impact of currency translations on assets and liabilities held in our foreign operations that are denominated in currencies other than functional currencies.
 
Interest expense, net
 
Interest expense totaled $4.9 million for the first half of 2012 compared to $4.4 million for the first half of 2011.  The increase is primarily attributable to the increased borrowings in the first half of 2012, as compared to the first half of 2011.
 
Provision for income taxes
 
The provision for income taxes for the first half of 2012 was $15.6 million, reflecting an effective tax rate of 34.2%, compared to $20.2 million in the first half of 2011, reflecting an effective tax rate of 36.5%.  The $4.6 million reduction is primarily attributable to the decrease in pre-tax income.
 
 
18

 
 
Operating Segment Results
 
 
Summarized financial information for our reportable segments is shown in the following table (net of inter-segment transfers):
 
   
First Half
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
Revenues
                         
Fluids systems and engineering
  $ 420,884     $ 361,672     $ 59,212       16 %
Mats and integrated services
    60,604       50,856       9,748       19 %
Environmental services
    26,604       20,945       5,659       27 %
Total revenues
  $ 508,092     $ 433,473     $ 74,619       17 %
                                 
Operating (loss) income
                               
Fluids systems and engineering
  $ 27,475     $ 39,991       (12,516 )        
Mats and integrated services
    27,414       26,514       900          
Environmental services
    7,089       4,600       2,489          
Corporate office
    (11,088 )     (11,561 )     473          
Operating income
  $ 50,890     $ 59,544     $ (8,654 )        
                                 
Segment operating margin
                               
Fluids systems and engineering
    6.5 %     11.1 %                
Mats and integrated services
    45.2 %     52.1 %                
Environmental services
    26.6 %     22.0 %                
 
Fluids Systems and Engineering
 
Revenues
 
Total revenues for this segment consisted of the following:
 
   
First Half
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
United States
  $ 284,839     $ 249,868     $ 34,971       14 %
Canada
    25,950       14,457       11,493       79 %
Total North America
    310,789       264,325       46,464       18 %
EMEA
    55,303       53,270       2,033       4 %
Latin America
    36,756       37,483       (727 )     (2 %)
Asia Pacific
    18,036       6,594       11,442       174 %
Total
  $ 420,884     $ 361,672     $ 59,212       16 %
 
North American revenues increased 18% to $310.8 million in the first half of 2012, as compared to $264.3 million in the first half of 2011, largely attributable to the 10% increase in the North American rig count, along with share gains in several regions.  The growth in several North American basins was partially offset by a $17.4 million decline in our completion services and equipment rental revenues in the mid-continent region, which was primarily attributable to increased competition arising from the shift of competitors’ equipment and personnel from dry gas areas to this mid-continent area.
 
 
19

 
 
Internationally, revenues were up 13% to $110.1 million in the first half of 2012, as compared to $97.3 million in first half 2011. This increase includes an $11.4 million increase in revenues from our Asia Pacific region following the April 2011 acquisition described above.
 
Operating Income
 
Operating income for this segment was $27.5 million, reflecting an operating margin of 6.5% in the first half of 2012, compared to $40.0 million and an 11.1% operating margin in the first half of 2011.  Substantially all of this $12.5 million operating income decline is attributable to our North America operations, despite a $46.5 million increase in revenues.  The decline in operating income includes a $9.8 million decrease in the completion services and equipment rental business associated with the $17.4 million revenue decline described above.  Due to the relatively fixed nature of operating expenses in this service and equipment rental business unit, the incremental operating income impact from the decline in revenues is higher than what is typically experienced in this segment.  In addition, the first half of 2012 includes $2.6 million of additional costs associated with the recent ERP system conversion in the U.S. operations. Operating expenses were also elevated during the first half of 2012 due to operating cost inefficiencies as customer activities transition away from dry gas regions into oil and liquid-rich regions.
 
Operating income from our international operations declined $.01 million on a $12.7 million increase in revenues.  Increases from our Asia Pacific and Latin America regions were offset by a decline in the EMEA region.  The decline in the EMEA region is primarily attributable to increased salary costs and elevated operating costs in preparation for new contracts in North Africa.
 
Mats and Integrated Services
 
Revenues
 
Total revenues for this segment consisted of the following:
 
   
First Half
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
Mat rental and integrated services
  $ 31,890     $ 34,246     $ (2,356 )     (7 %)
Mat sales
    28,714       16,610       12,104       73 %
Total
  $ 60,604     $ 50,856     $ 9,748       19 %
 
Mat rental and integrated services revenues decreased $2.4 million as compared to the prior year period, as a $13.7 million decline in the Northeast U.S. was partially offset by a $5.3 million increase in the U.S. Gulf Coast and a $4.9 million increase in the Rocky Mountain region, along with small gains in our international rental business.  Mat sales increased by $12.1 million due to increasing demand for our DurabaseTM composite mat products from international E&P customers and other industries.
 
Operating Income
 
Segment operating income increased by $0.9 million on the $9.7 million increase in revenues, reflecting an incremental margin of 9.2%.  The low incremental margin is primarily attributable to the higher mix of mat sales relative to rental activity.  Due to the fixed nature of operating expenses in the rental business, including depreciation expense on our rental mat fleet, the decremental margin associated with the decline in rental and integrated service revenues is much higher than the incremental margin associated with the increase in mat sales.
 
 
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Environmental Services
 
Revenues
 
Total revenues for this segment consisted of the following:
 
   
First Half
   
2012 vs 2011
 
(In thousands)
 
2012
   
2011
    $     %  
                           
E&P waste
  $ 21,752     $ 15,747     $ 6,005       38 %
NORM and industrial waste
    4,852       5,198       (346 )     (7 %)
    Total
  $ 26,604     $ 20,945     $ 5,659       27 %
 
Environmental services revenues increased 27% to $26.6 million in the first half of 2012, as compared to the first half of 2011. Substantially all of the increase is attributable to higher E&P waste, due to the increased activity in state waters and land oil drilling activities along the U.S. Gulf Coast.
 
Operating Income
 
Operating income for this segment increased by $2.5 million in the first half of 2012, compared to the first half of 2011, on a $5.7 million increase in revenues, reflecting an incremental margin of 44%.  The high incremental impact to operating income from the increase in revenues is due to the fixed nature of the majority of the operating expenses in this segment, including the operating costs of our disposal sites and transfer stations.
 
Corporate Office
 
Corporate office expenses decreased $0.5 million to $11.1 million in the first half of 2012, compared to $11.6 million in first half 2011.  The decrease includes a $1.6 million decline in performance-based employee incentive costs and a $1.0 million decline for transaction related expenses associated with the April 2011 acquisition described above, partially offset by $1.3 million of additional costs associated with the ERP system conversion in our U.S. operations.
 
Liquidity and Capital Resources
 
Net cash provided by operating activities during the first half of 2012 totaled $15.8 million. Net income adjusted for non-cash items provided $50.3 million of cash during the period, while changes in operating assets and liabilities used $34.4 million of cash.  Increases in accounts receivable used $10.8 million of cash in the first half of 2012 while decreases in accounts payable and accrued liabilities used $20.0 million.  Following our ERP system conversion in the U.S. operations of our Fluids Systems and Engineering segment, the pace of customer billings has lagged from our historical performance.  While the pace of customer billings has improved throughout the first half of 2012, the receivables balance in this business unit has remained elevated, due in part to the lag time between customer invoicing and customer payment date, as our customers have historically paid 30-60 days from invoice date.
 
Net cash used in investing activities during the first half of 2012 was $25.9 million, consisting primarily of $14.9 million in capital expenditures in our fluids systems and engineering segment, including $4.5 million associated with the construction of a new technology center and $9.8 million associated with purchases of equipment at our operating locations.  In addition, $5.7 million was used in the mats and integrated services segment for expansion of the mat rental fleet and capacity expansion at our mat manufacturing facility.  Net cash provided by financing activities during the first half of 2012 was $11.3 million, including borrowings on our line of credit offset by $24.8 million in repurchases of our outstanding common stock and payment associated with the one-year earn-out obligation of $11.9 million following the April 2011 acquisition.
 
 
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We anticipate that our working capital requirements for our operations will decline in the near term due to expected reductions in accounts receivable from the elevated levels at June 30, 2012.  We expect total 2012 capital expenditures to range between $50 million to $60 million. We expect our $28.8 million of cash on-hand at June 30, 2012, along with cash generated by operations and availability under our existing credit agreement to be adequate to fund our anticipated capital needs during the next 12 months.
 
Our capitalization is as follows:
             
(In thousands)
 
June 30,
2012
   
December 31,
2011
 
             
Senior Notes
  $ 172,500     $ 172,500  
Revolving credit facility
    66,000       17,000  
Other
    1,135       2,608  
Total
    239,635       192,108  
                 
Stockholder's equity
    502,519       497,846  
                 
Total capitalization
  $ 742,154     $ 689,954  
                 
Total debt to capitalization
    32.3 %     27.8 %
 
Our financing arrangements include $172.5 million of unsecured convertible senior notes (“Senior Notes”) and a $125.0 million revolving credit facility, of which $66.0 million was outstanding at June 30, 2012.  The Senior Notes bear interest at a rate of 4.0% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning April 1, 2011.  Holders may convert the Senior Notes at their option at any time prior to the close of business on the business day immediately preceding the October 1, 2017 maturity date.  The conversion rate is initially 90.8893 shares of our common stock per $1,000 principal amount of Senior Notes (equivalent to an initial conversion price of $11.00 per share of common stock), subject to adjustment in certain circumstances. Upon conversion, the Senior Notes will be settled in shares of our common stock.  We may not redeem the Senior Notes prior to their maturity date.
 
 
Our revolving credit facility (the "Credit Agreement") provides for a $125 million revolving loan facility available for borrowings and letters of credit and expires in November 2016. Under the terms of the Credit Agreement, we can elect to borrow at an interest rate either based on LIBOR plus a margin based on our consolidated leverage ratio, ranging from 175 to 300 basis points, or at an interest rate based on the greatest of: (a) prime rate, (b) the federal funds rate in effect plus 50 basis points, or (c) the Eurodollar rate for a Eurodollar Loan with a one-month interest period plus 100 basis points, in each case plus a margin ranging from 75 to 200 basis points. The applicable margin on LIBOR borrowings on June 30, 2012 was 200 basis points. In addition, we are required to pay a commitment fee on the unused portion of the Facility of 37.5 basis points. The Credit Facility contains customary financial and operating covenants, including a consolidated leverage ratio, a senior secured leverage ratio and an interest coverage ratio. We were in compliance with these covenants as of June 30, 2012.
 
At June 30, 2012, $66.0 million was outstanding under the Credit Agreement, and $4.3 million in letters of credit were issued and outstanding under the Credit Agreement leaving $54.7 million of availability at June 30, 2012.  Additionally, we had $1.1 million in letters of credit outstanding relating to foreign operations.
 
 
22

 
 
The Facility is a senior secured obligation, secured by first liens on all of our U.S. tangible and intangible assets, including our accounts receivable and inventory.  Additionally, a portion of the capital stock of our non-U.S. subsidiaries has also been pledged as collateral.
 
Critical Accounting Estimates
 
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires us to make assumptions, estimates and judgments that affect the amounts reported.  We periodically evaluate our estimates and judgments related to uncollectible accounts and notes receivable, customer returns, reserves for obsolete and slow moving inventory, impairments of long-lived assets, including goodwill and other intangibles and our valuation allowance for deferred tax assets.  Our estimates are based on historical experience and on our future expectations that we believe 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.
 
For additional discussion of our critical accounting estimates and policies, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2011.  Our critical accounting policies have not changed materially since December 31, 2011.
 
ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk
 
We are exposed to market risk from changes in interest rates and changes in foreign currency rates.  A discussion of our primary market risk exposure in financial instruments is presented below.
 
Interest Rate Risk
 
At June 30, 2012, we had total debt outstanding of $239.6 million, including $172.5 million of borrowings under our Senior Notes, bearing interest at a fixed rate of 4.0%. Variable rate debt totaled $67.1 million which included $66.0 million outstanding under our revolving credit facility and $1.1 million of borrowings under foreign bank lines of credit.  At the June 30, 2012 balance, a 200 basis point increase in market interest rates during 2012 would cause our annual interest expense to increase approximately $1.3 million, resulting in a $0.01 per diluted share reduction in annual net earnings.
 
Foreign Currency
 
Our principal foreign operations are conducted in certain areas of EMEA, Brazil, Asia Pacific, Canada, U.K. and Mexico.  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 which include European euros, Australian dollars, Canadian dollars 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 because the dollar amount of these transactions has not warranted our using hedging instruments.
 
ITEM 4.    Controls and Procedures
 
Evaluation of disclosure controls and procedures
 
Based on their evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of June 30, 2012, the end of the period covered by this quarterly report.
 
 
23

 
 
Changes in internal control over financial reporting
 
There has been no change in internal control over financial reporting during the quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II                      OTHER INFORMATION
 
ITEM 1.    Legal Proceedings
 
The information set forth in the legal proceedings section of “Note 8, Commitments and Contingencies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1.
 
ITEM 1A.  Risk Factors
 
There have been no material changes during the period ended June 30, 2012 in our “Risk Factors” as discussed in Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2011.
 
ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
(a)
Not applicable
 
 
 
(b)
Not applicable
 
 
 
(c)
The following table details our repurchases of shares of our common stock, for the three months ended June 30, 2012:
 
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 (2)
April 1
-
30, 2012  
929,101
 
$ 8.04
 
929,101
 
$35.0 million
May 1
-
31, 2012  
-
 
-
 
-
 
$35.0 million
June 1
-
30, 2012  
1,752,314
 
$ 5.57
 
1,665,408
 
$25.7 million
 
 
 
Total
 
2,681,415
 
$ 6.42
 
2,594,509
   
 
(1)  
During the three months ended June 30, 2012, we purchased an aggregate of 86,906 shares surrendered in lieu of taxes under vesting of restricted stock awards.
 
(2)  
The value of shares that may be repurchased reflects the value available under the program approved by our Board of Directors in February 2012, which was a new stock repurchase program of up to $50 million of outstanding common stock.
 
ITEM 3.    Defaults Upon Senior Securities
 
Not applicable.
 
 
24

 
 
ITEM 4.    Mine Safety Disclosures
 
The information concerning mine safety violations and other regulatory matters required by section 1503 (a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 of this Quarterly Report on Form 10-Q, which is incorporated by reference.
 
ITEM 5.    Other Information
 
The following information is being provided to revise certain information in our Definitive Proxy Statement filed on April 25, 2012 (the “2012 Proxy”).  Pages 57 through 61 of the 2012 Proxy contain tables representing calculations of amounts payable to the named executive officers in the context of certain termination events, such as death, disability, and change of control (the “Termination Tables”).  The Termination Tables are intended to reflect the calculation of such payments assuming the executive’s employment is terminated as of December 31, 2011.  Errors were discovered in the estimation of the value of the tax gross-up benefit (the “280G Gross-up Benefit”) included in the Termination Tables of the 2012 Proxy.  The 280G Gross-up Benefit granted to certain of our named executive officers is described on pages 55 and 56 of the 2012 Proxy.  Because the 280G Gross-up Benefit is only available in the context of a change of control event, only the calculations contained in the columns of the Termination Tables labeled “Termination Due to Change of Control” were impacted by this error.  The table below contains both the original estimate of the 280G Gross-up Benefit in the 2012 Proxy and the revised estimate:
 
Named Executive Officer
Estimate of 280G Excise Tax and
Reimbursement per 2012 Proxy
from Termination
Due to Change of Control
Revised Estimate of 280G Excise
Tax and Reimbursement from
Termination Due to
Change of Control1
Paul Howes
$1,239,299
$2,569,070
Gregg Piontek
$0
$503,711
Mark Airola
$0
$613,271
Jeff Juergens2
$310,610
$0
 
(1)  
As of December 31, 2011.
 
(2)  
Mr.  Juergens’ Change of Control Agreement does not include the 280G Gross-up Benefit.
 
 
25

 
 
ITEM 6.    Exhibits
 
 
10.1
Indemnification Agreement dated May 23, 2012, by and between Newpark Resources, Inc. and Lee Ann Kendrick.
 
 
10.2
Form of Restricted Stock Unit under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009).
 
 
10.3
Form of Non-Qualified Stock Option for Participants Outside the United States under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009).
 
 
10.4
Second Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors' Restricted Stock Plan.
 
 
31.1
Certification of Paul L. Howes pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Gregg S. Piontek pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Paul L. Howes pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
Certification of Gregg S. Piontek 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
 
 

 
 Furnished with this Form 10-Q, not filed

 
26

 
 
NEWPARK RESOURCES, INC.
 
SIGNATURES
 
Pursuant to the requirements 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.
 



Date: July 27, 2012
     
     
  NEW PARK RESOURCES, INC.  
     
     
       
 
By:
/s/ Paul L. Howes  
   
Paul L. Howes, President and
 
   
Chief Executive Officer
 
   
(Principal Executive Officer)
 
       
       
  By: /s/ Gregg S. Piontek  
   
Gregg S. Piontek, Vice President and
 
   
Chief Financial Officer
 
   
(Principal Financial and Accounting Officer)
 
 
 
27

 
 
EXHIBIT INDEX
 
 
10.1
Indemnification Agreement dated May 23, 2012, by and between Newpark Resources, Inc. and Lee Ann Kendrick.
 
 
10.2
Form of Restricted Stock Unit under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009).
 
 
10.3
Form of Non-Qualified Stock Option for Participants Outside the United States under the Newpark Resources, Inc. 2006 Equity Incentive Plan (As Amended and Restated Effective June 10, 2009).
 
 
10.4
Second Amendment to the Newpark Resources, Inc. Amended and Restated Non-Employee Directors' Restricted Stock Plan.
 
 
31.1
Certification of Paul L. Howes pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Gregg S. Piontek pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Paul L. Howes pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
Certification of Gregg S. Piontek 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
 
 

 
 Furnished with this Form 10-Q, not filed

28

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