UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

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

Commission File No. 1-2960

Newpark Resources, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

Yes þ No o

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

Yes o No o

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

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

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

Yes o No þ

As of July 21, 2009, a total of 88,926,269 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, 2009

Item Page
Number		Description		Number
		PART I—FINANCIAL INFORMATION
1		Financial Statements:
		Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008			3
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)			4
		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)			5
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (Unaudited)			6
		Notes to Unaudited Condensed Consolidated Financial Statements			7
2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
3		Quantitative and Qualitative Disclosures About Market Risk			27
4		Controls and Procedures			28
		PART II—OTHER INFORMATION
1		Legal Proceedings			28
1A		Risk Factors			28
2		Unregistered Sales of Equity Securities and Use of Proceeds			29
3		Defaults Upon Senior Securities			29
4		Submission of Matters to a Vote of Security Holders			29
5		Other Information			30
6		Exhibits			30
		Signatures			31
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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, 2008, and those set forth from time to time in our filings with the Securities and Exchange Commission, could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements, including the success or failure of our efforts to implement our business strategy.

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

For further information regarding these and other factors, risks and uncertainties affecting us, we refer you to the risk factors set forth in Part I of our Annual Report on Form 10-K for the year ended December 31, 2008.

PART I FINANCIAL INFORMATION

ITEM 1.		Financial Statements

		June 30,				December 31,
(In thousands, except share data)		2009				2008
		(unaudited)
ASSETS
Cash and cash equivalents		$	6,711			$	8,252
Receivables, net			98,905				211,366
Inventories			137,464				149,304
Deferred tax asset			7,366				22,809
Prepaid expenses and other current assets			11,234				11,062
Total current assets			261,680				402,793
Property, plant and equipment, net			230,308				226,627
Goodwill			60,927				60,268
Deferred tax asset, net			7,525				707
Other intangible assets, net			17,562				18,940
Other assets			4,206				4,344
Total assets		$	582,208			$	713,679
LIABILITIES AND STOCKHOLDERS’ EQUITY
Foreign bank lines of credit		$	6,370			$	11,302
Current maturities of long-term debt			10,471				10,391
Accounts payable			44,902				89,018
Accrued liabilities			26,982				38,946
Total current liabilities			88,725				149,657
Long-term debt, less current portion			127,944				166,461
Deferred tax liability			1,066				15,979
Other noncurrent liabilities			3,016				3,700
Total liabilities			220,751				335,797
Common stock, $0.01 par value, 100,000,000 shares authorized 91,471,050 and 91,139,966 shares issued, respectively			915				911
Paid-in capital			458,302				457,012
Accumulated other comprehensive income			4,580				1,296
Retained deficit			(86,878	)			(66,087	)
Treasury stock, at cost; 2,733,601 and 2,646,409 shares, respectively			(15,462	)			(15,250	)
Total stockholders’ equity			361,457				377,882
Total liabilities and stockholders’ equity		$	582,208			$	713,679

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Newpark Resources, Inc.

(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
(In thousands, except per share data)		2009				2008				2009				2008
Revenues		$	109,599			$	210,497			$	236,537			$	405,233
Cost of revenues			103,906				172,649				227,418				327,769
Selling, general and administrative expenses			15,652				19,679				31,882				38,870
Other (income) expense, net			(37	)			152				(62	)			(37	)
Operating (loss) income			(9,922	)			18,017				(22,701	)			38,631
Foreign currency exchange (gain) loss			(590	)			(199	)			(561	)			97
Interest expense, net			1,600				2,649				3,250				5,876
(Loss) income from continuing operations before income taxes			(10,932	)			15,567				(25,390	)			32,658
Provision for income taxes			(2,145	)			5,481				(4,599	)			11,176
(Loss) income from continuing operations			(8,787	)			10,086				(20,791	)			21,482
Loss from discontinued operations, net of tax			—				(84	)			—				(129	)
Net (loss) income		$	(8,787	)		$	10,002			$	(20,791	)		$	21,353
Basic weighted average common shares outstanding			88,514				88,762				88,430				89,454
Diluted weighted average common shares outstanding			88,514				89,073				88,430				89,671
(Loss) income per common share — basic and diluted:
(Loss) income from continuing operations		$	(0.10	)		$	0.11			$	(0.24	)		$	0.24
Loss from discontinued operations			—				—				—				—
Net (loss) income per common share		$	(0.10	)		$	0.11			$	(0.24	)		$	0.24

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Newpark Resources, Inc.

(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)		2009				2008				2009				2008
Net (loss) income		$	(8,787	)		$	10,002			$	(20,791	)		$	21,353
Changes in interest rate swap and cap, net of tax			255				824				327				43
Foreign currency translation adjustments			6,074				2,957				2,957				2,959
Comprehensive (loss) income		$	(2,458	)		$	13,783			$	(17,507	)		$	24,355

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Newpark Resources, Inc.

(Unaudited)

		Six Months Ended June 30,
(In thousands)		2009				2008
Cash flows from operating activities:
Net (loss) income		$	(20,791	)		$	21,353
Adjustments to reconcile net (loss) income to net cash provided by operations:
Net loss from discontinued operations			—				129
Non-cash charges			941				—
Depreciation and amortization			14,093				14,554
Stock-based compensation expense			1,190				2,314
Provision for deferred income taxes			(6,256	)			9,118
Provision for doubtful accounts			1,533				1,336
(Gain) loss on sale of assets			(265	)			445
Change in assets and liabilities:
Decrease (increase) in receivables			111,652				(34,526	)
Decrease (increase) in inventories			12,658				(707	)
Decrease (increase) in other assets			427				(963	)
(Decrease) increase in accounts payable			(45,083	)			4,394
(Decrease) increase in accrued liabilities and other			(12,592	)			4,155
Net operating activities of continuing operations			57,507				21,602
Net operating activities of discontinued operations			—				1,776
Net cash provided by operating activities			57,507				23,378
Cash flows from investing activities:
Capital expenditures			(14,139	)			(11,580	)
Proceeds from sale of property, plant and equipment			734				78
Net cash used in investing activities			(13,405	)			(11,502	)
Cash flows from financing activities:
Net (payments) borrowings on lines of credit			(43,767	)			2,098
Principal payments on notes payable and long-term debt			(195	)			(1,014	)
Proceeds from employee stock plans			104				1,241
Purchase of treasury stock			(212	)			(10,039	)
Net financing activities of continuing operations			(44,070	)			(7,714	)
Net financing activities of discontinued operations			—				(63	)
Net cash used in financing activities			(44,070	)			(7,777	)
Effect of exchange rate changes on cash			(1,573	)			447
Net (decrease) increase in cash and cash equivalents			(1,541	)			4,546
Cash and cash equivalents at beginning of period			8,252				5,741
Cash and cash equivalents at end of period		$	6,711			$	10,287
Cash paid for:
Income taxes (net of refunds)		$	3,023			$	3,988
Interest		$	2,819			$	5,410

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

NEWPARK RESOURCES, INC.

Note 1 — Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Newpark Resources, Inc. and our wholly-owned subsidiaries, which we refer to as “we,” “our” or “us,” have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission (“SEC”), and do not include all information and footnotes required by generally accepted accounting principles 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, 2008. Our fiscal year end is December 31, our second quarter represents the three month period ending June 30. The results of operations for the second quarter and first half of 2009 are not necessarily indicative of the results to be expected for the entire year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of June 30, 2009, the results of our operations for the second quarter and first half of 2009 and 2008, and our cash flows for the first half of 2009 and 2008. All adjustments are of a normal recurring nature. Our balance sheet at December 31, 2008 reflects the audited financial statements at that date.

Selling, general and administrative expenses, as reported in our Condensed Consolidated Statements of Operations for the second quarter and first half of 2009 and 2008, include all expenses of this nature from our operating segments, as well as our corporate office. Previously, selling, general and administrative expense within our operating segments was reported within cost of revenues. As a result of this reclassification, $14.7 million and $29.1 million of expenses previously reported in cost of revenues for the second quarter and first half of 2008, respectively, are now reflected in selling, general and administrative expenses.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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, 2008.

New Accounting Standards

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification™ (“the Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. Accordingly, our financial statements for the third quarter of 2009 and all subsequent periods will reference the Codification as the sole source of authoritative literature.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. SFAS 165 is effective for interim and annual periods ending after June 15, 2009, and accordingly, we adopted this Standard during the second quarter of 2009. SFAS 165 requires that companies evaluate subsequent events through the date of financial statement issuance. Accordingly, we have evaluated subsequent events through July 31, 2009.

On January 1, 2009, we adopted FASB SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), and its related interpretations, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The adoption did not have a material effect on our consolidated financial position or results of operations.

On January 1, 2009, we adopted FASB Staff Position 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The objective of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), “Business Combinations”, and other U.S. generally accepted accounting principles. The adoption did not have a material effect on our consolidated financial position or results of operations.

On January 1, 2009, we adopted FASB SFAS No. 141(R) (revised 2007), “Business Combinations”, (“SFAS 141(R)”) which provides revised guidance on the accounting for acquisitions of businesses. This standard changes the current guidance, requiring that all acquired assets, liabilities, minority interest and certain contingencies be measured at fair value, and certain other acquisition-related costs be expensed rather than capitalized. SFAS 141(R) applies to acquisitions that are effective after December 31, 2008, and application of the standard to acquisitions prior to that date is not permitted. The adoption did not have a material effect on our consolidated financial position or results of operations.

Note 2 — Earnings per Share

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

		Second Quarter								First Half
(In thousands, except per share data)		2009				2008				2009				2008
Net (loss) income		$	(8,787	)		$	10,002			$	(20,791	)		$	21,353
Weighted average number of common shares outstanding			88,514				88,762				88,430				89,454
Add: Net effect of dilutive stock options and warrants			—				311				—				217
Adjusted weighted average number of common shares outstanding			88,514				89,073				88,430				89,671
Net (loss) income per common share:
Basic		$	(0.10	)		$	0.11			$	(0.24	)		$	0.24
Diluted		$	(0.10	)		$	0.11			$	(0.24	)		$	0.24
Stock options, restricted stock and warrants excluded from calculation of diluted earnings per share because they were anti-dilutive for the period			5,827				4,029				5,659				4,577

For the second quarter and first half of 2009, we did not have any dilutive stock options or restricted stock. For the second quarter and first half of 2008, we had dilutive stock options and restricted stock of approximately 1.4 million shares and 1.0 million shares, respectively. The resulting net effect of stock options and restricted stock were used in calculating diluted income per share for this period.

On June 1, 2000, we completed the sale of 120,000 shares of Series B Convertible Preferred Stock, $0.01 par value per share (the “Series B Preferred Stock”), and a warrant (the “Series B Warrant”) to purchase up to 1,900,000 shares of our common stock at an exercise price of $10.075 per share, subject to anti-dilution adjustments. Prior to 2006, all outstanding shares of the Series B Preferred Stock were converted to common stock. The Series B Warrant was originally issued with a seven year life, expiring June 1, 2007. This warrant contains certain registration provisions, which, if not met, reduce the exercise price of the warrant by 2.5%, for each year we are not in compliance with the registration requirements, and extend the term of the warrant. Effective May 1, 2009, we became compliant with the registration requirements for the warrant. Previously, we were not in compliance with these requirements which resulted in adjustments to the exercise price and extended the term of the warrant. As of June 30, 2009, the Series B Warrant, as adjusted for certain anti-dilution provisions, remains outstanding and provides for the right to purchase up to 2,094,765 shares of our common stock at an exercise price of $9.14, and expires in February 2012.

Note 3 — Stock Based Compensation

During the second quarter of 2009, 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 526,700 shares of performance-based restricted stock units which vest subject to meeting certain performance criteria over a three year measurement period. The fair value on the date of grant for these awards was $3.31.

Additionally, 2,556,310 stock options were granted at an exercise price of $3.31, which provide for equal vesting over a four-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 $1.85. The assumptions used in the Black-Scholes model included a risk free rate of 2.93%, expected life of 5.22 years and expected volatility of 62.47%.

Non-employee directors each received a grant of 37,764 shares of restricted stock reflecting a total of 188,820 shares, which vest in full on the first anniversary of the grant date.

Note 4 — Receivables, net

Receivables consist of the following:

		June 30,				December 31,
(In thousands)		2009				2008
Trade receivables		$	85,598			$	168,320
Unbilled receivables			16,206				42,692
Gross trade receivables			101,804				211,012
Allowance for doubtful accounts			(5,676	)			(4,259	)
Net trade receivables			96,128				206,753
Notes and other receivables			2,777				4,613
Total receivables, net		$	98,905			$	211,366

Note 5 — Inventory

Inventory consists of the following:

		June 30,				December 31,
(In thousands)		2009				2008
Finished goods- mats		$	2,956			$	4,701
Raw materials and components:
Drilling fluids raw material and components			134,165				144,138
Supplies and other			343				465
Total raw materials and components			134,508				144,603
Total		$	137,464			$	149,304

Note 6 — Fair Value of Financial instruments

Our derivatives instruments consist of interest rate swap agreements entered into in January 2008 which effectively fix the underlying LIBOR rate on our borrowings under our term loan. The initial notional amount of the swap agreements totaled $50.0 million reducing by $10.0 million each December, matching the required principal payments under the term loan. As of June 30, 2009, $40.0 million remained outstanding on the term loan. As a result of the swap agreements, we will pay a fixed rate of 3.74% plus the applicable LIBOR margin.

The swap agreements represent a cash flow hedge, entered into for the purpose of fixing a portion of our borrowing costs and thereby decreasing the volatility of future cash flows. These agreements are valued based upon level 2 fair value criteria, where the fair value of these instruments is determined using observable inputs, including quoted prices for similar assets/liabilities and market corroborated inputs as well as quoted prices in inactive markets. The fair value of the interest rate swap arrangements was a liability of $1.0 million and $1.3 million, net of tax as of June 30, 2009 and December 31, 2008, respectively, recorded within accrued liabilities.

Our financial instruments include cash and cash equivalents, receivables, payables, debt, and certain derivative financial instruments. We believe the carrying values of these instruments approximated their fair values at June 30, 2009 and December 31, 2008.

At June 30, 2009 and December 31, 2008, the estimated fair value of total debt was $144.8 million and $188.2 million, respectively, consistent with the carrying value included in our consolidated balance sheets as of these dates.

Note 7 — Commitments and Contingencies

Shareholder Actions

Settlement of Shareholder Derivative and Class Action Litigation

In connection with our announcement regarding an internal investigation commissioned by our Audit Committee in April 2006, and subsequent announcements, we were served with a number of shareholder class action and derivative lawsuits. These suits asserted claims against us and certain of our former officers and current and former directors alleging damages resulting from the loss of value in our common stock and, derivatively, for damages we allegedly suffered.

In April 2007, we announced that we reached a settlement of our pending derivative and class action litigation. The settlement received final approval from the U.S. District Court for the Eastern District of Louisiana on October 9, 2007. This settlement resolved all pending shareholder class and derivative litigation against us, our former and current directors, and former officers. As part of the settlement, however, we preserved certain claims against our former Chief Executive Officer and former Chief Financial Officer for matters arising from invoicing irregularities at Soloco Texas, LP and the backdating of stock options.

James D. Cole Arbitration

By letter dated April 25, 2007, counsel for James D. Cole, our former Chief Executive Officer and former director, notified us that Mr. Cole was pursuing claims against us for breach of his employment agreement and other causes of action. Mr. Cole sought recovery of approximately $3.1 million purportedly due under his employment agreement and reimbursement of certain defense costs incurred in connection with the shareholder litigation, the SEC’s investigation, and our internal investigation. Mr. Cole also claimed $640,000 pursuant to the non-compete provision of his employment agreement. Pursuant to the terms of the employment contract, the matter was submitted to arbitration. We also submitted to the same arbitration proceedings the claims preserved against Mr. Cole arising from the derivative litigation referenced above. In the first quarter of 2009, we concluded a settlement agreement with Mr. Cole under which we have paid Mr. Cole a lump sum and released any claims we have against him arising from the derivative litigation. As part of the settlement, Mr. Cole, has released us from all remaining claims under his employment contract (including the non-compete provision) and his indemnity agreement.

Matthew Hardey Lawsuit

On November 2, 2007, we were served with a lawsuit filed on behalf of Matthew Hardey, our former Chief Financial Officer, against Newpark Resources and Paul L. Howes, our current Chief Executive Officer. We removed this case to Federal Court (United States District Court for the Eastern District of Louisiana). The lawsuit included a variety of allegations arising from our internal investigation and Mr. Hardey’s termination, including breach of contract, unfair trade practices, defamation, and negligence. On July 16, 2009, we executed a settlement agreement with Mr. Hardey pursuant to which Mr. Hardey has released Newpark and Mr. Howes from all claims including any claims under his employment contract and any present or future claims for indemnification and/or advancement of expenses relating to any ongoing investigations or actions. Likewise, Newpark has released Mr. Hardey from all claims it asserted against him for recovery of costs, including claims that we were entitled to recover sums previously advanced to Mr. Hardey under his indemnification agreement. The court has dismissed this litigation.

We believe that the terms of the Cole and Hardey settlements, whether viewed individually or in the aggregate, do not have a material adverse effect on Newpark’s financial condition.

SEC Investigation

On March 12, 2007, we were advised that the SEC has opened a formal investigation into the matters disclosed in Amendment No. 2 to our Annual Report on Form 10-K/A filed on October 10, 2006. We have and will continue to cooperate fully with the SEC’s investigation. On July 16, 2009, the SEC filed a civil lawsuit against our former Chief Financial Officer, the former Chief Financial Officer of our Soloco business unit and one former vendor in connection with the transactions that were described in the Amended Form 10-K/A. The company has not been named as a defendant.

Note 8 — Segment Data

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

		Second Quarter								First Half
(In thousands)		2009				2008				2009				2008
Revenues
Fluids systems and engineering		$	89,642			$	169,128			$	196,230			$	326,344
Mats and integrated services			8,638				24,904				17,501				46,155
Environmental services			11,319				16,465				22,806				32,734
Total revenues		$	109,599			$	210,497			$	236,537			$	405,233
Operating (loss) income
Fluids systems and engineering		$	(1,722	)(1)		$	18,104				(7,296	)(1)		$	39,211
Mats and integrated services			(4,774	)(1)			2,417				(8,188	)(1)			2,468
Environmental services			1,385				2,492				2,542				6,729
Corporate office			(4,811	)(1)			(4,996	)			(9,759	)(1)			(9,777	)
Operating (loss) income		$	(9,922	)		$	18,017			$	(22,701	)		$	38,631

Total assets related to our reportable segments are as follows:

		June 30,				December 31,
(In thousands)		2009				2008
Fluids systems and engineering		$	399,229			$	494,477
Mats and integrated services			84,867				99,123
Environmental services			74,473				80,222
Corporate office			23,639				39,857
Total assets		$	582,208			$	713,679

Note 9 — Financing Arrangements

In December 2007, we entered into a $225.0 million Amended and Restated Credit Agreement (“Credit Agreement”) which consisted of a $175.0 million revolving credit facility and a $50.0 million term loan. The Credit Agreement contains certain covenants including the following financial covenants:

		Covenant		Calculation as of
		Requirement		June 30, 2009
Fixed charge coverage ratio		1.20			0.86
		minimum
Consolidated leverage ratio		3.00			3.26
		maximum
Funded debt-to-captalization ratio		45.0%			27.6	%
		maximum

As indicated above, we were not in compliance with the fixed charge coverage ratio and consolidated leverage ratio covenants as of June 30, 2009. However, in July 2009, we entered into the First Amendment and Waiver to Amended and Restated Credit Agreement (“First Amendment”). The First Amendment provides a waiver of the financial covenant violations as of June 30, 2009 and modifies certain covenant requirements in future periods, as follows:

		September 30,				December 31,				March 31,				June 30,
		2009				2009				2010				2010				Thereafter
Fixed charge coverage ratio (minimum)			0.80				0.90				1.00				1.10				1.20
Consolidated leverage ratio (maximum)			4.50				4.00				3.50				3.00				3.00

Historically, our performance for financial covenant compliance purposes was based on our trailing four fiscal quarter results. Under the First Amendment, financial covenant calculations will utilize annualized results beginning with the third quarter of 2009, through March 31, 2010, after which time the calculations will return to using trailing four fiscal quarter results. We expect to be in compliance with these amended covenants through June 30, 2010.

The First Amendment also reduced the revolving credit facility from $175.0 million to $150.0 million, and also provides for adjustments in the interest rates and commitment fees under the credit facility. Under the Credit Agreement, as amended by the First Amendment, we can elect to borrow at an interest rate either based on LIBOR plus a margin based on our consolidated leverage ratio, ranging from 400 to 750 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 300 to 650 basis points. The initial margins in effect for borrowings under the First Amendment reflect the highest margin rates for each loan type. These rates will remain in effect until we provide our consolidated leverage ratio calculation for the third quarter of 2009, at which time the applicable margin will be determined by our consolidated leverage ratio. The First Amendment also increased the commitment fee rate payable under the credit facility, which is now fixed at 50 basis points. Accordingly, we anticipate interest expense to be significantly higher over the next four quarters as compared to the past several quarters.

In conjunction with the First Amendment, we expect to capitalize approximately $1.5 million for debt issuance costs paid in July 2009.

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 consolidated financial statements and notes to consolidated financial statements contained in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2008. Our second quarter represents the three month period ending June 30, and our first half represents the six month period ending June 30.

Overview

We are a diversified oil and gas industry supplier, and have three reportable segments: Fluids Systems and Engineering, Mats and Integrated Services, and Environmental Services. We provide these products and services principally to the exploration and production (“E&P”) industry in the U.S. Gulf Coast, West Texas, U.S. mid-continent, U.S. Rocky Mountains, Canada, Mexico, Brazil, United Kingdom (“U.K.”) and certain areas of Europe and North Africa. Further, we are expanding our presence outside the E&P sector through our Mats and Integrated Services segment, where we are marketing to utilities, municipalities and government sectors.

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 product demand.

The current economic environment, the instability in the credit markets and declines in oil and natural gas commodity prices have significantly impacted North American drilling activity during the first half of 2009. This decline in E&P spending negatively impacted our operating results during the first half of 2009, and is expected to continue to negatively impact operating results for the remainder of 2009 and into 2010, as compared to the results achieved during 2008.

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 2009, as compared to the comparable periods of the prior year is as follows:

		Three Months Ended June 30,								2009 vs 2008
		2009				2008				Count				%
U.S. Rig Count			934				1,864				(930	)			(50	%)
Canadian Rig Count			89				166				(77	)			(46	%)
North America			1,023				2,030				(1,007	)			(50	%)

		Six Months Ended June 30,								2009 vs 2008
		2009				2008				Count				%
U.S. Rig Count			1,139				1,817				(678	)			(37	%)
Canadian Rig Count			211				341				(130	)			(38	%)
North America			1,350				2,158				(808	)			(37	%)

In response to the significant declines in activity and the increasing price competition, we have executed cost reduction programs including workforce reductions, reduced discretionary spending, a temporary salary reduction for substantially all North American employees including executive officers, the temporary elimination of 401(k) matching for U.S. employees, as well as reductions in capital expenditures. As part of this cost reduction program, we have reduced our North American workforce by 485 employees during the first half of 2009 in addition to eliminating substantially all contract employee positions. As a result of these workforce reductions, our first half 2009 operating results include $4.4 million of charges associated with employee termination and related exit costs, including $1.8 million during the second quarter of 2009.

Second Quarter of 2009 Compared to Second Quarter of 2008

Results of Operations

Summarized results of operations for the second quarter of 2009 compared to the second quarter of 2008 are as follows:

		Second Quarter								2009 vs 2008
(In thousands)		2009				2008				$				%
Revenues		$	109,599			$	210,497			$	(100,898	)			(48	%)
Cost of revenues			103,906				172,649				(68,743	)			(40	%)
Selling, general and administrative expenses			15,652				19,679				(4,027	)			(20	%)
Other (income) expense, net			(37	)			152				(189	)			(124	%)
Operating (loss) income			(9,922	)			18,017				(27,939	)			(155	%)
Foreign currency exchange gain			(590	)			(199	)			(391	)			196	%
Interest expense, net			1,600				2,649				(1,049	)			(40	%)
(Loss) income from continuing operations before income taxes			(10,932	)			15,567				(26,499	)			(170	%)
Provision for income taxes			(2,145	)			5,481				(7,626	)			(139	%)
(Loss) income from continuing operations		$	(8,787	)		$	10,086			$	(18,873	)			(187	%)

Revenues

Revenues were $109.6 million in the second quarter of 2009, reflecting a 48% decline from the $210.5 million reported in the second quarter 2008. This decline in revenues is primarily driven by the significant declines in North American drilling activity, as previously indicated. Additional information regarding these declines is provided within the operating segment results below.

Cost of revenues

Cost of revenues were $103.9 million in the second quarter of 2009, reflecting a 40% decline from the $172.6 million reported in the second quarter of 2008. This decline is primarily driven by the significant declines in North American drilling activity, as indicated above. Additional information regarding these declines is provided within the operating segment results below.

Selling, general and administrative expenses

Selling, general and administrative expenses declined $4.0 million to $15.7 million in the second quarter of 2009 compared to $19.7 million for the second quarter of 2008. The decrease includes $2.9 million in fluids systems and engineering, $0.7 million in mat and integrated services, and $0.2 million in environmental services, and is primarily attributable to the impact of cost reduction programs initiated during the first half of 2009.

Interest expense, net

Interest expense, net totaled $1.6 million for the second quarter of 2009 compared to $2.6 million for the second quarter of 2008. The decrease in interest expense is primarily attributable to lower interest rates in the second quarter of 2009, as well as lower debt levels. As of June 30, 2009, the weighted average borrowing rate under our credit facilities was 3.64% compared to a weighted average borrowing rate of 5.26% at June 30, 2008.

As a result of the First Amendment and Waiver to the Amended Credit Agreement (“First Amendment”) entered into in July 2009, we anticipate interest expense to be significantly higher in future periods, as compared to the second quarter of 2009. See additional discussion in Liquidity and Capital Resources below.

Provision for income taxes

The provision for income taxes for the second quarter of 2009 was a $2.1 million benefit, reflecting an income tax rate of 19.6%, compared to $5.5 million of expense for the second quarter of 2008, reflecting an income tax rate of 35.2%. The low effective tax rate in the second quarter of 2009 is primarily due to the recording of valuation allowances against losses generated in certain foreign countries during the quarter, which serve to reduce the effective tax benefit rate in the period.

Operating Segment Results

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

		Second Quarter								2009 vs 2008
(In thousands)		2009				2008				$				%
Revenues
Fluids systems and engineering		$	89,642			$	169,128			$	(79,486	)			(47	%)
Mats and integrated services			8,638				24,904				(16,266	)			(65	%)
Environmental services			11,319				16,465				(5,146	)			(31	%)
Total revenues		$	109,599			$	210,497			$	(100,898	)			(48	%)
Operating (loss) income
Fluids systems and engineering		$	(1,722	)		$	18,104			$	(19,826	)
Mats and integrated services			(4,774	)			2,417				(7,191	)
Environmental services			1,385				2,492				(1,107	)
Corporate office			(4,811	)			(4,996	)			185
Operating (loss) income		$	(9,922	)		$	18,017			$	(27,939	)
Segment operating margin
Fluids systems and engineering			(1.9	%)			10.7	%
Mats and integrated services			(55.3	%)			9.7	%
Environmental services			12.2	%			15.1	%

Fluids Systems and Engineering

Revenues

Total revenues for this segment consisted of the following:

		Second Quarter								2009 vs 2008
(In thousands)		2009				2008				$				%
Drilling fluids and engineering		$	41,700			$	95,761			$	(54,061	)			(56	%)
Completion fluids and services			7,776				22,139				(14,363	)			(65	%)
Industrial minerals			7,218				16,852				(9,634	)			(57	%)
Total North America			56,694				134,752				(78,058	)			(58	%)
Mediterranean			29,476				30,917				(1,441	)			(5	%)
Brazil			3,472				3,459				13				0	%
Total		$	89,642			$	169,128			$	(79,486	)			(47	%)

North American revenues decreased 58% to $56.7 million for the second quarter of 2009, as compared to $134.8 million for the second quarter of 2008. Drilling fluids and engineering revenues decreased 56% which is largely attributable to the 50% decline in industry drilling activity noted above, along with increased pricing pressure resulting from the depressed activity levels. North American completion fluids and services and wholesale industrial minerals revenues were down a combined 62%, also driven by the lower industry activity and pricing pressure.

Mediterranean revenues decreased 5% compared to the second quarter of 2008, primarily due to the impact of the strengthening US dollar, as revenue levels have remained relatively stable in local currencies. Brazilian revenues in the second quarter of 2009 were relatively unchanged from the second quarter of 2008 at $3.5 million. Revenues in this region were also negatively impacted by the strengthening US dollar, as revenues in this region were up 26% in local currency terms, reflecting the ramp-up in activity under contracts entered into during 2008.

Operating Income

Operating income for this segment decreased $19.8 million for the second quarter of 2009 on a $79.5 million decrease in revenues, compared to the second quarter of 2008. Of this change, North American operations generated a $19.3 million decline in operating income on a $78.1 million decrease in revenues. This decrease in operating income is primarily attributable to the rapid decline in North American drilling activity throughout the first half of 2009, and the related increase in pricing pressure from competition. Further, the benefits of cost reduction initiatives taken during the second quarter of 2009 were reduced by the timing of the actions, along with $1.0 million of charges associated with employee termination costs. Operating income was further negatively impacted by lower gross profit on industrial mineral sales.

Operating income from international operations decreased $0.5 million on a $1.4 million decrease in revenues, as a $2.0 million increase in operating income in the Mediterranean operations was more than offset by a $2.5 million decrease from Brazil. The decrease in operating income in Brazil is primarily due to a weaker sales mix as revenues in the second quarter of 2009 included higher sales of low-margin pass-through items. In addition, operating expenses in this business have continued to increase as this business continues to ramp-up and prepare for future work under existing contracts.

Mats and Integrated Services

Revenues

Total revenues for this segment consisted of the following:

		Second Quarter								2009 vs 2008
(In thousands)		2009				2008				$				%
Mat rental and integrated services		$	4,869			$	14,311			$	(9,442	)			(66	%)
Mat sales			3,769				10,593				(6,824	)			(64	%)
Total		$	8,638			$	24,904			$	(16,266	)			(65	%)

The $9.4 million decrease in mat rental and integrated services revenues is primarily attributable to declines in the Gulf Coast market served by this segment, along with $1.2 million of concessions to customers on disputed receivables recorded in the second quarter of 2009. The declines in the Gulf Coast revenues are primarily the result of decreases in coastal drilling activity, as well as a continuing shift in focus away from coastal drilling toward more inland locations. The decline in revenue is further impacted by the increased pricing competition following the declines in market activity, and timing of projects from customers outside the E&P industry.

Mat sales primarily consist of export sales of composite mats to various international markets, as well as to non-oilfield industries domestically. Mat sales decreased by $6.8 million in the second quarter of 2009 from the second quarter of 2008, as demand for these products is down from the E&P and utility industries, as well as governmental sectors in the current economic environment.

Operating Income

Mats and integrated services operating income decreased by $7.2 million for the second quarter of 2009 on a $16.3 million decrease in revenues compared to the second quarter of 2008. The second quarter of 2009 operating loss includes $0.6 million of charges associated with employee termination costs and $0.8 million of non-cash write-downs of inventory. The remaining $5.9 million operating income decline is the result of the lower revenues and pricing pressures, along with the delayed effect of cost reduction actions, as the employee base was reduced by 72 during the second quarter of 2009.

Environmental Services

Revenues

Total revenues for this segment consisted of the following:

		Second Quarter								2009 vs 2008
(In thousands)		2009				2008				$				%
E&P waste — Gulf Coast		$	7,805			$	12,424			$	(4,619	)			(37	%)
E&P waste — West Texas			725				1,765				(1,040	)			(59	%)
NORM and industrial waste			2,789				2,276				513				23	%
Total		$	11,319			$	16,465			$	(5,146	)			(31	%)

E&P waste revenues in the Gulf Coast region decreased 37% to $7.8 million in the second quarter of 2009 compared to the second quarter of 2008. Volumes processed by this region declined 46% during this period, reflective of the decline in Gulf Coast rig activity during this period. This decline in volumes processed was partially offset by changes in sales mix and pricing increases.

E&P waste revenues in West Texas decreased by 59% to $0.7 million in the second quarter of 2009 compared to the second quarter of 2008. Volumes processed by this region declined 65% during this period; however, this was partially offset by improvements in pricing.

NORM and industrial waste revenues increased by 23% to $2.8 million in the second quarter of 2009, compared to the second quarter of 2008, driven by higher volumes processed.

Operating Income

Environmental services operating income decreased by $1.1 million on a $5.1 million decline in revenues in the second quarter of 2009, compared to the second quarter of 2008. The decline in operating income resulting from the lower revenues was partially offset by $4.0 million of operating expense reductions, including a $2.4 million reduction in transportation costs, a $0.4 million decline in equipment rental expenses and a $0.7 million reduction in personnel expenses.

First Half of 2009 Compared to First Half of 2008

Results of Operations

Summarized results of operations for the first half of 2009 compared to the first half of 2008 are as follows:

		First Half								2009 vs 2008
(In thousands)		2009				2008				$				%
Revenues		$	236,537			$	405,233			$	(168,696	)			(42	%)
Cost of revenues			227,418				327,769				(100,351	)			(31	%)
Selling, general and administrative expenses			31,882				38,870				(6,988	)			(18	%)
Other income, net			(62	)			(37	)			(25	)			68	%
Operating (loss) income			(22,701	)			38,631				(61,332	)			(159	%)
Foreign currency exchange (gain) loss			(561	)			97				(658	)			(678	%)
Interest expense, net			3,250				5,876				(2,626	)			(45	%)
(Loss) income from continuing operations before income taxes			(25,390	)			32,658				(58,048	)			(178	%)
Provision for income taxes			(4,599	)			11,176				(15,775	)			(141	%)
(Loss) income from continuing operations		$	(20,791	)		$	21,482			$	(42,273	)			(197	%)

Revenues

Revenues were $236.5 million in the first half of 2009, reflecting a 42% decline from the $405.2 million reported in the first half of 2008. This decline in revenues is primarily driven by the significant declines in North American drilling activity, as previously noted. Additional information regarding these declines is provided within the operating segment results below.

Cost of revenues

Cost of revenues were $227.4 million in the first half 2009, reflecting a 31% decline from the $327.8 million reported in the first half 2008. This decline is primarily driven by the significant declines in North American drilling activity, as noted above. Additional information regarding these declines is provided within the operating segment results below.

Selling, general and administrative expenses

Selling, general and administrative expenses declined $7.0 million to $31.9 million in the first half of 2009 compared to $38.9 million for the first half of 2008. The decrease includes $5.2 million in fluids systems and engineering, $1.4 million in mat and integrated services, and $0.3 million in environmental services, and is primarily attributable to the impact of cost reduction programs initiated during the first half of 2009.

Interest expense, net

Interest expense, net totaled $3.3 million for the first half of 2009 compared to $5.9 million for the first half of 2008. The decrease in interest expense is primarily attributable to lower interest rates in 2009, following the sharp decline in borrowing rates during the second half of 2008, and lower debt levels. As of June 30, 2009, the weighted average borrowing rate under our credit facilities was 3.64% compared to a weighted average borrowing rate of 5.26% at June 30, 2008.

As a result of the First Amendment entered into in July 2009, we anticipate interest expense to be significantly higher in future periods, as compared to the first half of 2009. See additional discussion in Liquidity and Capital Resources below.

Provision for income taxes

The provision for income taxes for the first half of 2009 was a $4.6 million benefit, reflecting an income tax rate of 18.1%, compared to $11.2 million of expense for the first half of 2008, reflecting an income tax rate of 34.2%. The low effective tax rate in the first half of 2009 is primarily due to the recording of valuation allowances against a previously recognized net operating loss carryforward tax asset in Canada, as well as current year losses generated in certain foreign countries, which serve to reduce the effective tax benefit rate in the period.

Operating Segment Results

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

		First Half								2009 vs 2008
(In thousands)		2009				2008				$				%
Revenues
Fluids systems and engineering		$	196,230			$	326,344			$	(130,114	)			(40	%)
Mats and integrated services			17,501				46,155				(28,654	)			(62	%)
Environmental services			22,806				32,734				(9,928	)			(30	%)
Total revenues		$	236,537			$	405,233			$	(168,696	)			(42	%)
Operating (loss) income
Fluids systems and engineering		$	(7,296	)		$	39,211			$	(46,507	)
Mats and integrated services			(8,188	)			2,468				(10,656	)
Environmental services			2,542				6,729				(4,187	)
Corporate office			(9,759	)			(9,777	)			18
Operating (loss) income		$	(22,701	)		$	38,631			$	(61,332	)
Segment operating margin
Fluids systems and engineering			(3.7	%)			12.0	%
Mats and integrated services			(46.8	%)			5.3	%
Environmental services			11.1	%			20.6	%

Fluids Systems and Engineering

Revenues

Total revenues for this segment consisted of the following:

		First Half								2009 vs 2008
(In thousands)		2009				2008				$				%
Drilling fluids and engineering		$	102,636			$	185,768			$	(83,132	)			(45	%)
Completion fluids and services			16,695				44,105				(27,410	)			(62	%)
Industrial minerals			16,103				33,438				(17,335	)			(52	%)
Total North America			135,434				263,311				(127,877	)			(49	%)
Mediterranean			54,513				59,177				(4,664	)			(8	%)
Brazil			6,283				3,856				2,427				63	%
Total		$	196,230			$	326,344			$	(130,114	)			(40	%)

North American revenues decreased 49% to $135.4 million for the first half of 2009, as compared to $263.3 million for the first half of 2008. Drilling fluids and engineering revenues decreased 45% which is largely attributable to the 37% decline in industry drilling activity noted above, along with increased pricing pressure resulting from the depressed activity levels. North American completion fluids and services and wholesale industrial minerals revenues were down a combined 58%, also driven by the lower industry activity and pricing pressure.

Mediterranean revenues decreased 8% compared to the first half of 2008, primarily due to the impact of the strengthening US dollar, as revenue levels have remained relatively stable in local currency terms. Brazilian revenues increased 63% to $6.3 million in the first half of 2009, reflecting the ramp-up in activity under contracts entered into during 2008.

Operating Income

Operating income for this segment decreased $46.5 million for the first half of 2009 on a $130.1 million decrease in revenues, compared to the first half of 2008. Of this change, North American operations generated a $44.2 million decline in operating income on a $127.9 million decrease in revenues. This decrease in operating income is primarily attributable to the rapid decline in North American drilling activity throughout the first half of 2009, and the related increase in pricing pressure from competition. Further, the benefits of cost reduction initiatives taken during the first half of 2009 were reduced by the timing of the actions, along with $3.0 million of charges associated with employee termination and related costs, as the North American workforce of this business was reduced by 360 employees during this period. Operating income was further negatively impacted by lower gross profit on industrial mineral sales.

Operating income from international operations decreased $2.3 million on a $2.2 million decrease in revenues, as a $1.0 million increase in operating income in the Mediterranean operations was more than offset by a $3.3 million decrease from Brazil, due to the increased operating costs being incurred, as this business continues to ramp-up and prepare for future work under existing contracts.

Mats and Integrated Services

Revenues

Total revenues for this segment consisted of the following:

		First Half								2009 vs 2008
(In thousands)		2009				2008				$				%
Mat rental and integrated services		$	12,290			$	31,261			$	(18,971	)			(61	%)
Mat sales			5,211				14,894				(9,683	)			(65	%)
Total		$	17,501			$	46,155			$	(28,654	)			(62	%)

The $19.0 million decrease in mat rental and integrated services revenues is primarily attributable to declines in the Gulf Coast market served by this segment, while revenues in the Rocky Mountain market have remained relatively stable. The declines in the Gulf Coast revenues are primarily the result of decreases in coastal drilling activity, as well as a continuing shift in focus away from coastal drilling toward more inland locations. The decline in revenue is further impacted by the increased pricing competition following the declines in market activity, and timing of projects from customers outside the E&P industry.

Mat sales primarily consist of export sales of composite mats to various international markets, as well as to non-oilfield industries domestically. Mat sales decreased by $9.7 million in the first half of 2009 from the first half of 2008, as the demand for these products is down from the E&P and utility industries, as well as governmental sectors in the current economic environment.

Operating Income

Mats and integrated services operating income decreased by $10.7 million for the first half of 2009 on a $28.7 million decrease in revenues compared to the first half of 2008. The decrease in operating margin is primarily attributable to the declines in revenues and pricing pressures, as well as the delayed impact of cost reductions. The benefits of cost reduction initiatives taken during the first half of 2009, including workforce reductions of 104 employees, had a reduced impact to the 2009 operating results, due to the timing of the actions, along with $1.0 million of charges associated with employee termination costs and $1.0 million of non-cash write-downs of inventory.

Environmental Services

Revenues

Total revenues for this segment consisted of the following:

		First Half								2009 vs 2008
(In thousands)		2009				2008				$				%
E&P waste — Gulf Coast		$	16,198			$	25,498			$	(9,300	)			(36	%)
E&P waste — West Texas			1,788				2,995				(1,207	)			(40	%)
NORM and industrial waste			4,820				4,241				579				14	%
Total		$	22,806			$	32,734			$	(9,928	)			(30	%)

E&P waste revenues in the Gulf Coast region decreased 36% to $16.2 million in the first half of 2009 compared to the first half of 2008. Volumes processed by this region declined 49% during this period, consisting of 8% reduction from well blow-out disposals in the first half of 2008 which did not recur, and a 41% reduction reflective of the decline in Gulf Coast rig activity during this period. This decline in volumes processed was partially offset by changes in sales mix and pricing increases.

E&P waste revenues in West Texas decreased by 40% to $1.8 million in the first half of 2009 compared to the first half of 2008. Volumes processed by this region declined 60% during this period; however, this was largely offset by improvements in pricing.

NORM and industrial waste revenues increased by 14% to $4.8 million in the first half of 2009, compared to the first half of 2008, driven by higher volumes processed.

Operating Income

Environmental services operating income decreased by $4.2 million on a $9.9 million decline in revenues in the first half of 2009, compared to the first half of 2008. The decline resulting from the lower revenue levels was partially offset by $5.7 million of operating expense reductions, including a $3.6 million reduction in transportation costs and a $1.0 million reduction in personnel expenses.

Liquidity and Capital Resources

Net cash provided by operating activities during the first half of 2009 totaled $57.5 million. The net loss adjusted for non-cash items used $9.6 million of cash during the period, while decreases in working capital provided $67.1 million of cash. The decrease in working capital during the period includes a $111.7 million decrease in receivables and a $12.7 million decrease in inventories, partially offset by a $45.1 million decrease in accounts payable and $12.6 million decrease in accrued liabilities and other, primarily due to lower sales levels and corresponding lower purchases.

Net cash used in investing activities during the first half of 2009 was $13.4 million, consisting primarily of capital expenditures which included $9.4 million for our operations outside of North America. Net cash used in financing activities during the first half of 2009 was $44.1 million which was primarily to reduce amounts outstanding on our credit facilities.

During the first half of 2009, our total debt balance was reduced by $43.4 million to $144.8 million at June 30, 2009. We anticipate that our debt levels will continue to decline in the near-term, as working capital requirements for our operations will continue to decline in the current environment of lower revenue levels. Further, capital expenditures are being reduced in response to the current market environment. Cash generated by operations including the anticipated decreases in working capital levels, along with availability under our existing credit agreement is expected to be adequate to fund our anticipated capital needs.

Our capitalization was as follows as of:

		June 30,				December 31,
(In thousands)		2009				2008
Term credit facility		$	40,000			$	40,000
Revolving credit facility			97,000				136,000
Foreign bank lines of credit			6,370				11,543
Other			1,415				611
Total			144,785				188,154
Stockholder’s equity			361,457				377,882
Total capitalization		$	506,242			$	566,036
Total debt to capitalization			28.6	%			33.2	%

In December 2007, we entered into a $225.0 million Amended and Restated Credit Agreement (“Credit Agreement”) which consisted of a $175.0 million revolving credit facility and a $50.0 million term loan. The Credit Agreement contains certain covenants including the following financial covenants:

		Covenant		Calculation as of
		Requirement		June 30, 2009
Fixed charge coverage ratio		1.20			0.86
		minimum
Consolidated leverage ratio		3.00			3.26
		maximum
Funded debt-to-captalization ratio		45.0%			27.6	%
		maximum

As indicated above, we were not in compliance with the fixed charge coverage ratio and consolidated leverage ratio covenants as of June 30, 2009. However, in July 2009, we entered into the First Amendment, which provides a waiver of the financial covenant violations as of June 30, 2009 and modifies certain covenant requirements in future periods, as follows:

		September 30,				December 31,				March 31,				June 30,
		2009				2009				2010				2010				Thereafter
Fixed charge coverage ratio (minimum)			0.80				0.90				1.00				1.10				1.20
Consolidated leverage ratio (maximum)			4.50				4.00				3.50				3.00				3.00