The following discussion of our financial condition, results of operations, liquidity and capital resources should be read together with our Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.

Overview

We are a 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 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.

As previously reported, we had entered into an agreement in April 2008 to sell our U.S. Environmental Services business to CCS, Inc. ("CCS"). In October 2008, the Federal Trade Commission ("FTC") filed suit seeking a Temporary Restraining Order and Preliminary Injunction to prevent us from concluding this sale to CCS. In November 2008, we reached a mutual agreement with CCS to terminate our agreement. Following the termination of this agreement, the U.S. Environmental Services business, which has been previously reported within discontinued operations, is now reported in continuing operations as a third reportable segment of the Company. Our 2008 results include $4.3 million of legal and transaction costs associated with the sale process, along with $2.6 million of non-cash asset write-offs following the abandonment of the sale.

A key element of our previously communicated strategic plan is to leverage our existing operations to drive further expansion into high-growth international markets. During 2008, we made significant progress in expanding our presence in the Brazilian market. As announced during the first quarter of 2008, we were awarded a significant deepwater offshore project, and completed the construction of a $4.6 million fluids plant to serve this market. Deliveries under this contract began during the third quarter of 2008 and we have generated $15.3 million of revenue during 2008 in this growing market. Also, during the fourth quarter, we signed a major contract with Petroleo Brasileiro S.A. ("Petrobras"), to provide drilling fluids and related services for both onshore and offshore locations beginning in 2009. This contract is valued by Petrobras at approximately 350 million Brazilian Reals (approximately $147 million at the February 27, 2009 exchange rate) and is expected to have a term of 5 years.

In February 2008, our Board of Directors approved a plan authorizing the repurchase of up to $25.0 million of our outstanding shares of common stock. As of December 31, 2008, we had repurchased 2,618,195 shares for an aggregate price of approximately $15.1 million. We also repurchased 28,214 shares for an aggregate price of $0.2 million for shares surrendered in lieu of taxes under vesting of restricted stock awards.

Hurricane Impact

Our Fluids Systems and Engineering and Environmental Services operations along the U.S. Gulf Coast were severely affected by Hurricanes Katrina and Rita in 2005 and early 2006. During 2006, we recorded recoveries related to business interruption coverage related to the hurricanes of $4.3 million and $0.8 million as reductions to cost of revenues, in the Fluids Systems and Engineering and Environmental Services segments, respectively.

In 2008, these U.S. Gulf Coast operations were impacted by Hurricanes Gustav and Ike, which again interrupted business activities. Insurance claims associated with the 2008 business interruption are expected to be finalized in 2009, and the insurance recoveries, if any, will be recorded at the time of final claim resolution.

Results of Operations

Our operating results depend in large measure on oil and gas drilling activity levels in the markets we serve, as well as on the depth of drilling, which governs the revenue potential of each well. These levels, in turn, depend on oil and gas commodity pricing, inventory levels and product demand.

The current economic recession, the instability in the credit markets, and declines in commodity prices has significantly impacted drilling activity during the fourth quarter of 2008. This trend has continued into the first quarter of 2009. This decline in E&P spending negatively impacted operating results during the fourth quarter of 2008, and is expected to negatively impact operating results in 2009, as compared to the results achieved during 2008.

Rig count data is the most widely accepted indicator of drilling activity. Key average North American rig count data for the last three years ended December 31 is as follows:

                             Year Ended December 31,            2008 vs 2007          2007 vs 2006
                           2008        2007        2006        Count        %        Count        %

    U.S. Rig Count          1,879       1,768       1,648         111         6 %       120         7 %
    Canadian Rig Count        382         343         472          39        11 %      (129 )     (27 )%

    Total                   2,261       2,111       2,120         150         7 %        (9 )       0 %

Source: Baker Hughes Incorporated

The North American rig count was 1,637 during the week of February 27, 2009, reflecting a 28% decline from the 2008 average of 2,261.

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

                                              Year Ended December 31,                    2008 vs 2007               2007 vs 2006
                                        2008           2007           2006                $           %             $            %
                                                                              (In thousands)

Segment revenues
Fluids systems and engineering        $ 706,288      $ 522,714      $ 481,378         $ 183,574        35 %     $  41,336          9 %
Mats and integrated services             89,654         90,050        100,530              (396 )      (0 )%      (10,480 )      (10 )%
Environmental services                   62,408         58,443         60,409             3,965         7 %        (1,966 )       (3 )%

Total segment revenues                $ 858,350      $ 671,207      $ 642,317         $ 187,143        28 %     $  28,890          4 %

Segment operating income
Fluids systems and engineering        $  87,249      $  66,065      $  66,616 (1)     $  21,184                 $    (551 )
Mats and integrated services              1,846         12,770         15,230           (10,924 )                  (2,460 )
Environmental services                    9,031         10,491        (58,356 )(2)       (1,460 )                  68,847

Total segment operating income           98,126         89,326         23,490             8,800                    65,836
General and administrative expenses      26,630         22,923         20,022             3,707                     2,901

Operating income                      $  71,496      $  66,403      $   3,468         $   5,093                 $  62,935

Segment operating margin
Fluids systems and engineering             12.4 %         12.6 %         13.8 %
Mats and integrated services                2.1 %         14.2 %         15.1 %
Environmental services                     14.5 %         18.0 %        (96.6 %)

(1) Includes $4.3 million of insurance recoveries as a result of Hurricanes Katrina and Rita.

(2) Includes $0.8 million of insurance recoveries as a result of Hurricanes Katrina and Rita and $68.1 million impairment loss associated with goodwill and long-lived assets.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Total revenues increased 28% to $858.4 million for the year ended December 31, 2008, as compared to $671.2 million in 2007. Total segment operating income increased 10% to $98.1 million, as compared to $89.3 million in 2007. Revenues and segment operating income are further analyzed in the segment analysis below.

Fluids Systems and Engineering

Revenues

Total revenues for this segment consisted of the following for the years ended
December 31, 2008 and 2007:


                                                       Year Ended December 31,            2008 vs 2007
                                                         2008             2007             $           %
                                                                        (In thousands)

North America                                        $    411,632       $ 317,670      $  93,962        30 %
Mediterranean and South America                           138,443          87,627         50,816        58 %

Total drilling fluid and engineering revenues             550,075         405,297        144,778        36 %
Completion fluids and services                             88,978          72,740         16,238        22 %
Industrial minerals                                        67,235          44,677         22,558        50 %

Total                                                $    706,288       $ 522,714      $ 183,574        35 %

North American drilling fluid and engineering revenues increased 30% to $411.6 million for the year ended December 31, 2008, as compared to $317.7 million for the year ended December 31, 2007. While North American rig activity increased 7% during this period, the number of rigs we serviced through this business segment increased 25%, reflecting continued market share growth within the markets that we service.

In the year ended December 31, 2008, our Mediterranean and South American revenues increased 58% over 2007. This revenue increase was driven largely by the increased rig activity and continued market penetration into the North African and Eastern European markets, along with a $14.7 million increase in revenues generated in Brazil in 2008.

Revenues in our completion fluids and services business increased 22% for the year ended December 31, 2008, as compared to 2007, due to strong demand for rental equipment and services for well completion activities in the Mid-continent region served by this business.

Revenues in our industrial minerals business increased 50% for the year ended December 31, 2008, as compared to 2007, resulting from a 23% increase in sales volume, along with significant pricing increases to help offset higher barite transportation costs.

Operating Income

Operating income for this segment increased $21.2 million for the year ended December 31, 2008 on a $183.6 million increase in revenues, compared to 2007, resulting in a decrease in operating margin from 12.6% to 12.4%. Of the total segment change, North American operations generated a $19.0 million increase in operating income on a $132.7 million increase in revenues, while international operations generated a $2.2 million increase in operating income on a $50.8 million increase in revenues. Within the international operations, the incremental profits associated with higher revenues were somewhat offset by higher operating expenses attributable to personnel, higher transportation and logistics costs due to the location of projects, and start-up costs associated with new contracts.

As described above, the North American rig activity declined significantly at the end of 2008 and in early 2009. As a result, we expect that revenues and operating income will be negatively impacted by the lower activity and resulting pricing pressures. Internationally, we anticipate that activity will remain more stable than in the North American markets, and we anticipate revenue growth in Brazil, as compared to 2008 levels.

Mats and Integrated Services

Revenues

Total revenues for this segment consisted of the following for the years ended
December 31, 2008 and 2007:


                                          Year Ended December 31,          2008 vs 2007
                                            2008             2007           $          %
                                                          (In thousands)

   Mat rental and integrated services   $     62,810       $  67,016     $ (4,206 )     (6 )%
   Mat sales                                  26,844          23,034        3,810       17 %

   Total                                $     89,654       $  90,050     $   (396 )     (0 )%

Total mat rental and integrated services revenues decreased by $4.2 million in the year ended December 31, 2008, compared to 2007 as a $10.6 million increase in 2008 revenues generated by the Colorado business acquired in August 2007 was more than offset by a $14.8 million decline in rental and related service volume in the Gulf Coast region, driven largely by weakness in the South Louisiana land rig count in 2008 compared to 2007.

Mat sales primarily consist of export sales of composite mats to various international markets, as well as domestic sales to the U.S. government and customers outside the oil and gas industry. Mat sales increased by $3.8 million in 2008, as compared to 2007, due primarily to higher domestic sales activity.

Operating Income

Mats and integrated services operating income decreased by $10.9 million to $1.8 million for the year ended December 31, 2008 on a $0.4 million decrease in revenues compared to 2007, resulting in a decrease in operating margins to 2.1% from 14.2%. The decrease in operating margin is partially attributable to the change in sales mix. The Colorado business acquired in August 2007 generated an increase in rental and service revenues of $10.6 million in year ended December 31, 2008; however, operating income from this business were unchanged over this period, as incremental profits generated by the higher revenues were offset by higher expenses, including a $1.9 million increase in depreciation and amortization related to acquired assets. Operating income for the remaining operations in this segment, which primarily service the Gulf Coast area, declined by $10.9 million on a $11.0 million decline in revenue. As noted above, this $11.0 million decline in revenue included a $14.8 million decrease in rental and integrated services revenue, offset by a $3.8 million increase in mat sales. The decline in Gulf Coast operating income is primarily due to the lower rental and integrated service revenues, as these activities have a relatively high fixed cost structure. In addition, the Gulf Coast service business was negatively impacted by additional pricing pressure resulting from the significantly lower rig counts in the region throughout 2008. Also, the business recorded $4.3 million of pre-tax charges in 2008 related primarily to inventory and receivable write-downs, transportation costs for the re-deployment of rental mats, as well as severance and related costs associated with restructuring activities in this segment.

Environmental Services

Revenues

Total revenues for this segment consisted of the following for the years ended
December 31, 2008 and 2007:


                                     Year Ended December 31,          2008 vs 2007
                                       2008             2007           $          %
                                                     (In thousands)

       E&P waste - Gulf Coast      $     45,999       $  46,420     $  (421 )      (1 )%
       E&P waste - West Texas             7,957           3,971       3,986       100 %
       NORM and industrial waste          8,452           8,052         400         5 %

       Total                       $     62,408       $  58,443     $ 3,965         7 %

E&P waste revenues in the Gulf Coast region decreased 1% to $46.0 million in the year ended December 31, 2008 compared to 2007. Volumes processed by this region declined 5% during this period, reflective of the 3% 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 increased by 100% to $8.0 million in the year ended December 31, 2008 compared to 2007. Volumes processed by this region declined 20% during this period, however, this was more than offset by improvements in pricing. Also, this region generated $3.2 million of additional revenues from the sale of oil, which is a by-product of the waste disposal process. The increase in oil revenues is the result of the high commodity prices experienced during 2008.

NORM and industrial waste revenues increased by 5% to $8.5 million in the year ended December 31, 2008, compared to 2007.

Operating Income

Environmental services operating income decreased by $1.5 million to $9.0 million for the year ended December 31, 2008 on a $4.0 million increase in revenues compared to 2007, reflecting a decrease in operating margins to 14.5% from 18.0%. The year ended December 31, 2008 included a $2.6 million charge to write-down certain disposal assets which we have determined not to develop following the abandoned sale of the business in the fourth quarter of 2008. In addition, 2008 includes $0.4 million of expenses associated with unrecoverable losses incurred at our Gulf Coast facilities associated with Hurricanes Ike and Gustav. The remaining $1.5 million increase in operating income reflects the impact of the higher revenues.

General and Administrative Expense

General and administrative expense increased $3.7 million to $26.6 million for the year ended December 31, 2008 from 2007. The increase is attributable to $4.3 million of legal and related costs associated with the abandoned sale of the U.S. Environmental Services business in 2008. The year ended December 31, 2008 also included $2.2 million of expenses associated with the arbitration and anticipated settlement of a lawsuit with our former Chief Executive Officer. The year ended December 31, 2007 included $3.8 million of legal expenses, including a $1.6 million settlement charge, related to the shareholder class action and derivative litigation. The remaining $1.1 million increase in expenses in 2008 is primarily attributable to a $1.0 million increase associated with performance-based employee incentive programs.

We anticipate that general and administrative expense in 2009 will decrease from 2008 levels, due to the non-recurring nature of certain items in 2008, including the expenses associated with the abandoned sale of the U.S. Environmental Services business and the settlement of the dispute with our former Chief Executive Officer.

Interest Expense, net

Interest expense, net totaled $10.9 million for the year ended December 31, 2008 as compared to $20.3 million in 2007. The year ended December 31, 2007 included a $4.0 million non-cash charge to write-off capitalized debt issuance costs associated with termination of the credit facilities in December 2007. The remaining $5.4 million decrease is primarily attributable to lower interest rates throughout 2008, as compared to 2007. At December 31, 2008, our weighted average interest rate on borrowings was 3.46%, compared to 6.95% at December 31, 2007.

Provision for Income Taxes

For the year ended December 31, 2008, we recorded an income tax provision of $20.0 million, reflecting an income tax rate of 33.8%, compared to an income tax rate of 32.8% in 2007. The increase in effective tax rate from 2007 to 2008 is primarily attributable to a larger proportion of income being generated by our U.S. operations in 2008, which has a higher tax rate than our foreign jurisdictions. We expect the effective tax rate in 2009 to be between 34% and 35%.

Discontinued Operations

Discontinued operations include the results of operations of the Newpark Environmental Water Solutions ("NEWS") business, which was exited in 2006, a sawmill facility, which was sold in 2007, and the Canadian Environmental Services business, which was shut down in 2007. During the year ended December 31, 2008, discontinued operations generated a pre-tax loss of $1.5 million ($0.8 million after-tax), which reflected remaining shut-down expenses associated with these businesses. During the year ended December 31, 2007, discontinued operations generated pre-tax loss of $4.1 million ($3.5 million after-tax), which reflected the results of operations, as well as impairments and shut-down expenses associated with the businesses.

Pre-tax losses from the disposal of discontinued operations were $3.2 million ($1.6 million after-tax) for the year ended December 31, 2007, reflecting the loss generated on the sale of the sawmill facility assets during the third quarter of 2007.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Total revenues increased 4% to $671.2 million for the year ended December 31, 2007, as compared to $642.3 million in 2006. Total segment operating income increased from $23.5 million in 2006 to $89.3 million in 2007. Revenues and segment operating income are further analyzed in the segment analysis below.

Fluids Systems and Engineering

Revenues

Total revenues for this segment consisted of the following for the years ended
December 31, 2007 and 2006:


                                                        Year Ended December 31,            2007 vs 2006
                                                          2007             2006            $           %
                                                                         (In thousands)

North America                                         $    317,670       $ 304,077      $ 13,593         4 %
Mediterranean and South America                             87,627          61,555        26,072        42 %

Total drilling fluid and engineering revenues              405,297         365,632        39,665        11 %
Completion fluids and services                              72,740          72,872          (132 )       0 %
Industrial minerals                                         44,677          42,874         1,803         4 %

Total                                                 $    522,714       $ 481,378      $ 41,336         9 %

North American drilling fluid and engineering revenues increased 4% to $317.7 million for the year ended December 31, 2007, as compared to $304.1 million for the year ended December 31, 2006. Overall North American rig activity was relatively unchanged during this period, as a 7% increase in the U.S. rig count was partially offset by a 27% decrease in the Canadian rig count. The average number of North American rigs serviced by our business decreased by 7% during this time. This decrease in rigs serviced is primarily related to the weak Canadian market as well as an industry shift toward drilling shallower conventional oil wells in the U.S. market as compared to the deeper wells that we typically service. The decrease in number of rigs serviced by this segment is more than offset by a 14% increase in our average revenue per rig, resulting from our focused efforts to concentrate on deeper and more complex wells, including the off-shore Gulf Coast markets.

Mediterranean and South American revenues increased 42% in the year ended December 31, 2007 over 2006 levels, representing 17% of total segment revenues in 2007, compared to 13% in 2006. This increase was driven by increased rig activity and continued penetration into the North African and Romanian markets.

Revenues in our completion fluids and industrial minerals businesses increased $1.7 million for the year ended December 31, 2007, or 1% as compared to 2006 as increases in U.S. sales activity was partially offset by declines in industrial minerals sales into the Canadian market.

Operating Income

Operating income for this segment decreased $0.6 million for the year ended December 31, 2007 on a $41.3 million increase in revenues, resulting in a decline in operating margin from 13.8% to 12.6%. North American operating income decreased $5.4 million on a $13.6 million increase in revenues, primarily due to $4.3 million of non-recurring insurance recoveries from Hurricanes Katrina and Rita, which increased operating income in 2006. In addition, operating income was negatively impacted by higher operating costs, including significantly higher barite transportation costs, as well as the continued operating costs in the Canadian business which has remained relatively flat, despite the decline in sales volumes. The Mediterranean region operating income increased $6.0 million on a $25.5 million increase in revenues from 2006 to 2007, while the Brazilian operation generated a $1.2 million increase in operating losses, due to costs associated with the start-up of operations.

Mats and Integrated Services

Revenues

Total revenues for this segment consisted of the following for the years ended
December 31, 2007 and 2006:


                                         Year Ended December 31,           2007 vs 2006
                                           2007             2006            $           %
                                                          (In thousands)

  Mat rental and integrated services   $     67,016       $  60,885     $   6,131        10 %
  Mat sales                                  23,034          39,645       (16,611 )     (42 )%

  Total                                $     90,050       $ 100,530     $ (10,480 )     (10 )%

Total mat rental and integrated services revenues increased by $6.1 million in the year ended December 31, 2007, compared to 2006, primarily due to the SEM acquisition in August 2007, which contributed $5.2 million of revenue during 2007. Revenues for the Gulf Coast region increased by $0.9 million, or 1% over 2006. This increase is primarily attributable to improvements in market penetration, despite lower rig activity in this region compared to 2006.

Mat sales primarily consist of composite mats to international markets and export sales of wooden mats to Canada. The decline in mat sales is primarily attributable to a $17.2 million decrease in Canadian sales, due to lower drilling activity and a large one-time wooden mat sale recorded in 2006. The remaining $0.6 million increase in revenues is primarily attributable to composite mat export sales.

Operating Income

Segment operating income declined $2.5 million for the year ended December 31, 2007 on a $10.5 million decrease in revenues, compared to 2006. Operating margins declined to 14.2% for the year ended December 31, 2007 as compared to 15.1% in 2006. The decline in operating margin is primarily attributable to the impact of the change in mat sales volume.