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.

Wage and Hour Litigation

During the second quarter of 2014, a lawsuit was filed by Jesse Davida, a former employee, in Federal Court in Texas against Newpark Drilling Fluids LLC, alleging violations of the Fair Labor Standards Act (“FLSA”). The plaintiff sought damages and penalties for our alleged failure to properly classify our field service employees as “non-exempt” under the FLSA and pay them on an hourly basis (including overtime). The Court conditionally certified a class of plaintiffs as those working as fluid service technicians for Newpark Drilling Fluids for the prior three years. A second case was filed by Josh Christensen in the fourth quarter of 2014 in Federal Court in Texas alleging that individuals treated as independent contractors should have been classified as employees and, as such, were entitled to assert claims for alleged violations of the FLSA (similar to the claims asserted in the Davida matter). Five additional plaintiffs joined this litigation after it was filed. In March of 2015, the Court denied the plaintiffs’ motion for conditional class certification. Counsel for the plaintiffs did not appeal that ruling and subsequently filed individual cases for each of the original opt-in plaintiffs plus two new plaintiffs, leaving a total of eight independent contractor cases.

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

Beginning in November 2015, we engaged in settlement discussions with counsel for the plaintiffs in the pending wage and hour litigation cases described above. Following mediation in January 2016, the parties executed a settlement agreement in April 2016 to resolve all of the pending matters, subject to a number of conditions, including approval by the Court in the Davida case, and the dismissal of the other FLSA cases (Christiansen-related lawsuits and individual FLSA cases). As a result of the then ongoing settlement negotiations, we recognized a $5.0 million charge in the fourth quarter of 2015 related to the resolution of these wage and hour litigation claims. The settlement agreement was approved by the Davida Court on August 19, 2016. Approximately 569 current and former fluid service technician employees eligible for the settlement were notified of the pending resolution beginning on August 26, 2016 and given an opportunity to participate in the settlement. The amount paid to any eligible individual varied based on a formula that takes into account the number of workweeks and salary for the individual during the time period covered by the settlement. Any eligible individual that elected to participate in the settlement released all wage and hour claims against us.

The deadline for submitting claims or opting out was October 25, 2016 with 379 individuals filing claims and no individuals opting out. The percentage of current or former fluid service technicians that elected to participate in the settlement represented approximately 67% of the individuals receiving notice. Individuals that did not participate in the settlement may retain the right to file an individual lawsuit against us, subject to any defenses we may assert. As a result of the settlement agreement, we paid $4.5 million into a settlement fund in the second half of 2016. The settlement fund was administered by a third party who made payments to eligible individuals that elected to participate in accordance with a formula incorporated into the settlement agreement. In addition, under the terms of settlement agreement, settlement funds that remained after all payments were made to eligible individuals that elected to participate in the settlement were shared by the participating individuals and us. In the fourth quarter of 2016, we recognized a $0.7 million gain associated with the change in final settlement amount of these wage and hour litigation claims.

Escrow Claims Related to Sale of Environmental Services Business

Under the terms of the March 2014 sale of the Environmental Services business to Ecoserv, LLC (“Ecoserv”), $8 million of the sales price was withheld and placed in an escrow account to satisfy claims for possible breaches of representations and warranties contained in the sale agreement. For the amount withheld in escrow, $4.0 million was scheduled for release to Newpark at each of the nine-month and 18-month anniversary of the closing. In December 2014, we received a letter from counsel for Ecoserv asserting that we had breached certain representations and warranties contained in the sale agreement including failing to disclose service work performed on injection wells and increased barge rental costs. The letter indicated that Ecoserv expected the costs associated with these claims to exceed the escrow amount. Following a further exchange of letters, in July of 2015, we filed a declaratory judgment action against Ecoserv in state court in Harris County, Texas, seeking release of the escrow funds. Thereafter, Ecoserv filed a counterclaim seeking recovery of the escrow funds based on the alleged breach of representations and warranties. Ecoserv also alleges that we committed fraud in connection with the sale transaction. We believe there is no basis in the agreement or on the facts to support the claims asserted by Ecoserv and intend to vigorously defend our position while pursuing release of the entire $8.0 million in escrow. The litigation remains in the discovery process with mediation currently scheduled in March of 2017.

Leases

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

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



(In thousands)
2017	$	9,310
2018	6,128
2019	4,724
2020	3,805
2021	3,342
Thereafter	9,780
	$	37,089

Other

In conjunction with our insurance programs, we had established letters of credit in favor of certain insurance companies in the amount of $3.0 million and $3.3 million at December 31, 2016 and 2015, respectively. We also had $0.4 million and $0.4 million in guarantee obligations in connection with facility closure bonds and other performance bonds issued by insurance companies outstanding as of December 31, 2016 and 2015, respectively.

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

We are self-insured for health claims, subject to certain “stop loss” insurance policies. Claims in excess of $250,000 per incident are insured by third-party insurers. We had accrued liabilities of $0.8 million and $1.0 million for unpaid claims incurred, based on historical experience at December 31, 2016 and 2015, respectively. Substantially all of these estimated claims are expected to be paid within six months of their occurrence.

We are self-insured for certain workers’ compensation, auto and general liability claims up to a certain policy limit. Claims in excess of $750,000 are insured by third-party reinsurers. At December 31, 2016 and 2015, we had accrued liabilities of $1.9 million and $2.5 million, respectively, for the uninsured portion of claims.

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