10-K 1 clb-20161231_10k.htm 2016 10-K Document





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
(Mark One)
Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2016
 
OR
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from__ ________ ____ ____to _ ____ ____ ____ ____ ___

Commission File Number 001-14273
CORE LABORATORIES N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
Not Applicable
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Strawinskylaan 913
 
Tower A, Level 9
 
1077 XX Amsterdam
 
The Netherlands
Not Applicable
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (31-20) 420-3191

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Shares, EUR 0.02 Par Value Per Share
New York Stock Exchange; Euronext Amsterdam Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Q  No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨  No Q

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 Q  
No ¨

    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes Q  No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Q
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
 
 
(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 Act). Yes ¨  No Q

As of June 30, 2016, the aggregate market value of common shares held by non-affiliates of the registrant was approximately $5,351,649,322.

As of February 9, 2017, the number of common shares outstanding was 44,152,138.

DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating to the Annual Meeting of Shareholders to be held in 2017, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.
This document (excluding exhibits) contains 72 pages.
The table of contents is set forth on the following page. The exhibit index begins on page 34.









CORE LABORATORIES N.V.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS

 
 
Page
 
 
 
PART I
PART II
PART III
PART IV























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PART I

ITEM 1. BUSINESS

General

Core Laboratories N.V. is a Netherlands limited liability company. We were established in 1936 and are one of the world's leading providers of proprietary and patented reservoir description, production enhancement and reservoir management services to the oil and gas industry. These services and products are directed toward enabling our clients to improve reservoir performance and increase oil and gas recovery from their producing fields. We have over 70 offices in more than 50 countries and have approximately 4,400 employees.

References to "Core Lab", the "Company", "we", "our", and similar phrases are used throughout this Annual Report on Form 10-K (this "Form 10-K") and relate collectively to Core Laboratories N.V. and its consolidated affiliates.

Business Strategy

Our business strategy is to provide advanced technologies that improve reservoir performance by (i) continuing the development of proprietary technologies through client-driven research and development, (ii) expanding the services and products offered throughout our global network of offices and (iii) acquiring complementary technologies that add key technologies or market presence and enhance existing services and products.

Development of New Technologies, Services and Products

We conduct research and development to meet the needs of our clients who are continually seeking new services and technologies to lower their costs of finding, developing and producing oil and gas. While the aggregate number of wells being drilled per year has fluctuated relative to market conditions, oil and gas producers have, on a proportional basis, increased expenditures on technology services to improve their understanding of the reservoir and increase production of oil and gas from their producing fields. We intend to continue concentrating our efforts on services and technologies that improve reservoir performance and increase oil and gas recovery.

International Expansion of Services and Products

Another component of our business strategy is to broaden the spectrum of services and products offered to our clients on a global basis. We intend to continue using our worldwide network of offices to offer many of our services and products that have been developed internally or obtained through acquisitions. This allows us to enhance our revenue through efficient utilization of our worldwide network.

Acquisitions

We continually review potential acquisitions to add key services and technologies, enhance market presence or complement existing businesses.

More information relating to any significant acquisitions is included in Note 3 of the Notes to the Consolidated Financial Statements in Part IV of this Form 10-K ("Notes to Consolidated Financial Statements").

Operations

We derive our revenue from services and product sales to clients primarily in the oil and gas industry.

We operate our business in three reportable segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields. Disclosure relating to the operations and financial information of these business segments is included in Note 18 of the Notes to Consolidated Financial Statements.
Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples. We provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry.

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Production Enhancement: Includes products and services relating to reservoir well completions, perforations, stimulations and production. We provide integrated diagnostic services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
Reservoir Management: Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients' reservoirs.

We offer our services worldwide through our global network of offices. Services accounted for approximately 79%, 77% and 72% of our revenue from operations for the years ended December 31, 2016, 2015 and 2014, respectively.

We manufacture products primarily in four facilities for distribution on a global basis. Product sales accounted for approximately 21%, 23% and 28% of our revenue from operations for the years ended December 31, 2016, 2015 and 2014, respectively.

Our product sales backlog at December 31, 2016 was approximately $6.8 million compared to $10.2 million at December 31, 2015. Sources of raw materials for our products are readily available and we expect that our current sales backlog at December 31, 2016 will be completed in 2017.

Reservoir Description

Commercial oil and gas fields consist of porous and permeable reservoir rocks that contain natural gas, crude oil and water. Due to the density differences of the fluids, natural gas typically caps the field and overlies an oil layer, which overlies the water. We provide services that characterize the porous reservoir rock and all three reservoir fluids. Services relating to these fluids include determining quality and measuring quantity of the fluids and their derived products. This includes determining the value of different crude oil and natural gases by analyzing the individual components of complex hydrocarbons. We measure these hydrocarbons at reservoir conditions to determine the changes in their physical properties with changing pressure and temperature.

We analyze samples of reservoir rocks for their porosity, which determines reservoir storage capacity, and for their permeability, which defines the ability of the fluids to flow through the rock. These measurements are used to determine how much oil and gas are present in a reservoir and the rates at which the oil and gas can be produced. We also use our proprietary services and technologies to correlate the reservoir description data to wireline logs and seismic data by determining the different acoustic velocities of reservoir rocks containing water, oil and natural gas.

The combined use of both the reservoir rock and fluid data are invaluable to oil companies to determine the most efficient method by which to recover, process, and refine these hydrocarbons to produce the maximum value added to crude oil and natural gas fields. Early evaluations and key decisions about well performance and viability are important for optimizing a reservoir. This is accomplished using our Digital Rock Characteristics (DRC) services which include (1) Dual Energy CT which is a non-destructive petrophysical evaluation technique to provide early time insight of reservoir lithology and reservoir quality; and (2) Micro CT which is a high resolution pore imaging service that provides early time quantification of both routine and special core analysis properties.

We have developed unique analytical processes to understand the flow characteristics and saturation profiles of unconventional reservoir systems including (1) High Frequency Nuclear Magnetic Resonance (NMR) measurements to allow the T1/T2 mapping to gain understanding of movable vs. unmovable fluid saturation distribution of these complex system; and (2) Enhanced Oil Recovery (EOR) of shale reservoirs by evaluating the effectiveness of gas cycling in nano-pore structures to significantly increase long-term production rates and volumes.

The Iron CorehandTM is a unit designed to handle and move core in the field to eliminate the inherent risk of back injury and dropped core. The unit is self-contained and designed to fit in the limited spaces available on offshore rigs. The system ensures proper handling of core material in the field and protecting staff from serious injuries.

Core Lab holds various patents, trade secrets, and proprietary designs for laboratory equipment required to analyze reservoir rocks as well as the properties and phase behavior of reservoir fluids. We manufacture a wide range of ambient and reservoir condition rock and fluid analysis laboratory equipment for our own use throughout our international laboratory network. Among these devices are complex, high-pressure, high temperature, reservoir condition, multi-phase flow systems and full visualization PVT cells, along with the ancillary equipment required to support these laboratory programs. We also sell equipment of this type to universities, government institutes, and client company research labs.


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Whilst recognizing the need to optimize the logistical chain of our clients, from producing well to retail sales of petroleum products, a state-of-the-art IT platform CONNECT: has been launched to efficiently acquire our field data, laboratory analysis and any other other observations relevant to our client base. The system is designed in such a way that there is only single data entry, and that data can be used for further analysis and more importantly be shared with our clients by process flow dashboards, with key performance indicators. But also by sharing real-time data on mobile devices, enabling our clients to make quick decisions.

This new methodology of sharing data has been embraced by an increasing number of clients, as it has not only saved them costs, but more importantly, the data can be used for trend analysis in many ways such as the ability to forecast bottlenecks, thus eliminating waste and increasing efficiency.

Two experience centers have been set up, both in the U.S. and Europe, where our clients can get acquainted with optimizing the flow of business as well as our advanced systems for data analysis. All initiatives are meant to increase efficiency and add value to our client base.

Production Enhancement

We provide diagnostic services and products to help optimize completion and reservoir operations and field development strategies in order to increase recoverable reserves in the most efficient way. Two production enhancement methods commonly used are (i) hydraulic fracturing of the reservoir rock to improve flow and (ii) flooding a reservoir with water, carbon dioxide, nitrogen or hydrocarbon gases to force more oil and gas to the wellbore. Many oilfields today are hydraulically fractured and/or flooded to maximize oil and gas recovery. Although Core Laboratories is not a hydraulic fracturing company, we do provide services that are used by others to develop and optimize hydraulic fracturing and field flood projects and to evaluate the success of those projects. Our services and technologies play a key role in the success of both methods.

The hydraulic fracturing of a producing formation is achieved by pumping a fluid slurry containing a proppant material into the reservoir zone at extremely high pressures. This fractures the rock and the proppant material "props" or holds the fractures open after the pressure pumping is complete so that reservoir fluids can flow to the production wellbore. Our data on rock type and strength are critical for determining the proper design of the hydraulic fracturing job. In addition, our testing indicates whether the fluid slurry is compatible with the reservoir rock so that damage does not occur that would restrict production. We also provide testing of various propping agents and software to help pick the best proppant based on net present value calculations of client investments. Our proprietary and patented ZERO WASH® tracer technology is used to determine that the proppant material was properly placed in the fracture to ensure effective flow and increased recovery.

SPECTRACHEM® is another proprietary and patented technology developed for optimizing hydraulic fracture performance. SPECTRACHEM® is used to aid operators in determining the efficiency of the fracture fluids used. SPECTRACHEM® tracers allow operators to evaluate the quantity of fracture fluid that returns to the wellbore during the clean-up period after a hydraulic fracturing event. This technology also allows our clients to evaluate load recovery, gas breakthrough, fluid leak-off and breaker efficiency, all of which are important factors for optimizing oil and/or natural gas production after the formation is hydraulically fractured.

Core's patented and proprietary SPECTRACHEM® fracture diagnostic service continued to evolve with the introduction of the SPECTRACHEM®Plus service in early 2009. The SPECTRACHEM®Plus service is effective in determining the effectiveness and efficiency of the hydraulic fracture stimulation of long multi-stage horizontal wells in oil- and gas-shale plays throughout North America and with growing demand internationally as unconventional resource plays are developed globally. SPECTRACHEM®Plus data sets are used to determine how each frac stage is flowing. Frac stages with ineffective flows may warrant further stimulation, remedial actions and guide improvements on future frac designs.

Our unique completion monitoring system, COMPLETION PROFILER™, helps to determine flow rates from reservoir zones after they have been hydraulically fractured. This provides our clients with a baseline of early production information and can be compared to subsequent production logs later in the life of the well to see if and where hydrocarbon production varies.

Our FLOWPROFILERTM service, a proprietary hydrocarbon-based tracer technology, which is a further development of our patented SPECTRACHEM® technology and has been in use for more than five years, quantifies the hydrocarbon production from discrete segments in multi-stage horizontal well completions and stimulations in unconventional tight-oil or gas plays. We have tracers used for oil reservoirs which are different from our tracers used for gas reservoirs. FLOWPROFILERTM technology and the analytical methodology for identifying the hydrocarbon-soluble tracers are the protected intellectual property of Core Lab.

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FLOWPROFILERTM technology employs a unique hydrocarbon-soluble tracer and water-soluble tracer introduced into specific and isolated stages via the stimulating proppant stream. The hydrocarbon-soluble tracers are absorbed by the crude oil or gas associated with each stage while the water-soluble tracer remains in the stimulation fluid. When the well is flowed, crude oil or gas and water samples are collected and analyzed in the laboratory to identify and quantify oil or gas flows from each stage and the cleanup of the stimulation fluid. Stages not at optimum flow rates can be identified, precipitating remedial efforts to increase flow and recovery rates, and to provide valuable insight for future wells. This service, which we first used more than five years ago, is being used to monitor offset well interference by sampling offset well oil or gas and water production. The amount of tracer detected in offset wells is being used to help our clients optimize both lateral and vertical well spacing and the amount of fracturing fluids for each stage.

We conduct dynamic flow tests of the reservoir fluids through the reservoir rock, at actual reservoir pressure and temperature, to realistically simulate the actual flooding of a producing zone. We use patented technologies, such as our Saturation Monitoring by the Attenuation of X-rays (SMAX™), to help design the enhanced recovery project. After a field flood is initiated, we are often involved in monitoring the progress of the flood to ensure the maximum amount of incremental production is being achieved through the use of our SPECTRAFLOODTM technology, which we developed to optimize sweep efficiency during field floods.

Our PACKSCAN® patented technology is used as a tool to evaluate gravel pack effectiveness in an unconsolidated reservoir. PACKSCAN® measures the density changes in the area around the tool and is designed to observe the changes within the gravel pack annulus to verify the completeness of the gravel pack protection of the wellbore without any additional rig time.

In addition to Core's many patented reservoir analysis technologies, Production Enhancement has established itself as a global leader in the manufacture and distribution of high-performance perforating products. Core's unique understanding of complex reservoirs supports our ability to supply perforating systems engineered to maximize well productivity by reducing, eliminating and overcoming formation damage caused during the drilling and completion of oil and gas wells. This "systems" approach to the perforating of an oil or gas well has resulted in numerous patented products.

HERO® (High Efficiency Reservoir Optimization), SUPERHERO® and SUPERHERO®Plus are examples of the patented perforating systems which quickly gained market acceptance and became industry leaders in enhancing reservoir performance. The SUPERHERO® and SUPERHERO®Plus charges evolved from HERO® charge technology and use a proprietary and patented design of powdered metal liners and explosives technology resulting in a deeper and cleaner perforating tunnel into the oil and gas reservoir. This allows greater flow of hydrocarbons to the wellbore and helps to maximize hydrocarbon recovery from the reservoir. The more recent charge development of the HERO® Hard Rock or HERO®-HR charges, resulted in Core Lab also having the deepest penetrating perforating charges on the market as certified by API testing.

HERO®PerFRAC is the newest next generation of charges using HERO® technology. in addition to the benefits of HERO® technology, HERO®PerFRAC charges are designed specifically for optimizing fracture stimulation well completions by providing a uniform hole size which minimizes tortuosity effects in the rock during well stimulation resulting in less surface horsepower and less time which both translate into lower costs needed to initiate the fracturing operation. In addition to optimizing stimulation operations with faster, lower cost programs, the production is also enhanced by not only the better well stimulations but the improved near debris free perforation tunnels as the well fluids come back into the casing from the rock. Core's manufacturing operations in the United States and Canada continue to meet the global demand for our perforating systems through facility expansion in addition to gains in efficiency and productivity.

The HERO® line of perforating charges, HERO®PerFRAC, SUPERHERO® and SUPERHERO®Plus charges can eliminate the ineffective perforations that would otherwise limit daily oil and natural gas production and hinder the optimal fracture stimulation programs needed for prolific production from the Bakken, Eagle Ford, Marcellus, Niobrara and similar oil- and gas-shale formations.

Core's Production Enhancement team has experienced technical services personnel to support clients through our global network of offices for the everyday use of our perforating systems and the rapid introduction of new products. Our personnel are capable of providing client training and on-site services in the completion of oil and gas wells. The patented X-SPAN® and GTX-SPAN® casing patches are supported by our technical services personnel. Recent market applications in Canada's steam-assisted gravity drainage (SAGD) environment have resulted in an upgrade in temperature ratings to as much as 600°F. These systems are capable of performing in high temperature as well as high pressure oil and gas environments and are used to seal non-productive reservoir zones from the producing wellbore.



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Reservoir Management

Reservoir description and production enhancement information, when applied across an entire oilfield or formation, is used to maximize daily production and the ultimate total recovery from the reservoir. We are involved in numerous large-scale reservoir management projects, applying proprietary and state-of-the-art techniques from the earliest phases of a field development program until the last economic barrel of oil is recovered. These projects are of increasing importance to oil companies as the incremental barrel is often the lowest cost and most profitable barrel in the reservoir. Producing incremental barrels increases our clients' cash flows which we believe will result in additional capital expenditures by our clients, and ultimately further opportunities for us.

Some of these are industry consortium projects that provide critical reservoir information to a broad spectrum of clients in a cost effective manner. Many of them examine unconventional reservoirs, particularly in the US and Canada. For example, our Permian Basin study evaluates the petrophysical, geochemical, completion and production characteristics of this very active play in West Texas. Our clients use this information, not only to improve their drilling and production activities, but also to evaluate potential acquisition and divestiture opportunities. Outside of North America we have an ongoing global shale study that examines the unconventional reservoir potential in Central and Southern Europe, North Africa, India, China and Australia, among other regions. We also have studies focused on tight sandstone reservoirs around the world and unconventional plays in the Middle East.

Apart from unconventional settings, several conventional reservoir studies are currently being conducted for the deep water Gulf of Mexico and several different plays around the offshore Atlantic margins of West Africa, South America and Canada. Onshore, we have also conducted dozens of conventional reservoir studies on every continent except Antarctica.

Another aspect of reservoir management is real-time reservoir monitoring. We engineer and manufacture permanent monitoring equipment that is installed in the reservoir for our oil and gas company clients. Our non-electronic ERDTM Pressure and Temperature sensors are characterized in the industry as having some of the highest reliability (95% in 20 years) and temperature (600° Fahrenheit) ratings. The real-time data obtained from these sensors are used by drilling engineers to make real-time decisions, production engineers to optimize production, and reservoir engineers to prove up models and obtain a clear picture of the reservoir over time.

Marketing and Sales

We market and sell our services and products through a combination of sales representatives, technical seminars, trade shows and print advertising. Direct sales and marketing are carried out by our sales force, technical experts and operating managers, as well as by sales representatives and distributors in various markets where we do not have offices. Our Business Development group manages a Large Account Management Program to better serve our largest and most active clients by meeting with key personnel within their organizations to ensure the quality of our services and products are meeting their expectations and we are addressing any issues or needs in a timely manner.

Research and Development

The market for our services and products is characterized by changing technology and frequent product introduction. As a result, our success is dependent upon our ability to develop or acquire new services and products on a cost-effective basis and to introduce them into the marketplace in a timely manner. Many of our acquisitions have allowed us to obtain the benefits of the acquired company's research and development projects without the significant costs that would have been incurred if we had attempted to develop the services and products ourselves. We incur costs as part of internal research and development and these costs are charged to expense as incurred. We intend to continue committing financial resources and effort to the development and acquisition of new services and products. Over the years, we have made a number of technological advances, including the development of key technologies utilized in our operations. Substantially all of the new technologies have resulted from requests and guidance from our clients, particularly major oil companies.

Patents and Trademarks

We believe our patents, trademarks, trade secrets and other intellectual property rights are an important factor in maintaining our technological advantage, although no single one of these is considered essential to our success. Typically, we will seek to protect our intellectual property in all jurisdictions where we believe the cost of such protection is warranted. While we have patented some of our key technologies, we do not patent all of our proprietary technology even where regarded as patentable. We protect our intellectual property, including through the use of appropriate confidentiality agreements, legal enforcement proceedings and by other means.

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International Operations

We operate facilities in more than 50 countries. Our non-U.S. operations accounted for approximately 62%, 58% and 52% of our revenue from operations during the years ended December 31, 2016, 2015 and 2014, respectively. We attribute service revenue to the country in which the service was performed while we attribute product sales revenue to the country where the product was shipped as we feel this gives a clearer view of our operations. We do, however, have significant levels of revenue recorded in the U.S., where the services were performed, that are sourced from projects on non-U.S. oilfields.

The following graphs and table summarize our reported revenue by geographic region for the years ended December 31, 2016, 2015 and 2014:

graphgeographicrevenuev2.gif
 
United States
 
Europe/Africa/Middle East
 
Asia Pacific
 
Canada
 
Former Soviet Union
 
Latin/ South America
 
Consolidated
2016
$
224,863

 
$
222,916

 
$
65,115

 
$
22,547

 
$
35,935

 
$
23,365

 
$
594,741

2015
$
338,907

 
$
249,679

 
$
86,001

 
$
43,808

 
$
41,450

 
$
37,675

 
$
797,520

2014
$
515,643

 
$
273,452

 
$
94,328

 
$
105,244

 
$
49,778

 
$
46,777

 
$
1,085,222


While we are subject to fluctuations and changes in currency exchange rates relating to our international operations, we attempt to limit our exposure to foreign currency fluctuations by limiting the amount in which our foreign contracts are denominated in a currency other than the U.S. dollar. However, the ultimate decision as to the proportion of the foreign currency component within a contract usually resides with our clients. Consequently, we are not always able to eliminate our foreign currency exposure. We have not historically engaged in and are not currently engaged in any significant currency hedging or trading transactions designed to compensate for adverse currency fluctuations.

Environmental and Occupational Safety and Health Regulations

We are subject to stringent governmental laws and regulations, both in the United States and other countries, pertaining to protection of the environment and the manner in which chemicals and gases used in our analytical and manufacturing processes are handled and generated wastes are disposed. Consistent with our quality assurance and control principles, we have established proactive environmental policies for the management of these chemicals and gases as well as the handling, recycling or disposal of wastes resulting from our operations. Compliance with these laws and regulations, whether at the federal, provincial, regional, state, local or foreign levels, may require the acquisition of permits to conduct regulated activities, capital expenditures to limit or prevent emissions and discharges, and stringent practices to handle, recycle and dispose of certain wastes. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial or corrective obligations, the occurrence of delays in the permitting or performance of projects and the issuance of injunctive relief.

Moreover, new, modified or stricter enforcement of environmental laws or regulations could be adopted or implemented that significantly increase our or our client's compliance costs, pollution mitigation costs, or the cost of any remediation of environmental contamination that may become necessary, and these costs could be material. For example, from time to time, legal requirements have been agreed to or proposed and adopted, in the United States that could adversely affect our business, financial condition, results of operations, or cash flows related to the following:

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*Ground-Level Ozone Standards. In October 2015, the U.S. Environmental Protection Agency (“EPA”) issued a rule under the federal Clean Air Act (“CAA”), lowering the National Ambient Air Quality Standard (“NAAQS”) for ground-level ozone from 75 parts per billion to 70 parts per billion under both the primary and secondary standards. The EPA is expected to make final geographical attainment designations and issue final non-attainment area requirements pursuant to this NAAQS rule by late 2017 and states are also expected to implement their own rules, which could be more stringent than federal requirements.
*Reduction of Methane Emissions by the Oil and Gas Industry. In June 2016, the EPA published a final rule establishing new emissions standards for methane and additional standards for volatile organic compounds from certain new, modified, and reconstructed oil and natural gas production and natural gas processing and transmission facilities. These standards will require the use of certain equipment specific emissions control practices with respect to, among other things, hydraulically-fractured oil and natural gas well completions and fugitive emissions from well sites. Moreover, in November 2016, the EPA began seeking additional information about methane emissions from existing equipment an d process in the oil and gas sector that may be used in developing a standard addressing those sources.
*Reduction of Greenhouse Gas (“GHG”) Emissions. The U.S. Congress and the EPA, in addition to some state and regional efforts, have in recent years considered legislation or regulations to reduce emissions of GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs, and regulations that directly limit GHG emissions from certain sources. In the absence of federal GHG-limiting legislations, the EPA has determined that GHG emissions present a danger to public health and the environment and has adopted regulations that, among other things, restrict emissions of GHGs under existing provisions of the CAA, and require monitoring and annual reporting of GHG emissions from certain onshore and offshore production facilities and certain onshore processing, transmission and storage facilities. In December 2015, the United States joined other countries of the United Nations in preparing an agreement requiring member countries to each develop reductions in GHG emissions. This agreement, referred to as the “Paris agreement,” was signed by the United States in April 2016 and entered into force in November 2016; however, this agreement does not create any binding obligations for nations to limit their GHG emissions, but includes pledges to voluntarily limit or reduce future emissions.
*Hydraulic Fracturing. While the U.S. Congress has not adopted legislation regulating hydraulic fracturing, several federal agencies have asserted regulatory authority or pursued investigations over certain aspects of the hydraulic fracturing process. For example, in June 2016, the EPA published an effluent limit guideline final rule prohibiting the discharge of wastewater from onshore unconventional oil and natural gas extraction facilities to publicly owned wastewater treatment plants and, also in June 2016, the EPA published a final rule establishing first-time standards to address emissions of methane from hydraulically-fractured oil and natural gas well completions. Additionally, the federal Bureau of Land Management published a final rule in March 2015 that established new or more stringent standards relating to hydraulic fracturing on federal and American Indian lands, which rule was struck down by a federal judge in June 2016 but that decision is currently being appealed by the federal government. Also, in December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under certain circumstances. Moreover, some states and certain local governments have adopted, or are considering adopting, legal requirements that have imposed or in the future could impose, new or more stringent permitting, disclosure or well construction requirements on hydraulic fracturing activities.
*Offshore Compliance. In recent years, the Bureau of Ocean Energy Management (“BOEM”) and the Bureau of Safety and Environmental Enforcement (“BSEE”), agencies under the U.S. Department of the Interior have imposed more stringent permitting procedures and regulatory safety and performance requirements for new wells to be drilled in federal waters. These agencies have pursued, implemented or enforce new rules, Notices to Lessees and Operators (“NTLs”) and even temporary drilling moratoria that imposed safety and operational performance measures on exploration, development and production operators in the Gulf of Mexico or otherwise resulted in a temporary cessation of drilling activities. For example, in April 2016, the BSEE published a final rule on well control that, among other things, imposes rigorous standards relating to the design, operation and maintenance of blow-out preventers, real-time monitoring of deep water and high temperature, high pressure drilling activities, and enhanced reporting requirements. Also in April 2016, the federal BOEM published a proposed rule that would bolster existing air-emissions requirements relating to offshore oil and natural-gas activity on federal Outer Continental Shelf waters including in the Central Gulf of Mexico by, among other things, requiring the reporting and tracking of the emissions of all pollutants defined by the EPA to affect human health and public welfare. In addition, in September 2016, the BOEM issued a Notice to Lessees and Operators that bolsters the supplemental bonding procedures followed by oil

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and natural gas exploration and production operators on the federal Outer Continental Shelf waters for the decommissioning of offshore wells, platforms, pipelines, and other facilities.

Our compliance with such new or amended legal requirements that are applicable to us could result in our incurring significant additional expense and operating restrictions with respect to our operations, which may not be fully recoverable from our clients and, thus, could reduce net income. Our clients, to whom we provide our services, may similarly incur increased costs or restrictions that may limit or decrease those clients’ operations and have an indirect material adverse effect on our business.

Our analytical and manufacturing processes involve the handling and use of numerous chemicals and gases as well as the generation of wastes. Spills or releases of these chemicals, gases, and wastes at our facilities, whether by us or prior owners or operators, or at offsite locations where we transport them for recycling or disposal could subject us to environmental liability, either from the applicable government agency or private landowners or other third parties. Such liabilities could be strict, joint and several, as is applicable in the United States under such laws as the federal Comprehensive Environmental Response, Compensation and Liability Act and the federal Resource Conservation and Recovery Act. This could also include costs of cleaning up chemicals and wastes released into the environment and for damages to persons, properties or natural resources. As a result of such actions, we could be required to remove previously disposed wastes (including wastes disposed of or released by prior owners or operators), remediate environmental contamination (including contaminated groundwater), and undertake measures to prevent future contamination. We may not be able to recover some or any of these remedial or corrective costs from insurance. Historically, our environmental compliance costs have not had a material adverse effect on our results of operations; however, there can be no assurance that such costs will not be material in the future or that such future compliance will not have a material adverse effect on our business or results of operations.

Our operations are also subject to stringent governmental laws and regulations, including the federal Occupational Safety and Health Act, as amended ("OSHA"), and comparable state laws in the United States, whose purpose is to protect the health and safety of workers. In the United States, the OSHA hazard communication standard and applicable community right-to-know regulations require that information is maintained concerning hazardous materials used or produced in our operations and that this information is provided to employees, state and local government authorities, and citizens. Historically, our worker health and safety compliance costs have not had a material adverse effect on our results of operations; however, there can be no assurance that such costs will not be material in the future or that such future compliance will not have a material adverse effect on our business or results of operations.

Competition

The businesses in which we engage are competitive. Some of our competitors are divisions or subsidiaries of companies that are larger and have greater financial and other resources than we have. While no one company competes with us in all of our product and service lines, we face competition in these lines, primarily from independent regional companies and internal divisions of major integrated oil and gas companies. We compete in different product and service lines to various degrees on the basis of price, technical performance, availability, quality and technical support. Our ability to compete successfully depends on elements both within and outside of our control, including successful and timely development of new services and products, performance and quality, client service, pricing, industry trends and general economic trends.

Reliance on the Oil and Gas Industry

Our business and operations are substantially dependent upon the condition of the global oil and gas industry. Future downturns in the oil and gas industry, or in the oilfield services business, may have a material adverse effect on our financial position, results of operations or cash flows.

The oil and gas industry is highly cyclical and has been subject to significant economic downturns at various times as a result of numerous factors affecting the supply of and demand for oil and natural gas, including the level of capital expenditures of the oil and gas industry, the level of drilling activity, the level of production activity, market prices of oil and gas, economic conditions existing in the world, interest rates and the cost of capital, environmental regulations, tax policies, political requirements of national governments, coordination by the Organization of Petroleum Exporting Countries ("OPEC"), cost of producing oil and natural gas, and technological advances.





8



Employees

As of December 31, 2016, we had approximately 4,400 employees. We do not have any material collective bargaining agreements and consider relations with our employees to be good.

Web Site Access to Our Periodic SEC Reports

Our primary internet address is http://www.corelab.com. We file or furnish Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, Current Reports on Form 8-K, and any amendments to those reports with the U.S. Securities and Exchange Commission ("SEC"). These reports are available free of charge through our web site as soon as reasonably practicable after they are filed or furnished electronically with the SEC. We may from time to time provide important disclosures to investors by posting them in the investor relations section of our web site, as allowed by SEC rules.

Materials we file with the SEC may be read and copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

ITEM 1A. RISK FACTORS

Our forward-looking statements are based on assumptions that we believe to be reasonable but that may not prove to be accurate. All of our forward-looking information is, therefore, subject to risks and uncertainties that could cause actual results to differ materially from the results expected. All known, material risks and uncertainties are discussed below.

Downturns in the oil and gas industry, or in the oilfield services business, may have a material adverse effect on our financial condition or results of operations.

The oil and gas industry is highly cyclical and demand for the majority of our oilfield services and products is substantially dependent on the level of expenditures by the oil and gas industry for the exploration, development and production of crude oil and natural gas reserves, which are sensitive to oil and natural gas prices and generally dependent on the industry's view of future oil and gas prices. There are numerous factors affecting the supply of and demand for our services and products, which are summarized as:
general and economic business conditions;
market prices of oil and gas and expectations about future prices;
cost of producing and the ability to deliver oil and natural gas;
the level of drilling and production activity;
mergers, consolidations and downsizing among our clients;
coordination by OPEC;
the impact of commodity prices on the expenditure levels of our clients;
financial condition of our client base and their ability to fund capital expenditures;
the physical effects of climatic change, including adverse weather, such as increased frequency or severity of storms, droughts and floods, or geologic/geophysical conditions;
the adoption of legal requirements or taxation, including, for example, a carbon tax, relating to climate change that lowers the demand for petroleum-based fuels;
civil unrest or political uncertainty in oil producing or consuming countries;
level of consumption of oil, gas and petrochemicals by consumers;
changes in existing laws, regulations, or other governmental actions, including temporary or permanent moratoria on hydraulic fracturing or offshore drilling, the issuance of NTLs that eliminate or significantly reduce the ability of offshore operators to self-insure their supplemental bonding obligations, or shareholder activism or governmental rulemakings or agreements to restrict GHG emissions, which developments could have an adverse impact on the oil and gas industry and/or demand for our services;
the business opportunities (or lack thereof) that may be presented to and pursued by us;

9



availability of services and materials for our clients to grow their capital expenditures;
ability of our clients to deliver product to market;
availability of materials and equipment from key suppliers; and
cyber-attacks on our network that disrupt operations or result in lost or compromised critical data.

The oil and gas industry has historically experienced periodic downturns, which have been characterized by diminished demand for our oilfield services and products and downward pressure on the prices we charge. A significant downturn in the oil and gas industry could result in a reduction in demand for oilfield services and could adversely affect our operating results.

The downturn in the oil and gas industry has negatively affected and will likely continue to affect our ability to accurately predict client demand, causing us to hold excess or obsolete inventory and experience a reduction in gross margins and financial results.

We cannot accurately predict which or what level of our services and products our clients will need in the future. Orders are placed with our suppliers based on forecasts of client demand and, in some instances, we may establish buffer inventories to accommodate anticipated demand. Our forecasts of client demand are based on multiple assumptions, each of which may introduce errors into the estimates. In addition, many of our suppliers require a longer lead time to provide products than our clients demand for delivery of our finished products. If we overestimate client demand, we may allocate resources to the purchase of materials or manufactured products that we may not be able to sell when we expect to, if at all. As a result, we could hold excess or obsolete inventory, which would reduce gross margin and adversely affect financial results. Conversely, if we underestimate client demand or if insufficient manufacturing capacity is available, we could miss revenue opportunities and potentially lose market share and damage our client relationships. In addition, any future significant cancellations or deferrals of service contracts or product orders could materially and adversely affect profit margins, increase product obsolescence and restrict our ability to fund our operations.

We depend on the results of our international operations, which expose us to risks inherent in doing business abroad.

We conduct our business in over 50 countries; business outside of the United States accounted for approximately 62%, 58% and 52% of our revenue during the years ended December 31, 2016, 2015 and 2014, respectively. We attribute service revenue to the country in which the service was performed while we attribute product sales revenue to the country where the product was shipped as we feel this gives a clearer view of our operations. We do, however, have significant levels of revenue recorded in the U.S., where the services were performed, that are sourced from projects on non-U.S. oilfields.

Our operations, and those of our clients, are subject to the various laws, regulations and other legal requirements of those respective countries as well as various risks peculiar to each country, which may include, but are not limited to:
global economic conditions;
political actions and requirements of national governments including trade restrictions, embargoes, seizure, detention, nationalization and expropriations of assets;
interpretation of tax statutes and requirements of taxing authorities worldwide, routine examination by taxing authorities and assessment of additional taxes, penalties and/or interest;
international agreements that restrict GHG emissions, such as the Paris agreement that calls for such countries to set GHG emissions targets in their own countries and to be transparent in how such countries achieve those GHG emissions targets;
civil unrest;
acts of terrorism;
fluctuations and changes in currency exchange rates (see section below);
the impact of inflation;
difficulty in repatriating foreign currency received in excess of the local currency requirements; and
current conditions in oil producing countries such as Venezuela, Nigeria, Libya, Iran and Iraq considering their potential impact on the world markets.

Historically, economic downturns and political events have resulted in lower demand for our services and products in certain markets. The continuing instability in the Middle East and North Africa and the potential for activity from terrorist groups that

10



the U.S. government has cautioned against have further heightened our exposure to international risks. The global economy is highly influenced by public confidence in the geopolitical environment and the situation in the Middle East and North Africa continues to be highly fluid; therefore, we expect to experience heightened international risks.

Our results of operations may be significantly affected by foreign currency exchange rate risk.

We are exposed to risks due to fluctuations in currency exchange rates. By the nature of our business, we derive a substantial amount of our revenue from our international operations, subjecting us to risks relating to fluctuations in currency exchange rates.

Our results of operations may be adversely affected because our efforts to comply with applicable anti-corruption laws such as the United States' Foreign Corrupt Practices Act (the "FCPA") and the United Kingdom's Anti-Bribery Act (the "ABA") could restrict our ability to do business in foreign markets relative to our competitors who are not subject to these laws.

We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We may be subject to competitive disadvantages to the extent that our competitors are able to secure business, licenses or other preferential treatment by making payments to government officials and others in positions of influence or through other methods that we are prohibited from using.

We are subject to the regulations imposed by the FCPA and the ABA, which generally prohibits us and our intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business. In particular, we may be held liable for actions taken by our strategic or local partners even though our partners are not subject to these laws. Any such violations could result in substantial civil and/or criminal penalties and might adversely affect our business, results of operations or financial condition. In addition, our ability to continue to work in these parts of the world discussed above could be adversely affected if we were found to have violated certain laws, including the FCPA and the ABA.

If we are not able to develop or acquire new products or our products become technologically obsolete, our results of operations may be adversely affected.

The market for our services and products is characterized by changing technology and product introduction. As a result, our success is dependent upon our ability to develop or acquire new services and products on a cost-effective basis and to introduce them into the marketplace in a timely manner. While we intend to continue committing substantial financial resources and effort to the development of new services and products, we may not be able to successfully differentiate our services and products from those of our competitors. Our clients may not consider our proposed services and products to be of value to them; or if the proposed services and products are of a competitive nature, our clients may not view them as superior to our competitors' services and products. In addition, we may not be able to adapt to evolving markets and technologies, develop new products, or achieve and maintain technological advantages.

If we are unable to continue developing competitive products in a timely manner in response to changes in technology, our businesses and operating results may be materially and adversely affected. In addition, continuing development of new products inherently carries the risk of inventory obsolescence with respect to our older products.

We are subject to the risk of supplier concentration.

Certain of our product lines depend on a limited number of third party suppliers and vendors available in the marketplace. As a result of this concentration in some of our supply chains, our business and operations could be negatively affected if our key suppliers were to experience significant disruptions affecting the price, quality, availability or timely delivery of their products. For example, we have a limited number of vendors for our manufactured product lines. The partial or complete loss of any one of our key suppliers, or a significant adverse change in the relationship with any of these suppliers, through consolidation or otherwise, would limit our ability to manufacture and sell certain of our products.

If we are unable to obtain patents, licenses and other intellectual property rights covering our services and products, our operating results may be adversely affected.

Our success depends, in part, on our ability to obtain patents, licenses and other intellectual property rights covering our services and products. To that end, we have obtained certain patents and intend to continue to seek patents on some of our inventions, services and products. While we have patented some of our key technologies, we do not patent all of our proprietary

11



technology, even when regarded as patentable. The process of seeking patent protection can be long and expensive. There can be no assurance that patents will be issued from currently pending or future applications or that, if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. In addition, effective copyright and trade secret protection may be unavailable or limited in certain countries. Litigation, which could demand significant financial and management resources, may be necessary to enforce our patents or other intellectual property rights. Also, there can be no assurance that we can obtain licenses or other rights to necessary intellectual property on acceptable terms.

There are risks relating to our acquisition strategy. If we are unable to successfully integrate and manage businesses that we have acquired and any businesses acquired in the future, our results of operations and financial condition could be adversely affected.

One of our key business strategies is to acquire technologies, operations and assets that are complementary to our existing businesses. There are financial, operational and legal risks inherent in any acquisition strategy, including:
increased financial leverage;
ability to obtain additional financing;
increased interest expense; and
difficulties involved in combining disparate company cultures and facilities.

The success of any completed acquisition will depend on our ability to effectively integrate the acquired business into our existing operations. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our managerial and financial resources. In addition, possible future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions. No assurance can be given that we will be able to continue to identify additional suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets. Our failure to achieve consolidation savings, to incorporate the acquired businesses and assets into our existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on our financial condition and results of operation.

We are subject to a variety of environmental and occupational safety and health laws and regulations, which may result in increased costs and significant liability to our business.

We are subject to a variety of stringent governmental laws and regulations both in the United States and abroad relating to protection of the environment, occupational health and safety and the use and storage of chemicals and gases used in our analytical and manufacturing processes and the discharge and disposal of wastes generated by those processes. Certain of these laws and regulations may impose joint and several, strict liability for environmental liabilities, such as the remediation of historical contamination or recent spills, and failure to comply with such laws and regulations could result in the assessment of damages, fines and penalties, the imposition of remedial or corrective action obligations, the occurrence of delays in permitting or development of projects, or the suspension or cessation of some or all of our operations. These stringent laws and regulations could require us to acquire permits or other authorizations to conduct regulated activities, install and maintain costly equipment and pollution control technologies, impose specific safety and health standards addressing work protection, or to incur costs or liabilities to mitigate or remediate pollution conditions caused by our operations or attributable to former owners or operators. If we fail to control the use, or adequately restrict the emission or discharge, of hazardous substances or wastes, we could be subject to future material liabilities including remedial obligations. In addition, public interest in the protection of the environment has increased dramatically in recent years with governmental authorities imposing more stringent and restrictive legal requirements. We anticipate that the trend of more expansive and stricter environmental laws and regulations will continue, the occurrence of which may require us to increase our capital expenditures or could result in increased operating expenses.

Due to concern over the risk of climate change, there has been a broad range of proposed or promulgated state, national and international laws focusing on GHG reduction. Regulatory frameworks adopted, or being considered for adoption, to reduce GHG emissions include cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy. For example, the European Emissions Trading Scheme is a program through which many of the European Union member states are implementing cap and trade controls covering numerous power stations and industrial facilities. Also, in December 2015, the United States joined other countries of the United Nations in preparing the Paris agreement that requires member countries to develop reductions in GHG emissions. The Paris agreement was signed by the United States in April 2016 and entered into force in November 2016; however, this agreement does not create any binding

12



obligations for nations to limit their GHG emissions, but includes pledges to voluntarily limit or reduce future emissions. These proposed or promulgated laws and legal initiatives apply or could apply in countries where we have interests or may have interests in the future. These requirements could make our services and products more expensive, lengthen project implementation times, and reduce demand for the production of oil and natural gas, which could decrease demand for our services and products. In the United States, a number of state and regional efforts have emerged that are aimed at tracking or reducing emissions of GHGs and the U.S. Congress has from time to time considered legislation to reduce emissions of GHGs but no such legislation has yet been adopted. However, the EPA has determined that emissions of GHGs present a danger to public health and the environment and, based on these findings, has adopted regulations under existing provisions of the CAA that establish construction and operating permit reviews for GHG emissions from certain large stationary sources that are already potential major sources of criteria pollutant emissions and that require the monitoring and annual reporting of GHG emissions from specified onshore and offshore production sources in the United States, which include the operations of many of our exploration and production clients. Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address GHG emissions in the United State would impact our business, any such future laws and regulations that require reporting of GHGs or otherwise limit emissions of GHGs from our clients’ operations could require our clients to incur increased costs and also could adversely affect demand for the oil and natural gas that they produce, which could decrease demand for our services and products.
Hydraulic fracturing is a process used by oil and gas exploration and production operators in the completion of certain oil and gas wells whereby water, sand and chemicals are injected under pressure into subsurface formations to stimulate gas and, to a lesser extent, oil production. Some countries outside the United States, such as Bulgaria, the Czech Republic and France, currently have imposed moratoria on hydraulic fracturing while other countries, such as the United Kingdom, allow fracturing activities but those activities are not as widely pursued as they are in the United States. In the United States, the fracturing process is typically regulated by state oil and gas commissions, but several federal agencies have asserted regulatory authority over certain aspects of the process. For example, in June 2016, the EPA published an effluent limit guideline final rule prohibiting the discharge of wastewater from onshore unconventional oil and natural gas extraction facilities to publicly owned wastewater treatment plants and, also in June 2016, the EPA published a final rule establishing first-time standards to address emissions of methane from hydraulically-fractured oil and natural gas well completions. Additionally, the federal Bureau of Land Management published a final rule in March 2015 that established new or more stringent standards relating to hydraulic fracturing on federal and American Indian lands, which rule was struck down by a federal judge in June 2016 but that decision is currently being appealed by the federal government. Also, in December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under certain circumstances, noting that the following hydraulic fracturing water cycle activities and local- or regional-scale factors are more likely than others to result in more frequent or more severe impacts: water withdrawals for fracturing in times or areas of low water availability; surface spills during the management of fracturing fluids, chemicals or produced water; injection of fracturing fluids into wells with inadequate mechanical integrity; injection of fracturing fluids directly into groundwater resources; discharge of inadequately treated fracturing wastewater to surface waters; and disposal or storage of fracturing wastewater in unlined pits. In addition, the U.S. Congress has from time to time considered the adoption of legislation to provide for federal regulation of hydraulic fracturing. At the state level, a number of states have adopted, and other states are considering, legal requirements that could impose more stringent permitting, disclosure or well construction requirements on hydraulic fracturing activities. States could elect to prohibit fracturing altogether, following the approach taken by the State of New York in 2015. In addition, local governments may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular. If new or more stringent federal, state or local legal restrictions related to the hydraulic fracturing process are adopted in areas where our exploration and production clients’ operate, those clients could incur potentially significant added costs to comply with such requirements and experience delays or curtailment in the pursuit of exploration, development or production activities, which could reduce demand for our products and services.
We may be unable to attract and retain skilled and technically knowledgeable employees, which could adversely affect our business.

Our success depends upon attracting and retaining highly skilled professionals and other technical personnel. A number of our employees are highly skilled engineers, geologists and highly trained technicians, and our failure to continue to attract and retain such individuals could adversely affect our ability to compete in the oilfield services industry. We may confront significant and potentially adverse competition for these skilled and technically knowledgeable personnel, particularly during periods of increased demand for oil and gas. Additionally, at times there may be a shortage of skilled and technical personnel available in the market, potentially compounding the difficulty of attracting and retaining these employees. As a result, our business, results of operations and financial condition may be materially adversely affected.


13



We require a significant amount of cash to service our indebtedness, make capital expenditures, fund our working capital requirements and pay our dividend, and our ability to generate cash may depend on factors beyond our control.

Our ability to make payments on and to refinance our indebtedness, to fund planned capital expenditures, and pay our dividend depends, in part, on our ability to generate cash in the future. This ability is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

No assurance can be given that we will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service and repay our indebtedness or to fund our other liquidity needs. If we are unable to satisfy our debt obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot assure that any refinancing or debt restructuring would be possible or, if possible, would be completed on favorable or acceptable terms, that any assets could be sold or that, if sold, the timing of the sales and the amount of proceeds realized from those sales would be favorable to us or that additional financing could be obtained on acceptable terms. Disruptions in the capital and credit markets could adversely affect our ability to refinance our indebtedness, including our ability to borrow under our existing revolving credit facility ("Credit Facility"). Banks that are party to our existing Credit Facility may not be able to meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time.

Because we are a Netherlands company, it may be difficult for you to take legal action against our supervisory directors or us and it may not be possible to obtain or enforce judgments against us.

Although we are a Netherlands company, our assets are located in a variety of countries. In addition, not all members of our supervisory board of directors are residents of the same countries as other supervisory directors. As a result, it may not be possible for you to effect service of process within certain countries upon our supervisory directors, or to enforce against our supervisory directors or use judgments of courts of certain countries predicated upon civil liabilities under a country's federal securities laws. Because there is no treaty between certain countries and The Netherlands providing for the reciprocal recognition and enforcement of judgments, some countries' judgments are not automatically enforceable in The Netherlands or in the United States, where the principal market for our shares is located. In addition, there is doubt as to whether a court in one country would impose civil liability on us or on the members of our supervisory board of directors in an original action brought against us or our supervisory directors in a court of competent jurisdiction in another country and predicated solely upon the federal securities laws of that other country.

Our operations are subject to the risk of cyber-attacks that could have a material adverse effect on our consolidated results of operations and consolidated financial condition.

Our information technology systems are subject to possible breaches and other threats that could cause us harm. If our systems for protecting against cyber security risks prove not to be sufficient, we could be adversely affected by loss or damage of intellectual property, proprietary information, or client data, interruption of business operations, or additional costs to prevent, respond to, or mitigate cyber security attacks. These risks could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

Regulations related to conflict-free minerals could limit the supply and/or increase the cost of certain metals used in our manufacturing processes.

In 2012, the SEC issued their final rule to implement Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding mandatory disclosure and reporting requirements by public companies of their use of “conflict minerals” (tantalum, tin, tungsten and gold) and whether these minerals originate in the Democratic Republic of Congo or adjoining countries ("conflict area"). As our suppliers determine the original source of the conflict minerals they sell or use in their manufacturing processes, we may find that sourcing of these conflict minerals from areas outside the conflict area (conflict-free) at competitive prices and availability in sufficient quantities could be affected. If the number of suppliers who provide conflict-free minerals is limited, this could have a material adverse effect on the Company's ability to purchase these conflict-free products or to purchase these conflict-free products at a favorable price or on favorable terms in the future.


ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


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ITEM 2. PROPERTIES

Currently, we have over 70 offices (totaling approximately 3.0 million square feet of space) in more than 50 countries. In these locations, we lease approximately 2.0 million square feet and own approximately 1.0 million square feet. We serve our worldwide clients through six Advanced Technology Centers ("ATCs") that are located in Aberdeen, Scotland; Abu Dhabi, UAE; Calgary, Canada; Houston, Texas; Kuala Lumpur, Malaysia; and Rotterdam, The Netherlands. The ATCs provide support for our more than 50 regional specialty centers located throughout the global energy producing provinces. In addition, we have manufacturing facilities located in Godley, Texas, and Red Deer, Alberta, Canada, which are included in our Production Enhancement business segment. Our facilities are adequate for our current operations; however, expansion into new facilities or the replacement or modification of existing facilities may be required to accommodate future growth.


ITEM 3. LEGAL PROCEEDINGS

See Note 11 of the Notes to Consolidated Financial Statements.


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.



15



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Shares

Our common shares trade on the New York Stock Exchange ("NYSE") and the Euronext Amsterdam Stock Exchange ("Euronext Amsterdam") under the symbol "CLB". The range of high and low sales prices per share of the common shares as reported by the NYSE and Euronext Amsterdam are set in the following table for the periods indicated:
 
NYSE
 
Euronext Amsterdam
 
(U.S. Dollars)
 
(Euros)
2016
High
 
Low
 
High
 
Low
Fourth Quarter
$
124.84
 
$
96.30
 
117.50
 
87.00
Third Quarter
$
127.82
 
$
102.50
 
111.05
 
92.01
Second Quarter
$
135.49
 
$
102.22
 
120.00
 
92.00
First Quarter
$
118.87
 
$
84.50
 
108.00
 
71.52
2015
 
 
 
 
 
 
 
 
 
 
 
Fourth Quarter
$
125.42
 
$
94.36
 
116.00
 
88.50
Third Quarter
$
118.78
 
$
91.63
 
107.00
 
87.50
Second Quarter
$
134.87
 
$
104.24
 
121.00
 
96.00
First Quarter
$
120.34
 
$
87.27
 
104.90
 
77.21

On February 9, 2017, the closing price, as quoted by the NYSE, was $116.65 per share and there were 44,152,138 common shares issued and outstanding held by approximately 209 record holders. These amounts exclude shares held by us as treasury shares.

See Part III, "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for discussion of equity compensation plans.

Dividend Policy

In 2008, Core Laboratories announced the initiation of a cash dividend program. Cash dividends of $0.55 per share were paid each quarter of 2016 and 2015. The declaration and payment of future dividends will be at the discretion of the Supervisory Board of Directors and will depend upon, among other things, future earnings, general financial condition, liquidity, capital requirements, and general business conditions. On January 10, 2017, the Company declared a cash dividend of $0.55 per share to be paid on February 17, 2017.

Because we are a holding company that conducts substantially all of our operations through subsidiaries, our ability to pay cash dividends on the common shares is also dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us and on the terms and conditions of our existing and future credit arrangements. See "Liquidity and Capital Resources" included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Performance Graph

The following performance graph compares the performance of our common shares to the Standard & Poor's 500 Index and both the Standard & Poor's Oil & Gas Equipment and Services Index and the Philadelphia Oil Service Index ("OSX") for the period beginning December 31, 2011 and ending December 31, 2016. Core is using the OSX as our Peer Group to replace the Standard & Poor's Oil & Gas Equipment and Services Index used in prior years. Core is now an established member of the OSX and has determined that this new index includes a greater concentration of our most direct peers.

The graph assumes that the value of the investment in our common shares and each index was $100 at December 31, 2011 and that all dividends were reinvested. The stockholder return set forth below is not necessarily indicative of future performance. The following graph and related information is "furnished" and shall not be deemed "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of

16



1933 or the Securities Exchange Act of 1934, as amended (the "Exchange Act") except to the extent that Core Laboratories specifically incorporates it by reference into such filing.
clb-20161231_xchartx09803.jpg
Share Repurchases in the Fourth Quarter of 2016

The following table provides information about our purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act during the three months ended December 31, 2016:
Period
 
Total Number Of Shares Purchased
 
Average Price Paid Per Share
 
Total Number Of Shares Purchased As Part Of A Publicly Announced Program
 
Maximum Number Of Shares That May Be Purchased Under The Program (4)(5)
October 2016 (1)
 
3,582

 
$112.32
 

 
3,793,207
November 2016 (2)
 
147

 
$98.70
 

 
3,793,517
December 2016 (3)
 
23,312

 
$119.38
 

 
3,834,634
Total
 
27,041

 
$118.34
 

 
 

(1)
includes 3,582 shares valued at $0.4 million, or $112.32 per share, surrendered to us by participants in a stock-based compensation plan to settle any personal tax liabilities which may result from the award.
(2)
includes 147 shares valued at $14.5 thousand, or $98.70 per share, surrendered to us by participants in a stock-based compensation plan to settle any personal tax liabilities which may result from the award.
(3)
includes 23,312 shares valued at $2.8 million, or $119.38 per share, surrendered to us by participants in a stock-based compensation plan to settle any personal tax liabilities which may result from the award.
(4)
The maximum number of shares allowed to be purchased under the program was 3,783,489 at September 30, 2016.
(5)
During the quarter 78,186 treasury shares were distributed relating to stock-based awards, including 13,300 in October, 457 in November, and 64,429 in December.

In connection with our initial public offering in September 1995, our shareholders authorized our Management Board to repurchase up to 10% of our issued share capital, the maximum allowed under Dutch law at the time, for a period of 18 months. This authorization was renewed at subsequent annual or special shareholder meetings. At our annual shareholders' meeting on

17



May 19, 2016, our shareholders authorized an extension until November 19, 2017 to purchase up to 10% of our issued share capital. The repurchase of shares in the open market is at the discretion of management pursuant to this shareholder authorization.

From the activation of the share repurchase program through December 31, 2016, we have repurchased 39,373,745 shares for an aggregate purchase price of approximately $1.6 billion, or an average price of $41.20 per share. At December 31, 2016, we held 644,991 shares in treasury and have the authority to repurchase 3,834,634 additional shares under our stock repurchase program as described in the preceding paragraph.


ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial information contained below is derived from our Consolidated Financial Statements and should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited Consolidated Financial Statements each of which is included in this Form 10-K.
 
 
For the Years Ended December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(in thousands, except per share and other data)
Financial Statement Data:
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
594,741

 
$
797,520

 
$
1,085,222

 
$
1,073,508

 
$
981,080

Net income attributable to Core Laboratories N.V.
 
63,895

 
114,847

 
257,485

 
242,811

 
216,071

Working capital
 
82,438

 
117,789

 
169,954

 
168,093

 
156,397

Total assets
 
573,052

 
625,258

 
673,325

 
659,364

 
634,391

Long-term debt and capital lease obligations, including current maturities
 
216,488

 
430,987

 
353,672

 
265,382

 
231,948

Total equity (deficit)
 
155,297

 
(23,699
)
 
93,993

 
169,389

 
187,913

 
 
 
 
 
 
 
 
 
 
 
Earnings Per Share Information:
 
 
 
 
 
 
 
 
 
 
Net income attributable to Core Laboratories N.V.:
 
 
 
 
 
 
 
 
 
 
   Basic
 
$
1.47

 
$
2.69

 
$
5.80

 
$
5.31

 
$
4.58

   Diluted
 
$
1.46

 
$
2.68

 
$
5.77

 
$
5.28

 
$
4.54

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
   Basic
 
43,479

 
42,747

 
44,362

 
45,692

 
47,211

   Diluted
 
43,670

 
42,908

 
44,600

 
45,994

 
47,553

Cash dividends declared per common share
 
$
2.20

 
$
2.20

 
$
2.00

 
$
1.28

 
$
1.12

 
 
 
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
 
 
 
 
 
Current ratio (1)
 
1.79:1
 
1.98:1
 
2.29:1
 
2.24:1
 
2.11:1
Debt to EBITDA ratio (2)
 
1.80:1
 
2.13:1
 
0.89:1
 
0.67:1
 
0.67:1
Debt to Adjusted EBITDA ratio (3)
 
1.50:1
 
1.94:1
 
0.89:1
 
0.67:1
 
0.67:1
(1) Current ratio is calculated as follows: current assets divided by current liabilities.
(2) Debt to EBITDA ratio is calculated as follows: gross debt less cash divided by the sum of net income plus interest, taxes, depreciation, and amortization.
(3) Debt to Adjusted EBITDA ratio is calculated as follows: gross debt less cash divided by the sum of net income plus interest, taxes, depreciation, amortization, severance, and certain non-cash adjustments.



18




ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Core Laboratories N.V. is a Netherlands limited liability company. We were established in 1936 and are one of the world's leading providers of proprietary and patented reservoir description, production enhancement and reservoir management services and products to the oil and gas industry, primarily through client relationships with many of the world's major, national and independent oil companies.

We operate our business in three reportable segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields.
Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples. We provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry.
Production Enhancement: Includes services and products relating to reservoir well completions, perforations, stimulations and production. We provide integrated diagnostic services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
Reservoir Management: Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients' reservoirs.

General Overview

We provide services and design and produce products which enable our clients to evaluate reservoir performance and increase oil and gas recovery from new and existing fields. These services and products are generally in higher demand when our clients are investing capital in their field development programs that are designed to increase productivity from existing fields or when exploring for new fields. Our clients' investment in capital expenditure programs tends to correlate over the longer term to oil and natural gas commodity prices. During periods of higher, stable prices, our clients generally invest more in capital expenditures and, during periods of lower or volatile commodity prices, they tend to invest less. Consequently, the level of capital expenditures by our clients impacts the demand for our services and products.

The following table summarizes the annual average and year-end worldwide and U.S. rig counts for the years ended December 31, 2016, 2015 and 2014, as well as the annual average and year-end spot price of a barrel of WTI crude, Europe Brent crude and an MMBtu of natural gas:
 
2016
 
2015
 
2014
Baker Hughes Worldwide Average Rig Count (1)
1,593

 
2,337

 
3,578

Baker Hughes U.S. Average Rig Count (1)
510

 
977

 
1,862

 
 
 
 
 
 
Baker Hughes Worldwide Year-End Rig Count (2)
1,772

 
1,969

 
3,570

Baker Hughes U.S. Year-End Rig Count (2)
634

 
714

 
1,882

 
 
 
 
 
 
Average Crude Oil Price per Barrel WTI (3)
$
43.29

 
$
48.68

 
$
93.17

Average Crude Oil Price per Barrel Brent (4)
$
43.67

 
$
52.30

 
$
98.97

Average Natural Gas Price per MMBtu (5)
$
2.52

 
$
2.62

 
$
4.37

 
 
 
 
 
 
Year-end Crude Oil Price per Barrel WTI (3)
$
53.75

 
$
37.13

 
$
53.45

Year-end Crude Oil Price per Barrel Brent (4)
$
54.96

 
$
36.61

 
$
55.27

Year-end Natural Gas Price per MMBtu (5)
$
3.71

 
$
2.28

 
$
3.14

(1) Twelve month average rig count as reported by Baker Hughes Incorporated - Worldwide Rig Count.
(2) Year-end rig count as reported by Baker Hughes Incorporated - Worldwide Rig Count.
(3) Average daily and year-end West Texas Intermediate crude spot price as reported by the U.S. Energy Information Administration.
(4) Average daily and year-end Europe Brent crude spot price as reported by the U.S. Energy Information Administration.
(5) Average daily and year-end Henry Hub natural gas spot price as reported by the U.S. Energy Information Administration.

The prices for both WTI and Brent crude oil began to weaken after the OPEC meeting held in November 2014. Average prices for the majority of the 2014 calendar year were in excess of $99 per barrel for WTI and in excess of $105 per barrel for

19



Brent; however, both were down to approximately $55 per barrel by the end of 2014 and less than $40 per barrel by the end of 2015. The volatility and significant reduction in the average price of crude oil during 2015 and 2016 resulted in a significant decrease in the activities associated with both the exploration and production of oil during 2015 and throughout most of 2016. Although the average price of oil and gas decreased in 2016, prices showed some signs of improvement in the second half of 2016.

In North America, the land-based rig count decreased 62% during 2015 and another 53% during the first half of 2016, which greatly impacted both services and product sales to this market. Although the second half of 2016 showed an improvement in North American activity with the average rig count slowly, but steadily, increasing, the rig count at the end of 2016 remained almost 20% below 2015 levels. We saw resilient levels of activities on development projects and producing fields in the U.S. unconventional reservoirs during the second half of 2016 and expect to see further increases in activity during the recovery phase of this business cycle.

Outside of North America, activities associated with the exploration for and production of oil have also decreased from 2014 levels, although not as significantly as the land-based activities in North America. Our clients' activities in the international and deepwater markets declined during 2015 and 2016, but we believe these markets will begin to show signs of recovery beginning in the second half of 2017 as our clients have recently announced several new major capital projects.

Results of Operations

Operating Results for the Year Ended December 31, 2016 Compared to the Years Ended December 31, 2015 and 2014

We evaluate our operating results by analyzing revenue, operating income and net income margin (defined as net income divided by total revenue). Since we have a relatively fixed cost structure, increases in revenue generally translate into higher operating income results as well as net income margin percentages. Results for the years ended December 31, 2016, 2015 and 2014 are summarized in the following chart:

            graphincomemargin02.gif


20




Results of operations as a percentage of applicable revenue are as follows (dollars in thousands):

 
2016
 
2015
 
2014
 
2016 / 2015
2015 / 2014
Revenue:
 
 
 
 
 
 
 
 
 
% Change
Services
$
470,259

79.1
 %
 
$
611,954

76.7
%
 
$
780,872

72.0
%
 
(23.2
)%
(21.6
)%
Product Sales
124,482

20.9
 %
 
185,566

23.3
%
 
304,350

28.0
%
 
(32.9
)%
(39.0
)%
TOTAL REVENUE
594,741

100.0
 %
 
797,520

100.0
%
 
1,085,222

100.0
%
 
(25.4
)%
(26.5
)%
OPERATING EXPENSES:
 

 
 
 

 
 
 

 
 
 
 
Cost of services* (1)
331,688

70.5
 %
 
387,739

63.4
%
 
449,488

57.6
%
 
(14.5
)%
(13.7
)%
Cost of product sales* (1)
110,956

89.1
 %
 
144,913

78.1
%
 
215,783

70.9
%
 
(23.4
)%
(32.8
)%
Total cost of services and product sales
442,644

74.4
 %
 
532,652

66.8
%
 
665,271

61.3
%
 
(16.9
)%
(19.9
)%
General and administrative expenses (1)
39,390

6.6
 %
 
49,729

6.2
%
 
45,655

4.2
%
 
(20.8
)%
8.9
 %
Depreciation and amortization
26,872

4.5
 %
 
27,457

3.4
%
 
26,696

2.5
%
 
(2.1
)%
2.9
 %
Other (income) expense, net
(344
)
(0.1
)%
 
3,669

0.5
%
 
1,069

0.1
%
 
NM

NM

Severance and other charges

 %
 
22,943

2.9
%
 

%
 
NM

NM

OPERATING INCOME
86,179

14.5
 %
 
161,070

20.2
%
 
346,531

31.9
%
 
(46.5
)%
(53.5
)%
Interest expense
11,572

1.9
 %
 
12,380

1.6
%
 
10,600

1.0
%
 
(6.5
)%
16.8
 %
Income before income tax expense
74,607

12.5
 %
 
148,690

18.6
%
 
335,931

31.0
%
 
(49.8
)%
(55.7
)%
Income tax expense
10,748

1.8
 %
 
33,758

4.2
%
 
77,305

7.1
%
 
(68.2
)%
(56.3
)%
Net income
63,859

10.7
 %
 
114,932

14.4
%
 
258,626

23.8
%
 
(44.4
)%
(55.6
)%
Net income attributable to non-controlling interest
(36
)
 %
 
85

%
 
1,141

0.1
%
 
NM

NM

Net income attributable to Core Laboratories N.V.
$
63,895

10.7
 %
 
$
114,847

14.4
%
 
$
257,485

23.7
%
 
(44.4
)%
(55.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share attributable to Core Laboratories N.V.
$
1.46

 
 
$
2.68

 
 
$
5.77

 
 
(45.5
)%
(53.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted average common shares outstanding
43,670

 
 
42,908

 
 
44,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*Percentage based on applicable revenue rather than total revenue.
"NM" means not meaningful.
(1) Excludes depreciation.
 
 
 
 
 
 
 
 
 
 
 

Services Revenue

Services revenue decreased to $470.3 million for 2016 from $612.0 million for 2015 and $780.9 million for 2014. The volatility and downward trend in the average price of crude oil during 2015 and 2016 resulted in a significant decrease in the activities associated with both the exploration and production of oil since 2014. Average prices for WTI and Brent crude oil continued to decrease in 2016 from the almost 50% decline in 2015. As a result, the average global rig count fell an additional 32% in 2016 after the decline of 35% in 2015, primarily driven by decreases in the North American rig count. However, over this same time period, our service revenue was down only 23% and 22% in 2016 and 2015, respectively, as demand for our analytical, diagnostic, and completion services was less impacted by the significant decrease in drilling activities. Although crude oil prices showed some slight improvement in late 2016, prices remained depressed and unstable for most of 2016, resulting in a decrease in our clients' international and deepwater activities. Wells must be drilled and/or completed, stimulated, cored and have reservoir fluid samples collected, before we see the benefits of the increased commodity prices. Our continued focus on worldwide crude oil related and large natural gas liquefaction projects, especially those related to the development of deepwater fields off West and East Africa and the eastern Mediterranean, prevented services revenue from declining further.

Product Sales Revenue

Product sales revenue, which is tied more to demand in North America, decreased to $124.5 million for 2016, from $185.6 million for 2015 and $304.4 million in 2014. Although average rig count for the U.S. and Canada declined 48% during 2016 compared to 2015, our product sales revenue decreased only 33% during this same time period. The average rig count for the U.S. and Canada declined 48% during 2015 as compared to 2014, however, our product sales revenue decreased only 39% during this time period. These results were due to our differentiated well completion product sales holding up better than the industry activity levels in North America.

21




Cost of Services, excluding depreciation

Cost of services decreased to $331.7 million for 2016 from $387.7 million for 2015 and $449.5 million for 2014. As a percentage of services revenue, cost of services increased to 71% in 2016 from 63% in 2015 and 58% in 2014. These increases are primarily due to our fixed-cost structure not being fully absorbed on lower revenues in 2016 when compared to 2015 and in 2015 when compared to 2014. We took actions to reduce our cost structure in response to the sharp decline in global activity during 2015. See section "Severance and Other Charges" below.

Cost of Product Sales, excluding depreciation

Cost of product sales decreased to $111.0 million for 2016 from $144.9 million for 2015 and $215.8 million for 2014. As a percentage of product sales revenue, cost of sales increased to 89% for 2016 from 78% for 2015 and 71% for 2014. These increases are primarily due to our fixed-cost structure not being fully absorbed on lower revenues in 2016 when compared to 2015 and in 2015 when compared to 2014. We took actions to reduce our cost structure in response to the sharp decline in global activity during 2015. See section "Severance and Other Charges" below.

General and Administrative Expense

General and administrative ("G&A") expenses include corporate management and centralized administrative services that benefit our operations. G&A expenses were $39.4 million for 2016 compared to $49.7 million and $45.7 million during 2015 and 2014, respectively. The variances are primarily due to reduced staff and lower compensation expense.

Depreciation and Amortization Expense

Depreciation and amortization expense of $26.9 million in 2016 decreased slightly compared to $27.5 million in 2015 but was comparable to $26.7 million in 2014.

Other (Income) Expense, net

The components of Other (income) expense, net, were as follows (in thousands):
 
 
For the Years Ended December 31,
 
 
2016
 
2015
 
2014
Sale of assets
 
$
(618
)
 
$
(408
)
 
$
(764
)
Results of non-consolidated subsidiaries
 
(506
)
 
(383
)
 
(364
)
Foreign exchange
 
1,832

 
4,507

 
4,230

Interest income
 

 
(56
)
 
(403
)
Rents and royalties
 
(420
)
 
(484
)
 
(817
)
Insurance and other settlements
 

 

 
(292
)
Other, net
 
(630
)
 
493

 
(521
)
Total Other (income) expense, net
 
$
(342
)
 
$
3,669

 
$
1,069


Foreign exchange gains and losses are summarized in the following table (in thousands):
 
For the Years Ended December 31,
(Gains) losses by currency
2016
 
2015
 
2014
 
Australian Dollar
$
136

 
$
238

 
$
289

 
British Pound
807

 
434

 
1,132

 
Canadian Dollar
(137
)
 
1,848

 
1,886

 
Euro
(49
)
 
(908
)
 
(1,537
)
 
Malaysian Ringgit
43

 
545

 
278

 
Mexican Peso
(47
)
 
414

 
284

 
Nigerian Naira
200

 
630

 
432

 
Other currencies, net
879

 
1,306

 
1,466

Total (gain) loss, net
$
1,832

 
$
4,507

 
$
4,230


22





Severance and Other Charges

In 2015, in response to lower commodity pricing for crude oil and reduced spending by our clients on their oil and gas fields, we reduced our cost structure, primarily through a reduction in our workforce, to better align with the decreasing activity levels into the foreseeable future. As a result of these cost reductions, we recorded severance charges of $8.8 million, of which approximately $0.5 million were accrued and remaining to be paid at December 31, 2016. Additionally, in 2015 the Company recorded a charge to income associated with the impairment of certain equipment and intangible assets and facility exit costs of $5.5 million. Also during 2015, we recorded loss contingencies for various ongoing legal issues of $8.6 million. See Note 11 of the Notes to Consolidated Financial Statements.

Interest Expense

Interest expense decreased by $0.8 million to $11.6 million in 2016 compared to 2015 primarily due to decreased borrowings on our revolving Credit Facility.

Income Tax Expense

Our effective tax rate was 14.4%, 22.7%, and 23.0% for 2016, 2015, and 2014, respectively. Income tax expense of $10.7 million in 2016 decreased by $23.0 million compared to $33.8 million in 2015 due to a decrease in taxable income in 2016, primarily in the United States. Income tax expense associated with taxable income recognized in the United States decreased by $16.1 million in 2016 compared to 2015. No other jurisdiction in which we operate had a material change in income tax expense.

See Note 9 of the Notes to Consolidated Financial Statements for further detail of income tax expense.

Segment Analysis

The following charts and tables summarize the annual revenue and operating results for our three complementary business segments.
Segment Revenue


graphsegmentrevenue.gif











23



Segment Revenue
 
For the Years Ended December 31,
 (dollars in thousands)
2016
 
% Change
 
2015
 
% Change
 
2014
Reservoir Description
$
404,146

 
(14.6
)%
 
$
473,372

 
(8.8
)%
 
$
518,974

Production Enhancement
164,027

 
(38.6
)%
 
267,224

 
(42.8
)%
 
467,577

Reservoir Management
26,568

 
(53.3
)%
 
56,924

 
(42.3
)%
 
98,671

 
Total Revenue
$
594,741

 
(25.4
)%
 
$
797,520

 
(26.5
)%
 
$
1,085,222


Segment Operating Income
 
For the Years Ended December 31,
 (dollars in thousands)
2016
 
% Change
 
2015
 
% Change
 
2014
Reservoir Description
$
75,148

 
(32.3
)%
 
$
111,032

 
(22.7
)%
 
$
143,624

Production Enhancement
8,891

 
(74.6
)%
 
35,027

 
(78.8
)%
 
165,204

Reservoir Management
2,043

 
(86.9
)%
 
15,655

 
(57.9
)%
 
37,220

Corporate and other (1)
97

 
NM

 
(644
)
 
NM

 
483

     Operating Income
$
86,179

 
(46.5
)%
 
$
161,070

 
(53.5
)%
 
$
346,531

 
 
 
 
 
 
 
 
 
 
(1)  “Corporate and other" represents those items that are not directly relating to a particular segment.
"NM" means not meaningful.

Segment Operating Income Margins (1)
 
For the Years Ended December 31,
 
2016
 
 
2015
 
 
2014
 
Margin
 
 
Margin
 
 
Margin
Reservoir Description
18.6
%
 
 
23.5
%
 
 
27.7
%
Production Enhancement
5.4
%
 
 
13.1
%
 
 
35.3
%
Reservoir Management
7.7
%
 
 
27.5
%
 
 
37.7
%
   Total Company
14.5
%
 
 
20.2
%
 
 
31.9
%
(1)  Calculated by dividing "Operating Income" by "Revenue."

Reservoir Description

Revenue for our Reservoir Description segment decreased to $404.1 million in 2016 compared to $473.4 million in 2015 and $519.0 million in 2014. The decrease in revenues in 2016 was primarily due to the reduced international and deepwater drilling activity levels. The decrease in revenues in 2015 was primarily due to the strengthening of the U.S. dollar against certain currencies such as the Euro, Australian dollar, Canadian dollar, British pound, and Russian ruble, in which we invoice a portion of our revenue. This segment's operations continue to work on large-scale, long-term, crude-oil and LNG projects with an emphasis on producing fields located in offshore developments and international markets. We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Asia-Pacific areas, offshore West and East Africa, the eastern Mediterranean region and the Middle East, including Kuwait and the United Arab Emirates.

Operating income decreased to $75.1 million in 2016 from $111.0 million in 2015 and $143.6 million in 2014. The decreases in operating income in 2016 and 2015 as compared to each corresponding prior year were due to lower activity levels. Operating income in 2015 includes additional charges for severance, asset impairments, and an accrual for contingent losses. Operating margins were 18.6% in 2016 down from 23.5% in 2015 and 27.7% in 2014.

Production Enhancement

Revenue for our Production Enhancement segment decreased to $164.0 million in 2016 compared to $267.2 million in 2015 and $467.6 million in 2014. The decreases in North America industry activity during 2016 and 2015, when compared to the respective prior year, reduced demand for our products associated with land-based completion of oil wells in U.S. unconventional developments. The revenue decrease of 43% in 2015 compared to 2014 was less than the decrease in the U.S. horizontal rig count of 62% during 2015.


24



Operating income for this segment decreased to $8.9 million in 2016 from $35.0 million in 2015 and $165.2 million in 2014. Operating margins were 5.4% in 2016 down from 13.1% in 2015 and 35.3% in 2014. The decreases in operating income and operating margin in 2016 and 2015 compared to the respective prior year were primarily due to decreased revenue and the impact of our fixed-cost structure on lower revenue in these years.

Reservoir Management

Revenue for our Reservoir Management segment decreased to $26.6 million in 2016 compared to $56.9 million in 2015 and $98.7 million in 2014. The decrease in revenue in 2016 compared to 2015 was primarily due to lower oil commodity prices which, as a result, greatly reduced or eliminated discretionary spending by our oil and gas clients. Our clients continue to express interest in our existing multi-client reservoir studies such as the Avalon Basin study and the Tight Oil Reservoirs of the Midland Basin study, both within the larger area of the Permian Basin acreage, as well as our new joint-industry projects in the Mississippian-aged Meramac and Osage formations, which overlay the Silurian-aged Woodford Formation in the STACK-B play, which includes Blaine County.

Operating income for this segment decreased to $2.0 million in 2016 compared to $15.7 million in 2015 and $37.2 million in 2014. Operating margins decreased to 7.7% in 2016, from 27.5% and 37.7% in 2015 and 2014, respectively. The decrease in operating income in 2016 compared to 2015 and 2014 was due primarily to decreased revenue and the impact of our fixed costs over lower revenue. We are still focused on our current joint industry projects, including the Utica, Duvernay, and Mississippi Lime studies and the Marcellus, Niobrara, Wolfcamp and Eagle Ford plays, our new proposed studies in tight-oil unconventional reservoirs and a revisit to the deepwater Gulf of Mexico, and the sale of fully completed studies.

Liquidity and Capital Resources

General

We have historically financed our activities through cash on hand, cash flows from operations, bank credit facilities, equity financing and the issuance of debt. Cash flows from operating activities provides the primary source of funds to finance operating needs, capital expenditures and our dividend and share repurchase programs. If necessary, we supplement this cash flow with borrowings under bank credit facilities to finance some capital expenditures and business acquisitions. As we are a Netherlands holding company, we conduct substantially all of our operations through subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us. There are no restrictions preventing any of our subsidiaries from repatriating earnings, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of December 31, 2016, approximately $13.7 million of our $14.8 million of cash was held by our foreign subsidiaries.

Our financial statements are prepared in conformity with generally accepted accounting principles in the U.S. ("U.S. GAAP" or "GAAP"). We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash that was available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP, and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow, as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with U.S. GAAP for the years ended December 31, 2016, 2015 and 2014 (in thousands):
 
For the Years Ended December 31,
Free Cash Flow Calculation
2016
 
2015
 
2014
Net cash provided by operating activities
$
131,887

 
$
219,100

 
$
303,449

Less: cash paid for capital expenditures
(11,356
)
 
(22,797
)
 
(36,586
)
Free cash flow
$
120,531

 
$
196,303

 
$
266,863



25



Free cash flow as a percent of net income continued to be strong even though free cash flow decreased in 2016 compared to 2015 and 2014. These decreases were primarily due to the decrease in cash flow from operating activities as a result of lower activity levels for the oil and gas industry.

Cash Flows

The following table summarizes cash flows for the years ended December 31, 2016, 2015 and 2014 (in thousands):
 
For the Years Ended December 31,
 
2016
 
2015
 
2014
Cash provided by/(used in):
 
Operating activities
$
131,887

 
$
219,100

 
$
303,449

Investing activities
(14,721
)
 
(39,654
)
 
(42,066
)
Financing activities
(124,896
)
 
(180,302
)
 
(263,121
)
Net change in cash and cash equivalents
$
(7,730
)
 
$
(856
)
 
$
(1,738
)

The decreases in cash provided by operating activities in 2016 compared to 2015 and in 2015 compared to 2014 were primarily attributable to the industry downturn resulting in year-over-year decreases in net income, offset by reductions in working capital.

Cash flow used in investing activities in 2016 decreased $24.9 million compared to 2015 primarily as a result of less cash used for capital expenditures and business acquisitions. Cash flow used in investing activities in 2015 decreased $2.4 million compared to 2014 primarily as a result of lower company-owned life insurance premiums.

Cash flow used in financing activities in 2016 decreased $55.4 million compared to 2015. Cash flow used in financing activities in 2015 decreased $82.8 million compared to 2014. During 2016, we spent $7.2 million to repurchase our common shares, $95.1 million to pay dividends, and decreased our debt balance by $215 million through the issuance of new shares. During 2015, we spent $159.7 million to repurchase our common shares and $94.2 million to pay dividends, offset by a net increase in our debt balance of $77 million. During 2014, we spent $264.4 million to repurchase our common shares and $89.1 million to pay dividends, offset by a net increase in our debt balance of $89 million.

During the year ended December 31, 2016, we repurchased 62,000 shares of our common stock for an aggregate amount of $7.2 million, or an average price of $115.51 per share. The repurchase of shares in the open market is at the discretion of management pursuant to shareholder authorization. We regard these treasury shares as a temporary investment which may be used to fund restricted shares that vest or to finance future acquisitions. Under Dutch law and subject to certain Dutch statutory provisions and shareholder approval, we can hold a maximum of 50% of our issued shares in treasury. We currently have shareholder approval to hold 10% of our issued share capital in treasury. On May 19, 2016 at our annual shareholders meeting, our shareholders authorized the extension of our share repurchase program until November 19, 2017 to purchase up to 10% of our issued share capital. We believe this share repurchase program has been beneficial to our shareholders. Our share price has increased from $4.03 per share in 2002, when we began to repurchase shares, to $120.04 per share on December 31, 2016, an increase of over 2,879%.

Credit Facility and Available Future Liquidity

In 2011, we issued two series of senior notes with an aggregate principal amount of $150 million ("Senior Notes") in a private placement transaction. Series A consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.01% and are due in full on September 30, 2021. Series B consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.11% and are due in full on September 30, 2023. Interest on each series of the Senior Notes is payable semi-annually on March 30 and September 30.

In 2015, we entered into an agreement to amend our revolving credit facility (the "Credit Facility") to increase the aggregate borrowing capacity from $350 million to $400 million and to increase the uncommitted availability of an additional $50 million to bring the total borrowings available to $450 million if certain prescribed conditions are met by the Company. The Credit Facility bears interest at variable rates from LIBOR plus 1.25% to a maximum of LIBOR plus 2.0%.

Any outstanding balance under the Credit Facility is due August 29, 2019, when the Credit Facility matures. Interest payment terms are variable depending upon the specific type of borrowing under this facility. Our available capacity at any point in time is subject to all terms of the agreements, and is reduced by borrowings outstanding at the time and outstanding letters of credit

26



which totaled $25.8 million at December 31, 2016, resulting in an available borrowing capacity under the Credit Facility of $306.2 million. In addition to those items under the Credit Facility, we had $15.0 million of outstanding letters of credit and performance guarantees and bonds from other sources as of December 31, 2016.

The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (consolidated EBITDA divided by interest expense) and a leverage ratio (consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in each agreement) and interest expense are calculated using the most recent four fiscal quarters. The Credit Facility has the more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and a maximum leverage ratio of 2.5 to 1.0. We believe that we are in compliance with all such covenants contained in our credit agreements. Certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million to hedge changes in the variable rate interest expense on $50 million of our existing or replacement LIBOR-priced debt. Under the first swap agreement of $25 million, we fixed the LIBOR portion of the interest rate at 1.73% through August 29, 2019, and under the second swap agreement of $25 million, we fixed the LIBOR portion of the interest rate at 2.50% through August 29, 2024. Each swap is measured at fair value and recorded in our consolidated balance sheet as a liability. They are designated and qualify as cash flow hedging instruments and are highly effective. Unrealized losses are deferred to shareholders' equity as a component of accumulated other comprehensive loss and are recognized in income as an increase to interest expense in the period in which the related cash flows being hedged are recognized in expense.

In addition to our repayment commitments under our Credit Facility and our Senior Notes, we have non-cancellable operating lease arrangements under which we lease property including land, buildings, office equipment and vehicles.

The following table summarizes our future contractual obligations under these arrangements (in thousands):
 
Total
 
Less than 1 year
 
1-3 Years
 
3-5 Years
 
More than
5 Years
Contractual Obligations:
 
Debt (1)
$
218,000

 
$

 
$
68,000

 
$
75,000

 
$
75,000

Operating leases
62,061

 
15,514

 
20,120

 
10,905

 
15,522

Pension (2)
1,484

 
1,484

 

 

 

    Total contractual obligations
$
281,545

 
$
16,998

 
$
88,120

 
$
85,905

 
$
90,522

 
 
 
 
 
 
 
 
 
 
(1) Not included in the above balances are anticipated cash payments for interest of $6.1 million a year for 2017-2021 and cash payments for interest of $3.1 million a year for 2022-2023 for a total of $36.7 million.
(2) Our Dutch pension plan requires annual employer contributions. Amounts payable in the future will be based on future workforce factors which cannot be projected beyond one year.

We have no significant purchase commitments or similar obligations outstanding at December 31, 2016. Not included in the table above are uncertain tax positions of $8.6 million that we have accrued for at December 31, 2016, as the amounts and timing of payment, if any, are uncertain. See Note 9 of the Notes to Consolidated Financial Statements for further detail of this amount.
    
At December 31, 2016, we had tax net operating loss carry-forwards in various jurisdictions of approximately $38.8 million. Although we cannot be certain that these operating loss carry-forwards will be utilized, we anticipate that we will have sufficient taxable income in future years to allow us to fully utilize the carry-forwards that are not subject to a valuation allowance as of December 31, 2016. If unused, those carry-forwards which are subject to expiration may expire during the years 2017-2027. During 2016, $0.1 million of net operating loss carry-forwards which carried a full valuation allowance expired unused.

We expect our investment in capital expenditures to track client demand for our services and products. Given the improving, but still uncertain, trend in industry activity levels, we have not determined, at this time, the level of investment that will be made in 2017. We will, however, continue to invest to fund the purchase of instrumentation, tools and equipment along with expenditures to replace obsolete or worn-out instrumentation, tools and equipment, to consolidate certain facilities to gain operational efficiencies, and to increase our presence where requested by our clients. In addition, we plan to continue to (i) repurchase our common shares on the open market through our share repurchase program, (ii) pay a dividend and (iii) if available in the market at acceptable valuations, acquire complementary technologies. Our ability to continue these initiatives depends on, among other things, market conditions and our ability to generate free cash flow.

27




Our ability to maintain and increase our operating income and cash flows is largely dependent upon continued investing activities. We are a Netherlands holding company and substantially all of our operations are conducted through subsidiaries. Consequently, our cash flow depends upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us. We believe our future cash flows from operating activities, supplemented by our borrowing capacity under existing facilities and our ability to issue additional equity should be sufficient to meet our contractual obligations, capital expenditures, working capital needs, dividend payments, debt requirements and to finance future acquisitions.

Other Matters

In the spring of 2016, there were news reports related to Unaoil, a Monaco based company, and activities Unaoil may have engaged in related to international projects involving numerous global companies, including Core Lab. It has also been reported that the U.S. Department of Justice ("DOJ") is conducting an investigation of Unaoil related to the information reported in these news articles. The DOJ and the SEC contacted the Company in connection with that investigation, and the Company has cooperated with, and will continue to cooperate with, both agencies as necessary.

Outlook

Our long-term growth strategies remain essentially unchanged. We will continue our efforts to expand our market presence by opening or expanding facilities in strategic areas, continue the development of new services and products to meet our client needs and realizing synergies within our business lines. We believe our market presence provides us a unique opportunity to service clients who have global operations in addition to the national oil companies.

We have established internal earnings targets that are based on market conditions existing at the time our targets were established. During the fourth quarter of 2016, the members of OPEC announced a framework to reduce their daily crude oil production. This event, in the Company's opinion, will likely serve as an important catalyst that could speed the re-balancing of the crude oil markets which may provide for a significant recovery in industry activity. Based on recent developments, and modest strengthening in the price of crude oil and natural gas, we believe that the level of activities and workflows experienced in late 2016 will continue into 2017 and will strengthen for North America. Additionally, we believe the trend in recent public announcements of major offshore and international projects by our clients will continue, and these announcements are signs that a recovery of the offshore deepwater and international markets are also improving. An increase in the activities in these markets could positively impact our revenues, operating income and operating margins as well.

We expect to meet ongoing working capital needs, capital expenditure requirements and funding of our dividend and share repurchase programs from a combination of cash on hand, cash flow from operating activities and available borrowings under our Credit Facility.

Critical Accounting Estimates

The preparation of financial statements in accordance with U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis and determine the adequacy of our estimates based on our historical experience and various other assumptions that we believe are reasonable under the circumstances. By nature, these judgments are subject to an inherent degree of uncertainty. We consider an accounting estimate to be critical if it is highly subjective and if changes in the estimate under different assumptions would result in a material impact on our financial condition and results of operations. The following transaction types require significant judgment and, therefore, are considered critical accounting policies as of December 31, 2016.

Allowance for Doubtful Accounts

We evaluate whether client receivables are collectible. We perform ongoing credit evaluations of our clients and monitor collections and payments in order to maintain a provision for estimated uncollectible accounts based on our historical collection experience and our current aging of client receivables outstanding in addition to clients' representations and our understanding of the economic environment in which our clients operate. Based on our review, we establish or adjust allowances for specific clients and the accounts receivable as a whole. Our allowance for doubtful accounts decreased to $3.1 million as of December 31, 2016, compared to $4.1 million as of December 31, 2015.


Income Taxes

Our income tax expense includes income taxes of The Netherlands, the U.S. and other foreign countries as well as local, state and provincial income taxes. We recognize deferred tax assets or liabilities for the differences between the financial statement carrying amount and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the asset is recovered or the liability is settled. We estimate the likelihood of the recoverability of our deferred tax assets (particularly, net operating loss carry-forwards). Any valuation allowance recorded is based on estimates and assumptions of taxable income into the future and a determination is made of the magnitude of deferred tax assets which are more likely than not to be realized. Valuation allowances of our net deferred tax assets aggregated to $10.0 million and $10.9 million at December 31, 2016 and 2015, respectively. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets and our effective tax rate may increase which could result in a material adverse effect on our financial position, results of operations and cash flows. We have not provided for deferred taxes on the unremitted earnings of certain subsidiaries that we consider to be indefinitely reinvested. Should we make a distribution of the unremitted earnings of these subsidiaries, we may be required to record additional taxes. We record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in our tax return. We also recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Long-Lived Assets, Intangibles and Goodwill

Property, plant and equipment are carried at cost less accumulated depreciation. Major renewals and improvements are capitalized while maintenance and repair costs are charged to expense as incurred. They are depreciated using the straight-line method based on their individual estimated useful lives, except for leasehold improvements, which are depreciated over the remaining lease term, if shorter. We estimate the useful lives and salvage values of our assets based on historical data of similar assets. When long-lived assets are sold or retired, the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. These capitalized long-lived assets could become impaired if our operating plans or business environment changes.

Intangible assets, including patents, trademarks, and trade names, are carried at cost less accumulated amortization. Intangibles with determinable lives are amortized using the straight-line method based on the estimated useful life of the intangible. Intangibles with indeterminable lives, which consist primarily of corporate trade names, are not amortized, but are tested for impairment annually or whenever events or changes in circumstances indicate that impairment is possible.

We review our long-lived assets, including definite-lived intangible assets, for impairment when events or changes in circumstances indicate that their net book value may not be recovered over their remaining service lives. Indicators of possible impairment may include significant declines in activity levels in regions where specific assets or groups of assets are located, extended periods of idle use, declining revenue or cash flow or overall changes in general market conditions.

Whenever possible impairment is indicated, we compare the carrying value of the assets to the sum of the estimated undiscounted future cash flows expected from use, plus salvage value, less the costs of the subsequent disposition of the assets. If impairment is still indicated, we compare the fair value of the assets to the carrying amount, and recognize an impairment loss for the amount by which the carrying value exceeds the fair value. We did not record any material impairment charges relating to our long-lived assets held for use during the years ended December 31, 2016, 2015 and 2014.

We record goodwill as the excess of the purchase price over the fair value of the net assets acquired in acquisitions accounted for under the purchase method of accounting. We test goodwill for impairment annually, or more frequently if circumstances indicate a possible impairment.

We evaluated our goodwill for impairment by comparing the fair value of each of our reporting units, which are our reportable segments, to their net carrying value as of the balance sheet date. We estimated the fair value of each reporting unit using a discounted future cash flow analysis. Estimated future cash flows were based on the company's best estimate of future performance. Our impairment analysis is quantitative; however, it includes subjective estimates based on assumptions regarding future growth rates, interest rates and operating expenses. If the carrying value of the reporting unit exceeds the fair value determined, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value. We did not record impairment charges relating to our goodwill or our indefinite-lived intangible assets during the years ended December 31, 2016, 2015 and 2014.

We have never identified nor recorded any impairments relating to the goodwill of our current continuing operations.



28



Obsolete Inventory

We forecast client demand, considering changes in technology which could result in obsolescence. Our valuation reserve for obsolete inventory is based on historical regional sales trends, and various other assumptions and judgments including future demand for this inventory. Our industry is subject to technological change and new product development that could result in obsolete inventory. Our valuation reserve for obsolete inventory at December 31, 2016 was $3.5 million compared to $3.0 million at December 31, 2015.

Pensions and Other Postretirement Benefits

We maintain a noncontributory defined benefit pension plan for substantially all of our Dutch employees hired before 2007. We utilize an actuary to assist in determining the value of the projected benefit obligation. This valuation requires various estimates and assumptions concerning mortality, future pay increases, expected return on plan assets and discount rate used to value our obligations. We recognize net periodic benefit cost based upon these estimates. As required by current accounting standards, we recognize net periodic pension costs associated with this plan in income from current operations and recognize the unfunded status of the plan, if any, as a long-term liability. In addition, we recognize as a component of other comprehensive income, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic pension cost. See Note 10 of the Notes to Consolidated Financial Statements. Furthermore, we sponsor several defined contribution plans for the benefit of our employees. We expense these contributions in the period the contribution is made.

Stock-Based Compensation

We have two stock-based compensation plans, as described in further detail in Note 13 of the Notes to Consolidated Financial Statements. We evaluate the probability that certain of our stock-based plans will meet targets established within the respective agreements and result in the vesting of such awards. In addition, we derive an estimated forfeiture rate that is used in calculating the expense for these awards. For new awards issued and awards modified, repurchased or canceled, the compensation expense is equal to the fair value of the award at the date of the grant and is recognized in the Consolidated Statements of Operations for those awards earned over the requisite service period of the award. The fair value is determined by calculating the discounted value of the shares over the vesting period and applying an estimated forfeiture rate.

Off-Balance Sheet Arrangements

Other than normal operating leases, we do not have any off-balance sheet financing arrangements such as securitization agreements, liquidity trust vehicles, synthetic leases 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.

Forward-Looking Statements

This Form 10-K and the documents incorporated in this Form 10-K by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These "forward-looking statements" are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as "anticipate", "believe", "expect", "intend", "estimate", "project", "will", "should", "could", "may", "predict" and similar expressions are intended to identify forward-looking statements. You are cautioned that actual results could differ materially from those anticipated in forward-looking statements. Any forward-looking statements, including statements regarding the intent, belief or current expectations of us or our management, are not guarantees of future performance and involve risks, uncertainties and assumptions about us and the industry in which we operate, including, among other things:
our ability to continue to develop or acquire new and useful technology;
the realization of anticipated synergies from acquired businesses and future acquisitions;
our dependence on one industry, oil and gas, and the impact of commodity prices on the expenditure levels of our clients;
competition in the markets we serve;
the risks and uncertainties attendant to adverse industry, political, economic and financial market conditions, including stock prices, government regulations, interest rates and credit availability;

29



unsettled political conditions, war, civil unrest, currency controls and governmental actions in the numerous countries in which we operate;
changes in the price of oil and natural gas;
integration of acquired businesses; and
the effects of industry consolidation.

Our businesses depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the price of natural gas or oil, which could have a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows.

The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please see "Item 1A. Risk Factors" in this Form 10-K and our reports and registration statements filed from time to time with the SEC.

All forward-looking statements in this Form 10-K are based on information available to us on the date of this Form 10-K. We do not intend to update or revise any forward-looking statements that we may make in this Form 10-K or other documents, reports, filings or press releases, whether as a result of new information, future events or otherwise, unless required by law.

Recent Accounting Pronouncements

Pronouncements Adopted in 2016

In November 2015, the FASB issued ASU 2015-17 ("Balance Sheet Classification of Deferred Taxes") to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This pronouncement is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. We early adopted this standard for our fiscal year beginning on January 1, 2016 and applied the adoption prospectively. The adoption of this standard had no effect on our current Consolidated Statements of Operations and Consolidated Statements of Cash Flows but had an immaterial effect on our Consolidated Balance Sheets with the reclassification of certain deferred tax balance sheet accounts. The comparative prior period Consolidated Balance Sheet as of December 31, 2015 was not retrospectively adjusted.

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-02 ("Amendments to the Consolidation Analysis") which amends the guidelines for determining whether certain legal entities should be consolidated. This update eliminates the presumption that a general partner should consolidate a limited partnership and modifies the evaluation of whether limited partnerships are variable interest entities or voting interest entities. Overall, the amendments in this Update are an improvement to current GAAP because they simplify the Codification and reduce the number of consolidation models through the elimination of the indefinite deferral of Statement 167 and because they place more emphasis on risk of loss when determining a controlling financial interest. This update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. We adopted this standard on January 1, 2016. The adoption of this standard had no effect on our current consolidated financial statements or on the entities that we consolidate.

Pronouncements Not Yet Effective

In May 2014, the FASB issued ASU 2014-09 ("Revenue from Contracts with Customers"), which provides guidance on revenue recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance requires entities to apply a five-step method to (1) identify the contract(s) with customers; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 (on July 9, 2015, the FASB deferred the implementation date for one year). We are currently analyzing the standard's impact on our revenues by looking at all of our revenue streams to determine the impact on our Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows. At this

30



point, we do not anticipate any material changes to our revenue recognition policies and procedures nor to our financial statements, but extensive additional disclosures will be required.

In July 2015, the FASB issued ASU 2015-11 ("Simplifying the Measurement of Inventory") to require the measurement of inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This pronouncement is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this standard will have no effect on our Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows.

In February 2016, the FASB issued ASU 2016-02 ("Leases"), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. We do not anticipate the adoption of this standard to have a material impact on how we currently record lease transactions; however, it may have a significant impact on our Consolidated Balance Sheets, increasing both asset balances and liability balances.

In March 2016, the FASB issued ASU 2016-09 ("Improvements to Employee Share-Based Payment Accounting") to simplify the accounting for share-based payment transactions, including accounting for forfeitures, excess tax benefit/expense, and tax withholding requirements. Under this new guidance, (1) companies will have the option to estimate how many shares in a grant will be forfeited or to elect to recognize forfeitures as they occur; (2) all excess tax benefit and expense will be recognized as income tax benefit or expense in the income statement as a discrete item to the quarter, and the accumulated benefits in APIC are eliminated; and (3) companies will be able to withhold share amounts up to the statutory maximum and the award will still be classified as equity. This pronouncement is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this standard will result in timing differences in the recognition of stock compensation expense as we will no longer be estimating forfeitures, but accounting for them as they occur, and the reclassification of excess tax benefit/expense on the Consolidated Statements of Cash Flows.

In June 2016, the FASB issued ASU 2016-13 ("Measurement of Credit Losses on Financial Instruments") which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to market risk, which is the potential loss arising from adverse changes in market prices and rates. We do not believe that our exposure to market risks, which are primarily related to interest rate changes, is material.

Interest Rate Risk

We maintain certain debt instruments at a fixed rate whose fair value will fluctuate based on changes in interest rates and market perception of our credit risk. The fair value of our debt at December 31, 2016 and 2015 approximated the book value.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million to hedge changes in the variable rate interest expense on $50 million of our existing or replacement LIBOR-priced debt. Under the first swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 1.73% through August 29, 2019, and under the second swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 2.50% through August 29, 2024. Each swap is measured at fair value and recorded in our consolidated balance sheet as a liability. They are designated and qualify as cash flow hedging instruments and are highly effective. Unrealized losses are deferred to shareholders' equity as a component of accumulated other comprehensive loss and are recognized in income as an increase to interest expense in the period in which the related cash flows being hedged are recognized in expense.


31



From time to time, we are exposed to interest rate risk on our Credit Facility debt for amounts outstanding in excess of $50 million, which carries a variable interest rate. At December 31, 2016, we had an outstanding balance of $68 million. A 10% change in interest rates would not have a material impact on our results of operations or cash flows.

Foreign Currency Risk

We operate in a number of international areas which exposes us to foreign currency exchange rate risk. We do not currently hold or issue forward exchange contracts or other derivative instruments for hedging or speculative purposes (a foreign exchange contract is an agreement to exchange different currencies at a given date and at a specified rate). Foreign exchange gains and losses are the result of fluctuations in the U.S. dollar ("USD") against foreign currencies and are included in other (income) expense in the statements of operations. We recognized foreign exchange losses in countries where the USD weakened against the local currency and we had net monetary liabilities denominated in the local currency, as well as in countries where the USD strengthened against the local currency and we had net monetary assets denominated in the local currency. We recognized foreign exchange gains in countries where the USD strengthened against the local currency and we had net monetary liabilities denominated in the local currency, as well as in countries where the USD weakened against the local currency and we had net monetary assets denominated in the local currency.

Credit Risk

Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Substantially all cash and cash equivalents are on deposit at commercial banks or investment firms. Our trade receivables are with a variety of domestic, international and national oil and gas companies. Management considers this credit risk to be limited due to the creditworthiness and financial resources of these financial institutions and companies.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

For the financial statements and supplementary data required by this Item 8, see Part IV "Item 15. Exhibits, Financial Statement Schedules."


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Change in Auditor in 2016

Effective January 1, 2016, the Company appointed KPMG, including its U.S. and Dutch affiliates, (collectively, "KPMG") as its independent registered public accountants. There was no dispute or disagreement with former auditor PricewaterhouseCoopers (“PwC”) on any issue; instead, the change was a result of new Dutch regulations requiring Dutch publicly traded companies to rotate the public auditors of their IFRS accounts after eight years starting with the fiscal year that began January 1, 2016. The change of accounting firms was recommended by the supervisory board of directors and approved by the shareholders at the 2016 annual meeting.


ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2016 at the reasonable assurance level.


32



Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. Further, the design of disclosure controls and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management's Report on Internal Control over Financial Reporting

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth in Internal Control − Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment using these criteria, our management determined that our internal control over financial reporting was effective as of December 31, 2016.

The effectiveness of our internal control over financial reporting as of December 31, 2016, has been audited by KPMG, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control over Financial Reporting

There was no change in our system of internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our fiscal quarter ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION

None.



33



PART III

The information required by Part III (Items 10 through 14) is incorporated by reference from our definitive proxy statement to be filed in connection with our 2017 annual meeting of shareholders pursuant to Regulation 14A under the Exchange Act. We expect to file our definitive proxy statement with the SEC within 120 days after the close of the year ended December 31, 2016.



34



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)
Financial Statements

1. The following reports, financial statements and schedules are filed herewith on the pages indicated:


2. Financial Statement Schedule

Schedule II - Valuation and Qualifying Account

(b)
Exhibits

The exhibits listed in the accompanying "Index to Exhibits" are incorporated by reference to the filing indicated or are filed herewith.


35



SIGNATURES

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

 
 
 
CORE LABORATORIES N.V.
 
 
 
By its sole managing director, Core Laboratories International B.V.
 
 
 
 
Date:
February 10, 2017
By:
/s/ JACOBUS SCHOUTEN
 
 
 
Jacobus Schouten
 
 
 
Managing Director of Core Laboratories International B.V.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the 10th day of February, 2017.


36



Signature
 
Title
 
 
 
/s/ DAVID M. DEMSHUR
 
/s/ RICHARD L. BERGMARK
David M. Demshur
 
Richard L. Bergmark
President, Chief Executive Officer,
 
Executive Vice President,
Chairman and Supervisory Director
 
 Chief Financial Officer and
 
 
Supervisory Director
 
 
 
 
 
 
/s/ CHRIS S. HILL
 
 /s/ MARTHA Z. CARNES
Chris S. Hill
 
 Martha Z. Carnes
Vice President and
 
 Supervisory Director
Chief Accounting Officer
 
 
 
 
 
 
 
 
/s/ CHARLES L. DUNLAP
 
/s/ MICHAEL C. KEARNEY
Charles L. Dunlap
 
Michael C. Kearney
Supervisory Director
 
Supervisory Director
 
 
 
 
 
 
/s/ JAN WILLEM SODDERLAND
 
 /s/ MICHAEL STRAUGHEN
Jan Willem Sodderland
 
 Michael Straughen
Supervisory Director
 
 Supervisory Director
 
 
 
 
 
 
/s/ LUCIA VAN GEUNS
 
/s/ MARGARET ANN VAN KEMPEN
Lucia van Geuns
 
Margaret Ann van Kempen
Supervisory Director
 
Supervisory Director

37



Report of Independent Registered Public Accounting Firm
The Board of Supervisory Directors and Shareholders
Core Laboratories N.V.:

We have audited the accompanying consolidated balance sheet of Core Laboratories N.V. and subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the year then ended. In connection with our audit of the consolidated financial statements, we also have audited financial statement schedule II - Valuation and Qualifying Account. These consolidated financial statements and financial statement schedule are the responsibility of the Core Laboratories N.V.’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Core Laboratories N.V. and subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Core Laboratories N.V.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control − Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 10, 2017 expressed an unqualified opinion on the effectiveness of Core Laboratories N.V.’s internal control over financial reporting.

/s/ KPMG LLP

Houston, Texas
February 10, 2017


F-1




Report of Independent Registered Public Accounting Firm
The Board of Supervisory Directors and Shareholders
Core Laboratories N.V.:

We have audited Core Laboratories N.V.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control − Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Core Laboratories N.V.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting included in Item 9A of Core Laboratories N.V.’s Annual Report on Form 10-K. Our responsibility is to express an opinion on Core Laboratories N.V.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Core Laboratories N.V. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control − Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Core Laboratories N.V. and subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the year then ended, and our report dated February 10, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Houston, Texas
February 10, 2017


F-2




Report of Independent Registered Public Accounting Firm


To the Board of Supervisory Directors and Shareholders of Core Laboratories N.V.:

In our opinion, the consolidated balance sheet as of December 31, 2015 and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2015 present fairly, in all material respects, the financial position of Core Laboratories N.V. (a Netherlands corporation) and its subsidiaries at December 31, 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for each of the two years in the period ended December 31, 2015 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 12, 2016




F-3



CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
December 31, 2016 and 2015
(In thousands, except share and per share data)
 
2016
 
2015
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
14,764

 
$
22,494

Accounts receivable, net of allowance for doubtful accounts of $3,139 and
$4,136 at 2016 and 2015, respectively
114,329

 
145,689

Inventories
33,720

 
40,906

Prepaid expenses
10,711

 
12,053

Income taxes receivable
6,426

 
7,209

Other current assets
6,511

 
10,196

TOTAL CURRENT ASSETS
186,461

 
238,547

PROPERTY, PLANT AND EQUIPMENT, net
129,882

 
143,211

INTANGIBLES, net
9,936

 
10,041

GOODWILL
179,044

 
178,159

DEFERRED TAX ASSETS, net
20,605

 
11,693

OTHER ASSETS
47,124

 
43,607

TOTAL ASSETS
$
573,052

 
$
625,258

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
33,720

 
$
33,474

Accrued payroll and related costs
19,411

 
36,475

Taxes other than payroll and income
5,816

 
9,495

Unearned revenues
15,690

 
14,101

Income taxes payable
15,718

 
1,733

Other current liabilities
13,668

 
25,480

TOTAL CURRENT LIABILITIES
104,023

 
120,758

LONG-TERM DEBT, net
216,488

 
430,987

DEFERRED COMPENSATION
46,251

 
43,478

DEFERRED TAX LIABILITIES, net
6,277

 
4,881

OTHER LONG-TERM LIABILITIES
44,716

 
48,853

COMMITMENTS AND CONTINGENCIES

 

 
 
 
 
EQUITY (DEFICIT):
 
 
 
Preference shares, EUR 0.02 par value;
6,000,000 shares authorized, none issued or outstanding

 

Common shares, EUR 0.02 par value;
200,000,000 shares authorized, 44,796,252 issued and 44,151,261 outstanding at 2016 and
44,350,002 issued and 42,375,905 outstanding at 2015
1,148

 
1,142

Additional paid-in capital
52,850

 

Retained earnings
187,957

 
219,207

Accumulated other comprehensive income (loss)
(9,828
)
 
(10,538
)
Treasury shares (at cost), 644,991 at 2016 and 1,974,097 at 2015
(80,773
)
 
(238,875
)
Total Core Laboratories N.V. shareholders' equity (deficit)
151,354

 
(29,064
)
Non-controlling interest
3,943

 
5,365

TOTAL EQUITY (DEFICIT)
155,297

 
(23,699
)
TOTAL LIABILITIES AND EQUITY (DEFICIT)
$
573,052

 
$
625,258


The accompanying notes are an integral part of these Consolidated Financial Statements.

F-4



CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2016, 2015 and 2014
(In thousands, except per share data)

 
2016
 
2015
 
2014
REVENUE:
 
 
 
 
 
Services
$
470,259

 
$
611,954

 
$
780,872

Product sales
124,482

 
185,566

 
304,350

Total Revenue
594,741

 
797,520

 
1,085,222

OPERATING EXPENSES:
 
 
 
 
 
Cost of services, exclusive of depreciation shown below
331,688

 
387,739

 
449,488

Cost of product sales, exclusive of depreciation shown below
110,956

 
144,913

 
215,783

General and administrative expenses, exclusive of depreciation shown below
39,390

 
49,729

 
45,655

Depreciation
26,029

 
26,545

 
25,297

Amortization
843

 
912

 
1,399

Other (income) expense, net
(344
)
 
3,669

 
1,069

Severance and other charges

 
22,943

 

OPERATING INCOME
86,179

 
161,070

 
346,531

Interest expense
11,572

 
12,380

 
10,600

Income before income tax expense
74,607

 
148,690

 
335,931

Income tax expense
10,748

 
33,758

 
77,305

Net income
63,859

 
114,932

 
258,626

Net income attributable to non-controlling interest
(36
)
 
85

 
1,141

Net income attributable to Core Laboratories N.V.
$
63,895

 
$
114,847

 
$
257,485

EARNINGS PER SHARE INFORMATION:
 
 
 
 
 
Basic earnings per share attributable to Core Laboratories N.V.
$
1.47

 
$
2.69

 
$
5.80

Diluted earnings per share attributable to Core Laboratories N.V.
$
1.46

 
$
2.68

 
$
5.77

Cash dividends per share
$
2.20

 
$
2.20

 
$
2.00

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
 
 
Basic
43,479

 
42,747

 
44,362

Diluted
43,670

 
42,908

 
44,600















The accompanying notes are an integral part of these Consolidated Financial Statements.

F-5



CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2016, 2015 and 2014
(In thousands)

 
2016
 
2015
 
2014
Net income
$
63,859

 
$
114,932

 
$
258,626

Other comprehensive income:
 
 
 
 
 
Derivatives
 
 
 
 
 
Changes in fair value of interest rate swaps
(293
)
 
(1,471
)
 
(1,327
)
Interest rate swap amounts reclassified to interest expense
829

 
971

 
245

Income taxes on derivatives
(197
)
 
583

 

Total derivatives
339

 
83

 
(1,082
)
Pension and other postretirement benefit plans
 
 
 
 
 
Adjustment of unrecognized pension actuarial gain (loss)
(17
)
 
1,151

 
(4,399
)
Prior service credit arising during period

 

 
1,024

Prior service cost
 
 
 
 
 
Amortization to net income of transition asset

 
(96
)
 
(87
)
Amortization to net income of prior service cost
(81
)
 
(85
)
 
7

Amortization to net income of actuarial loss
593

 
727

 
540

Income taxes on pension and other postretirement benefit plans
(124
)
 
(424
)
 
729

Total pension and other postretirement benefit plans
371

 
1,273

 
(2,186
)
Total other comprehensive income (loss)
710

 
1,356

 
(3,268
)
Comprehensive income
64,569

 
116,288

 
255,358

Comprehensive income attributable to non-controlling interests
(36
)
 
85

 
1,141

Comprehensive income attributable to Core Laboratories N.V.
$
64,605

 
$
116,203

 
$
254,217

























The accompanying notes are an integral part of these Consolidated Financial Statements.

F-6



CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2016, 2015 and 2014
(In thousands, except share data)
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
Common Shares
 
Additional
 
 
 
Other
 
Treasury Stock
 
Non-
 
 
 
Number of
Par
 
Paid-In
 
Retained
 
Comprehensive
 
Number of
 
 
Controlling
 
Total
 <