UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ________________ to ______________
Commission File Number:
(Exact name of registrant as specified in its charter)
The |
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Not Applicable |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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The |
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Not Applicable |
(Address of principal executive offices) |
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(Zip Code) |
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(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Common Stock (par value EUR 0.02) |
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CLB |
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Euronext Amsterdam Stock Exchange |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The number of common shares of the registrant, par value EUR 0.02 per share, outstanding at October 27, 2021 was
CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
INDEX
PART I - FINANCIAL INFORMATION
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Consolidated Balance Sheets (Unaudited) at September 30, 2021 and December 31, 2020 |
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6 |
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7 |
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9 |
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Notes to the Unaudited Interim Consolidated Financial Statements |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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36 |
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PART II - OTHER INFORMATION |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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September 30, |
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December 31, |
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ASSETS |
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(Unaudited) |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for credit losses of $ |
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Inventories |
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Prepaid expenses |
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Income taxes receivable |
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Other current assets |
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TOTAL CURRENT ASSETS |
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PROPERTY, PLANT AND EQUIPMENT, net of accumulated |
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RIGHT OF USE ASSETS |
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INTANGIBLES, net of accumulated amortization of $ |
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GOODWILL |
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DEFERRED TAX ASSETS, net |
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OTHER ASSETS |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Accrued payroll and related costs |
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Taxes other than payroll and income |
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Unearned revenues |
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Operating lease liabilities |
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Income taxes payable |
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Other current liabilities |
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TOTAL CURRENT LIABILITIES |
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LONG-TERM DEBT, net |
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LONG-TERM OPERATING LEASE LIABILITIES |
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DEFERRED COMPENSATION |
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DEFERRED TAX LIABILITIES, net |
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OTHER LONG-TERM LIABILITIES |
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EQUITY: |
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Preference shares, EUR |
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Common shares, EUR |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
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( |
) |
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( |
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Treasury shares, at cost, |
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( |
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( |
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Total Core Laboratories N.V. shareholders' equity |
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Non-controlling interest |
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TOTAL EQUITY |
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TOTAL LIABILITIES AND EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these interim consolidated financial statements.
3
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Three Months Ended |
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September 30, |
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2021 |
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2020 |
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(Unaudited) |
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REVENUE: |
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Services |
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$ |
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$ |
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Product sales |
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Total revenue |
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OPERATING EXPENSES: |
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Cost of services, exclusive of depreciation expense shown below |
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Cost of product sales, exclusive of depreciation expense shown below |
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General and administrative expense, exclusive of depreciation expense shown below |
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Depreciation |
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Amortization |
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Other (income) expense, net |
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( |
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( |
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OPERATING INCOME (LOSS) |
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Interest expense |
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Income (loss) from continuing operations before income taxes |
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Income tax expense (benefit) |
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Income (loss) from continuing operations |
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Income (loss) from discontinued operations, net of income taxes |
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Net income (loss) |
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Net income (loss) attributable to non-controlling interest |
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Net income (loss) attributable to Core Laboratories N.V. |
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$ |
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$ |
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EARNINGS (LOSS) PER SHARE INFORMATION: |
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Basic earnings (loss) per share from continuing operations |
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$ |
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$ |
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Basic earnings (loss) per share from discontinued operations |
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$ |
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$ |
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Basic earnings (loss) per share attributable to Core Laboratories N.V. |
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$ |
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$ |
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Diluted earnings (loss) per share from continuing operations |
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$ |
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$ |
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Diluted earnings (loss) per share from discontinued operations |
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$ |
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$ |
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Diluted earnings (loss) per share attributable to Core Laboratories N.V. |
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$ |
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$ |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
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Basic |
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Assuming Dilution |
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The accompanying notes are an integral part of these interim consolidated financial statements.
4
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Nine Months Ended |
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September 30, |
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2021 |
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2020 |
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(Unaudited) |
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REVENUE: |
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Services |
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$ |
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$ |
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Product sales |
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Total revenue |
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OPERATING EXPENSES: |
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Cost of services, exclusive of depreciation expense shown below |
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Cost of product sales, exclusive of depreciation expense and inventory write-down shown below |
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General and administrative expense, exclusive of depreciation expense shown below |
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Depreciation |
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Amortization |
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Impairments and other charges |
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Inventory write-down |
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Other (income) expense, net |
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( |
) |
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OPERATING INCOME (LOSS) |
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( |
) |
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Interest expense |
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Income (loss) from continuing operations before income taxes |
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( |
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Income tax expense (benefit) |
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( |
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Income (loss) from continuing operations |
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( |
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Income (loss) from discontinued operations, net of income taxes |
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Net income (loss) |
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( |
) |
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Net income (loss) attributable to non-controlling interest |
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Net income (loss) attributable to Core Laboratories N.V. |
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$ |
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$ |
( |
) |
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EARNINGS (LOSS) PER SHARE INFORMATION: |
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Basic earnings (loss) per share from continuing operations |
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$ |
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$ |
( |
) |
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Basic earnings (loss) per share from discontinued operations |
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$ |
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$ |
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Basic earnings (loss) per share attributable to Core Laboratories N.V. |
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$ |
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$ |
( |
) |
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Diluted earnings (loss) per share from continuing operations |
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$ |
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$ |
( |
) |
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Diluted earnings (loss) per share from discontinued operations |
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$ |
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$ |
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Diluted earnings (loss) per share attributable to Core Laboratories N.V. |
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$ |
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$ |
( |
) |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
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Basic |
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Assuming Dilution |
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The accompanying notes are an integral part of these interim consolidated financial statements.
5
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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(Unaudited) |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
) |
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Other comprehensive income (loss): |
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Derivatives: |
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Gain (loss) on fair value of interest rate swaps |
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( |
) |
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( |
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Interest rate swap amount reclassified to net income (loss) |
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( |
) |
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Income tax expense (benefit) on interest rate swaps |
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( |
) |
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( |
) |
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Total interest rate swaps |
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( |
) |
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( |
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Total other comprehensive income (loss) |
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( |
) |
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( |
) |
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Comprehensive income (loss) |
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( |
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Comprehensive income (loss) attributable to non-controlling interest |
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Comprehensive income (loss) attributable to Core Laboratories N.V. |
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$ |
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$ |
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$ |
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$ |
( |
) |
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The accompanying notes are an integral part of these interim consolidated financial statements.
6
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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(Unaudited) |
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Common Shares |
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Balance at Beginning of Period |
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$ |
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$ |
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$ |
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$ |
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New share issuance |
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— |
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— |
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— |
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Balance at End of Period |
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$ |
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$ |
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$ |
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$ |
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Additional Paid-In Capital |
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Balance at Beginning of Period |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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New share issuance |
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— |
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— |
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— |
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Balance at End of Period |
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$ |
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$ |
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$ |
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$ |
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Retained Earnings |
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Balance at Beginning of Period |
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$ |
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$ |
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$ |
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$ |
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Dividends paid |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Net income (loss) attributable to Core Laboratories N.V. |
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( |
) |
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Balance at End of Period |
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$ |
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$ |
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$ |
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$ |
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Accumulated Other Comprehensive Income (Loss) |
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Balance at Beginning of Period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Interest rate swaps, net of income taxes |
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( |
) |
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( |
) |
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Balance at End of Period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Treasury Shares |
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Balance at Beginning of Period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Stock-based compensation |
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Repurchase of common shares |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Balance at End of Period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Non-Controlling Interest |
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Balance at Beginning of Period |
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$ |
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$ |
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$ |
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$ |
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Non-controlling interest dividends |
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— |
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— |
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— |
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( |
) |
Net income (loss) attributable to non-controlling interest |
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Balance at End of Period |
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$ |
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$ |
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$ |
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$ |
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Total Equity |
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Balance at Beginning of Period |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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Repurchase of common shares |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Dividends paid |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Non-controlling interest dividends |
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— |
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— |
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— |
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( |
) |
New share issuance |
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— |
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— |
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— |
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Interest rate swaps, net of income taxes |
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( |
) |
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( |
) |
||
Net income (loss) |
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( |
) |
|||
Balance at End of Period |
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$ |
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$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash Dividends per Share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The accompanying notes are an integral part of these interim consolidated financial statements.
7
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
(In thousands, except share and per share data)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Common Shares - Number of shares issued |
|
(Unaudited) |
|
|||||||||||||
Balance at Beginning of Period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
New share issuance |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Balance at End of Period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Treasury Shares - Number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at Beginning of Period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Repurchase of common shares |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at End of Period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common Shares - Number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at Beginning of Period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
New share issuance |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Repurchase of common shares |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at End of Period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The accompanying notes are an integral part of these interim consolidated financial statements.
8
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
|
(Unaudited) |
|
|||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Income (loss) from continuing operations |
|
$ |
|
|
$ |
( |
) |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
|
|
|
|
||
Net income (loss) |
|
|
|
|
|
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Changes to value of life insurance policies |
|
|
( |
) |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Impairments, inventory write-down and other charges |
|
|
|
|
|
|
||
Gain on sale of business |
|
|
( |
) |
|
|
|
|
Other non-cash items |
|
|
( |
) |
|
|
|
|
Changes in assets and liabilities, net of effect of acquisitions and divestures: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
( |
) |
|
Accrued expenses |
|
|
( |
) |
|
|
|
|
Unearned revenues |
|
|
|
|
|
( |
) |
|
Other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Patents and other intangibles |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
||
Net proceeds (premiums) on life insurance policies |
|
|
|
|
|
( |
) |
|
Proceeds from sale of business, net of cash sold |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Repayment of long-term debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from long-term debt |
|
|
|
|
|
|
||
Proceeds from issuance of common shares |
|
|
|
|
|
|
||
Transaction costs on the issuance of common shares |
|
|
( |
) |
|
|
|
|
Dividends paid |
|
|
( |
) |
|
|
( |
) |
Repurchase of common shares |
|
|
( |
) |
|
|
( |
) |
Other financing activities |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Cash payments for interest |
|
$ |
|
|
$ |
|
||
Cash payments for income taxes |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these interim consolidated financial statements.
9
CORE LABORATORIES N.V.
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include the accounts of Core Laboratories N.V. and its subsidiaries for which we have a controlling voting interest and/or a controlling financial interest. These financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information using the instructions to Form 10-Q and Article 10 of Regulation S-X. Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2020 was derived from the 2020 audited consolidated financial statements. Accordingly, these financial statements do not include all of the information and footnote disclosures required by U.S. GAAP for the annual financial statements, and should be read in conjunction with the audited financial statements and the summary of significant accounting policies and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report").
Core Laboratories N.V. uses the equity method of accounting for investments in which it has less than a majority interest and over which it does not exercise control but does exert significant influence. Non-controlling interests have been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than
References to “Core Lab”, "Core Laboratories", the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report on Form 10-Q and relate collectively to Core Laboratories N.V. and its consolidated subsidiaries.
We operate our business in
Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported net income or cash flows for the three and nine months ended September 30, 2020.
2. SIGNIFICANT ACCOUNTING POLICIES UPDATE
10
3. CONTRACT ASSETS AND LIABILITIES
The balance of contract assets and liabilities consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
Contract assets |
|
|
|
|
|
|
||
Current |
|
$ |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
|
||
Contract liabilities |
|
|
|
|
|
|
||
Current |
|
$ |
|
|
$ |
|
||
Non-current |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
September 30, |
|
|
Estimate of when contract liabilities will be recognized as revenue: |
|
|
|
|
Within months |
|
$ |
|
|
Within to 24 months |
|
|
|
|
Greater than months |
|
|
|
|
The current portion of contract assets are included in our accounts receivable as of September 30, 2021 and December 31, 2020. We did
The current portion of contract liabilities is included in unearned revenues and the non-current portion of contract liabilities is included in other long-term liabilities as of September 30, 2021 and December 31, 2020.
4. ACQUISITIONS AND DIVESTURES
We had
5. INVENTORIES
Inventories consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Parts and materials |
|
|
|
|
|
|
||
Work in progress |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
We include freight costs incurred for shipping inventory to our clients in the cost of product sales caption in the accompanying consolidated statements of operations.
6. LEASES
We have operating leases primarily consisting of offices and lab space, machinery and equipment and vehicles.
11
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
2021 |
|
|
2020 |
|
||||
Operating lease expense |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Short-term lease expense |
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease expense |
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease expense |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Other information: |
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Right of use assets obtained in exchange for new operating lease obligations |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Weighted-average remaining lease term - operating leases |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average discount rate - operating leases |
|
|
% |
|
|
% |
|
% |
|
|
% |
||||
Scheduled undiscounted lease payments for non-cancellable leases consist of the following (in thousands):
|
|
September 30, |
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted lease payments |
|
|
|
|
Less: Imputed interest |
|
|
( |
) |
Total operating lease liabilities |
|
$ |
|
|
7. LONG-TERM DEBT, NET
We have
Long-term debt is as follows (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
2011 Senior Notes |
|
$ |
|
|
$ |
|
||
2021 Senior Notes |
|
|
|
|
|
|
||
Credit Facility |
|
|
|
|
|
|
||
Total long-term debt |
|
|
|
|
|
|
||
Less: Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Long-term debt, net |
|
$ |
|
|
$ |
|
||
On September 30, 2021 one series of notes issued in 2011 ("2011 Senior Notes") became due and was retired. Series A of the 2011 Senior Notes consisting of $
As of September 30, 2021, following the retirement of Series A of the 2011 Senior Notes, we have
12
On October 16, 2020, we, along with our wholly owned subsidiary Core Laboratories (U.S.) Interests Holdings, Inc. as issuer, entered into
On June 22, 2020, we entered into Amendment No. 1 (the “Amendment”) to the Seventh Amended and Restated Credit Agreement, dated June 19, 2018 (as amended, the “Credit Facility”). The Amendment increases the maximum leverage ratio permitted under the Credit Facility for certain periods.
Quarter ending |
|
Maximum leverage ratio |
June 30, 2020 up to and including June 30, 2021 |
|
|
September 30, 2021 |
|
|
December 31, 2021 and thereafter |
|
Moreover, under the Amendment, the London Interbank Offered Rate ("LIBOR") plus
The Credit Facility is unsecured, and contains customary representations, warranties, terms and conditions for similar types of facilities.
The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (calculated as consolidated EBITDA divided by interest expense) and a leverage ratio (calculated as 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 and Senior Notes include a cross-default provision, whereby a default under one agreement may trigger a default in the other agreement. The Credit Facility has more restrictive covenants with a minimum interest coverage ratio of
See Note 16, Derivative Instruments and Hedging Activities for additional information regarding interest rate swap agreements we have entered to fix the underlying risk-free rate on our Credit Facility and Senior Notes.
13
The estimated fair value of total debt at September 30, 2021 and December 31, 2020 approximated the book value of total debt. The fair value was estimated using Level 2 inputs by calculating the sum of the discounted future interest and principal payments through the maturity date.
8. PENSION
Prior to January 2020, we provided a noncontributory defined benefit pension plan covering substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2000. During 2019 and 2018, there were curtailments of the Dutch Plan for our Dutch employees whose pension benefit was based on years of service and final pay or career average pay, depending on when the employee began participating. These employees have been moved into the Dutch defined contribution plan. However, the unconditional indexation for this group of participants continues for so long as they remain in active service with the Company. There have been
The following table summarizes the components of net periodic pension cost under the Dutch Plan (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Interest cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net periodic pension cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9. COMMITMENTS AND CONTINGENCIES
We have been and may from time to time be named as a defendant in legal actions that arise in the ordinary course of business. These include, but are not limited to, employment-related claims and contractual disputes and claims for personal injury or property damage which occur in connection with the provision of our services and products. A liability is accrued when a loss is both probable and can be reasonably estimated.
See Note 7, Long-term Debt, net for amounts committed under letters of credits and performance guarantees and bonds.
10. EQUITY
On December 17, 2020, we entered into an Equity Distribution Agreement with Wells Fargo Securities, LLC (the “Equity Distribution Agreement”) for the issuance and sale of up to $
During the three and nine months ended September 30, 2021, we distributed
14
under that plan. Such common shares, unless canceled, may be reissued for a variety of purposes such as future acquisitions, non-employee director stock awards or employee stock awards.
In February, May and August 2021, we paid a quarterly dividend of $
Accumulated other comprehensive loss, net of income taxes, consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
Pension and other postretirement benefit plans - unrecognized |
|
$ |
( |
) |
|
$ |
( |
) |
Interest rate swaps - net fair value loss |
|
|
( |
) |
|
|
( |
) |
Total accumulated other comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
We compute basic earnings per common share by dividing net income attributable to Core Laboratories N.V. by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the incremental effect of contingently issuable shares from performance and restricted stock awards, as determined using the treasury stock method.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding - assuming dilution |
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the nine months ended September 30, 2020, the number of outstanding performance and restricted shares of Core Laboratories N.V. common shares that were excluded from the diluted earnings per share calculation, as their impact would be antidilutive, were as follows (in thousands):
|
|
|
|
Nine months ended |
|
|
|
|
|
|
September 30, 2020 |
|
|
Performance shares |
|
|
|
|
|
|
Restricted shares |
|
|
|
|
|
|
12. IMPAIRMENTS AND OTHER CHARGES
The coronavirus disease 2019 (“COVID-19”) global pandemic resulted in government mandated shut-downs, cross-border travel restrictions, home sheltering and social distancing efforts to contain the virus and mitigate the incidence of infection. The COVID-19 mitigation efforts globally resulted in a sharp decline in the consumption of crude-oil and refined petroleum products, which in turn led to a significant decrease in spot and forward commodity prices. These events resulted in substantial declines in the valuation of companies operating in the oil and gas services industry, including Core Laboratories. As a result, in March 2020, we determined that it was more likely than not that the fair value of our reporting units was less than their
15
carrying value, which triggered an updated impairment assessment by the Company as of March 31, 2020. We performed an impairment test in accordance with ASC Topic 360 Impairment or Disposal of Long-Lived Assets and ASC Topic 350 Intangibles-Goodwill and Other, as updated by ASU 2017-04 Simplifying the Test for Goodwill Impairment, on our indefinite-lived and long-lived assets related to asset groups, and our reporting units.
We have
We identified a triggering event for one of the asset groups under the Production Enhancement reporting unit during the first quarter of 2020. The estimated fair value, based on applying the income approach model, of one of the asset groups was determined to be below its carrying value. As of March 31, 2020, we recorded a charge of $
During the nine months ended September 30, 2021, there have been no triggering events which would require the Company to perform an impairment assessment for any of its reporting units or asset groups.
13. INVENTORY WRITE-DOWN
During the nine months ended September 30, 2020, as a result of the continuing adverse impact of COVID-19 pandemic and significant reduction in rig count and completions that affect the current consumption and anticipated demand for certain of our products, we recorded an additional inventory obsolescence and write-down of $
There is
14. OTHER (INCOME) EXPENSE, NET
The components of other (income) expense, net, are as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
(Gain) loss on sale of assets |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Results of non-consolidated subsidiaries |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Foreign exchange (gain) loss, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Rents and royalties |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Return on pension assets and other pension costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on sale of business |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Curtailment |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Loss (recovery) on lease abandonment |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Cost reduction and other charges |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rebates and other credits |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Insurance settlement |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Other, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total other (income) expense, net |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
16
Foreign exchange gains and losses are summarized in the following table (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
British Pound |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Canadian Dollar |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Euro |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Russian Ruble |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other currencies, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign exchange (gain) loss, net |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
15. INCOME TAX EXPENSE (BENEFIT)
The Company recorded an income tax expense of $
The effective tax rate for the three and nine months ended September 30, 2020 was
16. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risks related to fluctuations in interest rates. To mitigate these risks, we utilize derivative instruments in the form of interest rate swaps. We do not enter into derivative transactions for speculative purposes.
Interest Rate Risk
Interest rate swaps that are designated and qualify as cash flow hedging instruments are carried at fair value and recorded in our consolidated balance sheets as an asset or liability. The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months.
Unrealized (gains) losses are deferred in shareholders' equity as a component of accumulated other comprehensive income (loss). Interest rate swaps that are highly effective are recognized in income as an increase or decrease to interest expense in the period in which the related cash flows being hedged are recognized in expense.
Our Credit Facility bears interest at variable rates from LIBOR plus
In August 2014, we entered into a swap agreement with a notional amount of $
17
In March 2020, we entered into
In March 2021, we entered into a new forward interest rate swap agreement for a notional amount of $
At September 30, 2021, we had fixed rate long-term debt aggregating $
The fair values of outstanding derivative instruments are as follows (in thousands):
|
|
Fair Value of Derivatives |
|
|
|
|||||
|
|
September 30, |
|
|
December 31, |
|
|
Balance Sheet |
||
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
||
|
$ |
|
|
$ |
( |
) |
|
Other long-term (liabilities) |
||
|
|
|
|
|
( |
) |
|
Other long-term (liabilities) |
||
|
|
( |
) |
|
|
|
|
Other long-term (liabilities) |
||
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
The fair value of all outstanding derivatives was determined using a model with inputs that are observable in the market or can be derived from or corroborated by observable data (Level 2).
The effect of the interest rate swaps on the consolidated statement of operations is as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
Income Statement |
||||
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
5 year interest rate swap |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
Increase (decrease) to interest expense |
|||
10 year interest rate swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) to interest expense |
||||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|||
18
17. FINANCIAL INSTRUMENTS
The Company's only financial assets and liabilities which are measured at fair value on a recurring basis relate to certain aspects of the Company's benefit plans and our derivative instruments. We use the market approach to determine the fair value of these assets and liabilities using significant other observable inputs (Level 2) with the assistance of a third-party specialist. We do not have any assets or liabilities measured at fair value on a recurring basis using quoted prices in an active market (Level 1) or significant unobservable inputs (Level 3). Gains and losses related to the fair value changes in the deferred compensation assets and liabilities are recorded in general and administrative expense in the consolidated statements of operations. Gains and losses related to the fair value of the interest rate and forward interest rate swaps are recorded in other comprehensive income.
The following table summarizes the fair value balances (in thousands):
|
|
|
|
|
Fair Value Measurement at |
|
||||||||||
|
|
|
|
|
September 30, 2021 |
|
||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Company owned life insurance policies (1) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
Fair Value Measurement at |
|
||||||||||
|
|
|
|
|
December 31, 2020 |
|
||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Company owned life insurance policies (1) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
18. DISCONTINUED OPERATIONS
In a continuing effort to streamline our business and align our business strategy for further integration of services and products, the Company committed to divest the business of our full range of permanent downhole monitoring systems and related services, which had been part of our Production Enhancement segment.
In 2019, we entered into a definitive purchase agreement to sell this business unit for cash consideration, subject to adjustments for working capital purposes. The purchase agreement also provided for additional proceeds based on the results of operations of the sold business in 2019 and 2020. We completed the divestment of this business in 2019 and we concluded final adjustments to the purchase price in 2020. We determined there were
Any associated results of operations are separately reported as discontinued operations for all periods presented on the consolidated statements of operations.
19
There are
19. SEGMENT REPORTING
We operate our business in
We use the same accounting policies to prepare our segment results as are used to prepare our consolidated financial statements. All interest and other non-operating income (expense) is attributable to Corporate & Other and is not allocated to specific segments. Summarized financial information concerning our segments is shown in the following table (in thousands):
|
|
Reservoir |
|
|
Production |
|
|
Corporate & |
|
|
Consolidated |
|
||||
Three months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from unaffiliated clients |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Inter-segment revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Segment operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total assets (at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Three months ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from unaffiliated clients |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Inter-segment revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Segment operating income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total assets (at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from unaffiliated clients |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Inter-segment revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Segment operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets (at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine months ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from unaffiliated clients |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Inter-segment revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Segment operating income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total assets (at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1)
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories N.V. and its subsidiaries as of September 30, 2021 and should be read in conjunction with (i) the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Annual Report").
General
Core Laboratories N.V. is a limited liability company incorporated and domiciled in the Netherlands. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description and production enhancement services and products to the oil and gas industry. These services and products can enable our clients to improve reservoir performance and increase oil and gas recovery from their producing fields. Core Laboratories N.V. has over 70 offices in more than 50 countries and employs approximately 3,700 people worldwide.
References to "Core Lab", “Core Laboratories”, the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report and relate collectively to Core Laboratories N.V. and its consolidated affiliates.
We operate our business in two reportable segments: Reservoir Description and Production Enhancement. 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.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section, including those under the headings "Outlook" and "Liquidity and Capital Resources", and in other parts of this Quarterly Report, are forward-looking. In addition, from time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. Forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "continue", or other similar words, including statements as to the intent, belief, or current expectations of our directors, officers, and management with respect to our future operations, performance, or positions or which contain other forward-looking information. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, no assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While we believe that these statements are and will be accurate, our actual results and experience may differ materially from the anticipated results or other expectations expressed in our statements due to a variety of risks and uncertainties.
21
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see "Item 1A - Risk Factors" in our 2020 Annual Report and other reports filed by us with the Securities and Exchange Commission ("SEC").
Outlook
The events associated with the COVID-19 pandemic and global government mandated shut-downs, home sheltering and social distancing policies caused a significant decline in the demand for crude oil and associated products during 2020 which has continued in 2021. U.S. land drilling and completion activities have experienced the most significant impact, as the rig count and completion of wells declined significantly during 2020. U.S. land drilling and completion activities began to improve in the fourth quarter of 2020 and continued to show improvement during 2021, however are still well below pre-pandemic levels. International activity contracted during 2020 and continues to be adversely impacted by increasing infection rates associated with new variant strains of the COVID-19 virus in 2021, which has led to business disruptions caused by government mandated shut-downs, travel restrictions, quarantines protocols and site closures in various international regions.
Crude-oil commodity prices have continued to rise during 2021, as growth in production has not kept pace with the resurgence in demand for energy produced from oil and gas. The activities associated with the production of oil and gas are expected to remain at similar levels for the remainder of 2021. As a result, it is anticipated that crude-oil commodity prices for the near-term will remain supported by increasing demand with only moderate growth in production activities. If crude-oil commodity prices remain at current levels or increase, our clients' activities associated with the energy markets are also expected to increase in 2022 depending on global recovery from the COVID-19 pandemic.
Core Laboratories has continued to operate as an essential business with timely delivery of products and services to our clients during the COVID-19 pandemic. The disruptions described above have primarily been associated with operational workflows stemming from travel, product delivery, as well as suspensions and delays in client projects. The global supply chain challenges have resulted in certain disruptions to our workflow, however, there has been no significant impact to our operations, and currently we do not anticipate significant disruption in our supply chain for the remainder of 2021. We have also implemented a continuity plan across our global organization to protect the health of employees while servicing our clients. In addition, results during 2021 were impacted by costs associated with disruptions and damage to facilities caused by the North American mid-continent winter storm event in February 2021, and major named storms in the Gulf of Mexico in August and September 2021, which affected operations in the region.
Our major clients continue to focus on capital management, return on invested capital, free cash flow, and returning capital to their shareholders, as opposed to a focus on production growth. The companies adopting value versus volume metrics tend to be the more technologically sophisticated operators and form the foundation of Core Lab’s worldwide client base. Additionally, some of our major clients have begun investing and developing other sources of energy, including renewables, and focusing on emission reduction initiatives. Some of these initiatives include deployment of technologies associated with hydrogen or lithium-based batteries, and carbon capturing and sequestration. Considering a longer-term strategy, we expect to be well positioned as our clients continue their focus on employing higher technological solutions in their efforts to optimize production and estimated ultimate recovery in the most cost efficient and environmentally responsible manner.
We believe oil and gas operators will continue to manage their capital spending within free cash flow and maintain their focus on improving and maintaining a stronger balance sheet, which could constrain future growth in activities associated with the production of oil and gas.
Core Laboratories expects that 2021 operating budgets of oil and gas operators will continue to be adversely impacted by the COVID-19 pandemic and limiting activities focused on international field development. However, more recently, there has been moderate improvement in international activity levels, as the average international rig count for the three months ended September 30, 2021, was up sequentially and year-over-year by approximately 14% and 19%, respectively. We continue to work with clients and discuss the progression of longer-term international projects. Additionally, the reservoir fluids analysis
22
performed on projects associated with current producing fields continues to be critical and has been less affected by lower commodity prices for crude oil.
As part of our long-term growth strategy, we continue to expand our market presence by opening or expanding facilities in strategic areas and realizing synergies within our business lines consistent with client demand and market conditions. More recently, we have expanded our laboratory capabilities in Qatar, Saudi Arabia and Brazil. We believe our market presence in strategic areas provides us a unique opportunity to serve our clients who have global operations, whether they are international oil companies, national oil companies, or independent oil companies.
In response to market conditions, Core Lab’s Board of Supervisory Directors (the “Supervisory Board”) approved a plan to reduce the Company’s future quarterly dividends to $0.01 per share beginning with the second quarter of 2020 and to focus excess free cash flow towards the reduction of debt. In 2020, the Company enacted cost control plans, which included: (i) corporate and operating cost reductions; (ii) annual capital expenditures reduced to $11.9 million for 2020 and anticipated to be similar to slightly higher level for 2021, and (iii) eliminating all non-essential costs. These initiatives continued in 2021. Following increased activity levels during the second and third quarters of 2021, the Company is progressively reinstating certain employee costs into the Company's cost structure, which will increase overall compensation cost for the remainder of 2021.
Core Lab believes these immediate actions, as well as continued assessment of market conditions, will allow Core Lab, as it has for over 85 years, to navigate through these challenging times. Core Lab remains focused on preserving the quality of service for its clients and producing returns for its shareholders.
23
Results of Operations
Our results of operations as a percentage of applicable revenue are as follows (in thousands):
|
|
Three Months Ended September 30, |
|
Change |
||||||||||||||
|
|
2021 |
|
2020 |
|
$ |
|
|
% |
|||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Services |
|
$ |
84,820 |
|
|
72% |
|
$ |
86,250 |
|
|
82% |
|
$ |
(1,430 |
) |
|
(2)% |
Product sales |
|
|
33,165 |
|
|
28% |
|
|
19,132 |
|
|
18% |
|
|
14,033 |
|
|
73% |
Total revenue |
|
|
117,985 |
|
|
100% |
|
|
105,382 |
|
|
100% |
|
|
12,603 |
|
|
12% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cost of services, exclusive of depreciation expense shown below* |
|
|
67,086 |
|
|
79% |
|
|
63,802 |
|
|
74% |
|
|
3,284 |
|
|
5% |
Cost of product sales, exclusive of depreciation expense shown below* |
|
|
25,832 |
|
|
78% |
|
|
17,236 |
|
|
90% |
|
|
8,596 |
|
|
50% |
Total cost of services and product sales |
|
|
92,918 |
|
|
79% |
|
|
81,038 |
|
|
77% |
|
|
11,880 |
|
|
15% |
General and administrative expense, exclusive of depreciation expense shown below |
|
|
15,115 |
|
|
13% |
|
|
8,937 |
|
|
8% |
|
|
6,178 |
|
|
69% |
Depreciation and amortization |
|
|
4,496 |
|
|
4% |
|
|
5,164 |
|
|
5% |
|
|
(668 |
) |
|
(13)% |
Other (income) expense, net |
|
|
(1,184 |
) |
|
(1)% |
|
|
(1,088 |
) |
|
(1)% |
|
|
(96 |
) |
|
9% |
Operating income (loss) |
|
|
6,640 |
|
|
6% |
|
|
11,331 |
|
|
11% |
|
|
(4,691 |
) |
|
(41)% |
Interest expense |
|
|
2,669 |
|
|
2% |
|
|
4,672 |
|
|
4% |
|
|
(2,003 |
) |
|
(43)% |
Income (loss) from continuing operations before income taxes |
|
|
3,971 |
|
|
3% |
|
|
6,659 |
|
|
6% |
|
|
(2,688 |
) |
|
(40)% |
Income tax expense (benefit) |
|
|
2,962 |
|
|
3% |
|
|
3,663 |
|
|
3% |
|
|
(701 |
) |
|
(19)% |
Income (loss) from continuing operations |
|
|
1,009 |
|
|
1% |
|
|
2,996 |
|
|
3% |
|
|
(1,987 |
) |
|
(66)% |
Income (loss) from discontinued operations, net of income taxes |
|
|
— |
|
|
—% |
|
|
— |
|
|
—% |
|
|
— |
|
|
NM |
Net income (loss) |
|
|
1,009 |
|
|
1% |
|
|
2,996 |
|
|
3% |
|
|
(1,987 |
) |
|
(66)% |
Net income (loss) attributable to non-controlling interest |
|
|
135 |
|
|
—% |
|
|
33 |
|
|
—% |
|
|
102 |
|
|
NM |
Net income (loss) attributable to Core Laboratories N.V. |
|
$ |
874 |
|
|
1% |
|
$ |
2,963 |
|
|
3% |
|
$ |
(2,089 |
) |
|
(71)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Current ratio (1) |
|
2.21:1 |
|
|
|
|
0.99:1 |
|
|
|
|
|
|
|
|
|||
Debt to EBITDA ratio (2) |
|
2.33:1 |
|
|
|
|
3.09:1 |
|
|
|
|
|
|
|
|
|||
Debt to Adjusted EBITDA ratio (3) |
|
2.10:1 |
|
|
|
|
2.49:1 |
|
|
|
|
|
|
|
|
|||
"NM" means not meaningful
*Percentage based on applicable revenue rather than total revenue
24
|
|
Three Months Ended |
|
Change |
||||||||||||||
|
|
September 30, 2021 |
|
June 30, 2021 |
|
$ |
|
|
% |
|||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Services |
|
$ |
84,820 |
|
|
72% |
|
$ |
86,263 |
|
|
73% |
|
$ |
(1,443 |
) |
|
(2)% |
Product sales |
|
|
33,165 |
|
|
28% |
|
|
32,482 |
|
|
27% |
|
|
683 |
|
|
2% |
Total revenue |
|
|
117,985 |
|
|
100% |
|
|
118,745 |
|
|
100% |
|
|
(760 |
) |
|
(1)% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cost of services, exclusive of depreciation expense shown below* |
|
|
67,086 |
|
|
79% |
|
|
67,098 |
|
|
78% |
|
|
(12 |
) |
|
(0)% |
Cost of product sales, exclusive of depreciation expense shown below* |
|
|
25,832 |
|
|
78% |
|
|
26,743 |
|
|
82% |
|
|
(911 |
) |
|
(3)% |
Total cost of services and product sales |
|
|
92,918 |
|
|
79% |
|
|
93,841 |
|
|
79% |
|
|
(923 |
) |
|
(1)% |
General and administrative expense, exclusive of depreciation expense shown below |
|
|
15,115 |
|
|
13% |
|
|
9,670 |
|
|
8% |
|
|
5,445 |
|
|
56% |
Depreciation and amortization |
|
|
4,496 |
|
|
4% |
|
|
4,751 |
|
|
4% |
|
|
(255 |
) |
|
(5)% |
Other (income) expense, net |
|
|
(1,184 |
) |
|
(1)% |
|
|
(2,317 |
) |
|
(2)% |
|
|
1,133 |
|
|
(49)% |
Operating income (loss) |
|
|
6,640 |
|
|
6% |
|
|
12,800 |
|
|
11% |
|
|
(6,160 |
) |
|
(48)% |
Interest expense |
|
|
2,669 |
|
|
2% |
|
|
2,530 |
|
|
2% |
|
|
139 |
|
|
5% |
Income (loss) from continuing operations before income taxes |
|
|
3,971 |
|
|
3% |
|
|
10,270 |
|
|
9% |
|
|
(6,299 |
) |
|
(61)% |
Income tax expense (benefit) |
|
|
2,962 |
|
|
3% |
|
|
2,053 |
|
|
2% |
|
|
909 |
|
|
44% |
Income (loss) from continuing operations |
|
|
1,009 |
|
|
1% |
|
|
8,217 |
|
|
7% |
|
|
(7,208 |
) |
|
(88)% |
Income (loss) from discontinued operations, net of income taxes |
|
|
— |
|
|
—% |
|
|
— |
|
|
—% |
|
|
— |
|
|
NM |
Net income (loss) |
|
|
1,009 |
|
|
1% |
|
|
8,217 |
|
|
7% |
|
|
(7,208 |
) |
|
(88)% |
Net income (loss) attributable to non-controlling interest |
|
|
135 |
|
|
—% |
|
|
157 |
|
|
—% |
|
|
(22 |
) |
|
NM |
Net income (loss) attributable to Core Laboratories N.V. |
|
$ |
874 |
|
|
1% |
|
$ |
8,060 |
|
|
7% |
|
$ |
(7,186 |
) |
|
(89)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Current ratio (1) |
|
2.21:1 |
|
|
|
|
2.21:1 |
|
|
|
|
|
|
|
|
|||
Debt to EBITDA ratio (2) |
|
2.33:1 |
|
|
|
|
2.24:1 |
|
|
|
|
|
|
|
|
|||
Debt to Adjusted EBITDA ratio (3) |
|
2.10:1 |
|
|
|
|
2.18:1 |
|
|
|
|
|
|
|
|
|||
"NM" means not meaningful
*Percentage based on applicable revenue rather than total revenue
25
|
|
Nine Months Ended September 30, |
|
Change |
||||||||||||||
|
|
2021 |
|
2020 |
|
$ |
|
|
% |
|||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Services |
|
$ |
255,065 |
|
|
74% |
|
$ |
287,226 |
|
|
77% |
|
$ |
(32,161 |
) |
|
(11)% |
Product sales |
|
|
90,048 |
|
|
26% |
|
|
86,292 |
|
|
23% |
|
|
3,756 |
|
|
4% |
Total revenue |
|
|
345,113 |
|
|
100% |
|
|
373,518 |
|
|
100% |
|
|
(28,405 |
) |
|
(8)% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cost of services, exclusive of depreciation expense shown below* |
|
|
197,717 |
|
|
78% |
|
|
211,797 |
|
|
74% |
|
|
(14,080 |
) |
|
(7)% |
Cost of product sales, exclusive of depreciation expense and inventory write-down shown below* |
|
|
73,192 |
|
|
81% |
|
|
75,052 |
|
|
87% |
|
|
(1,860 |
) |
|
(2)% |
Total cost of services and product sales |
|
|
270,909 |
|
|
78% |
|
|
286,849 |
|
|
77% |
|
|
(15,940 |
) |
|
(6)% |
General and administrative expense, exclusive of depreciation expense shown below |
|
|
33,246 |
|
|
10% |
|
|
37,725 |
|
|
10% |
|
|
(4,479 |
) |
|
(12)% |
Depreciation and amortization |
|
|
14,118 |
|
|
4% |
|
|
16,030 |
|
|
4% |
|
|
(1,912 |
) |
|
(12)% |
Impairments and other charges |
|
|
— |
|
|
—% |
|
|
122,204 |
|
|
33% |
|
|
(122,204 |
) |
|
NM |
Inventory write-down |
|
|
— |
|
|
—% |
|
|
9,932 |
|
|
3% |
|
|
(9,932 |
) |
|
NM |
Other (income) expense, net |
|
|
(4,222 |
) |
|
(1)% |
|
|
987 |
|
|
—% |
|
|
(5,209 |
) |
|
NM |
Operating income (loss) |
|
|
31,062 |
|
|
9% |
|
|
(100,209 |
) |
|
(27)% |
|
|
131,271 |
|
|
NM |
Interest expense |
|
|
6,562 |
|
|
2% |
|
|
11,452 |
|
|
3% |
|
|
(4,890 |
) |
|
(43)% |
Income (loss) from continuing operations before income taxes |
|
|
24,500 |
|
|
7% |
|
|
(111,661 |
) |
|
(30)% |
|
|
136,161 |
|
|
NM |
Income tax expense (benefit) |
|
|
7,068 |
|
|
2% |
|
|
(644 |
) |
|
—% |
|
|
7,712 |
|
|
NM |
Income (loss) from continuing operations |
|
|
17,432 |
|
|
5% |
|
|
(111,017 |
) |
|
(30)% |
|
|
128,449 |
|
|
NM |
Income (loss) from discontinued operations, net of income taxes |
|
|
— |
|
|
—% |
|
|
— |
|
|
—% |
|
|
— |
|
|
NM |
Net income (loss) |
|
|
17,432 |
|
|
5% |
|
|
(111,017 |
) |
|
(30)% |
|
|
128,449 |
|
|
NM |
Net income (loss) attributable to non-controlling interest |
|
|
393 |
|
|
—% |
|
|
157 |
|
|
—% |
|
|
236 |
|
|
NM |
Net income (loss) attributable to Core Laboratories N.V. |
|
$ |
17,039 |
|
|
5% |
|
$ |
(111,174 |
) |
|
(30)% |
|
$ |
128,213 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Current ratio (1) |
|
2.21:1 |
|
|
|
|
0.99:1 |
|
|
|
|
|
|
|
|
|||
Debt to EBITDA ratio (2) |
|
2.33:1 |
|
|
|
|
3.09:1 |
|
|
|
|
|
|
|
|
|||
Debt to Adjusted EBITDA ratio (3) |
|
2.10:1 |
|
|
|
|
2.49:1 |
|
|
|
|
|
|
|
|
|||
"NM" means not meaningful
*Percentage based on applicable revenue rather than total revenue
Operating Results for the Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020 and June 30, 2021 and for the Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020
Services Revenue
Services revenue is primarily tied to activities associated with the exploration and production of oil, gas and derived products outside the U.S. For the three months ended September 30, 2021, services revenue of $84.8 million decreased 2% year-over-year and sequentially. Year-over-year, lower activity levels have impacted services revenue primarily in the U.S., while international markets remained relatively flat. Sequentially, activity levels in the U.S. were relatively flat, however, declined
26
slightly in the international markets, as business interruptions and delays caused by the COVID-19 pandemic and associated government mandated shut-downs and travel restrictions continued during the quarter.
For the nine months ended September 30, 2021, service revenue of $255.1 million decreased 11% compared to the same period in the prior year. The negative impact on the industry caused by the COVID-19 pandemic began in March of 2020, and continued in 2021. Activity levels outside the U.S. continue to remain lower in 2021, and continue to experience workflow disruptions and delays caused by the factors described above.
We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Eagle Ford, the Permian Basin and the Gulf of Mexico, along with Guyana, Suriname, Malaysia and other international locations such as offshore South America, Australia, and the Middle East, including Kuwait and the United Arab Emirates. Analysis of crude oil derived products also occurs in every major producing region of the world.
Product Sales Revenue
For the three months ended September 30, 2021, product sales revenue of $33.2 million increased 73% year-over-year and 2% sequentially. Rig count is one indicator of activity levels associated with the exploration and production of oil and gas. The average rig count for U.S. land increased year-over-year and sequentially by approximately 101% and 11%, respectively. Activity levels in the U.S. land market and sales of our manufactured laboratory equipment continued to strengthen during the third quarter of 2021, although these increases were partially offset by certain large product sales orders to international markets in the prior quarter that did not reoccur, during the three months ended September 30, 2021.
For the nine months ended September 30, 2021, product sales revenue of $90.0 million increased 4% compared to the same period in the prior year. The increase in activity levels is primarily due to the activity levels in the U.S. land market which continued to strengthen in 2021.
Cost of Services, excluding depreciation
Cost of services was $67.1 million for the three months ended September 30, 2021 increased 5% year-over-year and remained flat sequentially. Cost of services expressed as a percentage of services revenue increased to 79% for the three months ended September 30, 2021, compared to 74% for the same period in the prior year, and 78% for the prior quarter. The year-over-year and sequential increases in cost of services as a percentage of service revenue for the three months ended September 30, 2021 were associated with the restoration of certain cost reduction initiatives that began in the later part of the second quarter of 2021.
Cost of services decreased to $197.7 million or 7% for the nine months ended September 30, 2021 compared to the same period in the prior year. Cost of services expressed as a percentage of services revenue increased to 78% for the nine months ended September 30, 2021 compared to 74% for the same period in the prior year. Higher cost of services as a percentage of services revenue during the nine months ended September 30, 2021 was primarily due to lower activity levels and the restoration of costs as described above.
Cost of Product Sales, excluding depreciation
Cost of product sales of $25.8 million for the three months ended September 30, 2021 increased 50% year-over-year and decreased 3% sequentially. Cost of product sales expressed as a percentage of product sales revenue was 78% for the three months ended September 30, 2021, compared to 90% for the same period in the prior year, and 82% for the prior quarter. Lower cost of sales as a percentage of product sales revenue was primarily due to improved manufacturing productivity and absorption of fixed costs on a higher revenue base.
Cost of product sales of $73.2 million for the nine months ended September 30, 2021 decreased 2% compared to the same quarter in the prior year. Cost of product sales expressed as a percentage of product sales revenue was 81% for the nine months ended September 30, 2021, compared to 87% for the same period in the prior year. Lower cost of product sales as a percentage
27
of product sales revenue was primarily due to the continued increase in activity levels, and improved absorption of our fixed costs structure as described above.
General and Administrative Expense, excluding depreciation
General and administrative ("G&A") expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three months ended September 30, 2021 was $15.1 million increased 69% year-over-year and 56% sequentially. The variances are primarily due to changes in compensation expense during those periods, including additional stock compensation expense of $6.5 million recorded in the three months ended September 30, 2021, for retirement eligible employees. The G&A expense for the three months ended September 30, 2021, excluding the $6.5 million of additional stock compensation expense, was flat year-over-year and decreased 11% sequentially.
G&A expense of $33.2 million for the nine months ended September 30, 2021 decreased 12% from the same period in the prior year. The decrease was primarily due to changes in compensation expense during those periods, resulting from lower headcount and the benefit derived from cost reduction initiatives implemented from March 2020 through 2021, offset by acceleration of stock compensation expense of $7.3 million for the nine months ended September 30, 2021 compared to $6.8 million recorded for the same period in the prior year, for retirement eligible employees.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended September 30, 2021 was $4.5 million decreased 13% year-over-year and 5% sequentially. The decrease in depreciation and amortization expense was primarily due to lower capital expenditures in the last 18 months as a result of decreased activity levels associated with the COVID-19 pandemic.
Depreciation and amortization expense for the nine months ended September 30, 2021 was $14.1 million, a decrease of 12% from the same period in the prior year, due primarily to the factors as described above.
Impairments, inventory write-down and other charges
The events associated with the global spread of COVID-19, and the resulting sharp decrease in the price of crude oil, which caused a sharp decline in the consumption and demand for crude oil and refined petroleum products, led to a triggering event in March 2020. In response to the triggering event, the Company updated its analysis associated with future cash flows and the valuation of assets and potential impairment of goodwill and intangible assets. Our updated analysis resulted in the Company recording a charge of $114.0 million for impairment of goodwill and $8.2 million for impairments to intangible assets in March 2020 in our Production Enhancement segment. In June 2020, we recorded a charge of $9.9 million associated with inventory obsolescence and a valuation write-down related to our Production Enhancement segment.
During the three and nine months ended September 30, 2021, we determined there were no triggering events which require the Company to perform further impairment assessment for any of its reporting units or asset groups and therefore, there is no inventory write-down for the three or nine months ended September 30, 2021.
28
Other (Income) Expense, Net
The components of other (income) expense, net, are as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
(Gain) loss on sale of assets |
|
$ |
(231 |
) |
|
$ |
(206 |
) |
|
$ |
(350 |
) |
|
$ |
(556 |
) |
Results of non-consolidated subsidiaries |
|
|
(31 |
) |
|
|
33 |
|
|
|
(1 |
) |
|
|
(176 |
) |
Foreign exchange (gain) loss, net |
|
|
(140 |
) |
|
|
982 |
|
|
|
(196 |
) |
|
|
308 |
|
Rents and royalties |
|
|
(133 |
) |
|
|
(114 |
) |
|
|
(414 |
) |
|
|
(356 |
) |
Return on pension assets and other pension costs |
|
|
(77 |
) |
|
|
(161 |
) |
|
|
(232 |
) |
|
|
(468 |
) |
Gain on sale of business |
|
|
— |
|
|
|
— |
|
|
|
(1,012 |
) |
|
|
— |
|
Curtailment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,034 |
) |
Loss (recovery) on lease abandonment |
|
|
— |
|
|
|
(122 |
) |
|
|
— |
|
|
|
504 |
|
Cost reduction and other charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,943 |
|
Rebates and other credits |
|
|
— |
|
|
|
(763 |
) |
|
|
— |
|
|
|
(763 |
) |
Insurance settlement |
|
|
(550 |
) |
|
|
— |
|
|
|
(1,300 |
) |
|
|
— |
|
Other, net |
|
|
(22 |
) |
|
|
(737 |
) |
|
|
(717 |
) |
|
|
(415 |
) |
Total other (income) expense, net |
|
$ |
(1,184 |
) |
|
$ |
(1,088 |
) |
|
$ |
(4,222 |
) |
|
$ |
987 |
|
Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
British Pound |
|
$ |
(15 |
) |
|
$ |
361 |
|
|
$ |
(45 |
) |
|
$ |
373 |
|
Canadian Dollar |
|
|
48 |
|
|
|
106 |
|
|
|
13 |
|
|
|
410 |
|
Euro |
|
|
(146 |
) |
|
|
682 |
|
|
|
(337 |
) |
|
|
594 |
|
Russian Ruble |
|
|
(10 |
) |
|
|
(388 |
) |
|
|
31 |
|
|
|
(776 |
) |
Other currencies, net |
|
|
(17 |
) |
|
|
221 |
|
|
|
142 |
|
|
|
(293 |
) |
Foreign exchange (gain) loss, net |
|
$ |
(140 |
) |
|
$ |
982 |
|
|
$ |
(196 |
) |
|
$ |
308 |
|
Interest Expense
Interest expense for the three months ended September 30, 2021 was $2.7 million, a decrease of $2.0 million year-over-year primarily due to a reduction of our aggregated variable rate debt. Net proceeds received upon the issuance of new shares in March 2021 were used to reduce the outstanding borrowings on our Credit Facility. Additionally, $1.5 million of professional fees and expenses associated with the evaluation of various corporate debt and refinancing opportunities was recorded in interest expense in the same period in the prior year. Sequentially, interest expense increased primarily due to increased average interest rates associated with our variable rate debt.
Interest expense for the nine months ended September 30, 2021 was $6.6 million a decrease of $4.9 million from the same period in the prior year, primarily due to; reduced levels of long-term debt in 2021 as described above, the effect of settlement and restructuring of our interest rate swap agreements with net gain of $1.9 million in 2021, and the additional expenses recorded in 2020 as described in Note 16, Derivative Instruments and Hedging Activities
Income Tax Expense (Benefit)
The Company recorded an income tax expense of $3.0 million and $7.1 million for the three and nine months ended September 30, 2021, respectively, compared to an income tax expense of $3.7 million for the three months ended September 30, 2020, and income tax benefit of $0.6 million for the nine months ended September 30, 2020. The effective tax rate for the three and nine months ended September 30, 2021, was 74.6% and 28.8% respectively. The increase in the effective tax rate for
29
the three months ended September 30, 2021, was primarily due to a lower level of pre-tax book income impacted by items discrete to the quarter and non-deductible expenses.
The effective tax rate for the three and nine months ended September 30, 2020 was 55.0% and 0.6%, respectively, recorded on a loss from continuing operations before tax of $6.7 million and loss of $111.7 million during those periods. The tax benefit for the nine months ended September 30, 2020 was primarily impacted by an impairment of goodwill, intangible assets and other charges recorded during these periods which were largely not deductible for tax purposes. The tax benefit associated with the $122.2 million impairment charge was limited to $5.5 million.
Discontinued Operations
In a continuing effort to streamline our business and align our business strategy for further integration of services and products, the Company committed to divest the business of our full range of permanent downhole monitoring systems and related services, which had been part of our Production Enhancement segment. We completed the divestment in 2019 and concluded the final adjustments to the purchase agreement in 2020.
See Note 18, Discontinued Operations for additional information.
Segment Analysis
We operate our business in two reportable segments. These complementary segments provide different services and products and utilize different technologies improving reservoir performance and increasing the recovery of oil and gas from new and existing fields. The following tables summarize our results by segment (in thousands):
|
|
Three Months Ended September 30, |
|
|
2021/2020 |
|
Three Months Ended June 30, |
|
|
Q2 / Q1 |
||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
2021 |
|
|
$ Change |
|
|
% Change |
|||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Reservoir Description |
|
$ |
78,775 |
|
|
$ |
80,060 |
|
|
$ |
(1,285 |
) |
|
(2)% |
|
$ |
78,252 |
|
|
$ |
523 |
|
|
1% |
Production Enhancement |
|
|
39,210 |
|
|
|
25,322 |
|
|
|
13,888 |
|
|
55% |
|
|
40,493 |
|
|
|
(1,283 |
) |
|
(3)% |
Consolidated |
|
$ |
117,985 |
|
|
$ |
105,382 |
|
|
$ |
12,603 |
|
|
12% |
|
$ |
118,745 |
|
|
$ |
(760 |
) |
|
(1)% |
Operating income (loss): |
|
|
|
|
|
|
|
|||||||||||||||||