CORE LABORATORIES INC. Core Laboratories N.V. is aNetherlands limited liability company. We were established in 1936 and are 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, primarily through client relationships with many of the world's major, national and independent oil companies. We operate our business in two reporting segments. These complementary segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields:
• Reservoir Description: Encompasses the characterization of petroleum
reservoir rock and reservoir fluids samples to increase production and
improve recovery of crude oil and natural gas from our clients' reservoirs.
We provide laboratory-based analytical and field services to characterize
properties of crude oil and crude oil-derived products to the oil and gas
industry. We also provide proprietary and joint industry studies based on
these types of analyses and manufacture associated laboratory equipment.
• Production Enhancement: Includes services and manufactured products relating
to reservoir well completions, perforations, stimulation and production. We
provide integrated diagnostic services to evaluate and monitor the
effectiveness of well completions and to develop solutions aimed at
increasing the effectiveness of enhanced oil recovery projects.
General Overview
We provide services as well as design and produce products which enable our clients to evaluate and improve 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 appraising and developing 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 andU.S. rig counts for the years endedDecember 31, 2020 , 2019 and 2018, 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: 2020 2019 2018 Baker Hughes Worldwide Average Rig Count (1) 1,351 2,177 2,211 Baker Hughes U.S. Average Rig Count (1) 436 944 1,032 Baker Hughes Worldwide Year-End Rig Count (2) 1,095 2,043 2,244 Baker Hughes U.S. Year-End Rig Count (2) 339 804 1,078 Average Crude Oil Price per Barrel WTI (3) $ 39.17$ 56.98 $ 65.23 Average Crude Oil Price per Barrel Brent (4) $ 41.96$ 64.28 $ 71.34 Average Natural Gas Price per MMBtu (5) $ 2.02$ 2.56 $ 3.15 Year-end Crude Oil Price per Barrel WTI (3) $ 48.35$ 61.14 $ 45.15 Year-end Crude Oil Price per Barrel Brent (4) $ 51.22$ 67.77 $ 50.57 Year-end Natural Gas Price per MMBtu (5) $ 2.36$ 2.09 $ 3.25 (1) Twelve month average rig count as reported byBaker Hughes - Worldwide Rig Count. (2) Year-end rig count as reported byBaker Hughes - Worldwide Rig Count. (3) Average daily and year-end West Texas Intermediate crude spot price as reported by theU.S. Energy Information Administration ("EIA"). (4) Average daily and year-end Europe Brent crude spot price as reported by the EIA. (5) Average daily and year-endHenry Hub natural gas spot price as reported by the EIA. The prices for both WTI and Brent crude oil declined from 2018 to 2019 and decreased significantly at the end of the first quarter of 2020 and throughout the second quarter of 2020, due to the outbreak of COVID-19. The COVID-19 pandemic and associated government mandated shut-downs around the world, home sheltering and social distancing policies, have caused a significant decline in the demand for crude oil and associated products. Crude-oil prices improved during the second half of 2020, and became more stable during the fourth quarter of the year. The end result was the average price for crude oil in 2020 was approximately 33% lower than the average price for 2019. In general, activities associated with the exploration of oil and 19 -------------------------------------------------------------------------------- gas in theU.S. onshore market are more sensitive to changes in the crude-oil commodity prices, as opposed to larger international and offshore projects which take multiple years to plan and develop, and once announced and started, will continue through completion, despite changes in the current price of crude oil. Crude-oil prices in 2018 and 2019 remained at levels sufficient to support more stable levels inU.S. onshore activities associated with both the exploration and production of crude oil. Additionally, during the 2018 - 2019 time period, public announcements of investments in larger international and offshore projects increased and activity levels on these larger international and offshore projects began to improve in 2018 and continued to improve into 2019. However, in early 2020, the impact of COVID-19 to global economies caused a significant and sharp decline in demand for crude oil, which resulted in a significant and sharp decrease in the price of crude oil. Activity levels in theU.S. onshore market also responded immediately and decreased significantly to historically low levels, which bottomed in the summer of 2020, but showed some recovery in the second half of the year as global demand partially recovered, global production of crude oil was reduced and crude oil prices showed some recovery. Information published by the EIA, shows that the inventory of wells drilled but uncompleted (a "DUC" well) was 7,543 as ofDecember 31, 2018 , increasing to a peak inJuly 2019 at approximately 8,533, however, it subsequently declined to 7,782 and 7,592 at end of 2019 and 2020, respectively. This data indicates that during the period of higher activity in 2018, operators were drilling wells but not completing them as the DUC inventory grew. However, as activity levels began to fall in the second half of 2019, and a sharper decline in 2020, primarily due to the impact of COVID-19, the operators began to drill fewer new wells, but were completing some of the wells that had been previously drilled, which is reflected in the lower DUC inventory atDecember 2019 and 2020. InNorth America , the land-based rig count decreased over 11% from 2018 to 2019. There was subsequently a significant decline of 51% in 2020 due to the impact of COVID-19. Consequently, the magnitude of decline in demand for both services and product sales to this market responded in line with the changes over this time period. The increase in activities on development projects and producing fields in theU.S. unconventional reservoirs during 2018 showed a decline when the commodity price weakened and activity levels decreased in 2019. In theU.S. , the lower commodity prices led to a 54% decrease in the annual average land-based rig count and a decline inU.S. based activities in 2020.Outside of North America , activities associated with the exploration for and production of oil were showing modest improvement in 2018 and 2019 until the global pandemic emerged in early 2020. The decrease in global demand for crude oil caused by the global pandemic also had a significant impact on exploration and production activities in the international markets as the number of active rigs outsidethe United States decreased almost 39% during 2020. Long-term international and offshore projects which are commonly announced through Final Investment Decisions and subsequently initiated are not susceptible or at-risk to delay or suspension due to short-term volatility in crude-oil commodity price, however the extreme negative market conditions caused by the COVID-19 pandemic and efforts to reduce the spread of the virus have negatively impacted the entire energy market in 2020.
Results of Operations
Operating Results for the Year Ended
We evaluate our operating results by analyzing revenue, operating income and operating income margin (defined as operating income divided by total revenue). Since we have a relatively fixed cost structure, decreases in revenue generally translate into lower operating income results. Results for the years endedDecember 31, 2020 , 2019 and 2018 are summarized in the following chart: 20 --------------------------------------------------------------------------------
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-------------------------------------------------------------------------------- Results of operations as a percentage of applicable revenue for the years endedDecember 31, 2020 , 2019 and 2018 are as follows (in thousands, except for per share information): 2020 / 2019 2019 / 2018 Revenue: 2020 2019 2018 % Change Services$ 376,421 77.3 %$ 474,193 71.0 %$ 486,820 69.5 % (20.6 )% (2.6 )% Product Sales 110,846 22.7 % 194,017 29.0 % 214,026 30.5 % (42.9 )% (9.3 )% TOTAL REVENUE 487,267 100.0 % 668,210 100.0 % 700,846 100.0 % (27.1 )% (4.7 )% OPERATING EXPENSES: Cost of services* (1) 279,281 74.2 % 345,641 72.9 % 343,833 70.6 % (19.2 )% 0.5 %
Cost of product sales* (1) 95,486 86.1 % 149,938
77.3 % 153,131 71.5 % (36.3 )% (2.1 )% Total cost of services and product sales 374,767 76.9 % 495,579 74.2 % 496,964 70.9 % (24.4 )% (0.3 )% General and administrative expenses (1) 34,033 7.0 % 48,023 7.2 % 62,910 9.0 % (29.1 )% (23.7 )%
Depreciation and amortization 20,867 4.3 % 22,605
3.4 % 23,087 3.3 % (7.7 )% (2.1 )% Impairments and other charges 122,204 25.1 % - - - - NM NM Inventory write-down 10,375 2.1 % - - - - NM NM Other (income) expense, net 1,826 0.4 % 5,319
0.8 % (737 ) (0.1 )% NM NM OPERATING INCOME (LOSS) (76,805 ) (15.8 )% 96,684 14.5 % 118,622 16.9 % NM (18.5 )% Interest expense 14,372 2.9 % 14,690 2.2 % 13,328 1.9 % (2.2 )% 10.2 % Income (loss) before income tax (91,177 ) (18.7 )% 81,994 12.3 % 105,294 15.0 % NM (22.1 )%
Income tax expense (benefit) 5,896 1.2 % (12,290 )
(1.8 )% 25,447 3.6 % NM NM Income (loss) from continuing operations (97,073 ) (19.9 )% 94,284 14.1 % 79,847 11.4 % NM 18.1 % Income (loss) from discontinued operations (424 ) (0.1 )% 7,833 1.2 % (58 ) - NM NM Net income (loss) (97,497 ) (20.0 )% 102,117 15.3 % 79,789 11.4 % NM 28.0 % Net income (loss) attributable to non-controlling interest 140 - 134 - 263 - NM NM Net income (loss) attributable to
15.3 %$ 79,526 11.3 % NM 28.2 % Diluted earnings (loss) per share from continuing operations$ (2.18 ) $ 2.11 $ 1.80 NM 17.2 % Diluted earnings (loss) per share attributable to Core Laboratories N.V.$ (2.20 ) $ 2.28 $ 1.79 NM 27.4 % Diluted weighted average common shares outstanding 44,477 44,646 44,474
* Percentage based on applicable revenue rather than total revenue. "NM" means not meaningful. (1) Excludes depreciation.
Services Revenue Services revenue, which is primarily tied to activities associated with the exploration and production of oil and gas outside theU.S. , decreased to$376.4 million in 2020 from$474.2 million in 2019 and$486.8 million in 2018. In 2020, the adverse impact of the COVID-19 pandemic, and government mandated shut-down around the world, home sheltering and social distancing policies caused a sharp decline in the demand for crude-oil and associated products. The average crude-oil price in 2020 was 33% lower than the average price of 2019. This resulted in decreased and disrupted activity by our clients and disruptions to our revenue generating operational activities leading to a sharp decrease in service revenue in both theU.S. and international markets during most of 2020. Crude-oil prices weakened in 2019 with the average price of 10% lower than the average price in 2018. This resulted in decreased activity by our clients leading to lower service revenue in theNorth America onshore market during 2019 compared to 2018. However, improvement in the level of work performed for offshore and international exploration and production projects partially offset some of the decline in the U.S. market. 22 -------------------------------------------------------------------------------- We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Eagle Ford, thePermian Basin and theGulf of Mexico , along withGuyana ,Surinam ,Malaysia and other international locations such as offshoreSouth America ,Australia , and theMiddle East , includingKuwait ,Saudi Arabia ,Qatar , theUnited Arab Emirates and other countries. Analysis of crude oil and crude oil-derived products also occurs in every major producing region of the world.
Product Sales Revenue
Product sales revenue, which is primarily tied to the completion of onshore wells inNorth America , was$110.8 million in 2020, a decrease from$194.0 million and$214 million in 2019 and 2018, respectively. Rig count is one indicator of activity levels associated with the exploration and production of oil and gas. The rig count forNorth America significantly decreased in excess of 50% from 2019 to 2020 and decreased from 2018 to 2019 by 12%. Our products sales revenue decreased 43% from 2019 to 2020, and decreased 9% from 2018 to 2019, primarily due to our differentiated well completion products.
Cost of Services, excluding depreciation
Cost of services decreased to$279.3 million in 2020 compared to$345.6 million and$343.8 million in 2019 and 2018, respectively. As a percentage of services revenue, cost of services increased to 74% in 2020 from 73% and 71% in 2019 and 2018, respectively. The decrease in cost of services in 2020 from 2019 was primarily due to a significant decline in client activity levels and employee compensation and related charges associated with cost reduction initiatives implemented by the Company during the year. A slight increase in cost of services in 2019 from 2018, was primarily due to employee compensation and related charges. Cost of services expressed as a percentage of services revenue, is primarily reflective of how our cost structure is absorbed by revenue, and the timing of implementation of cost reduction initiatives executed by the Company in responding to the adverse changes in client activity levels.
Cost of Product Sales, excluding depreciation
Cost of product sales of$95.5 million in 2020 decreased from$150.0 million and$153.1 million in 2019 and 2018, respectively. Given product sales are primarily associated with our Production Enhancement segment and the North American market, cost of sales is impacted by decreased activities associated with clients operating in these segments and geographic markets. As a percentage of product sales revenue, cost of sales increased to 86% for 2020 from 77% and 72% for 2019 and 2018, respectively. Cost of product sales expressed as a percentage of product sales revenue is primarily reflective of how our fixed costs are absorbed by revenue. Due to the significant decrease in product sales revenue in 2020, fixed costs increased as a percentage of total cost of product sales and product sales revenue.
General and Administrative Expense, excluding depreciation
General and administrative ("G&A") expenses include corporate management and
centralized administrative services that benefit our operations. G&A expenses
were $34.0 million in 2020 compared to $48.0 million and $62.9 million during
2019 and 2018, respectively. The variances are primarily due to changes in
compensation expense during those periods, including accelerated stock
compensation expense of $6.7 million in 2020, $7.2 million in 2019 and $9.9
million in 2018 recorded for retirement eligible employees. During 2020, due to
the significant adverse impact caused by the COVID-19 pandemic, certain
performance metrics associated with long-term stock-based performance awards
were not achieved, resulting in potential employee stock awards above the target
level not vesting or being issued in 2020. However, the Company's Compensation
Committee approved a modification to the methodology of measuring performance
conditions associated with target level long-term employee stock-based
compensation awards, which vested at target levels on December 31, 2020 . As a
result of the stock-based awards not vesting above the target levels and
modifications to the performance measures, the value of the stock-based awards
that did vest on December 31, 2020 were revalued, and $11.9 million of
previously recognized stock compensation expense was reversed in 2020, out of
which $11.3 million was recorded in G&A expenses and $0.6 million recorded in
cost of sales. See Note 14 - Stock-Based Compensation of the Notes to the
Consolidated Financial Statements for further details.
Depreciation and Amortization Expense
Depreciation and amortization expense of$20.9 million in 2020 is down compared to$22.6 million and$23.1 million in 2019 and 2018, respectively, as a result of decreased capital expenditures.
Impairments, inventory write-down and other charges
During the year endedDecember 31, 2020 , the events associated with the COVID-19 pandemic and the resulting sharp decrease in the price of crude oil, which caused a sharp decrease in the consumption and demand for crude oil, led to a triggering event inMarch 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 23 --------------------------------------------------------------------------------
intangible assets in
There were no other triggering events during the year, and based on our annual
assessment for the year ended
Other (Income) Expense, net
The components of Other (income) expense, net were as follows (in thousands):
For the Years Ended December 31,
2020 2019 2018
Gain on sale of assets $ (1,254 ) $ (583 ) $ (1,078 )
Results of non-consolidated subsidiaries (125 ) (208 ) (203 )
Foreign exchange (gain) loss 1,160 1,725 2,598
Rents and royalties (466 ) (607 ) (510 )
Employment related charges - 2,998 -
Return on pension assets and other pension costs (1,502 ) (1,501 ) (644 )
Acquisition-related costs - - 623
Gain on sale of business - (1,154 ) -
Insurance settlement - - (707 )
Loss on lease abandonment 504 - -
Cost reduction and other charges 3,943 5,555 -
Other, net (434 ) (906 ) (816 )
Total Other (income) expense, net $ 1,826 $ 5,319 $ (737 )
Foreign exchange gains and losses are summarized in the following table (in
thousands):
For the Years Ended December 31,
2020 2019 2018
Australian Dollar $ 174 $ 158 $ 183
British Pound 653 599 158
Canadian Dollar 590 489 458
Euro 458 469 208
Other currencies, net (715 ) 10 1,591
Foreign exchange (gain) loss, net
Interest Expense Interest expense of$14.4 million in 2020 compared to$14.7 million and$13.3 million in 2019 and 2018, respectively. In 2020, the Company reduced outstanding debt under its Credit Facility by$46.0 million , however additional interest expense was incurred to modify the revolving credit agreement in 2020 which also includes higher interest rate spreads when compared to the previous terms under revolving credit agreement. The increase in interest expense in 2019 when compared to 2018 is primarily due to increased average borrowing under our Credit Facility in 2019 compared to 2018.
Income Tax Expense
Our effective tax rate was (6.5)%, (15.0)%, and 24.2% for 2020, 2019 and 2018, respectively. Income tax expense of$5.9 million in 2020 increased by$18.1 million compared to a$12.3 million benefit in 2019 primarily due to a large impairment charge of$122.2 million in the first quarter of 2020, of which a substantial portion was not deductible for tax purposes. A$5.5 million benefit was recognized associated with this impairment. In contrast, a benefit of$60.7 million was recognized in 2019 related to corporate restructuring which was partially offset by a charge of$26.7 million related to unremitted earnings of foreign subsidiaries that we no longer consider to be indefinitely reinvested.
See Note 10 - Income Taxes of the Notes to the Consolidated Financial Statements for further detail of income tax expense.
Discontinued Operations
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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 our full range of permanent downhole monitoring systems and related
services, which had been part of our Production Enhancement segment. We entered
into the definitive purchase agreement on June 7, 2019 for the divestiture of
this business, and during the year ended December 31, 2020 , we concluded final
adjustments to the purchase agreement of the sold business.
See Note 20 - Discontinued Operations of the Notes to the Consolidated Financial Statements for additional information.
Segment Analysis
The following charts and tables summarize the annual revenue and operating results for our two complementary business segments.
Segment Revenue
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Segment Revenue
For the Years Ended December 31,
(dollars in thousands) 2020 % Change 2019 % Change 2018
Reservoir Description $ 355,041 (15.6)% $ 420,897 1.9% $ 413,082
Production Enhancement 132,226 (46.5)% 247,313 (14.1)% 287,764
Total Revenue $ 487,267 (27.1)% $ 668,210 (4.7)% $ 700,846 Segment Operating Income (Loss)
For the Years Ended December 31,
(dollars in thousands) 2020 % Change 2019 % Change 2018
Reservoir Description $ 55,044 (0.2)% $ 55,140 0.5% $ 54,847
Production Enhancement (133,449) NM 38,378 (39.1)% 63,039
Corporate and other (1) 1,600 NM 3,166 NM 736
Operating Income (Loss) $ (76,805) NM $ 96,684 (18.5)% $ 118,622 (1) "Corporate and other" represents those items that are not directly relating to a particular segment. "NM" means not meaningful.
Segment Operating Income (Loss) Margins (1)
For the Years Ended December 31,
2020 2019 2018
Margin Margin Margin
Reservoir Description 15.5% 13.1% 13.3%
Production Enhancement (100.9)% 15.5% 21.9%
Total Company (15.8)% 14.5% 16.9%(1) Calculated by dividing "Operating Income (Loss)" by "Revenue".
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--------------------------------------------------------------------------------Reservoir Description Revenue for our Reservoir Description segment decreased to$355.0 million in 2020 compared to$420.9 million and$413.1 million in 2019 and 2018, respectively. Reservoir Description's operations are heavily exposed to international and offshore project activity levels, with approximately 80% of its revenue sourced outside theU.S. In 2019, our client's activity levels in the international markets had modestly increased when compared to 2018. However, in early 2020 when the COVID-19 pandemic began, global economies were locked down in an effort to reduce the spread of the virus and demand for crude oil decreased sharply. The sharp decrease in demand and challenges to remain operational during the global pandemic caused many adverse impacts to the energy industry, our clients and the Company. Revenue was also adversely impacted in 2020 due to the COVID-19 pandemic. We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Eagle Ford, thePermian Basin and theGulf of Mexico , along withGuyana , Suriname,Malaysia and other international locations such as offshoreSouth America ,Australia , and theMiddle East , includingKuwait ,Saudi Arabia ,Qatar , theUnited Arab Emirates and other countries. Analysis of crude oil and crude oil-derived products also occurs in every major producing region of the world. Operating income of$55.0 million remained relatively flat in 2020 compared to$55.1 million in 2019 and from$54.8 million in 2018. Although there was a significant decline in our client's activity levels and the Company's revenue in 2020 caused by the factors indicated above, operating income was less affected as the Company implemented significant cost reductions in 2020, and as a result of reversing previously recognized stock compensation expense for certain employees' PSAP awards of$7.6 million . See Note 14 - Stock-Based Compensation of the Notes to the Consolidated Financial Statements for further detail. The increased operating income in 2019 from 2018 was primarily due to improved activity levels associated with large projects in international markets. However, the improved operating income for 2019 was partially offset by additional expenses associated with employee severance and other cost reduction initiatives of$4.0 million . Included in both 2019 and 2018 are additional stock compensation expense of$4.7 million in 2019 for retirement eligible employees compared to$6.3 million in 2018. See Note 14 - Stock-Based Compensation of the Notes to the Consolidated Financial Statements for further detail. Operating margins improved to 15.5% in 2020 compared to 13.1% and 13.3% in 2019 and 2018, respectively. Operating margins in 2020 improved due to a significant decrease in costs of services as a result of cost reduction initiatives implemented and the reduction of stock-based compensation expense described above.
Production Enhancement
Revenue for our Production Enhancement segment of$132.2 million in 2020 decreased compared to$247.3 million and$287.8 million in 2019 and 2018, respectively. In 2020, a sharp decrease of drilling and well completion activities in theU.S. onshore market was primarily due to impact of the global pandemic as described above. TheU.S. rig count decreased in excess of 50% during 2020 as compared to 2019 and decreased 12% in 2019 when compared to 2018. Our clients continue to seek technological solutions for increasing daily production and estimated ultimate recoveries from their reservoirs and we continue to benefit from our clients' acceptance of new services and products which were led by the HERO® PerFRAC, GoGunTM, FLOWPROFILER EDSTM and ReFRAC technologies. Our Production Enhancement segment had operating loss of$133.4 million in 2020 compared to operating income of$38.4 million and$63.0 million in 2019 and 2018, respectively. The operating loss in 2020 was primarily the result of non-cash charges of$122.2 million for impairment of goodwill and certain intangible assets, a charge in excess of$10.0 million for inventory valuation write-down and obsolescence, and severance expense of$2.6 million recorded during the year. This operating loss was partially offset by the benefit of cost reduction initiatives implemented during 2020 and reversal of previously recognized stock compensation expense associated with certain employees' long term stock-based performance awards of$3.6 million . See Note 14 - Stock-Based Compensation of the Notes to the Consolidated Financial Statements. The decrease in operating income from 2018 to 2019, is primarily due to a decrease in exploration and production activity in theU.S. onshore market over this time period. Operating margin was negative 101% in 2020, which was the result of a significant decrease in revenue combined with the goodwill impairment, asset impairments and inventory charges recorded as described above. Operating margin for 2020 were breakeven, when excluding the non-cash charges associated with the goodwill impairment, asset impairment and inventory write down. Operating margins in 2019 and 2018 were 15.5% and 21.9%, respectively, and decreased primarily due to lower revenue in 2019.
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 provide the primary source of funds
to finance operating needs, capital expenditures and our dividend and share
repurchase programs. We believe our future cash flows from
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operations, supplemented by our borrowing capacity under our Credit Facility and
the ability to issue additional equity and debt, should be sufficient to fund
our debt requirements, capital expenditures, working capital, dividend payments
and future acquisitions. The Company will continue to monitor and evaluate the
availability of debt and equity markets.
In response to market conditions, Core Lab's Supervisory Board approved a plan
to reduce the Company's quarterly dividends to $0.01 per share beginning with
the second quarter of 2020 and to focus excess free cash flow on debt reduction.
In March 2020 , the Company implemented cost reduction initiatives and expanded
these initiatives in June 2020 , which included: (i) corporate and operating cost
reductions; (ii) annual capital expenditures reduced to approximately $12
million , and (iii) eliminating all non-essential costs. The corporate and
operating cost reductions included reductions in workforce and reduction of
senior executive and employee compensation. Specifically, the Company has
reduced senior executives' annual base salary by 20% for the foreseeable future.
On June 22, 2020 , also in response to market conditions, we entered into
Amendment No. 1 (the "Amendment") to the Credit Facility. The Amendment
provides, among other things, an increase to the maximum leverage ratio
permitted under the Credit Facility for certain periods. See Note 9 - Long-Term
Debt, Net of the Notes to the Consolidated Financial Statements for additional
information. Additionally, on October 16, 2020 , the Company entered into an
agreement (the "2020 Notes Purchase Agreement") to issue $60 million in notes
(the "2020 Senior Notes") in a private placement, which were issued and funded
at the closing on January 12, 2021 . The Company used the net proceeds from the
2020 Senior Notes to reduce outstanding debt under the Company's Credit
Facility, which increased the available borrowing capacity and liquidity for
Core Lab . We intend to maintain sufficient borrowing capacity under the Credit
Facility to both retire the maturing debt obligations in September 2021 , and
provide additional liquidity, should the company require it for other purposes.
See Note 9 - Long-Term Debt, Net of the Notes to the Consolidated Financial
Statements for additional information.
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 and on the terms and conditions of our existing and future
credit arrangements. 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, 2020 , $8.8 million of our $13.8 million of cash was
held by our foreign subsidiaries, including the U.S.
Our financial statements are prepared in conformity with generally accepted
accounting principles in the U.S. ("U.S. GAAP" or "GAAP"). We utilize the
non-GAAP financial measure of free cash flow to evaluate our cash flows and
results of operations. Free cash flow is defined as net cash provided by
operating activities (which is the most directly comparable GAAP measure) less
cash paid for capital expenditures. Management believes that free cash flow
provides useful information to investors regarding the cash that was available
in the period that was in excess of our needs to fund our capital expenditures
and operating activities. Free cash flow is not a measure of operating
performance under GAAP, and should not be considered in isolation nor construed
as an alternative to operating profit, net income (loss) or cash flows from
operating, investing or financing activities, each as determined in accordance
with GAAP. Free cash flow does not represent residual cash available for
distribution because we may have other non-discretionary expenditures that are
not deducted from the measure. Moreover, since free cash flow is not a measure
determined in accordance with GAAP and thus is susceptible to varying
interpretations and calculations, free cash flow, as presented, may not be
comparable to similarly titled measures presented by other companies. The
following table reconciles this non-GAAP financial measure to the most directly
comparable measure calculated and presented in accordance with U.S. GAAP (in
thousands):
For the Years Ended December 31,
Free Cash Flow Calculation 2020 2019 2018
Net cash provided by operating activities
(21,741 ) Free cash flow$ 45,988 $ 67,258 $ 90,086 The decrease in free cash flow in 2020 compared to 2019 was primarily attributable to a decrease in activity levels and cash generated from operations, and cash payments for employee post-retirement benefits funded by previously purchased company-owned life insurance policies, offset by a decrease in working capital and capital spending. The decrease in free cash flow in 2019 compared to 2018 was also due to lower operational activity levels in 2019, but also an increase in working capital and a slight increase in capital expenditures in 2019. 27 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes cash flows (in thousands):
For the Years Ended December 31,
2020 2019 2018
Cash provided by/(used in):
Operating activities $ 57,868 $ 89,527 $ 111,827
Investing activities 7,851 (5,677 ) (70,639 )
Financing activities (63,005 ) (85,874 ) (42,472 )
Net change in cash and cash equivalents $ 2,714 $ (2,024 ) $ (1,284 )
The decreases in cash provided by operating activities in 2020 compared to 2019
was primarily due to significant decreases in activity levels and operating
income due to the impact of the COVID-19 and cash payments for employee
post-retirement benefits funded by previously purchased company-owned life
insurance policies, partially offset by benefits from cost reduction initiatives
implemented in 2020 and a decrease in working capital. The decrease in cash
provided by operating activities in 2019 compared to 2018 was primarily due to
decreased operating income as the activity levels for the U.S. onshore oil and
gas market declined.
Cash provided by investing activities was $7.9 million in 2020 compared to cash
used in investing activities of $5.7 million in 2019. The increase in cash flows
from investing activities in 2020 was primarily due to lower capital
expenditures in 2020 of $11.9 million , a decrease of $10.4 million when compared
to 2019 capital expenditures, and cash received from company-owned life
insurance policies of $20.4 million in 2020, compared to proceeds from the
divesture of two businesses totaling $17.8 million in 2019. Cash used in
investing activities in 2019 decreased $65.0 million compared to 2018, as 2018
included an acquisition, net of cash, for $47.3 million , and 2019 includes
proceeds from the divestiture of two businesses as indicated above.
Cash used in financing activities in 2020 decreased $22.9 million compared to
2019. In 2020, dividends paid were reduced by $85.1 million , of which $46
million were used to repay of debt borrowings, which compares to $15 million
provided by proceeds from debt borrowings in 2019. Cash used in financing
activities in 2019 increased $43.4 million compared to 2018. During 2019, we
used $3.3 million to repurchase our common shares, $97.6 million to pay
dividends, and increased our debt balance by $15 million . During 2018, we used
$7.5 million to repurchase our common shares, $97.3 million to pay dividends,
and increased our debt balance by $64 million , primarily to fund the acquisition
of a business in 2018 for $48.9 million .
During 2020, we repurchased 100,929 shares of our common stock for an aggregate
amount of $2.8 million , or an average price of $27.68 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 long-term employee stock-based compensation
plans 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 20, 2020 at our annual
shareholders meeting, our shareholders authorized the extension of our share
repurchase program until November 20, 2021 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 $26.51 per share on December 31, 2020 , an
increase of 558%.
Credit Facility and Available Future Liquidity
In 2011, we issued two series of senior notes with an aggregate principal amount of$150 million ("2011 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 onSeptember 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 onSeptember 30, 2023 . Interest on each series of the 2011 Senior Notes is payable semi-annually onMarch 30 andSeptember 30 .
On
Quarter ending Maximum leverage ratio permitted
June 30, 2020 up to and includingJune 30, 2021 3.00September 30, 2021 2.75December 31, 2021 and thereafter 2.50 28
--------------------------------------------------------------------------------
Moreover, the Amendment modified the range of variable interest rates that the Credit Facility may bear to be a range from LIBOR plus 1.500% to LIBOR plus 2.875% and included the addition of a LIBOR floor of 0.50%. The Amendment also reduced the aggregate borrowing commitment under the Credit Facility to$225 million and the amount by which we may elect to increase the facility size, known as the "accordion" feature, to$50 million , subject to the satisfaction of certain conditions. Interest payment terms are variable depending upon the specific type of borrowing under this facility. Any outstanding balance under the Credit Facility is due on maturity onJune 19, 2023 . Our available capacity at any point in time is reduced by outstanding borrowings and outstanding letters of credit which totaled$12.9 million , resulting in an available borrowing capacity under the Credit Facility of$101.1 million , atDecember 31, 2020 . In addition to indebtedness under the Credit Facility, we had$6.1 million of outstanding letters of credit and performance guarantees and bonds from other sources as ofDecember 31, 2020 . The Credit Facility remains unsecured, and contains customary representations, warranties, terms and conditions for similar types of facilities. The terms of the Credit Facility and 2011 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 2011 Senior Notes each include a cross-default provision, whereby a default under one agreement may trigger a default in the other agreement. The Credit Facility has the more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and permits a maximum leverage ratio as described above. The Credit Facility allows non-cash charges such as impairment of assets, stock compensation and other non-cash charges to be added back in the calculation of consolidated EBITDA. The terms of our Credit Facility also allow us to negotiate in good faith to amend any ratio or requirement to preserve the original intent of the agreement if any change in accounting principles would affect the computation of any financial ratio or covenant of the Credit Facility. In accordance with the terms of the Credit Facility, our leverage ratio is 2.82, and our interest coverage ratio is 6.09, each for the period endedDecember 31, 2020 . We believe that we are in compliance with all covenants contained in our Credit Facility and 2011 Senior Notes. Our parent,Core Laboratories N.V. , together with certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and 2011 Senior Notes. 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 2.50% throughAugust 29, 2024 . InFebruary 2020 , we entered into the second swap agreement of$25 million , under which we have fixed the LIBOR portion of the interest rate at 1.3% throughFebruary 28, 2025 . Each swap is measured at fair value and recorded in our consolidated balance sheet as an asset or 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 income (loss) and 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 OnOctober 16, 2020 , we, along withCore Laboratories (U.S.) Interests Holdings, Inc. as issuer, entered into the 2020 Notes Purchase Agreement. The 2020 Senior Notes were issued and funded onJanuary 12, 2021 . The Company used the$60 million in proceeds from issuing the 2020 Senior Notes to reduce the outstanding borrowings under the Credit Facility. Series A of the 2020 Senior Notes consists of$45 million in aggregate principal amount that bear interest at a fixed rate of 4.09% and are due in full onJanuary 12, 2026 . Series B of the 2020 Senior Notes consists of$15 million in aggregate principal amount that bear interest at a fixed rate of 4.38% and are due in full onJanuary 12, 2028 . Interest on each series of the 2020 Senior Notes is payable semi-annually onJune 30 andDecember 30 , commencing onJune 30, 2021 . The terms of the 2020 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 the 2020 Notes Purchase Agreement) and interest expense are calculated using the most recent four fiscal quarters; and a priority indebtedness ratio (calculated as Priority Indebtedness divided by Consolidated Total Assets (as defined in the 2020 Notes Purchase Agreement.) The financial covenants for the 2020 Notes Purchase Agreement are aligned with the Credit Facility and the associated 2020 Notes Purchase Agreement also allows renegotiation of the ratios in consideration of changes in accounting principles. We along with certain of our material, wholly-owned subsidiaries, are guarantors or co-borrowers under the 2020 Senior Notes. OnDecember 17, 2020 , we entered into an Equity Distribution Agreement withWells Fargo Securities, LLC for the issuance and sale of up to$60.0 million of our common shares. Under terms of the Equity Distribution Agreement, the sales of our common shares may be made by any method deemed to be an "at-the-market offering" as defined in Rule 415 under the Securities Act of 1933. The Company elects when to issue a placement notice which may, among other sales parameters, specify the number of shares to be sold, the minimum price per share to be accepted, the daily volume of shares that may be sold and the range of dates when shares may be sold. There have been no sales under the agreement as ofDecember 31, 2020 , or for the time period fromJanuary 1, 2021 throughFebruary 5, 2021 . 29
-------------------------------------------------------------------------------- In addition to our repayment commitments under our Credit Facility and our 2011 Senior Notes, we have non-cancellable operating lease arrangements under which we lease office and lab space, machinery, equipment and vehicles.
The following table summarizes our future contractual obligations under these arrangements (in thousands):
Less than More than
Total 1 year 1-3 Years 3-5 Years 5 Years
Contractual Obligations: Debt (1)$ 261,000 $ 75,000 $ 186,000 $ - $ - Operating leases (2) 67,545 11,437 18,107 12,167 25,834 Pension (3) 591 591 - - -
Total contractual obligations
payments for interest of
2021 are refinanced by the proceeds of the 2020 Senior Notes and the Credit Facility. (2) Non-cancellable operating lease commitments in accordance to ASC Topic 842 - Leases. (3) 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 atDecember 31, 2020 . Not included in the table above are uncertain tax positions of$6.3 million that we have accrued for atDecember 31, 2020 , as the amounts and timing of payment, if any, are uncertain. See Note 10 - Income Taxes of the Notes to the Consolidated Financial Statements for further detail of this amount. AtDecember 31, 2020 , we had tax net operating loss carry-forwards in various jurisdictions of$62.3 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 ofDecember 31, 2020 . If unused, those carry-forwards which are subject to expiration may expire during the years 2021-2030. During 2020, we have no net operating loss carry-forwards, which carried a full valuation allowance, that expired unused. We expect our investment in capital expenditures to track client demand for our services and products. Given the uncertain trend in industry activity levels, we have not determined, at this time, the level of investment that will be made in 2021. 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. Outlook The events occurring during 2020 associated with the COVID-19 pandemic and government mandated business shut-downs around the world, home sheltering and social distancing policies have caused a significant decline in the demand for crude oil and associated products. The significant decline in demand has resulted in a significant decline in the price of crude oil, which has also resulted in a high degree of uncertainty about future demand and the future price for crude oil as long as the virus concerns persist.U.S. onshore drilling and completion activity have experienced the most significant impact, as the rig count and completion of wells have declined significantly during 2020 from previous year levels. International activity has also been impacted by disruption to our clients' operations and a significant decline in the international rig count. Additionally, our clients experienced disruptions from a record number of named tropical weather systems in theGulf of Mexico during 2020. Although physical damage toCore Lab's facilities was minor; our clients experienced interruptions of business activity due to pre-storm preparations, offshore facility evacuations, local area flooding, power outages, and post-storm clean-up. While the full impact of COVID-19 on our business and the long-term worldwide impact still remains unknown,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. Continued government restrictions, widespread growth in infections, travel restrictions, quarantines, and mandated site closures have led to disruptions in business workflows, which are expected to continue into 2021. These disruptions have primarily been associated with operational workflows stemming from travel, product delivery and installation, as well as suspensions and delays in client projects. We have not experienced any significant disruptions in our supply chain, and do not anticipate significant disruption in our supply chain. We also maintained and refreshed our continuity plan across our global organization to protect the health of employees while servicing clients.
As part of our long-term growth strategy, we continue our efforts to expand our market presence by opening or expanding facilities in strategic areas and realizing synergies within our business lines subject to client demand and market conditions. We
30
--------------------------------------------------------------------------------believe our market presence provides us a unique opportunity to service clients who have global operations whether they are international oil companies, national oil companies, or independent oil companies.
Our major clients continue to focus on capital management, return on invested
capital ("ROIC"), free cash flow, and returning capital back to their
shareholders, as opposed to a heavier focus on growing production. 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. 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 ("EUR") in
the most cost efficient, environmentally responsible, manner. We believe
operators will continue to manage their capital spending within reduced budgets
and maintain their focus on strengthening their balance sheets and generating
positive free cash flow.
International field development spending was impacted by reduced operating
budgets in response to declines in demand tied to COVID-19. Reservoir
Description continues to work with clients and discuss the progression of
longer-term international projects. Longer-term international and offshore
projects are expected to continue and are not as susceptible or at-risk due to
shorter-term volatility in crude oil commodity price. International and offshore
activity are expected to gradually improve as the pandemic abates, but the
timing of this improvement remains unclear. Additionally, the reservoir fluids
analysis that is performed on projects associated with current producing fields,
continues to be critical and will be less affected by lower commodity prices for
crude oil. The adverse impact from COVID-19 and the depression of crude-oil
prices has resulted in increased uncertainty associated with the activity levels
and revenue opportunities from these international and offshore projects,
however most of the larger projects, especially the projects that have already
been commissioned and are in development, are focused on a longer term forecast
versus a short to mid-term assessment of the crude oil commodity prices.
U.S. onshore actively levels were most significantly impacted and reached
historically low levels by mid-2020. However, U.S. onshore activity levels began
to recover during the second half of the year, although not to the same levels
preceding the COVID-19 pandemic. Assuming the situation with the COVID-19 virus
improves across the globe and crude oil commodity prices remain at current
levels or improve, we believe the U.S. onshore activity will gradually improve
during 2021.
In response to market conditions, Core Lab's Supervisory Board approved a plan
to reduce the Company's quarterly dividends to $0.01 per share beginning with
the second quarter of 2020 and to focus excess free cash flows towards the
reduction of debt. In March 2020 , the Company implemented cost reduction
initiatives and expanded these initiatives in June 2020 , which included: (i)
corporate and operating cost reductions; (ii) annual capital expenditures
reduced to approximately $12 million , and (iii) eliminating all non-essential
costs. The corporate and operating cost reductions included reductions in
workforce and reduction of senior executive and employee compensation.
Specifically, the Company has reduced senior executives' annual base salary by
20% for the foreseeable future. Although activities have declined and remained
low in second half of 2020 due to the factors discussed above, this decline has
been partially offset by the effectiveness of the Company's cost control
initiatives. Lastly, the net proceeds from the 2020 Senior Notes, issued on
January 12, 2021 , were used exclusively to reduce outstanding debt and increase
liquidity under the Company's Credit Facility as we work towards our long-term
strategy of reducing debt.
Core Lab believes these immediate actions, as well as continued assessment of
market conditions, will allow Core Lab , as it has for over 83 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.
Critical Accounting Estimates
The preparation of financial statements in accordance withU.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 ofDecember 31, 2020 .
Income Taxes
Our income tax expense includes income taxes ofthe Netherlands , theU.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 expected to be recovered or the liability is expected to be settled. We estimate the likelihood of the recoverability of our 31 -------------------------------------------------------------------------------- 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$6.3 million and$6.2 million atDecember 31, 2020 and 2019, 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
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 technology, 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 recorded an impairment charge of$8.2 million for certain intangible assets during the year endedDecember 31, 2020 . We did not record any material impairment charges relating to intangible assets during the years endedDecember 31, 2019 and 2018. We review our long-lived assets, including definite-lived intangible and right-of-use 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 endedDecember 31, 2020 , 2019 and 2018. 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 both qualitative and quantitative, and includes subjective estimates based on assumptions regarding future revenue growth rates, discount rate and expected margins. 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 recorded an impairment charge of$114.0 million for goodwill of one of our reporting units during the year endedDecember 31, 2020 . We did not record impairment charges relating to our goodwill or our indefinite-lived intangible assets during the years endedDecember 31, 2019 and 2018. Stock-Based Compensation We have two stock-based compensation plans, as described in further detail in Note 14 - Stock-Based Compensation of the Notes to the 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. 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 over the requisite service period of the 32 -------------------------------------------------------------------------------- award. The fair value is determined by calculating the share price on the date of grant less the discounted value of the expected dividends to be paid over the vesting period.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements such as securitization agreements, liquidity trust vehicles 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;
• 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;
• major outbreak of global pandemic and restricting mobilization of field
personnel;
• weather and seasonal factors;
• 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 2019
InFebruary 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 33 -------------------------------------------------------------------------------- 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. InJuly 2018 , the FASB issued ASU 2018-11 ("Targeted Improvements to Leases"), which provides companies with an additional transition method that allows the effects of the adoption of the new standard to be recognized as a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We elected this optional transition method for adoption. The adoption of this standard onJanuary 1, 2019 had a material impact to our Consolidated Balance Sheet, but not to our Consolidated Statement of Operations or Cash Flows. The most significant impact was the recognition of$77.5 million of ROU assets and liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.
Pronouncements Adopted in 2020
InJune 2016 , the FASB issued ASU 2016-13 ("Measurement of Credit Losses on Financial Instruments") which replaces the incurred loss impairment methodology in currentU.S. 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 afterDecember 15, 2019 , including interim periods within those fiscal years. We adopted this standard onJanuary 1, 2020 , and there has been no significant impact on our consolidated financial statements or on our accounting policies and processes. InJanuary 2017 , the FASB issued ASU 2017-04 ("Simplifying the Test forGoodwill Impairment") which eliminates a step in computing the implied fair value of goodwill with a new methodology of an entity performing an annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. We adopted this standard onJanuary 1, 2020 . The new methodology was applied for the interim goodwill impairment analysis performed upon the triggering event of the COVID-19 pandemic during the three month period endedMarch 31, 2020 , and it did not change the conclusion that goodwill had been impaired. There has been no significant impact on our consolidated financial statements or on our accounting policies and processes as a result of adopting this updated accounting standard.
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