NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,
2016
AND
2015
|
|
1.
|
SUMMARY OF SIGNIFICANT PLAN PROVISIONS
|
The Core Laboratories Profit Sharing and Retirement Plan (the "Plan" or "Core Lab Plan") is sponsored by an entity (the "Company") wholly owned by Core Laboratories N.V. and was established, effective October 1, 1994 through its predecessor entity, Core Laboratories, Inc. The following brief description of the Plan provides only general information. Participants should refer to the Summary Plan Description or Plan document for a more complete description of the Plan's provisions.
The Plan is a defined contribution plan and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Internal Revenue Code (the "Code").
Plan Amendments
On January 1, 2015, the Plan was amended and restated to incorporate prior Plan amendments and modify the definition of disability for the Plan’s filing of the determination letter. Before the amendment, the definition of disability was that a participant would be considered totally and permanently disabled if the committee determined, based on a written medical opinion (unless waived by the committee as unnecessary), that such participant was permanently incapable of continuing his usual and customary employment with the employer for physical or mental reasons. The updated definition of disability requires a participant to be considered totally and permanently disabled if a physical or mental condition of the participant, resulting from bodily injury, disease or mental disorder, renders such participant incapable of continuing any gainful occupation and which condition constitutes total disability under the U.S. federal Social Security Acts.
Subsequently, the Plan was amended ("First Amendment") on September 15, 2015, in part to modify the eligibility for requesting a loan from the Plan effective on October 1, 2015. Prior to the amendment, non-employee Plan participants (such as terminated employees, beneficiaries and alternate payees) were permitted to request a loan from their account balance in the Plan. As a result of the First Amendment, loan requests are limited to those employees who are actively employed.
In accordance with the First Amendment, effective January 1, 2016, the Company implemented Safe Harbor Matching Contributions not to exceed 4% of the participant's eligible compensation for each payroll period. Catch-up contributions are also matched accordingly. Safe Harbor Matching Contributions are 100% vested with no allocation restrictions. However, Safe Harbor Matching Contributions are not permitted to be distributed to a participant who is taking a hardship distribution or to a participant who is under age 59 ½ taking an in-service withdrawal. The Safe Harbor Matching Contributions replaced the Employer Discretionary Matching Contributions.
Also included in the First Amendment, effective January 1, 2016, the Plan implemented a process to automatically rollover terminated participants with vested balances greater than $1,000, but less than $5,000, into an individual retirement account.
Plan Administrator and Trustee
An administrative committee appointed by the Company is the Plan Administrator, as defined under ERISA. Prudential Retirement Insurance and Annuity Company (the "Record-keeper”) and Prudential Bank and Trust FSB (the “Trustee”) have been contracted to serve as the record-keeper and the trustee of the Plan, respectively. The Trustee is the custodian of the investment fund and group annuity contract investments, Conseco is the custodian of the life insurance and Prudential Bank & Trust Company is the custodian of Core Laboratories N.V. Common Stock.
Eligibility
Substantially all of the Company's employees are eligible to participate in the Plan. Participation may commence upon the later of the eligible employee's date of hire or the date on which such employee attains the age of 21. Employees must satisfy a service requirement of 1,000 hours of service during a Plan year to be eligible to receive any employer discretionary contributions.
Contributions
The Plan allows each participant to make pre-tax contributions or after-tax Roth contributions of up to 60% of his or her compensation, as defined by the Plan, up to the statutory limit of
$18,000
for
2016
. The Plan also allows participants who attained age 50 before the close of the Plan year to contribute an additional "catch-up" contribution in the amount of
$6,000
for
2016
as permitted under the Code. The Company makes safe harbor matching contributions equal to a designated percentage of each participant's pre-tax contributions, up to a maximum of 4% of the participant's compensation. In addition, the Company may, in its discretion, make an additional employer discretionary contribution for a Plan year with respect to each participant who has completed one year of service (as defined by the Plan) and is employed by the Company on the last day of such Plan year. During the year ended December 31,
2016
, the Company made safe harbor matching contributions in accordance with the Plan provisions up to a maximum of
4%
of the participants' compensation totaling
$3,137,453
.
Participant Accounts
Each participant's account is credited with the participant's contributions, the Company's safe harbor matching contributions, allocations of any additional discretionary Company contribution, Plan earnings, and charged with an allocation of administrative expenses. Allocations are generally based on participant earnings or account balances, as applicable, in accordance with the terms of the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account balance, as defined below.
Vesting
Participants are fully vested in their contributions, the Company's safe harbor matching contributions and related earnings or losses. Participants vest in Company matching contributions made to their account prior to December 31, 2015, discretionary contributions and the related investment earnings or losses at the rate of 20% for each completed year of service, as defined by the Plan. A participant becomes fully vested in Company contributions and related earnings/losses if such participant, while employed by the Company, becomes totally and permanently disabled, upon death, or attains normal retirement age of 65, as defined by the Plan document.
Investment Program
Participants may direct the investment of their contributions, the Company's matching and any additional discretionary contributions in any of 18 registered investment companies (investment funds), one group annuity contract and Core Laboratories N.V. Common Stock. The Plan's life insurance contract was not available during the years ended December 31,
2016
and
2015
as a participant investment option.
Contributions may be invested in one fund or divided among two or more funds. Participants may transfer some or all of the balances out of any fund into one or any combination of the other funds on a daily basis with some restrictions. Participants can also choose from four Asset Allocation Models: Conservative Model; Moderate Model; Moderate Aggressive Model or Aggressive Model, each of which represents a designated blend of the available investment funds. Participants who select one of the Asset Allocation Models can also choose to invest a portion of their account balances in Core Laboratories N.V. Common Stock. For insiders, as defined by the U.S. Securities and Exchange Commission, transfers into or out of Core Laboratories N.V. Common Stock are limited to certain trading windows.
Administrative Expenses
The Plan pays substantially all administrative expenses. For the year ended December 31,
2016
, expenses were comprised of approximately $62,000 for investment advisory services, $15,000 for audit fees, $13,000 for loan administration and recordkeeping fees, $11,000 for legal fees and $2,000 for other services.
Expense Offset Arrangements
Fees incurred by the Plan for the investment management services and recordkeeping are included in net appreciation in fair value of investments, as they are paid through revenue sharing, rather than a direct payment.
Notes Receivable from Participants
The Plan permits eligible participants to borrow a minimum of $1,000 and up to a maximum amount equal to the lesser of $50,000 or 50% of their vested account balances in the Plan. Notes receivable bore interest ranging from
4.25%
to
4.50%
for the year ended December 31,
2016
. Notes receivable are repaid through payroll deductions over a period not to exceed five years and are collateralized by the vested balance in the participant's account and are calculated on a fully amortized basis.
Payment of Benefits and Forfeitures
Upon termination of employment, death, disability, or retirement, a participant, or the participant's estate in the case of death, may elect to receive a distribution equal to the participant's vested interest in his or her Plan account balance. A participant may elect an in-kind distribution of the portion of his or her vested account balance that is invested in Core Laboratories N.V. Common Stock.
A participant may make an in-service withdrawal from his or her vested account balance at age 59 1/2 or later. Subject to satisfying the applicable requirements of the Code, a participant also may make an in-service withdrawal from his or her pre-tax contributions in the event of financial hardship, although such participant will be suspended from making additional pre-tax contributions to the Plan for a period of six months. A participant can withdraw his or her rollover contributions, if any, from the Plan without being suspended from making additional pre-tax contributions to the Plan.
Prior to age 59 1/2
,
a participant may elect an in-service distribution of an amount not exceeding the then value of the participant's vested interest, as defined by the Plan document, in the participant's employer contributions, subject to the following limitations: (a) the participant must have been a participant in the Plan for at least five years; and (b) the amount available for such in-service distribution must be an eligible rollover distribution.
Upon a participant's termination of employment, any unvested Company contributions and the related investment earnings or losses will be forfeited. Subject to certain conditions, a participant who returns to employment within five years from his or her previous termination date is entitled to have his or her forfeited account balance restored.
Forfeitures, net of amounts restored, may be used to reduce future Company contributions under the Plan or to pay Plan expenses. Forfeitures of
$239,501
and
$15,875
were available to reduce future Company contributions or to pay Plan expenses, at December 31,
2016
and
2015
, respectively.
Excess Contributions Payable
Excess contributions payable represents an amount withheld from participants in excess of Code limitations that are to be refunded at year-end. As of December 31,
2016
and
2015
,
$0
and
$329,324
, respectively, of excess contributions are required to be refunded prior to December 31 of the subsequent year. These amounts were refunded to participants prior to March 15th of the year following the Plan year-end. Excess contributions are netted against participant contributions in the Statement of Changes in Net Assets Available for Benefits.
Effective January 1, 2016, the Plan implemented a Safe Harbor Match plan design which provides exemption from conducting certain non-discrimination tests and eliminates the excess contribution refunds due to these tests.
Priorities Upon Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts and the net assets of the Plan will be allocated and distributed among the participants and beneficiaries of the Plan in accordance with ERISA and the terms of the Plan.
|
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Investment Valuation
Core Laboratories N.V. Common Stock and investment fund securities are valued at fair value. Core Laboratories N.V. Common Stock values are based on their quoted market prices. Investments in shares of the funds are valued using quoted market prices which represent the net asset values of shares held by the Plan at year-end. The Plan's interest in the group annuity contract is valued based on the information provided by the issuer and is carried at the contract value which approximates fair value. Investments in life insurance policies are recorded at the cash surrender value of the life insurance policies, as determined by the issuer of the insurance policy, which approximates fair value.
Purchases and sales of securities are recorded on a trade date basis. Dividends are recorded on the ex-dividend date.
Investment Income
Investment income includes the net appreciation or depreciation in the fair value of the Plan's fair value investments, consisting of realized and unrealized gains and losses. Dividend and interest income from investments and notes receivable from participants are recorded as earned and allocated to participants based upon their proportionate share of assets in each investment fund.
Use of Estimates
The preparation of financial statements in accordance with US GAAP requires management 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 amount of net assets available for benefits and changes therein.
Plan management evaluates estimates on an ongoing basis and utilizes historical experience, as well as various other assumptions believed to be reasonable in a given circumstance, in order to make these estimates. Actual results could differ from estimates, as assumptions and conditions change.
Benefit Payments
Benefits are recorded when paid.
|
|
3.
|
FAIR VALUE MEASUREMENTS
|
In determining fair value, the degree of judgment used to measure fair value generally correlates to the type of pricing and other data used as inputs, or assumptions, in the valuation process. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Plan's own market assumptions using the best information available. Based on the type of inputs used to measure the fair value of the Plan's financial instruments, the Plan classifies them into the following three-level hierarchy:
|
|
•
|
Level 1 includes observable inputs which reflect quoted prices for identical assets or liabilities in active markets at the measurement date.
|
|
|
•
|
Level 2 includes observable inputs for assets or liabilities other than quoted prices included in Level 1 and it includes valuation techniques which use prices for similar assets and liabilities in active or inactive markets, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
•
|
Level 3 includes unobservable inputs which reflect the Plan's estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.
|
The asset's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
In determining the fair value of the assets and liabilities, the Plan generally uses two approaches, the market approach and the cost approach. The market approach uses prices and other relevant data based on market transactions involving identical or comparable assets. The cost approach is the amount that would be currently required to replace an asset and indicates the cost to the Plan to require a substitute asset.
The following is a description of the valuation methods used for assets measured at fair value at December 31,
2016
and
2015
. There have been no changes in the methodologies used at December 31,
2016
and
2015
.
Registered Investment Companies (investment funds)
: The fair value of these funds is based on the daily closing price as reported by the fund (Market approach). Investment funds held by the Plan are open-end investment funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net assets value ("NAV") and to transact at that price. The investment funds held by the Plan are deemed to be actively traded.
Core Laboratories N.V. Common Stock
: The fair value of this security is based on observable market quotations in an active market and is priced on a daily basis at the close of business (Market approach).
Life insurance contracts
: The fair value of these contracts is based on the cash surrender value of the contracts (Cost approach).
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.
The following table sets forth by level, within the fair value hierarchy, the Plan's assets measured at fair value on a recurring basis as of December 31,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2016
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Investment funds
|
$
|
103,471,537
|
|
|
$
|
103,471,537
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Core Laboratories N.V. Common Stock
|
47,746,687
|
|
|
47,746,687
|
|
|
—
|
|
|
—
|
|
Life Insurance Contract
|
74,896
|
|
|
—
|
|
|
—
|
|
|
74,896
|
|
Total
|
$
|
151,293,120
|
|
|
$
|
151,218,224
|
|
|
$
|
—
|
|
|
$
|
74,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2015
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Investment funds
|
$
|
97,844,793
|
|
|
$
|
97,844,793
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Core Laboratories N.V. Common Stock
|
44,582,000
|
|
|
44,582,000
|
|
|
—
|
|
|
—
|
|
Life insurance contract
|
71,329
|
|
|
—
|
|
|
—
|
|
|
71,329
|
|
Total
|
$
|
142,498,122
|
|
|
$
|
142,426,793
|
|
|
$
|
—
|
|
|
$
|
71,329
|
|
The following tables present the changes in fair value of the Plan's Level 3 investment assets for the years ended December 31,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Balance at January 1,
|
$
|
71,329
|
|
|
$
|
68,397
|
|
Interest and dividends on investments
|
3,567
|
|
|
3,398
|
|
Sales
|
—
|
|
|
(466
|
)
|
Balance at December 31,
|
$
|
74,896
|
|
|
$
|
71,329
|
|
|
|
4.
|
INVESTMENTS CARRIED AT CONTRACT VALUE
|
Group Annuity Contract
The Plan invests in a group annuity contract with Prudential Retirement Insurance and Annuity Company ("PRIAC") with the purpose to fund the guaranteed benefits for the Plan.
The group annuity contract is fully benefit-responsive; therefore, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the Plan. Contract value, which estimates fair value, as reported to the Plan by PRIAC, represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses.
The concept of a value other than contract value does not apply to this insurance company issued general account backed evergreen (no maturity date) group annuity spread product. Upon a discontinuance of the contract, contract value would be paid no later than 90 days from the date notice of discontinuance is provided. This contract's operation does not have provisions to contract at a value other than contract value. The fund is not backed by specific securities but instead backed by PRIAC's general account. As a result of the contract terms, contract value approximates fair value.
There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest rate is based on a formula agreed upon with the issuer, but it may not be less than
1.50%
. The crediting interest rate for the year ended December 31,
2016
was
1.65%
on the participants' group annuity contract account balances. A single crediting rate is applied to all contributions made to the fund regardless of the timing of those contributions. Such interest rates are reviewed on a semi-annual basis. The average yield for the year ended December 31,
2016
was
1.65%
.
|
|
5.
|
RISKS AND UNCERTAINTIES
|
The Plan provides for various investments in investment funds, a group annuity contract and Core Laboratories N.V. Common Stock. Investment securities, in general, are exposed to various risks, such as interest rate, foreign exchange, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the Statements of Net Assets Available for Benefits, Statement of Changes in Net Assets Available for Benefits, and the amounts reported in participant accounts.
|
|
6.
|
FEDERAL INCOME TAX STATUS
|
The Plan received a favorable determination letter dated July 6, 2015, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Code. The Plan has been amended since receiving the determination letter, however the Plan administrator believes that the Plan is designed and currently being operated in compliance with the Code.
|
|
7.
|
PARTY-IN-INTEREST TRANSACTIONS
|
The Plan provides for investment in shares of Core Laboratories N.V. Common Stock, investment in funds managed by the Trustee, and a group annuity issued by the record-keeper. The Plan also allows participants to borrow from their vested balances. These transactions qualify as party-in-interest transactions. These transactions are exempt from the ERISA prohibited transaction rules; consequently, these transactions are permitted.
SUPPLEMENTAL SCHEDULE