NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1
.
BASIS OF PRESENTATION
The accompanying unaudited 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 ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information using the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnote disclosures required by U.S. GAAP 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, 2016
(the "
2016
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. We use the cost method to record certain other investments in which we own less than 20% of the outstanding equity and do not exercise control or exert significant influence. Non-controlling interests have been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than 100% owned. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included in these financial statements. Furthermore, the operating results presented for the
three and nine
months ended
September 30, 2017
may not necessarily be indicative of the results that may be expected for the year ending
December 31, 2017
.
Core Laboratories N.V.'s balance sheet information for the year ended
December 31, 2016
was derived from the
2016
audited consolidated financial statements but does not include all disclosures in accordance with U.S. GAAP.
Core Lab's continuing efforts to streamline its business has led to a simplification of its reporting structure and as of January 1, 2017, the Company presents its operating results in two reporting segments: Reservoir Description and Production Enhancement. For more detail about our segments, see Note
13
-
Segment Reporting
.
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 or
nine months ended
September 30, 2016
.
References to "Core Lab", 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.
2
.
INVENTORIES
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Finished goods
|
$
|
21,777
|
|
|
$
|
21,635
|
|
Parts and materials
|
11,143
|
|
|
11,185
|
|
Work in progress
|
1,579
|
|
|
900
|
|
Total inventories
|
$
|
34,499
|
|
|
$
|
33,720
|
|
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.
3
.
ACQUISITIONS
We had no significant acquisitions during the
nine months ended
September 30, 2017
.
4
.
DEBT, NET
We have no capital lease obligations. Long-term debt is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Senior notes
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Credit facility
|
85,000
|
|
|
68,000
|
|
Total long-term debt
|
235,000
|
|
|
218,000
|
|
Less: Debt issuance costs
|
(1,136
|
)
|
|
(1,512
|
)
|
Long-term debt, net
|
$
|
233,864
|
|
|
$
|
216,488
|
|
We have two series of senior notes outstanding with an aggregate principal amount of
$150 million
("Senior Notes") issued in a private placement transaction. Series A consists of
$75 million
in aggregate principal amount of notes that bear interest at a fixed rate of
4.01%
and are due in full on
September 30, 2021
. Series B consists of
$75 million
in aggregate principal amount of notes that bear interest at a fixed rate of
4.11%
and are due in full on
September 30, 2023
. Interest on each series of the Senior Notes is payable semi-annually on March 30 and September 30.
We maintain a revolving credit facility ("Credit Facility") that allows for an aggregate borrowing capacity of
$400 million
. The Credit Facility also provides an option to increase the commitment under the Credit Facility by an additional
$50 million
to bring the total borrowings available to
$450 million
if certain prescribed conditions are met by the Company. The Credit Facility bears interest at variable rates from LIBOR plus
1.25%
to a maximum of LIBOR plus
2.00%
. Any outstanding balance under the Credit Facility is due
August 29, 2019
, when the Credit Facility matures. Our available capacity at any point in time is reduced by borrowings outstanding at the time and outstanding letters of credit which totaled
$17.5 million
at
September 30, 2017
, resulting in an available borrowing capacity under the Credit Facility of
$297.5 million
. In addition to those items under the Credit Facility, we had
$14.6 million
of outstanding letters of credit and performance guarantees and bonds from other sources as of
September 30, 2017
.
The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (consolidated EBITDA divided by interest expense) and a leverage ratio (consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in each agreement) and interest expense are calculated using the most recent four fiscal quarters. The Credit Facility has the more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and a maximum leverage ratio of 2.5 to 1.0. We believe that we are in compliance with all such covenants contained in our credit agreements. Certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.
In 2014, we entered into two interest rate swap agreements for a total notional amount of
$50 million
. See Note
11
-
Derivative Instruments and Hedging Activities
.
The estimated fair value of total debt at
September 30, 2017
and
December 31, 2016
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 date of maturity.
5
.
PENSION
Defined Benefit Plan
We provide a noncontributory defined benefit pension plan covering substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2007. The pension benefit is based on years of service and final pay or career average pay, depending on when the employee began participating. The benefits earned by the employees are immediately vested.
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,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
401
|
|
|
$
|
364
|
|
|
$
|
1,142
|
|
|
$
|
1,097
|
|
Interest cost
|
295
|
|
|
332
|
|
|
838
|
|
|
1,001
|
|
Expected return on plan assets
|
(249
|
)
|
|
(279
|
)
|
|
(709
|
)
|
|
(841
|
)
|
Amortization of prior service cost
|
(20
|
)
|
|
(20
|
)
|
|
(58
|
)
|
|
(58
|
)
|
Amortization of actuarial loss
|
110
|
|
|
148
|
|
|
330
|
|
|
444
|
|
Net periodic pension cost
|
$
|
537
|
|
|
$
|
545
|
|
|
$
|
1,543
|
|
|
$
|
1,643
|
|
During the
nine
months ended
September 30, 2017
, we contributed
$1.6 million
to fund the estimated
2017
premiums on investment contracts held by the Dutch Plan.
6
.
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 or claims for personal injury or property damage which occur in connection with the provision of our services and products. Management does not currently believe that any of our pending contractual, employment-related, personal injury or property damage claims and disputes will have a material effect on our future results of operations, financial position or cash flow.
7
.
EQUITY
During the three months ended
September 30, 2017
, we repurchased
8,404
of our common shares for
$0.8 million
. These consisted of rights to shares that were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares under that plan. During the nine months ended
September 30, 2017
, we repurchased
77,832
of our common shares for
$8.2 million
; included in this total were rights to
22,832
shares valued at
$2.5 million
surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares 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. We distributed
27,453
and
73,855
treasury shares upon vesting of stock-based awards during the
three and nine
months ended
September 30, 2017
, respectively.
In February, May and August 2017, we paid quarterly dividends of
$0.55
per share of common stock. In addition, on
October 10, 2017
, we declared a quarterly dividend of
$0.55
per share of common stock for shareholders of record on
October 20, 2017
and payable on
November 21, 2017
.
The following table summarizes our changes in equity for the
nine
months ended
September 30, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Additional Paid-In Capital
|
|
Retained Earnings
|
|
Accumulated
Other
Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Non-Controlling Interest
|
|
Total Equity
|
December 31, 2016
|
$
|
1,148
|
|
|
$
|
52,850
|
|
|
$
|
187,957
|
|
|
$
|
(9,828
|
)
|
|
$
|
(80,773
|
)
|
|
$
|
3,943
|
|
|
$
|
155,297
|
|
Adoption of ASU 2016-09 (see note 14)
|
—
|
|
|
84
|
|
|
(84
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock based-awards
|
—
|
|
|
8,834
|
|
|
—
|
|
|
—
|
|
|
8,489
|
|
|
—
|
|
|
17,323
|
|
Repurchase of common shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,197
|
)
|
|
—
|
|
|
(8,197
|
)
|
Dividends paid
|
—
|
|
|
—
|
|
|
(72,861
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(72,861
|
)
|
Non-controlling interest dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
|
(27
|
)
|
Amortization of deferred pension costs, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
204
|
|
|
—
|
|
|
—
|
|
|
204
|
|
Interest rate swaps, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
114
|
|
Net income
|
—
|
|
|
—
|
|
|
61,434
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
61,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
$
|
1,148
|
|
|
$
|
61,768
|
|
|
$
|
176,446
|
|
|
$
|
(9,510
|
)
|
|
$
|
(80,481
|
)
|
|
$
|
3,926
|
|
|
$
|
153,297
|
|
Accumulated other comprehensive income (loss) consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Prior service cost
|
$
|
556
|
|
|
$
|
600
|
|
Unrecognized net actuarial loss
|
(9,521
|
)
|
|
(9,769
|
)
|
Fair value of derivatives, net of tax
|
(545
|
)
|
|
(659
|
)
|
Total accumulated other comprehensive income (loss)
|
$
|
(9,510
|
)
|
|
$
|
(9,828
|
)
|
8
.
EARNINGS PER SHARE
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 common and potential common shares include additional shares in the weighted average share calculations associated with the incremental effect of dilutive restricted stock awards and contingently issuable shares, as determined using the treasury stock method. The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Weighted average basic common shares outstanding
|
44,141
|
|
|
44,110
|
|
|
44,155
|
|
|
43,265
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Performance shares
|
159
|
|
|
147
|
|
|
148
|
|
|
119
|
|
Restricted stock
|
32
|
|
|
63
|
|
|
32
|
|
|
66
|
|
Weighted average diluted common and potential common shares outstanding
|
44,332
|
|
|
44,320
|
|
|
44,335
|
|
|
43,450
|
|
9
.
OTHER (INCOME) EXPENSE, NET
The components of Other (income) expense, net, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Sale of assets
|
$
|
(12
|
)
|
|
$
|
(56
|
)
|
|
$
|
(314
|
)
|
|
$
|
(544
|
)
|
Results of non-consolidated subsidiaries
|
(112
|
)
|
|
(126
|
)
|
|
(287
|
)
|
|
(450
|
)
|
Foreign exchange
|
105
|
|
|
220
|
|
|
559
|
|
|
1,432
|
|
Rents and royalties
|
(99
|
)
|
|
(105
|
)
|
|
(329
|
)
|
|
(304
|
)
|
Severance, compensation and other charges
|
—
|
|
|
—
|
|
|
1,145
|
|
|
—
|
|
Other, net
|
21
|
|
|
(221
|
)
|
|
(22
|
)
|
|
(473
|
)
|
Total other (income) expense, net
|
$
|
(97
|
)
|
|
$
|
(288
|
)
|
|
$
|
752
|
|
|
$
|
(339
|
)
|
Foreign exchange gains and losses are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
(Gains) losses by currency
|
2017
|
|
2016
|
|
2017
|
|
2016
|
British Pound
|
(27
|
)
|
|
39
|
|
|
(82
|
)
|
|
514
|
|
Canadian Dollar
|
(153
|
)
|
|
(6
|
)
|
|
(230
|
)
|
|
(54
|
)
|
Euro
|
431
|
|
|
45
|
|
|
1,266
|
|
|
215
|
|
Russian Ruble
|
(26
|
)
|
|
21
|
|
|
(151
|
)
|
|
(73
|
)
|
Other currencies, net
|
(120
|
)
|
|
121
|
|
|
(244
|
)
|
|
830
|
|
Total (gain) loss, net
|
$
|
105
|
|
|
$
|
220
|
|
|
$
|
559
|
|
|
$
|
1,432
|
|
10
.
INCOME TAX EXPENSE
The effective tax rates for the three months ended
September 30, 2017
and
2016
were
15.0%
and
11.0%
, respectively. The effective tax rates for the nine months ended
September 30, 2017
and
2016
were
14.7%
and
12.8%
, respectively. Income tax expense of
$3.7 million
in the
third
quarter of
2017
increased
by
$1.6 million
compared to
$2.1 million
in the same period in
2016
, due to the result of several items discrete to each quarter, along with changes in activity levels in jurisdictions with differing tax rates.
On March 29, 2017, the Prime Minister of the United Kingdom ("UK") formally notified the European Council of the UK's intention to withdraw from the European Union ("EU") under Article 50 of the Treaty of Lisbon. The UK's formal withdrawal may impact tax exemptions and reliefs on intra-European transactions between our UK affiliates and EU companies. In addition, it may impact transactions between our UK affiliates and non-EU based companies as EU tax treaties may no longer apply to these transactions. Due to the uncertainty involved in evaluating the effect of the loss of tax exemptions and reliefs, we are unable to estimate the impact of these changes, if any, at this time. We will continue to monitor developments in this area.
11
.
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
Our Credit Facility bears interest at variable rates from LIBOR plus
1.25%
to a maximum of LIBOR plus
2.00%
. As a result of two interest rate swap agreements, we are subject to interest rate risk on debt in excess of $50 million drawn on our Credit Facility.
In 2014, we entered into two interest rate swap agreements for a total notional amount of
$50 million
to hedge changes in the variable rate interest expense on
$50 million
of our existing or replacement LIBOR-priced debt. Under the first swap agreement of
$25 million
, we have fixed the LIBOR portion of the interest rate at
1.73%
through
August 29, 2019
, and under the second swap agreement of
$25 million
, we have fixed the LIBOR portion of the interest rate at
2.5%
through
August 29, 2024
. Each swap is measured at fair value and recorded in our Consolidated Balance Sheet as a liability. They are designated and qualify as cash flow hedging instruments and are highly effective. Unrealized losses are deferred to shareholders' equity as a component of accumulated other comprehensive loss and are recognized in income as an increase to interest expense in the period in which the related cash flows being hedged are recognized in expense.
At
September 30, 2017
, we had fixed rate long-term debt aggregating
$200 million
and variable rate long-term debt aggregating
$35 million
, after taking into account the effect of the swaps.
The fair values of outstanding derivative instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivatives
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Balance Sheet Classification
|
Derivatives designated as hedges:
|
|
|
|
|
|
5 year interest rate swap
|
$
|
62
|
|
|
$
|
211
|
|
|
Other long-term liabilities
|
10 year interest rate swap
|
809
|
|
|
835
|
|
|
Other long-term liabilities
|
|
$
|
871
|
|
|
$
|
1,046
|
|
|
|
The fair value of all outstanding derivatives was determined using a model with inputs that are observable in the market (Level 2) or can be derived from or corroborated by observable data.
The effect of the interest rate swaps on the Consolidated Statement of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Income Statement Classification
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
5 year interest rate swap
|
$
|
31
|
|
|
$
|
79
|
|
|
$
|
136
|
|
|
$
|
242
|
|
|
Increase to interest expense
|
10 year interest rate swap
|
81
|
|
|
128
|
|
|
283
|
|
|
389
|
|
|
Increase to interest expense
|
|
$
|
112
|
|
|
$
|
207
|
|
|
$
|
419
|
|
|
$
|
631
|
|
|
|
12
.
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 value certain assets and liabilities at fair value 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 swaps are recorded in Other comprehensive income. The following table summarizes the fair value balances (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
|
|
|
|
September 30, 2017
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Deferred compensation trust assets
(1)
|
$
|
27,880
|
|
|
$
|
—
|
|
|
$
|
27,880
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
35,528
|
|
|
$
|
—
|
|
|
$
|
35,528
|
|
|
$
|
—
|
|
5 year interest rate swap
|
62
|
|
|
—
|
|
|
62
|
|
|
—
|
|
10 year interest rate swap
|
809
|
|
|
—
|
|
|
809
|
|
|
—
|
|
|
$
|
36,399
|
|
|
$
|
—
|
|
|
$
|
36,399
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
|
|
|
|
December 31, 2016
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Deferred compensation trust assets
(1)
|
$
|
25,350
|
|
|
$
|
—
|
|
|
$
|
25,350
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
$
|
31,672
|
|
|
$
|
—
|
|
|
$
|
31,672
|
|
|
$
|
—
|
|
5 year interest rate swap
|
211
|
|
|
—
|
|
|
211
|
|
|
—
|
|
10 year interest rate swap
|
835
|
|
|
—
|
|
|
835
|
|
|
—
|
|
|
$
|
32,718
|
|
|
$
|
—
|
|
|
$
|
32,718
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
(1) Trust assets consist of the cash surrender value of life insurance policies and are intended to assist in the funding of the deferred compensation agreements.
|
13
.
SEGMENT REPORTING
Core Laboratories has taken steps to streamline its business by realigning its reporting structure into two reporting segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields. In connection with the realignment of our reporting structure, amounts previously reported in our Reservoir Management segment are now presented within our Reservoir Description and Production Enhancement segments, and prior periods have been revised to conform to the current presentation.
|
|
•
|
Reservoir Description:
Encompasses the characterization of petroleum reservoir rock, fluid and gas samples to increase production and improve recovery of oil and gas from our clients' reservoirs. We provide laboratory based analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry. We also provide proprietary and joint industry studies based on these types of analysis.
|
|
|
•
|
Production Enhancement:
Includes services and products relating to reservoir well completions, perforations, stimulations 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.
|
Results for these segments are presented below. 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 Description
|
|
Production Enhancement
|
|
Corporate & Other
1
|
|
Consolidated
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
Revenue from unaffiliated clients
|
$
|
101,442
|
|
|
$
|
64,805
|
|
|
$
|
—
|
|
|
$
|
166,247
|
|
Inter-segment revenue
|
54
|
|
|
87
|
|
|
(141
|
)
|
|
—
|
|
Segment operating income (loss)
|
14,621
|
|
|
12,972
|
|
|
(117
|
)
|
|
27,476
|
|
Total assets (at end of period)
|
315,346
|
|
|
207,186
|
|
|
60,212
|
|
|
582,744
|
|
Capital expenditures
|
2,930
|
|
|
1,605
|
|
|
367
|
|
|
4,902
|
|
Depreciation and amortization
|
4,383
|
|
|
1,190
|
|
|
518
|
|
|
6,091
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
Revenue from unaffiliated clients
|
$
|
105,427
|
|
|
$
|
38,056
|
|
|
$
|
—
|
|
|
$
|
143,483
|
|
Inter-segment revenue
|
533
|
|
|
563
|
|
|
(1,096
|
)
|
|
—
|
|
Segment operating income (loss)
|
21,274
|
|
|
118
|
|
|
96
|
|
|
21,488
|
|
Total assets (at end of period)
|
322,222
|
|
|
190,479
|
|
|
49,437
|
|
|
562,138
|
|
Capital expenditures
|
2,020
|
|
|
318
|
|
|
100
|
|
|
2,438
|
|
Depreciation and amortization
|
4,647
|
|
|
1,429
|
|
|
648
|
|
|
6,724
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
Revenue from unaffiliated clients
|
$
|
310,650
|
|
|
$
|
177,307
|
|
|
$
|
—
|
|
|
$
|
487,957
|
|
Inter-segment revenue
|
275
|
|
|
537
|
|
|
(812
|
)
|
|
—
|
|
Segment operating income (loss)
|
49,231
|
|
|
31,132
|
|
|
(301
|
)
|
|
80,062
|
|
Total assets
|
315,346
|
|
|
207,186
|
|
|
60,212
|
|
|
582,744
|
|
Capital expenditures
|
7,605
|
|
|
5,394
|
|
|
1,265
|
|
|
14,264
|
|
Depreciation and amortization
|
13,531
|
|
|
3,732
|
|
|
1,557
|
|
|
18,820
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
Revenue from unaffiliated clients
|
$
|
321,129
|
|
|
$
|
124,070
|
|
|
$
|
—
|
|
|
$
|
445,199
|
|
Inter-segment revenue
|
1,579
|
|
|
1,167
|
|
|
(2,746
|
)
|
|
—
|
|
Segment operating income (loss)
|
60,011
|
|
|
4,615
|
|
|
29
|
|
|
64,655
|
|
Total assets
|
322,222
|
|
|
190,479
|
|
|
49,437
|
|
|
562,138
|
|
Capital expenditures
|
6,376
|
|
|
856
|
|
|
508
|
|
|
7,740
|
|
Depreciation and amortization
|
13,914
|
|
|
4,518
|
|
|
1,890
|
|
|
20,322
|
|
(1) "Corporate & Other" represents those items that are not directly related to a particular segment and eliminations.
14
.
RECENT ACCOUNTING PRONOUNCEMENTS
Pronouncements Adopted in 2017
In July 2015, the FASB issued ASU 2015-11 ("Simplifying the Measurement of Inventory") to require the measurement of inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this standard on January 1, 2017. The adoption of this standard had no effect on our Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
In March 2016, the FASB issued ASU 2016-09 ("Improvements to Employee Share-Based Payment Accounting") to simplify the accounting for share-based payment transactions, including accounting for forfeitures, excess tax benefit/expense, and tax withholding requirements. Under this new guidance, (1) companies have the option to estimate how many shares in a grant will be forfeited or to elect to recognize forfeitures as they occur; (2) all excess tax benefit and expense is recognized as income tax benefit or expense in the income statement as a discrete item to the quarter, and the accumulated benefits in additional paid-in
capital ("APIC") are eliminated; and (3) companies are able to withhold share amounts up to the statutory maximum and the award will still be classified as equity. We adopted this standard on January 1, 2017 and have elected to recognize forfeitures as they occur. This resulted in a reclassification between retained earnings and additional paid-in-capital of $84 thousand for the estimated forfeitures on unvested shares as of January 1, 2017. The adoption of this standard will result in periodic adjustments in the recognition of stock compensation expense associated with forfeitures in the period in which they occur. In addition to the income statement treatment of including the excess tax benefit/expense as a discrete income tax item each quarter, this has been removed from the Cash from financing activities section of the Statement of Cash Flows.
Pronouncements Not Yet Effective
In May 2014, the FASB issued ASU 2014-09 ("Revenue from Contracts with Customers"), which provides guidance on revenue recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance requires entities to apply a five-step method to (1) identify the contract(s) with customers; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (on July 9, 2015, the FASB deferred the implementation date for one year). We are currently analyzing the standard's impact on our revenues by looking at all of our revenue streams to determine the impact on our Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows. At this point, we do not anticipate any material changes to our revenue recognition policies and procedures nor to our financial statements, but extensive additional disclosures will be required. Upon adoption we expect to utilize the modified retrospective approach, which requires a cumulative adjustment to retained earnings and no adjustments to prior periods.
In February 2016, the FASB issued ASU 2016-02 ("Leases"), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. We anticipate the adoption of this standard will have a material impact on our Consolidated Balance Sheets, increasing both asset balances and liability balances; however, there should not be a material impact to our Consolidated Statement of Operations.
In June 2016, the FASB issued ASU 2016-13 ("Measurement of Credit Losses on Financial Instruments") which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.