AMSTERDAM, The Netherlands, Feb. 11 /PRNewswire-FirstCall/ -- Core Laboratories N.V. (NYSE: CLB) reported fourth quarter revenue of $201,188,000, an increase of 14% over year-earlier fourth quarter revenue, while net income was $41,044,000 and earnings per diluted share (EPS) equaled $1.76. Included in the net income is a gain, net of tax, of $5,668,000 from the repurchase of a portion of the Company's $300 million 0.25% Senior Exchangeable Notes (the 'Notes') at significantly below par value. This gain more than offset foreign exchange losses, net of tax, that totaled $3,180,000 for the quarter. Excluding the gain from Note repurchases and foreign exchange losses for the quarter, net income from operations increased 15% from year-earlier totals to $38,556,000, while EPS increased 22% to $1.66. The fourth quarter of 2008 marks the twelfth consecutive quarter for which the Company posted a historical quarterly high for EPS from operations. Free cash flow, defined as cash from operations minus capital expenditures, increased to $35,723,000, the second highest quarterly total in Company history.
The Company also reached a record high of 28.3% for operating margins, excluding the effects of currency translation exchange losses. Core continued to benefit from its de-emphasis of Russian operations and its downsizing of Mexican, Venezuelan, and Nigerian operations over the past three years, as the Company focused on development and production-related projects almost to the exclusion of volatile exploration-related activities. Reservoir Description operations continued to benefit from internationally based crude-oil development projects, and Production Enhancement operations focused on further exploitation of the North American gas-shale plays. Reservoir Management posted its most profitable quarter in Company history, as clients increased participation in projects related to unconventional crude-oil and natural gas developments.
For all of 2008, Core reported records for revenue, net income, EPS, cash from operations, and free cash flow. Annual revenue for 2008 was $780,836,000, up 16% from 2007, while GAAP net income and EPS were up 19% and 21% to $143,603,000 and $6.00, respectively. Excluding certain non-operational items and foreign exchange gains and losses, EPS for 2008 reached $6.13. Cash from operations in 2008 increased 23% over 2007 levels to $155,207,000, and free cash flow totaled $124,257,000, up over 22% from 2007 levels.
Segment Highlights
Core Laboratories reports results under three operating segments: Reservoir Description, Production Enhancement, and Reservoir Management.
Reservoir Description
Reservoir Description operations reported quarterly revenues of $108,730,000, up 9% from year-earlier totals, while operating profit, excluding the effects of foreign exchange losses, totaled $26,351,000. Operating margins, excluding currency effects, were 24%.
Demand for Core's Reservoir Description services, many of which are proprietary and patented, remained robust. This is especially the case for services used to characterize reservoir fluids, which include natural gases, crude oil and its derived products, and formation waters. Results from Core's PVT phase-behavior studies play a key role in the design and optimization of production and production-enhancement strategies, as well as in the design of surface production facilities needed for efficient reservoir management. Crude-oil distillations and assays are used to determine the most cost-effective fractionation and best yield of derived petroleum products, such as distillates, gasoline, and diesel fuels. Crude oil can be sampled directly from the producing reservoir, at the wellhead, from a transport vessel or pipeline, or at any point as it is moved to the refinery. Proper testing and inspection of crude oils and their derived products ensures that oil companies can maximize cash flow from their purchases and sales. These services provide additional value-add at lower commodity price decks when every basis point becomes more significant to the oil companies.
Production Enhancement
Production Enhancement operations posted $75,439,000 in revenue, an increase of 19% over 2007 fourth quarter levels, and increased operating profit 22% to $23,390,000, excluding foreign currency effects. Operating margins, excluding currency effects, were 31%. Production Enhancement operations benefited from concentrating efforts in the North American gas-shale plays, providing newly developed technology and services to increase flow rates and total hydrocarbon recovery from gas-shale wells.
Core's proprietary and patented fracture diagnostic technology and services continue to increase market penetration in gas-shale developments. Core's newest perforating technology, the SuperHERO Plus+(TM) charge, is a high-performance, ultra-low debris charge. Improvements to the Company's patented HWM(SM) powdered metal liner compositions and proprietary and patented high-explosive formula and design have improved formation penetration by as much as 15%. Increased formation penetration with minimal formation damage yields higher initial production rates and greater ultimate recovery of hydrocarbons from the formation. The new charge also has the potential to significantly lower the producing formation's breakdown pressure, reducing the cost of hydraulic fracture stimulation programs. The new technology is proving to be very effective in gas-shale developments.
Reservoir Management
Reservoir Management operations reported its most profitable quarter in Company history, with record quarterly revenue and operating profit of $17,019,000 and $6,354,000, respectively, excluding foreign currency effects. Operating margins, excluding currency effects, reached a record 37%.
The record results were due to increased demand for the Company's joint-industry studies -- including those associated with North American gas-shales -- for the Company's products and services in the deepwater basins offshore Brazil and West Africa, and for projects related to the petroleum systems in North Africa, the Middle East, and Asia-Pacific.
In addition, a record number of monitoring systems for reservoir temperature and pressure were delivered to clients in Canada, South America, the Middle East, and Asia-Pacific. The systems were used in Canada to optimize Steam Assisted Gravity Drainage (SAGD) developments, while most of the other systems were utilized to monitor high-temperature, high-pressure well performance.
Free Cash Flow, Debt Repurchase, Share Repurchase Program, and 2009 Capex Program
For the fourth quarter of 2008, Core generated approximately $45,070,000 in cash from operations and had approximately $9,347,000 in capital expenditures. Free cash flow for the quarter totaled approximately $35,723,000.
Core continued to use its free cash to enhance shareholder value by repurchasing significantly discounted debt in the quarter. The Company repurchased debt with a notional value of $61,342,000 for approximately $53,019,000, resulting in a pre-tax gain in the quarter of $8,323,000. The opportunistic repurchase of debt priced below par reduced the Company's outstanding debt by over 20%.
