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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 001-14273

CORE LABORATORIES N.V.

Registrant’s telephone number, including area code: (31-20) 420-3191

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

     Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act. Yes x No o

     As of June 28, 2002, the number of common shares outstanding was 33,264,821. At that date, the aggregate market value of common shares held by non-affiliates of the registrant was approximately $393,419,000.

     As of April 1, 2003, the number of common shares outstanding was 31,625,910. At that date, the aggregate market value of common shares held by non-affiliates of the registrant was approximately $283,300,785.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

CORE LABORATORIES N.V.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

General

     Core Laboratories N.V. (“Core Laboratories”, “we”, “our” or “us”) was established in 1936 and is one of the world’s leading providers of proprietary and patented reservoir description, production enhancement and reservoir management services to the oil and gas industry. These services are directed toward enabling our clients to improve reservoir performance and increase oil and gas recovery from their producing fields. We have over 70 offices in more than 50 countries and have approximately 4,450 employees.

Business Strategy

     Our business strategy is to continue to provide advanced technologies that improve reservoir performance by (i) continuing the development of proprietary technologies through client-driven research and development, (ii) expanding the services and products offered throughout our global network of offices and (iii) acquiring complementary technologies that add key technologies or market presence and enhance existing products and services.

     Development of New Technologies, Services and Products

     We conduct research and development to meet the needs of our customers who are continually seeking new services and technologies to lower their costs of finding, developing and producing oil and gas. While the aggregate number of wells being drilled per year has fluctuated relative to market conditions, oil and gas producers have, on a proportional basis, increased expenditures on technology services which improve their understanding of the reservoir thereby increasing production of oil and gas from their producing fields. We intend to continue concentrating our efforts on services and technologies that improve reservoir performance and increase oil and gas recovery.

     International Expansion of Services and Products

     Another component of our business strategy is to broaden the spectrum of services and products offered to our clients on a global basis. We plan to use our worldwide network of offices to offer many of our new services and products that have been developed internally or obtained through acquisitions. This allows us to enhance our revenues through efficient utilization of our worldwide network.

     Acquisitions

     We continually review potential acquisitions to add key services and technologies, enhance market presence or complement existing businesses. Our recent acquisitions reflect our desire to broaden the services we offer within our three primary business segments to our clients. In order to further our business strategy, in July 2002, we acquired certain assets of Advanced Data Solutions (“ADS”). The addition of the ADS assets strengthens the Reservoir Management segment by providing additional depth-imaging and velocity modeling services.

     More information relating to acquisitions is included in Note 3 of the Notes to Consolidated Financial Statements.

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Operations

     We derive our revenues from services and product sales to customers primarily in the oil and gas industry.

     Our reservoir optimization services and technologies are interrelated and are organized into three complementary segments. Disclosure relating to the results of these business segments is included in Note 15 of the Notes to Consolidated Financial Statements.

	•		Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples. We provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry.
	•		Production Enhancement: Includes products and services relating to reservoir well completions, perforations, stimulations and production. We provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
	•		Reservoir Management: Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients’ reservoirs.

     We offer our services worldwide through our global network of offices. Services accounted for approximately 83%, 81% and 77% of our revenues from operations for the years ended December 31, 2002, 2001 and 2000, respectively.

     We manufacture products primarily in four facilities for distribution on a global basis. Product sales accounted for approximately 17%, 19% and 23% of our revenues from operations for the years ended December 31, 2002, 2001 and 2000, respectively.

     Our sales backlog at December 31, 2002 was approximately $3.6 million, compared to $5.5 million at December 31, 2001. Sources of raw material are readily available and our sales backlog should be filled in 2003.

     Reservoir Description

     Commercial oil and gas fields consist of porous and permeable reservoir rocks that contain natural gas, crude oil and water. Due to the density differences of the fluids, natural gas typically caps the field and overlies an oil layer, which overlies the water. We provide services that characterize the porous reservoir rock and all three reservoir fluids. Services relating to these fluids include determining quality and measuring quantity of the fluids and their derived products.

     We analyze samples of reservoir rocks for their porosity, which determines reservoir storage capacity, and for their permeability, which defines the ability of the fluids to flow through the rock. These measurements are used to determine how much oil and gas are present in a reservoir and the rates at which the oil and gas can be produced. We also use our proprietary services and technologies to correlate the reservoir description data to wireline logs and seismic data. These data sets are also used to determine the different acoustic velocities of reservoir rocks containing water, oil and natural gas. These velocity measurements are used in conjunction with our reservoir management services.

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Production Enhancement

     We produce data to describe a reservoir system which is used to enhance oil and gas production so that it will exceed the average oilfield recovery factor which is approximately 40%. Two production-enhancement methods commonly used are (i) hydraulic fracturing of the reservoir rock to improve flow and (ii) flooding the field with water, carbon dioxide or hydrocarbon gases to force more oil and gas to the wellbore. Many oilfields today are hydraulically fractured and flooded to maximize oil and gas recovery. Our services and technologies play a key role in the success of both methods.

     The hydraulic fracturing of a producing formation is achieved by pumping a proppant material in a gel slurry into the reservoir zone at extremely high pressures. This forces fractures to open in the rock and “props” or holds the fractures open so that reservoir fluids can flow to the production wellbore.

     Our data on rock type and strength are critical for determining the proper design of the hydraulic fracturing job. In addition, our testing indicates whether the gel slurry is compatible with the reservoir fluids so that damage does not occur to the porous rock network. Our proprietary ZeroWash™ tracer technology is also used to determine that the proppant material was properly placed in the fracture to ensure effective flow and increased recovery.

     We also introduced a new technology, SpectraChem™ to aid operators in determining the efficiency of frac fluid performance. SpectraChem™ tracers allow operators to evaluate the quantity of frac fluid that returns to the wellbore during the clean-up period after a hydraulic fracturing event. SpectraChem™ is another proprietary technology developed for optimizing hydraulic frac performance. This technology also allows our clients to evaluate load recovery, gas breakthrough, fluid leakoff and breaker efficiency, all of which are important factors for optimizing natural gas production after the fracing event.

     We conduct dynamic flow tests of the reservoir fluids through the reservoir rock, at actual reservoir pressure and temperature, to realistically simulate the actual flooding of a producing zone. We use patented technologies, such as our Saturation Monitoring by the Attenuation of X-rays (SMAX™), to help design the enhanced recovery project. After a field flood is initiated, we are often involved in monitoring the progress of the flood to ensure the maximum amount of incremental production.

     We continued to develop a unique completion system (called the Completion Profiler) to better determine flow rates from reservoir zones after they have been hydraulically fractured. This provides our clients with production information without additional well time. Patent applications covering the technology have been filed in the United States of America (“U.S.”) and in certain foreign jurisdictions.

     Our PackScan™ technology, which is used as a tool to monitor the wellbore in an unconsolidated reservoir, has contributed to our revenue growth. PackScan™ measures the density changes in the area around the tool and is designed to observe the changes within the wellbore to verify the completeness of the gravel pack protection of the wellbore.

     We are also an industry leader in high-performance perforating and completion systems engineered to maximize well productivity by reducing, eliminating or overcoming formation damage during the completion of oil and gas wells.

     Reservoir Management

     Reservoir description and production enhancement information, when applied across an entire oilfield, is used to maximize daily production and the ultimate total recovery from the reservoir. We are involved in numerous large-scale reservoir management projects, applying proprietary and state-of-the-art techniques from the earliest phases of a field development program until the last economic barrel of oil is recovered.

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     These projects are of increasing importance to oil companies as the incremental barrel is often the lowest cost and most profitable barrel in the reservoir. Producing incremental barrels increases our clients’ cash flows which we believe will result in additional capital expenditures of our clients, and ultimately further opportunities for us.

     The integration of the technologies acquired with the ADS asset purchase into our reservoir management services will allow us to provide a powerful and unique range of services and products to the geophysical industry, including velocity modeling and depth imaging to our clients. ADS provides software solutions for pre-stack depth migration and developed VIEWS™, one of the most comprehensive velocity modeling software packages available in the industry. ADS was instrumental in developing seismic processing on computer processing clusters and has developed expertise in cluster management and optimization. In addition, we have acquired the technology to provide four versatile migration tools to solve the most complex structural problems. These depth-imaging technologies are: Kirchhoff, Beam Stack, Phase Screen and Shot Domain Fourier Finite Difference which we plan to offer through our worldwide network. The combination of our integrated approach to reservoir characterization, our expertise in core to seismic correlation and now our move into the velocity modeling and depth imaging technology gives us a unique position in the industry.

Marketing and Sales

     We market and sell our services and products through a combination of print advertising, technical seminars, trade shows and sales representatives. Direct sales and marketing are carried out by our sales force, technical experts and operating managers, as well as by sales representatives and distributors in various markets where we do not have offices.

Research and Development

     The market for our products and services is characterized by changing technology and frequent product introduction. As a result, our success is dependent upon our ability to develop or acquire new products and services on a cost-effective basis and to introduce them into the marketplace in a timely manner. Many of our acquisitions have allowed us to obtain the benefits of the acquired company’s research and development projects without the significant costs that would have been incurred if we had attempted to develop the products and services on our own. Research and development expenditures are charged to expense as incurred. We intend to continue committing substantial financial resources and effort to the development and acquisition of new products and services. Over the years, we have made a number of technological advances, including the development of key technologies utilized in our operations. Substantially all of the new technologies have resulted from requests and guidance from our clients, particularly major oil companies. Additional disclosure relating to research and development is included in Note 2 of the Notes to Consolidated Financial Statements.

Patents and Trademarks

     We believe our patents, trademarks and other intellectual property rights are an important factor in maintaining our technological advantage, although no one patent is considered essential to our success. Typically, we will seek to protect our intellectual technology in all jurisdictions where we believe the cost of such protection is warranted. While we have patented some of our key technologies, we do not patent all of our proprietary technology even where regarded as patentable. In addition to patents, in many instances we protect our trade secrets through confidentiality agreements with our employees and our customers.

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International Operations

     We operate facilities in more than 50 countries. Our non-U.S. operations accounted for approximately 61%, 59% and 60% of our revenues from operations during the years ended December 31, 2002, 2001 and 2000, respectively. Some of our revenues in the U.S. are generated by projects located outside the U.S.

     While we are subject to fluctuations and changes in currency exchange rates relating to our international operations, we attempt to limit our exposure to foreign currency fluctuations by limiting the amount in which our foreign contracts are denominated in a currency other than the U.S. dollar to an amount generally equal to the expenses expected to be incurred in such foreign currency. During 2002, we experienced a foreign currency loss of $1.8 million relating to our operations and financial position in Venezuela. We have not historically engaged in and do not currently intend to engage in any significant hedging or currency trading transactions designed to compensate for adverse currency fluctuations. More information on international operations is included in Note 15 of the Notes to Consolidated Financial Statements.

Environmental Regulation

     We are subject to a variety of governmental regulations relating to the use, storage, discharge and disposal of chemicals and gases used in our analytical and manufacturing processes. Consistent with our quality assurance and control principles, we have established proactive environmental policies with respect to the handling and disposal of such chemicals, gases, emissions and waste materials. We have engaged outside consultants to audit our environmental activities and have implemented health and safety education and training programs. We believe that our operations are currently in compliance with applicable environmental laws and regulations, and that continued compliance with existing requirements will not have a material adverse effect on our financial position or results of operations. Public interest in the protection of the environment, however, has increased dramatically in recent years. We anticipate that the trend toward more expansive and stricter environmental laws and regulations will continue, the occurrence of which may require us to increase capital expenditures or operating expenses.

Competition

     The businesses in which we engage are competitive. Some of our competitors are divisions or subsidiaries of companies that are larger and have greater financial and other resources than we have. While no one company competes with us in all of our product and service lines, we face competition in these lines, primarily from independent, regional companies. We compete in different product and service lines to various degrees on the basis of price, technical performance, availability, quality and technical support. Our ability to compete successfully depends on elements both within and outside of our control, including successful and timely development of new products and services, performance and quality, customer service, pricing, industry trends and general economic trends.

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Reliance on the Oil and Gas Industry

     Our business and operations are substantially dependent upon the condition of the global oil and gas industry. Future downturns in the oil and gas industry, or in the oilfield services business, may have a material adverse effect on our financial position or results of operations.

     The oil and gas industry is highly cyclical and has been subject to significant economic downturns at various times as a result of numerous factors affecting the supply of and demand for oil and natural gas, including the level of capital expenditures of the oil and gas industry; the level of drilling activity; the level of production activity; market prices of oil and gas; worldwide economic conditions; interest rates and the cost of capital; environmental regulations; tax policies; political requirements of national governments; coordination by the Organization of Petroleum Exporting Countries (“OPEC”); cost of producing oil and natural gas; and technological advances.

Employees

     As of December 31, 2002, we had approximately 4,450 employees. We do not have any material collective bargaining agreements and consider relations with our employees to be good.

Web Site Access to Our Periodic SEC Reports

     Our primary Internet address is www.corelab.com. We file Forms 10-Q and Forms 10-K and current reports on Form 8-K with the Securities and Exchange Commission (“SEC”). These reports are available free of charge through our web site as soon as reasonably practicable after they are filed electronically with the SEC. We may from time to time provide important disclosures to investors by posting them in the investor relations section of our web site, as allowed by SEC rules.

     Materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

Risk Factors

     Our forward-looking statements are based on assumptions that we believe to be reasonable but that may not prove to be accurate. All of our forward-looking information is, therefore, subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify all factors, these risks and uncertainties include the risk factors discussed below.

     Industry risks

     The oil and gas industry is highly cyclical and there are numerous factors affecting the supply of and demand for our products and services, which include:

	•		market prices of oil and gas and expectations about future prices;
	•		cost of producing oil and natural gas;
	•		the level of drilling and production activity;
	•		mergers, consolidations and downsizing among our clients;
	•		coordination by OPEC;
	•		the impact of commodity prices on the expenditure levels of our customers;
	•		financial condition of our client base and their ability to fund capital expenditures; and
	•		adverse weather conditions.

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     Business risks

     Our results of operations could be adversely affected by risks and uncertainties in the business environment in which we operate, including:

	•		competition in our markets;
	•		the realization of anticipated synergies from acquired businesses and future acquisitions;
	•		our ability to continue to develop or acquire new and useful technology; and
	•		interest rates and the cost of capital.

     International risks

     We conduct our business in over 50 countries and are subject to political and economic instability and the laws and regulations in the countries in which we operate. These include:

	•		global economic conditions;
	•		political actions and requirements of national governments including trade restrictions, and embargos and expropriations of assets;
	•		potential income tax liabilities in multiple jurisdictions;
	•		war;
	•		civil unrest;
	•		acts of terrorism;
	•		fluctuations and changes in currency exchange rates;
	•		the impact of inflation; and
	•		current conditions in Venezuela and Iraq.

     Economic downturn and political events that continue to unfold have resulted in lower demand for our products and services. The war in Iraq and the anticipated repercussions from terrorist groups that the U.S. government has cautioned against have further heightened our exposure to international risks. Our global economy is highly influenced by public confidence in the geopolitical environment and the situation in the Middle East continues to be highly fluid; therefore, we will continue to experience heightened international risks.

     We recognized a foreign currency loss of $1.8 million related to our Venezuela operations during 2002. The Venezuela economy is still unstable and we will continue to monitor our operations and financial position in this region.

     Other risks

     Our client base could be impacted by events we cannot predict or we could be impacted by a change in the conduct of business, transportation and security measures. In addition we are subject to other risk factors such as the impact of environmental regulations, litigation risks as well as the dependence on the oil and gas industry. Many of these risks are beyond our control. In addition, future trends for pricing, margins, revenues and profitability remain difficult to predict in the industries we serve and under current economic and political conditions.

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ITEM 2. PROPERTIES

     Currently, we have over 70 offices (totaling more than one million square feet) in more than 50 countries. In these locations, we typically lease our office facilities. We serve our worldwide customers through six Advanced Technology Centers (“ATC’s”) that are located in Houston, Texas; Calgary, Canada; Jakarta, Indonesia; Rotterdam, The Netherlands; Aberdeen, Scotland; and Villahermosa, Mexico. The ATC’s are supported by over 50 regional specialty centers located throughout the global energy producing provinces. Our facilities are adequately utilized for current operations. However, expansion into new facilities may be required to accommodate future growth.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of business. We believe that the outcome of current legal actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2002.

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PART II

ITEM 5. MARKET FOR THE COMMON SHARES AND RELATED SHAREHOLDER MATTERS

Price Range of Common Shares

     Our common shares trade on the New York Stock Exchange (“NYSE”) under the symbol “CLB”. The range of high and low sales prices per share of the common shares as reported by the NYSE are set in the following table for the periods indicated.

     On April 1, 2003, the closing price, as quoted by the NYSE, was $9.09 per share. As of April 1, 2003, there were 33,277,110 common shares held by approximately 170 record holders and approximately 10,400 beneficial holders.

Dividend Policy

     We have never paid dividends on our common shares and currently have no plans to pay dividends on the common shares. We expect that we will retain all available earnings generated by our operations for the development and growth of our business. Any future determination as to the payment of dividends will be made at the discretion of our Supervisory Board and will depend upon our operating results, financial condition, capital requirements, income tax treatment of payments general business conditions and such other factors as they deem relevant. Because we are a holding company that conducts substantially all of our operations through subsidiaries, our ability to pay cash dividends on the common shares is also 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. See “Liquidity and Capital Resources” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Recent Issuance of Unregistered Securities

     Disclosure related to recent issuances of common shares is included in Note 3 and Note 10 of the Notes to Consolidated Financial Statements. With respect to the shares issued in each acquisition, we relied on exemption from registration under Section 4(2) of the Securities Act of 1933.

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ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated financial information contained below is derived from our Consolidated Financial Statements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements.

     The Consolidated Financial Statements for the fiscal years 1998 through 2001 were audited by Arthur Andersen LLP (“Andersen”) that ceased operations. A copy of the report previously issued by Andersen on our financial statements as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 is included elsewhere in the Form 10-K. Such audit report has not been reissued by Andersen.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     Generally, our customers’ expectations about their capital expenditure programs change in correlation to rig activity and the prices of oil and natural gas. Accordingly, the changes in their capital expenditures will normally result in increased or decreased demand for our products and services.

     Although commodity prices for both natural gas and crude oil rose throughout 2002, activity levels in the oilfield service sector did not increase commensurately. Rig count did improve in the U.S. markets early in the year, only to stay virtually unchanged from May until the end of the year. Rig count activity outside the U.S. remained relatively constant throughout the year.

Rig Count/Oil and Gas Prices

     Production of natural gas in 2002 was down compared to the prior year, which contributed to an increase in the price of natural gas during the year. In addition, the amount of natural gas in storage changed from being at near five-year highs at the beginning of the year to significantly below average levels March 31, 2003. Oil prices also rose throughout the year due principally to geopolitical reasons.

     Outside North America, our sales grew during the year to record levels despite the continued depressed activity levels of our clients. However, due to the lower activity levels in North America, the products and services that we offer into those markets suffered during the year. We continue our efforts to expand our market presence by opening strategic facilities and realizing synergies within our business lines. Also, as a result of the consolidation in the oil and gas industry, some of our customers have used, and may continue to use, their global presence and market influence to seek economies of scale and pricing concessions.

Critical Accounting Policies and Estimates

     Management’s discussion and analysis of our financial position and results of operations are based on financial statements prepared in conformity with generally accepted accounting principles (“GAAP”) in the U.S. and require management to make estimates and assumptions during their preparation. The following critical accounting policies affect our significant judgments:

	•		revenue recognition;
	•		long-lived assets, intangibles and goodwill;
	•		inventory valuation allowances;
	•		income taxes; and
	•		estimates.

Revenue Recognition

     Revenues are recognized as services are completed or as product title is transferred. All advance client payments are classified as unearned revenues until services are earned or product title is transferred. We recognize revenue consistent with the guidance set forth in the SEC

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Staff Accounting Bulletin No. 101, (“SAB 101”), as amended. To determine proper revenue recognition, we ensure that we follow these principles: (i) persuasive evidence an arrangement exists; (ii) delivery has occurred or services rendered; (iii) the fee is fixed and determinable; and (iv) collectibility is reasonably assured. Revenues from long-term contracts are recorded as services are rendered in proportion to the work performed. All known or anticipated losses on contracts are provided for currently. Training and consulting service revenues are recognized as the services are performed.

     Sales of perpetual software licenses, net of deferred maintenance fees, are recorded as revenue once the criteria of Statement of Position
98-9, “Modification of SOP 97-2, Software Revenue Recognition With Respect to Certain Transactions” are successfully met. We primarily license our software products under perpetual licenses. Customer support agreements are recorded as unearned revenues and recognized as revenue ratably over the contract period, generally one year.

Long-lived assets, Intangibles and Goodwill

     Property, plant and equipment are carried at cost. Major renewals and improvements are capitalized and depreciated over the respective asset’s remaining useful life. Maintenance and repair costs are charged to expense as incurred. When 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.

     Property, plant and equipment held and used by us is reviewed for impairment whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Indicators of possible impairment include extended periods of idle use and/or an inability to contract specific assets or groups of assets.

     In June 2001, the Financial Accounting Standards Board (“FASB”) issued two statements, Statement of Financial Accounting Standards (“SFAS”) 141, “Business Combinations”, and SFAS 142, “Goodwill and Other Intangible Assets”, that amend Accounting Principles Board (“APB”) Opinion No. 16, “Business Combinations”, and supersede APB Opinion No. 17, “Intangible Assets.” SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations and establishes the purchase method of accounting as the only acceptable method for all business combinations initiated after June 30, 2001. Four of our acquisitions in 2000 and 2001 were accounted for using the pooling-of-interests method of accounting and were completed prior to the adoption of SFAS 141. Goodwill resulting from a business combination from an asset acquisition occurring after June 30, 2001 is to be recognized as an asset but not amortized, while goodwill existing at June 30, 2001 was amortized through December 31, 2001. As a result of adoption of SFAS 142, beginning January 1, 2002, we no longer amortize goodwill but will test for impairment annually or more frequently if circumstances indicate a potential impairment. Any resulting impairment loss could result in a material adverse effect upon our financial position and results of operations. Upon adoption, in the first quarter of 2002, we recorded an impairment of goodwill of approximately $16.7 million related to our Reservoir Management segment which is reflected in the consolidated statement of operations as a cumulative effect of change in accounting principle. The cessation of goodwill amortization under the guidelines resulted in a reduction in operating expenses of approximately $4.2 million in 2002.

Inventory Valuation Allowances

     Our valuation reserve for inventory is based on historical data, and various other assumptions and judgments. Should these assumptions and judgments not come to fruition our valuation would change. The industry we operate in is subject to technological change and new product development that could result in obsolete inventory. Our valuation reserve for inventory at December 31, 2002 was $0.3 million compared to $1.8 million at December 31, 2001. If we over or underestimate demand for inventory, it could result in a material adverse effect upon our financial position and results of operations.

Income Taxes

     Our income tax expense includes income taxes of The Netherlands, U.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 recovered or the liability is settled. 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. At December 31, 2002, we had recorded approximately $7.7 million of valuation allowances related to our net deferred tax assets. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets

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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.

     For a detailed discussion of our accounting policies see Note 2 of the Notes to Consolidated Financial Statements.

Estimates

     The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis and base these estimates on our historical experience as well as on various other assumptions that we believe are reasonable in a given circumstance. By nature, these judgments are subject to an inherent degree of uncertainty. We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time we are making the estimate and if changes in the estimate under different assumptions would have had a material impact on our financial condition.

     Critical estimates include:

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Off-Balance Sheet Arrangements

     We hold investments in unconsolidated subsidiaries whose operations are in-line with those of our core businesses. Our investment and operating percentages in these entities are included in our consolidated financial statements. These entities are not considered special purpose entities nor do we have special off-balance sheet arrangements through these entities. They are not consolidated due to the limited influence we have in making management decisions. We do not expect our investments to have a material adverse effect on our financial position or results of operations.

Business

     Core Laboratories was established in 1936 and is currently traded on the New York Stock Exchange.

     We provide our products and services to the world’s major, national and independent oil companies. Our specialty services and products are designed to improve oil and gas recovery from new and existing fields through the following business segments:

	•		Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples. We provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry.
	•		Production Enhancement: Includes products and services relating to reservoir well completions, perforations, stimulations and production. We provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
	•		Reservoir Management: Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients’ reservoirs.

     We plan to continue the expansion of our operations through (i) continuing the development of proprietary technologies through client-driven research and development, (ii) expanding the services and products offered throughout our global network of offices and (iii) acquiring complementary businesses that add key technologies or market presence and enhance existing products and services.

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Results of Operations
Service Revenues and Cost of Services
(Dollars in Millions)

     The discussion of operating results at the consolidated level is followed by a more detailed discussion of operating results by segment.

     Our revenues are derived from services and product sales. Services revenues in 2002 were $302.1 million as compared to $304.6 million in 2001. While oilfield activity levels in North America were weak, this was offset by sales of our services outside of the North American markets as well as the $3.4 million of revenue attributable to the acquisition of ADS. In 2001, strong demand for our services led to revenue growth of $41.1 million as compared to 2000. These increases were primarily derived from an increase in oilfield activity in the first half of 2001 in North America for our production enhancement projects.

     Costs of services in 2002 were $240.8 million, an increase of $8.1 million from 2001. Costs of services in 2001 were $232.7, an increase of $20.1 million from 2000. Costs of services expressed as a percentage of service revenue were 80%, 76% and 81% in 2002, 2001, and 2000, respectively. The increase in the costs of services percentage was primarily due to the completion of international projects with lower margins coupled with a decrease in higher margin projects in the North American production enhancement business. Costs of services for Venezuela remained steady while revenues declined drastically due to the business disruptions experienced in these countries.

Sales Revenues and Cost of Sales
(Dollars in Millions)

     Decreased sales demand for two consecutive years led to a decline in sales revenue in 2002 and 2001. Sales revenue in 2002 decreased by 13% to $62.7 million compared to $72.0 million in 2001 and decreased by 7% in 2001 as compared to 2000. Significantly lower demand for our products was spurred by the deep decline in drilling for natural gas in the North American markets.

     Costs of sales in 2002 were $60.5 million, a decrease of $0.2 million as compared to 2001. Costs of sales in 2001 decreased $1.7 million from $62.3 million in 2000. Costs of sales expressed as a percentage of sales revenues were 96% in 2002, 84% in 2001 and 80% in 2000. A contributing factor to the decline in margins in 2002 was the currency devaluation in Venezuela $1.8 million.

     General and administrative expenses are comprised of corporate management and centralized administrative services that benefit our operating subsidiaries. We experienced an increase of $4.3 million in 2002 from 2001 and $2.4 million in 2001 from 2000. In 2002, general and administrative expenses as a

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percentage of revenue were 6% as compared to 4% in 2001 and 2000. The increases were due to increased staffing levels as well as continued implementation of company-wide financial accounting system.

     Depreciation and amortization expense for 2002 was $20.1 million, an increase of $1.7 million as compared to 2001. In 2001 we had an increase of $3.1 million compared to 2000. These increases were due primarily to the additional capital investments that occurred in both 2002 and 2001.

     As a result of the adoption of SFAS 142 beginning January 1, 2002, we no longer amortize goodwill but will test for impairment annually or more frequently if circumstances indicate a potential impairment. Under these requirements, in the first quarter of 2002 we reflected impairment of goodwill of approximately $16.7 million related to our Reservoir Management segment. This impairment is reflected in the consolidated statement of operations as a cumulative effect of change in accounting principle. The cessation of goodwill amortization under the guidelines resulted in a reduction in operating expenses of approximately $4.2 million in 2002.

     During the fourth quarter of 2001, we recorded write-offs and other charges of $5.8 million. These charges were comprised of inventory write-downs of $3.9 million, charges of $0.4 million to write fixed assets down to their fair value, and other costs of $1.5 million to migrate data from legacy computer systems to a global information system database.

     During the fourth quarter of 2001 we also had several transactions that impacted certain operations that were not viewed as ongoing. We restructured certain operations in Mexico, the United Kingdom, the U.S. and other countries to improve operating efficiencies. This restructuring expense included write-offs of assets and leasehold improvements, and an accrual for facility restoration, severance benefits (for approximately 100 field employees) and lease termination costs. The remaining accruals for facility restoration should be utilized in 2003 and the lease obligations will be utilized by May 2005. During 2002 we relocated a facility from Mexico City, Mexico to Villahermosa, Mexico. We intend to complete the relocation of one of our operations from Dallas to the Houston Advanced Technology Center in early 2003. This charge of approximately $3.0 million affected each of our operating segments as follows: Reservoir Description — $0.8 million; Production Enhancement — $0.1 million; Reservoir Management — $2.1 million. Substantially all employee terminations were completed by the end of the first quarter of 2002. Total cash required for this restructuring charge of $2.1 million will be funded from operating activities. Cash required for the costs incurred through December 31, 2002 was $1.6 million. This charge is summarized in the following table:

Restructuring Charges

     Other expense in 2002 was $2.4 million compared to other income of $0.5 million in 2001 and $1.2 million in 2000. The change from 2001 to 2002 consists primarily of additional foreign currency losses of $2.0 million. The change from 2000 to 2001 was the result of a reduced gain on sale of assets and additional foreign currency losses.

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     Interest expense for 2002 was $7.6 million, a decrease of approximately $0.3 million as compared to 2001. Interest expense decreased by $0.4 million in 2001 as compared to 2000. The decrease in interest expense was primarily attributable to lower borrowing costs and lower levels of debt.

     The 2002 effective income tax rate increased to 42% of operating income before cumulative effect of change in accounting principle from the 2001 rate of 28%. This increase was the result of an increase in expenses that are not deductible for tax purposes and an increased valuation allowance on Venezuela deferred tax assets. The decrease from 32% in 2000 to 28% in 2001 reflects the relative increase in international earnings taxed at rates lower than The Netherlands statutory rate. For a reconciliation of the statutory rate of 34.5% to the effective rate, see Note 9 of the Notes to Consolidated Financial Statements.

Segment Analysis

     Our operations are managed primarily in three complementary segments - Reservoir Description, Production Enhancement and Reservoir Management.

Segment Information

Revenues

Operating income (loss) before interest, taxes
and unusual charges

Reservoir Description

     Reservoir Description revenues for 2002 were $220.3 million, an increase of 3% compared to 2001. This increase was mainly attributable to increased activity levels outside North America. In addition, we experienced an increase in demand for our website services and penetrated new markets in the former Soviet Union. Revenues for 2001 were $213.9

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million, an increase of 11% compared to 2000 revenues. During 2001 we introduced technology in our Gulf of Mexico operations in the form of well site and laboratory analysis of unconsolidated core from deepwater reservoirs. Improved market conditions in the Middle East and Asia Pacific also contributed to the increase in revenue.

     Operating income before interest, taxes and unusual charges in 2002 decreased $8.3 million as compared to 2001. Reduced activity levels by our clients in North America were the primary factor for our lower earnings in 2002. Other contributing factors to the decrease were political instability in Venezuela and currency devaluation. We experienced an increase in income before interest, taxes and unusual charges of $9.9 million in 2001 as compared to 2000. Reduced operating costs in the U.S. due to the consolidation of businesses led to the increase in margins in 2001 as compared to 2000.

Production Enhancement

     Production Enhancement revenues for 2002 were $91.8 million, a decrease of 12% compared to 2001 revenues. Due to lower industry activity levels, we continued to experience decreased demand for our well completion and stimulation technologies, primarily in our North American markets. The introduction of two new services, PackScan™ and Completion Profiler™, contributed to the increase in revenue of 13% in 2001 compared to 2000. In addition, we increased Canadian market penetration with proprietary perforating charges and gun systems with our 2001 asset purchase of Tesco Corporation’s Gris Gun.

     Operating income before interest, taxes and unusual charges in 2002 decreased by 77% as compared to 2001. Sales of lower margin services and the general decline in the North American markets impacted earnings in this segment. In 2001, our earnings remained constant compared to 2000. In 2001, in an effort to improve manufacturing efficiencies, we recorded expense in cost of sales of approximately $3.3 million for several initiatives. These initiatives were implemented in the fourth quarter whereby certain processes and business practices were evaluated and improvements were made. These costs were offset by income increases due to new initiatives with our downhole completion technologies and incremental margins on fracture diagnostic and field flood monitoring services as the introduction of new services and products in our production enhancement segment increased.

Reservoir Management

     Reservoir Management revenues for 2002 were $52.6 million, a decrease of 10% compared to 2001 revenues. As part of our refocus effort for this group which we announced at the beginning of the year, we elected to transition from lower margins jobs to more integrated higher margin projects, consequently, revenues decreased. The new projects include higher content of our proprietary services and engineering capabilities for providing field and basin-wide production optimization solutions.

     Despite our continued efforts to refocus our business strategy in this segment, we recognized a loss of $2.7 million in operating income before interest, taxes and unusual charges. In 2001, although we experienced a loss, our margins improved compared to 2000.

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     We recorded a restructuring charge of $3.0 million during 2001 to reflect our costs to restructure and refocus this segment of our business. Beginning in 2001 certain facilities were downsized or closed, causing our workforce in this segment to be reduced by 45% from the highest levels in 2001. We have taken and will continue to take actions, including, but not limited to, employee terminations and facility consolidations, when appropriate, to control our costs and generate additional service revenues in order to improve our results in this segment.

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 from Operating Activities

     In 2002, $41.0 million in cash was provided by operating activities compared with $28.9 million in 2001. The change from 2001 was primarily a result of non-cash charges, including a cumulative effect of change in accounting principle of $16.7 million due to the impairment of goodwill related to our Reservoir Management segment, as well as an increase in depreciation and amortization of $1.7 million from prior years as a result of depreciation on additional capital investments made in both 2002 and 2001. Provision for doubtful accounts increased by $4.5 million as we recorded a provision based on our historical experience with accounts receivable collection due to current market conditions. Inventory decreased by $6.6 million as part of management’s efforts to improve inventory turns. The decrease in inventory was offset by an increase in prepaid expenses and other current assets of $3.9 million, primarily attributed to an increase in prepaid insurance. Accounts payable increased $5.7 million and other accrued expenses increased $6.5 million.

     For the year ended December 31, 2001 we generated approximately $28.9 million of cash and cash equivalents from operating activities, principally resulting from our net income of $20.6 million, as adjusted for non-cash items such as depreciation and amortization of $18.4 million and goodwill amortization of $4.2 million. Other changes that offset the non-cash items included a decrease in accounts receivable and accounts payable of $2.7 million and $6.8 million, respectively. The decrease in accrued expenses was primarily attributed to income taxes payable of $4.4 million, accrued payroll of $1.6 million and deferred compensation of $1.3 million.

     During the year ended December 31, 2000 cash provided by operating activities was $7.8 million resulting from our net income and adjustments for non-cash expenses such as depreciation and amortization of $15.2 million, goodwill amortization of $4.1 million and deferred income tax benefit of $1.2 million. These items were offset by changes in assets and liabilities which included an increase in accounts receivable of $26.9 million, an increase in inventory of $8.5 million and an increase in accounts payable of $5.0 million.

     Cash from Investing Activities

     Our investing activities used $25.3 million in 2002 compared to using $40.8 million in 2001, while 2000 investing activities used $28.9 million. During 2002, we incurred capital expenditures of $19.1 million, which included a lab and office facility in Russia for approximately $3.0 million. We also acquired certain assets from ADS for approximately $8.0 million and received proceeds from the sale of assets of approximately $1.8 million.

     Our investing activities for 2001 were attributable to capital expenditures of $29.0 million and the acquisition of Gris Gun for $12.8 million in cash. During the year ended December 31, 2000, we incurred capital expenditures of $33.4 million, which included cash outlays for the facility consolidated in Houston.

     Cash from Financing Activities

     We repaid debt and repurchased our common shares in 2002, as a result, our financing activities used $15.2 million in 2002, compared to providing $13.9 million in 2001, while 2000 financing activities provided $14.8 million. The significant financing activities in 2002 were as follows:

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	•		We enacted a share repurchase program approved by shareholders at our annual meeting in May 2002. The program authorized the purchase of up to 10% of our outstanding shares through November 29, 2003. The repurchase of shares in the open market is at the discretion of management. During 2002, we repurchased approximately 860,400 shares for an aggregate purchase price of approximately $9.0 million. We may use these shares to finance future acquisitions.
	•		Our total borrowings were $16.7 million, while repayments were approximately $23.5 million.

     Our financing activities for 2001 included total borrowings of approximately $20.0 million, while repayments were approximately $8.7 million. In 2000, we completed a public offering in which certain shareholders sold 4,644,988 of their common shares. In connection with the offering, the underwriters exercised their over-allotment option and purchased 696,748 common shares from us, which resulted in net proceeds of $17.2 million. These funds were used principally to reduce indebtedness and fund capital expenditures.

     Credit Facilities and Available Future Liquidity

     We maintain financial flexibility through our $100 million Credit Facility of which $87.0 million was available at December 31, 2002. As of March 31, 2003, approximately $83.0 million was available under this Credit Facility. In addition, we have Senior Notes, which bear interest at an average interest rate of 8.16%. The Senior Notes require semi-annual interest payments; interest payments on the Credit Facility are made based on the interest period selected. The terms of the Credit Facility and Senior Notes require us to meet certain financial and operational covenants. We believe that we are in compliance with all such covenants contained in our credit agreements at December 31, 2002. All of our material wholly owned subsidiaries are guarantors or co-borrowers under both credit agreements.

     We lease certain property, primarily land and buildings as well as office equipment and vehicles that are included in our analysis of operating leases.

     The following table summarizes our future contractual obligations (in thousands):

     We additionally have standby letters of credit as security for bids and performance on certain contracts of approximately $2.6 million. We do not believe these letters of credit will be drawn.

     In connection with the ADS acquisition, additional purchase price consideration may be due dependent upon the outcome of certain contingent targets included within the purchase agreement; the maximum additional consideration would be $8.0 million. Any such consideration would subsequently result in an adjustment to goodwill.

     We expect our capital expenditure program to be approximately $20.0 million in 2003. In addition, we plan to continue our repurchase of shares on the open market through our stock buy-back program. Our share repurchase is dependent on market conditions as well as our ability to generate free cash flow.

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     Our ability to maintain and increase our operating income and cash flow is dependent upon continued capital spending. We believe our cash on hand, future cash flow from operations, supplemented, if necessary, by our borrowing capacity and issuances of additional equity should be sufficient to meet debt requirements, capital expenditures, working capital and future acquisitions.

Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (“FASB”) issued two statements, SFAS 141, “Business Combinations”, and SFAS 142, “Goodwill and Other Intangible Assets”, that amend APB Opinion No. 16, “Business Combinations”, and supersede APB Opinion No. 17, “Intangible Assets.” SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations and establishes the purchase method of accounting as the only acceptable method on all business combinations initiated after June 30, 2001. Goodwill resulting from a business combination after June 30, 2001 is to be recognized as an asset but not amortized, while goodwill existing at June 30, 2001 was amortized through December 31, 2001. As a result of adoption of SFAS 142, beginning January 1, 2002, we no longer amortize goodwill but will test for impairment annually or more frequently if circumstances indicate a potential impairment. Any resulting impairment loss could result in a material adverse effect on our financial position and results of operations. Upon adoption, in the first quarter of 2002 we recorded an impairment of goodwill of approximately $16.7 million related to our Reservoir Management segment, which is reflected in the consolidated statement of operations as a cumulative effect of change in accounting principle. The cessation of goodwill amortization under the guidelines resulted in a reduction of approximately $4.2 million in annual operating expenses, assuming no additional impairment of goodwill.

     In June 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of long-lived assets and the associated asset retirement costs. SFAS 143 requires that the fair value of a liability associated with an asset retirement be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently depreciated over the life of the asset. SFAS 143 will be effective for fiscal years beginning after December 31, 2002.

     In August 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” SFAS 144 provides updated guidance for recognition and measurement of an impairment loss for certain types of long-lived assets and modifies the accounting and reporting of discontinued operations. SFAS 144 is effective for fiscal years beginning after December 31, 2001. The adoption of SFAS 144 did not have a material adverse effect upon our financial position or results of operations.

     In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Due to the nature of our business, FASB 44, 64 and Amendment of FASB 13 are not applicable. SFAS 145 eliminates SFAS No. 4 “Reporting Gains and Losses from Extinguishment of Debt” and states that gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB Opinion No. 30 “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. APB Opinion No. 30 defines extraordinary items as events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. The provisions of SFAS 145 related to the classification of gains or losses attributable to debt extinguishments are effective for fiscal years beginning after May 15, 2002. We do not expect SFAS 145 to have a material adverse effect upon our financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather that at the date of commitment to an exit or disposal plan. We will

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adopt SFAS 146 for all exit or disposal activities initiated after December 31, 2002. We do not expect SFAS 146 to have a material adverse effect upon our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. This statement also amends the disclosure provision of SFAS No. 123 and APB No. 28, “Interim Financial Reporting”, to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements, which we have adopted as of December 31, 2002. We do not expect the remaining provisions of SFAS 148 to have a material adverse effect upon our financial position or results of operations.

     In November 2002 the FASB issued Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements, Including Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of certain types of guarantees, a guarantor recognize and account for the fair value of the guarantee as a liability. FIN 45 contains exclusions to this requirement, including the exclusion of a parent’s guarantee of its subsidiaries’ debt to a third party. The initial recognition and measurement provisions of FIN 45 should be applied on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of both interim and annual periods ending after December 31, 2002. The adoption of FIN 45 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

     In January 2003 the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” which addresses the consolidation of variable interest entities (“VIEs”) by business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise that has the majority of the risks or rewards associated with the VIE. The consolidation requirements of FIN 46 apply immediately to VIEs created after January 31, 2003. For VIEs created at an earlier date, the consolidation requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the VIE was established. Based on current information, we believe we have no material interests in VIEs that will require disclosure or consolidation under FIN 46.

Inflation

     Due to the low inflationary rates in 2002, 2001 and 2000, the impact of inflation on our results of operations was insignificant.

Income Taxes

     As more fully described in Note 9 of the Notes to Consolidated Financial Statements at December 31, 2002, we had tax net operating loss carryforwards in various tax jurisdictions of approximately $47.3 million. If unused, those carryforwards subject to expiration will expire over the years 2003 through 2022. Although realization is not assured, we anticipate taxable income in future years will allow us to fully utilize the carryforwards that have not had a valuation allowance placed against them.

Outlook

     We have established internal earnings targets that are based on current market conditions. Based on industry surveys, we anticipate North American spending by our clients to increase slightly from 2002 levels

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in response to increasing oilfield activity. However, we believe that the activity levels outside of North America will remain constant compared to 2002 levels. We expect to meet ongoing working capital and capital expenditure requirements from a combination of cash on hand, cash flow from operations and available borrowings under our revolving Credit Facility.

Forward-Looking Statements

     This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, concerning among other things, our expected revenues, expenses and profit, our prospects, and business strategies and development, all of which are subject to certain risks, uncertainties and assumptions. When used in this document, words such as “anticipate” “believe”, “expect”, “plan”, “intend”, “estimate”, “project”, “budget”, “forecast”, “will”, “should”, “could”, “may”, “predict” and similar expressions are intended to identify forward-looking statements. We based our statements on our current expectations, estimates, historical trends, current conditions and other factors we believe are appropriate under the circumstances. Such statements are subject to various risks and uncertainties related to the oil and gas industry, business conditions, international markets, international political climates and other factors that are beyond our control. We caution you that these statements are not guarantees of future performance. Accordingly, our actual outcomes and results may differ materially from what we express or forecast in the forward-looking statements. Should one or more of these risks or uncertainties materialize, or should our underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

     We are exposed to market risk, which is the potential loss arising from adverse changes in market prices and rates. We do not enter, or intend to enter, into derivative financial instruments for trading or speculative purposes. We do not believe that our exposure to market risks, which are primarily related to (i) interest rate changes and (ii) fluctuations in foreign currency exchange rates, (although we have experienced losses from time-to-time) are material. During 1999, we issued fixed rate Senior Notes denominated in U.S. dollars. The proceeds were used to pay off variable rate term loans that significantly reduced our exposure to upward interest rate changes. This section should be read in conjunction with Note 8 — “Long-Term Debt and Capital Lease Obligations” and Note 12 — “Concentration of Credit Risk” of the Notes to Consolidated Financial Statements.

Interest Rate Risk

     We are exposed to interest rate risk on our Credit Facility debt, which carries a variable interest rate. At December 31, 2002, our variable rate debt outstanding of $13.0 million approximated its fair value. A one percent change in the interest rate would result in a change of approximately $130,000 in interest expense on an annual basis. We attempt to balance the benefit of variable rate debt that has inherent increased risk with fixed rate debt that has less market risk.

Foreign Currency Risk

     We operate in a number of international areas which exposes us to foreign currency exchange rate risk. We do not hold or issue forward exchange contracts or other derivative instruments for speculative purposes. (A foreign exchange contract is a foreign currency transaction, defined as an agreement to exchange different currencies at a given date and at a specified rate.) The most significant foreign currency issue in 2002 arose in connection with our operations in Venezuela. Our Venezuelan operation contributed approximately 3% of our revenues. Because of the recent political and financial crisis in Venezuela, their currency, the Bolivar devalued by approximately 43% during the year ended December 2002. We recognized a foreign currency loss of approximately $1.8 million related to our operations and financial position in this country during 2002.

Credit Risk

     Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Major banks or investment firms hold cash and cash equivalents such as deposits and temporary cash investments. Our trade receivables are with a variety of domestic, international and national oil and gas companies. Management considers this credit risk to be limited due to the creditworthiness and financial resources of these financial institutions and companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For the financial statements and supplementary data required by this Item 8, see index to Consolidated Financial Statements and Schedules at Item 15.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     Not applicable.

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PART III

     Part III (Items 10 through 13) will be incorporated by reference pursuant to Regulation 14A under the Securities Exchange Act of 1934. The Registrant expects to file a definitive proxy statement with the SEC within 120 days after the close of the year ended December 31, 2002.

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ITEM 14. CONTROLS AND PROCEDURES

Quarterly Evaluation of the Company’s Disclosure Controls and Internal Controls

     Within the 90 days prior to the date of this Annual Report on Form 10-K, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (Disclosure Controls), and our “internal controls and procedures for financial reporting” (Internal Controls). This evaluation (the Controls Evaluation) was performed under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

CEO and CFO Certifications

     Immediately following the Signatures section of this Annual Report are the CEO and CFO certifications (the Rule 302 Certifications) required by Section 302 of the Sarbanes-Oxley Act of 2002. This Controls and Procedures section of the Annual Report includes the information concerning the Controls Evaluation referred to in the Rule 302 Certifications and it should be read in conjunction with the Rule 302 Certifications for a more complete understanding of the topics presented.

     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002 has been filed as correspondence with the Securities and Exchange Commission and is incorporated by reference in this form 10-K.

Disclosure Controls and Internal Controls

     Disclosure Controls are procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (the SEC) rules and forms. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Internal Controls are procedures designed to provide reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls

     Our management, including the CEO and CFO, does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

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Scope of the Controls Evaluation

     The evaluation of our Disclosure Controls and our Internal Controls included a review of the controls’ objectives and design, the company’s implementation of the controls and the effect of the controls on the information generated for use in this Annual Report. In the course of the Controls Evaluation, we sought to identify data errors, controls problems or acts of fraud and confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. Our Internal Controls are also evaluated by other personnel in our finance organization, as well as our independent auditors who evaluate them in connection with determining their auditing procedures related to their report on our annual financial statements and not to provide assurance on our Internal Controls. The overall goals of these various evaluation activities are to monitor our Disclosure Controls and our Internal Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls and the Internal Controls as dynamic systems that change as conditions warrant.

     Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material weaknesses” in our Internal Controls, and whether we had identified any acts of fraud involving personnel with a significant role in the our Internal Controls. In professional auditing literature, “significant deficiencies” are referred to as “reportable conditions,” which are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements. Auditing literature defines “material weakness” as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and the risk that such misstatements would not be detected within a timely period by employees in the normal course of performing their assigned functions. We also sought to deal with other controls matters in the Controls Evaluation, and in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accordance with our ongoing procedures.

     As described below under “Changes in Disclosure Controls and Internal Controls”, we have identified certain deficiencies in our controls and procedures. However, we believe the corrective actions we have taken and the additional procedures we have performed, as described below in more detail, provide us with reasonable assurance that the identified control weaknesses have not limited the effectiveness of our controls and procedures.

Changes in Disclosure Controls and Internal Controls

     Management and the Audit Committee are aware of conditions relating primarily to our operations primarily in Mexico and Venezuela that are considered to be a “material weakness” and “reportable conditions” in our Disclosure Controls and our Internal Controls for the year ended December 31, 2002 under standards established by the American Institute of Certified Public Accountants. In particular, the aforementioned weaknesses in both our Disclosure Controls and Internal Controls pertain to the following areas, (i) revenue cycle process, including revenue recognition, calculation of deferred revenue and monitoring of past due accounts, (ii) the process surrounding accurate reconciliation of account balances and (iii) regular reconciliation of general ledger accounts to supporting documentation. Management and the Audit Committee have taken actions with respect to the material weaknesses and significant deficiencies, including (1) the replacement of the head of an operating unit, the country manager, the country controller and the authorization of the hiring of five additional accounting personnel, (2) the expansion of our financial review and internal control function by two additional professional internal auditors, (3) additional training (or re-training where necessary) of our personnel worldwide, and (4) the acceleration of the installation effort of our company-wide financial accounting system.

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     As part of our effort to have a common system of Internal Controls applicable to our operations world-wide, in 2001, we began an implementation of an enterprise-wide general ledger software system that included an Enterprise Resource Planning (ERP) System for our manufacturing operations and budget and planning modules, as well as new business processes and procedures to support the software designed to provide us with a common set of Internal Controls in those locations where the new system is implemented. These changes are the result of our normal business process to evaluate and upgrade or replace our systems software and related business processes to support our evolving operational needs. At the end of 2001, approximately 52% of our business activity (as expressed in terms of consolidated revenues) was on this software system utilizing common business process and controls, primarily in the United States. In 2002, we installed this software and common set of Internal Controls for our operations in Canada, the United Kingdom, and Mexico. At the end of 2002, including the new locations on our common system, we had approximately 62% of our business activity on this software system utilizing common business process and controls. Further, we expect to install this same software system and related new business processes and procedures into additional locations during 2003. We expect to install this software and common set of Internal Controls for our operations in Venezuela, Australia, Thailand, The Netherlands, and certain other locations in Europe. We expect to have, by the end of 2003, approximately 84% of our business activity on this software system utilizing common business process and controls. As this system is installed into these locations in 2003, we will implement a common set of Internal Controls through the new business processes and procedures.

     Further, Management believes that the corrective actions, when taken, will provide us with reasonable assurance that the identified issues will not limit the effectiveness of our Disclosure Controls or Internal Controls. Management believes that we have successfully implemented procedures addressing the “material weakness” and “reportable conditions” in our controls.

Conclusions

     Based upon the Controls Evaluation, our CEO and CFO have concluded that, subject to the limitations and changes noted above, our Disclosure Controls are effective to ensure that material information relating to Core Laboratories and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared, and that our Internal Controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 

(a)

Financial Statements

     The following reports, financial statements and schedules are filed herewith on the pages indicated:

Financial Statement Schedules

     All schedules have been omitted because they are not applicable, not required under the instructions, or the information requested is set forth in the consolidated financial statements or related notes hereto.

(b)

Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended December 31, 2002.

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(c)

Exhibits

     The following exhibits are incorporated by reference to the filing indicated or are filed herewith.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the 4th day of April, 2003.

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Certification

I, David M. Demshur, certify that:

1.     I have reviewed this annual report on Form 10-K of Core Laboratories N.V.;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have);

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function).

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 4, 2003

By: /s/ David M. Demshur
 David M. Demshur
        Chief Executive Officer

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I, Richard L. Bergmark, certify that:

1.     I have reviewed this annual report on Form 10-K of Core Laboratories N.V.;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have);

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function).

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 4, 2003

By: /s/ Richard L. Bergmark
 Richard L. Bergmark
    Chief Financial Officer

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Supervisory Board of Directors and Shareholders of Core Laboratories N.V.:

     In our opinion, the accompanying consolidated balance sheet as of December 31, 2002 and the related consolidated statements of operations and comprehensive income, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Core Laboratories N.V. (a Netherlands corporation). and its subsidiaries (the Company) as of December 31, 2002 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The Company’s consolidated financial statements as of December 31, 2001 and for each of the two years in the period ended December 31, 2001, prior to the revision described in Note 7 of the consolidated financial statements, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated March 21, 2002.

     As discussed in Note 7 to the consolidated financial statements, the Company changed its method of accounting for goodwill effective January 1, 2002, in accordance with SFAS No. 142.

     As discussed above, the Company’s consolidated financial statements as of December 31, 2001 and for each of the two years in the period ended December 31, 2001, were audited by other independent accountants who have ceased operations. As described in Note 7, those financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, which was adopted by the Company as of January 1, 2002. We audited the transitional disclosures for 2001 and 2000 included in Note 7. In our opinion, the transitional disclosures for 2001 and 2000 in Note 7 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 financial statement of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 financial statements taken as a whole.

PricewaterhouseCoopers LLP

Houston, Texas
April 2, 2003

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THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP (ANDERSEN). THIS REPORT HAS NOT BEEN REISSUED BY ANDERSEN AND ANDERSEN IS UNABLE CONSENT TO THE INCORPORATION BY REFERENCE OF THIS REPORT (AS INCLUDED IN THIS FORM 10-K) INTO ANY OF THE COMPANY’S REGISTRATION STATEMENTS.

AS DISCUSSED IN NOTE 7, THE COMPANY HAS REVISED ITS FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 TO INCLUDE THE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142, GOODWILL AND INTANGIBLE ASSETS. THE ANDERSEN REPORT DOES NOT EXTEND TO THESE CHANGES. THE REVISIONS TO THE 2001 AND 2002 FINANCIAL STATEMENTS RELATED TO THESE TRANSITIONAL DISCLOSURES WERE REPORTED ON BY PRICEWATERHOUSECOOPERS LLP, AS STATED IN THEIR REPORT APPEARING HEREIN.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Supervisory Board of Directors and Shareholders of
Core Laboratories N.V.:

     We have audited the accompanying consolidated balance sheets of Core Laboratories N.V. (a Netherlands corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Core Laboratories N.V. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with the accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
March 21, 2002

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CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(In thousands, except share and per share data)