| In addition to financial results determined in accordance with generally accepted accounting principles (GAAP) that are included in our publicly filed documents and discussions, these documents and discussions also include the following non-GAAP financial measures (as defined under the SEC's Regulation G and S-K Item 10):
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| Net Income Before Impact of Equity-Based Stock Compensation Plans and Debt Prepayment Charge; or Earnings From Continuing Operations Before Costs Associated With the Prepayment of Senior Notes and Expenses Related to Two EBSCP: |
| Management believes that the exclusion of certain expenses and credits enables it to evaluate more effectively the Company's operations period over period and to identify operating trends that could otherwise be masked by the excluded items. For this reason, we used certain non-GAAP measures that excluded these non-recurring items and explained in the same sentence how they relate to the most directly comparable GAAP measure; we felt that presentation provides the public a clearer comparison with the numbers reported in prior quarters. |
| Earnings per Diluted Share, Excluding FAS 123R Costs; or Earnings per Diluted Share, Excluding FAS 123R Costs and Senior Note Prepayment Costs: |
| Management believes that the exclusion of certain expenses and credits enables it to evaluate more effectively the Company's operations period-over-period and to identify operating trends that could otherwise be masked by the excluded items. For this reason, we used certain non-GAAP measures that exclude these non-recurring items; we felt that presentation provides the public a clearer comparison with the numbers reported in prior quarters. |
| Operating Earnings Before Impact of Equity-Based Stock Compensation Plans: |
| Management believes that the exclusion of certain expenses and credits enables it to evaluate more effectively the Company's operations period over period and to identify operating trends that could otherwise be masked by the excluded items. |
| Incremental Operating Margin: |
| Incremental operating margin is computed as (1) the increase or decrease in income from continuing operations before equity-based stock compensation, interest expense and income tax expense between two periods, divided by (2) the increase or decrease in revenues between the same two periods. Management believes that incremental margins provide useful information regarding the growth over the two periods being compared. |
| Free Cash Flow, Free Cash Flow Per Share and Free Cash Flow Yield: |
| Core uses the non-GAAP measure of free cash flow, free cash flow per share and free cash flow yield to evaluate its cash flows and results of operations. Free cash flow and free cash flow per share are important measurements because they represent the cash from operations, in excess of capital expenditures, and its relation to weighted average shares outstanding. Free cash flow yield is important as a measurement of the relationship of free cash flow per share to the stock price. These are funds available to operate the business and fund non-discretionary obligations. |
| Net Debt-to-Capital: |
| Net debt-to-capital is calculated as long-term debt less cash divided by the sum of shareholders' equity plus long-term debt plus cash. Management believes this capital structure ratio can provide a more accurate view of a company's long-term leverage and risk, since it considers only long-term debt and capital. The most comparable GAAP measure to the net debt-to-capital ratio provided in our conference call is debt-to-equity, which is calculated as total long-term debt divided by equity. Debt-to-equity, as calculated, is 40.2% versus 23.3% for net debt-to-capital at December 31, 2005. |
| Return on Equity: |
| The calculation for return on equity is earnings before equity-based stock compensation, interest expense and tax expense divided by shareholders' equity. Management utilizes return on equity in evaluating how much profit the Company generates on the shareholders' equity in the Company and is useful for comparing the profitability of companies in the same industry. Had we used net income in the calculation of return on equity, which represents the most comparable GAAP measure, return on equity for the year ended December 31, 2005 would have been 14.6% versus 35.3%. |
| Earning Before Interest and Tax Plus Depreciation and Amortization (EBITDA): |
| EBITDA is a non-GAAP measurement. Management uses EBITDA because it believes that such measurements are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance and that these measurements may be used by investors to make informed investment decisions. |
| The foregoing non-GAAP financial measures should be considered in addition to, not as a substitute for, or superior to, net income, cash flows or other measures of financial performance prepared in accordance with GAAP as more fully discussed in Core Laboratories public discussions, financial statements and filings with the Securities and Exchange Commission.
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