-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mq3FxMmpZ8zEBgSF1vt3qv+XL5R263Id07hXv7T6tZ7JkyOFqIULhEownKHFeorC HwLm9bhLR/xV3lUAtJ2cVg== 0000950129-98-003493.txt : 19980817 0000950129-98-003493.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950129-98-003493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORE LABORATORIES N V CENTRAL INDEX KEY: 0001000229 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 000000000 STATE OF INCORPORATION: P7 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14273 FILM NUMBER: 98688615 BUSINESS ADDRESS: STREET 1: 1017 BZ AMSTERDAM STREET 2: HERENGRACHT 424 CITY: THE NETHERLANDS STATE: P7 BUSINESS PHONE: 3124203191 MAIL ADDRESS: STREET 1: HERENGRACHT 424 STREET 2: 1017 BZ AMSTERDAM CITY: THE NETHERLANDS STATE: P7 10-Q 1 CORE LABORATORIES N.V. - DATED 6/30/98 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ______________ Commission File Number 0-26710 CORE LABORATORIES N.V. (Exact name of registrant as specified in its charter) THE NETHERLANDS NOT APPLICABLE (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) HERENGRACHT 424 1017 BZ AMSTERDAM THE NETHERLANDS NOT APPLICABLE (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (31-20) 420-3191 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 [ ] The number of common shares of the Registrant, par value NLG .03 per share, outstanding at August 12, 1998 was 27,493,498. =============================================================================== 2 CORE LABORATORIES N.V. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 INDEX
PAGE ---- Part I -- Financial Information Item 1 -- Financial Statements Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 ........................ 1 Consolidated Statements of Operations for the Three Months Ended June 30, 1998 and 1997................................................................. 2 Consolidated Statements of Operations for the Six Months Ended June 30, 1998 and 1997................................................................. 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997................................................................. 4 Notes to Consolidated Financial Statements ................................................ 5 Item 2-- Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................................................ 10 Part II -- Other Information Item 1-- Legal Proceedings...................................................................... 13 Item 2-- Changes in Securities.................................................................. 13 Item 3-- Defaults Upon Senior Securities........................................................ 14 Item 4-- Submission of Matters to a Vote of Security Holders ................................... 14 Item 5-- Other Information...................................................................... 15 Item 6-- Exhibits and Reports on Form 8-K....................................................... 15 Signature ....................................................................................... 16
ii 3 CORE LABORATORIES N.V. CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS (UNAUDITED) (AUDITED) CURRENT ASSETS: Cash and cash equivalents ............................................ $ 7,960 $ 10,510 Accounts receivable, net ............................................. 75,654 67,537 Inventories .......................................................... 19,008 12,473 Prepaid expenses ..................................................... 10,197 5,771 Deferred income tax asset ............................................ 7,559 1,380 ------------ ------------ Total current assets ...................................................... 120,378 97,671 PROPERTY, PLANT AND EQUIPMENT ............................................. 79,845 69,684 Less-- accumulated depreciation ...................................... (20,802) (16,130) ------------ ------------ 59,043 53,554 INTANGIBLES AND GOODWILL, net ............................................. 137,452 82,809 LONG-TERM INVESTMENT ...................................................... 1,795 1,188 OTHER LONG-TERM ASSETS .................................................... 3,233 2,794 ------------ ------------ Total assets ..................................................... $ 321,901 $ 238,016 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt ................................. $ 5,741 $ 3,077 Short-term debt ...................................................... 267 427 Accounts payable ..................................................... 26,848 14,152 Unearned revenue ..................................................... 951 2,257 Other accrued expenses ............................................... 25,067 22,185 ------------ ------------ Total current liabilities ................................................. 58,874 42,098 LONG-TERM DEBT ............................................................ 69,909 70,621 MINORITY INTEREST ......................................................... 2,993 1,212 LONG-TERM LEASE OBLIGATIONS ............................................... 219 156 OTHER LONG-TERM LIABILITIES ............................................... 20,583 9,816 SHAREHOLDERS' EQUITY: Preference shares, NLG .03 par value; 3,000,000 shares authorized, no shares issued or outstanding .................................. -- -- Common shares, NLG .03 par value; 100,000,000 shares authorized, 27,226,498 and 24,703,621 issued and outstanding at June 30, 1998 and December 31, 1997, respectively ............. 464 426 Additional paid-in capital ........................................... 135,021 86,823 Retained earnings .................................................... 33,838 26,864 ------------ ------------ Total shareholders' equity ....................................... 169,323 114,113 ------------ ------------ Total liabilities and shareholders' equity ................ $ 321,901 $ 238,016 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 1 4 CORE LABORATORIES N.V. CONSOLIDATED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, -------------------------------------- 1998 1997 ---------------- ---------------- (UNAUDITED) (UNAUDITED) SERVICES ...................................................... $ 55,148 $ 46,113 SALES ......................................................... 3,921 4,915 ---------------- ---------------- 59,069 51,028 OPERATING EXPENSES: Costs of services ........................................ 40,077 36,322 Costs of sales ........................................... 3,441 4,075 General and administrative expenses ...................... 2,010 1,432 Depreciation and amortization ............................ 3,277 2,466 Other (income) expense, net .............................. 118 (4) ---------------- ---------------- 48,923 44,291 INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE AND INCOME TAX EXPENSE ........................... 10,146 6,737 INTEREST EXPENSE .............................................. 1,438 1,459 ---------------- ---------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE ............................................. 8,708 5,278 INCOME TAX EXPENSE ............................................ 2,613 1,548 ---------------- ---------------- INCOME FROM CONTINUING OPERATIONS ............................. 6,095 3,730 LOSS FROM DISCONTINUED OPERATIONS, net of tax benefit of $161 . -- (376) LOSS ON DISPOSITION OF DISCONTINUED OPERATIONS, net of tax benefit of $1,446 ........................................ (3,374) -- ---------------- ---------------- NET INCOME .................................................... $ 2,721 $ 3,354 ================ ================ PER SHARE DATA: Income from continuing operations ........................ $ 0.25 $ 0 .17 Loss from discontinued operations ........................ -- (0.02) Loss on sale of discontinued operations .................. (0.14) -- ---------------- --------------- BASIC EARNINGS PER SHARE ................................. $ 0.11 $ 0.15 ================ ================ WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ........................................ 24,858,007 21,667,382 ================ ================ Income from continuing operations ........................ $ 0.24 $ 0.17 Loss from discontinued operations ........................ -- (0.02) Loss on sale of discontinued operations .................. (0.13) -- ---------------- ---------------- DILUTED EARNINGS PER SHARE ............................... $ 0.11 $ 0.15 ================ ================ WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING ........................................ 25,865,146 22,157,392 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 2 5 CORE LABORATORIES N.V. CONSOLIDATED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
. SIX MONTHS ENDED JUNE 30, ------------------------------ 1998 1997 ------------ ------------ (UNAUDITED) (UNAUDITED) SERVICES ............................................................... $ 108,811 $ 69,276 SALES .................................................................. 7,693 8,051 ------------ ------------ 116,504 77,327 OPERATING EXPENSES: Costs of services ................................................. 81,995 54,560 Costs of sales .................................................... 6,679 6,652 General and administrative expenses ............................... 3,892 2,456 Depreciation and amortization ..................................... 6,511 3,894 Other (income) expense, net ....................................... (472) 36 ------------ ------------ 98,605 67,598 INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE AND INCOME TAX EXPENSE .................................... 17,899 9,729 INTEREST EXPENSE ....................................................... 2,806 1,755 ------------ ------------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE ...................................................... 15,093 7,974 INCOME TAX EXPENSE ..................................................... 4,528 2,311 ------------ ------------ INCOME FROM CONTINUING OPERATIONS ...................................... 10,565 5,663 LOSS FROM DISCONTINUED OPERATIONS, net of tax benefit of $93 and $111 in 1998 and 1997, respectively .................................... (217) (259) LOSS ON DISPOSITION OF DISCONTINUED OPERATIONS, net of tax benefit of $1,446 ................................................. (3,374) -- ------------ ------------ NET INCOME ............................................................. $ 6,974 $ 5,404 ============ ============ PER SHARE DATA: Income from continuing operations ................................. $ 0.43 $ 0.26 Loss from discontinued operations ................................. (0.01) (0.01) Loss on disposition of discontinued operations .................... (0.14) -- ------------ ------------ BASIC EARNINGS PER SHARE .......................................... $ 0.28 $ 0.25 ============ ============ WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ................................................. 24,799,201 21,677,293 ============ ============ Income from continuing operations ................................. $ 0.41 $ 0.25 Loss from discontinued operations ................................. (0.01) (0.01) Loss on disposition of discontinued operations .................... (0.13) -- ------------ ------------ DILUTED EARNINGS PER SHARE ........................................ $ 0.27 $ 0.24 ============ ============ WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING ................................................. 25,701,550 22,123,614 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 6 CORE LABORATORIES N.V. CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS)
SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ---------- ---------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...................................................... $ 6,974 $ 5,404 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Loss on sale of discontinued operations ..................... 4,820 -- Depreciation and amortization ............................... 6,579 3,961 Gain on sale of fixed assets ................................ (329) (5) Changes in assets and liabilities: Increase in accounts receivable ............................. (903) (8,878) Decrease/(increase) in inventories .......................... (2,382) 595 Increase in prepaid expenses ................................ (2,473) (746) Increase/(decrease) in accounts payable ..................... 1,541 (5,819) Decrease in other accrued expenses .......................... (5,143) (1,964) Decrease in other long-term liabilities ..................... (9,990) (78) Other ....................................................... (1,341) 935 ---------- ---------- Net cash provided by (used in) operating activities .... (2,647) (6,595) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................................ (7,083) (5,979) Proceeds from sale of fixed assets .............................. 615 69 Acquisition of Owen Oil Tools, Inc., net of cash ................ (46,736) -- Sale of discontinued operations ................................. 4,114 -- Acquisition of Scott Pickford plc, net of cash .................. -- (15,023) Acquisition of Saybolt International B.V ........................ -- (62,987) ---------- ---------- Net cash used in investing activities ....................... (49,090) (83,920) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt ...................................... (3,823) (18,218) Borrowings under long-term debt ................................. 5,026 110,637 Decrease in short-term debt ..................................... (230) -- Issuance of stock for Owen Oil Tools, Inc. ...................... 46,743 -- Exercise of stock options ....................................... 1,493 41 Other ........................................................... (22) (1,541) ---------- ---------- Net cash provided by (used in) financing activities ......... 49,187 90,919 ---------- ---------- NET CHANGE IN CASH .................................................. (2,550) 404 CASH, beginning of period ............................................ 10,510 2,935 ---------- ---------- CASH, end of period .................................................. $ 7,960 $ 3,339 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 7 CORE LABORATORIES N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION AND ESTIMATES The accompanying unaudited consolidated financial statements include the accounts of Core Laboratories N.V. and its subsidiaries (the "Company"), and have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. Balance sheet information as of December 31, 1997, has been taken from the 1997 annual audited financial statements. Certain 1997 items have been reclassified to conform with the 1998 presentation. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 31, 1998. NEW ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which established standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The statement requires (a) classification of items of other comprehensive income by their nature in the financial statement and (b) display of the accumulated balance of other comprehensive income separate from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No. 130 is effective for fiscal years 5 8 beginning after December 15, 1997. Based on current circumstances, the statement has no effect on the Company's financial condition and results of operations. In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which establishes standards for reporting information about operating segments in annual financial statements and requires that selected information be reported about the operating segments in interim financial reports issued to the shareholders. It also establishes standards for related disclosure about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The FASB does not require that segment information be reported in financial statements for interim periods in the initial year of application. In June 1998, the FASB issued SFAS NO. 133, "Accounting for Derivative Instruments and Hedging Activities." The SFAS establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The SFAS requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires a company to formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS NO. 133 is effective for fiscal years beginning after June 15, 1999 and early adoption is permitted. Based on current circumstances, the statement has no effect on the Company's financial condition and results of operations. 2. ACQUISITION Owen Acquisition On June 30, 1998, the Company acquired all of the outstanding stock of Owen Oil Tools, Inc. ("Owen") in a stock-for-stock transaction, which will be accounted for as a purchase. The transaction resulted in $40.7 million of goodwill which will be amortized over a 40-year period. The Company issued 2,276,831 shares of its common stock for the privately held Fort Worth, Texas based company. Owen and its subsidiaries manufacture and sell perforating supplies and down-hole tools to customers in the petroleum industry. The purchase price allocations have been completed on a preliminary basis, thus as additional information concerning the value of the assets acquired and liabilities assumed becomes known additional adjustments will be made to the purchase price allocation included in the accompanying financial statements. 3. DISPOSITION OF DISCONTINUED OPERATIONS On April 8, 1998, the Company sold the assets of its two packaged analyzer units for $4.1 million. The Company recorded a loss on disposition of $3.4 million net of tax in the second quarter of 1998. Accordingly, the results of operations for the units are segregated from continuing operations and prior period operating results have been restated to reflect discontinued operations. Revenues for the discontinued operations were $1.4 and $5.6 million for the six month period ended June 30, 1998 and the corresponding period in the prior year, respectively. In the three month period ending June 30, 1998 and the corresponding period in the prior year revenues were nil and $3.9 million, respectively. 6 9 4. PRO FORMA INFORMATION Unaudited pro forma revenues, income from continuing operations and income from continuing operations per share, assuming that the acquisition of Owen had been consummated at January 1, 1997, are summarized as follows (in thousands, except per share data):
SIX MONTHS YEAR ENDED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ (UNAUDITED) (AUDITED) Revenues ............................................... $ 143,538 $ 222,257 Income from continuing operations ...................... $ 11,855 $ 15,392 Basic income per share from continuing operations ...... $ 0.44 $ 0.62 Diluted income per share from continuing operations .... $ 0.42 $ 0.61
5. INVENTORIES Inventories are primarily items held for sales or services provided to customers. Inventories are stated at the lower of average cost (includes direct material, labor and overhead) or estimated realizable value. A summary of inventories is as follows (in thousands):
JUNE 30, DECEMBER 31, 1998 1997 ----------- ----------- (UNAUDITED) (AUDITED) Parts and materials..................................................... $ 15,577 $ 4,558 Work in process......................................................... 3,431 7,915 ----------- ----------- Total ......................................................... $ 19,008 $ 12,473 =========== ===========
6. INTANGIBLES AND GOODWILL Intangibles and goodwill are amortized using the straight-line method over their estimated useful lives, which range from 5 to 40 years. Intangibles include patents, trademarks, service marks and trade names. Goodwill represents the excess purchase price over the fair market value of net assets acquired for acquisitions accounted for as purchases. The Company continually evaluates whether subsequent events or circumstances have occurred that indicate the remaining useful life of intangibles and goodwill may warrant revision or that the remaining balance of intangibles and goodwill may not be recoverable by determining whether the carrying amount of the intangible assets can be recovered through projected undiscounted future cash flows over the remaining amortization period. In conjunction with the second quarter 1998 sale of discontinued operations, the Company recognized a write-off of goodwill related to those operations. 7 10 7. LONG-TERM DEBT Long-term debt at June 30, 1998 and December 31, 1997 is summarized in the following table (in thousands):
JUNE 30, DECEMBER 31, 1998 1997 ----------- ----------- (UNAUDITED) (AUDITED) Credit Facility with a bank group: $70,000 term loan facility.............................................. $ 70,000 $ 70,000 $55,000 revolving debt facility......................................... 3,000 -- Loan Notes ............................................................... 1,088 1,165 Other indebtedness.......................................................... 1,562 2,533 ----------- ----------- Total debt ........................................................ 75,650 73,698 Less-- current maturities............................................... 5,741 3,077 ----------- ----------- Total long-term debt........................................... $ 69,909 $ 70,621 =========== ===========
In May 1997, the Company entered into a Credit Facility which provides for (i) a term loan of $55 million, (ii) a term loan denominated in British pounds having a U.S. dollar equivalency of $15 million, (iii) a committed revolving debt facility of $50 million, and (iv) a Netherlands guilder denominated revolving debt facility with U.S. dollar equivalency of $5 million. At June 30, 1998, approximately $52.0 million was available for borrowing under the revolving credit facility. Loans under the Credit Facility will generally bear interest from LIBOR plus 0.75% to a maximum of LIBOR plus 1.75%. The term loans require quarterly principal payments beginning March 31, 1999, with the final payment due on June 30, 2002. The revolving debt facilities require interest payments only, until maturity on June 30, 2002. The terms of the Credit Facility will require the Company to meet certain financial covenants, including certain minimum equity and cash flow tests. Management believes that the Company is in compliance with all such covenants contained in its credit agreements. As part of the purchase of Scott Pickford plc in March 1997, the Company issued unsecured loan notes as an alternative to the cash consideration paid for the outstanding shares of Scott Pickford plc. The loan notes bear interest payable semi-annually, at the rate of LIBOR less 1.0% per annum. Holders of the loan notes have the right to redeem the loan notes at par on each interest payment date. Unless previously redeemed or purchased, the loan notes will be redeemed at par on June 30, 2002. 8. SUBSEQUENT EVENTS Jaex Acquisition On July 13, 1998, the Company signed a non-binding letter of intent pursuant to which the Company is negotiating to acquire all of the remaining shares of Jaex S.A. de C.V. ("Jaex") that it does not already own. Through its acquisition of Owen Oil Tools, Inc., Core currently owns 50.00098 percent of Jaex, a Mexico based provider of well completion and well perforating products and services. 8 11 Integra Acquisition On July 22, 1998, the Company signed a non-binding letter of intent pursuant to which the Company is negotiating to acquire Integra Geoservices, Inc. ("Integra"), a privately held Calgary, Alberta company. Core will issue approximately 86,000 shares in exchange for all of the outstanding shares of Integra. This transactions is expected to close on August 31, 1998 and will be accounted for using the purchase method of accounting. Intergra provides geophysical seismic processing used to characterize and describe petroleum reservoirs. Petrak Acquisition On July 31, 1998, the Company acquired all of the outstanding shares of PETRAK Group S.A., ("Petrak"), a privately held company based in Zug, Switzerland. The Company issued approximately 263,000 shares in exchange for all of the shares of Petrak and will account for the transaction using the purchase method of accounting. Petrak specializes in characterizing crude oil and providing related services. 9 12 CORE LABORATORIES N.V. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Core Laboratories N.V. ("Core Laboratories" or the "Company") 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 for optimizing reservoir performance and maximizing hydrocarbon recovery from new and existing fields. The Company's customers include major, national, and independent oil and gas producers. In addition, the Company manufactures and sells petroleum reservoir rock and fluid analysis instrumentation, which complement its services operations. Core Laboratories currently operates over 70 facilities in over 50 countries and has approximately 3,900 employees. RECENT DEVELOPMENTS Owen Acquisition On June 30, 1998, the Company acquired all of the outstanding stock of Owen Oil Tools, Inc. ("Owen") in a stock-for-stock transaction, which will be accounted for as a purchase. The Company issued 2,276,831 shares of its common stock for the privately held Fort Worth, Texas based company. Owen and its subsidiaries manufacture and sell perforating supplies and down-hole tools to customers in the petroleum industry. The purchase price allocations have been completed on a preliminary basis, thus as additional information concerning the value of the assets acquired and liabilities assumed becomes known additional adjustments will be made to the purchase price allocation included in the accompanying financial statements. Disposition of Discontinued Operations On April 8, 1998, the Company sold the assets of its two packaged analyzer units for $4.1 million. The Company recorded a loss on disposition of $3.4 million net of tax in the second quarter of 1998. The Company sold these business units to focus on its more rapidly growing and higher margin optimization services. Accordingly, the results of operations for the units are segregated from continuing operations and prior period operating results have been restated to reflect discontinued operations. Revenues for the discontinued operations were $1.4 and $5.6 million for the six month period ended June 30, 1998 and the corresponding period in the prior year, respectively. In the three month period ending June 30, 1998 and the corresponding period in the prior year revenues were nil and $3.9 million, respectively. 10 13 RESULTS OF OPERATIONS The following table sets forth certain percentage relationships based on the Company's consolidated income statements for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- PERCENTAGE OF PERCENTAGE OF TOTAL REVENUE TOTAL REVENUE -------------------- -------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Services .................................... 93.4 90.4 93.4 89.6 Sales ....................................... 6.6 9.6 6.6 10.4 ------- ------- ------- ------- 100.0 100.0 100.0 100.0 Operating expenses: Cost of services ....................... 72.7* 78.8* 75.4* 78.8* Cost of sales .......................... 87.8* 82.9* 86.8* 82.6* General and administrative expenses .... 3.4 2.8 3.3 3.2 Depreciation and amortization .......... 5.5 4.8 5.6 5.0 Other income, net ...................... -- -- -- -- ------- ------- ------- ------- 82.8 86.8 84.6 87.4 Income from continuing operations before interest expense and income tax expense .. 17.2 13.2 15.4 12.6 Interest expense ............................ 2.5 2.9 2.4 2.3 ------- ------- ------- ------- Income from continuing operations before income tax expense ....................... 14.7 10.3 13.0 10.3 Income tax expense .......................... 4.4 3.0 3.9 3.0 ------- ------- ------- ------- Income from continuing operations ........... 10.3 7.3 9.1 7.3 ======= ======= ======= =======
* Percentage based on applicable segment revenue, and not total revenue. Total revenue from continuing operations for the second quarter 1998 was $59 million, an increase of $8 million from the same period last year. Total revenue for the six months ended June 30, 1998 was up 50.7% to $116.5 million. The increases were due to increased demand for the Company's production related services. Cost of services as a percentage of service revenue for the three and six months ended June 30, 1998 decreased compared to the corresponding periods in 1997 primarily due to improved operating efficiencies. Cost of sales as a percentage of sales revenue for three and six months ended June 30, 1998 increased compared to the corresponding periods in 1997 due to the sale of lower margin products. 11 14 General and administrative expenses for the quarter and six months ended June 30, 1998 increased $0.6 million and $1.4 million respectively, as compared to the corresponding periods in 1997. The increases were primarily a result of increased personnel costs attributable to the Company's growth. However, as a percentage of sales, general and administrative expenses remain under 4% as a result of the Company's ongoing program to maintain tight control over expenses. Depreciation and amortization expense for the three and six month periods ended June 30, 1998 increased $0.8 and $2.6 million, respectively, as compared to a year ago, primarily due to the inclusion of depreciation and amortization from the acquisitions of Saybolt International B.V. and Scott Pickford plc. Interest expense for the three months ended June 30, 1998 decreased approximately $20,000 as compared to 1997. For the six months ended June 30, 1998, interest expense increased $1.1 million as compared to 1997. This increase is primarily due to additional borrowings used to finance the aforementioned acquisitions. The Company's effective income tax rate was approximately 30.0% for the three months and six months ended June 30, 1998 as compared to 29.3% and 29.0% for three months and six months ended June 30, 1997, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, capital expenditures and acquisitions. For the six month period ended June 30, 1998 the Company had operating cash flow of ($2.6) million as compared to ($6.6) million for the corresponding period in 1997. Management believes the Company's internal and external sources of cash will provide the necessary funds with which to meet its expected obligations. The Company expects to fund future acquisitions primarily through a combination of working capital, cash flow from operations, bank borrowings (including the Credit Facility), and issuances of additional equity. Although the Credit Facility imposes certain limitations on the incurrence of additional indebtedness, in general the Company will be permitted to assume, among other things, indebtedness of acquired businesses, subject to compliance with the financial covenants of the Credit Facility. 12 15 CORE LABORATORIES N.V. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. In the latter part of 1996, prior to its acquisition by the Company, Saybolt, Inc., an indirect subsidiary of the parent Saybolt International B.V., was informed that the Environmental Protection Agency ("EPA") and the U.S. Department of Justice ("DOJ") had commenced a criminal investigation into certain practices at three of Saybolt's U.S. laboratories. The investigation has focused on instances in which Saybolt employees in New Jersey, Massachusetts and Connecticut may have failed to report accurate RFG test results to customers and the EPA. The Company is cooperating with this investigation and, in addition, has undertaken its own internal review of the matter. The Company has entered into negotiations with U.S. government officials to resolve the matter, which would include the payment by Saybolt, Inc. of fines and the adoption of compliance mechanisms. The Company is working with the EPA to avoid revocation of licenses and/or eligibility to perform certain services governed or contracted by the EPA, Customs or federal agencies. The U.S. Attorney's Offices for Massachusetts and New Jersey and the DOJ are conducting a criminal investigation of whether Saybolt committed violations of U.S. laws regulating international business actions of U.S. persons. On April 17, 1998, the U.S. Attorney's Office announced that the former president of Saybolt, Inc. and the former President of Saybolt International B.V. had been indicted for violating the Foreign Corrupt Practices Act and related laws. The indictment charges that such persons participated in arranging the payment of $50,000 to Panamanian officials in 1995 in an effort to obtain a lease, certain tax benefits, and other advantages from the Panamanian government for Saybolt de Panama S.A. The alleged violation occurred more that a year before the Company's acquisition of Saybolt in May 1997 and was discovered during the EPA investigation of Saybolt. The Company has entered into negotiations with U.S. government officials to resolve this matter, which would include the payment by Saybolt, Inc. of fines. The Company believes that the amount required to resolve these two issues will not exceed $5 million. The Company believes that it has indemnity rights against the former shareholders of Saybolt to cover contingencies and breaches of provisions of the agreement entered into at the same time as the acquisition of Saybolt. While no assurance can be made as to the ultimate outcome of these matters, the Company does not believe that such matters will have a material adverse effect on the financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES. None. 13 16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Stockholders voting at the Annual Meeting on May 29, 1998, and by proxy, elected eight members (each, a "Supervisory Director") to the Board of Supervisory Directors of the Company (the "Supervisory Board"), consisting of (i) Bob G. Agnew; (ii) Jacobus Schouten; (iii) James A. Read, as Class I Supervisory Directors, (i) Joseph R. Perna; (ii) David M. Demshur; (iii) Timothy J. Probert, as Class II Supervisory Directors and (i) Richard L. Bergmark; (ii) Stephen D. Weinroth, as Class III Supervisory Directors, to serve until the annual meeting of shareholders in 1999, 2000 and 2001, respectively, and until their successors shall have been duly elected and qualified. The vote tabulation for the individual Directors was as follows:
Director Shares for Shares Withheld -------- ---------- --------------- Bob G. Agnew 18,354,550 225,563 Jacobus Schouten 18,573,839 6,274 James A. Read 18,573,839 6,274 Joseph R. Perna 18,354,550 225,563 David M. Demshur 18,573,839 6,274 Timothy J. Probert 18,573,839 6,274 Richard L. Bergmark 18,573,839 6,274 Steven D. Weinroth 18,573,839 6,274
Voting stockholders also confirmed the Dutch Statutory Annual Accounts for the year ended December 31, 1997. The proposal was approved by 18,557,131 votes for, 2,000 against, with 20,982 abstentions. Voting shareholders approved the extension of the authority of the Management Board of the Company to repurchase up to 10% of the outstanding share capitol of the Company until November 28, 1999. The proposal was approved by 18,387,518 votes for, 185,847 votes against with 6,748 abstentions. Voting shareholders approved the extension of the authority of the Supervisory Board to issue and/or to grant rights (including options to purchase) on common and/or preferred shares of the Company until May 28, 2003. The proposal was approved by 13,055,378 votes for, 5,473,324 against with 51,411 abstentions. Voting shareholders approved the extension of the authority of the Supervisory Board to limit or exclude the preemptive right of the holders of the common shares of the Company until May 28, 2003. The proposal was approved by 13,001,380 votes for, 5,532,546 against with 19,187 abstentions and 27,000 non-votes. 14 17 Voting shareholders approved an amendment to the Articles of Association, as amended, to increase the authorized share capital of the Company from 30,000,000 common shares to 100,000,000 common shares. The proposal was approved by 13,129,977 votes for, 5,440,888 against and 9,248 abstentions. Voting shareholders approved an amendment to the Articles of Association, as amended, to provide that dividends otherwise, than in cash may be authorized by the Supervisory Board. The proposal was approved by 18,516,302 votes for, 55,697 against and 8,114 abstentions. Voting shareholders ratified and approved an interim dividend authorized by the Supervisory Board to satisfy amounts otherwise owed by the shareholders under the laws of the Netherlands for the stock split effected in December 1997. The proposal was approved by 18,558,870 votes for, 5,566 against and 15,677 abstentions. Voting shareholders ratified and approved the appointment of Arthur Andersen LLP as the Company's independent public auditor for the fiscal year ending December 31, 1998. The proposal was approved by 18,545,119 votes for, 13,250 votes against and 21,744 abstentions. ITEM 5. OTHER INFORMATION. Management believes conversion to a year 2000 compliant environment will not present a material concern for the Company's current operations. The Company is currently engaged in a comprehensive project to upgrade its computer software systems to programs which are year 2000 compliant. The Company does not anticipate that total future costs associated with potential year 2000 compliance issues will have a material adverse impact on its consolidated financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits.
INCORPORATED BY REFERENCE FROM THE EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS - ----------- ------------- -------------------- 27.1 Financial Data Schedule Filed Herewith
(b) Reports on Form 8-K. Core Laboratories N.V. filed Form 8-K on July 15, 1998 due to the merger with Owen Oil Tools, Inc. as listed in Item 2 of Such Forms. 15 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Core Laboratories N.V., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORE LABORATORIES N.V. by: Core Laboratories International B.V. Dated: August 14, 1998 By: /s/ Richard L. Bergmark -------------------------------------- Richard L. Bergmark Chief Financial Officer and Treasurer (Principal Financial Officer and Chief Accounting Officer) 16 19 INDEX TO EXHIBITS
INCORPORATED BY REFERENCE FROM THE EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS - ----------- ------------- -------------------- 27.1 Financial Data Schedule Filed Herewith
EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1998 JUN-30-1998 7,960 0 82,376 6,722 19,008 120,378 79,845 20,802 321,901 58,874 0 0 0 464 135,021 321,901 116,504 116,504 88,674 98,605 0 0 2,806 15,093 4,528 10,565 3,591 0 0 6,974 .28 .27
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