-----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, FyduXkA4ioHRWIBVsbUYmDXZ3LZuuoRcyzi6uxdMmJNvvgz3fqCoYCYgNTig2jTP r8pSpd3davGNpuXi1yozLg== 0000950129-00-002483.txt : 20000517 0000950129-00-002483.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950129-00-002483 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORE LABORATORIES N V CENTRAL INDEX KEY: 0001000229 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] 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: 636622 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 MARCH 31, 2000 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 MARCH 31, 2000 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 Identification No.) incorporation or organization) 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 0.03 per share, outstanding at May 9, 2000 was 30,585,341. ================================================================================ 2 CORE LABORATORIES N.V. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 INDEX
PAGE ---- Part I -- Financial Information Item 1 -- Financial Statements Consolidated Balance Sheets at March 31, 2000 and December 31, 1999 ................. 1 Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 ........................................................ 2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 ........................................................ 3 Notes to Consolidated Financial Statements .......................................... 4 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................................. 10 Item 3 -- Quantitative & Qualitative Disclosures of Market Risk ......................... 15 Part II -- Other Information Item 1 -- Legal Proceedings ............................................................. 16 Item 2 -- Changes in Securities ......................................................... 16 Item 3 -- Defaults Upon Senior Securities ............................................... 16 Item 4 -- Submission of Matters to a Vote of Security Holders ........................... 16 Item 5 -- Other Information ............................................................. 16 Item 6 -- Exhibits and Reports on Form 8-K .............................................. 16 Signature .................................................................................... 17
ii 3 CORE LABORATORIES N.V. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 2000 1999 -------- -------- ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents .............................................. $ 13,441 $ 18,141 Accounts receivable, less allowance for doubtful accounts of $9,506 and $9,825 in 2000 and 1999, respectively ................... 77,983 81,495 Inventories ............................................................ 30,921 24,524 Prepaid expenses and other ............................................. 11,766 10,399 Deferred tax asset ..................................................... 6,175 6,311 -------- -------- Total current assets ............................................... 140,286 140,870 PROPERTY, PLANT AND EQUIPMENT, net .......................................... 67,059 65,003 INTANGIBLES AND GOODWILL, net of accumulated amortization of $10,808 and $9,737 in 2000 and 1999, respectively ...................... 149,612 150,683 OTHER LONG-TERM ASSETS ...................................................... 6,042 5,928 -------- -------- Total assets .................................................. $362,999 $362,484 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt ................................... $ 1,080 $ 1,325 Current lease obligations .............................................. 483 622 Accounts payable ....................................................... 18,606 18,400 Other accrued expenses ................................................. 29,653 27,582 -------- -------- Total current liabilities .......................................... 49,822 47,929 LONG-TERM DEBT .............................................................. 77,082 82,207 MINORITY INTEREST ........................................................... 1,404 1,290 LONG-TERM LEASE OBLIGATIONS ................................................. 296 660 OTHER LONG-TERM LIABILITIES ................................................. 20,880 21,068 SHAREHOLDERS' EQUITY: Preference shares, NLG 0.03 par value; 3,000,000 shares authorized, no shares issued or outstanding .................................... -- -- Common shares, NLG 0.03 par value; 100,000,000 shares authorized, 30,524,866 and 30,411,616 issued and outstanding at March 31, 2000 and December 31, 1999, respectively .............. 513 511 Additional paid-in capital ............................................. 163,059 162,042 Retained earnings ...................................................... 49,943 46,777 -------- -------- Total shareholders' equity ......................................... 213,515 209,330 -------- -------- Total liabilities and shareholders' equity .................... $362,999 $362,484 -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 1 4 CORE LABORATORIES N.V. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------------------ 2000 1999 ------------ ------------ (UNAUDITED) SERVICES ....................................... 53,296 55,278 SALES .......................................... 15,222 11,941 ------------ ------------ 68,518 67,219 OPERATING EXPENSES: Cost of services .......................... 43,921 48,560 Cost of sales ............................. 11,122 9,482 General and administrative expenses ....... 3,303 2,747 Depreciation and amortization ............. 3,263 3,809 Goodwill amortization ..................... 1,007 933 Write-offs and other charges .............. -- 10,670 Other income, net ......................... (573) (495) ------------ ------------ 62,043 75,706 INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAX EXPENSE ............ 6,475 (8,487) INTEREST EXPENSE ............................... 1,952 1,688 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX EXPENSE ............................... 4,523 (10,175) INCOME TAX EXPENSE (BENEFIT) ................... 1,357 (3,240) ------------ ------------ NET INCOME (LOSS) .............................. $ 3,166 $ (6,935) ------------ ------------ PER SHARE INFORMATION: BASIC EARNINGS (LOSS) PER SHARE ........... $ 0.10 $ (0.23) ------------ ------------ WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ......................... 30,455,206 29,893,735 ------------ ------------ DILUTED EARNINGS (LOSS) PER SHARE ......... $ 0.10 $ (0.23) ------------ ------------ WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING ......................... 31,552,060 29,893,735 ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. 2 5 CORE LABORATORIES N.V. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------- 2000 1999 -------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............................................... $ 3,166 $ (6,935) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............................... 4,270 4,742 (Gain) loss on sale of fixed assets ......................... (98) 9 Changes in assets and liabilities: Decrease in accounts receivable ............................. 3,512 9,313 Increase in inventories ..................................... (6,397) (703) Increase in prepaid expenses ................................ (615) (4,951) Increase (decrease) in accounts payable ..................... 206 (1,739) Increase (decrease) in other accrued expenses ............... 3,687 (2,477) Decrease in net deferred tax asset .......................... 136 720 Increase (decrease) in other long-term liabilities .......... (188) 564 Other ....................................................... (764) (1,247) -------- -------- Net cash provided by (used in) operating activities .... 6,915 (2,704) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................................ (7,504) (5,660) Proceeds from sale of fixed assets .............................. 750 1,660 Other ........................................................... (63) 94 -------- -------- Net cash used in investing activities ....................... (6,817) (3,906) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt ...................................... (5,324) (3,780) Borrowings under long-term debt ................................. 72 9,252 Capital lease obligation, net ................................... (503) (1,092) Exercise of stock options ....................................... 1,019 646 Other ........................................................... (62) 84 -------- -------- Net cash provided by (used in) financing activities ......... (4,798) 5,110 -------- -------- NET CHANGE IN CASH ................................................... (4,700) (1,500) CASH, beginning of period ............................................ 18,141 8,166 -------- -------- CASH, end of period .................................................. $ 13,441 $ 6,666 -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 3 6 CORE LABORATORIES N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying unaudited consolidated financial statements include the accounts of the Company and have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information using the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP 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 month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. Balance sheet information as of December 31, 1999 was derived from the 1999 annual audited financial statements and has been restated to reflect an acquisition accounted for as a pooling-of-interests (see Note 2). These financial statements should be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Company's Form 10-K/A for the year ended December 31, 1999. RECENT PRONOUNCEMENTS In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued and was subsequently amended by SFAS No. 137, which delayed its effective date. As a result, SFAS No. 133 will be effective for fiscal years beginning after June 15, 2000, and establishes accounting and reporting standards for derivative instruments (including certain derivative instruments embedded in other contracts). The Company does not enter, or intend to enter, into derivative instruments. Accordingly, adoption of SFAS No. 133 is not expected to have an impact on the Company's financial position or operational results. 2. ACQUISITIONS TOMOSEIS ACQUISITION On January 12, 2000, the Company acquired all of the outstanding shares of TomoSeis Corporation ("TomoSeis"), a private company based in Houston, Texas. TomoSeis provides detailed reservoir imaging services that are a component of timelapse (4D) seismic and reservoir monitoring programs. The Company issued approximately 232,000 shares, with an estimated value of $3.8 million, and assumed outstanding stock options exercisable for approximately 396,000 of the Company's common shares. Proceeds from the exercise of these options would be approximately $2.1 million. Upon vesting, the options are exercisable by the holder upon payment of the exercise price. The transaction was accounted for as a pooling-of-interests. 4 7 3. INVENTORIES Inventories consist primarily of materials and supplies used for sales or services provided to customers. Inventories are stated at the lower of average or standard cost (including direct material, labor and overhead) or estimated net realizable value, if lower, and are reflected net of valuation reserves of $1,385,000 and $1,258,000 at March 31, 2000 and December 31, 1999, respectively. Inventories consisted of the following (in thousands):
MARCH 31, DECEMBER 31, 2000 1999 ------- ------- (UNAUDITED) Finished goods ........... $20,168 $17,051 Parts and materials ...... 6,808 6,494 Work in process .......... 3,945 979 ------- ------- Total .... $30,921 $24,524 ------- -------
4. INTANGIBLES AND GOODWILL Intangibles include patents, trademarks, service marks and trade names. Goodwill represents the excess of purchase price over the fair market value of the net assets acquired in acquisitions accounted for as purchases. Intangibles and goodwill are amortized using the straight-line method over their estimated useful lives. The Company believes that there have been no events or circumstances that warrant revision to the remaining useful lives or which affect the recoverability of intangibles and goodwill. The components of intangibles and goodwill are as follows:
ORIGINAL (IN THOUSANDS) LIFE MARCH 31, DECEMBER 31, IN YEARS 2000 1999 -------- --------- --------- (UNAUDITED) Acquired trade secrets .......................... 5 $ 48 $ 48 Acquired patents, trademarks and trade names .... 10-20 1,590 1,590 Acquired trade name ............................. 40 4,614 4,614 Acquired source technology ...................... 15 277 277 ----- --------- --------- Total intangibles ...................... 6,529 6,529 ----- --------- --------- Goodwill ........................................ 5-10 1,604 1,604 Goodwill ........................................ 20 4,517 4,517 Goodwill ........................................ 40 147,770 147,770 ----- --------- --------- Total goodwill ......................... 153,891 153,891 ----- --------- --------- Total intangibles and goodwill ......... 160,420 160,420 Less - accumulated amortization ................. (10,808) (9,737) ----- --------- --------- Net intangibles and goodwill ........... $ 149,612 $ 150,683 ----- --------- ---------
5 8 5. LONG-TERM DEBT Long-term debt is summarized in the following table (in thousands):
MARCH 31, DECEMBER 31, 2000 1999 ------- ------- (UNAUDITED) Senior Notes ......................... $75,000 $75,000 Credit Facility with a bank group .... 2,000 7,000 Loan notes ........................... 948 989 Other indebtedness ................... 214 543 ------- ------- Total debt .................. 78,162 83,532 Less - current maturities ............ 1,080 1,325 ------- ------- Total long-term debt ........ $77,082 $82,207 ------- -------
In July 1999, the Company entered into a $100 million Credit Facility which provides for (i) a committed revolving debt facility of $95 million and (ii) a Netherlands guilder denominated revolving debt facility with U.S. dollar equivalency of $5 million. At March 31, 2000, approximately $98 million was available for borrowing under the revolving debt facility. Loans under the Credit Facility bear interest at rates which range from LIBOR plus 1.25% to a maximum of LIBOR plus 1.75%. The interest rate in effect at March 31, 2000 was 7.47% and the average for 2000 has been 7.50%. The credit facility requires interest payments only until maturity in June 2004. In July 1999, the Company issued $75 million in Senior Notes which bear an average interest rate of 8.16% and require annual principal payments beginning in July 2005 and continuing through July 2011. The terms of the Credit Facility and Senior Notes 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. All of the Company's material subsidiaries are guarantors or co-borrowers under both credit agreements. 6. WRITE-OFFS AND RESTRUCTURING CHARGES WRITE-OFFS AND OTHER CHARGES In the first quarter of 1999, the Company recorded write-offs and other charges totaling $10.7 million. This amount included $4.4 million of asset write-offs, $2.6 million related to facility closures and personnel reductions, and $3.7 million associated with the termination of the proposed acquisition of GeoScience Corp. The asset write-offs consisted primarily of uncollectible accounts receivable in the former Soviet Union and other Eastern Hemisphere locations, due to economic instability in the region, as well as adjustments to net realizable value of certain inventory and other current asset amounts. The facility closures consisted primarily of the shutdown of the Company's environmental testing laboratory in Edison, New Jersey, the Saybolt Western Hemisphere administrative office and a substantial reduction in the Company's Venezuelan work force. These actions, which affected a total of 47 employees, were substantially complete as of April 30, 1999. The termination settlement included the forgiveness of $3.0 million in working capital advances made by the Company to GeoScience Corp. 6 9 RESTRUCTURING CHARGES In the fourth quarter of 1999, the Company recorded a $7.0 million charge to cover the cost of exiting redundant facilities and restructuring certain of the Company's operations. This charge affected each of our operating segments as follows: Reservoir Description - $5.6 million; Production Enhancement - $1.0 million; Reservoir Management - $0.4 million. The Company is combining personnel and equipment from eight facilities into one Houston facility. No operations are being discontinued. The move is anticipated to be complete in the second quarter of 2000. Related charges include severance of approximately 100 field and administrative employees, the accrual of future lease obligations and facility restoration costs and the write-off of redundant fixed assets and leasehold improvements. Approximately 70 of these employees had been terminated as of March 31, 2000. The Company also reorganized its operations in Canada and Mexico, consolidated certain service lines and is further centralizing its operations in Latin America, Europe and the Asia-Pacific region. RESTRUCTURING CHARGES
Lease Asset Obligations Severance Restoration Write-offs(a) Other Total ----------- --------- ----------- ------------- ------ ------ Total restructuring charges ............. $2,983 $ 879 $ 786 $2,080 $ 308 $7,036 Less: Costs incurred through December 31, 1999 .............. 515 445 28 2,080 124 3,192 ------ ------ ------ ------ ------ ------ Accrual remaining ....................... 2,468 434 758 -- 184 3,844 Less: Costs incurred for the quarter ended March 31, 2000 ........... 32 100 421 -- 100 653 ------ ------ ------ ------ ------ ------ Accrual remaining ....................... $2,436 $ 334 $ 337 $ -- $ 84 $3,191 ------ ------ ------ ------ ------ ------
(a) The fixed assets and leasehold improvements related to the Houston consolidation are expected to be disposed of by the end of June 2000. The write-off approximates the carrying amount as these assets no longer have value and will be abandoned or sold for salvage value. Depreciation expense will be reduced by $490 in 2000, $333 in 2001 and $342 thereafter. Also included in this amount were $915 of working capital write-offs related to the restructuring of foreign operations. The asset write-offs attributable to each segment were as follows: Reservoir Description - $1,176; Production Enhancement - $346; Reservoir Management - $558. 7. SEGMENT REPORTING The Company's business units have been aggregated into three reportable segments which provide products and services used for optimizing reservoir performance and maximizing oil and gas recovery from new and existing fields. o Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples, including crude oil and derivative products. o Production Enhancement: Includes products and services relating to reservoir well completions, perforations, stimulations and production. o 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. 7 10 SEGMENT ANALYSIS The Company manages these segments separately due to the different technologies each segment utilizes and requires. Results of these segments are presented below using the same accounting policies as used to prepare the Consolidated Balance Sheets and Statements of Operations. The Company evaluates performance based on income or loss from operations before income tax, interest and other non-operating income (expense). Summarized financial information concerning the Company's segments is shown in the following table (in thousands):
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ------- ------- REVENUES (UNAUDITED) Reservoir Description ......................... $41,163 $41,910 Production Enhancement ........................ 18,843 14,351 Reservoir Management .......................... 8,512 10,958 ------- ------- Consolidated ............................. $68,518 $67,219 ------- ------- THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ------- ------- INCOME (LOSS) BEFORE INTEREST AND TAXES (UNAUDITED) Reservoir Description ......................... $ 3,999 $(5,226) Production Enhancement ........................ 4,218 825 Reservoir Management .......................... (1,750) (356) Corporate and Other ........................... 8 (3,730) ------- ------- Consolidated ............................. $ 6,475 $(8,487) ------- -------
The income (loss) before interest and taxes for each segment in 1999 have been reduced by write-offs and other charges. The amounts attributable to each segment were as follows: Reservoir Description - $5,589; Production Enhancement - $956; Reservoir Management - $429. Corporate and other includes $3,696 of merger termination costs related to the proposed GeoScience acquisition. See Note 6 for additional information. "Corporate and Other" represents those items that are not directly related to a particular segment. 8. EARNINGS PER SHARE The Company presents earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which requires dual presentation of both basic and diluted earnings per share on the Consolidated Statement of Operations. Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of common share outstanding during the period. Diluted earnings per share reflects the issuance of additional shares by assuming that all dilutive stock options outstanding have been exercised. 8 11 The following table summarizes the calculation of weighted average common shares outstanding used in the computation of earnings per share:
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ----------- ----------- Weighted average basic common shares outstanding ...... 30,455,206 29,893,735 Effect of dilutive stock options(a) ................... 1,096,854 -- ---------- ---------- Weighted average diluted common shares outstanding .... 31,552,060 29,893,735 ---------- ----------
(a) The effect of dilutive stock options totaling 979,336 equivalent common shares was not included in the computation of weighted average diluted common shares because the impact of these options was anti-dilutive as a result of the Company's net loss for the three months ended March 31, 1999. 9. SUBSEQUENT EVENT PROPOSED PRODUCTION ENHANCEMENT CORPORATION ACQUISITION On April 13, 2000, the Company signed a letter of intent to acquire Production Enhancement Corporation (PENCOR), a privately-held company based in Broussard, Louisiana. PENCOR provides fluid phase behavior services used to characterize crude oils, natural gases and other reservoir fluids for the purpose of enhancing daily production and ultimate field recovery rates. The Company expects to issue approximately 250,000 shares and assume approximately $2.5 million in debt in a transaction which is expected to be accounted for as a pooling-of-interests. Consummation of the transaction is subject to the execution of definitive acquisition documents. 9 12 CORE LABORATORIES N.V. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL This discussion includes 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. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. The Company's operations are subject to various risks and other factors including, but not limited to: o the Company's ability to continue to develop or acquire new and useful technology. o the realization of anticipated synergies from acquired businesses and future acquisitions. o the Company's dependence on one industry, oil and gas, and the impact of commodity prices on the expenditure levels of our customers. o competition in the Company's markets. o the risks and uncertainties attendant to adverse industry, political, economic and financial market conditions, including stock prices, government regulations, interest rates and credit availability. Core Laboratories N.V. 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. 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 3,500 employees. We provide our services to the world's major, national and independent oil companies. RECENT DEVELOPMENTS TOMOSEIS ACQUISITION On January 12, 2000, the Company acquired all of the outstanding shares of TomoSeis Corporation ("TomoSeis"), a private company based in Houston, Texas. TomoSeis provides detailed reservoir imaging services that are a component of time-lapse (4D) seismic and reservoir monitoring programs. The Company issued approximately 232,000 shares, with an estimated value of $3.8 million, and assumed stock options outstanding exercisable for approximately 396,000 of the Company's common shares. Proceeds from the exercise of these options would be approximately $2.1 million. Upon vesting, the options are exercisable by the holder upon payment of the exercise price. The transaction was accounted for as a pooling-of-interests. PROPOSED PRODUCTION ENHANCEMENT CORPORATION ACQUISITION On April 13, 2000, the Company signed a letter of intent to acquire Production Enhancement Corporation (PENCOR), a privately-held company based in Broussard, Louisiana. PENCOR provides 10 13 fluid phase behavior services used to characterize crude oils, natural gases and other reservoir fluids for the purpose of enhancing daily production and ultimate field recovery rates. The Company expects to issue approximately 250,000 shares and assume approximately $2.5 million in debt in a transaction which is expected to be accounted for as a pooling-of-interests. Consummation of the transaction is subject to the execution of definitive acquisition documents. RESULTS OF OPERATIONS Service revenues for the first quarter of 2000 decreased $2.0 million, or 4% from the same period last year. Included in the first quarter of 1999 were $5.7 million of revenues attributable to our environmental testing assets which were sold in 1999. Excluding these revenues, total service revenues increased $3.7 million, or 11%, compared to the same period last year. Cost of services expressed as a percentage of service revenue were 82% and 88% in the first quarter of 2000 and the same period last year, respectively. The Company's restructuring plan of consolidating offices and reducing personnel helped improve our service margins. Sales revenues increased to $15.2 million in the first quarter of 2000 from $11.9 million in the first quarter of 1999, a 28% increase. The increase was due to higher demand for our well completion and stimulation technologies. Cost of sales in the first quarter of 2000 decreased to 73% of sales revenue as compared to 79% the same period last year. The improvement in margins can be attributed to management's continuing efforts to reduce higher than necessary fixed operating costs relative to the depressed industry conditions which prevailed in the first quarter of 1999. General and administrative expenses are comprised of corporate management and centralized administrative services which benefit our operating subsidiaries. General and administrative expenses for the three months ended March 31, 2000 increased $0.6 million, or 20%, as compared to the corresponding period in 1999. The increase was primarily a result of increased personnel costs as the company added staff to provide additional services to its operating subsidiaries. General and administrative expenses as a percentage of revenues remained below 5% for both periods. Depreciation and amortization expense for the first quarter of 2000 decreased $0.6 million as compared to the corresponding period in 1999. Although we had $9.1 million of capital expenditures in the first quarter 2000, the additional depreciation expense from these assets was more than offset by the effect of the sale of our environmental testing assets and assets which had become fully depreciated. Amortization of goodwill in the first quarter of 2000 was $1.0 million as compared to $0.9 million in the same period last year. The increase was due to the inclusion of goodwill from acquisitions accounted for as purchases in 1999. In the first quarter of 1999, the Company recorded write-offs and other charges totaling $10.7 million. This amount included $4.4 million of asset write-offs, $2.6 million related to facility closures and personnel reductions, and $3.7 million associated with the termination of the proposed acquisition of GeoScience Corp. The asset write-offs consisted primarily of uncollectible accounts receivable in the former Soviet Union and other Eastern Hemisphere locations, due to economic instability in the region, as well as adjustments to net realizable value of certain inventory and other current asset amounts. The facility closures consisted primarily of the shutdown of the Company's environmental testing laboratory in Edison, New Jersey, the Saybolt Western Hemisphere administrative office and a 11 14 substantial reduction in the Company's Venezuelan work force. These actions, which affected a total of 47 employees, were substantially complete as of April 30, 1999. The termination settlement included the forgiveness of $3.0 million in working capital advances made by the Company to GeoScience Corp. In the fourth quarter of 1999, the Company recorded a $7.0 million charge to cover the cost of exiting redundant facilities and restructuring certain of the Company's operations. This charge affected each of our operating segments as follows: Reservoir Description - $5.6 million; Production Enhancement - $1.0 million; Reservoir Management - $0.4 million. The Company is combining personnel and equipment from eight facilities into one Houston facility. No operations are being discontinued and the Company expects its revenue to be largely unaffected by this facility consolidation. The move is anticipated to be complete in the second quarter of 2000. Related charges include severance for approximately 100 field and administrative employees, the accrual of future lease obligations and facility restoration costs and the write-off of redundant fixed assets and leasehold improvements. Approximately 70 of these employees had been terminated as of March 31, 2000. The Company also reorganized its operations in Canada and Mexico, consolidated certain service lines and is further centralizing its operations in Latin America, Europe and the Asia-Pacific region. Cash required for the costs incurred through March 31, 2000 of $1.8 million, excluding asset write-offs, was funded from operating activities. The Company anticipates that the remaining costs will also be funded through cash from operating activities. This charge is summarized in the following table (in thousands): RESTRUCTURING CHARGES
Lease Asset Obligations Severance Restoration Write-offs(a) Other Total ----------- --------- ----------- ------------- ------ ------ Total restructuring charges ............. $2,983 $ 879 $ 786 $2,080 $ 308 $7,036 Less: Costs incurred through December 31, 1999 .............. 515 445 28 2,080 124 3,192 ------ ------ ------ ------ ------ ------ Accrual remaining ....................... 2,468 434 758 -- 184 3,844 Less: Costs incurred for the quarter ended March 31, 2000 ........... 32 100 421 -- 100 653 ------ ------ ------ ------ ------ ------ Accrual remaining ....................... $2,436 $ 334 $ 337 $ -- $ 84 $3,191 ====== ====== ====== ====== ====== ======
(a) The fixed assets and leasehold improvements related to the Houston consolidation are expected to be disposed of by the end of June 2000. The write-off approximates the carrying amount as these assets no longer have value and will be abandoned or sold for salvage value. Depreciation expense will be reduced by $490 in 2000, $333 in 2001 and $342 thereafter. Also included in this amount were $915 of working capital write-offs related to the restructuring of foreign operations. The asset write-offs attributable to each segment were as follows: Reservoir Description - $1,176; Production Enhancement - $346; Reservoir Management - $558. During the first quarter of 2000, interest expense increased 16%, or $0.3 million, compared to the same period last year. The increase was primarily attributable to an increase in interest rates, both from rising market interest rates and higher rates associated with the Senior Notes. The Company's effective income tax rate was approximately 30% for the three months ended March 31, 2000 as compared to 32% for the three months ended March 31, 1999. The decrease was due to increased earnings from operations in tax jurisdictions with lower marginal tax rates. 12 15 SEGMENT ANALYSIS
THREE MONTHS ENDED MARCH 31, 2000 1999 -------- -------- REVENUES (UNAUDITED) Reservoir Description .................. $ 41,163 $ 41,910 Production Enhancement ................. 18,843 14,351 Reservoir Management ................... 8,512 10,958 -------- -------- Consolidated ....................... $ 68,518 $ 67,219 ======== ======== THREE MONTHS ENDED MARCH 31, INCOME (LOSS) BEFORE INTEREST AND TAXES 2000 1999 AND UNUSUAL CHARGES -------- -------- (UNAUDITED) Reservoir Description(a) ............... $ 3,999 $ 363 Production Enhancement(a) .............. 4,218 1,781 Reservoir Management(a) ................ (1,750) 73 Corporate and Other(a) ................. 8 (34) -------- -------- Consolidated ........................... $ 6,475 $ 2,183 ======== ========
(a) The above segment results exclude unusual charges totaling $10,670 in the first quarter 1999. The unusual charges attributable to each segment were as follows: Reservoir Description - $5,589; Production Enhancement - $956; Reservoir Management - $429. Corporate and other excludes $3,696 of merger termination costs related to the proposed GeoScience acquisition. "Corporate and Other" represents those items that are not directly related to a particular segment. RESERVOIR DESCRIPTION Revenues from the Reservoir Description segment decreased $0.8 million in the first quarter of 2000. Improved demand for our services in this segment almost completely offset the loss of $5.7 million in revenues attributable to our environmental testing assets which were included in the first quarter of 1999. These assets were subsequently sold in 1999. Income before interest, taxes and unusual charges increased by $3.6 million due to higher revenues and improved margins of our crude oil and petroleum characterization services. PRODUCTION ENHANCEMENT Revenues from the Production Enhancement segment were $18.8 million in the first quarter of 2000 compared to $14.4 million in the same period in the prior year, an increase of 31%, due to increased demand for our well completion and stimulation technologies. Margins improved considerably as this increased demand caused earnings before interest, taxes and unusual charges to more than double to $4.2 million compared to $1.8 million, a 137% increase. 13 16 RESERVOIR MANAGEMENT Revenues from the Reservoir Management segment in the first quarter of 2000 decreased $2.4 million while earnings before interest, taxes and unusual charges decreased $1.8 million compared to the same period in the prior year. Demand for seismic-related services has not rebounded in line with the upturn in the oil and gas industry. Lower revenues in this segment resulted in a loss before interest, taxes and unusual charges of $1.8 million compared to a small margin $0.1 million in the first quarter of 1999. We have taken and will continue to take appropriate actions to control our costs in order to improve our results in this segment. LIQUIDITY AND CAPITAL RESOURCES We have historically financed our activities through cash flows from operations, bank credit facilities, equity financing and the issuance of debt. During the three month period ended March 31, 2000, cash flows from operating activities were $6.9 million, an increase of $9.6 million from the corresponding period in 1999. At March 31, 2000, the Company had working capital of $90.5 million (of which $13.4 million was cash and short-term investments) and a current ratio of 2.8 to 1.0, compared to working capital of $92.9 million (of which $18.1 million was cash and short-term investments) and a current ratio of 2.9 to 1.0 at December 31, 1999. The Company is a Netherlands holding company that conducts substantially all of its operations through subsidiaries. Consequently, the Company's cash flow is dependent upon the ability of its subsidiaries to pay cash dividends or otherwise distribute or advance funds to the Company. The Company's financing activities used $4.8 million in 2000, and provided $5.1 million in 1999. The Company's investing activities used $6.8 million in 2000 and used $3.9 million in 1999. The Company's ability to maintain and grow its operating income and cash flows is dependent upon continued investing activities. We believe our future cash flows from operations, supplemented by our borrowing capacity and issuances of additional equity should be sufficient to fund debt requirements, capital expenditures, working capital and future acquisitions. YEAR 2000 The Company did not experience any significant disruptions in its operations during the transition into the Year 2000. We have completed necessary assessments, modifications or replacements and testing of systems critical for the delivery of products and services and believe we have met out Year 2000 readiness objectives. We also prepared a contingency plan to mitigate potential adverse effects which might have arisen from non-compliant systems or third parties who have not adequately addressed the Year 2000 issue. Because of these preparations, we did not experience any significant disruptions in our operations. The amounts incurred and expensed for developing and carrying out the overall Year 2000 plan totaled approximately $0.4 million. While the Company did not experience any significant Year 2000 disruptions during the transition into the Year 2000, we will continue to monitor our operations and systems and address any date-related problems that may arise as the year progresses. 14 17 CORE LABORATORIES N.V. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK The Company is exposed to market risk, which is the potential loss arising from adverse changes in market prices and rates. The Company does not enter, or intend to enter, into derivative financial instruments for trading or speculative purposes. The Company's exposure to market risks, which are primarily related to interest rate changes and fluctuations in foreign exchange rates, are not considered to be material to the Company. During 1999, the Company issued fixed rate Senior Notes denominated in U.S. dollars. The proceeds were used to pay off variable rate term loans. This significantly reduced the Company's exposure to market risk. This section should be read in conjunction with "Note 5 - Long-Term Debt" of the Notes to Consolidated Financial Statements. 15 18 CORE LABORATORIES N.V. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company may from time to time be subject to legal proceedings and claims that arise in the ordinary course of business. The Company believes that the outcome of these legal actions will not have a material adverse effect upon the consolidated financial position or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES. Disclosure related to the recent issuance of common shares is included in Note 2 of the Notes to Consolidated Financial Statements. With respect to the shares issued, the Company relied on exemption from registration under Section 4 (2) of Regulation S of the Securities Act of 1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. On behalf of certain selling shareholders, the Company filed a registration statement on Form S-3 to register the offering and sale of common shares held by such selling shareholders. In connection with the filing of the registration statement, the Company granted the underwriters an option to purchase additional common shares solely to cover over-allotments of shares. 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 None 16 19 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: May 15, 2000 By: /s/ Randall D. Keys ------------------------------------- Randall D. Keys Chief Financial Officer 17 20 EXHIBIT INDEX
INCORPORATED BY REFERENCE FROM THE EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS ----------- ------------- ------------------- 27.1 Financial Data Schedule Filed Herewith
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 13,441 0 87,489 9,506 30,921 140,286 104,724 37,665 362,999 49,822 0 0 0 513 213,002 362,999 68,518 68,518 55,043 62,043 0 0 1,952 4,523 1,357 3,166 0 0 0 3,166 0.10 0.10
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