-----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, FA6v/ulyJZGNpgMCxkyaGOR7cMBHM1+fX+JctUVhQ4lTi06/akpNkwU1hwafjLZf kyCwb0giw8Tk84BKPJ0ARw== /in/edgar/work/20000814/0000950129-00-004197/0000950129-00-004197.txt : 20000921 0000950129-00-004197.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950129-00-004197 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORE LABORATORIES N V CENTRAL INDEX KEY: 0001000229 STANDARD INDUSTRIAL CLASSIFICATION: [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: 700236 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 e10-q.txt CORE LABORATORIES N.V. - DATED JUNE 30, 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 JUNE 30, 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 001-14273 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 August 9, 2000 was 31,630,473. ================================================================================ 2 CORE LABORATORIES N.V. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 INDEX
PAGE Part I -- Financial Information Item 1 -- Financial Statements Consolidated Balance Sheets at June 30, 2000 and December 31, 1999.......................... 1 Consolidated Statements of Operations for the Three Months Ended June 30, 2000 and 1999................................................................. 2 Consolidated Statements of Operations for the Six Months Ended June 30, 2000 and 1999................................................................. 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999................................................................. 4 Notes to Consolidated Financial Statements.................................................. 5 Item 2-- Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................. 11 Item 3-- Quantitative & Qualitative Disclosures of Market Risk.................................. 17 Part II -- Other Information Item 1-- Legal Proceedings...................................................................... 18 Item 2-- Changes in Securities.................................................................. 18 Item 3-- Defaults Upon Senior Securities........................................................ 18 Item 4-- Submission of Matters to a Vote of Security Holders.................................... 18 Item 5-- Other Information...................................................................... 19 Item 6-- Exhibits and Reports on Form 8-K....................................................... 20 Signature ....................................................................................... 21
ii 3 CORE LABORATORIES N.V. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 18,053 $ 18,222 Accounts receivable, less allowance for doubtful accounts of $9,007 and $9,845 in 2000 and 1999, respectively ........... 82,863 83,467 Inventories ...................................................... 35,420 24,735 Prepaid expenses and other ....................................... 10,961 10,325 Deferred tax asset ............................................... 6,181 6,363 -------- -------- Total current assets ........................................ 153,478 143,112 PROPERTY, PLANT AND EQUIPMENT, net .................................... 81,332 71,098 INTANGIBLES AND GOODWILL, net of accumulated amortization of $12,262 and $10,122 in 2000 and 1999, respectively ................ 149,216 151,098 OTHER LONG-TERM ASSETS ................................................. 5,583 5,943 -------- -------- Total assets ........................................... $389,609 $371,251 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt .............................. $ 654 $ 2,418 Current lease obligations ......................................... 349 622 Accounts payable .................................................. 20,944 19,629 Other accrued liabilities ......................................... 22,084 27,793 -------- -------- Total current liabilities .................................... 44,031 50,462 LONG-TERM DEBT ......................................................... 84,629 85,078 MINORITY INTEREST ...................................................... 1,539 1,290 LONG-TERM LEASE OBLIGATIONS ............................................ 262 660 OTHER LONG-TERM LIABILITIES ............................................ 21,982 22,250 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, 31,583,723 and 30,411,616 issued and outstanding at June 30, 2000 and December 31, 1999, respectively .......... 527 515 Additional paid-in capital ........................................ 181,310 162,039 Retained earnings ................................................. 55,329 48,957 -------- -------- Total shareholders' equity .................................... 237,166 211,511 -------- -------- Total liabilities and shareholders' equity ............... $389,609 $371,251 -------- --------
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 JUNE 30, 2000 1999 ------------ ------------ (UNAUDITED) SERVICES .................................... $ 60,030 $ 62,371 SALES ....................................... 16,588 15,347 ------------ ------------ 76,618 77,718 OPERATING EXPENSES: Cost of services ....................... 48,605 55,234 Cost of sales .......................... 13,012 10,171 General and administrative expenses .... 3,383 2,964 Depreciation and amortization .......... 3,510 3,895 Goodwill amortization .................. 1,023 1,110 Other income, net ...................... 158 (974) ------------ ------------ 69,691 72,400 INCOME BEFORE INTEREST EXPENSE AND INCOME TAX EXPENSE ......... 6,927 5,318 INTEREST EXPENSE ............................ 1,985 1,965 ------------ ------------ INCOME BEFORE INCOME TAX EXPENSE ............ 4,942 3,353 INCOME TAX EXPENSE .......................... 1,483 1,107 ------------ ------------ NET INCOME .................................. $ 3,459 $ 2,246 ============ ============ PER SHARE INFORMATION: BASIC EARNINGS PER SHARE ............... $ 0.11 $ 0.07 ============ ============ WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ...................... 30,973,722 30,228,410 ============ ============ DILUTED EARNINGS PER SHARE ............. $ 0.11 $ 0.07 ============ ============ WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING ...................... 32,135,030 31,068,557 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 2 5 CORE LABORATORIES N.V. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, 2000 1999 ------------ ------------ (UNAUDITED) SERVICES .................................... $ 115,103 $ 118,355 SALES ....................................... 31,810 28,909 ------------ ------------ 146,913 147,264 OPERATING EXPENSES: Cost of services ....................... 93,958 105,716 Cost of sales .......................... 24,294 19,654 General and administrative expenses .... 6,687 5,711 Depreciation and amortization .......... 7,209 7,901 Goodwill amortization .................. 2,047 2,128 Write-offs and other charges ........... -- 10,670 Other income, net ...................... (416) (1,285) ------------ ------------ 133,779 150,495 INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAX EXPENSE ......... 13,134 (3,231) INTEREST EXPENSE ............................ 4,032 3,733 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX EXPENSE ..... 9,102 (6,964) INCOME TAX EXPENSE (BENEFIT) ................ 2,731 (2,298) ------------ ------------ NET INCOME (LOSS) ........................... $ 6,371 $ (4,666) ============ ============ PER SHARE INFORMATION: BASIC EARNINGS (LOSS) PER SHARE ........ $ 0.21 $ (0.16) ============ ============ WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ...................... 30,852,778 30,195,309 ============ ============ DILUTED EARNINGS (LOSS) PER SHARE ...... $ 0.20 $ (0.16) ============ ============ WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING ...................... 31,852,475 30,195,309 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 6 CORE LABORATORIES N.V. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ----------------------- 2000 1999 --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ........................................... $ 6,371 $ (4,666) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .......................... 7,209 7,901 Goodwill amortization .................................. 2,047 2,128 (Gain) loss on sale of fixed assets .................... (494) 6 Changes in assets and liabilities: Decrease in accounts receivable ........................ 604 3,435 Increase in inventories ................................ (10,685) (4,065) Decrease (increase) in prepaid expenses ................ 466 (987) Increase (decrease) in accounts payable ................ 1,316 (4,801) Increase (decrease) in payroll and related costs ....... (741) 3,018 Increase (decrease) in income tax payable .............. 448 (6,026) Increase (decrease) in other accrued expenses .......... (5,073) 1,755 Decrease in net deferred tax asset ..................... 844 694 Increase (decrease) in other long-term liabilities ..... (2) 253 Other .................................................. (2,557) (1,312) -------- -------- Net cash used in operating activities ............. (247) (2,667) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ....................................... (18,250) (9,897) Proceeds from sale of fixed assets ......................... 1,498 583 Other ...................................................... 276 -- -------- -------- Net cash used in investing activities .................. (16,476) (9,314) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt ................................. (12,376) (7,318) Borrowings under long-term debt ............................ 10,290 22,032 Capital lease obligations, net ............................. (671) 22 Exercise of stock options .................................. 1,943 685 Net proceeds from exercise of over-allotment option ........ 17,340 -- Other ...................................................... 28 (295) -------- -------- Net cash provided by financing activities .............. 16,554 15,126 -------- -------- NET CHANGE IN CASH .............................................. (169) 3,145 CASH, beginning of period ....................................... 18,222 8,156 -------- -------- CASH, end of period ............................................. $ 18,053 $ 11,301 ======== ========
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 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 six month period ended June 30, 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 acquisitions accounted for as poolings-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 PRODUCTION ENHANCEMENT CORPORATION ACQUISITION On June 20, 2000, the Company acquired all of the outstanding shares of 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. The Company issued approximately 275,000 shares, with an estimated market value of $6.1 million, in exchange for all of the outstanding shares of PENCOR and assumed approximately $2.5 million in debt. The transaction was accounted for as a pooling-of-interests. TOMOSEIS CORPORATION ACQUISITION On January 12, 2000, the Company acquired all of the outstanding shares of TomoSeis Corporation ("TomoSeis"), a privately held company based in Houston, Texas. TomoSeis provides 5 8 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 market 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 stock options would be approximately $2.1 million. The transaction was accounted for as a pooling-of-interests. 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 June 30, 2000 and December 31, 1999, respectively. Inventories consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ (UNAUDITED) Finished goods ........... $25,469 $17,051 Parts and materials ...... 6,928 6,494 Work in process .......... 3,023 1,190 ------- ------- Total .... $35,420 $24,735 ------- -------
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 (in thousands):
ORIGINAL LIFE JUNE 30, DECEMBER 31, IN YEARS 2000 1999 --------- --------- ------------ (UNAUDITED) Acquired trade secrets .......................... 5 $ 48 $ 48 Acquired patents, trademarks and trade names .... 10-20 1,848 1,590 Acquired trade name ............................. 40 4,614 4,614 Acquired source technology ...................... 15 277 277 --------- --------- --------- Total intangibles ...................... 6,787 6,529 --------- --------- --------- Goodwill ........................................ 5-10 2,404 2,404 Goodwill ........................................ 20 4,517 4,517 Goodwill ........................................ 40 147,770 147,770 --------- --------- --------- Total goodwill ......................... 154,691 154,691 --------- --------- --------- Total intangibles and goodwill .... 161,478 161,220 Less - accumulated amortization ................. (12,262) (10,122) --------- --------- --------- Net intangibles and goodwill .... $ 149,216 $ 151,098 --------- --------- ---------
6 9 5. LONG-TERM DEBT Long-term debt is summarized in the following table (in thousands):
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ (UNAUDITED) Senior Notes ....................... $75,000 $75,000 Credit Facility with a bank group .. 8,000 7,000 Debt assumed from acquired companies 1,302 4,154 Loan notes ......................... 899 989 Other indebtedness ................. 82 353 ------- ------- Total debt ................ 85,283 87,496 Less - current maturities .......... 654 2,418 ------- ------- Total long-term debt ...... $84,629 $85,078 ======= =======
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 June 30, 2000, approximately $92 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 June 30, 2000 was 7.87% and the average for 2000 has been 7.61%. The Credit Facility has no scheduled principal payments prior to its 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. STOCK OFFERING On May 31, 2000, the Company successfully completed a public offering in which certain shareholders of the Company sold 4,644,988 of their common shares. In connection with the offering, on June 16, 2000, the underwriters exercised their over-allotment option and purchased 696,748 common shares from the Company, which resulted in net proceeds of $17.3 million. The Company used these proceeds principally to reduce indebtedness and fund capital expenditures. 7. 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 7 10 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. 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 - $2.8 million; Production Enhancement - $1.9 million; Reservoir Management - $2.3 million. The Company combined personnel and equipment from eight facilities into one Houston facility. No operations were discontinued. 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 95 of these employees had been terminated as of June 30, 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. 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 year ended June 30, 2000 ................ 264 376 435 -- 184 1,259 ----------- ------ ------ ------ ------ ------ Accrual remaining........................... $ 2,204 $ 58 $ 323 $ -- $ -- $2,585 =========== ====== ====== ====== ====== ======
(a) The fixed assets and leasehold improvements related to the Houston consolidation were disposed of or abandoned by the end of June 2000. The write-off approximates the carrying amount as these assets no longer have value and have been 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. 8. 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. 8 11 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. 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 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 JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------------- ---------------------------- 2000 1999 2000 1999 (a) ------------------------------------------------------------------- (UNAUDITED) REVENUES: Reservoir Description ............... $ 44,576 $ 49,880 $ 87,516 $ 94,117 Production Enhancement .............. 20,254 15,345 39,097 29,696 Reservoir Management ................ 11,788 12,493 20,300 23,451 --------- --------- --------- --------- Consolidated .................. $ 76,618 $ 77,718 $ 146,913 $ 147,264 ========= ========= ========= ========= INCOME (LOSS) BEFORE INTEREST AND TAXES: Reservoir Description ............... $ 5,108 $ 4,918 $ 8,941 $ (370) Production Enhancement .............. 2,208 2,510 6,452 3,335 Reservoir Management ................ (826) (2,672) (2,611) (3,028) Corporate and Other ................. 437 562 352 (3,168) --------- --------- --------- --------- Consolidated .................. $ 6,927 $ 5,318 $ 13,134 $ (3,231) ========= ========= ========= =========
(a) The income (loss) before interest and taxes for each segment for the six months ended June 30, 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 7 for additional information. "Corporate and Other" represents those items that are not directly related to a particular segment. 9. 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 shares 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. 9 12 The following table summarizes the calculation of weighted average common shares outstanding used in the computation of earnings per share:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Weighted average basic common shares outstanding............. 30,973,722 30,228,410 30,852,778 30,195,309 Effect of dilutive stock options(a)... 1,161,308 840,147 999,697 -- ---------- ---------- ---------- ---------- Weighted average diluted common shares outstanding ............ 32,135,030 31,068,557 31,852,475 30,195,309 ---------- ---------- ---------- ----------
(a) The effect of dilutive stock options totaling 1,019,153 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 six months ended June 30, 1999. 10 13 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 risk 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 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 3,700 employees. We provide our services to the world's major, national and independent oil companies. RESULTS OF OPERATIONS Service revenues for the second quarter of 2000 decreased $2.3 million, or 4%, from the same period last year. Service revenues for the six months ended June 30, 2000 decreased $3.3 million, or 3%, compared to the same period last year. Included in the three and six month periods ended June 30, 1999, were $5.5 million and $11.2 million, respectively, of revenues attributable to our environmental testing assets which were sold at the end of the third quarter of 1999. Excluding these revenues, total service revenues increased $3.2 million, or 6% for the second quarter of 2000, and $7.9 million, or 8%, for the six months ended June 30, 2000, compared to the same periods last year. The increase was due to improved industry conditions. Cost of services expressed as a percentage of service revenue were 81% and 82%, respectively, for the three and six month periods ended June 30, 2000 compared to 89% for the comparable periods in 1999. The Company's restructuring plan of consolidating offices and reducing personnel, together with an improving industry environment, helped improve our service margins. 11 14 Sales revenues for the second quarter of 2000 increased $1.2 million to $16.6 million, or 8%, from the same period last year. Sales revenues for the six months ended June 30, 2000 increased $2.9 million to $31.8 million, or 10%, compared to the same period last year. The increased demand for our well completion and stimulation technologies, which began in the latter part of 1999, continued through the second quarter of 2000. Cost of sales in the second quarter of 2000 increased $2.8 million to 78% of sales revenue as compared to 66% in the same period last year. For the six months ended June 30, 2000, cost of sales increased $4.6 million to 76% of sales revenues compared to 68% for the same period in 1999. The increase in cost of sales was primarily due to the completion of a higher percentage of North American projects with lower margins as well as higher expenses associated with the expansion of well completion technologies in Canada and the Asia Pacific region. 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 and six month periods ended June 30, 2000 increased $0.4 million, and $1.0 million, respectively, as compared to the corresponding periods in 1999. The increase was primarily a result of higher personnel and information systems costs incurred to improve our efficiencies and provide additional services to our operating subsidiaries. General and administrative expenses as a percentage of revenues remained below 5% of revenues for both periods. Depreciation and amortization expense decreased $0.4 million and $0.7 million, respectively, for the three and six month periods ended June 30, 2000 compared to the same periods in 1999. Although we had $18.3 million of capital expenditures in the six month period ended June 30, 2000, the additional depreciation expense relating to these capital expenditures was more than offset by the effect of the depreciation attributable to assets which had become fully depreciated in 1999 and our environmental testing assets which were sold in the third quarter of 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 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 - $2.8 million; Production Enhancement - $1.9 million; Reservoir Management - $2.3 million. The Company combined personnel and equipment from eight facilities into one Houston facility. No operations were discontinued and the Company expects its revenues to be largely unaffected by this facility 12 15 consolidation. The move was completed 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 95 of these employees had been terminated as of June 30, 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 June 30, 2000 of $2.4 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 year ended June 30, 2000 ................ 264 376 435 -- 184 1,259 ---------- ------ ------ ------ ------ ------ Accrual remaining........................... $ 2,204 $ 58 $ 323 $ -- $ -- $2,585 ========== ====== ====== ====== ====== ======
(a) The fixed assets and leasehold improvements related to the Houston consolidation were disposed of or abandoned by the end of June 2000. The write-off approximates the carrying amount as these assets no longer have value and have been 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. For the six month period ended June 30, 2000, interest expense increased $0.3 million, or 8%, compared to the same period in 1999. Although average borrowings were lower in 2000, this was more than offset by the effect of higher interest rates both from rising market rates and higher rates associated with the senior notes. The Company's effective income tax rate was approximately 30% for the three months and six months ended June 30, 2000 as compared to 33% for the three months and six months ended June 30, 1999. The decrease was due to increased earnings from operations in tax jurisdictions with lower marginal tax rates. 13 16
SEGMENT ANALYSIS (in thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2000 1999 2000 1999(a) -------- -------- --------- --------- (UNAUDITED) REVENUES: Reservoir Description ........................................ $ 44,576 $ 49,880 $ 87,516 $ 94,117 Production Enhancement ....................................... 20,254 15,345 39,097 29,696 Reservoir Management ......................................... 11,788 12,493 20,300 23,451 -------- -------- --------- --------- Consolidated ........................................... $ 76,618 $ 77,718 $ 146,913 $ 147,264 ======== ======== ========= ========= INCOME (LOSS) BEFORE INTEREST AND TAXES AND UNUSUAL CHARGES: Reservoir Description ........................................ $ 5,108 $ 4,918 $ 8,941 $ 5,219 Production Enhancement ....................................... 2,208 2,510 6,452 4,291 Reservoir Management ......................................... (826) (2,672) (2,611) (2,599) Corporate and Other .......................................... 437 562 352 528 -------- -------- --------- --------- Consolidated ........................................... $ 6,927 $ 5,318 $ 13,134 $ 7,439 ======== ======== ========= =========
(a) The income (loss) before interest and taxes for the six months ended June 30, 1999 exclude unusual charges totaling $10,670. 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 for the Reservoir Description segment were $44.6 million for the second quarter of 2000 compared to $49.9 million in the second quarter of 1999. Revenues for the six month period ended June 30, 2000 were $87.5 million compared to $94.1 million in the same period last year. Included in the three and six month periods ended June 30, 1999 were $5.4 million and $11.2 million, respectively, of revenues attributable to our environmental testing assets. These assets were sold at the end of the third quarter of 1999. Income before interest, taxes and unusual charges increased by $0.2 million in the second quarter of 2000 and $3.7 million in the six months ended June 30, 2000, compared to the same period in 1999. The increase was due to higher revenues and improved margins of our crude oil and petroleum characterization services. PRODUCTION ENHANCEMENT Revenues from the Production Enhancement segment were $20.3 million in the second quarter of 2000 compared to $15.3 in the same period in the prior year, an increase of 32%. For the six months ended June 30, 2000, revenues increased $9.4 million to $39.1 million, also an increase of 32%. These increases were due to increased demand for our well completion and stimulation technologies. Although earnings before interest, taxes and unusual charges in the second quarter of 2000 were down slightly by $0.3 million compared to last year, this segment showed improvement for the comparable six month period with an increase in earnings before interest, taxes and unusual charges of $2.2 million. 14 17 RESERVOIR MANAGEMENT Revenues from the Reservoir Management segment in the second quarter of 2000 and the six months ended June 30, 2000 declined $0.7 million and $3.2 million, respectively compared to the same periods in 1999. The demand for seismic-related services has not recovered in line with the general recovery in the oil and gas industry. However, our continuing efforts to reduce our cost structure resulted in a significant reduction of the losses in this segment in the second quarter of 2000. The loss before interest, taxes and unusual charges for that period was $0.8 million compared to a loss of $2.7 million in the second quarter of 1999. The loss before interest, taxes and unusual charges for the comparable six month periods was relatively consistent at $2.6 million in each year. We continue to seek improvement in the results of 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 six month period ended June 30, 2000, the Company's operating use of cash was $0.2 million compared to a use of cash of $2.7 million from the corresponding period in 1999. At June 30, 2000, the Company had working capital of $109.4 million (of which $18.1 million was cash and short-term investments) and a current ratio of 3.5 to 1.0, compared to working capital of $92.7 million (of which $18.2 million was cash and short-term investments) and a current ratio of 2.8 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 investing activities used $16.5 million in 2000 and $9.3 million in 1999. The majority of our investing activities were comprised of capital expenditures. Cash outlays for the facility consolidation in Houston was included in capital expenditures of $18.3 million for the six month period ended June 30, 2000. This facility consolidation is expected to contribute to a reduction in annual operating expenses. Cash flows from financing activities provided $16.6 million in 2000 and $15.1 million in 1999. Net borrowings were the primary source of cash provided by financing activities in 1999. On May 31, 2000, the Company successfully completed a public offering in which certain shareholders of the Company sold 4,644,988 of their common shares. In connection with the offering, on June 16, 2000, the underwriters exercised their over-allotment option and purchased 696,748 common shares from the Company, which resulted in net proceeds of $17.3 million. The proceeds were used principally to reduce indebtedness and fund capital expenditures. 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. 15 18 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. 16 19 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, have historically not been 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 future increases in interest rates. This section should be read in conjunction with "Note 5 - Long-Term Debt" of the Notes to Consolidated Financial Statements. 17 20 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 in connection with acquisitions 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 the Securities Act of 1933. 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 25, 2000, and by proxy, elected ten members (each, a "Supervisory Director") to the Board of Supervisory Directors of the Company (the "Supervisory Board"), consisting of (i) David M. Demshur; (ii) Rene R. Joyce (iii) Timothy J. Probert; (iv) Jacobus Schouten, as Class I Supervisory Directors, (i) Bob G. Agnew; (ii) D. John Ogren; (iii) Joseph R. Perna, as Class II Supervisory Directors and (i) Richard L. Bergmark; (ii) Alexander Vriesendorp; (iii) Stephen D. Weinroth, as Class III Supervisory Directors, to serve until the annual meeting of shareholders in 2003, 2002 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 -------- ---------- --------------- David M. Demshur 17,818,961 29,855 Rene R. Joyce 17,818,961 29,855 Timothy J. Probert 17,818,961 29,855 Jacobus Schouten 17,818,961 29,855 Bob G. Agnew 17,818,361 30,455 D. John Ogren 17,818,961 29,855 Joseph R. Perna 17,817,861 30,955 Richard L. Bergmark 17,818,961 29,855 Alexander Vriesendorp 17,818,961 29,855 Stephen D. Weinroth 17,818,561 30,255
18 21 Voting stockholders also confirmed the Dutch Statutory Annual Accounts for the year ended December 31, 1999. The proposal was approved by 17,717,257 votes for, 15,950 votes against, with 115,609 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 capital of the Company until November 24, 2001, at a price not more than $200 per share. The proposal was approved by 17,156,406 votes in favor, 19,363 votes against with 673,047 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 24, 2005. The proposal was approved by 16,818,863 votes in favor, 331,124 votes against, with 698,829 abstentions. Voting shareholders approved the extension of the authority of the Supervisory Board to limit or to exclude the preemptive right of holders of common shares of the Company until May 24, 2005. The proposal was approved by 16,829,799 votes in favor, 344,298 votes against, with 674,719 abstentions. Voting shareholders approved to amend the Company's 1995 Long-Term Incentive Plan to increase the number of common shares available for issuance under the plan by an aggregate of 2,500,000 shares. The proposal was approved by 11,642,071 votes in favor, 5,506,287 votes against, with 700,458 abstentions. Voting shareholders approved to amend the Company's 1995 Non-employee Director Stock Option Plan to increase the number of common shares available for issuance under the plan by an aggregate of 500,000 shares. The proposal was approved by 16,711,100 votes in favor, 440,353 votes against, with 697,363 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, 2000. The proposal was approved by 17,710,218 votes in favor, 28,237 votes against, with 110,361 abstentions. ITEM 5. OTHER INFORMATION. None 19 22 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 20 23 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, 2000 By: /s/ Randall D. Keys -------------------------------------- Randall D. Keys Chief Financial Officer 21 24 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 Financial Data Schedule
EX-27.1 2 ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 18,053 0 91,870 9,007 35,420 153,478 124,813 43,481 389,609 44,031 0 0 0 527 236,639 389,609 146,913 146,913 118,252 133,779 0 0 4,032 9,102 2,731 6,371 0 0 0 6,371 0.21 0.20
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