-----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, HYvPoxkCULPYeSlGGE80l3ijam7GFc3PMP5YhTIqLtKgkamGa1R9R/sQ/zbbaQXQ VQ9xo1T3NhAeZxvtNLZdEw== 0000950129-99-002251.txt : 19990518 0000950129-99-002251.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950129-99-002251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99624935 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 03/31/99 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- -------------- Commission File Number 0-26710 CORE LABORATORIES N.V. (Exact name of registrant as specified in its charter) THE NETHERLANDS NOT APPLICABLE (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) HERENGRACHT 424 1017 BZ AMSTERDAM THE NETHERLANDS NOT APPLICABLE (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (31-20) 420-3191 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of common shares of the Registrant, par value NLG 0.03 per share, outstanding at May 7, 1999 was 29,413,784. ================================================================================ 2 CORE LABORATORIES N.V. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 INDEX
PAGE ---- Part I -- Financial Information Item 1 -- Financial Statements Consolidated Balance Sheets at March 31, 1999 and December 31, 1998 ....................... 1 Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998................................................................ 2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998................................................................ 3 Notes to Consolidated Financial Statements ................................................ 4 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................................................ 8 Part II -- Other Information Item 1 -- Legal Proceedings..................................................................... 11 Item 2 -- Changes in Securities................................................................. 11 Item 3 -- Defaults Upon Senior Securities....................................................... 11 Item 4 -- Submission of Matters to a Vote of Security Holders .................................. 11 Item 5 -- Other Information..................................................................... 11 Item 6 -- Exhibits and Reports on Form 8-K .................................................... 13 Signature ........................................................................................... 14
ii 3 CORE LABORATORIES N.V. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 1999 1998 ---------- ------------ ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents................................................... $ 6,849 $ 8,166 Accounts receivable, net.................................................... 76,209 84,288 Inventories................................................................. 22,893 18,860 Prepaid expenses............................................................ 11,462 9,935 Deferred income tax asset................................................... 5,409 5,192 ---------- ----------- Total current assets................................................... 122,822 126,441 PROPERTY, PLANT AND EQUIPMENT.................................................... 90,058 88,009 Less-- accumulated depreciation............................................. (21,350) (19,818) ---------- ------------ 68,708 68,191 INTANGIBLES AND GOODWILL, net.................................................... 148,796 149,487 OTHER LONG-TERM ASSETS........................................................... 4,469 4,489 ---------- ------------ Total assets............................................................ $ 344,795 $ 348,608 ========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt........................................ $ 22,871 $ 18,355 Accounts payable............................................................ 16,707 18,528 Other current liabilities................................................... 22,825 24,338 ---------- ------------ Total current liabilities.............................................. 62,403 61,221 LONG-TERM DEBT................................................................... 68,056 68,238 MINORITY INTEREST................................................................ 1,098 1,078 LONG-TERM LEASE OBLIGATIONS...................................................... 143 154 OTHER LONG-TERM LIABILITIES...................................................... 21,303 20,949 COMMITMENTS AND CONTINGENCIES 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; 30,000,000 shares authorized, 29,414,284 and 29,298,419 issued and outstanding at March 31, 1999 and December 31, 1998, respectively................... 497 496 Additional paid-in capital.................................................. 153,213 152,178 Retained earnings........................................................... 38,082 44,294 ---------- ------------ Total shareholders' equity.............................................. 191,792 196,968 ---------- ------------ Total liabilities and shareholders' equity............................. $ 344,795 $ 348,608 ========== ============
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, ------------------------------ 1999 1998 ------------ ------------ (UNAUDITED) (UNAUDITED) SERVICES ......................................... $ 52,190 $ 58,283 SALES ............................................ 11,941 4,178 ------------ ------------ 64,131 62,461 OPERATING EXPENSES: Costs of services ........................... 44,941 47,105 Costs of sales .............................. 9,482 3,427 General and administrative expenses ......... 2,747 1,882 Depreciation and amortization ............... 4,478 3,423 Non-recurring charges (Note 6) .............. 10,670 -- Other (income) expense, net ................. (497) (49) ------------ ------------ 71,821 55,788 INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAX EXPENSE .......................... (7,690) 6,673 INTEREST EXPENSE ................................. 1,582 1,380 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX EXPENSE .......... (9,272) 5,293 INCOME TAX EXPENSE (BENEFIT) ..................... (3,060) 1,588 ------------ ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS ......... (6,212) 3,705 LOSS FROM DISCONTINUED OPERATIONS ................ -- (217) ------------ ------------ NET INCOME (LOSS) ................................ $ (6,212) $ 3,488 ============ ============ PER SHARE DATA: Income (loss) from continuing operations .... $ (0.21) $ 0.15 Loss from discontinued operations ........... $ -- $ (0.01) ------------ ------------ Basic earnings (loss) per share ............ $ (0.21) $ 0.14 ============ ============ WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ........................... 29,358,338 25,650,083 ============ ============ Income (loss) from continuing operations .... $ (0.21) $ 0.14 Loss from discontinued operations ........... $ -- $ (0.01) ------------ ------------ Diluted earnings (loss) per share ........... $ (0.21) $ 0.13 ============ ============ WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING ........................... 30,049,601 26,514,596 ============ ============
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, -------------------- 1999 1998 -------- -------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ................................................... $ (6,212) $ 3,488 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ................................... 4,478 3,423 (Gain) loss on sale of fixed assets ............................. 9 (301) Changes in assets and liabilities: Decrease in accounts receivable ................................. 8,101 346 (Increase) decrease in inventories .............................. (596) 114 Increase in prepaid expenses .................................... (4,964) (2,676) Decrease in accounts payable .................................... (1,821) (3,033) Increase (decrease) in other accrued expenses ................... 3,502 (517) Other ........................................................... (4,720) (2,605) -------- -------- Net cash used in continuing operations ..................... (2,223) (1,761) Net cash provided by discontinued operations ............... -- 217 -------- -------- Net cash used in operating activities ...................... (2,223) (1,544) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................................ (5,583) (3,803) Proceeds from sale of fixed assets .................................. 1,660 412 -------- -------- Net cash used in investing activities ........................... (3,923) (3,391) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt .......................................... (3,669) (1,729) Borrowings under long-term debt ..................................... 8,003 -- Decrease in short-term debt ......................................... -- (44) Exercise of stock options ........................................... 556 275 Other ............................................................... (61) (94) -------- -------- Net cash provided by (used in) financing activities ............. 4,829 (1,592) -------- -------- NET CHANGE IN CASH ...................................................... (1,317) (6,527) CASH, beginning of period ................................................ 8,166 12,726 -------- -------- CASH, end of period ...................................................... $ 6,849 $ 6,199 ======== ========
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 Core Laboratories N.V. and its subsidiaries (the "Company"), and have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. Balance sheet information as of December 31, 1998, has been taken from the 1998 annual audited financial statements. Certain 1998 items have been reclassified to conform with the 1999 presentation. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 31, 1999. ACCOUNTING STANDARDS The Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information" in 1998, which changes the way the Company reports information about its operating segments. See Footnote 7 for additional information. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, and establishes accounting and reporting standards for derivative instruments (including certain derivative instruments embedded in other contracts). Adoption of SFAS No. 133 is not expected to have a material effect on the Company's financial position or operational results. 2. ACQUISITIONS On January 7, 1999, the Company acquired receivables and certain fixed assets from Isotag Specialist, Inc. ("Isotag"), and its related company, Fred Calaway and Co. Both companies are privately held and based in Texas. Isotag provides production enhancement and related services. The Company issued approximately 33,000 shares for the assets and is accounting for the transaction using the purchase method of accounting. On January 18, 1999 the Company entered into an agreement to acquire GeoScience Corp. for approximately $197 million in cash and stock. On March 23, 1999 the Company agreed to terminate the agreement. As part of the termination, the Company incurred charges of approximately $3.7 4 7 million, including $3.0 million of working capital advances made by the Company to GeoScience Corp. 3. INVENTORIES Inventories are primarily items held for sales or services provided to customers. Inventories are stated at the lower of average cost (includes direct material, labor and overhead) or estimated realizable value. A summary of inventories is as follows (in thousands):
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) Parts and materials....................... $ 16,614 $ 16,987 Work in process........................... 6,279 1,873 ----------- ------------ Total ........................... $ 22,893 $ 18,860 =========== ============
4. INTANGIBLES AND GOODWILL Intangibles and goodwill are amortized using the straight-line method over their estimated useful lives, which range from 5 to 40 years. Intangibles include patents, trademarks, service marks and trade names. Goodwill represents the excess purchase price over the fair market value of net assets acquired for acquisitions accounted for as purchases. The Company continually evaluates whether subsequent events or circumstances have occurred that indicate the remaining useful life of intangibles and goodwill may warrant revision or that the remaining balance of intangibles and goodwill may not be recoverable by determining whether the carrying amount of the intangible assets can be recovered through projected undiscounted future cash flows over the remaining amortization period. 5. LONG-TERM DEBT Long-term debt at March 31, 1999 and December 31, 1998 is summarized in the following table (in thousands):
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) Credit Facility with a bank group: $70,154 term loan facility.............. $ 66,607 $ 70,154 $55,000 revolving debt facility......... 23,000 15,000 Loan Notes ............................... 1,073 1,073 Other indebtedness.......................... 247 366 ----------- ----------- Total debt ........................ 90,927 86,593 Less-- current maturities............... 22,871 18,355 ----------- ----------- Total long-term debt............... $ 68,056 $ 68,238 =========== ===========
In May 1997, the Company entered into a Credit Facility which provides for (i) a term loan of $55 million, (ii) a term loan denominated in British pounds having a U.S. dollar equivalency of approximately $15 5 8 million, (iii) a committed revolving debt facility of $50 million, and (iv) a Netherlands guilder denominated revolving debt facility with U.S. dollar equivalency of $5 million. At March 31, 1999, approximately $32 million was available for borrowing under the revolving credit facility. Loans under the Credit Facility will generally bear interest from LIBOR plus 0.75% to a maximum of LIBOR plus 1.75%. The term loans require quarterly principal payments beginning March 31, 1999, with the final payment due on June 30, 2002. The revolving debt facilities require interest payments only, until maturity on June 30, 2002. The terms of the Credit Facility will require the Company to meet certain financial covenants, including certain minimum equity and cash flow tests. Management believes that the Company is in compliance with all such covenants contained in its credit agreements. All of the Company's material subsidiaries are guarantors or co-borrowers under the Credit Facility. As part of the purchase of Scott Pickford plc in March 1997, the Company issued unsecured loan notes as an alternative to the cash consideration paid for the outstanding shares of Scott Pickford plc. The loan notes bear interest payable semi-annually, at the rate of LIBOR less 1.0% per annum. Holders of the loan notes have the right to redeem the loan notes at par on each interest payment date. Unless previously redeemed or purchased, the loan notes will be redeemed at par on June 30, 2002. 6. NON-RECURRING CHARGES In the first quarter of 1999, the Company recorded certain non-recurring charges of approximately $3.7 million relating to the termination of the proposed GeoScience transaction. The Company also recorded non-recurring charges related to asset write-downs, expenses for personnel reductions, facility-related expenses and other charges, totaling approximately $6.9 million. These charges are included in "Non-recurring charges" in the accompanying consolidated financial statements of operations. 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 hydrocarbon recovery from new and existing fields. o Reservoir Description: Encompasses the petrophysical characterization of petroleum reservoir rock and the phase behavior relationships of reservoir fluids and gases. o Production Enhancement: Includes field applications of proprietary technologies to maximize the efficiency and effectiveness of well completions, perforations, stimulations, and production. o Reservoir Management: Combines and integrates data sets from reservoir description and production enhancement services to maximize daily hydrocarbon production and recovery from a well or field. 6 9 SEGMENT EARNINGS The Company's operations are managed primarily in three separate segments due to the different technologies and marketing strategies each segment utilizes and requires. Results of these segments are presented below using the same accounting policies as used to prepare the Consolidated Balance Sheet and Statement 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. Items included in "Corporate and Other" represent those items that are insignificant or that are not directly related to a particular segment, but benefit the Company as a whole.
INCOME (LOSS) BEFORE REVENUES TAXES AND INTEREST THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------------- 1999 1998 1999 1998 -------------- -------------- -------------- -------------- (In thousands) Reservoir Description....................... $ 40,613 $ 43,772 $ (4,529) $ 5,401 Production Enhancement...................... 14,351 6,763 1,653 1,737 Reservoir Management........................ 7,870 10,677 812 (1,042) -------------- -------------- -------------- -------------- Total Business Segments..................... 62,834 61,212 (2,064) 6,096 -------------- -------------- -------------- -------------- Corporate and Other......................... 1,297 1,249 (5,626) 577 Intersegment Eliminations................... -- -- -- -- -------------- -------------- -------------- -------------- Consolidated................................ $ 64,131 $ 62,461 $ (7,690) $ 6,673 ============== ============== ============== ==============
No single customer accounts for 10 percent or more of consolidated revenues for any of the periods presented. 7 10 CORE LABORATORIES N.V. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following: the continued expansion of services is dependent upon the Company's ability to continue to develop or acquire new and useful technology; the improvement of margins is subject to the risk that anticipated synergies of existing and recently acquired businesses and future acquisitions will not be realized; the Company's dependence on one industry segment, oil and gas; the risks and uncertainties attendant to adverse industry, economic, and financial market conditions, including stock prices, interest rates and credit availability; and competition in the Company's markets. Should one or more of these risks or uncertainties materialize and should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated. GENERAL 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 for optimizing reservoir performance and maximizing hydrocarbon recovery from new and existing fields. The Company's customers include major, national, and independent oil and gas producers. In addition, the Company manufactures and sells petroleum reservoir rock and fluid analysis instrumentation and other integrated systems which complement its services operations. Core Laboratories currently operates over 70 facilities in over 50 countries and has approximately 3,500 employees. RECENT DEVELOPMENTS ISOTAG ACQUISITION On January 7, 1999, the Company acquired receivables and certain fixed assets from Isotag Specialist, Inc., and its related company, Fred Calaway and Co. Both companies are privately held and based in Texas. Isotag provides production enhancement and related services. The Company issued approximately 33,000 shares for the assets and is accounting for the transaction using the purchase method of accounting. GEOSCIENCE ACQUISITION On January 18, 1999 the Company entered into an agreement to acquire GeoScience Corp. for approximately $197 million in cash and stock. On March 23, 1999 the Company agreed to terminate the agreement. As part of the termination, the Company incurred charges of approximately $3.7 million, including $3.0 million of working capital advances made by the Company to 8 11 GeoScience Corp. These charges are included in "Non-recurring charges" in the accompanying consolidated statements of operations as discussed in Footnote 6. NON-RECURRING CHARGE In the first quarter of 1999, the Company recorded certain non-recurring charges of approximately $3.7 million relating to the termination of the proposed GeoScience Corp. transaction. The Company also recorded non-recurring charges related to asset write-downs, expenses for personnel reductions, facility-related expenses and other charges, totaling approximately $6.9 million. These charges are included in "Non-recurring charges" in the accompanying consolidated financial statements of operations. RESULTS OF OPERATIONS The following table sets forth certain percentage relationships based on the Company's consolidated income statements for the periods indicated:
PERCENTAGE OF TOTAL REVENUE ------------------ THREE MONTHS ENDED MARCH 31 ------------------ 1999 1998 ------- ------ Services ................................................ 81.4% 93.3% Sales .................................................. 18.6 6.7 ------- ------ 100.0 100.0 Operating expenses: Cost of services ........................................ 86.1* 80.8* Cost of sales .......................................... 79.4* 82.0* General and administrative expenses...................... 4.3 3.0 Depreciation and amortization............................ 7.0 5.5 Non-recurring charges.................................... 16.6 -- Other income, net........................................ (0.8) 0.1 Income (loss) from continuing operations before interest expense and income tax expense........................ (12.0) 10.7 Interest expense......................................... 2.5 2.2 ------- ------ Income (loss) from continuing operations before income tax expense........................................... (14.5) 8.5 Income tax expense (benefit)............................. (4.8) 2.5 ------- ------ Income (loss) from continuing operations (9.7)% 6.0% ======= ====== * Percentage based on applicable segment revenue, and not total revenue.
Total revenue for the first quarter 1999 was $64.1 million, an increase from $62.5 million in the same period last year. The increase was due to increased demand for the Company's products and its recent acquisitions. Cost of services as a percentage of services revenue for the quarter ended March 31, 1999 increased compared to the corresponding quarter in 1998. The increase is due to reduced global oil prices which resulted in a more competitive industry and lower unit demand for the services provided. 9 12 Cost of sales as a percentage of sales revenue for the quarter ended March 31, 1999 decreased compared to the corresponding quarter in 1998 due to an increase in higher margin product sales. General and administrative expenses for the quarter ended March 31, 1999 increased $0.9 million as compared to the corresponding period in 1998 as a result of increased personnel costs attributable to the Company's growth. Depreciation and amortization expense for the quarter ended March 31, 1999 increased to $4.5 million as compared to $3.4 million a year ago, primarily due to the inclusion of depreciation and amortization from the Company's recent acquisitions. Non-recurring charges of $10.7 million were expensed in the quarter ended March 31, 1999. The expenses were related to asset write-downs, personnel reductions, and other expenses including those related to the termination of the proposed GeoScience Corp. transaction. Interest expense for the quarter ended March 31, 1999 increased $0.2 million as compared to 1998. The increase was primarily due to additional borrowings used to refinance a portion of the debt of the recent acquisitions. The Company's effective income tax rate was approximately 33.0% for the three months ended March 31, 1999 as compared to 30.0% for three months ended March 31, 1998. The increase is due to the higher average tax rates of the jurisdictions in which the recent acquisitions operate. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, capital expenditures and acquisitions. For the three month period ended March 31, 1999 the Company had operating cash flow of ($2.2) million as compared to ($1.5) million for the corresponding period in 1998. Management believes the Company's internal and external sources of cash will provide the necessary funds with which to meet its expected obligations. The Company expects to fund future acquisitions primarily through a combination of working capital, cash flow from operations, bank borrowings (including the Credit Facility), and issuances of additional equity. Although the Credit Facility imposes certain limitations on the incurrence of additional indebtedness, in general the Company will be permitted to assume, among other things, indebtedness of acquired businesses, subject to compliance with the financial covenants of the Credit Facility. 10 13 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 its business. Management believes that the outcome of these legal actions will not have a material adverse effect upon the consolidated financial position or future results of operations of the Company. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. YEAR 2000 CONVERSION The Company's has numerous technology systems that are managed on a decentralized basis. The Company's Year 2000 readiness efforts are therefore being undertaken on a company wide basis but with centralized oversight. Each facility is responsible for developing and implementing a plan to minimize the risk of a significant negative impact on its operations. The Company has identified four phases to achieve a state of readiness: (i) identification, (ii) remediation, (iii) implementation and testing, and, (iv) reassessment. As of December 31, 1998, the identification phase of assessing all systems that could be affected by Year 2000 date sensitive software or embedded technology was substantially complete. Remediation and/or implementation of compliant systems is expected to be completed by the third quarter of 1999. Reassessment will continue constantly throughout the process. The Company has relationships with various third parties who must also be Year 2000 ready. These third parties provide (or receive) resources and services to (or from) the Company and include 11 14 organizations with which the Company exchanges information. Third parties include vendors of hardware, software and information services; providers of infrastructure services such as voice and data communications; investors, customers; manufacturing suppliers; distribution channels; non-consolidated entities; and joint venture partners. Third parties differ from internal systems in that the company exercises less, or no, control over Year 2000 readiness. The Company has developed a plan to assess and attempt to mitigate the risks associated with the potential failure of third parties to achieve Year 2000 readiness. This plan includes the following activities: (i) identify and clarify third party dependencies; (ii) research and analyze Year 2000 readiness for critical third parties; and (iii) test critical hardware and software products and electronic interfaces. As of December 31, 1998, all phases of this process were substantially complete, however, due to the various stages of third parties Year 2000 readiness, the Company's testing activities will extend into 1999. The Company has commenced contingency planning to reduce the risk of Year 2000 related business failures. The contingency plans, which address both internal systems and third party relationships, include the following activities: (i) evaluate the consequences of failure of business processes with significant exposure to Year 2000 risk; (ii) determine the probability of a Year 2000 related failure for those processes that have a high consequence of failure; (iii) develop an action plan to complete contingency plans for those processes that rank high in both consequence and probability of failure; and (iv) complete the applicable action plans. The Company has substantially completed evaluation activities and is proceeding with the subsequent activities. The Company expects to substantially complete all contingency-planning activities by September 30, 1999. Based on its plans to make internal systems ready for Year 2000, to deal with third party relationships, and to develop contingency actions, the Company believes that it will experience, at most, isolated and minor disruptions of business processes following the turn of the century. Such disruptions are not expected to have a material effect on the Company's future results of operations, liquidity, or financial condition. However, due to the magnitude and complexity of this project, risks and uncertainties exist and the Company is not able to predict a reasonable worst case scenario. If conversion of the Company's internal systems is not completed on a timely basis (due to non-performance by significant third-party vendors, lack of qualified personnel to perform the Year 2000 work, or other unforeseen circumstances in completing the Company's plans), or if critical third parties fail to achieve Year 2000 readiness on a timely basis, the Year 2000 issues could have a material adverse impact on the Company's operations following the turn of the century. As of March 31, 1999 the Company has incurred and expensed $0.2 million (pretax) in 1999 related to Year 2000 readiness. The Company is in the process of replacing certain systems at the majority of the Company's facilities that no longer meet the Company's needs. 12 15 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. GEOSCIENCE ACQUISITION On February 2, 1999 the Company filed Form 8-K reporting the January 18, 1999 agreement to acquire GeoScience Corp. for approximately $197 million in cash and stock. On March 23, 1999 the Company agreed to terminate the agreement. As part of the termination, the Company has incurred charges of approximately $3.7 million, including $3.0 million of working capital advances previously made by the Company to GeoScience. 13 16 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 13, 1999 By: /s/ Richard L. Bergmark --------------------------------------- Richard L. Bergmark Chief Financial Officer and Treasurer (Principal Financial Officer and Chief Accounting Officer) 14 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 Financial Data Schedule Filed Herewith
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 6,849 0 87,095 10,886 22,893 122,822 90,058 21,350 344,795 62,403 0 0 0 497 191,295 344,795 64,131 64,131 54,423 71,821 0 0 1,582 (9,272) (3,060) (6,212) 0 0 0 (6,212) (0.21) (0.21)
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