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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, 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 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 .03 per share,
outstanding at August 6, 1999 was 29,771,790.
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CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PAGE
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998 ........................ 1
Consolidated Statements of Operations for the Three Months Ended
June 30, 1999 and 1998................................................................. 2
Consolidated Statements of Operations for the Six Months Ended
June 30, 1999 and 1998................................................................. 3
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998................................................................. 4
Notes to Consolidated Financial Statements ................................................. 5
Item 2-- Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................ 10
Item 3-- Quantitative and Qualitative Disclosures of Market Risk................................ 14
Part II -- Other Information
Item 1-- Legal Proceedings...................................................................... 15
Item 2-- Changes in Securities.................................................................. 15
Item 3-- Defaults Upon Senior Securities........................................................ 15
Item 4-- Submission of Matters to a Vote of Security Holders ................................... 15
Item 5-- Other Information...................................................................... 16
Item 6-- Exhibits and Reports on Form 8-K....................................................... 18
Signature ....................................................................................... 19
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CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 10,905 $ 8,166
Accounts receivable, net ............................................. 81,532 84,288
Inventories .......................................................... 28,476 18,860
Prepaid expenses ..................................................... 10,789 9,935
Deferred income tax asset ............................................ 5,256 5,192
------------ ------------
Total current assets ............................................. 136,958 126,441
PROPERTY, PLANT AND EQUIPMENT ............................................. 88,747 88,009
Less-- accumulated depreciation ...................................... (23,017) (19,818)
------------ ------------
65,730 68,191
INTANGIBLES AND GOODWILL, net ............................................. 148,148 149,487
OTHER LONG-TERM ASSETS .................................................... 3,931 4,489
------------ ------------
Total assets ..................................................... $ 354,767 $ 348,608
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................. $ 18,426 $ 18,355
Accounts payable ..................................................... 14,587 18,528
Other current liabilities ............................................ 21,180 24,338
------------ ------------
Total current liabilities ........................................ 54,193 61,221
LONG-TERM DEBT ............................................................ 83,311 68,238
MINORITY INTEREST ......................................................... 931 1,078
LONG-TERM LEASE OBLIGATIONS ............................................... 99 154
OTHER LONG-TERM LIABILITIES ............................................... 21,515 20,949
SHAREHOLDERS' EQUITY:
Preference shares, NLG .03 par value; 3,000,000 shares authorized,
no shares issued or outstanding .................................. -- --
Common shares, NLG .03 par value; 30,000,000 shares authorized,
29,570,288 and 29,298,419 issued and outstanding
at June 30, 1999 and December 31, 1998, respectively ............. 497 496
Additional paid-in capital ........................................... 153,252 152,178
Retained earnings .................................................... 40,969 44,294
------------ ------------
Total shareholders' equity ....................................... 194,718 196,968
------------ ------------
Total liabilities and shareholders' equity ................. $ 354,767 $ 348,608
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------ ------------
(UNAUDITED)
SERVICES ........................................................ $ 56,947 $ 65,097
SALES ........................................................... 15,347 4,585
------------ ------------
72,294 69,682
OPERATING EXPENSES:
Costs of services .......................................... 49,298 50,114
Costs of sales ............................................. 10,171 3,638
General and administrative expenses ........................ 2,964 2,010
Depreciation and amortization .............................. 4,359 3,465
Other (income) expense, net ................................ (606) 399
------------ ------------
66,186 59,626
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST
EXPENSE AND INCOME TAX EXPENSE ............................. 6,108 10,056
INTEREST EXPENSE ................................................ 1,799 1,447
------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE ............................................... 4,309 8,609
INCOME TAX EXPENSE .............................................. 1,422 2,583
------------ ------------
INCOME FROM CONTINUING OPERATIONS ............................... 2,887 6,026
LOSS ON DISPOSITION OF DISCONTINUED OPERATIONS, net of tax
benefit of $1,446 .......................................... -- (3,374)
------------ ------------
NET INCOME ...................................................... $ 2,887 $ 2,652
============ ============
PER SHARE DATA:
Income from continuing operations .......................... $ 0.10 $ 0.23
Loss on sale of discontinued operations .................... -- (0.13)
------------ ------------
BASIC EARNINGS PER SHARE ................................... $ 0.10 $ 0.10
============ ============
WEIGHTED AVERAGE BASIC COMMON SHARES
OUTSTANDING .......................................... 29,413,806 25,768,348
============ ============
Income from continuing operations .......................... $ 0.10 $ 0.23
Loss on sale of discontinued operations .................... -- (0.13)
------------ ------------
DILUTED EARNINGS PER SHARE ................................. $ 0.10 $ 0.10
============ ============
WEIGHTED AVERAGE DILUTED COMMON SHARES
OUTSTANDING .......................................... 29,997,569 26,775,487
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------ ------------
(UNAUDITED)
SERVICES ............................................................. $ 107,516 $ 123,380
SALES ................................................................ 28,909 8,763
------------ ------------
136,425 132,143
OPERATING EXPENSES:
Costs of services ............................................... 94,239 97,219
Costs of sales .................................................. 19,654 7,065
General and administrative expenses ............................. 5,711 3,892
Depreciation and amortization ................................... 8,837 6,888
Non-recurring charges (Note 5) .................................. 10,670 --
Other (income) expense, net ..................................... (1,104) 350
------------ ------------
138,007 115,414
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST
EXPENSE AND INCOME TAX EXPENSE .................................. (1,582) 16,729
INTEREST EXPENSE ..................................................... 3,381 2,827
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE .................................................... (4,963) 13,902
INCOME TAX EXPENSE (BENEFIT) ........................................ (1,638) 4,171
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS ............................. (3,325) 9,731
LOSS FROM DISCONTINUED OPERATIONS, net of tax benefit of $93
in 1998 ......................................................... -- (217)
LOSS ON DISPOSITION OF DISCONTINUED OPERATIONS, net of tax
benefit of $1,446 ............................................... -- (3,374)
------------ ------------
NET INCOME (LOSS) .................................................... $ (3,325) $ 6,140
============ ============
PER SHARE DATA:
Income (loss) from continuing operations ........................ $ (0.11) $ 0.38
Loss from discontinued operations ............................... -- (0.01)
Loss on disposition of discontinued operations .................. -- (0.14)
------------ ------------
BASIC EARNINGS (LOSS) PER SHARE ................................. $ (0.11) $ 0.24
============ ============
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ................ 29,383,003 25,709,542
============ ============
Income (loss) from continuing operations ........................ $ (0.11) $ 0.38
Loss from discontinued operations ............................... -- (0.01)
Loss on disposition of discontinued operations .................. -- (0.13)
------------ ------------
DILUTED EARNINGS (LOSS) PER SHARE ............................... $ (0.11) $ 0.24
============ ============
WEIGHTED AVERAGE DILUTED COMMON SHARES
OUTSTANDING ............................................... 30,125,083 25,701,550
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ (3,325) $ 6,140
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Loss on sale of discontinued operations ..................... -- 4,820
Depreciation and amortization ............................... 8,837 6,888
(Gain) loss on sale of fixed assets ......................... 6 (329)
Foreign currency exchange gain .............................. (456) --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .................. 2,778 (2,751)
Increase in inventories ..................................... (4,372) (2,675)
Increase in prepaid expenses ................................ (854) (2,484)
Decrease in accounts payable ................................ (3,941) (534)
Increase (decrease) in other accrued expenses ............... 496 (3,128)
Increase (decrease) in other long-term liabilities .......... 780 (7,596)
Other ....................................................... (3,938) (4,007)
------------ ------------
Net cash used in operating activities .................. (3,989) (5,656)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................ (9,897) (7,797)
Proceeds from sale of fixed assets .............................. 583 615
Sale of discontinued operations ................................. -- 4,114
------------ ------------
Net cash used in investing activities ....................... (9,314) (3,068)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt ...................................... (6,473) (3,823)
Borrowings under long-term debt ................................. 22,032 6,995
Exercise of stock options ....................................... 595 1,493
Other ........................................................... (112) (245)
------------ ------------
Net cash provided by financing activities ................... 16,042 4,420
------------ ------------
NET CHANGE IN CASH ................................................... 2,739 (4,304)
CASH, beginning of period ............................................ 8,166 12,720
------------ ------------
CASH, end of period .................................................. $ 10,905 $ 8,416
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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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 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 generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 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, was
derived 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.
RECENT PRONOUNCEMENTS
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 6 for additional
information.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. SFAS No. 133 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). Adoption of SFAS No. 133 is
not expected to have a material effect on the Company's financial position or
operational results.
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2. INVENTORIES
Inventories consist primarily of items held for sale or services provided
to customers. Inventories are stated at the lower of cost (includes direct
material, labor and overhead) or estimated realizable value. A summary of
inventories is as follows (in thousands):
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
Parts and materials..................................................... $ 9,628 $ 6,524
Work-in-process......................................................... 5,352 1,873
Finished Goods.......................................................... 13,496 10,463
----------- -----------
Total ......................................................... $ 28,476 $ 18,860
=========== ===========
3. 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.
4. LONG-TERM DEBT
Long-term debt at June 30, 1999 and December 31, 1998 is summarized in the
following table (in thousands):
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
Credit Facility with a bank group:
$70,154 term loan facility .............. $ 63,430 $ 70,154
$55,000 revolving debt facility ......... 37,000 15,000
Loan Notes .................................. 1,043 1,073
Other indebtedness .......................... 264 366
------------ ------------
Total debt ......................... 101,737 86,593
Less-- current maturities ............... 18,426 18,355
------------ ------------
Total long-term debt ........... $ 83,311 $ 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
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$15 million, (iii) a committed revolving debt facility of $50 million, and (iv)
a Netherlands guilder denominated revolving debt facility with U.S. dollar
equivalency of $5 million. At June 30, 1999, approximately $18 million was
available for borrowing under the revolving debt 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 loan is being repaid on a quarterly basis, 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.
5. 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 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.
6. 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.
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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 following 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 individually 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 JUNE 30, THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(In thousands)
Reservoir Description $ 45,656 $ 46,197 $ 4,460 $ 9,680
Production Enhancement 15,345 5,955 2,511 1,445
Reservoir Management 9,672 15,987 (1,798) (937)
-------------- -------------- -------------- --------------
Total Business Segments 70,673 68,139 5,173 10,188
Corporate and Other 1,621 1,543 935 (132)
-------------- -------------- -------------- --------------
Consolidated $ 72,294 $ 69,682 $ 6,108 $ 10,056
============== ============== ============== ==============
INCOME (LOSS) BEFORE
REVENUES TAXES AND INTEREST
SIX MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(In thousands)
Reservoir Description $ 86,269 $ 89,969 $ (69) $ 15,022
Production Enhancement 29,696 12,718 4,164 3,241
Reservoir Management 17,542 26,664 (986) (1,979)
-------------- -------------- -------------- --------------
Total Business Segments 133,507 129,351 3,109 16,284
Corporate and Other 2,918 2,792 (4,691) 445
-------------- -------------- -------------- --------------
Consolidated $ 136,425 $ 132,143 $ (1,582) $ 16,729
============== ============== ============== ==============
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8. SUBSEQUENT EVENTS
Coherence Technologies Company Acquisition
On July 1, 1999, the Company acquired all of the outstanding shares of
Coherence Technology Company, Inc. ("CTC"), a private company with executive
offices in Houston. CTC provides specialized seismic data processing and
interpretation services and is exclusively licensed by BP Amoco to provide its
patented coherency technology to the worldwide petroleum industry. The Company
issued approximately 194,000 shares in the transaction which will be accounted
for as a pooling-of-interests. As part of the transaction, the Company assumed
approximately $1 million in CTC bank debt and issued approximately 140,000
shares to a lender as debt repayment.
Disposition of Environmental Testing Operation
On July 15, 1999, the Company signed a letter of intent to sell the assets
of its Environmental Testing business to Severn Trent Laboratories Inc.
Reservoirs Inc. Acquisition
On July 26, 1999, the Company signed an agreement to acquire all of the
outstanding shares of Reservoirs, Inc. ("Reservoirs"), a private company based
in Houston, Texas. Reservoirs provides reservoir description services to the oil
industry and is a recognized leader in the geology and petrophysics of deepwater
reservoirs. The Company issued approximately 300,000 shares in a transaction
that will be accounted for using the purchase method of accounting.
Credit Facility Amendment
In July 1999, the Company amended its Credit Facility. The amended
agreement increased the revolving debt facility limit from $55.0 million to
$100.0 million. The $55.0 million term loan and the $15.0 million term loan
denominated in British Pounds were repaid in full. The revolving debt facilities
require interest payments only, until maturity in June 2004. Loans under the
amended Credit Facility generally bear interest from LIBOR plus 1.25% to a
maximum rate of LIBOR plus 1.75%.
Private Placement of Senior Notes
In July 1999, the Company issued Senior Notes for $75.0 million bearing
average interest of 8.16%. The notes require annual principal payments beginning
in July 2005 and continuing through July 2011.
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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.
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RECENT DEVELOPMENTS
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.
COHERENCE TECHNOLOGIES COMPANY ACQUISITION
On July 1, 1999, the Company acquired all of the outstanding shares of
Coherence Technology Company, Inc. ("CTC"), a private company with executive
offices in Houston. CTC provides specialized seismic data processing and
interpretation services and is exclusively licensed by BP Amoco to provide its
patented coherency technology to the worldwide petroleum industry. The Company
issued approximately 194,000 shares in a transaction that will be accounted for
as a pooling-of-interests. In addition, the Company assumed approximately $1
million in CTC bank debt and issued approximately 140,000 shares to a lender as
debt repayment.
DISPOSITION OF ENVIRONMENTAL TESTING OPERATION
On July 15, 1999, the Company signed a letter of intent to sell the
assets of its Environmental Testing business to Severn Trent Laboratories Inc.
RESERVOIRS INC. ACQUISITION
On July 26, 1999, the Company signed an agreement to acquire all of the
outstanding shares of Reservoirs, Inc. ("Reservoirs"), a private company based
in Houston, Texas. Reservoirs provides reservoir description services to the oil
industry and is a recognized leader in the geology and petrophysics of deepwater
reservoirs. The Company issued approximately 300,000 shares in a transaction
that will be accounted for using the purchase method of accounting.
CREDIT FACILITY AMENDMENT
In July 1999, the Company amended its Credit Facility. The amended
agreement increased the revolving debt facility limit from $55.0 million to
$100.0 million. The $55.0 million term loan and the $15.0 million term loan
denominated in British Pounds were repaid in full. The revolving debt facilities
require interest payments only, until maturity in June 2004. Loans under the
amended Credit Facility generally bear interest from LIBOR plus 1.25% to a
maximum rate of LIBOR plus 1.75%.
PRIVATE PLACEMENT OF SENIOR NOTES
In July 1999, the Company issued Senior Notes for $75.0 million bearing
average interest of 8.16%. The notes require annual principal payments beginning
in July 2005 and continuing through July 2011.
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RESULTS OF OPERATIONS
The following table sets forth certain percentage relationships based on
the Company's consolidated income statements for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
PERCENTAGE OF PERCENTAGE OF
TOTAL REVENUE TOTAL REVENUE
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Services .............................................. 78.8% 93.4% 78.8% 93.4%
Sales ................................................. 21.2 6.6 21.2 6.6
---------- ---------- ---------- ----------
100.0 100.0 100.0 100.0
Operating expenses:
Cost of services ................................. 86.6* 77.0* 87.7* 78.8*
Cost of sales .................................... 66.3* 79.3* 68.0* 80.6*
General and administrative expenses .............. 4.1 2.9 4.2 2.9
Depreciation and amortization .................... 6.0 5.0 6.5 5.2
Non-recurring charges ............................ -- -- 7.8 --
Other income (expense), net ...................... (0.8) 0.6 (0.8) 0.3
Income (loss) from continuing operations before
interest expense and income tax expense ............. 8.4 14.4 (1.2) 12.7
Interest expense ...................................... 2.5 2.1 2.4 2.1
---------- ---------- ---------- ----------
Income (loss) from continuing operations before
income tax expense .................................. 5.9 12.3 (3.6) 10.6
Income tax expense (benefit) .......................... 2.0 3.7 (1.2) 3.2
---------- ---------- ---------- ----------
Income (loss) from continuing operations .............. 3.9% 8.6% (2.4)% 7.4%
========== ========== ========== ==========
* Percentage based on applicable segment revenue, and not total revenue.
Total revenue for the second quarter 1999 was $72.3 million, an increase
from $69.7 million in the same period last year. Total revenue for the six
months ended June 30, 1999 was up $4.3 million to $136.4 million. The increases
were due to increased demand for the Company's production related products and
services and the inclusion of revenues from recent acquisitions.
Cost of services as a percentage of service revenue for the three and six
months ended June 30, 1999 increased compared to the corresponding periods in
1998. The increase is due to fixed costs being higher than required to address
the capital expenditures of the Company's clients.
Cost of sales as a percentage of sales revenue for three and six months
ended June 30, 1999 decreased compared to the corresponding periods in 1998 due
to an increase in higher margin product sales.
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General and administrative expenses for the three and six months ended June
30, 1999 increased $1.0 million and $1.8 million respectively, as compared to
the corresponding periods in 1998. The increases were primarily a result of
increased personnel costs attributable to the Company's growth.
Depreciation and amortization expense for the three and six month periods
ended June 30, 1999 increased $0.9 and $1.9 million, respectively, as compared
to 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 six months
ended June 30, 1999. The expenses were related to asset write-downs, personnel
reductions, and other expenses including those related to the termination of the
GeoScience Corp. transaction.
Interest expense for the three months ended June 30, 1999 increased
approximately $0.4 million as compared to 1998. For the six months ended June
30, 1999, interest expense increased $0.6 million as compared to 1998. These
increases were 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% for the three
months and six months ended June 30, 1999 as compared to 30.0% for three months
and six months ended June 30, 1998. The increase was principally due to the
higher effective 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 six month period ended June 30, 1999, the
Company had operating cash flow of $(4.0) million as compared to $(5.7) 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.
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CORE LABORATORIES N.V.
QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
There has been no material change in the Company's position regarding
quantitative and qualitative disclosures of market risk from that disclosed
in the Company's 1998 form 10-K.
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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.
Stockholders voting at the Annual Meeting on May 27, 1999, and by proxy,
elected eight members (each, a "Supervisory Director") to the Board of
Supervisory Directors of the Company (the "Supervisory Board"), consisting of
(i) David M. Demshur; (ii) Timothy J. Probert; (iii) Jacobus Schouten, as Class
I Supervisory Directors, (i) Bob G. Agnew; (ii) Joseph R. Perna; (iii) James A.
Read, as Class II Supervisory Directors and (i) Richard L. Bergmark; (ii)
Stephen D. Weinroth, as Class III Supervisory Directors, to serve until the
annual meeting of shareholders in 1999, 2000 and 2001, respectively, and until
their successors shall have been duly elected and qualified.
The vote tabulation for the individual Directors was as follows:
Director Shares for Shares Withheld
-------- ---------- ---------------
David M. Demshur 24,997,877 94,646
Timothy J. Probert 25,007,869 84,654
Jacobus Schouten 25,007,869 84,654
Bob G. Agnew 25,007,869 84,654
Joseph R. Perna 25,007,869 84,654
James A. Read 24,853,641 236,882
Richard L. Bergmark 25,007,869 84,654
Steven D. Weinroth 25,007,869 84,654
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Voting stockholders also confirmed the Dutch Statutory Annual Accounts for
the year ended December 31, 1998. The proposal was approved by 25,048,745 votes
for, 20,053 against, with 23,725 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 26, 2000, at a price not more than USD 200
per share. The proposal was approved by 25,035,483 votes for, 31,254 votes
against with 25,786 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 26, 2004. The proposal was approved by
20,422,640 votes for, 4,616,947 against with 52,936 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 26, 2004.
The proposal was approved by 20,374,300 votes for, 4,676,692 against with 41,531
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, 1999. The proposal was approved by 25,044,368 votes for,
26,985 votes against and 21,170 abstentions.
ITEM 5. OTHER INFORMATION.
YEAR 2000 READINESS
The Company 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 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
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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 June 30, 1999, the Company has incurred and expensed approximately
$0.3 million (pretax) in 1999 related to Year 2000 readiness.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
INCORPORATED BY
REFERENCE FROM THE
EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS
- ----------- ------------- -------------------
10.1 Core Laboratories Supplemental Executive Retirement Plan for John D. Denson Filed Herewith
effective January 1, 1999.
10.2 Core Laboratories Supplemental Executive Retirement Plan for Monty L. Davis Filed Herewith
effective January 1, 1999.
10.3 Amendment to Core Laboratories Supplemental Executive Retirement Plan filed Filed Herewith
January 1, 1998, effective July 29, 1999.
10.4 Agreement and Plan of Merger among Core Laboratories N.V., Core Colorado Filed Herewith
Acquisition, Inc., Coherence Technology Company, Inc. and the Stockholders
of Coherence Technology Company, Inc. dated as of June 9, 1999.
10.5 Agreement and Plan of Merger among Core Laboratories N.V., Core Acquisition Filed Herewith
Subsidiary, Inc., Reservoirs, Inc. and the Stockholders of Reservoirs, Inc.
dated as of July 26, 1999.
10.6 Amendment to Amended and Restated Credit Agreement among Core Laboratories Filed Herewith
N.V., Core Laboratories, Inc., Core Laboratories (U.K.) Limited, Bankers
Trust Company, NationsBank N.A. and the Bank Group, dated as of July 22,
1999.
10.7 Note and Guarantee Agreement by Core Laboratories, Inc. for Guaranteed Filed Herewith
Senior Notes, Series A, and Guaranteed Senior Notes, Series B, dated as of
July 22, 1999.
27.1 Financial Data Schedule Filed Herewith
(b) Reports on Form 8-K.
None
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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 16, 1999 By: /s/ RANDALL D. KEYS
------------------------
Randall D. Keys
Chief Financial Officer
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INDEX TO EXHIBITS
INCORPORATED BY
REFERENCE FROM THE
EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS
- ----------- ------------- -------------------
10.1 Core Laboratories Supplemental Executive Retirement Plan for John D. Denson Filed Herewith
effective January 1, 1999.
10.2 Core Laboratories Supplemental Executive Retirement Plan for Monty L. Davis Filed Herewith
effective January 1, 1999
10.3 Amendment to Core Laboratories Supplemental Executive Retirement Plan filed Filed Herewith
January 1, 1998, effective July 29, 1999.
10.4 Agreement and Plan of Merger among Core Laboratories N.V., Core Colorado Filed Herewith
Acquisition, Inc., Coherence Technology Company, Inc. and the Stockholders
of Coherence Technology Company, Inc. dated as of June 9, 1999.
10.5 Agreement and Plan of Merger among Core Laboratories N.V., Core Acquisition Filed Herewith
Subsidiary, Inc., Reservoirs, Inc. and the Stockholders of Reservoirs, Inc.
dated as of July 26, 1999.
10.6 Amendment to Amended and Restated Credit Agreement among Core Laboratories Filed Herewith
N.V., Core Laboratories, Inc., Core Laboratories (U.K.) Limited, Bankers
Trust Company, NationsBank N.A. and the Bank Group, dated as of July 22,
1999.
10.7 Note and Guarantee Agreement by Core Laboratories, Inc. for Guaranteed Filed Herewith
Senior Notes, Series A, and Guaranteed Senior Notes, Series B, dated as of
July 22, 1999.
27.1 Financial Data Schedule Filed Herewith