==============================================================================
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 September 30, 1997
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 October 17, 1997 was 10,624,112.
==============================================================================
<PAGE>
CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996........................................... 1
Consolidated Income Statements for the Three Months Ended
September 30, 1997 and 1996................................. 2
Consolidated Income Statements for the Nine Months Ended
September 30, 1997 and 1996................................. 3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996................................. 4
Notes to Consolidated Financial Statements ................... 5
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 10
Part II -- Other Information
Item 1 -- Legal Proceedings....................................... 14
Item 2 -- Changes in Securities.................................. 14
Item 3 -- Defaults Upon Senior Securities......................... 14
Item 4 -- Submission of Matters to a Vote of Security Holders .... 14
Item 5 -- Other Information....................................... 14
Item 6 -- Exhibits and Reports on Form 8-K ...................... 15
Signature .......................................................... 16
i
<PAGE>
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- --------
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 8,763 $ 2,935
Accounts receivable, net ......................... 61,019 27,993
Inventories ...................................... 12,521 9,472
Prepaid expenses and other ....................... 3,816 1,223
Deferred tax assets .............................. 2,070 927
--------- --------
Total current assets ................................ 88,189 42,550
PROPERTY, PLANT AND EQUIPMENT ....................... 63,887 35,814
Less-- accumulated depreciation .................. (12,235) (8,109)
--------- --------
51,652 27,705
DEFERRED DEBT COSTS, net ............................ 1,489 44
LONG-TERM INVESTMENT ................................ 2,097 250
NON-CURRENT DEFERRED TAX ASSET ...................... 300 245
INTANGIBLES AND GOODWILL, net ....................... 83,491 8,417
OTHER LONG-TERM ASSETS .............................. 451 480
--------- --------
Total assets .................................. $ 227,669 $ 79,691
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............. $ 1,346 $ 4,430
Short-term debt .................................. 352 --
Accounts payable ................................. 12,866 5,909
Accrued payroll and related costs ................ 6,311 3,141
Accrued income taxes payable ..................... 2,098 1,008
Deferred tax liability ........................... 608 604
Other accrued expenses ........................... 26,593 2,253
--------- --------
Total current liabilities ........................... 50,174 17,345
LONG-TERM DEBT ...................................... 111,494 11,594
OBLIGATIONS UNDER CAPITAL LEASES .................... 379 --
NON-CURRENT DEFERRED TAX LIABILITY .................. 1,041 1,970
OTHER LONG-TERM LIABILITIES ......................... 6,767 1,159
MINORITY INTEREST ................................... 747 212
COMMITMENTS AND CONTINGENCIES ....................... -- --
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, 10,622,612 and 10,592,638
issued and outstanding at September 30, 1997
and December 31, 1996, respectively ........... 186 186
Additional paid-in capital ....................... 35,685 35,500
Retained earnings ................................ 21,196 11,725
--------- --------
Total shareholders' equity .................... 57,067 47,411
--------- --------
Total liabilities and shareholders' equity . $ 227,669 $ 79,691
========= ========
The accompanying notes are an integral part of
these consolidated financial statements.
1
<PAGE>
CORE LABORATORIES N.V.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1997 1996
------------ ------------
(UNAUDITED)
SERVICES ................................... $ 54,889 $ 20,946
SALES ...................................... 7,397 4,514
------------ ------------
62,286 25,460
OPERATING EXPENSES:
Costs of services ....................... 42,199 16,452
Costs of sales .......................... 6,619 3,845
General and administrative expenses ..... 1,903 840
Depreciation and amortization ........... 3,209 1,140
Other (income) expense, net ............. (225) (337)
------------ ------------
53,705 21,940
INCOME BEFORE INTEREST EXPENSE AND
INCOME TAX EXPENSE ...................... 8,581 3,520
INTEREST EXPENSE ........................... 2,395 351
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE ........... 6,186 3,169
INCOME TAX EXPENSE ......................... 1,856 1,027
------------ ------------
NET INCOME ................................. $ 4,330 $ 2,142
============ ============
NET INCOME PER SHARE ....................... $ .39 $ .20
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING ........ 10,988,708 10,700,547
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
CORE LABORATORIES N.V.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1997 1996
------------ ------------
(UNAUDITED)
SERVICES ................................... $ 122,286 $ 58,728
SALES ...................................... 20,601 18,155
------------ ------------
142,887 76,883
OPERATING EXPENSES:
Costs of services ....................... 95,166 46,920
Costs of sales .......................... 18,699 14,867
General and administrative expenses ..... 4,359 2,717
Depreciation and amortization ........... 7,170 3,340
Other (income) expense, net ............. (169) (406)
------------ ------------
125,225 67,438
INCOME BEFORE INTEREST EXPENSE AND
INCOME TAX EXPENSE ...................... 17,662 9,445
INTEREST EXPENSE ........................... 4,132 1,104
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE ........... 13,530 8,341
INCOME TAX EXPENSE ......................... 4,059 2,720
------------ ------------
NET INCOME ................................. $ 9,471 $ 5,621
============ ============
NET INCOME PER SHARE ....................... $ .87 $ .53
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING ........ 10,883,981 10,667,075
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 9,471 $ 5,621
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 7,295 3,459
Gain on sale of fixed assets ........................ (40) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable .......... (8,496) 96
Increase in inventories ............................. (1,826) (323)
Decrease in prepaid expenses and other ............. 2,297 348
Decrease in accounts payable ........................ (9,582) (2,165)
Increase (decrease) in accrued payroll .............. 2,145 (954)
Increase (decrease) in accrued income taxes payable . 1,498 (241)
Increase (decrease) in other accrued expenses ....... 1,285 (816)
Other ............................................... 673 (154)
--------- -------
Net cash provided by operating activities ........ 3,374 4,871
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (10,434) (4,564)
Proceeds from sale of fixed assets ..................... 286 --
Acquisition of Scott Pickford plc, net of cash ......... (15,023) --
Acquisition of Gulf States Analytical, Inc. ............ -- (4,310)
Acquisition of Saybolt, net of cash .................... (62,987) --
Return on investment in China .......................... -- 150
--------- -------
Net cash used in investing activities ............... (88,158) (8,724)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ............................. (18,578) (8,778)
Borrowings under long-term debt ........................ 110,637 9,900
Decrease in short-term debt ............................ -- (190)
Debt acquisition costs ................................. (1,614) --
Exercise of stock options .............................. 185 --
Other .................................................. (18) --
--------- -------
Net cash provided by financing activities ........... 90,612 932
--------- -------
NET CHANGE IN CASH ........................................ 5,828 (2,921)
CASH, beginning of period ................................. 2,935 4,940
--------- -------
CASH, end of period ....................................... $ 8,763 $ 2,019
========= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
CORE LABORATORIES N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND ESTIMATES
The accompanying unaudited consolidated financial statements include the
accounts of Core Laboratories N.V. and its subsidiaries (the "Company"), and
have been prepared in accordance with United States generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. Balance sheet information as of
December 31, 1996, has been taken from the 1996 annual audited financial
statements. 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 27, 1997.
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
On December 31, 1996, Core Laboratories N.V. completed the merger with
ProTechnics Company ("ProTechnics"). The merger was accounted for as a pooling-
of-interests; accordingly, the accompanying consolidated financial statements
have been restated to include the consolidated financial statements of
ProTechnics for all periods presented.
NET INCOME PER SHARE
Net income per share is calculated by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the periods presented. Fully diluted income per share is equal to primary income
per share in all periods presented.
NEW ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share", revising the methodology to be used in computing
earnings per share ("EPS") requiring that the computations required for primary
and fully diluted EPS are replaced with "basic" and "diluted" EPS. The Company
will adopt SFAS No. 128 effective December 31, 1997 and will restate EPS for all
periods presented. The Company anticipates that the amount reported for basic
EPS for the three and nine month periods ending September 30, 1997 will be
unchanged.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which established standards for reporting and display of comprehensive income
and its components in a full
5
<PAGE>
set of general-purpose financial statements. The statement requires (a)
classification of items of other comprehensive income by their nature in a
financial statement and (b) display of the accumulated balance of other
comprehensive income separate from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual financial statements
and requires that selected information be reported about the operating segments
in interim financial reports issued to the shareholders. It also establishes
standards for related disclosure about products and services, geographic areas,
and major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997.
2. ACQUISITIONS
SCOTT PICKFORD ACQUISITION
On March 1, 1997, the Company acquired the control of a majority of the
outstanding shares of Scott Pickford plc. Total consideration paid for Scott
Pickford plc will be approximately $15.1 million. Scott Pickford plc and its
subsidiaries ("Scott Pickford") provide petroleum reservoir management,
geoscience, geophysical, and engineering services to its customers by utilizing
petrophysical and phase behavior data sets measured by Core Laboratories and
ProTechnics. Scott Pickford reported revenues of $13,223,000, $13,319,000 and
$7,545,000 for its fiscal years ended March 31, 1996, 1995, and 1994,
respectively. The acquisition was financed through borrowings, accounted for
using the purchase method of accounting and resulted in approximately $12.2
million of goodwill which is being amortized over a 40-year period. Scott
Pickford's results of operations are included with those of the Company
beginning March 1, 1997. The purchase price allocations have been completed on a
preliminary basis, thus as additional information concerning the value of the
assets acquired and liabilities assumed becomes known additional adjustments
will be made to the purchase price allocation included in the accompanying
financial statements.
SAYBOLT INTERNATIONAL B.V. ACQUISITION
On May 12, 1997, the Company consummated the acquisition of all the
outstanding shares of Saybolt International B.V., a privately held Netherlands
company, for $67 million in cash. Saybolt International B.V., and its
subsidiaries ("Saybolt") provide analytical and field services to characterize
properties of crude oil and petroleum products to the oil and gas industry.
Saybolt operates in over 50 countries and has approximately 1,650 employees.
Saybolt reported revenues of $105,358,000, $97,803,000 and $90,258,000 in 1996,
1995 and 1994, respectively. The transaction was accounted for under the
purchase method which resulted in approximately $60.6 million of goodwill which
is being amortized over a 40-year period. Financing for the transaction was
provided through the Credit Facility (see Note 6). Saybolt's results of
operations are included with those of the Company beginning on May 1, 1997. The
purchase price allocations have been completed on a preliminary basis, thus as
additional information concerning the value of the assets acquired and
liabilities assumed becomes known additional adjustments will be made to the
purchase price allocation included in the accompanying financial statements.
6
<PAGE>
SUBSEQUENT EVENTS
STIM-LAB, INC. MERGER
On October 22, 1997, the Company signed a letter of intent to acquire
Stim-Lab, Inc. a privately held company based in Duncan, Oklahoma in exchange
for approximately 230,000 of its common shares. Stim-Lab is one of the world's
technological leaders in providing services related to well completion and
stimulation. The merger will be accounted for as a pooling of interests and is
expected to be completed by December 15, 1997.
3. PRO FORMA INFORMATION
Unaudited pro forma revenues, income before extraordinary item and income per
share before extraordinary item, assuming that the acquisition of Saybolt and
Scott Pickford discussed in Note 2 had been consummated at January 1, 1996, are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues ........................................ $178,164 $227,016
Income before extraordinary item ................ $ 8,071 $ 6,656
Income per share before extraordinary item ...... $ .74 $ .62
</TABLE>
4. 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):
SEPTEMBER 30, DECEMBER 31,
1997 1996
------- ------
(UNAUDITED) (AUDITED)
Parts and materials ....................... $ 5,709 $4,011
Work in process ........................... 6,812 5,461
------- ------
Total ............................... $12,521 $9,472
======= ======
5. 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. 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. Management believes that there have been no events or circumstances
that warrant revision to the remaining useful life or which affect the
recoverability of intangibles and goodwill.
7
<PAGE>
6. LONG-TERM DEBT
Long-term debt at September 30, 1997 and December 31, 1996 is summarized in
the following table (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- -------
(UNAUDITED) (AUDITED)
Credit Facility with a bank group:
$70,000 term loan facility ...................... $ 70,000 $ --
$55,000 revolving debt facility ................. 37,000 --
Consideration payable for Scott Pickford plc ....... 1,051 --
Long-term loan bearing interest at 9.2% per annum .. 1,103 --
Long-term loan bearing interest at 6.2% per annum .. 663 --
Mortgage notes ..................................... 2,009 --
$730 revolving debt facility ....................... 723 --
Long-term loan bearing interest at 8.75% ........... 19 --
Unsecured credit facility with a bank group:
$14,000 term loan facility ...................... -- 9,375
$15,000 guidance facility ....................... -- 5,440
$1,250 revolving debt facility ..................... -- 400
$850 term loan facility ............................ -- 722
Other indebtedness ................................. 272 87
--------- -------
Total debt ................................... 112,840 16,024
Less-- current maturities ....................... (1,346) 4,430
--------- -------
Total long-term debt ...................... $ 111,494 $11,594
========= =======
On May 12, 1997 the Company entered into a Credit Facility which was used to
finance the acquisitions of Saybolt and Scott Pickford, as well as refinance the
unsecured credit facility. The Credit Facility provides for (i) a term loan of
$55 million, (ii) a term loan denominated in British pounds having a US dollar
equivalency of $15 million, (iii) a committed revolving debt facility of $50
million, and (iv) a Netherlands guilder denominated revolving debt facility with
US dollar equivalency of $5 million. 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 principal payment due 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.
The Company expects to fund any future acquisitions primarily through a
combination of working capital, cash flow from operations, bank borrowings,
(including the Credit Facility) and issuance of additional equity.
8
<PAGE>
7. SUBSEQUENT EVENTS
STIM-LAB, INC. ACQUISITION
On October 22, 1997, the Company signed a letter of intent to acquire
Stim-Lab, Inc. a privately held company based in Duncan, Oklahoma in exchange
for approximately 230,000 of its common shares. Stim-Lab is one of the world's
technological leaders in providing services related to well completion and
stimulation. The merger will be accounted for as a pooling of interests and is
expected to be completed by December 15, 1997.
2-FOR-1 STOCK SPLIT
On October 22, 1997 the Company announced a two-for-one stock split of its
outstanding common shares, payable on December 19, 1997 to shareholders of
record as of the close of business on December 1, 1997. Accordingly, the
Company's 1997 year end financial statements will reflect share and per share
information adjusted to give effect to the stock split.
9
<PAGE>
CORE LABORATORIES N.V.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is one of the leading providers of petroleum reservoir
description data and production management services for maximizing hydrocarbon
recovery from new and existing fields. The company is the world's largest
provider of petroleum reservoir rock and fluids analyses and multidisciplinary
reservoir description studies. The Company is also a leading provider of field
services evaluating the efficiencies of well completions and the effectiveness
of enhanced oil recovery projects. In addition, the Company manufactures and
sells petroleum reservoir rock and fluid analysis instrumentation and other
integrated systems. Currently, Core Laboratories operates over 70 facilities in
over 50 countries and has approximately 3,000 employees.
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 Technology
Services is dependent upon the Company's ability to continue to develop 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 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.
RECENT DEVELOPMENTS
SCOTT PICKFORD ACQUISITION
On March 1, 1997, the Company acquired the control of a majority of the
outstanding shares of Scott Pickford plc. Total consideration paid for Scott
Pickford plc will be approximately $15.1 million. Scott Pickford plc and its
subsidiaries ("Scott Pickford") provide petroleum reservoir management,
geoscience, geophysical, and engineering services to its customers by utilizing
petrophysical and phase behavior data sets measured by Core Laboratories and
ProTechnics. Scott Pickford reported revenues of $13,223,000, $13,319,000 and
$7,545,000 for its fiscal years ended March 31, 1996, 1995, and 1994,
respectively. The acquisition was financed through borrowings, accounted for
using the purchase method of accounting and resulted in approximately $12.2
million of goodwill which is being amortized over a 40-year period. Scott
Pickford's results of operations are included with those of the Company
beginning March 1, 1997. The purchase price allocations have been completed on a
preliminary basis, thus as additional information concerning the value of the
assets acquired and liabilities assumed becomes known additional adjustments
will be made to the purchase price allocation included in the accompanying
financial statements.
10
<PAGE>
SAYBOLT INTERNATIONAL B.V. ACQUISITION
On May 12, 1997, the Company consummated the acquisition of all the
outstanding shares of Saybolt International B.V., a privately held Netherlands
company, for $67 million in cash. Saybolt International B.V., and its
subsidiaries ("Saybolt") provide analytical and field services to characterize
properties of crude oil and petroleum products to the oil and gas industry.
Saybolt operates in over 50 countries and has approximately 1,650 employees.
Saybolt reported revenues of $105,358,000, $97,803,000 and $90,258,000 in 1996,
1995 and 1994, respectively. The transaction was accounted for under the
purchase method which resulted in approximately $60.6 million of goodwill which
is being amortized over a 40-year period. Financing for the transaction was
provided through the Credit Facility (see Note 6). Saybolt's results of
operations are included with those of the Company beginning on May 1, 1997. The
purchase price allocations have been completed on a preliminary basis, thus as
additional information concerning the value of the assets acquired and
liabilities assumed becomes known additional adjustments will be made to the
purchase price allocation included in the accompanying financial statements.
STIM-LAB, INC. MERGER
On October 22, 1997, the Company signed a letter of intent to acquire
Stim-Lab, Inc. a privately held company based in Duncan, Oklahoma in exchange
for approximately 230,000 of its common shares. Stim-Lab is one of the world's
technological leaders in providing services related to well completion and
stimulation. The merger will be accounted for as a pooling of interests and is
expected to be completed by December 15, 1997.
2-FOR-1 STOCK SPLIT
On October 22, 1997 the Company announced a two-for-one stock split of its
outstanding common shares, payable on December 19, 1997 to shareholders of
record as of the close of business on December 1, 1997.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain percentage relationships based on the
Company's income statements for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
PERCENTAGE OF PERCENTAGE OF
TOTAL REVENUE TOTAL REVENUE
------------------------------- -------------------------------
% INCREASE % INCREASE
1997 1996 (DECREASE) 1997 1996 (DECREASE)
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Services ........................................... 88.1 82.3 162.1 85.6 76.4 108.2
Sales .............................................. 11.9 17.7 63.9 14.4 23.6 13.5
----- ----- ----- ----- ----- -----
100.0 100.0 144.6 100.0 100.0 85.8
Operating expenses:
Cost of services ................................ 67.8 64.6 156.5 66.6 61.0 102.8
Cost of sales ................................... 10.6 15.1 72.1 13.1 19.3 25.8
General and administrative expenses ............. 3.0 3.3 126.5 3.1 3.5 60.4
Depreciation and amortization ................... 5.2 4.5 181.5 4.9 4.4 114.7
Other income, net ............................... (0.4) (1.3) 33.2 (0.1) (0.5) (58.4)
----- ----- ----- ----- ----- -----
86.2 86.2 144.8 87.6 87.7 85.7
Income before interest expense and
income tax expense .............................. 13.8 13.8 143.8 12.4 12.3 87.0
Interest expense ................................ 3.8 1.4 582.3 2.9 1.5 274.3
----- ----- ----- ----- ----- -----
Income before income tax expense ................... 10.0 12.4 95.2 9.5 10.8 62.2
Income tax expense ................................. 3.0 4.0 80.7 2.9 3.5 49.2
----- ----- ----- ----- ----- -----
Net income ......................................... 7.0 8.4 102.1 6.6 7.3 68.5
===== ===== ===== ===== ===== =====
</TABLE>
* Percentage not meaningful.
Services revenue for the quarter ended September 30, 1997 increased 162.1% to
$54.9 million. Services revenue for the nine month period ended September 30,
1997 was up 108.2% to $122.3 million. The increases were primarily due to (i)
increased worldwide demand for reservoir core and fluids analysis, and (ii)
additional revenue attributable to the March 1, 1997 acquisition of Scott
Pickford and May 12, 1997 acquisition of Saybolt.
Sales revenue for the three month period ended September 30, 1997 increased
63.9% or $2.9 million over the same period of the prior year. Sales revenue for
the nine month period ended September 30, 1997 was up 13.5% to $20.6 million
compared to the prior year. The increases were primarily attributed to the
acquisition of Scott Pickford's manufacturing division and slightly offset by
decreased sales of integrated octane-measuring and process analyzer systems due
to a weaker US refining market.
Costs of services as a percentage of services revenue for the three and nine
months ended September 30, 1997 improved slightly compared to a year ago, due to
improved cost savings and efficiencies.
12
<PAGE>
Cost of sales as a percentage of sales revenue for three and nine months
ended September 30, 1997 weakened compared to a year ago due to sales of lower
margin products.
General and administrative expenses for the three and nine months ended
September 30, 1997 increased $1.1 million and $1.6 million respectively, as
compared to the corresponding period in 1996. The increase was primarily due to
increased personnel costs and administrative expenses due to the Company's
growth through acquisitions; however such expenses decreased as a percentage of
total revenues. The Company's ongoing program to maintain tight controls over
expenses has resulted in maintaining general and administrative expenses as a
percentage of sales under 4%.
Depreciation and amortization expense for the three and nine month periods
ended September 30, 1997 increased for both periods, as compared to a year ago,
due primarily to the acquisitions of Scott Pickford and Saybolt.
Interest expense for the three and nine months ended September 30, 1997
increased $2.0 and $3.0 million as compared to 1996. The increase was primarily
due to the additional borrowings used to finance the Saybolt and Scott Pickford
acquisitions.
The Company's effective income tax rate was approximately 30.0% for the three
and nine months ended September 30, 1997 as compared to 32.4% for three months
and 32.6% for the nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital, capital
expenditures and acquisitions. For the nine month period ended September 30,
1997 the Company had operating cash flow of $3.3 million as compared to $4.9
million for the corresponding period in 1996. Management believes the Company's
internal and external sources of cash will provide the necessary funds with
which to meet its expected obligations.
On May 12, 1997 the Company entered into a Credit Facility which was used to
finance the acquisitions of Saybolt and Scott Pickford, as well as refinance the
unsecured credit facility. The Credit Facility provides for (i) a term loan of
$55 million, (ii) a term loan denominated in British pounds having a US dollar
equivalency of $15 million, (iii) a committed revolving debt facility of $50
million, and (iv) a Netherlands guilder denominated revolving debt facility with
US dollar equivalency of $5 million. 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 beginning March 31, 1999 with the
final principal payment due 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.
The Company expects to fund any future acquisitions primarily through a
combination of working capital, cash flow from operations, bank borrowings,
(including the Credit Facility) and issuance of additional equity.
13
<PAGE>
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
which 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.
The Company has adopted the Core Laboratories Supplemental Executive
Retirement Plan (the "SERP"), effective July 1, 1997, for the benefit of certain
key employees and outside directors of the Company. The SERP was established to
provide additional retirement income to the participants and death benefits to
the participants' surviving spouses as a reward for the participants'
contributions to the success and growth of the Company. The four participants in
the SERP are Richard L. Bergmark, David M. Demshur, Joseph R. Perna, and Stephen
D. Weinroth. Each participant is entitled to receive a retirement benefit of
$250,000 per year which begins on the participant's 65th birthday and is paid in
annual installments until the participant's death. If the participant dies
before he begins receiving his retirement benefit, the surviving spouse of the
deceased participant is entitled to receive $225,000 each year for fifteen
years. Each participant's benefit under the SERP is fully vested and fully
accrued. There is no possibility of forfeiture of the benefit except in the
event of termination for cause.
The Company has purchased an insurance policy on the lives of Mr.
Bergmark, Mr. Demshur, and Mr. Perna to assist it in providing benefits under
the SERP. The Company is the owner and beneficiary of the three policies. The
Company is obligated to pay the total premium of $319,500 each year until the
policies are paid up (which is anticipated to be eight years). The first premium
of $319,500 was paid by the Company of June 12, 1997. Based on actuarial
calculations
14
<PAGE>
(including a 12% interest rate assumption), the Company expects that the death
benefits paid to the Company under the insurance policies will be sufficient to
cover the costs of the SERP benefits and the policy premium payments. However,
to the extent the death benefits under the policies are insufficient to cover
those costs, the Company is obligated to pay the remainder out of its other
general assets and absorb any shortfall. In the event of a "change of control,"
the Company is obligated under the related trust agreement to fully fund the
amount of the retirement benefits and death benefits of all four participants
and their spouses. The amount of the "change of control" contribution is the
lesser of (1) the total amount due under the terms of the SERP or (2) the amount
of unpaid premiums on any insurance policies held by the trust through the
seventh anniversary of the date of the purchase of each such policy.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
INCORPORATED BY
EXHIBIT REFERENCE FROM THE
NO. EXHIBIT TITLE FOLLOWING DOCUMENTS
- ------- ------------- -------------------
27.1 Financial Data Schedule Filed Herewith
(b) Reports on Form 8-K.
Core Laboratories N.V. filed Form 8-K and Form 8-K/A on May 23rd 1997 and July
21, 1997, respectively due to the acquisition of Saybolt International B.V. as
listed on Item 2 of such Forms. Filed within the Form 8-/A are the required
consolidated financial statements of Saybold International B.V. for each of the
three years ended December 31, 1996 and the required pro forma information, as
listed in Item 7 of such form.
15
<PAGE>
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: October 31, 1997 By: /s/RICHARD L. BERGMARK
Richard L. Bergmark
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Chief Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,763
<SECURITIES> 0
<RECEIVABLES> 64,535
<ALLOWANCES> 3,516
<INVENTORY> 12,521
<CURRENT-ASSETS> 88,189
<PP&E> 63,887
<DEPRECIATION> 12,235
<TOTAL-ASSETS> 227,669
<CURRENT-LIABILITIES> 50,174
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 56,881
<TOTAL-LIABILITY-AND-EQUITY> 57,067
<SALES> 142,887
<TOTAL-REVENUES> 142,887
<CGS> 113,865
<TOTAL-COSTS> 113,865
<OTHER-EXPENSES> 11,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,132
<INCOME-PRETAX> 13,530
<INCOME-TAX> 4,059
<INCOME-CONTINUING> 9,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,471
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
