<PAGE> 1
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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, 1998
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 .03 per share,
outstanding at August 12, 1998 was 27,493,498.
===============================================================================
<PAGE> 2
CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 ........................ 1
Consolidated Statements of Operations for the Three Months Ended
June 30, 1998 and 1997................................................................. 2
Consolidated Statements of Operations for the Six Months Ended
June 30, 1998 and 1997................................................................. 3
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997................................................................. 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...................................................................... 13
Item 2-- Changes in Securities.................................................................. 13
Item 3-- Defaults Upon Senior Securities........................................................ 14
Item 4-- Submission of Matters to a Vote of Security Holders ................................... 14
Item 5-- Other Information...................................................................... 15
Item 6-- Exhibits and Reports on Form 8-K....................................................... 15
Signature ....................................................................................... 16
</TABLE>
ii
<PAGE> 3
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 7,960 $ 10,510
Accounts receivable, net ............................................. 75,654 67,537
Inventories .......................................................... 19,008 12,473
Prepaid expenses ..................................................... 10,197 5,771
Deferred income tax asset ............................................ 7,559 1,380
------------ ------------
Total current assets ...................................................... 120,378 97,671
PROPERTY, PLANT AND EQUIPMENT ............................................. 79,845 69,684
Less-- accumulated depreciation ...................................... (20,802) (16,130)
------------ ------------
59,043 53,554
INTANGIBLES AND GOODWILL, net ............................................. 137,452 82,809
LONG-TERM INVESTMENT ...................................................... 1,795 1,188
OTHER LONG-TERM ASSETS .................................................... 3,233 2,794
------------ ------------
Total assets ..................................................... $ 321,901 $ 238,016
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................. $ 5,741 $ 3,077
Short-term debt ...................................................... 267 427
Accounts payable ..................................................... 26,848 14,152
Unearned revenue ..................................................... 951 2,257
Other accrued expenses ............................................... 25,067 22,185
------------ ------------
Total current liabilities ................................................. 58,874 42,098
LONG-TERM DEBT ............................................................ 69,909 70,621
MINORITY INTEREST ......................................................... 2,993 1,212
LONG-TERM LEASE OBLIGATIONS ............................................... 219 156
OTHER LONG-TERM LIABILITIES ............................................... 20,583 9,816
SHAREHOLDERS' EQUITY:
Preference shares, NLG .03 par value; 3,000,000 shares authorized,
no shares issued or outstanding .................................. -- --
Common shares, NLG .03 par value; 100,000,000 shares authorized,
27,226,498 and 24,703,621 issued and outstanding
at June 30, 1998 and December 31, 1997, respectively ............. 464 426
Additional paid-in capital ........................................... 135,021 86,823
Retained earnings .................................................... 33,838 26,864
------------ ------------
Total shareholders' equity ....................................... 169,323 114,113
------------ ------------
Total liabilities and shareholders' equity ................ $ 321,901 $ 238,016
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE> 4
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------------------
1998 1997
---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
SERVICES ...................................................... $ 55,148 $ 46,113
SALES ......................................................... 3,921 4,915
---------------- ----------------
59,069 51,028
OPERATING EXPENSES:
Costs of services ........................................ 40,077 36,322
Costs of sales ........................................... 3,441 4,075
General and administrative expenses ...................... 2,010 1,432
Depreciation and amortization ............................ 3,277 2,466
Other (income) expense, net .............................. 118 (4)
---------------- ----------------
48,923 44,291
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST
EXPENSE AND INCOME TAX EXPENSE ........................... 10,146 6,737
INTEREST EXPENSE .............................................. 1,438 1,459
---------------- ----------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE ............................................. 8,708 5,278
INCOME TAX EXPENSE ............................................ 2,613 1,548
---------------- ----------------
INCOME FROM CONTINUING OPERATIONS ............................. 6,095 3,730
LOSS FROM DISCONTINUED OPERATIONS, net of tax benefit of $161 . -- (376)
LOSS ON DISPOSITION OF DISCONTINUED OPERATIONS, net of tax
benefit of $1,446 ........................................ (3,374) --
---------------- ----------------
NET INCOME .................................................... $ 2,721 $ 3,354
================ ================
PER SHARE DATA:
Income from continuing operations ........................ $ 0.25 $ 0 .17
Loss from discontinued operations ........................ -- (0.02)
Loss on sale of discontinued operations .................. (0.14) --
---------------- ---------------
BASIC EARNINGS PER SHARE ................................. $ 0.11 $ 0.15
================ ================
WEIGHTED AVERAGE BASIC COMMON SHARES
OUTSTANDING ........................................ 24,858,007 21,667,382
================ ================
Income from continuing operations ........................ $ 0.24 $ 0.17
Loss from discontinued operations ........................ -- (0.02)
Loss on sale of discontinued operations .................. (0.13) --
---------------- ----------------
DILUTED EARNINGS PER SHARE ............................... $ 0.11 $ 0.15
================ ================
WEIGHTED AVERAGE DILUTED COMMON SHARES
OUTSTANDING ........................................ 25,865,146 22,157,392
================ ================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE> 5
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
. SIX MONTHS ENDED
JUNE 30,
------------------------------
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
SERVICES ............................................................... $ 108,811 $ 69,276
SALES .................................................................. 7,693 8,051
------------ ------------
116,504 77,327
OPERATING EXPENSES:
Costs of services ................................................. 81,995 54,560
Costs of sales .................................................... 6,679 6,652
General and administrative expenses ............................... 3,892 2,456
Depreciation and amortization ..................................... 6,511 3,894
Other (income) expense, net ....................................... (472) 36
------------ ------------
98,605 67,598
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST
EXPENSE AND INCOME TAX EXPENSE .................................... 17,899 9,729
INTEREST EXPENSE ....................................................... 2,806 1,755
------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE ...................................................... 15,093 7,974
INCOME TAX EXPENSE ..................................................... 4,528 2,311
------------ ------------
INCOME FROM CONTINUING OPERATIONS ...................................... 10,565 5,663
LOSS FROM DISCONTINUED OPERATIONS, net of tax benefit of $93 and $111
in 1998 and 1997, respectively .................................... (217) (259)
LOSS ON DISPOSITION OF DISCONTINUED OPERATIONS, net of tax
benefit of $1,446 ................................................. (3,374) --
------------ ------------
NET INCOME ............................................................. $ 6,974 $ 5,404
============ ============
PER SHARE DATA:
Income from continuing operations ................................. $ 0.43 $ 0.26
Loss from discontinued operations ................................. (0.01) (0.01)
Loss on disposition of discontinued operations .................... (0.14) --
------------ ------------
BASIC EARNINGS PER SHARE .......................................... $ 0.28 $ 0.25
============ ============
WEIGHTED AVERAGE BASIC COMMON SHARES
OUTSTANDING ................................................. 24,799,201 21,677,293
============ ============
Income from continuing operations ................................. $ 0.41 $ 0.25
Loss from discontinued operations ................................. (0.01) (0.01)
Loss on disposition of discontinued operations .................... (0.13) --
------------ ------------
DILUTED EARNINGS PER SHARE ........................................ $ 0.27 $ 0.24
============ ============
WEIGHTED AVERAGE DILUTED COMMON SHARES
OUTSTANDING ................................................. 25,701,550 22,123,614
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 6,974 $ 5,404
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 ............................... 6,579 3,961
Gain on sale of fixed assets ................................ (329) (5)
Changes in assets and liabilities:
Increase in accounts receivable ............................. (903) (8,878)
Decrease/(increase) in inventories .......................... (2,382) 595
Increase in prepaid expenses ................................ (2,473) (746)
Increase/(decrease) in accounts payable ..................... 1,541 (5,819)
Decrease in other accrued expenses .......................... (5,143) (1,964)
Decrease in other long-term liabilities ..................... (9,990) (78)
Other ....................................................... (1,341) 935
---------- ----------
Net cash provided by (used in) operating activities .... (2,647) (6,595)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................ (7,083) (5,979)
Proceeds from sale of fixed assets .............................. 615 69
Acquisition of Owen Oil Tools, Inc., net of cash ................ (46,736) --
Sale of discontinued operations ................................. 4,114 --
Acquisition of Scott Pickford plc, net of cash .................. -- (15,023)
Acquisition of Saybolt International B.V ........................ -- (62,987)
---------- ----------
Net cash used in investing activities ....................... (49,090) (83,920)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt ...................................... (3,823) (18,218)
Borrowings under long-term debt ................................. 5,026 110,637
Decrease in short-term debt ..................................... (230) --
Issuance of stock for Owen Oil Tools, Inc. ...................... 46,743 --
Exercise of stock options ....................................... 1,493 41
Other ........................................................... (22) (1,541)
---------- ----------
Net cash provided by (used in) financing activities ......... 49,187 90,919
---------- ----------
NET CHANGE IN CASH .................................................. (2,550) 404
CASH, beginning of period ............................................ 10,510 2,935
---------- ----------
CASH, end of period .................................................. $ 7,960 $ 3,339
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 7
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 six month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. Balance sheet information as of December 31,
1997, has been taken from the 1997 annual audited financial statements. Certain
1997 items have been reclassified to conform with the 1998 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, 1998.
NEW ACCOUNTING STANDARDS
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 set of general-purpose financial statements.
The statement requires (a) classification of items of other comprehensive income
by their nature in the 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
5
<PAGE> 8
beginning after December 15, 1997. Based on current circumstances, the statement
has no effect on the Company's financial condition and results of operations.
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. The FASB does not require that segment information be
reported in financial statements for interim periods in the initial year of
application.
In June 1998, the FASB issued SFAS NO. 133, "Accounting for Derivative
Instruments and Hedging Activities." The SFAS establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The SFAS requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
a company to formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS NO. 133 is effective for fiscal
years beginning after June 15, 1999 and early adoption is permitted. Based on
current circumstances, the statement has no effect on the Company's financial
condition and results of operations.
2. ACQUISITION
Owen Acquisition
On June 30, 1998, the Company acquired all of the outstanding stock of
Owen Oil Tools, Inc. ("Owen") in a stock-for-stock transaction, which will be
accounted for as a purchase. The transaction resulted in $40.7 million of
goodwill which will be amortized over a 40-year period. The Company issued
2,276,831 shares of its common stock for the privately held Fort Worth, Texas
based company. Owen and its subsidiaries manufacture and sell perforating
supplies and down-hole tools to customers in the petroleum industry. 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.
3. DISPOSITION OF DISCONTINUED OPERATIONS
On April 8, 1998, the Company sold the assets of its two packaged analyzer
units for $4.1 million. The Company recorded a loss on disposition of $3.4
million net of tax in the second quarter of 1998. Accordingly, the results of
operations for the units are segregated from continuing operations and prior
period operating results have been restated to reflect discontinued operations.
Revenues for the discontinued operations were $1.4 and $5.6 million for the six
month period ended June 30, 1998 and the corresponding period in the prior year,
respectively. In the three month period ending June 30, 1998 and the
corresponding period in the prior year revenues were nil and $3.9 million,
respectively.
6
<PAGE> 9
4. PRO FORMA INFORMATION
Unaudited pro forma revenues, income from continuing operations and income
from continuing operations per share, assuming that the acquisition of Owen had
been consummated at January 1, 1997, are summarized as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Revenues ............................................... $ 143,538 $ 222,257
Income from continuing operations ...................... $ 11,855 $ 15,392
Basic income per share from continuing operations ...... $ 0.44 $ 0.62
Diluted income per share from continuing operations .... $ 0.42 $ 0.61
</TABLE>
5. 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):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Parts and materials..................................................... $ 15,577 $ 4,558
Work in process......................................................... 3,431 7,915
----------- -----------
Total ......................................................... $ 19,008 $ 12,473
=========== ===========
</TABLE>
6. 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. In conjunction with the second quarter 1998 sale of
discontinued operations, the Company recognized a write-off of goodwill related
to those operations.
7
<PAGE> 10
7. LONG-TERM DEBT
Long-term debt at June 30, 1998 and December 31, 1997 is summarized in the
following table (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Credit Facility with a bank group:
$70,000 term loan facility.............................................. $ 70,000 $ 70,000
$55,000 revolving debt facility......................................... 3,000 --
Loan Notes ............................................................... 1,088 1,165
Other indebtedness.......................................................... 1,562 2,533
----------- -----------
Total debt ........................................................ 75,650 73,698
Less-- current maturities............................................... 5,741 3,077
----------- -----------
Total long-term debt........................................... $ 69,909 $ 70,621
=========== ===========
</TABLE>
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 $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,
1998, approximately $52.0 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.
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.
8. SUBSEQUENT EVENTS
Jaex Acquisition
On July 13, 1998, the Company signed a non-binding letter of intent
pursuant to which the Company is negotiating to acquire all of the remaining
shares of Jaex S.A. de C.V. ("Jaex") that it does not already own. Through its
acquisition of Owen Oil Tools, Inc., Core currently owns 50.00098 percent of
Jaex, a Mexico based provider of well completion and well perforating products
and services.
8
<PAGE> 11
Integra Acquisition
On July 22, 1998, the Company signed a non-binding letter of intent
pursuant to which the Company is negotiating to acquire Integra Geoservices,
Inc. ("Integra"), a privately held Calgary, Alberta company. Core will issue
approximately 86,000 shares in exchange for all of the outstanding shares of
Integra. This transactions is expected to close on August 31, 1998 and will be
accounted for using the purchase method of accounting. Intergra provides
geophysical seismic processing used to characterize and describe petroleum
reservoirs.
Petrak Acquisition
On July 31, 1998, the Company acquired all of the outstanding shares of
PETRAK Group S.A., ("Petrak"), a privately held company based in Zug,
Switzerland. The Company issued approximately 263,000 shares in exchange for all
of the shares of Petrak and will account for the transaction using the purchase
method of accounting. Petrak specializes in characterizing crude oil and
providing related services.
9
<PAGE> 12
CORE LABORATORIES N.V.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Core Laboratories N.V. ("Core Laboratories" or the "Company") 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, which complement its services operations. Core Laboratories
currently operates over 70 facilities in over 50 countries and has approximately
3,900 employees.
RECENT DEVELOPMENTS
Owen Acquisition
On June 30, 1998, the Company acquired all of the outstanding stock of
Owen Oil Tools, Inc. ("Owen") in a stock-for-stock transaction, which will be
accounted for as a purchase. The Company issued 2,276,831 shares of its common
stock for the privately held Fort Worth, Texas based company. Owen and its
subsidiaries manufacture and sell perforating supplies and down-hole tools to
customers in the petroleum industry. 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.
Disposition of Discontinued Operations
On April 8, 1998, the Company sold the assets of its two packaged analyzer
units for $4.1 million. The Company recorded a loss on disposition of $3.4
million net of tax in the second quarter of 1998. The Company sold these
business units to focus on its more rapidly growing and higher margin
optimization services. Accordingly, the results of operations for the units are
segregated from continuing operations and prior period operating results have
been restated to reflect discontinued operations. Revenues for the discontinued
operations were $1.4 and $5.6 million for the six month period ended June 30,
1998 and the corresponding period in the prior year, respectively. In the three
month period ending June 30, 1998 and the corresponding period in the prior year
revenues were nil and $3.9 million, respectively.
10
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth certain percentage relationships based on
the Company's consolidated income statements for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
PERCENTAGE OF PERCENTAGE OF
TOTAL REVENUE TOTAL REVENUE
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Services .................................... 93.4 90.4 93.4 89.6
Sales ....................................... 6.6 9.6 6.6 10.4
------- ------- ------- -------
100.0 100.0 100.0 100.0
Operating expenses:
Cost of services ....................... 72.7* 78.8* 75.4* 78.8*
Cost of sales .......................... 87.8* 82.9* 86.8* 82.6*
General and administrative expenses .... 3.4 2.8 3.3 3.2
Depreciation and amortization .......... 5.5 4.8 5.6 5.0
Other income, net ...................... -- -- -- --
------- ------- ------- -------
82.8 86.8 84.6 87.4
Income from continuing operations before
interest expense and income tax expense .. 17.2 13.2 15.4 12.6
Interest expense ............................ 2.5 2.9 2.4 2.3
------- ------- ------- -------
Income from continuing operations before
income tax expense ....................... 14.7 10.3 13.0 10.3
Income tax expense .......................... 4.4 3.0 3.9 3.0
------- ------- ------- -------
Income from continuing operations ........... 10.3 7.3 9.1 7.3
======= ======= ======= =======
</TABLE>
* Percentage based on applicable segment revenue, and not total revenue.
Total revenue from continuing operations for the second quarter 1998 was
$59 million, an increase of $8 million from the same period last year. Total
revenue for the six months ended June 30, 1998 was up 50.7% to $116.5 million.
The increases were due to increased demand for the Company's production related
services.
Cost of services as a percentage of service revenue for the three and six
months ended June 30, 1998 decreased compared to the corresponding periods in
1997 primarily due to improved operating efficiencies.
Cost of sales as a percentage of sales revenue for three and six months
ended June 30, 1998 increased compared to the corresponding periods in 1997 due
to the sale of lower margin products.
11
<PAGE> 14
General and administrative expenses for the quarter and six months ended
June 30, 1998 increased $0.6 million and $1.4 million respectively, as compared
to the corresponding periods in 1997. The increases were primarily a result of
increased personnel costs attributable to the Company's growth. However, as a
percentage of sales, general and administrative expenses remain under 4% as a
result of the Company's ongoing program to maintain tight control over expenses.
Depreciation and amortization expense for the three and six month periods
ended June 30, 1998 increased $0.8 and $2.6 million, respectively, as compared
to a year ago, primarily due to the inclusion of depreciation and amortization
from the acquisitions of Saybolt International B.V. and Scott Pickford plc.
Interest expense for the three months ended June 30, 1998 decreased
approximately $20,000 as compared to 1997. For the six months ended June 30,
1998, interest expense increased $1.1 million as compared to 1997. This increase
is primarily due to additional borrowings used to finance the aforementioned
acquisitions.
The Company's effective income tax rate was approximately 30.0% for the
three months and six months ended June 30, 1998 as compared to 29.3% and 29.0%
for three months and six months ended June 30, 1997, respectively.
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, 1998 the
Company had operating cash flow of ($2.6) million as compared to ($6.6) million
for the corresponding period in 1997. 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.
12
<PAGE> 15
CORE LABORATORIES N.V.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the latter part of 1996, prior to its acquisition by the Company,
Saybolt, Inc., an indirect subsidiary of the parent Saybolt International B.V.,
was informed that the Environmental Protection Agency ("EPA") and the U.S.
Department of Justice ("DOJ") had commenced a criminal investigation into
certain practices at three of Saybolt's U.S. laboratories. The investigation has
focused on instances in which Saybolt employees in New Jersey, Massachusetts and
Connecticut may have failed to report accurate RFG test results to customers and
the EPA. The Company is cooperating with this investigation and, in addition,
has undertaken its own internal review of the matter. The Company has entered
into negotiations with U.S. government officials to resolve the matter, which
would include the payment by Saybolt, Inc. of fines and the adoption of
compliance mechanisms. The Company is working with the EPA to avoid revocation
of licenses and/or eligibility to perform certain services governed or
contracted by the EPA, Customs or federal agencies.
The U.S. Attorney's Offices for Massachusetts and New Jersey and the DOJ
are conducting a criminal investigation of whether Saybolt committed violations
of U.S. laws regulating international business actions of U.S. persons. On April
17, 1998, the U.S. Attorney's Office announced that the former president of
Saybolt, Inc. and the former President of Saybolt International B.V. had been
indicted for violating the Foreign Corrupt Practices Act and related laws. The
indictment charges that such persons participated in arranging the payment of
$50,000 to Panamanian officials in 1995 in an effort to obtain a lease, certain
tax benefits, and other advantages from the Panamanian government for Saybolt de
Panama S.A. The alleged violation occurred more that a year before the Company's
acquisition of Saybolt in May 1997 and was discovered during the EPA
investigation of Saybolt. The Company has entered into negotiations with U.S.
government officials to resolve this matter, which would include the payment by
Saybolt, Inc. of fines.
The Company believes that the amount required to resolve these two issues
will not exceed $5 million. The Company believes that it has indemnity rights
against the former shareholders of Saybolt to cover contingencies and breaches
of provisions of the agreement entered into at the same time as the acquisition
of Saybolt. While no assurance can be made as to the ultimate outcome of these
matters, the Company does not believe that such matters will have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 2. CHANGES IN SECURITIES.
None.
13
<PAGE> 16
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 29, 1998, 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) Bob G. Agnew; (ii) Jacobus Schouten; (iii) James A. Read, as Class I
Supervisory Directors, (i) Joseph R. Perna; (ii) David M. Demshur; (iii) Timothy
J. Probert, 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:
<TABLE>
<CAPTION>
Director Shares for Shares Withheld
-------- ---------- ---------------
<S> <C> <C>
Bob G. Agnew 18,354,550 225,563
Jacobus Schouten 18,573,839 6,274
James A. Read 18,573,839 6,274
Joseph R. Perna 18,354,550 225,563
David M. Demshur 18,573,839 6,274
Timothy J. Probert 18,573,839 6,274
Richard L. Bergmark 18,573,839 6,274
Steven D. Weinroth 18,573,839 6,274
</TABLE>
Voting stockholders also confirmed the Dutch Statutory Annual Accounts for
the year ended December 31, 1997. The proposal was approved by 18,557,131 votes
for, 2,000 against, with 20,982 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
capitol of the Company until November 28, 1999. The proposal was approved by
18,387,518 votes for, 185,847 votes against with 6,748 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 28, 2003.
The proposal was approved by 13,055,378 votes for, 5,473,324 against with 51,411
abstentions.
Voting shareholders approved the extension of the authority of the
Supervisory Board to limit or exclude the preemptive right of the holders of the
common shares of the Company until May 28, 2003. The proposal was approved by
13,001,380 votes for, 5,532,546 against with 19,187 abstentions and 27,000
non-votes.
14
<PAGE> 17
Voting shareholders approved an amendment to the Articles of Association,
as amended, to increase the authorized share capital of the Company from
30,000,000 common shares to 100,000,000 common shares. The proposal was approved
by 13,129,977 votes for, 5,440,888 against and 9,248 abstentions.
Voting shareholders approved an amendment to the Articles of Association,
as amended, to provide that dividends otherwise, than in cash may be authorized
by the Supervisory Board. The proposal was approved by 18,516,302 votes for,
55,697 against and 8,114 abstentions.
Voting shareholders ratified and approved an interim dividend authorized by
the Supervisory Board to satisfy amounts otherwise owed by the shareholders
under the laws of the Netherlands for the stock split effected in December 1997.
The proposal was approved by 18,558,870 votes for, 5,566 against and 15,677
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, 1998. The proposal was approved by 18,545,119 votes for,
13,250 votes against and 21,744 abstentions.
ITEM 5. OTHER INFORMATION.
Management believes conversion to a year 2000 compliant environment will
not present a material concern for the Company's current operations. The Company
is currently engaged in a comprehensive project to upgrade its computer software
systems to programs which are year 2000 compliant. The Company does not
anticipate that total future costs associated with potential year 2000
compliance issues will have a material adverse impact on its consolidated
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE FROM THE
EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS
- ----------- ------------- --------------------
<S> <C> <C>
27.1 Financial Data Schedule Filed Herewith
</TABLE>
(b) Reports on Form 8-K.
Core Laboratories N.V. filed Form 8-K on July 15, 1998 due to the merger
with Owen Oil Tools, Inc. as listed in Item 2 of Such Forms.
15
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Core Laboratories N.V., has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CORE LABORATORIES N.V.
by: Core Laboratories International B.V.
Dated: August 14, 1998 By: /s/ Richard L. Bergmark
--------------------------------------
Richard L. Bergmark
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Chief Accounting Officer)
16
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE FROM THE
EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS
- ----------- ------------- --------------------
<S> <C> <C>
27.1 Financial Data Schedule Filed Herewith
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,960
<SECURITIES> 0
<RECEIVABLES> 82,376
<ALLOWANCES> 6,722
<INVENTORY> 19,008
<CURRENT-ASSETS> 120,378
<PP&E> 79,845
<DEPRECIATION> 20,802
<TOTAL-ASSETS> 321,901
<CURRENT-LIABILITIES> 58,874
<BONDS> 0
0
0
<COMMON> 464
<OTHER-SE> 135,021
<TOTAL-LIABILITY-AND-EQUITY> 321,901
<SALES> 116,504
<TOTAL-REVENUES> 116,504
<CGS> 88,674
<TOTAL-COSTS> 98,605
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,806
<INCOME-PRETAX> 15,093
<INCOME-TAX> 4,528
<INCOME-CONTINUING> 10,565
<DISCONTINUED> 3,591
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,974
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
