<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 0.03 per
share, outstanding at November 10, 1999 was 30,089,559.
================================================================================
<PAGE> 2
CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at September 30, 1999 and December 31, 1998.................... 1
Consolidated Statements of Operations for the Three Months Ended
September 30, 1999 and 1998............................................................ 2
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998............................................................ 3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 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 & Qualitative Disclosures of Market Risk.................................. 16
Part II -- Other Information
Item 1-- Legal Proceedings...................................................................... 17
Item 2-- Changes in Securities.................................................................. 17
Item 3-- Defaults Upon Senior Securities........................................................ 17
Item 4-- Submission of Matters to a Vote of Security Holders ................................... 17
Item 5-- Other Information...................................................................... 17
Item 6-- Exhibits and Reports on Form 8-K....................................................... 17
Signature ....................................................................................... 18
</TABLE>
ii
<PAGE> 3
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 17,280 $ 8,166
Accounts receivable, net ........................................... 98,103 86,578
Inventories ........................................................ 25,345 18,967
Prepaid expenses ................................................... 9,178 10,052
Deferred income tax asset .......................................... 5,730 6,129
---------- ----------
Total current assets .................................. 155,636 129,892
---------- ----------
PROPERTY, PLANT AND EQUIPMENT ........................................... 86,832 92,599
Less-- accumulated depreciation .................................... (23,307) (22,357)
---------- ----------
63,525 70,242
INTANGIBLES AND GOODWILL, net ........................................... 151,354 150,859
OTHER LONG-TERM ASSETS .................................................. 5,239 4,540
---------- ----------
Total assets ................................................... $ 375,754 $ 355,533
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............................... $ 1,376 $ 18,892
Accounts payable ................................................... 15,754 19,859
Other current liabilities .......................................... 28,788 24,749
---------- ----------
Total current liabilities ...................................... 45,918 63,500
LONG-TERM DEBT .......................................................... 104,273 69,327
MINORITY INTEREST ....................................................... 1,061 1,170
LONG-TERM LEASE OBLIGATIONS ............................................. 1,038 1,231
OTHER LONG-TERM LIABILITIES ............................................. 20,093 20,970
SHAREHOLDERS' EQUITY:
Preference shares, NLG 0.03 par value; 100,000,000 shares
authorized, no shares issued or outstanding .................... -- --
Common shares, NLG 0.03 par value; 30,000,000 shares authorized,
30,059,559 and 29,603,999 issued and outstanding
at September 30, 1999 and December 31, 1998, respectively ...... 507 500
Additional paid-in capital ......................................... 159,980 155,547
Retained earnings .................................................. 42,884 43,288
---------- ----------
Total shareholders' equity ..................................... 203,371 199,335
---------- ----------
Total liabilities and shareholders' equity ......................... $ 375,754 $ 355,533
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE> 4
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
SERVICES ............................................. $ 62,550 $ 64,447
SALES ................................................ 15,326 15,938
------------- -------------
77,876 80,385
OPERATING EXPENSES:
Costs of services ............................... 48,455 49,613
Costs of sales .................................. 11,898 9,259
General and administrative expenses ............. 2,980 2,305
Depreciation and amortization ................... 4,927 4,949
Other (income) expense, net ..................... (353) 200
------------- -------------
67,907 66,326
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST
EXPENSE AND INCOME TAX EXPENSE .................. 9,969 14,059
INTEREST EXPENSE ..................................... 2,253 1,759
------------- -------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE .................................... 7,716 12,300
INCOME TAX EXPENSE ................................... 2,546 3,690
------------- -------------
NET INCOME ........................................... $ 5,170 $ 8,610
============= =============
PER SHARE DATA:
BASIC EARNINGS PER SHARE ........................ $ 0.17 $ 0.29
============= =============
WEIGHTED AVERAGE BASIC COMMON SHARES
OUTSTANDING ............................... 29,892,094 29,334,845
============= =============
DILUTED EARNINGS PER SHARE ...................... $ 0.17 $ 0.29
============= =============
WEIGHTED AVERAGE DILUTED COMMON SHARES
OUTSTANDING ............................... 30,694,476 29,640,425
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE> 5
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
SERVICES ................................................... $ 177,166 $ 194,263
SALES ...................................................... 41,100 24,701
------------- -------------
218,266 218,964
OPERATING EXPENSES:
Costs of services ..................................... 148,135 153,632
Costs of sales ........................................ 31,552 15,324
General and administrative expenses ................... 8,691 6,197
Depreciation and amortization ......................... 14,326 12,554
Non-recurring charges (Note 7) ........................ 10,670 --
Other (income) expense, net ........................... (2,024) 497
------------- -------------
211,350 188,204
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST
EXPENSE AND INCOME TAX EXPENSE ........................ 6,916 30,760
INTEREST EXPENSE ........................................... 5,794 4,690
------------- -------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE .......................................... 1,122 26,070
INCOME TAX EXPENSE ......................................... 370 7,821
------------- -------------
INCOME FROM CONTINUING OPERATIONS .......................... 752 18,249
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 ................................................. $ 752 $ 14,658
============= =============
PER SHARE DATA:
Income from continuing operations ..................... $ 0.03 $ 0.66
Loss from discontinued operations ..................... -- (0.01)
Loss on disposition of discontinued operations ........ -- (0.12)
------------- -------------
BASIC EARNINGS PER SHARE .............................. $ 0.03 $ 0.53
============= =============
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING ...... 29,758,253 27,537,029
============= =============
Income from continuing operations ..................... $ 0.02 $ 0.66
Loss from discontinued operations ..................... -- (0.01)
Loss on disposition of discontinued operations ........ -- (0.12)
------------- -------------
DILUTED EARNINGS PER SHARE ............................ $ 0.02 $ 0.53
============= =============
WEIGHTED AVERAGE DILUTED COMMON SHARES
OUTSTANDING ..................................... 30,508,500 27,842,609
============= =============
</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
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................... $ 752 $ 14,658
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 ........................... 14,326 12,554
(Gain) loss on sale of fixed assets ..................... (209) (609)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .............. 436 904
Increase in inventories ................................. (4,530) (4,435)
Decrease (increase) in prepaid expenses ................. 2,012 (1,130)
Decrease in accounts payable ............................ (3,665) (7,625)
Increase (decrease) in other accrued expenses ........... 669 2,416
Increase (decrease) in other long-term liabilities ...... 102 (9,437)
Other ................................................... (7,144) (2,152)
---------- ----------
Net cash used in operating activities .............. 2,749 9,964
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................ (15,629) (17,916)
Proceeds from sale of fixed assets .......................... -- 4,226
Acquisitions, net of cash ................................... 3,945 --
Sale of discontinued operations ............................. -- 4,114
Other ....................................................... (473) --
---------- ----------
Net cash used in investing activities ................... (12,157) (9,576)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt .................................. (84,343) (12,419)
Borrowings under long-term debt ............................. 102,406 14,137
Exercise of stock options ................................... 955 1,569
Other ....................................................... (496) (1,080)
---------- ----------
Net cash provided by financing activities ............... 18,522 2,207
---------- ----------
NET CHANGE IN CASH ............................................... 9,114 2,595
CASH, beginning of period ........................................ 8,166 12,889
---------- ----------
CASH, end of period .............................................. $ 17,280 $ 15,484
========== ==========
</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
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 nine month periods ended September 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 current year 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 Statement of Financial Accounting Standards ("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 8 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 and SFAS
No. 137 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 Nos. 133 and 137 are not expected to have a material effect on the
Company's financial position or operational results.
2. ACQUISITIONS
COHERENCE TECHNOLOGY COMPANY ACQUISITION
Effective 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 seismic data processing technology to the worldwide
5
<PAGE> 8
petroleum industry. The Company issued approximately 194,000 shares in the
transaction which was 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. The Company's
consolidated financial statements have been restated for all prior periods
presented to include the financial position and results of CTC.
RESERVOIRS, INC. ACQUISITION
Effective August 2, 1999, the Company acquired 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 was accounted for using the purchase method of accounting. The transaction
resulted in an allocation of approximately $4.0 million in goodwill which is
being amortized over a 20-year period.
3. DISPOSITION OF ASSETS
The Company sold substantially all of its U.S. environmental testing and
certain other assets to Severn Trent Laboratories, Inc., a Delaware
corporation, with an effective date of September 30, 1999. Consideration on the
sale was approximately $19 million, which is included in accounts receivable,
and no gain or loss was recognized.
4. INVENTORIES
Inventories consist primarily of items held for sale and 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):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Parts and materials .... $ 8,931 $ 6,524
Work-in-process ........ 1,070 1,873
Finished Goods ......... 15,344 10,570
-------- --------
Total ......... $ 25,345 $ 18,967
======== ========
</TABLE>
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. 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.
6
<PAGE> 9
6. LONG-TERM DEBT
Long-term debt at September 30, 1999 and December 31, 1998 is summarized in
the following table (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- ---------
(UNAUDITED)
<S> <C> <C>
Credit Facility with a bank group:
$70,154 term loan facility .......... $ -- $ 70,154
$100,000 revolving debt facility .... 29,119 15,000
Senior Notes ............................ 75,000 --
Loan Notes .............................. 991 1,073
Other indebtedness ...................... 539 1,992
-------- ---------
Total debt ..................... 105,649 88,219
Less -- current maturities .......... 1,376 18,892
-------- ---------
Total long-term debt ....... $104,273 $ 69,327
======== =========
</TABLE>
In July 1999, the Company entered into a Credit Facility which provides for
(i) a committed revolving debt facility of $95 million and (ii) a Netherlands
guilder denominated revolving debt facility with U.S. dollar equivalency of $5
million. At September 30, 1999, approximately $71 million was available for
borrowing under the revolving debt facility. Loans under the Credit Facility
generally bear interest from LIBOR plus 1.25% to a maximum of LIBOR plus 1.75%.
The revolving debt facilities require interest payments only, until maturity in
June 2004. In July 1999 the Company issued $75 million in Senior Notes which
bear an average interest rate of 8.16% and require annual principal payments
beginning in July 2005 and continuing through July 2011. The terms of the Credit
Facility and Senior Notes 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 both 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.
7. 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.
7
<PAGE> 10
8. SEGMENT REPORTING
The Company's business units have been aggregated into three reportable
segments which provide products and services used for optimizing reservoir
performance and maximizing 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.
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 Sheets and
Statements of Operations. The Company evaluates performance based on income or
loss from operations before income tax, interest, and other non-operating income
(expense). Summarized financial information concerning the Company's segments is
shown in the following table. 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.
<TABLE>
<CAPTION>
INCOME BEFORE
REVENUES TAXES AND INTEREST
THREE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Reservoir Description ...... $ 49,564 $ 48,081 $ 7,301 $ 4,670
Production Enhancement ..... 17,186 17,777 2,419 6,345
Reservoir Management ....... 11,126 14,527 24 2,977
---------- ---------- ---------- ----------
Total Business Segments .... 77,876 80,385 9,744 13,992
Corporate and Other ........ -- -- 225 67
---------- ---------- ---------- ----------
Consolidated ............... $ 77,876 $ 80,385 $ 9,969 $ 14,059
========== ========== ========== ==========
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE
REVENUES TAXES AND INTEREST
NINE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- -------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Reservoir Description ...... $ 138,741 $ 140,843 $ 7,832 $ 20,006
Production Enhancement ..... 46,882 30,495 6,583 9,586
Reservoir Management ....... 32,643 47,626 (2,930) 1,118
---------- ---------- ---------- ----------
Total Business Segments .... 218,266 218,964 11,485 30,710
Corporate and Other ........ -- -- (4,569) 50
---------- ---------- ---------- ----------
Consolidated ............... $ 218,266 $ 218,964 $ 6,916 $ 30,760
========== ========== ========== ==========
</TABLE>
9. SUBSEQUENT EVENT
PROPOSED TOMOSEIS CORPORATION ACQUISITION
On November 2, 1999, the Company signed a letter of intent to merge with
TomoSeis Corporation ("TomoSeis"), a private company with offices in Houston,
Texas. TomoSeis provides highly detailed reservoir imaging technologies that are
the critical component for successful 4D seismic and reservoir monitoring
programs. The Company will issue approximately 585,000 shares in a transaction
which is expected to be accounted for as a pooling of interests.
9
<PAGE> 12
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 technologies; 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.
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. 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 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.
10
<PAGE> 13
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 in the fourth quarter of 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.
GENERAL
Core Laboratories N.V. was established in 1936 and is one of the world's
leading providers of proprietary and patented reservoir description, production
enhancement and reservoir management services for optimizing reservoir
performance and maximizing hydrocarbon recovery from new and existing fields.
The Company's customers include major, national, and independent oil and gas
producers. In addition, the Company manufactures and sells petroleum reservoir
rock and fluid analysis instrumentation and other integrated systems which
complement its services operations. Core Laboratories currently operates over 70
facilities in over 50 countries and has approximately 3,500 employees.
RECENT DEVELOPMENTS
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.
11
<PAGE> 14
COHERENCE TECHNOLOGY COMPANY ACQUISITION
Effective 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 seismic data processing technology to the worldwide petroleum
industry. The Company issued approximately 194,000 shares in the transaction
which was 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. The Company's
consolidated financial statements have been restated for all periods presented
to include the financial position and results of CTC.
RESERVOIRS, INC. ACQUISITION
Effective August 2, 1999, the Company acquired 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 was accounted for using the purchase method of accounting. The transaction
resulted in an allocation of approximately $4.0 million in goodwill which is
being amortized over a 20-year period.
DISPOSITION OF ASSETS
The Company sold substantially all of its U.S. environmental testing and
certain other assets to Severn Trent Laboratories, Inc., a Delaware
corporation, with an effective date of September 30, 1999. Consideration on the
sale was approximately $19 million, which is included in accounts receivable,
and no gain or loss was recognized.
PROPOSED TOMOSEIS CORPORATION ACQUISITION
On November 2, 1999, the Company signed a letter of intent to merge with
TomoSeis Corporation ("TomoSeis"), a privately held company with offices in
Houston, Texas. TomoSeis provides highly detailed reservoir imaging technologies
that are the critical component for successful 4D seismic and reservoir
monitoring programs. The Company will issue approximately 585,000 shares in a
transaction which is expected to be accounted for as a pooling of interests.
12
<PAGE> 15
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
PERCENTAGE OF PERCENTAGE OF
TOTAL REVENUE TOTAL REVENUE
--------------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Services .................................... 80.3% 80.2% 81.2% 88.7%
Sales ....................................... 19.7 19.8 18.8 11.3
------ ------ ------ ------
100.0 100.0 100.0 100.0
Operating expenses:
Cost of services ....................... 77.5* 77.0* 83.6* 79.1
Cost of sales .......................... 77.6* 58.1* 76.8* 62.0*
General and administrative expenses .... 3.8 2.9 4.0 2.8
Depreciation and amortization .......... 6.3 6.2 6.6 5.7
Non-recurring charges .................. -- -- 4.9 --
Other (income) expense, net ............ (0.5) 0.2 (0.9) 0.2
Income from continuing operations before
interest expense and income tax expense ... 12.8 17.5 3.2 14.0
Interest expense ............................ 2.9 2.2 2.7 2.1
------ ------ ------ ------
Income from continuing operations before
income tax expense ....................... 9.9 15.3 0.5 11.9
Income tax expense .......................... 3.3 4.6 0.2 3.6
------ ------ ------ ------
Income from continuing operations ........... 6.6% 10.7% 0.3% 8.3%
====== ====== ====== ======
</TABLE>
* Percentage based on applicable segment revenue, and not total revenue.
Total revenue for the third quarter 1999 was $77.9 million, a decrease from
$80.4 million in the same period last year. Total revenue for the nine months
ended September 30, 1999 was reasonably in line with the prior nine month
period.
Cost of services as a percentage of service revenue for the three and nine
months ended September 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 nine months
ended September 30, 1999 increased compared to the corresponding periods in 1998
due to an increase in lower margin product sales.
13
<PAGE> 16
General and administrative expenses for the three and nine months ended
September 30, 1999 increased $0.7 million and $2.5 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 months ended September
30, 1999 remained constant as compared to a year ago. Depreciation and
amortization expense for the nine months ended September 30, 1999 increased $1.8
million as compared to the corresponding period in 1998 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 nine months
ended September 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 September 30, 1999 increased
approximately $0.5 million as compared to 1998. For the nine months ended
September 30, 1999, interest expense increased $1.1 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 and increased borrowings relating
to the Senior Notes.
The Company's effective income tax rate was approximately 33% for the three
months and nine months ended September 30, 1999 as compared to 30% for three
months and nine months ended September 30, 1998. The increase was principally
due to the higher effective tax rates of the jurisdictions in which recent
acquisitions operate.
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,
1999, the Company had operating cash flow of $2.7 million as compared to $10.0
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.
In July 1999, the Company amended its term loan and revolving credit
facility and issued $75 million in Senior Notes. The Company's revolving credit
facility is with a group of banks and provides for up to $100 million of
unsecured revolving credit borrowings. As of September 30, 1999, the Company had
approximately $71 million available on the credit facility. The interest rate
applicable to the outstanding credit facility is generally LIBOR plus 1.25% to a
maximum of LIBOR plus 1.75%.
The proceeds from the Senior Notes were used to pay off term loans of $70
million. The Senior Notes are due 2011 and have an average interest rate of
8.16%. Principal payments are due beginning July 2005 and continuing through
July 2011.
14
<PAGE> 17
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.
15
<PAGE> 18
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.
16
<PAGE> 19
CORE LABORATORIES N.V.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company may from time to time be subject to legal proceedings and
claims that arise in the ordinary course of its business. Management believes
that the outcome of these legal actions will not have a material adverse effect
upon the consolidated financial position or future results of operations of the
Company.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
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.
None
17
<PAGE> 20
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: November 15, 1999 By: /s/ Randall D. Keys
-------------------------------------
Randall D. Keys
Chief Financial Officer
18
<PAGE> 21
EXHIBIT INDEX
<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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,280
<SECURITIES> 0
<RECEIVABLES> 109,734
<ALLOWANCES> 11,631
<INVENTORY> 25,345
<CURRENT-ASSETS> 155,636
<PP&E> 86,832
<DEPRECIATION> 23,307
<TOTAL-ASSETS> 375,754
<CURRENT-LIABILITIES> 45,918
<BONDS> 0
0
0
<COMMON> 507
<OTHER-SE> 202,864
<TOTAL-LIABILITY-AND-EQUITY> 375,754
<SALES> 218,266
<TOTAL-REVENUES> 218,266
<CGS> 179,687
<TOTAL-COSTS> 211,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,794
<INCOME-PRETAX> 1,122
<INCOME-TAX> 370
<INCOME-CONTINUING> 752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 752
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.02
</TABLE>
