<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 September 30, 2000
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 001-14273
CORE LABORATORIES N.V.
(Exact name of registrant as specified in its charter)
The Netherlands Not Applicable
(State or 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, 2000 was 31,688,698.
================================================================================
<PAGE> 2
CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at September 30, 2000 and December 31, 1999..................... 1
Consolidated Statements of Operations for the Three Months Ended
September 30, 2000 and 1999............................................................ 2
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999............................................................ 3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999............................................................ 4
Notes to Consolidated Financial Statements.................................................. 5
Item 2-- Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................ 11
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>
<PAGE> 3
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 13,828 $ 18,222
Accounts receivable, less allowance for doubtful accounts of
$9,399 and $9,845 in 2000 and 1999, respectively...................... 92,583 83,467
Inventories ................................................................ 36,290 24,735
Prepaid expenses and other.................................................. 10,093 10,325
Deferred tax asset.......................................................... 5,372 6,363
---------- ----------
Total current assets..................................................... 158,166 143,112
PROPERTY, PLANT AND EQUIPMENT, net............................................... 81,363 71,098
INTANGIBLES AND GOODWILL, net of accumulated amortization of
$13,393 and $10,122 in 2000 and 1999, respectively.......................... 147,473 151,098
OTHER LONG-TERM ASSETS........................................................... 5,706 5,943
---------- ----------
Total assets....................................................... $ 392,708 $ 371,251
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................................ $ 980 $ 1,668
Current lease obligations................................................... 291 1,372
Accounts payable............................................................ 20,138 19,629
Other accrued liabilities................................................... 18,030 27,765
---------- ----------
Total current liabilities................................................ 39,439 50,434
LONG-TERM DEBT .................................................................. 86,200 85,078
MINORITY INTEREST................................................................ 1,722 1,290
LONG-TERM LEASE OBLIGATIONS...................................................... 250 660
OTHER LONG-TERM LIABILITIES...................................................... 21,714 22,250
SHAREHOLDERS' EQUITY:
Preference shares, NLG 0.03 par value; 3,000,000 shares authorized,
no shares issued or outstanding......................................... -- --
Common shares, NLG 0.03 par value; 100,000,000 shares authorized,
31,682,273 and 30,688,250 issued and outstanding
at September 30, 2000 and December 31, 1999, respectively............... 527 515
Additional paid-in capital.................................................. 181,815 162,067
Retained earnings........................................................... 61,041 48,957
---------- ----------
Total shareholders' equity.............................................. 243,383 211,539
---------- ----------
Total liabilities and shareholders' equity......................... $ 392,708 $ 371,251
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<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,
-----------------------------
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
SERVICES........................................................................ $ 62,908 $ 65,613
SALES........................................................................... 22,069 15,326
----------- ------------
84,977 80,939
OPERATING EXPENSES:
Cost of services............................................................ 48,634 50,655
Cost of sales............................................................... 18,234 11,898
General and administrative expenses ........................................ 3,441 2,980
Depreciation and amortization............................................... 3,786 4,217
Goodwill amortization....................................................... 1,033 1,023
Other (income) expense, net................................................. (374) 413
------------- -------------
74,754 71,186
INCOME BEFORE INTEREST EXPENSE
AND INCOME TAX EXPENSE.................................................... 10,223 9,753
INTEREST EXPENSE................................................................. 2,062 2,311
------------- -------------
INCOME BEFORE INCOME TAX EXPENSE................................................. 8,161 7,442
INCOME TAX EXPENSE............................................................... 2,448 2,384
------------- -------------
NET INCOME....................................................................... $ 5,713 $ 5,058
============= =============
PER SHARE INFORMATION:
BASIC EARNINGS PER SHARE.................................................... $ 0.18 $ 0.17
============= =============
WEIGHTED AVERAGE BASIC COMMON
SHARES OUTSTANDING................................................ 31,672,014 30,401,118
============= =============
DILUTED EARNINGS PER SHARE.................................................. $ 0.18 $ 0.16
============= =============
WEIGHTED AVERAGE DILUTED COMMON
SHARES OUTSTANDING................................................ 32,612,231 31,487,391
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<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,
-----------------------------
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
SERVICES........................................................................ $ 178,011 $ 187,103
SALES........................................................................... 53,879 41,100
----------- ------------
231,890 228,203
OPERATING EXPENSES:
Cost of services............................................................ 142,592 156,371
Cost of sales............................................................... 42,528 31,552
General and administrative expenses ........................................ 10,128 8,691
Depreciation and amortization............................................... 10,995 12,118
Goodwill amortization....................................................... 3,080 3,151
Write-offs and other charges................................................ - 10,670
Other income, net........................................................... (790) (872)
------------ ------------
208,533 221,681
INCOME BEFORE INTEREST EXPENSE
AND INCOME TAX EXPENSE.................................................... 23,357 6,522
INTEREST EXPENSE................................................................. 6,094 6,044
------------- -------------
INCOME BEFORE INCOME TAX EXPENSE................................................. 17,263 478
INCOME TAX EXPENSE............................................................... 5,179 86
------------- -------------
NET INCOME....................................................................... $ 12,084 $ 392
============= =============
PER SHARE INFORMATION:
BASIC EARNINGS PER SHARE.................................................... $ 0.39 $ 0.01
============= =============
WEIGHTED AVERAGE BASIC COMMON
SHARES OUTSTANDING................................................ 31,135,307 30,265,754
============= =============
DILUTED EARNINGS PER SHARE.................................................. $ 0.37 $ 0.01
============= =============
WEIGHTED AVERAGE DILUTED COMMON
SHARES OUTSTANDING................................................ 32,330,541 31,293,404
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 6
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
2000 1999
----------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income.................................................................. $ 12,084 $ 392
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................................... 10,995 12,118
Goodwill amortization................................................... 3,080 3,151
Gain on sale of fixed assets............................................ (495) (209)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.............................. (9,373) 4,562
Increase in inventories................................................. (11,555) (7,438)
Decrease in prepaid expenses............................................ 228 2,003
Increase (decrease) in accounts payable................................. 510 (4,446)
Increase (decrease) in payroll and related costs........................ (306) 5,741
Increase (decrease) in income tax payable............................... 936 (3,298)
Decrease in other accrued expenses...................................... (10,388) (5,370)
(Increase) decrease in net deferred tax asset........................... 1,129 (1,029)
Increase (decrease) in other long-term liabilities...................... 203 (27)
Other................................................................... 2,206 (2,388)
----------- -----------
Net cash provided by (used in) operating activities................ (746) 3,762
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................ (25,362) (16,618)
Acquisitions, net of cash acquired.......................................... - 3,945
Proceeds from sale of fixed assets.......................................... 2,211 776
Other ...................................................................... 508 -
----------- -----------
Net cash used in investing activities................................... (22,643) (11,897)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt.................................................. (19,445) (84,677)
Borrowings under long-term debt............................................. 20,597 102,406
Capital lease obligations, net.............................................. (1,491) (496)
Net proceeds from exercise of over-allotment................................ 17,303 -
Exercise of stock options................................................... 2,457 1,102
Other....................................................................... (426) (909)
------------ -----------
Net cash provided by financing activities............................... 18,995 17,426
----------- -----------
NET CHANGE IN CASH............................................................... (4,394) 9,291
CASH, beginning of period........................................................ 18,222 8,156
----------- -----------
CASH, end of period.............................................................. $ 13,828 $ 17,447
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<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 the Company and have been prepared in accordance with United States
("U.S.") generally accepted accounting principles ("GAAP") 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 GAAP for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. Balance sheet information as of December 31, 1999
was derived from the 1999 annual audited financial statements and has been
restated to reflect acquisitions accounted for as poolings-of-interests (see
Note 2). These financial statements should be read in conjunction with the
financial statements and the summary of significant accounting policies and
notes thereto included in the Company's Form 10-K/A for the year ended December
31, 1999.
Recent Pronouncements
In June 1998, Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities," was
issued and was subsequently amended by SFAS No. 137, which delayed its effective
date. In June 2000, SFAS No. 138 which amended SFAS No. 133 with regards to
specific hedging risks and derivative instruments was issued. SFAS No. 133
will be effective for fiscal years beginning after June 15, 2000, and
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts). The
Company does not enter, or intend to enter, into derivative instruments.
Accordingly, adoption of SFAS No. 133 is not expected to have an impact on the
Company's financial position or operational results.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition in financial statements and requires disclosure of a company's
revenue recognition policy. An amendment in June 2000 delayed the effective date
until the fourth quarter of 2000. The Company does not believe that the adoption
of SAB 101 will have a material impact on the Company's financial position or
operational results.
2. ACQUISITIONS
Production Enhancement Corporation Acquisition
On June 20, 2000, the Company acquired all of the outstanding shares of
Production Enhancement Corporation ("PENCOR"), a privately held company based in
<PAGE> 8
Broussard, Louisiana. PENCOR provides fluid phase behavior services used to
characterize crude oils, natural gases and other reservoir fluids. The Company
issued approximately 275,000 shares, with an estimated market value of $6.1
million, in exchange for all of the outstanding shares of PENCOR and assumed
approximately $2.5 million in debt. The transaction was accounted for using the
pooling-of-interests method of accounting. Accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the date of acquisition to include the financial position and results of
operations of PENCOR.
TomoSeis Corporation Acquisition
On January 12, 2000, the Company acquired all of the outstanding shares of
TomoSeis Corporation ("TomoSeis"), a privately held company based in Houston,
Texas. TomoSeis provides detailed reservoir imaging services that are a
component of timelapse (4D) seismic and reservoir monitoring programs. The
Company issued approximately 232,000 shares, with an estimated market value of
$3.8 million, and assumed outstanding stock options exercisable for
approximately 396,000 of the Company's common shares. Proceeds from the exercise
of these stock options would be approximately $2.1 million. The transaction was
accounted for using the pooling-of-interests method of accounting. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the date of acquisition to include the financial position and
results of operations of TomoSeis.
3. INVENTORIES
Inventories consist primarily of materials and supplies used for sales or
services provided to customers. Inventories are stated at the lower of average
or standard cost (including direct material, labor and overhead) or estimated
net realizable value, if lower, and are reflected net of valuation reserves of
$1,235,000 and $1,258,000 at September 30, 2000 and December 31, 1999,
respectively. Inventories consisted of the following (in thousands):
September 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
Finished goods................ $ 25,724 $ 17,051
Parts and materials........... 7,636 6,494
Work in process............... 2,930 1,190
----------------- -----------------
Total......... $ 36,290 $ 24,735
================= =================
<PAGE> 9
4. INTANGIBLES AND GOODWILL
Intangibles include patents, trademarks, service marks and trade names.
Goodwill represents the excess of purchase price over the fair market value of
the net assets acquired in acquisitions accounted for as purchases. Intangibles
and goodwill are amortized using the straight-line method over their estimated
useful lives. The Company believes that there have been no events or
circumstances that warrant revision to the remaining useful lives or which
affect the recoverability of intangibles and goodwill. The components of
intangibles and goodwill are as follows (in thousands):
Intangibles and Goodwill
<TABLE>
<CAPTION>
ORIGINAL
LIFE SEPTEMBER 30, DECEMBER 31,
IN YEARS 2000 1999
--------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Acquired trade secrets........................... 5 $ 48 $ 48
Acquired patents, trademarks and trade names..... 10-20 2,014 1,590
Acquired trade name.............................. 40 4,614 4,614
Acquired source technology....................... 15 277 277
------------ ------------
Total intangibles....................... 6,953 6,529
------------ ------------
Goodwill......................................... 5-10 2,404 2,404
Goodwill......................................... 20 3,739 4,517
Goodwill......................................... 40 147,770 147,770
------------ ------------
Total goodwill.......................... 153,913 154,691
------------ ------------
Total intangibles and goodwill..... 160,866 161,220
Less - accumulated amortization.................. 13,393 10,122
------------ ------------
Net intangibles and goodwill.. $ 147,473 $ 151,098
============ ============
</TABLE>
5. LONG-TERM DEBT
Long-term debt is summarized in the following table (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Senior Notes.......................................... $ 75,000 $ 75,000
Credit Facility with a bank group..................... 11,000 7,000
Debt assumed from acquired companies.................. 219 3,418
Loan notes............................................ 892 989
Other indebtedness.................................... 69 339
----------------- -----------------
Total debt................................... 87,180 86,746
Less - current maturities............................. 980 1,668
----------------- -----------------
Total long-term debt......................... $ 86,200 $ 85,078
================= =================
</TABLE>
In July 1999, the Company entered into a $100 million 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, 2000, approximately $89 million was
available for borrowing under the Credit Facility. Loans under the Credit
<PAGE> 10
Facility bear interest at rates which range from LIBOR plus 1.25% to a maximum
of LIBOR plus 1.75%. The interest rate in effect at September 30, 2000 was 7.89%
and the average for 2000 has been 8.14%. The Credit Facility has no scheduled
principal payments prior to its 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 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.
6. STOCK OFFERING
On May 31, 2000, the Company completed a public offering in which certain
shareholders of the Company sold 4,644,988 of their common shares. In connection
with the offering, on June 16, 2000, the underwriters exercised their
over-allotment option and purchased 696,748 common shares from the Company,
which resulted in net proceeds of $17.3 million. The Company used these proceeds
principally to reduce indebtedness and fund capital expenditures.
7. WRITE-OFFS AND RESTRUCTURING CHARGES
Write-offs and Other Charges
In the first quarter of 1999, the Company recorded write-offs and other
charges totaling $10.7 million. This amount included $4.4 million of asset
write-offs, $2.6 million related to facility closures and personnel reductions,
and $3.7 million associated with the termination of the proposed acquisition of
GeoScience Corp. The asset write-offs consisted primarily of uncollectible
accounts receivable in the former Soviet Union and other Eastern Hemisphere
locations, due to economic instability in the region, as well as adjustments to
the net realizable value of certain inventory and other current asset amounts.
The facility closures consisted primarily of the shutdown of the Company's
environmental testing laboratory in Edison, New Jersey, the Saybolt Western
Hemisphere administrative office and a substantial reduction in the Company's
Venezuelan work force. These actions, which affected a total of 47 employees,
were substantially complete as of April 30, 1999. The termination settlement
included the forgiveness of $3.0 million in working capital advances made by the
Company to GeoScience Corp.
Restructuring Charges
In the fourth quarter of 1999, the Company recorded a $7.0 million charge
to cover the cost of exiting redundant facilities and restructuring certain of
the Company's operations. This charge affected each of our operating segments as
follows: Reservoir Description - $2.8 million; Production Enhancement - $1.9
million; Reservoir Management - $2.3 million. The Company combined personnel and
equipment from eight facilities into one Houston facility. No operations were
discontinued. Related charges include severance of approximately 100 field and
administrative employees, the accrual of future lease obligations and facility
restoration costs and the write-off of redundant fixed assets and leasehold
improvements. Substantially all such employees had been terminated as of June
<PAGE> 11
30, 2000. The Company also reorganized its operations in Canada and Mexico,
consolidated certain service lines and is further centralizing its operations in
Latin America, Europe and the Asia-Pacific region. This charge is summarized in
the following table (in thousands):
Restructuring Charges
<TABLE>
<CAPTION>
Asset
Lease Write-
Obligations Severance Restoration offs(a) Other Total
----------- --------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total restructuring charges............. $ 2,983 $ 879 $ 786 $ 2,080 $ 308 $ 7,036
Less: Costs incurred through
December 31, 1999.............. 515 445 28 2,080 124 3,192
------- ------- ------- ------- ------- -------
Accrual remaining....................... 2,468 434 758 - 184 3,844
Less: Costs incurred through
September 30, 2000............. 1,325 434 646 - 184 2,589
------- ------- ------- ------- ------- -------
Accrual remaining....................... $ 1,143 $ - $ 112 $ - $ - $ 1,255
======= ======= ======= ======= ======= =======
</TABLE>
(a) The fixed assets and leasehold improvements relating to the Houston
consolidation were disposed of or abandoned by the end of June 2000. The
write-off approximates the carrying amount as these assets no longer have value
and have been abandoned or sold for salvage value. Depreciation expense will be
reduced by $490 in 2000, $333 in 2001 and $342, thereafter. Also included in
this amount were $915 of working capital write-offs relating to the
restructuring of foreign operations. The asset write-offs attributable to each
segment were as follows: Reservoir Description - $1,176; Production Enhancement
- $346; Reservoir Management - $558.
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 oil and gas recovery from new and existing fields.
o Reservoir Description: Encompasses the characterization of petroleum
reservoir rock, fluid and gas samples, including crude oil and
derivative products.
o Production Enhancement: Includes products and services relating to
reservoir well completions, perforations, stimulations and production.
o Reservoir Management: Combines and integrates information from
reservoir description and production enhancement services to increase
production and improve recovery of oil and gas from our clients'
reservoirs.
Segment Analysis
The Company manages these segments separately due to the different
technologies each segment utilizes and requires. Results of these segments are
presented below using the same accounting policies as those used to prepare the
Consolidated 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 (in thousands):
<PAGE> 12
Segment Analysis
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999 (a)
-------------- -------------- -------------- --------------
(Unaudited)
Revenues:
<S> <C> <C> <C> <C>
Reservoir Description....................... $ 45,774 $ 51,681 $ 133,290 $ 145,798
Production Enhancement...................... 27,469 17,187 66,566 46,883
Reservoir Management........................ 11,734 12,071 32,034 35,522
-------------- -------------- -------------- --------------
Consolidated.......................... $ 84,977 $ 80,939 $ 231,890 $ 228,203
============== ============== ============== ==============
<CAPTION>
Income (Loss) Before Interest and Taxes:
<S> <C> <C> <C> <C>
Reservoir Description....................... $ 5,761 $ 7,010 $ 14,702 $ 6,640
Production Enhancement...................... 4,427 2,419 10,879 5,754
Reservoir Management........................ 62 100 (2,549) (2,928)
Corporate and Other......................... (27) 224 325 (2,944)
-------------- -------------- -------------- --------------
Consolidated.......................... $ 10,223 $ 9,753 $ 23,357 $ 6,522
============== ============== ============== ==============
</TABLE>
(a) The income (loss) before interest and taxes for each segment for the nine
months ended September 30, 1999 have been reduced by write-offs and other
charges totaling $10,670. The amounts attributable to each segment were as
follows: Reservoir Description - $5,589; Production Enhancement - $956;
Reservoir Management - $429. Corporate and other includes $3,696 of merger
termination costs related to the proposed GeoScience acquisition. See Note 7 for
additional information. "Corporate and Other" represents those items that are
not directly related to a particular segment.
9. EARNINGS PER SHARE
The Company presents earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which
requires dual presentation of both basic and diluted earnings per share on the
Consolidated Statement of Operations. Basic earnings per common share is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share reflects the net additional shares which would be issued if all
dilutive stock options outstanding were exercised.
The following table summarizes the calculation of weighted average common
shares outstanding used in the computation of earnings per share:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average basic common
shares outstanding....................... 31,672,014 30,401,118 31,135,307 30,265,754
Effect of dilutive stock options............ 940,217 1,086,273 1,195,234 1,027,650
-------------- -------------- -------------- --------------
Weighted average diluted
common shares outstanding................ 32,612,231 31,487,391 32,330,541 31,293,404
============== ============== ============== ==============
</TABLE>
<PAGE> 13
CORE LABORATORIES N.V.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This discussion includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based the forward-looking statements relating to
our operations on our current expectations, estimates and projections. We
caution you that these statements are not guarantees of future performance and
involve risks and uncertainties that we cannot predict. In addition, we have
based many of these forward-looking statements on assumptions about future
events that may prove to be inaccurate. Accordingly, our actual outcomes and
results may differ materially from what we have expressed or forecast in the
forward-looking statements. The Company's operations are subject to various risk
and other factors including, but not limited to:
o the Company's ability to continue to develop or acquire new and useful
technology.
o the realization of anticipated synergies from acquired businesses and
future acquisitions.
o the Company's dependence on one industry, oil and gas, and the impact
of commodity prices on the expenditure levels of our customers.
o competition in the Company's markets.
o the risks and uncertainties attendant to adverse industry, political,
economic and financial market conditions, including stock prices,
government regulations, interest rates and credit availability.
Core Laboratories 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. These services are directed
toward enabling our clients to improve reservoir performance and increase oil
and gas recovery from their producing fields. We have over 70 offices in more
than 50 countries and have approximately 3,750 employees. We provide our
services to the world's major, national and independent oil companies.
Results of Operations
Service revenues for the third quarter of 2000 decreased $2.7 million, or
4%, from the same period last year. Service revenues for the nine months ended
September 30, 2000 decreased $9.1 million, or 5%, compared to the same period
last year. Included in the three and nine month periods ended September 30,
1999, were $6.7 million and $17.9 million, respectively, of revenues
attributable to our environmental testing assets which were sold at the end of
the third quarter of 1999. Excluding these revenues, total service revenues
increased $3.9 million, or 7%, for the third quarter of 2000, and $8.8 million,
or 5%, for the nine months ended September 30, 2000, compared to the same
periods last year. This increase was due to improved industry conditions in the
United States as well as continued expansion into new markets in the former
Soviet Union, coupled with the expansion of several deepwater projects in the
Gulf of Mexico.
<PAGE> 14
Cost of services expressed as a percentage of service revenue were 77% and
80%, respectively, for the three and nine month periods ended September 30, 2000
compared to 77% and 84% for the comparable periods in 1999. The Company's
restructuring plan of consolidating offices and reducing personnel, together
with an improving industry environment, helped improve our service margins.
Sales revenues for the third quarter of 2000 increased $6.7 million, or
44%, to $22.1 million from the same period in the prior year. Sales revenues for
the nine months ended September 30, 2000 increased $12.8 million, or 31%, to
$53.9 million compared to the same period in the prior year. The increased
demand for our well completion and stimulation technologies, which began in the
latter part of 1999, continued through the third quarter of 2000.
Cost of sales in the third quarter of 2000 increased $6.3 million to 83% of
sales revenue as compared to 78% in the same period last year. For the nine
months ended September 30, 2000, cost of sales increased $11.0 million to 79% of
sales revenues compared to 77% for the same period in 1999. The increase in cost
of sales was primarily due to the completion of a higher percentage of North
American projects with lower margins as well as higher expenses associated with
the expansion of well completion technologies in Canada and the Asia Pacific
region.
General and administrative expenses are comprised of corporate management
and centralized administrative and marketing services which benefit our
operating subsidiaries. General and administrative expenses for the three and
nine month periods ended September 30, 2000 increased $0.5 million, and $1.4
million, respectively, as compared to the corresponding periods in 1999. The
increase was primarily a result of higher personnel, information systems and
marketing costs incurred to improve our efficiencies and provide additional
services to our operating subsidiaries. General and administrative expenses as a
percentage of revenues remained below 5% of revenues for all periods.
Depreciation and amortization expense decreased $0.4 million and $1.1
million, respectively, for the three and nine month periods ended September 30,
2000 compared to the same periods in 1999. Although we had $25.4 million of
capital expenditures in the nine month period ended September 30, 2000, the
additional depreciation expense relating to these capital expenditures was more
than offset by the effect of the depreciation attributable to assets which had
become fully depreciated in 1999 and our environmental testing assets which were
sold in the third quarter of 1999.
In the first quarter of 1999, the Company recorded write-offs and other
charges totaling $10.7 million. This amount included $4.4 million of asset
write-offs, $2.6 million related to facility closures and personnel reductions,
and $3.7 million associated with the termination of the proposed acquisition of
GeoScience Corp. The asset write-offs consisted primarily of uncollectible
accounts receivable in the former Soviet Union and other Eastern Hemisphere
locations, due to economic instability in the region, as well as adjustments to
net realizable value of certain inventory and other current asset amounts. The
facility closures consisted primarily of the shutdown of the Company's
environmental testing laboratory in Edison, New Jersey, the Saybolt Western
Hemisphere administrative office and a substantial reduction in the Company's
Venezuelan work force. These actions, which affected a total of 47 employees,
were substantially complete as of April 30, 1999. The termination settlement
included the forgiveness of $3.0 million in working capital advances made by the
Company to GeoScience Corp.
In the fourth quarter of 1999, the Company recorded a $7.0 million charge
to cover the cost of exiting redundant facilities and restructuring certain of
<PAGE> 15
the Company's operations. This charge affected each of our operating segments as
follows: Reservoir Description - $2.8 million; Production Enhancement - $1.9
million; Reservoir Management - $2.3 million. The Company combined personnel and
equipment from eight facilities into one Houston facility. No operations were
discontinued and the Company expects its revenues to be largely unaffected by
this facility consolidation. The move was completed in the second quarter of
2000. Related charges include severance for approximately 100 field and
administrative employees, the accrual of future lease obligations and facility
restoration costs and the write-off of redundant fixed assets and leasehold
improvements. Substantially all of these employees had been terminated as of
June 30, 2000. The Company also reorganized its operations in Canada and Mexico,
consolidated certain service lines and is further centralizing its operations in
Latin America, Europe and the Asia-Pacific region. Cash required for the costs
incurred through September 30, 2000 of $3.7 million, excluding asset write-offs,
was funded from operating activities. The Company anticipates that the remaining
costs will also be funded through cash from operating activities. This charge is
summarized in the following table (in thousands):
Restructuring Charges
<TABLE>
<CAPTION>
Asset
Lease Write-
Obligations Severance Restoration offs(a) Other Total
----------- --------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total restructuring charges............. $ 2,983 $ 879 $ 786 $ 2,080 $ 308 $ 7,036
Less: Costs incurred through
December 31, 1999.............. 515 445 28 2,080 124 3,192
------- ------- ------- ------- ------- -------
Accrual remaining....................... 2,468 434 758 - 184 3,844
Less: Costs incurred through
September 30, 2000............. 1,325 434 646 - 184 2,589
------- ------- ------- ------- ------- -------
Accrual remaining....................... $ 1,143 $ - $ 112 $ - $ - $ 1,255
======= ======= ======= ======= ======= =======
</TABLE>
(a) The fixed assets and leasehold improvements related to the Houston
consolidation were disposed of or abandoned by the end of June 2000. The
write-off approximates the carrying amount as these assets no longer have value
and have been abandoned or sold for salvage value. Depreciation expense will be
reduced by $490 in 2000, $333 in 2001 and $342 thereafter. Also included in this
amount were $915 of working capital write-offs related to the restructuring of
foreign operations. The asset write-offs attributable to each segment were as
follows: Reservoir Description - $1,176; Production Enhancement - $346;
Reservoir Management - $558.
The Company's effective income tax rate was approximately 30% for the three
months and nine months ended September 30, 2000 as compared to 32% and 18% for
the three months and nine months ended September 30, 1999, respectively. The 32%
rate for the three months is the result of losses generated without tax benefit
in pre-acquisition accounting for companies accounted for as
pooling-of-interests. The 18% for the nine months reflects the utilization of
un-benefited tax losses in pre-acquisition accounting for companies accounted
for as pooling-of-interests.
<PAGE> 16
Segment Analysis
(in thousands)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999 (a)
-------------- -------------- -------------- --------------
(Unaudited)
Revenues:
<S> <C> <C> <C> <C>
Reservoir Description....................... $ 45,774 $ 51,681 $ 133,290 $ 145,798
Production Enhancement...................... 27,469 17,187 66,566 46,883
Reservoir Management........................ 11,734 12,071 32,034 35,522
-------------- -------------- -------------- --------------
Consolidated.......................... $ 84,977 $ 80,939 $ 231,890 $ 228,203
============== ============== ============== ==============
<CAPTION>
Income (Loss) Before Interest and Taxes
and Unusual Charges:
<S> <C> <C> <C> <C>
Reservoir Description....................... $ 5,761 $ 7,010 $ 14,702 $ 12,229
Production Enhancement...................... 4,427 2,419 10,879 6,710
Reservoir Management........................ 62 100 (2,549) (2,499)
Corporate and Other......................... (27) 224 325 752
-------------- -------------- -------------- --------------
Consolidated.......................... $ 10,223 $ 9,753 $ 23,357 $ 17,192
============== ============== ============== ==============
</TABLE>
(a) The income (loss) before interest and taxes for the nine months ended
September 30, 1999 exclude unusual charges totaling $10,670. The amounts
attributable to each segment were as follows: Reservoir Description - $5,589;
Production Enhancement - $956; Reservoir Management - $429. Corporate and other
excludes $3,696 of merger termination costs related to the proposed GeoScience
acquisition. "Corporate and Other" represents those items that are not directly
related to a particular segment.
Reservoir Description
Revenues for the Reservoir Description segment were $45.8 million for the
third quarter of 2000 compared to $51.7 million in the third quarter of 1999.
Revenues for the nine month period ended September 30, 2000 were $133.3 million
compared to $145.8 million in the same period last year. Included in the three
and nine month periods ended September 30, 1999 were $6.7 million and $17.9
million, respectively, of revenues attributable to our environmental testing
assets. These assets were sold at the end of the third quarter of 1999.
Income before interest, taxes and unusual charges decreased by $1.2 million
in the third quarter of 2000 but increased $2.5 million in the nine month period
ended September 30, 2000, compared to the same periods in 1999. Improved
industry conditions and expansion into new markets has driven margins of our
crude oil and petroleum characterization services.
Production Enhancement
Revenues from the Production Enhancement segment increased $10.3 million,
or 60%, to $27.5 million in the third quarter of 2000 compared to the same
period in the prior year. For the nine months ended September 30, 2000, revenues
increased $19.7 million, or 42%, to $66.6 million compared to the same period in
the prior year. These increases were due to expansion in Australia, Middle East
and Far East markets coupled with increased market acceptance of new production
technologies such as fracture diagnostics E-Span(TM) Systems Casing Patch
Technology and Perforating Technology and Prism(TM) Slickline Services.
Income before interest, taxes and unusual charges increased $2.0 million,
or 83%, to $4.4 million in the third quarter of 2000 and increased $4.2 million,
<PAGE> 17
or 62%, to $10.9 million in the nine months ended September 30, 2000, compared
to the same periods in 1999. The expansion into foreign markets as well as
higher incremental sales on our fixed cost operating structure in our U.S. based
operations resulted in the improved margins in this segment.
Reservoir Management
Revenues from the Reservoir Management segment in the third quarter of 2000
and the nine month period ended September 30, 2000 declined $0.3 million and
$3.5 million respectively for the comparable periods in 1999. The demand for
seismic-related services has not recovered in line with the general recovery in
the oil and gas industry.
Income (loss) before interest, taxes and unusual charges of $0.1 million and
($2.5) million for the three and nine month periods ended September 30, 2000,
respectively, was relatively consistent with the comparable periods in 1999 due
to reductions made by the Company in 2000 to its cost structure.
Liquidity and Capital Resources
We have historically financed our activities through cash flows from
operations, bank credit facilities, equity financing and the issuance of debt.
During the nine-month period ended September 30, 2000, the Company's
operating use of cash was $0.7 million compared to a source of cash of $3.8
million from the corresponding period in 1999. At September 30, 2000, the
Company had working capital of $118.7 million (of which $13.8 million was cash
and short-term investments) and a current ratio of 4.0 to 1.0, compared to
working capital of $92.7 million (of which $18.2 million was cash and short-term
investments) and a current ratio of 2.8 to 1.0 at December 31, 1999. The Company
is a Netherlands holding company that conducts substantially all of its
operations through subsidiaries. Consequently, the Company's cash flow is
dependent upon the ability of its subsidiaries to pay cash dividends or
otherwise distribute or advance funds to the Company.
The Company's investing activities used $22.6 million in the first nine
months of 2000 and $11.9 million in the same period in 1999. The majority of our
investing activities were comprised of capital expenditures. Cash outlays for
the facility consolidation in Houston was included in capital expenditures of
$25.4 million for the nine month period ended September 30, 2000. This facility
consolidation is expected to contribute to a reduction in annual operating
expenses.
Cash flows from financing activities provided $19.0 million in the first
nine months of 2000 and $17.4 million in the same period in 1999. On May 31,
2000, the Company completed a public offering in which certain shareholders of
the Company sold 4,644,988 of their common shares. In connection with the
offering, on June 16, 2000, the underwriters exercised their over-allotment
option and purchased 696,748 common shares from the Company, which resulted in
net proceeds of $17.3 million. The proceeds were used principally to reduce
indebtedness and fund capital expenditures. As of September 30, 2000, long-term
debt decreased $22.1 million compared to the same period in 1999.
The Company's ability to maintain and grow its operating income and cash
flows is dependent upon continued investing activities. We believe our future
cash flows from operations, supplemented by our borrowing capacity and issuances
of additional equity should be sufficient to fund debt requirements, capital
expenditures, working capital and future acquisitions.
<PAGE> 18
CORE LABORATORIES N.V.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company is exposed to market risk, which is the potential loss arising
from adverse changes in market prices and rates. The Company does not enter, or
intend to enter, into derivative financial instruments for trading or
speculative purposes. The Company's exposure to market risks, which are
primarily related to interest rate changes and fluctuations in foreign exchange
rates, have historically not been material to the Company. During 1999, the
Company issued fixed rate Senior Notes denominated in U.S. dollars. The proceeds
were used to pay off variable rate term loans. This significantly reduced the
Company's exposure to future increases in interest rates. This section should be
read in conjunction with "Note 5 - Long-Term Debt" of the Notes to Consolidated
Financial Statements.
<PAGE> 19
CORE LABORATORIES N.V.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Company from time to time is subject to legal proceedings and
claims that arise in the ordinary course of business. The Company believes that
the outcome of these legal actions will not have a material adverse effect upon
the consolidated financial position or results of operations of the Company.
Item 2. Changes in Securities.
Disclosure related to the recent issuance of common shares in connection
with acquisitions is included in Note 2 of the Notes to Consolidated Financial
Statements. With respect to the shares issued, the Company relied on exemption
from registration under Section 4 (2) of the Securities Act of 1933.
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
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<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 13, 2000 By: /s/ Randall D. Keys
-------------------------------------
Randall D. Keys
Chief Financial Officer
