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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
-----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-23718
NUMAR Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2750939
(State of Incorporation) (I.R.S. Employer
Identification Number)
508 Lapp Road
Malvern, Pennsylvania 19355
(Address and ZIP code of principal executive offices)
(610) 251-0116
(Registrant's telephone number including area code)
Not Applicable
(Former name, address or fiscal year, if changed since last report)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the Registrant's common stock, $0.01 par
value, as of June 30, 1997 was 8,415,291.
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INDEX
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<CAPTION>
Page
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ITEM 1. Financial Statements
Consolidated Balance Sheets
As of June 30, 1997 and December 31, 1996 1
Consolidated Statements of Operations 2
For the Three Months and Six Months
Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows 3
For the Six Months Ended June 30,
1997 and 1996
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
ITEM 6. Exhibits and Reports on Form 8-K 7
Signatures 8
</TABLE>
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NUMAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 4,651 $ 5,626
Accounts receivable, less allowance for doubtful accounts
of $135,000 and $90,000, respectively............................... 6,738 4,486
Inventory.............................................................. 116 219
Prepaid expenses and other current assets.............................. 641 396
------ ------
Total current assets................................................. 12,146 10,727
Well logging devices under construction and supplies...................... 4,108 3,655
Property and equipment, net............................................... 17,456 16,744
Other assets, net......................................................... 738 703
------ ------
Total assets......................................................... $34,448 $31,829
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of loans payable....................................... $ 65 $ 76
Accounts payable....................................................... 1,086 961
Accrued expenses....................................................... 1,985 1,998
Deferred revenue....................................................... 3,291 3,167
Taxes payable.......................................................... 399 391
------ ------
Total current liabilities............................................ 6,826 6,593
Deferred revenue.......................................................... 6,680 5,977
Loans payable............................................................. 97 129
Stockholders' equity:
Common shares; par value $.01 per share; authorized,
50,000,000 shares; issued and outstanding 8,415,291
and 8,389,653, respectively......................................... 84 84
Additional paid-in capital.............................................. 56,697 56,457
Accumulated deficit..................................................... (35,936) (37,411)
------ ------
Total stockholders' equity........................................... 20,845 19,130
------ ------
Total liabilities and stockholders' equity........................... $34,448 $31,829
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
1
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NUMAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share data)
<TABLE>
<CAPTION>
for the three months ended for the six months ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue............................................ $ 6,190 $ 4,106 $ 12,738 $ 7,079
Cost of sales and services......................... 3,472 2,758 7,078 4,899
Depreciation of field assets....................... 1,211 933 2,269 1,845
--------- --------- --------- ---------
Gross profit................................... 1,507 415 3,391 335
General and administrative expenses................ 377 412 736 790
Research and development expenses.................. 616 503 1,203 973
--------- --------- --------- ---------
Income (loss) from operations.................. 514 (500) 1,452 (1,428)
Other income (expense):
Interest income.................................. 66 84 138 158
Interest expense................................. (5) (8) (11) (15)
--------- --------- --------- ---------
Income (loss) before income tax............ 575 (424) 1,579 (1,285)
Income tax expense................................ 23 84 104 68
--------- --------- --------- ---------
Net income (loss).......................... $ 552 $ (508) $ 1,475 $ (1,353)
========= ========= ========= =========
Net income (loss) per share................ $ .06 $ (.06) $ .17 $ (.16)
========= ========= ========= =========
Weighted average common shares outstanding......... 8,844,180 8,308,887 8,399,447 8,291,174
</TABLE>
See accompanying notes to consolidated financial statements.
2
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NUMAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
for the six months ended
June 30,
----------------
1997 1996
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(Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)...................................... $ 1,475 $(1,353)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization.................... 2,423 2,068
Provision for doubtful accounts.................. 45 ---
Changes in assets and liabilities which
provided (used) cash:
Receivables - trade.............................. (2,297) 417
Inventory........................................ 103 ---
Prepaid expenses and other current assets........ (245) (146)
Other assets..................................... (57) (102)
Accounts payable................................. (54) 178
Accrued expenses................................. (108) 122
Deferred revenue................................. 827 2,192
Foreign taxes payable............................ 8 (34)
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Net cash provided by operating activities.......... 2,120 3,342
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Cash flows from investing activities:
Capital expenditures................................... (3,411) (4,198)
Proceeds from disposition of property and
equipment............................................. 119 561
------- -------
Net cash used in investing activities.................. (3,292) (3,637)
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Cash flows from financing activities:
Proceeds from (repayment of) bank debt and term
loans................................................. (43) 1
Payment of employee subscription receivables........... --- 26
Proceeds from issuing common shares.................... 240 500
------- -------
Net cash provided by financing activities.......... 197 527
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Cash and cash equivalents:
Net increase (decrease) in cash........................ (975) 232
Balance, beginning of period........................... 5,626 6,323
------- -------
Balance, end of period................................. $ 4,651 $ 6,555
======= =======
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest............................................. 8 12
Income taxes......................................... 140 15
Accounts payable on well logging devices under
construction and supplies....................... 470 439
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NUMAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments which are, in the opinion of management, necessary to fairly present
such information. All such adjustments were normal and recurring in nature.
Although the Company believes the disclosures are adequate to make the
information presented not misleading, certain information and footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in Form 10-K filed with the
Securities and Exchange Commission on March 26, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings per Share". The Company
does not expect the adoption of this statement to have a significant impact on
the Company's financial statements.
(2) Other Events
On June 9, 1997, NUMAR entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among NUMAR, Halliburton Company ("Halliburton") and
Halliburton M.S. Corp., a wholly-owned subsidiary of Halliburton
("Acquisition").
Pursuant to the Merger Agreement, Acquisition will merge with and into
NUMAR, which is the surviving entity in the merger, and each share of NUMAR will
be converted into 0.4832 of one share of common stock of Halliburton. Following
the merger, the separate existence of Acquisition will cease, and NUMAR will
continue as the surviving corporation under Pennsylvania law as a wholly-owned
subsidiary of Halliburton.
The proposed merger is subject to the approval of NUMAR's shareholders and
Hart-Scott-Rodino antitrust clearance. The merger will be structured as a
pooling of interests, and for federal income tax purposes, as a tax-free
exchange to NUMAR shareholders. The companies anticipate completion of the
acquisition during the third quarter of 1997.
As of June 30, 1997, prepaid expenses and other current assets include
approximately $267,000 of deferred acquisition costs relating to the proposed
merger.
(3) Well Logging Devices Under Construction and Supplies
Well logging devices under construction and supplies as of June 30, 1997
and December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
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<S> <C> <C>
Supplies and components........... $3,135 $3,073
Work-in-process .................. 973 582
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$4,108 $3,655
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</TABLE>
4
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(4) Property and Equipment
Property and equipment as of June 30, 1997 and December 31, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
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<S> <C> <C>
MRIL tools and related equipment... $ 27,096 $ 24,677
Research equipment................. 705 705
Computer equipment................. 1,717 1,364
Other equipment and fixtures....... 2,455 2,402
-------- --------
31,973 29,148
Less accumulated depreciation...... (14,517) (12,404)
-------- --------
$ 17,456 $ 16,744
======== ========
</TABLE>
Depreciation expense (in thousands) for the six months ended June 30, 1997
and June 30, 1996 was $2.4 million and $2.0 million, respectively.
(5) Other Assets
Other assets as of June 30, 1997 and December 31, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
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<S> <C> <C>
Patent costs and trademarks.............. $ 759 $ 702
Equipment deposits....................... 33 48
Other.................................... 91 76
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883 826
Less accumulated amortization ........... (145) (123)
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$(738) $ 703
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(6) Deferred Revenue
NUMAR has entered into revenue-sharing agreements with two wireline service
companies, whereby NUMAR supplies these companies with certain MRIL equipment.
NUMAR retains ownership of all equipment provided under these agreements. In
consideration for entering into these contracts, NUMAR receives non-refundable
advances, based on equipment ordered by the wireline companies and records these
advances as deferred revenue. In addition, NUMAR sells certain equipment to
these wireline companies and receives funds in advance of deliveries. These
funds so received are recorded as advances or deferred revenue.
<TABLE>
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Balance of deferred revenue
at December 31, 1996 ........................ $ 9,144
Less amount recognized ........................... (2,430)
Plus funds received for additional equipment...... 3,257
-------
Balance of deferred revenue at June 30, 1997 ..... $ 9,971
=======
</TABLE>
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Management's discussion and analysis is the Company's analysis of its
financial performance and of significant trends which may impact its future
performance. It should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto.
Results of Operation
Revenue. Revenue for the second quarter of fiscal 1997 was $6.2 million,
an increase of 51% compared to revenue of $4.1 million in the second quarter of
1996. Revenue from wireline logging for the second quarter of 1997 was $4.8
million, compared to $3.0 million for the same period in 1996, an increase of
61%. Within this increase of revenue from wireline logging, domestic revenue
increased by 81%, international revenue increased by 25%, and wireline logging
revenue from industry partners increased by 64%. Other revenue for the second
quarter of 1997 was $1.4 million compared to $1.1 million in 1996 due to
increased sales to industry partners.
Revenue for the first half of 1997 was $12.7 million, an increase of 80%
compared to revenue of $7.1 million in the first half of 1996. Total revenue
from wireline logging for the first half of 1997 was $9.7 million compared to
revenue of $5.6 million for the same period in 1996, an increase of 71%. Within
this increased from wireline logging, domestic revenue increased by 94%,
international revenue increased by 13%, and logging revenue from industry
partners increased by 85%. Other revenue for the first half of 1997 was $3.1
million, compared to $1.4 million in the first half of 1996. The increase was
due to increased sales to industry partners.
Cost of sales and services. Cost of sales and services for the second
quarter increased from $2.8 million in 1996 to $3.5 million in 1997. Included
in cost of sales and services in the second quarter of 1997 is $527,000 of cost
of sales primarily the cost of the two MRIL units sold to industry partners.
Cost of sales in the second quarter of 1996 was $545,000. Cost of sales and
services increased, exclusive of cost of goods sold, by 33%. This compares
favorably to an increase in revenues from wireline logging of 61%. Cost of
sales and services, other than the costs of sales, is primarily for the support
of wireline logging revenues. In that a large portion of the costs are fixed,
there is significant leverage associated with volume increases.
Cost of sales and services for the first half of the year increased from
$4.9 million in 1996 to $7.1 million in 1997. Included in cost of sales and
services in the first half of 1997 was $1.1 million of costs of sales, primarily
the cost of four MRIL units sold to industry partners. Cost of sales in the
first half of 1996 was $602,000. Cost of sales and services exclusive of cost
of goods sold increased by 38%. This compares to an increase in revenues from
wireline logging of 71%.
Depreciation of field assets. Depreciation of field assets in the second
quarter and the first half of 1997 was $1.2 million and $2.3 million,
respectively. This compares to $933,000 and $1.8 million for the same periods
in 1996, increases of 30% and 23%, respectively. This compares favorably to an
increase in wireline logging revenue of 57% for the second quarter of 1997 and
62% for the first half of 1997. The higher depreciation is attributable to
additional MRIL units in services with NUMAR and industry partners.
Gross profit. Gross profit for the second quarter and first half of 1997
was $1.5 million and $3.4 million, respectively, compared to gains of $415,000
and $335,000, respectively, for the same periods in 1996. This is a result of
the higher rate of revenue growth compared to the growth of the cost of sales
and services and the cost of depreciation of field assets.
General and administrative expenses. General and administrative expenses
decreased slightly during the first half of 1997 compared to the first half of
1996. For the balance of the year, general and administrative expenses are
expected to increase compared to the prior year but at a rate significantly less
than expected revenue increases.
6
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Research and development expenses. Research and development expenses in the
second quarter and first half of 1997 were $616,000 and $1.2 million,
respectively, compared to $503,000 and $973,000 for the same periods in 1996,
increases of 22% and 24%. Research and development expenses will continue to
exceed 1996 expenses as the MRIL FEWD development project and other research
projects accelerate. The rate of increase is expected to be well below revenue
increases.
Interest income. Interest income for the second quarter and first half of
1997 was $66,000 and $138,000, respectively, compared to $84,000 and $158,000 in
the comparable periods of 1996. Reduced interest was due to having less funds
to invest.
Income tax expense. Income tax expense for the second quarter and first
half of 1997 was $23,000 and $104,000, respectively, compared to expenses of
$84,000 and $68,000 for the comparable periods in 1996. In the second quarter
of 1997, NUMAR made certain year-to-date favorable adjustments to taxes accrued
on foreign earnings as the tax situation in certain countries became clearer.
During 1997, as NUMAR earns profits in the United States, there will be a
minimum tax expense of approximately 2% for federal income taxes as well as
Pennsylvania state taxes.
Net income (loss). Net income for the second quarter and first half of
1997 was $552,000 and $1.5 million, respectively, as compared to a net loss of
$508,000 for the second quarter of 1996 and a net loss of $1.4 million for the
first half of 1996. This was the result of revenues increasing at a rate
substantially higher than related expenses.
Financial condition and liquidity. As of June 30, 1997, the Company had
cash on hand of $4.7 million and less than $200,000 of loans outstanding. The
Company believes that the cash on hand, contractual payments due from industry
partners during the balance of the year, and a $3.0 million bank line of credit
will be sufficient to fund its operations and anticipated growth through the
balance of 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) A report on Form 8-K was filed on June 9, 1997 relating to the
registrant's proposed acquisition by Halliburton Company.
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUMAR Corporation
By: /s/ Edward P. Delson
---------------------------
Edward P. Delson
Senior Vice President and
Chief Financial Officer
8
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,651,000
<SECURITIES> 0
<RECEIVABLES> 6,873,000
<ALLOWANCES> 135,000
<INVENTORY> 116,000
<CURRENT-ASSETS> 12,146,000
<PP&E> 31,973,000
<DEPRECIATION> 14,517,000
<TOTAL-ASSETS> 34,448,000
<CURRENT-LIABILITIES> 6,826,000
<BONDS> 0
0
0
<COMMON> 84,000
<OTHER-SE> 20,761,000
<TOTAL-LIABILITY-AND-EQUITY> 34,448,000
<SALES> 1,199,189
<TOTAL-REVENUES> 6,190,000
<CGS> 527,040
<TOTAL-COSTS> 4,683,000
<OTHER-EXPENSES> 993,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> 575,000
<INCOME-TAX> 23,000
<INCOME-CONTINUING> 552,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
