Core Laboratories N.V.
Filed 3/31/99
TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File Number 0-26710
CORE LABORATORIES N.V.
(Exact name of Registrant as specified in its charter)
THE NETHERLANDS NOT APPLICABLE
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
HERENGRACHT 424
1017 BZ AMSTERDAM
THE NETHERLANDS NOT APPLICABLE
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (31-20) 420-3191
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Shares, NLG 0.03 Par Value Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
As of March 24, 1999, the number of common shares outstanding was 29,390,784.
At that date, the aggregate market value of common shares held by non-affiliates
of the registrant was approximately $544,146,859.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF 10-K
--------
1. Proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 with respect to the 1999 annual meeting of
shareholders. PART III
================================================================================
Core Laboratories N.V.
(CLB) NYSE
INDEXED 10-K
For the fiscal year ended December 31, 1998
Return to Corporate Window
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures
Financial Index
PART I
ITEM 1. BUSINESS
GENERAL
Core Laboratories N.V. (the "Company") was established in 1936 and is
one of the world's leading providers of proprietary and patented reservoir
description, production enhancement and reservoir management services and sales
for optimizing reservoir performance and maximizing hydrocarbon recovery from
new and existing fields. The Company has over 70 offices in more than 50
countries and has approximately 3,600 employees. The Company provides its
services to the world's major, national and independent oil companies.
RECENT DEVELOPMENTS
OWEN ACQUISITION
On June 30, 1998, the Company acquired all of the outstanding stock of
Owen Oil Tools, Inc. ("Owen"), a privately held company based in Texas. Owen and
its subsidiaries provide well completion and stimulation technologies to the
petroleum industry. The Company issued approximately 2,277,000 shares in
exchange for all of the outstanding shares of Owen and accounted for the
transaction using the purchase method of accounting. The transaction resulted in
an allocation of approximately $41.5 million in goodwill, which is being
amortized over a 40-year period.
PETRAK ACQUISITION
On July 31, 1998, the Company acquired all of the outstanding shares of
PETRAK Group S.A. ("Petrak"), a privately held company based in Switzerland.
Petrak specializes in characterizing reservoir fluids and their derivatives. The
Company issued approximately 263,000 shares in exchange for all of the
outstanding shares of Petrak and accounted for the transaction using the
purchase method of accounting. The transaction resulted in an allocation of
approximately $3.9 million in goodwill, which is being amortized over a 40-year
period.
JAEX ACQUISITION
On August 31, 1998, the Company acquired all of the remaining shares of
Jaex S.A. de C.V. ("Jaex"), a privately held company based in Mexico, that were
not previously acquired through its acquisition of Owen. The Company previously
owned 50.00098% of Jaex. Jaex provides well completion and stimulation
technologies to the petroleum industry. The Company issued approximately 765,000
shares in exchange for the remaining interest of Jaex and accounted for the
acquisition using the purchase method of accounting. The transaction resulted in
an allocation of approximately $9.3 million in goodwill, which is being
amortized over a 40-year period.
INTEGRA ACQUISITION
On October 28, 1998, the Company acquired all of the outstanding shares
of Integra Geoservices, Inc. ("Integra"), a privately held company based in
Canada. Integra provides specialized geophysical seismic processing services
used to characterize and describe petroleum reservoirs. The Company issued
approximately 86,000 shares in exchange for all of the outstanding shares of
Integra and accounted for the
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transaction using the purchase method of accounting. The transaction resulted in
an allocation of approximately $2.8 million in goodwill, which is being
amortized over a 40-year period.
THE ANDREWS GROUP ACQUISITION
The Company acquired all of the outstanding shares of The Andrews Group
International, Inc. and A.G.I. Mexicana, S.A. de C.V. on December 18, 1998 and
December 11, 1998, respectively (collectively referred to as the "Andrews
Group"). The Andrews Group provides specialized seismic data processing and
interpretation services, as well as other geophysical, geological and
engineering services. The Company issued approximately 715,000 shares in
exchange for all of the outstanding shares of the Andrews Group and accounted
for the transaction using the pooling-of-interests method of accounting. The
Company's consolidated financial statements have been restated for all periods
presented to include the financial position and results of operations of the
Andrews Group.
THRU-TUBING ACQUISITION
On December 30, 1998, the Company acquired all of the outstanding
shares of Thru-Tubing Technology, Inc. ("Thru-Tubing"), a privately held company
based in Louisiana. Thru-Tubing manufactures downhole remedial products which
complement Owen's well completion and stimulation technologies. The Company
issued approximately 195,000 shares in exchange for all of the outstanding
shares of Thru-Tubing and accounted for the transaction using the
pooling-of-interests method of accounting. Thru-Tubing's results of operations
for the year ended December 31, 1998 have been combined with those of the
Company. The Company's consolidated financial statements for prior years were
not restated due to immateriality.
The purchase price allocations of Owen, Petrak, Jaex, and Integra are
preliminary. As additional information concerning the value of the assets
acquired and liabilities assumed becomes known, additional adjustments may be
made to the purchase price allocations included in the accompanying financial
statements. Management believes at this time that the preliminary purchase price
allocation will not differ materially from the final allocation.
DISPOSITION OF DISCONTINUED OPERATIONS
In early 1998, the Company concluded that its package analyzer line of
business was no longer strategic and made a decision to discontinue this product
line. Subsequently, on April 8, 1998, the Company sold the majority of the net
assets of its package analyzer business line for approximately $4.1 million in
cash, resulting in a loss on sale of $1.3 million. Remaining net book value
associated with the unsold assets of the package analyzer product line totaled
approximately $3.5 million and was written down during 1998 to reflect estimated
salvage value.
The results of the package analyzer business line have been reported
separately as discontinued operations in the Consolidated Statements of
Operations. Prior year consolidated financial statements have been restated to
present the package analyzer business line as discontinued operations.
EVENTS SUBSEQUENT TO YEAR-END
ISOTAG ACQUISITION
On January 7, 1999, the Company acquired receivables and certain fixed
assets from Isotag Specialist, Inc. ("Isotag"), and its related company, Fred
Calaway and Co. Both companies are privately held and based in Texas. Isotag
provides fracture diagnostics and related services. The Company issued
approximately 33,000 shares for the assets and will accounted for the
transaction using the purchase method of accounting.
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GEOSCIENCE ACQUISITION
On January 18, 1999 the Company entered into an agreement to acquire
GeoScience Corp. for approximately $197 million in cash and stock. On March 23,
1999 the Company and GeoScience agreed to terminate the agreement. As part of
the termination, the Company agreed to pay GeoScience $3 million through the
cancellation of working capital advances previously made by the Company to
GeoScience.
BUSINESS STRATEGY
The Company's business strategy is to continue the expansion of its
operations through (i) continued development of proprietary hydrocarbon
production enhancement technologies, services and products through client-driven
research and development, (ii) expanded services and product lines offered
throughout the Company's global infrastructure, and (iii) acquisition of
complementary businesses that add key technologies or market presence and
enhance existing products and services.
DEVELOPMENT OF NEW TECHNOLOGIES, SERVICES AND PRODUCTS
The Company's research and development strategy is designed to maintain
and enhance its market leadership position in its principal businesses by
emphasizing the development of technology, services and products to meet the
needs of its customers, who are continually seeking to lower their costs of
finding, developing and producing hydrocarbons. This strategy reflects the
current industry trend towards increased utilization of advanced technologies to
enhance the efficiency of oil field development, reduce the costs associated
with production of known reserves, maximize the efficiency of secondary and
tertiary recovery techniques, and reduce finding and development costs for new
reserves. While the aggregate number of wells being drilled per year has
remained relatively constant in recent years, oil and gas producers have
increased expenditures on high-technology services that provide better reservoir
descriptions which assist them in enhancing production, and improving the
management of their reservoirs. They are also spending more on advanced
reservoir rock and fluids analysis that assist in the development of more
complete and comprehensive analyses of reservoir characteristics and hydrocarbon
fluids. The Company intends to continue concentrating its efforts on
technologies that enhance development and production efficiencies, as opposed to
technologies related to the more volatile exploration sector of the oil and gas
industry.
INTERNATIONAL EXPANSION OF SERVICES AND PRODUCTS
Another component of the Company's business strategy is to broaden the
spectrum of services and products offered to its clients internationally. The
Company plans to offer many of its services and products obtained through
acquisitions through its over 70 facilities located in more than 50 countries.
Management believes this integration will expand the markets served by Owen,
Petrak, Jaex, Integra, the Andrews Group, Thru-Tubing, and other businesses
acquired in the future.
ACQUISITIONS
The Company continually reviews potential acquisitions to add key
technologies, enhance market presence or complement existing businesses. The
Company's recent acquisitions reflect its desire to broaden the services offered
to its clients.
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IMPACT OF BUSINESS STRATEGY
The Company believes that the implementation of these strategies has
contributed to the significant increase in income from continuing operations
before interest expense and income tax to $39.8 million for the year ended
December 31, 1998, from $29.8 million for the year ended December 31, 1997.
OPERATIONS
The Company derives its revenues from services and sales to customers
primarily in the oil and gas industry.
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.
Disclosure relating to these business segments is included in the notes to the
consolidated financial statements.
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.
The Company offers its services worldwide through over 70 facilities
located in more than 50 countries. Services accounted for approximately 87%, 92%
and 91% of the Company's total revenues from continuing operations for the
fiscal years ended December 31, 1998, 1997 and 1996, respectively.
The Company currently offers its products worldwide through four
manufacturing facilities. Sales revenue accounted for approximately 13%, 8%, and
9% of the Company's total revenues from continuing operations for the fiscal
years ended December 31, 1998, 1997 and 1996, respectively.
The sales backlog at December 31, 1998 was approximately $8.6 million,
compared with $4.9 million at December 31, 1997.
RESERVOIR DESCRIPTION
Most commercial oil and gas fields consist of porous and permeable
reservoir rocks that contain natural gas, crude oil and water. Due to the
density differences of the fluids, natural gas caps the field and overlies an
oil layer, which overlies the water. The Company provides services that
characterize the porous reservoir rock and all three reservoir fluids.
The Company analyzes samples of reservoir rocks for their porosity,
which determines reservoir storage capacity, and for their permeability, which
defines the ability of the rock to permit fluid flow. These fundamental and
basic measurements are used to determine how much oil and gas are present in a
reservoir and the rates at which the hydrocarbons can be produced. Other
important data sets provided by the Company to characterize the reservoir rocks
are resistivity measurements to enhance the value of wireline data and acoustic
velocity determinations that facilitate seismic data processing and
interpretation.
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The economic value of the oilfield is the oil and natural gas that can
be recovered from the porous rock network. The Company characterizes the
properties of the oil and gas so that the maximum quantity of hydrocarbons is
mobilized in the reservoir and is produced to the surface.
The more completely oil companies understand the properties of their
oilfields' reservoir systems, the more oil and gas these fields should
ultimately produce. Incremental barrels of production generate additional cash
flow which may, in turn, be reinvested in other oil production projects.
PRODUCTION ENHANCEMENT
The Company data describing the reservoir system are used by oil
company engineers, geologists and geophysicists to enhance hydrocarbon
production so that it will exceed the 40% average oilfield recovery factor. Two
production-enhancement methods commonly used are (1) hydraulic fracturing of the
reservoir rock to improve flow and (2) flooding the field with water, carbon
dioxide, or hydrocarbon gases to force more oil and gas to the wellbore. The
Company's technologies play a key role in the success of both methods.
The hydraulic fracturing of a producing formation is achieved by
pumping a proppant material in a gel slurry into the reservoir zone at extremely
high pressures. This forces fractures to open in the rock and "props" the
fractures open so that reservoir fluids can flow to the production wellbore.
The Company data on rock type and strength are critical for determining
the proper design of the hydraulic fracturing job. In addition, the Company's
testing indicates whether the gel slurry is compatible with the reservoir fluids
so that damage does not occur to the porous rock network. In addition, the
Company's proprietary ZeroWash(TM) tracer technology is used to determine if the
proppant material was properly placed in the fracture to ensure effective flow
and increased recovery.
Many oilfields today are hydraulically fractured and flooded to
maximize hydrocarbon recovery. The Company conducts dynamic flow tests of the
reservoir fluids through the reservoir rock, at actual reservoir pressure and
temperature, to realistically simulate the actual flooding of a producing zone.
The Company uses patented technologies, such as the Company's Saturation
Monitoring by the Attenuation of X-rays (SMAX(TM)), to help design the enhanced
recovery project. After the field flood is initiated, the Company is often
involved in monitoring the progress of the flood to ensure the maximum number of
incremental barrels is produced.
RESERVOIR MANAGEMENT
Reservoir description and production enhancement data sets, when
applied across an entire oilfield, are used to maximize daily production and the
ultimate total recovery from the reservoir. The Company's teams of
geophysicists, geologists and engineers are involved in numerous large-scale
reservoir management projects, applying proprietary and state-of-the-art
techniques from the earliest phases of a field development program until the
last producible barrel of oil is recovered.
These projects are of increasing importance to oil companies,
especially when oil and natural gas prices are low. The incremental barrel,
which is the lowest cost barrel in the reservoir, is the most profitable for oil
companies. Producing incremental barrels increases our clients' cash flows which
may create future opportunities for the Company.
5
MARKETING AND SALES
The Company markets and sells its services and products through a
combination of print advertising, technical seminars, trade shows, and sales
representatives. Print advertising is placed on a regular basis in trade and
technical magazines that target the Company's customers. Direct sales and
marketing are carried out by the Company's sales force, technical experts and
operating managers, as well as by sales representatives and distributors in
various markets where the Company does not have offices.
RESEARCH AND DEVELOPMENT
The market for the Company's products and services is characterized by
changing technology. As a result, the Company's success is dependent upon its
ability to develop or acquire new products and services on a cost-effective
basis and to introduce them into the marketplace in a timely manner. The Company
intends to continue committing substantial financial resources and effort to the
development of new products and services. Ongoing research and development are
an important part of the Company's services operations. The Company has in the
past committed significant resources to research and development and anticipates
that it will continue to do so in the future. Over the years, the Company has
made a number of technological advances, including the development of key
technologies utilized in the Company's operations. Substantially all of the new
technologies have resulted from requests and guidance from the Company's
clients, especially major oil companies.
PATENTS AND TRADEMARKS
The Company believes its patents, trademarks and other intellectual
property rights are an important factor in maintaining its technological
advantage. Typically, the Company will seek to protect its intellectual
technology in all jurisdictions where the Company believes the cost of such
protection is warranted. While certain key technologies have been patented by
the Company, it has not patented all of its proprietary technology even where
regarded as patentable. In addition to patents, the Company protects its trade
secrets through confidentiality agreements with its employees and its customers.
Although the Company's patents are considered important to its operations, no
one patent is considered essential to its success.
INTERNATIONAL OPERATIONS
The Company operates over 70 facilities in more than 50 countries. The
Company's non-U.S. operations accounted for approximately 54%, 55%, and 35% of
the Company's revenues from continuing operations during the fiscal years ended
December 31, 1998, 1997 and 1996, respectively. The Company's business is
subject to various risks beyond its control, such as instability of foreign
economies and governments, currency fluctuations, overlap of different tax
structures, and changes in laws and policies affecting trade and investment. Any
of such factors may cause facilities in some countries to become unprofitable,
possibly resulting in the closing of such facilities. The Company attempts to
limit its exposure to foreign currency fluctuations by limiting the amount in
which its foreign contracts are denominated in a currency other than U.S.
dollars to an amount generally equal to expenses expected to be incurred in such
foreign currency. The Company has not historically engaged in and does not
currently intend to engage in any significant hedging or currency-trading
transactions designed to hedge against adverse currency fluctuations.
ENVIRONMENTAL REGULATION
The Company's operations use many chemicals and gases and is therefore
subject to a variety of federal, state, local and foreign laws and regulations
related to the use, storage, discharge and disposal of
6
such chemicals and gases and other emissions and wastes. Consistent with the
Company's quality assurance and control principles, the Company has established
proactive environmental policies with respect to the handling and disposal of
such chemicals, gases, emissions and waste materials from its operations. The
Company has engaged outside consultants to audit its environmental activities
and has implemented health and safety education and training programs. The
Company has not suffered material environmental claims in the past. Management
believes that the Company's operations are currently in compliance with
applicable environmental laws and regulations, and that continued compliance
with existing requirements will not have a material adverse effect on the
Company. However, public interest in the protection of the environment has
increased dramatically in recent years and the Company anticipates that the
trend toward more expansive and stricter environmental laws and regulations will
continue, the occurrence of which may require increased capital expenditures or
operating expenses by the Company.
COMPETITION
The businesses in which the Company engages are competitive. Some of
the Company's competitors are divisions or subsidiaries of companies that are
larger and have greater financial and other resources than the Company. While no
one company competes with the Company in all of its product and service lines,
the Company faces competition in these lines, primarily from independent,
regional companies. The Company competes in different product and service lines
to various degrees on the basis of price, technical performance, availability,
quality, and technical support. The Company's ability to compete successfully
depends on elements both within and outside of its control, including successful
and timely development of new products and services, performance and quality,
customer service, pricing, industry trends, and general economic trends.
RELIANCE ON THE OIL AND GAS INDUSTRY
The Company's business and operations are substantially dependent upon
the condition of the global oil and gas industry. Future downturns in the oil
and gas industry, or in the oil field services business, may have a material
adverse effect on the financial condition or results of operations of the
Company.
The oil and gas industry is highly cyclical and has been subject to
significant economic downturns at various times as a result of numerous factors
affecting the supply of and demand for oil and natural gas, which include the
level of capital expenditures of the oil and gas industry; the level of drilling
activity; the level of production activity; market prices of oil and gas;
worldwide economic conditions; interest rates and the cost of capital;
environmental regulations; tax policies; political requirements of national
governments; coordination by the Organization of Petroleum Exporting Countries
("OPEC"); cost of producing oil and natural gas; and technological advances.
EMPLOYEES
As of December 31, 1998, the Company had approximately 3,600 employees.
The Company does not have any material collective bargaining agreements and
considers relations with its employees to be good.
ITEM 2. PROPERTIES
Currently, the Company has over 70 facilities (totaling more than one
million square feet) in more than 50 countries. In these locations, the Company
typically leases the office facilities. The Company serves its worldwide
customers through six advanced technology centers ("ATC's") which are located in
Dallas,
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Texas; Calgary, Canada; Jakarta, Indonesia; Kuala Lumpur, Malaysia; Aberdeen,
United Kingdom; and Maracaibo, Venezuela. The ATC's are supported by over 50
regional specialty centers located throughout the global energy producing
provinces. The Company's facilities are adequately utilized for current
operations and should accommodate future growth.
ITEM 3. 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.
On August 18, 1998, Saybolt, Inc. ("Saybolt") agreed to plead guilty in
federal court to criminal violations of the federal Clean Air Act and the
Foreign Corrupt Practices Act which occurred between October 1994 and December
1996, prior to the Company's acquisition of Saybolt. Under the plea agreement
reached between Saybolt, the U.S. Department of Justice and the United States
Attorneys for the districts of Massachusetts, New Jersey, and Connecticut,
Saybolt agreed to pay $4.9 million in fines and agreed to be placed on probation
for five years. The fines were paid out of funds specifically set aside in
escrow for contingencies from the Saybolt selling stockholders at the time of
the acquisition. The Company acquired Saybolt's Dutch parent in May of 1997. The
Company believes that these penalties will have no material adverse effect on
Saybolt's financial position or results of operations and it also believes that
Saybolt's testing licenses will remain in full force and effect. The government
has informed Saybolt that the criminal investigations against Saybolt have
ended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR THE COMMON SHARES AND RELATED SHAREHOLDER MATTERS
PRICE RANGE OF COMMON SHARES
The Company's common shares trade on the New York Stock Exchange
("NYSE") under the symbol "CLB". The following table sets forth for the periods
indicated, the range of high and low sales prices per share of the common shares
as reported by NYSE unless otherwise noted.
HIGH LOW
---- ---
1998
First Quarter (a)....................................................... 25 1/4 14 7/8
Second Quarter (a)...................................................... 30 1/4 20 7/8
Third Quarter........................................................... 28 1/4 11 5/8
Fourth Quarter.......................................................... 25 1/2 13 5/8
1997
First Quarter (a)(b).................................................... 11 8 3/8
Second Quarter (a)(b)................................................... 13 1/16 8 3/16
Third Quarter (a)(b).................................................... 18 7/16 12
Fourth Quarter (a)(b)................................................... 22 7/8 13 3/4
(a) The Company's common shares traded on Nasdaq National Market
prior to July 10, 1998.
(b) Prices have been restated to reflect a split in the number of
shares in December 1997.
On March 24, 1999 the closing price, as quoted by NYSE, was $23 3/16
per share. As of March 24, 1999, there were 29,390,784 common shares held by
approximately 285 record holders and approximately 15,870 beneficial holders.
DIVIDEND POLICY
The Company has never paid dividends on its common shares and currently
has no plans to pay dividends on the common shares. The Company expects that it
will retain all available earnings generated by its operations for the
development and growth of its business. Any future determination as to the
payment of dividends will be made at the discretion of the Company's Supervisory
Board and will depend upon the Company's operating results, financial condition,
capital requirements, general business conditions and such other factors as the
Supervisory Board deems relevant. Because the Company is a holding company that
conducts substantially all of its operations through subsidiaries, the ability
of the Company to pay cash dividends on the common shares is dependent upon the
ability of its subsidiaries to pay cash dividends or otherwise distribute or
advance funds to the Company and on the terms and conditions of its existing and
future credit arrangements as may exist from time to time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
RECENT ISSUANCE OF UNREGISTERED SECURITIES
On December 31, 1996, the Company issued approximately 2,200,000
common shares in exchange for substantially all of the outstanding stock of
ProTechnics Company.
9
On December 29, 1997, the Company issued approximately 459,000 shares
in exchange for all of the outstanding stock of Stim-Lab Inc.
Disclosure related to current year issuances are included in the
"Recent Developments" discussion in Item 1. With respect to the shares issued in
each acquisition discussed in this section and in Item 1, the Company relied on
exemption from registration under Section 4(2) on Regulation S of the Securities
Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated
financial data for the periods indicated. Prior year financial data has been
restated to properly reflect discontinued operations and the pooling-of-interest
acquisition of the Andrews Group. The selected historical consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
consolidated financial statements included elsewhere herein:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SERVICES AND SALES $ 286,203 $ 229,134 $ 111,353 $ 88,320 $ 35,957
INCOME (LOSS) FROM CONTINUING
OPERATIONS 23,603 14,940 6,657 3,291 (1,060)
LESS - NET INCOME APPLICABLE TO
PREFERRED LOAN STOCK -- -- -- (334) (113)
------------ ------------ ------------ ------------ ------------
INCOME FROM CONTINUING
OPERATIONS APPLICABLE TO
COMMON SHARES $ 23,603 $ 14,940 $ 6,657 $ 2,957 $ (1,173)
============ ============ ============ ============ ============
BASIC PER SHARE DATA:
Income from continuing operations $ 0.86 $ 0.63 $ 0.31 $ 0.16 $ (0.19)
============ ============ ============ ============ ============
Weighted average common
shares outstanding 27,329,364 23,970,641 21,899,500 17,871,271 6,095,511
============ ============ ============ ============ ============
DILUTED PER SHARE DATA:
Income from continuing operations $ 0.84 $ 0.61 $ 0.30 $ 0.16 $ (0.19)
============ ============ ============ ============ ============
Weighted average common
shares outstanding 28,122,468 24,651,325 22,096,804 17,977,299 6,095,511
============ ============ ============ ============ ============
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
Working capital.......................... $ 65,220 $ 50,992 $ 18,027 $ 18,274 $ 15,725
Total assets............................. 348,608 249,536 92,342 81,312 68,219
Long-term debt, including current 86,593 74,177 16,784 19,716 32,010
maturities...............................
Redeemable preferred stock............... -- -- -- -- 7,500
Shareholders' equity..................... 196,968 113,590 47,566 39,897 14,009
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain of the information contained or incorporated by reference in
this document is forward-looking in nature. All statements included or
incorporated by reference in this document or made by management other than
statements of historical fact are forward-looking statements. Any expectations
based on these forward-looking statements are subject to risks and
uncertainties. Such risks and uncertainties include, but are not limited to, the
following:
o the continued expansion of services is dependent upon the
Company's ability to continue to develop or acquire new and
useful technology.
o 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.
o the Company's dependence on one industry, oil and gas.
o the industry risks related to the capital expenditure levels and
the commodity prices for crude oil and natural gas.
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.
o 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. These
factors could cause actual results to differ materially from expectations based
on forward-looking statements made in this document or elsewhere by or on behalf
of Core Laboratories.
The following discussion should be read in conjunction with the
financial statements and notes thereto included elsewhere herein.
BUSINESS DEVELOPMENT
The Company was established in 1936 and is a leading provider of
proprietary and patented reservoir description, production enhancement and
reservoir management services and sales for optimizing reservoir performance and
maximizing hydrocarbon recovery from new and existing fields. The Company
provides its services to the world's major, national and independent oil
companies.
The Company plans to continue the expansion of its operations through
(i) continued development of proprietary hydrocarbon production enhancement
technologies, services and products through client-driven research and
development, (ii) expanded services and product lines offered throughout the
Company's global infrastructure, and (iii) acquisition of complementary
businesses that add key technologies or market presence and enhance existing
products and services.
The Company's recent research and development efforts have been
directed primarily towards the development of new products and services.
The Company's acquisition strategy is to continue to seek acquisitions
of complementary businesses that add key technologies, enhance market presence
and complement the Company's existing products and services. This strategy is
exemplified by its most recent acquisitions of Owen, Petrak, Jaex, Integra, the
Andrews Group, and Thru-Tubing.
11
RESULTS OF OPERATIONS
The following table sets forth certain percentage relationships based
on the Company's consolidated statements of operations for the periods
indicated. The table for 1998 includes the results of operations of Owen
beginning June 30, 1998, Petrak beginning July 31, 1998, Jaex beginning August
31, 1998 and Integra beginning October 28, 1998 (accounted for as purchases),
the Andrews Group for all periods presented and Thru-Tubing for the year ended
December 31, 1998 (accounted for as poolings-of-interests). All numbers have
been restated to exclude results of discontinued operations.
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
---------- ---------- ----------
Services 87.2% 92.3% 91.0%
Sales 12.8 7.7 9.0
---------- ---------- ----------
100.0 100.0 100.0
Operating expenses:
Costs of services* 77.9 79.6 83.1
Costs of sales* 71.5 84.5 65.0
General and administrative expenses 3.0 2.6 3.2
Depreciation and amortization 5.8 4.8 4.1
Transaction costs associated with merger -- -- 0.3
Other income, net 0.3 (0.5) (0.5)
Income from continuing operations before interest
expense and income tax 13.9 13.0 11.4
Interest expense 2.1 2.8 1.4
---------- ---------- ----------
Income from continuing operations before
income tax 11.8 10.2 10.0
Income tax expense 3.5 3.7 4.0
---------- ---------- ----------
Income from continuing operations 8.3% 6.5% 6.0%
========== ========== ==========
*Percentage based on applicable segment revenue, rather than total
revenue.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Total revenue for 1998 was $286.2 million, an increase of 25% from
$229.1 million in the prior year. This increase was primarily attributable to an
overall increase in the demand for the Company's services and sales, in addition
to the revenue derived from the businesses acquired in 1998.
Costs of services as a percentage of service revenue decreased compared
to the prior year, due to improved cost savings and efficiencies.
Costs of sales as a percentage of sales revenue for the year ended 1998
decreased compared to the prior year, due to an increase in high margin product
sales.
General and administrative expenses increased $2.5 million in 1998 as
compared to 1997 as a result of increased personnel costs attributable to the
Company's growth. As a result of its ongoing program to manage general and
administrative expenses, the Company has been able to maintain this ratio under
4%.
12
Depreciation and amortization expense from continuing operations for
1998 increased to $16.5 million compared to $11.1 million in 1997 due primarily
to increased capital expenditures, as well as the inclusion of depreciation and
amortization from the businesses acquired during 1998.
Interest expense decreased $0.5 million in 1998 as compared to 1997.
The decrease was primarily attributable to reductions in long-term debt funded
by proceeds from the equity offering in November 1997.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Total revenue for 1997 was $229.1 million, an increase of 105.8% from
$111.4 million in the prior year. This increase was primarily attributable to
increased demand for reservoir description, production enhancement, and
reservoir management services, as well as the inclusion of revenues from
acquired businesses.
Costs of services as a percentage of service revenue decreased compared
to the prior year, due to improved costs savings and efficiencies.
Cost of sales as a percentage of sales revenues for the year ended 1997
increased compared to the prior year due to sales of lower margin products.
General and administrative expenses increased $2.4 million in 1997 to
$6.0 million as a result of increased personnel costs attributable to the
Company's growth. As a result of its ongoing program to manage general and
administrative expenses, the Company has been able to maintain this ratio under
4%.
Depreciation and amortization expense from continuing operations for
1997 increased to $11.1 million compared to $4.6 million in 1996 due primarily
to increased capital expenditures, as well as the inclusion of depreciation and
amortization from the acquired businesses.
Interest expense increased $5.0 million in 1997 as compared to 1996.
The increase was primarily due to additional borrowings used to finance the
Company's 1997 acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
On May 12, 1997, the Company entered into a Credit Facility, which
provides for (i) a term loan of $55 million, (ii) a term loan denominated in
British pounds having an initial U.S. dollar equivalency of $15 million, (iii) a
committed revolving debt facility of $50 million and (iv) a Netherlands guilder
denominated revolving debt facility with an initial U.S. dollar equivalency of
$5 million. At December 31, 1998 approximately $40 million was available for
borrowing under the revolving debt facilities. Loans under the Credit Facility
will generally bear interest ranging from LIBOR plus 0.75% to a maximum of LIBOR
plus 1.75%. The term loans require quarterly principal payments beginning March
31, 1999 with the final principal payment due June 30, 2002. The revolving debt
facilities require interest payments only, until maturity on June 30, 2002. The
terms of the Credit Facility 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 the Credit Facility.
As part of the purchase of Scott Pickford in March 1997, the Company
issued unsecured loan notes in lieu of cash consideration for the outstanding
shares of Scott Pickford. 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
13
to redeem the loan notes at par on each interest payment date. Unless previously
redeemed or purchased, the loan notes are to be redeemed at par on June 30,
2002.
The Company's day-to-day liquidity is based on cash flow from its
business divisions and the ability to borrow in the short-term and long-term
markets at competitive rates. The Company refinanced the outstanding
indebtedness from its acquisitions with borrowings under the Credit Facility and
the Company issued approximately 4.3 million common shares for its 1998
acquisitions.
At December 31, 1998, the Company had working capital of $65.2 million
(of which $8.2 million was cash and short-term investments) and a current ratio
of 2.1 to 1.0 compared to working capital of $51.0 million (of which $12.7
million consisted of cash and short-term investments) and a current ratio of 2.0
to 1.0 at December 31, 1997. The Company is a holding company that conducts
substantially all of its operations through subsidiaries. Consequently, the
Company's cash flow is wholly dependent upon the ability of its subsidiaries to
pay cash dividends or otherwise distribute or advance funds to the Company.
The Company expects to fund any future acquisitions primarily through a
combination of working capital, cash flow from operations, bank borrowings
(including the Credit Facility), and issuances of additional equity. Although
the Credit Facility imposes certain limitations on the incurrence of additional
indebtedness, the Company will be permitted to assume, among other things, the
indebtedness of acquired businesses, subject to compliance with the financial
covenants of the Credit Facility.
The Company anticipates that its cash flow from operations will
continue to provide cash in excess of normal working capital needs and planned
capital expenditures for property, plant and equipment. Capital expenditures for
1998 were $27.0 million and for 1997 totaled $16.6 million.
Due to the relatively low levels of inflation experienced in 1996, 1997
and 1998, inflation has not had a significant effect on the Company's results of
operations in recent periods.
OTHER MATTERS
YEAR 2000 CONVERSION
The Company's 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 is substantially complete. Remediation and/or
implementation of compliant systems is expected to be completed by the third
quarter of 1999. 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
14
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.
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 as of December 31, 1998 and is proceeding with
the subsequent activities. The Company expects to substantially complete all
contingency-planning activities by September 30, 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.
As of December 31, 1998 the Company has incurred and expensed $0.5
million (pretax) in 1998 related to Year 2000 readiness. The Company is in the
process of replacing certain systems at the majority of the Company's facilities
that no longer meet the Company's needs. These replacement systems are Year 2000
compliant and their costs are being capitalized and amortized over their useful
lives, in accordance with the Company's normal accounting policies. The total of
such capitalizable costs is expected to be approximately $0.6 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes in interest
rates and foreign currency exchange rates as discussed below. All market risk
sensitive instruments were entered into for purposes other than trading. Trade
accounts receivable and accounts payable have not been included as their
carrying amounts approximate fair value due to the short term maturities of
these instruments. Management also believes the carrying amount of long-term
debt approximates fair value as the majority of borrowings bear interest at
floating market interest rates. This section should be read in conjunction with
Notes to Consolidated Financial Statements Footnote 6 - Long Term Debt and
Footnote 11 - Concentration of Credit Risk.
15
INTEREST RATE SENSITIVITY
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average LIBOR rates by expected
maturity dates. The information is presented in U.S. dollar equivalents, which
is the Company's functional and reporting currency. The instrument's future
estimated cash flow is denominated in U.S. dollars (US$) and British Pounds
Sterling (GBP), as indicated in parentheses. Average variable interest rates are
based on implied LIBOR forward rates plus a spread on the yield curve at
December 31, 1998. Implied forward rates should not be considered a predictor of
actual future interest rates.
Expected maturity date
(in millions)
---------------------------------------------------------------------------------
After Fair
1999 2000 2001 2002 2003 2003 Total Value
------- ------- ------- ------- ------- ------- ------- -------
Long Term Debt:
Variable Rate-Term (US$) $ 14.0 $ 21.0 $ 21.0 $ 14.0 $ -- $ -- $ 70.0 $ 70.0
Average interest rate 5.5% 5.7% 5.8% 6.1%
Variable Rate-Revolver
(GBP) $ 3.0 $ 4.5 $ 4.5 $ 3.2 $ -- $ -- $ 15.2 $ 15.2
Average interest rate 5.5% 5.7% 5.8% 6.1%
The Company did not have any open derivative contracts relating to its floating
rate debt at December 31, 1998.
EXCHANGE RATE SENSITIVITY
The table below provides information about the Company's financial
instruments that are sensitive to changes in foreign currency exchange rates.
The table presents principal cash flows and related weighted average LIBOR
interest rates plus a spread by expected maturity dates. The information is
presented in U.S. dollar equivalents, which is the Company's functional and
reporting currency. The instrument's future estimated maturities are denominated
in British Pounds Sterling (GBP) as indicated in parentheses. Average variable
interest rates are based on implied LIBOR forward rates plus a spread on the
yield curve at December 31, 1998. Implied forward rates should not be considered
a predictor of actual future interest rates.
Expected maturity date
(in millions)
---------------------------------------------------------------------------------
After Fair
1999 2000 2001 2002 2003 2003 Total Value
------- ------- ------- ------- ------- ------- ------- -------
$US Functional Currency:
Long Term Debt:
Variable Rate-Revolver
(GBP) $ 3.0 $ 4.5 $ 4.5 $ 3.2 $ -- $ -- $ 15.2 $ 15.2
Average interest rate 5.5% 5.7% 5.8% 6.1%
The Company did not have any open derivative contracts relating to foreign
currencies at December 31, 1998.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the financial statements and supplementary data required by this
Item 8, see index to consolidated financial statements and schedules at Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Part III (Items 10 through 13) is omitted because the Registrant
expects to file with the Securities and Exchange Commission within 120 days
after the close of the fiscal year ended December 31, 1998, a definitive proxy
statement pursuant to Regulation 14A under the Securities Exchange Act of 1934.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
Back to Table of Contents
FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable, not
required under the instructions, or the information requested is set forth in
the consolidated financial statements or related notes hereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
18
(c) EXHIBITS
The following exhibits are incorporated by reference to the filing
indicated or are filed herewith.
INCORPORATED BY
REFERENCE FROM THE
EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS
----------- ------------- -------------------
3.1 -- Articles of Association of the Company, as amended (including Form F-1, September 20, 1995
English translation)
4.1 -- Form of certificate representing Common Shares Filed Herewith
10.1 -- Core Laboratories N.V. 1995 Long-Term Incentive Plan (as amended Proxy Statement dated May 2, 1997
and restated effective as of May 29, 1997) for Annual Meeting of Shareholders
10.2 -- Core Laboratories N.V. 1995 Nonemployee Director Stock Option
Proxy Statement dated May 2, 1997 Plan (as amended and restated
effective as of May 29, 1997) for Annual Meeting of Shareholders
10.3 -- Form of Registration Rights Agreement to be entered into by the Form 10-Q, November 10, 1995
Company and certain of its shareholders, dated September 15, 1995
10.4 -- Purchase and Sale Agreement between Core Holdings B.V. and Form F-1, September 20, 1995
Western Atlas International, Inc., Western Atlas International
Nigeria Ltd., Western Atlas de Venezuela, C.A., Western Atlas
Canada Ltd. and Core Laboratories Australia Pty. Ltd. dated as of
September 30, 1994
10.5 -- Form of Indemnification Agreement to be entered into by the Form F-1, September 20, 1995
Company and certain of its directors and officers
10.6 -- Indemnification Agreements, each dated as of October 20, 1995, Form 10-Q, November 10, 1995
between the Company and each of its directors and executive
officers
10.7 -- Stock Purchase Agreement among Core Laboratories N.V., Saybolt Form 8-K, May 23, 1997
International B.V. and the shareholders of Saybolt International
B.V., dated as of April 16, 1997
10.8 -- Amended and Restated Credit Agreement among Core Laboratories Form S-3, November 20, 1997
N.V., Core Laboratories, Inc., Core Laboratories (U.K.) Limited,
Bankers Trust Company, NationsBank, N.A. and the Bank Group,
dated as of July 18, 1997
10.9 -- Agreement and Plan of Merger among Core Laboratories N.V., Owen Form 8-K, July 15, 1998
Oil Tools, Inc., Owen Acquisition, Inc., and each of the
shareholders of Owen Oil Tools, Inc., dated as of June 30, 1998
10.10 -- Core Laboratories Supplemental Executive Retirement Plan Form 10-K, March 31, 1998
effective as of January 1, 1998
10.11 -- Form of Employment Agreement between Core Laboratories N.V. and Filed Herewith
David Michael Demshur dated as of August 18, 1998
10.12 -- Form of Employment Agreement between Core Laboratories N.V. and Filed Herewith
Richard Lucas Bergmark dated as of August 18, 1998
10.13 -- Form of Employment Agreement between Core Laboratories N.V. and Filed Herewith
Monty Lee Davis dated as of August 18, 1998
10.14 -- Form of Employment Agreement between Core Laboratories N.V. and Filed Herewith
John David Denson dated as of August 18, 1998
10.15 -- Acquisition Agreement among Core Laboratories N.V., Core Laboratories Filed Herewith
International B.V., Saybolt International B.V., AGI Mexicana S.A.
de C.V. and the Stockholders of A.G.I. Mexicana S.A. de C.V. dated
as of December 11, 1998
10.16 -- Agreement and Plan of Merger among Core Laboratories N.V., A.G.I. Filed Herewith
Acquisition Company, The Andrews Group International, Inc. and
Robert P. Andrews dated as of December 18, 1998
23.1 -- Consent of Arthur Andersen LLP Filed Herewith
27.0 -- Financial Data Schedule Filed Herewith
19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
CORE LABORATORIES N.V.
BY: CORE LABORATORIES INTERNATIONAL B.V.
DATE: MARCH 31, 1999 BY: /s/ JACOBUS SCHOUTEN
---------------------------------------
JACOBUS SCHOUTEN
SUPERVISORY DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED, ON THE 31ST DAY OF MARCH, 1999.
SIGNATURE TITLE
--------- -----
/s/ DAVID M. DEMSHUR
----------------------------- PRESIDENT, CHIEF EXECUTIVE OFFICER
DAVID M. DEMSHUR AND SUPERVISORY DIRECTOR (PRINCIPAL
EXECUTIVE OFFICER AND AUTHORIZED
REPRESENTATIVE IN THE UNITED STATES)
/s/ RICHARD L. BERGMARK
----------------------------- CHIEF FINANCIAL OFFICER, TREASURER AND
RICHARD L. BERGMARK SUPERVISORY DIRECTOR (PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
/s/ BOB G. AGNEW
----------------------------- SUPERVISORY DIRECTOR
BOB G. AGNEW
/s/ JOSEPH R. PERNA
----------------------------- SUPERVISORY DIRECTOR
JOSEPH R. PERNA
/s/ TIMOTHY J. PROBERT
----------------------------- SUPERVISORY DIRECTOR
TIMOTHY J. PROBERT
/s/ JAMES A. READ
----------------------------- SUPERVISORY DIRECTOR
JAMES A. READ
/s/ JACOBUS SCHOUTEN
----------------------------- SUPERVISORY DIRECTOR
JACOBUS SCHOUTEN
/s/ STEPHEN D. WEINROTH
----------------------------- SUPERVISORY DIRECTOR
STEPHEN D. WEINROTH
20
Return to financial index
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Supervisory Board of Directors and Shareholders of
Core Laboratories N.V.:
We have audited the accompanying consolidated balance sheets of Core
Laboratories N.V. (a Netherlands corporation) and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Core Laboratories
N.V. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in accordance with the accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 25, 1999
21
Return to financial index
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS 1998 1997
-------- --------
CURRENT ASSETS:
Cash and cash equivalents ................................................................ $ 8,166 $ 12,726
Accounts receivable, less allowance for doubtful accounts of $7,874 and $6,885
in 1998 and 1997, respectively ....................................................... 84,288 73,347
Inventories .............................................................................. 18,860 9,779
Prepaid expenses and other ............................................................... 9,935 5,806
Deferred tax asset ....................................................................... 5,192 --
-------- --------
Total current assets ................................................................. 126,441 101,658
PROPERTY, PLANT AND EQUIPMENT, net ............................................................ 68,191 55,051
INTANGIBLES AND GOODWILL, net of accumulated amortization of $5,422 and
$2,263 in 1998 and 1997, respectively .................................................... 149,487 80,209
OTHER LONG-TERM ASSETS ........................................................................ 4,489 3,388
ASSETS OF DISCONTINUED OPERATIONS ............................................................. -- 9,230
-------- --------
Total assets ......................................................................... $348,608 $249,536
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..................................................... $ 18,355 $ 3,220
Short-term debt .......................................................................... 236 427
Accounts payable ......................................................................... 18,528 23,187
Accrued payroll and related costs ........................................................ 7,052 8,299
Taxes other than payroll and income ...................................................... 2,925 2,178
Unearned revenue ......................................................................... 438 2,144
Income tax payable ....................................................................... 6,105 4,176
Deferred tax liability ................................................................... -- 566
Other accrued expenses ................................................................... 7,582 6,469
-------- --------
Total current liabilities ............................................................ 61,221 50,666
LONG-TERM DEBT ................................................................................ 68,238 70,957
DEFERRED COMPENSATION ......................................................................... 2,859 2,385
DEFERRED TAX LIABILITY ........................................................................ 4,618 4,073
MINORITY INTEREST ............................................................................. 1,078 1,212
LONG-TERM LEASE OBLIGATION .................................................................... 154 156
OTHER LONG-TERM LIABILITIES ................................................................... 13,472 4,861
LIABILITIES OF DISCONTINUED OPERATIONS ........................................................ -- 1,636
SHAREHOLDERS' EQUITY:
Preference shares, NLG 0.03 par value; 3,000,000 shares authorized, none issued
or outstanding ....................................................................... -- --
Common shares, NLG 0.03 par value; 100,000,000 shares authorized, 29,298,419 and
25,418,621 issued and outstanding at 1998 and 1997, respectively ..................... 496 437
Additional paid-in capital ............................................................... 152,178 89,132
Retained earnings ........................................................................ 44,294 24,021
-------- --------
Total shareholders' equity ........................................................... 196,968 113,590
-------- --------
Total liabilities and shareholders' equity ...................................... $348,608 $249,536
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
22
Return to financial index
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1998 1997 1996
------------ ------------ ------------
SERVICES ................................................. $ 249,623 $ 211,399 $ 101,306
SALES .................................................... 36,580 17,735 10,047
------------ ------------ ------------
286,203 229,134 111,353
OPERATING EXPENSES:
Costs of services ................................... 194,360 168,323 84,213
Costs of sales ...................................... 26,147 14,984 6,532
General and administrative expenses ................. 8,447 5,974 3,559
Depreciation and amortization ....................... 16,545 11,095 4,595
Transaction costs associated with merger ............ -- -- 355
Other (income) expense, net ......................... 942 (1,086) (567)
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INTEREST EXPENSE AND INCOME TAX ..................... 39,762 29,844 12,666
INTEREST EXPENSE ......................................... 6,043 6,500 1,502
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAX .......................................... 33,719 23,344 11,164
INCOME TAX EXPENSE ....................................... 10,116 8,404 4,507
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS ........................ 23,603 14,940 6,657
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
net of income tax benefit (expense) of
$93, $77, and $(403) ............................... (217) (179) 943
LOSS ON SALE OF DISCONTINUED
OPERATIONS, net of income tax benefit of $1,446 ..... (3,374) -- --
------------ ------------ ------------
NET INCOME ............................................... $ 20,012 $ 14,761 $ 7,600
============ ============ ============
PER SHARE DATA:
Income from continuing operations ................... $ 0.86 $ 0.63 $ 0.31
Income (loss) from discontinued operations .......... (0.01) (0.01) 0.04
Loss on sale of discontinued operations ............. (0.12) -- --
------------ ------------ ------------
Basic earnings per share ............................ $ 0.73 $ 0.62 $ 0.35
============ ============ ============
WEIGHTED AVERAGE BASIC COMMON
SHARES OUTSTANDING ............................... 27,329,364 23,970,641 21,899,500
============ ============ ============
Income from continuing operations ................... $ 0.84 $ 0.61 $ 0.30
Income (loss) from discontinued operations .......... (0.01) (0.01) 0.04
Loss on sale of discontinued operations ............. (0.12) -- --
------------ ------------ ------------
Diluted earnings per share .......................... $ 0.71 $ 0.60 $ 0.34
============ ============ ============
WEIGHTED AVERAGE DILUTED COMMON
SHARES OUTSTANDING .............................. 28,122,468 24,651,325 22,096,804
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
23
Return to financial index
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
( IN THOUSANDS, EXCEPT SHARE DATA)
COMMON SHARES
-------------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ---------- -------- -------- ---------
BALANCE, December 31, 1995 (as previously reported) 21,157,464 $ 372 $ 35,063 $ 4,230 $ 39,665
ADJUSTMENT FOR POOLINGS OF INTERESTS .............. 715,000 11 2,309 (2,088) 232
---------- -------- -------- -------- ---------
RESTATED BALANCE, December 31, 1995 ............... 21,872,464 383 37,372 2,142 39,897
STOCK OPTIONS EXERCISED ........................... 1,000 -- 6 -- 6
EQUITY TRANSACTIONS OF
POOLED COMPANIES ............................. 26,812 -- 245 (259) (14)
ADJUSTMENT FOR CHANGE IN FISCAL
YEAR OF POOLED COMPANY ....................... -- -- -- 77 77
NET INCOME ........................................ -- -- -- 7,600 7,600
---------- -------- -------- -------- ---------
BALANCE, December 31, 1996 ........................ 21,900,276 383 37,623 9,560 47,566
---------- -------- -------- -------- ---------
ADJUSTMENT FOR POOLING OF INTEREST ................ 482,541 8 1,311 (300) 1,019
PUBLIC OFFERING ................................... 2,964,862 45 49,960 -- 50,005
STOCK OPTIONS EXERCISED ........................... 70,942 1 238 -- 239
NET INCOME ........................................ -- -- -- 14,761 14,761
---------- -------- -------- -------- ---------
BALANCE, December 31, 1997 ........................ 25,418,621 437 89,132 24,021 113,590
---------- -------- -------- -------- ---------
ADJUSTMENT FOR POOLING OF INTEREST ................ 195,341 3 41 261 305
SHARES ISSUED FOR 1998 PURCHASES .................. 3,389,845 51 61,298 -- 61,349
STOCK OPTIONS EXERCISED ........................... 294,612 5 1,707 -- 1,712
NET INCOME ........................................ -- -- -- 20,012 20,012
---------- -------- -------- -------- ---------
BALANCE, December 31, 1998 ........................ 29,298,419 $ 496 $152,178 $ 44,294 $ 196,968
========== ======== ======== ======== =========
The accompanying notes are an integral part of these consolidated
financial statements.
24
Return to financial index
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
1998 1997 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 20,012 $ 14,761 $ 7,600
(Income) loss from discontinued operations ...................... 217 179 (943)
Adjustments to reconcile to net cash
provided by (used in) operating activities --
Depreciation and amortization ................................. 16,545 11,095 4,595
(Gain) loss on sale of fixed assets ........................... 67 (132) (22)
Loss on sale of discontinued operations ....................... 3,374 -- --
Changes in assets and liabilities --
(Increase) decrease in accounts receivable .................. 2,791 (16,942) (1,702)
Increase in inventories ..................................... (2,763) (1,189) (200)
(Increase) decrease in prepaid expenses and other ........... (2,174) (133) 197
(Increase) decrease in net deferred tax asset ............... (5,170) 927 (279)
Increase (decrease) in accounts payable ..................... (10,707) (9,180) 2,024
Increase (decrease) in accrued payroll ...................... (4,160) 3,927 --
Increase in accrued income taxes payable .................... 1,754 2,780 --
Increase (decrease) in other accrued expenses ............... (274) (10,395) 843
Increase (decrease) in other long-term liabilities .......... (13,309) 4,075 (983)
Other ....................................................... 256 (2,568) 618
--------- --------- ---------
Net cash provided by (used in) continuing operations ........ 6,459 (2,795) 11,748
Net cash provided by discontinued operations ................ 111 1,570 1,355
--------- --------- ---------
Net cash provided by (used in) operating activities ....... 6,570 (1,225) 13,103
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures of continuing operations ................... (27,004) (16,631) (7,198)
Capital expenditures of discontinued operations ................. -- -- (17)
Acquisitions, net of cash acquired .............................. -- (77,339) (4,310)
Proceeds from sale of fixed assets .............................. 4,906 552 43
Proceeds from sale of discontinued operations ................... 4,114 -- --
Other ........................................................... -- -- 150
--------- --------- ---------
Net cash used in investing activities ......................... (17,984) (93,418) (11,332)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public offering ............................... -- 50,005 --
Payments on long-term debt ...................................... (16,844) (94,407) (10,793)
Borrowings under long-term debt ................................. 22,032 147,174 10,268
Capital lease obligation ........................................ (168) (181) --
Payments on short-term debt ..................................... -- -- (190)
Stock options exercised ......................................... 1,712 239 6
Other ........................................................... 122 (1,612) 6
--------- --------- ---------
Net cash provided by (used in) financing activities ........... 6,854 101,218 (703)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS .............................. (4,560) 6,575 1,068
CASH AND CASH EQUIVALENTS, beginning of period ....................... 12,726 6,151 5,083
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................. $ 8,166 $ 12,726 $ 6,151
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
25
Return to financial index
CORE LABORATORIES N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. DESCRIPTION OF BUSINESS
Core Laboratories N.V. and its wholly owned subsidiaries (the
"Company") is one of the world's leading providers of proprietary and patented
reservoir description, production enhancement and reservoir management services
and sales 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. The Company currently operates
over 70 facilities in more than 50 countries.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company, and have been prepared in accordance with United
States generally accepted accounting principles ("GAAP"). All significant
intercompany transactions and balances have been eliminated. The equity method
of accounting is used for all investments in which the Company has less than a
majority interest except for a joint venture interest where the cost method of
accounting is applied, as the Company does not exercise significant influence
or control. A minority interest liability has been recorded for those
subsidiaries in which the Company has minority interests.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
26
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks and all highly liquid
debt instruments with an original maturity of three months or less when
purchased.
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 (includes direct material, labor and overhead) or
estimated net realizable value.
PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment are stated at cost.
Allowances for depreciation and amortization are calculated using the
straight-line method based on the estimated useful lives of the related assets
as follows:
Buildings .................................................................................. 10 - 40 years
Machinery and equipment .................................................................... 3 - 10 years
The components of property, plant and equipment are as follows (in
thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
Land .................................. $ 2,800 $ 3,024
Building and leasehold improvements.... 12,422 22,389
Machinery and equipment ............... 61,878 41,776
Construction in process ............... 10,909 4,512
-------- --------
88,009 71,701
Less - accumulated depreciation... (19,818) (16,650)
-------- --------
$ 68,191 $ 55,051
======== ========
Expenditures for repairs and maintenance are charged to expense as
incurred and major renewals and improvements are capitalized. Cost and
accumulated depreciation applicable to assets retired or sold are removed from
the accounts, and any resulting gain or loss is included in the statement of
operations. The Company incurred approximately $2,862,000, $2,437,000 and
$1,428,000 in repair and maintenance expenses for the years ended December 31,
1998, 1997 and 1996, respectively.
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 of purchase price over fair value of the net assets acquired in
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 such items can be recovered through
projected undiscounted future cash flows over the remaining amortization
period. Management believes that there have been no events or
27
circumstances that warrant revision to the remaining useful life or which
affect the recoverability of intangibles and goodwill.
LONG-TERM INVESTMENT
The long-term investment of $1,522,000 at December 31, 1998 represents
the Company's investment in affiliated companies in which they hold less than a
majority interest. These investments are accounted for using the equity method
of accounting with the exception of one joint venture interest where the cost
method of accounting is applied as the Company does not exercise significant
influence or control.
INCOME TAXES
Income tax expense includes The Netherlands, United States ("U.S."),
other foreign countries and local, state, and provincial income taxes. The
Company recognizes deferred tax assets or liabilities for the differences
between the financial statement carrying amount and tax basis of existing
assets and liabilities using presently enacted tax rates.
REVENUE RECOGNITION
Revenues are recognized as services are completed and as products are
shipped. All advance client payments are classified as unearned until services
are completed and as products are shipped.
FOREIGN CURRENCIES
The Company's functional currency is the U.S. dollar. Accordingly,
foreign entities remeasure monetary assets and liabilities to U.S. dollars at
year-end exchange rates, while non-monetary items are remeasured at historical
rates. Items of income and expense are remeasured at the applicable month-end
rate, except for depreciation, amortization and cost of sales, which are
remeasured at historical rates. Remeasurement gains and losses are included in
other income and expense in the Consolidated Statements of Operations.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as
incurred. The Company incurred approximately $2,150,000, $2,550,000 and
$156,000 in research and development expenses for the years ended December 31,
1998, 1997, and 1996, respectively.
EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 128, "Earnings per Share". SFAS No. 128 replaces the
presentation of primary earnings per share, as previously prescribed by
Accounting Principles Board ("APB") No. 15, with a presentation of basic
earnings per share. This standard also 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 issuance of
additional shares by assuming that all stock options outstanding have been
converted. Prior period amounts have been restated in accordance with the
requirements of the pronouncement.
28
The following table summarizes the calculation of weighted average
common shares outstanding for purposes of the computation of earnings per
share:
1998 1997 1996
---------- ---------- ----------
Weighted average basic common
shares outstanding ......... 27,329,364 23,970,641 21,899,500
Dilutive stock options ........ 793,104 680,684 197,304
---------- ---------- ----------
Weighted average diluted common
shares outstanding ......... 28,122,468 24,651,325 22,096,804
========== ========== ==========
RECENT PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was
issued. SFAS No. 130 is effective for fiscal years beginning after December 31,
1997. SFAS No. 130 requires the presentation of an additional income measure
(termed "comprehensive income"), which adjusts traditional net income for
certain items that previously were only reflected as direct adjustments to
equity. The Company had no items of comprehensive income for any of the periods
presented.
The Company adopted 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 14 for
additional information.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, and establishes accounting and reporting
standards for derivative instruments (including certain derivative instruments
embedded in other contracts). Adoption of SFAS No. 133 is not expected to have
a material effect on the Company's financial position or operational results.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. ACQUISITIONS
1998 ACQUISITIONS
On June 30, 1998, the Company acquired all of the outstanding stock of
Owen Oil Tools, Inc. ("Owen"), a privately held company based in Texas. Owen
and its subsidiaries provide well completion and stimulation technologies to
the petroleum industry. The Company issued approximately 2,277,000 shares in
exchange for all of the outstanding shares of Owen and accounted for the
transaction using the purchase method of accounting. The transaction resulted
in an allocation of approximately $41.5 million in goodwill, which is being
amortized over a 40-year period.
On July 31, 1998, the Company acquired all of the outstanding shares
of PETRAK Group S.A. ("Petrak"), a privately held company based in Switzerland.
Petrak specializes in characterizing reservoir fluids and their derivatives.
The Company issued approximately 263,000 shares in exchange for all of the
outstanding shares of Petrak and accounted for the transaction using the
purchase method of accounting. The transaction resulted in an allocation of
approximately $3.9 million in goodwill, which is being amortized over a 40-year
period.
On August 31, 1998, the Company acquired all of the remaining shares of
Jaex S.A. de C.V. ("Jaex"), a privately held company based in Mexico, that were
not previously acquired through its acquisition of Owen. The Company previously
owned 50.00098% of Jaex. Jaex provides well completion and stimulation
technologies to the petroleum industry. The Company issued approximately 765,000
shares in exchange for the remaining
29
interest of Jaex and accounted for the acquisition using the purchase method of
accounting. The transaction resulted in an allocation of approximately $9.3
million in goodwill, which is being amortized over a 40-year period.
On October 28, 1998, the Company acquired all of the outstanding
shares of Integra Geoservices, Inc. ("Integra"), a privately held company based
in Canada. Integra provides specialized geophysical seismic processing services
used to characterize and describe petroleum reservoirs. The Company issued
approximately 86,000 shares in exchange for all of the outstanding shares of
Integra and accounted for the transaction using the purchase method of
accounting. The transaction resulted in an allocation of approximately $2.8
million in goodwill, which is being amortized over a 40-year period.
The Company acquired all of the outstanding shares of The Andrews Group
International, Inc. and A.G.I. Mexicana, S.A. de C.V. on December 18, 1998 and
December 11, 1998, respectively (collectively referred to as the "Andrews
Group"). The Andrews Group provides specialized seismic data processing and
interpretation services, as well as other geophysical, geological and
engineering services. The Company issued approximately 715,000 shares in
exchange for all of the outstanding shares of the Andrews Group and accounted
for the transaction using the pooling-of-interests method of accounting. The
Company's consolidated financial statements have been restated for all periods
presented to include the financial position and results of operations of the
Andrews Group.
On December 30, 1998, the Company acquired all of the outstanding
shares of Thru-Tubing Technology, Inc. ("Thru-Tubing"), a privately held
company based in Louisiana. Thru-Tubing manufactures downhole remedial products
which complement Owen's well completion and stimulation technologies. The
Company issued approximately 195,000 shares in exchange for all of the
outstanding shares of Thru-Tubing and accounted for the transaction using the
pooling-of-interests method of accounting. Thru-Tubing's results of operations
for the year ended December 31, 1998 have been combined with those of the
Company. The Company's consolidated financial statements for prior years were
not restated due to immateriality.
The purchase price allocations of Owen, Petrak, Jaex, and Integra are
preliminary. As additional information concerning the value of the assets
acquired and liabilities assumed becomes known, additional adjustments may be
made to the purchase price allocations included in the accompanying financial
statements. Management believes at this time that the preliminary purchase
price allocation will not differ materially from the final allocation.
1997 ACQUISITIONS
On December 29, 1997, the Company completed the acquisition of all of
the outstanding shares of Stim-Lab, Inc. ("Stim-Lab"), a privately held Company
based in Oklahoma. Stim-Lab is a world leader in hydraulic fracturing and well
stimulation technologies. The Company issued approximately 459,000 common shares
in exchange for all of the outstanding shares of Stim-Lab and accounted for the
transaction using the pooling-of-interests method of accounting. Stim-Lab's
results of operations for the year ended December 31, 1997 have been combined
with that of the Company's. Consolidated financial statements for prior years
were not restated due to immateriality.
On May 12, 1997, the Company consummated the acquisition of all of the
outstanding shares of Saybolt International B.V. and its subsidiaries
("Saybolt"), a privately held Company based in the Netherlands. Saybolt operates
in over 50 countries and is an international leader in providing analytical and
field services to characterize properties of crude oil and petroleum products
for the oil industry. The Company financed the transaction through borrowings of
$67 million in cash, and assumed $5 million of net debt and accounted for the
transaction using the purchase
30
method of accounting. The transaction resulted in an allocation of
approximately $78.4 million in goodwill which is being amortized over a 40-year
period.
On March 1, 1997, the Company acquired the outstanding shares of Scott
Pickford plc and its subsidiaries ("Scott Pickford"), a company based in the
United Kingdom. Scott Pickford provides petroleum reservoir management,
geoscience, geophysical and engineering services to its customers by utilizing
petrophysical and phase behavior data sets measured by Core Laboratories. Scott
Pickford specializes in large field studies and equity determinations primarily
in the North Sea. The Company financed the transaction through borrowings of
approximately $14.9 million and accounted for the transaction using the purchase
method of accounting. The transaction resulted in an allocation of approximately
$13.0 million in goodwill which is being amortized over a 40-year period.
1996 ACQUISITIONS
On December 31, 1996, the Company acquired the outstanding shares of
ProTechnics and subsidiaries ("ProTechnics"), a privately held company based in
Texas. The Company issued approximately 2,251,000 shares in exchange for the
outstanding shares of ProTechnics and accounted for the transaction using the
pooling-of-interests method of accounting. In addition, outstanding employee
stock options to purchase ProTechnics common shares were converted into options
to purchase approximately 174,000 shares of the Company's common shares.
ProTechnics is one of the leading providers of services that measure the
effectiveness of well stimulations and completions via their proprietary
ZeroWash(R) and SpectraScan(R) technologies. ProTechnics is also the leader in
determining the efficiencies of enhanced recovery projects through field tracer
surveys.
The results of operations of ProTechnics have been combined with that
of the Company's for the year ended December 31, 1996. In order to conform
ProTechnics year end (March 31) to the Company's calendar year end, an
adjustment has been made to retained earnings during 1996 for a change in the
fiscal year of ProTechnics.
On January 5, 1996, the Company acquired substantially all of the
assets of Gulf States Analytical, Inc. ("Gulf States"), a Texas based company.
The Company financed the transaction through borrowings of approximately $4.3
million and accounted for the transaction using the purchase method of
accounting.
31
The following information presents the results of operations on a pro
forma basis as though the 1998 and 1997 acquisitions accounted for using the
purchase method occurred on January 1, 1997. Information is presented for
informational purposes only, and may not be indicative of actual operating
results that would have been achieved. All amounts are in thousands, except per
share data.
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
Revenues ................................................ $317,280 $294,975
Income from continuing operations ....................... $ 25,924 $ 19,110
Net income .............................................. $ 22,333 $ 18,931
Basic income per share from continuing operations ....... $ .89 $ .70
Diluted income per share from continuing operations ..... $ .87 $ .68
4. DISCONTINUED OPERATIONS
In early 1998, the Company concluded that its package analyzer line of
business was no longer strategic and made a decision to discontinue this product
line. Subsequently, on April 8, 1998, the Company sold the majority of the net
assets of its package analyzer business line for approximately $4.1 million in
cash, resulting in a loss on sale of $1.3 million. Remaining net book value
associated with the unsold assets of the package analyzes product line totaled
approximately $3.5 million and was written down during 1998 to reflect
estimated salvage value.
The results of the package analyzer business line have been reported
separately as discontinued operations in the Consolidated Statements of
Operations. Prior year consolidated financial statements have been restated to
present the package analyzer business line as discontinued operations.
The loss on the disposition of discontinued operations is summarized
below:
YEAR ENDED
DECEMBER 31,
1998
------------
Write-down of work in process ................................... $ 988
Write-off of goodwill related to the package analyzer
business line ................................................ 2,563
Loss on sale of package analyzer business line .................. 1,269
------
Loss on disposition of discontinued operations .................. 4,820
Income tax benefit .............................................. 1,446
------
Loss on disposition of discontinued operations, net of tax ...... $3,374
======
5. INVENTORIES
Inventories consisted of the following at December 31, 1998 and 1997
(in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
Parts and materials ..... $16,987 $2,291
Work in process ......... 1,873 7,488
------- ------
Total ..... $18,860 $9,779
======= ======
32
6. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 is summarized in the
following table (in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
Credit Facility with a bank group:
$70,154 term loan facilities ........... $70,154 $70,000
$55,000 revolving debt facilities ...... 15,000 --
Loan notes .................................. 1,073 1,165
Other indebtedness .......................... 366 3,012
------- -------
Total debt .................. 86,593 74,177
Less - current maturities ................... 18,355 3,220
------- -------
Total long-term debt ........ $68,238 $70,957
======= =======
On May 12, 1997, the Company entered into a Credit Facility which
provides for (i) a term loan of $55 million, (ii) a term loan denominated in
British pounds having an initial U.S. dollar equivalency of $15 million, (iii)
a committed revolving debt facility of $50 million and (iv) a Netherlands
guilder denominated revolving debt facility with an initial U.S. dollar
equivalency of $5 million. At December 31, 1998, approximately $40 million was
available for borrowing under the revolving debt facilities. Loans under the
Credit Facility will generally bear interest ranging from LIBOR plus 0.75% to a
maximum of LIBOR plus 1.75%. The term loans require quarterly principal
payments beginning March 31, 1999 with the final principal payment due June 30,
2002. The revolving debt facilities require interest payments only, until
maturity on June 30, 2002. The terms of the Credit Facility 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 the Credit Facility.
As part of the purchase of Scott Pickford in March 1997, the Company
issued unsecured loan notes in lieu of cash consideration for the outstanding
shares of Scott Pickford. 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 are to be redeemed at par on
June 30, 2002.
Scheduled maturities of long-term debt (in thousands):
1999 .............................................................................. $ 18,355
2000 .............................................................................. 25,543
2001 .............................................................................. 25,518
2002 .............................................................................. 17,175
2003 and thereafter................................................................ 2
Total cash payments for interest were $6,090,000, $5,273,000, and $1,343,400
for 1998, 1997, and 1996, respectively.
33
7. INCOME TAXES
The components of income from continuing operations before income
taxes for 1998, 1997, and 1996 are as follows (in thousands):
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
United States ............................... $ 9,345 $ 8,340 $ 4,440
Other countries ............................. 24,374 15,004 6,724
------- ------- -------
Income from continuing operations
before income tax .............. $33,719 $23,344 $11,164
======= ======= =======
The components of income tax expense for 1998, 1997, and 1996, are as
follows (in thousands):
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
