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CORE LABORATORIES N V - Quarter Report: 2019 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019  

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ______________

 

Commission File Number:  001-14273

 

CORE LABORATORIES N.V.

(Exact name of registrant as specified in its charter)

 

The Netherlands

 

Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

Strawinskylaan 913

 

 

Tower A, Level 9

 

 

1077 XX Amsterdam

 

 

The Netherlands

 

Not Applicable

(Address of principal executive offices)

 

(Zip Code)

 

(31-20) 420-3191

(Registrant's telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock (par value EUR 0.02)

 

CLB

 

New York Stock Exchange

Common Stock (par value EUR 0.02)

 

CLB

 

Euronext Amsterdam Stock Exchange

 

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   No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No

 

The number of common shares of the registrant, par value EUR 0.02 per share, outstanding at July 24, 2019 was 44,362,895.

 


 

CORE LABORATORIES N.V.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019

INDEX

PART I - FINANCIAL INFORMATION

 

 

 

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) at June 30, 2019 and December 31, 2018

3

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2019 and 2018

4

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Six Months Ended June 30, 2019 and 2018

5

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2019 and 2018

6

 

 

 

 

Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2019 and 2018

7

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2019 and 2018

8

 

 

 

 

Notes to the Unaudited Consolidated Interim Financial Statements

9

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

 

 

 

Item 4.

Controls and Procedures

31

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

Item 6.

Exhibits

34

 

 

 

 

Signature

35

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CORE LABORATORIES N.V.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

ASSETS

 

(Unaudited)

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,546

 

 

$

13,116

 

Accounts receivable, net of allowance for doubtful accounts of $2,738

   and $2,650 at 2019 and 2018, respectively

 

 

134,900

 

 

 

129,157

 

Inventories

 

 

49,311

 

 

 

45,664

 

Prepaid expenses

 

 

13,078

 

 

 

15,351

 

Income taxes receivable

 

 

8,327

 

 

 

13,993

 

Other current assets

 

 

7,071

 

 

 

13,696

 

TOTAL CURRENT ASSETS

 

 

225,233

 

 

 

230,977

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

125,699

 

 

 

122,917

 

RIGHT OF USE ASSETS

 

 

76,290

 

 

 

 

INTANGIBLES, net

 

 

17,083

 

 

 

13,054

 

GOODWILL

 

 

214,360

 

 

 

219,412

 

DEFERRED TAX ASSETS, net

 

 

66,361

 

 

 

11,252

 

OTHER ASSETS

 

 

56,492

 

 

 

51,215

 

TOTAL ASSETS

 

$

781,518

 

 

$

648,827

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

41,995

 

 

$

41,155

 

Accrued payroll and related costs

 

 

32,108

 

 

 

22,549

 

Taxes other than payroll and income

 

 

7,118

 

 

 

7,488

 

Unearned revenues

 

 

14,070

 

 

 

17,325

 

Operating lease liabilities

 

 

12,968

 

 

 

 

Income taxes payable

 

 

1,528

 

 

 

2,917

 

Other current liabilities

 

 

15,039

 

 

 

11,113

 

TOTAL CURRENT LIABILITIES

 

 

124,826

 

 

 

102,547

 

LONG-TERM DEBT, net

 

 

290,022

 

 

 

289,770

 

LONG-TERM OPERATING LEASE LIABILITIES

 

 

62,737

 

 

 

 

DEFERRED COMPENSATION

 

 

49,162

 

 

 

49,359

 

DEFERRED TAX LIABILITIES, net

 

 

27,612

 

 

 

7,634

 

OTHER LONG-TERM LIABILITIES

 

 

34,667

 

 

 

38,617

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

Preference shares, EUR 0.02 par value; 6,000,000 shares authorized,

   none issued or outstanding

 

 

 

 

 

 

Common shares, EUR 0.02 par value; 200,000,000 shares authorized,

   44,796,252 issued and 44,354,797 outstanding at 2019 and 44,796,252

   issued and 44,316,845 outstanding at 2018

 

 

1,148

 

 

 

1,148

 

Additional paid-in capital

 

 

64,064

 

 

 

57,438

 

Retained earnings

 

 

175,285

 

 

 

156,130

 

Accumulated other comprehensive income (loss)

 

 

(6,359

)

 

 

(5,456

)

Treasury shares (at cost), 441,455 at 2019 and 479,407 at 2018

 

 

(45,877

)

 

 

(52,501

)

Total Core Laboratories N.V. shareholders' equity

 

 

188,261

 

 

 

156,759

 

Non-controlling interest

 

 

4,231

 

 

 

4,141

 

TOTAL EQUITY

 

 

192,492

 

 

 

160,900

 

TOTAL LIABILITIES AND EQUITY

 

$

781,518

 

 

$

648,827

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3

 

Return to Index


 

 CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Three months ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

REVENUE:

 

 

 

 

 

 

 

 

Services

 

$

117,874

 

 

$

122,094

 

Product sales

 

 

51,164

 

 

 

53,381

 

Total revenue

 

 

169,038

 

 

 

175,475

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation expense shown below

 

 

86,007

 

 

 

86,759

 

Cost of product sales, exclusive of depreciation expense shown below

 

 

38,444

 

 

 

37,014

 

General and administrative expense, exclusive of depreciation

   expense shown below

 

 

9,801

 

 

 

12,202

 

Depreciation

 

 

5,193

 

 

 

5,628

 

Amortization

 

 

593

 

 

 

240

 

Other (income) expense, net

 

 

992

 

 

 

183

 

OPERATING INCOME

 

 

28,008

 

 

 

33,449

 

Interest expense

 

 

3,714

 

 

 

3,296

 

Income from continuing operations before income tax expense

 

 

24,294

 

 

 

30,153

 

Income tax expense

 

 

4,808

 

 

 

5,020

 

Income from continuing operations

 

 

19,486

 

 

 

25,133

 

Income (loss) from discontinued operations, net of income taxes

 

 

7,971

 

 

 

(328

)

Net income

 

 

27,457

 

 

 

24,805

 

Net income attributable to non-controlling interest

 

 

43

 

 

 

53

 

Net income attributable to Core Laboratories N.V.

 

$

27,414

 

 

$

24,752

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE INFORMATION:

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

0.44

 

 

$

0.57

 

Basic earnings (loss) per share from discontinued operations

 

$

0.18

 

 

$

(0.01

)

Basic earnings per share attributable to Core Laboratories N.V.

 

$

0.62

 

 

$

0.56

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations

 

$

0.43

 

 

$

0.57

 

Diluted earnings (loss) per share from discontinued operations

 

$

0.18

 

 

$

(0.01

)

Diluted earnings per share attributable to Core Laboratories N.V.

 

$

0.61

 

 

$

0.56

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

Basic

 

 

44,354

 

 

 

44,203

 

Diluted

 

 

44,815

 

 

 

44,493

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 


4

 

Return to Index


 

CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

REVENUE:

 

 

 

 

 

 

 

 

Services

 

$

238,212

 

 

$

241,880

 

Product sales

 

 

100,020

 

 

 

103,613

 

Total revenue

 

 

338,232

 

 

 

345,493

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation expense shown below

 

 

176,373

 

 

 

170,047

 

Cost of product sales, exclusive of depreciation expense shown below

 

 

75,461

 

 

 

73,044

 

General and administrative expense, exclusive of depreciation

   expense shown below

 

 

27,238

 

 

 

24,911

 

Depreciation

 

 

10,432

 

 

 

11,210

 

Amortization

 

 

941

 

 

 

476

 

Other (income) expense, net

 

 

3,365

 

 

 

40

 

OPERATING INCOME

 

 

44,422

 

 

 

65,765

 

Interest expense

 

 

7,440

 

 

 

6,416

 

Income from continuing operations before income tax expense

 

 

36,982

 

 

 

59,349

 

Income tax expense (benefit)

 

 

(22,802

)

 

 

10,293

 

Income from continuing operations

 

 

59,784

 

 

 

49,056

 

Income (loss) from discontinued operations, net of income taxes

 

 

8,230

 

 

 

(674

)

Net income

 

 

68,014

 

 

 

48,382

 

Net income attributable to non-controlling interest

 

 

90

 

 

 

103

 

Net income attributable to Core Laboratories N.V.

 

$

67,924

 

 

$

48,279

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE INFORMATION:

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

1.35

 

 

$

1.11

 

Basic earnings (loss) per share from discontinued operations

 

$

0.18

 

 

$

(0.02

)

Basic earnings per share attributable to Core Laboratories N.V.

 

$

1.53

 

 

$

1.09

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations

 

$

1.33

 

 

$

1.10

 

Diluted earnings (loss) per share from discontinued operations

 

$

0.18

 

 

$

(0.02

)

Diluted earnings per share attributable to Core Laboratories N.V.

 

$

1.51

 

 

$

1.08

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

Basic

 

 

44,339

 

 

 

44,191

 

Diluted

 

 

44,848

 

 

 

44,515

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

5

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net income

 

$

27,457

 

 

$

24,805

 

 

$

68,014

 

 

$

48,382

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) in fair value of interest rate swaps

 

 

(657

)

 

 

235

 

 

 

(1,029

)

 

 

881

 

Interest rate swap amounts reclassified to interest expense

 

 

(45

)

 

 

25

 

 

 

(94

)

 

 

89

 

Income taxes on derivatives

 

 

147

 

 

 

(54

)

 

 

236

 

 

 

(204

)

Total derivatives

 

 

(555

)

 

 

206

 

 

 

(887

)

 

 

766

 

Pension and other postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization to net income of prior service cost

 

 

(25

)

 

 

(18

)

 

 

(50

)

 

 

(39

)

Amortization to net income of actuarial loss

 

 

14

 

 

 

84

 

 

 

29

 

 

 

168

 

Income taxes on pension and other postretirement benefit plans

 

 

2

 

 

 

(17

)

 

 

5

 

 

 

(32

)

Total pension and other postretirement benefit plans

 

 

(9

)

 

 

49

 

 

 

(16

)

 

 

97

 

Total other comprehensive income (loss)

 

 

(564

)

 

 

255

 

 

 

(903

)

 

 

863

 

Comprehensive income

 

 

26,893

 

 

 

25,060

 

 

 

67,111

 

 

 

49,245

 

Comprehensive income attributable to non-controlling interest

 

 

43

 

 

 

53

 

 

 

90

 

 

 

103

 

Comprehensive income attributable to Core Laboratories N.V.

 

$

26,850

 

 

$

25,007

 

 

$

67,021

 

 

$

49,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

6

 

Return to Index


 

CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

1,148

 

 

$

1,148

 

 

$

1,148

 

 

$

1,148

 

Balance at End of Period

 

$

1,148

 

 

$

1,148

 

 

$

1,148

 

 

$

1,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Paid-In Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

65,084

 

 

$

55,670

 

 

$

57,438

 

 

$

54,463

 

Stock based-awards

 

 

(1,020

)

 

 

3,257

 

 

 

6,626

 

 

 

4,464

 

Balance at End of Period

 

$

64,064

 

 

$

58,927

 

 

$

64,064

 

 

$

58,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

172,266

 

 

$

173,060

 

 

$

156,130

 

 

$

173,855

 

Dividends paid

 

 

(24,395

)

 

 

(24,313

)

 

 

(48,769

)

 

 

(48,635

)

Net income attributable to Core Laboratories N.V.

 

 

27,414

 

 

 

24,752

 

 

 

67,924

 

 

 

48,279

 

Balance at End of Period

 

$

175,285

 

 

$

173,499

 

 

$

175,285

 

 

$

173,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

(5,795

)

 

$

(7,745

)

 

$

(5,456

)

 

$

(8,353

)

Amortization of deferred pension costs, net of tax

 

 

(9

)

 

 

49

 

 

 

(16

)

 

 

97

 

Interest rate swaps, net of tax

 

 

(555

)

 

 

206

 

 

 

(887

)

 

 

766

 

Balance at End of Period

 

$

(6,359

)

 

$

(7,490

)

 

$

(6,359

)

 

$

(7,490

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

(49,538

)

 

$

(74,495

)

 

$

(52,501

)

 

$

(76,269

)

Stock based-awards

 

 

4,265

 

 

 

2,844

 

 

 

7,715

 

 

 

7,928

 

Repurchase of common shares

 

 

(604

)

 

 

(650

)

 

 

(1,091

)

 

 

(3,960

)

Balance at End of Period

 

$

(45,877

)

 

$

(72,301

)

 

$

(45,877

)

 

$

(72,301

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

4,188

 

 

$

3,938

 

 

$

4,141

 

 

$

3,888

 

Net income attributable to non-controlling interest

 

 

43

 

 

 

53

 

 

 

90

 

 

 

103

 

Balance at End of Period

 

$

4,231

 

 

$

3,991

 

 

$

4,231

 

 

$

3,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

187,353

 

 

$

151,576

 

 

$

160,900

 

 

$

148,732

 

Stock based-awards

 

 

3,245

 

 

 

6,101

 

 

 

14,341

 

 

 

12,392

 

Repurchase of common shares

 

 

(604

)

 

 

(650

)

 

 

(1,091

)

 

 

(3,960

)

Dividends paid

 

 

(24,395

)

 

 

(24,313

)

 

 

(48,769

)

 

 

(48,635

)

Amortization of deferred pension costs, net of tax

 

 

(9

)

 

 

49

 

 

 

(16

)

 

 

97

 

Interest rate swaps, net of tax

 

 

(555

)

 

 

206

 

 

 

(887

)

 

 

766

 

Net income

 

 

27,457

 

 

 

24,805

 

 

 

68,014

 

 

 

48,382

 

Balance at End of Period

 

$

192,492

 

 

$

157,774

 

 

$

192,492

 

 

$

157,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends per Share

 

$

0.55

 

 

$

0.55

 

 

$

1.10

 

 

$

1.10

 

 

The accompanying notes are an integral part of these consolidated financial statements.

7

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

59,784

 

 

$

49,056

 

Income (loss) from discontinued operations, net of tax

 

 

8,230

 

 

 

(674

)

Net income

 

$

68,014

 

 

$

48,382

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

14,341

 

 

 

12,392

 

Depreciation and amortization

 

 

11,373

 

 

 

11,686

 

Changes to value of life insurance policies

 

 

(2,219

)

 

 

(1,426

)

Deferred income taxes

 

 

(35,116

)

 

 

397

 

Gain on sale of business

 

 

(1,154

)

 

 

 

Gain on sale of discontinued operations

 

 

(8,808

)

 

 

 

Other non-cash items

 

 

292

 

 

 

494

 

Changes in assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,321

)

 

 

(5,425

)

Inventories

 

 

(2,915

)

 

 

(7,113

)

Prepaid expenses and other current assets

 

 

3,484

 

 

 

(4,067

)

Other assets

 

 

(2,284

)

 

 

457

 

Accounts payable

 

 

947

 

 

 

3,440

 

Accrued expenses

 

 

11,647

 

 

 

(5,830

)

Unearned revenues

 

 

(4,824

)

 

 

203

 

Other long-term liabilities

 

 

(4,221

)

 

 

(3,507

)

Net cash provided by operating activities

 

$

42,236

 

 

$

50,083

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

$

(12,230

)

 

$

(11,915

)

Patents and other intangibles

 

 

105

 

 

 

(878

)

Proceeds from sale of assets

 

 

440

 

 

 

199

 

Proceeds from sale of business

 

 

2,980

 

 

 

 

Proceeds from sale of discontinued operations

 

 

16,642

 

 

 

 

Premiums on life insurance

 

 

(883

)

 

 

(720

)

Net cash provided by (used in) investing activities

 

$

7,054

 

 

$

(13,314

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of debt borrowings

 

$

(68,000

)

 

$

(57,000

)

Proceeds from debt borrowings

 

 

68,000

 

 

 

73,000

 

Debt financing costs

 

 

 

 

 

(1,553

)

Dividends paid

 

 

(48,769

)

 

 

(48,635

)

Repurchase of common shares

 

 

(1,091

)

 

 

(3,960

)

Net cash used in financing activities

 

$

(49,860

)

 

$

(38,148

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(570

)

 

 

(1,379

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

13,116

 

 

 

14,400

 

CASH AND CASH EQUIVALENTS, end of period

 

$

12,546

 

 

$

13,021

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

6,786

 

 

$

5,572

 

Cash payments for income taxes

 

$

7,269

 

 

$

11,344

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

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CORE LABORATORIES N.V.

NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of Core Laboratories N.V. and its subsidiaries for which we have a controlling voting interest and/or a controlling financial interest. These financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information using the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnote disclosures required by U.S. GAAP and should be read in conjunction with the audited financial statements and the summary of significant accounting policies and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Annual Report").

Core Laboratories N.V. uses the equity method of accounting for investments in which it has less than a majority interest and over which it does not exercise control but does exert significant influence. We use the cost method to record certain other investments in which we own less than 20% of the outstanding equity and do not exercise control or exert significant influence. Non-controlling interests have been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than 100% owned. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included in these financial statements. Furthermore, the operating results presented for the three and six months ended June 30, 2019 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2019.

Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2018 was derived from the 2018 audited consolidated financial statements but does not include all disclosures in accordance with U.S. GAAP.

References to "Core Lab", the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report on Form 10-Q and relate collectively to Core Laboratories N.V. and its consolidated subsidiaries.

We operate our business in two reportable segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields.

 

Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples to increase production and improve recovery of oil and gas from our clients' reservoirs. We provide laboratory based analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry. We also provide proprietary and joint industry studies based on these types of analysis.

 

Production Enhancement: Includes services and products relating to reservoir well completions, perforations, stimulations and production. We provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.

Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported net income or cash flows for the three and six months ended June 30, 2018.

2. INVENTORIES

Inventories consisted of the following (in thousands):

 

 

June 30,

2019

 

 

December 31,

2018

 

Finished goods

 

$

26,928

 

 

$

26,636

 

Parts and materials

 

 

19,618

 

 

 

13,704

 

Work in progress

 

 

2,765

 

 

 

5,324

 

Total inventories

 

$

49,311

 

 

$

45,664

 

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We include freight costs incurred for shipping inventory to our clients in the Cost of product sales caption in the accompanying Consolidated Statements of Operations.

3. SIGNIFICANT ACCOUNTING POLICIES UPDATE

Our significant accounting policies are detailed in "Note 2: Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2018. Significant changes to our accounting policies as a result of adopting Topic 842 - Leases are discussed below:

Leases

We have operating leases primarily consisting of offices and lab space, machinery and equipment and vehicles. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right of use (“ROU”) assets, other current liabilities and long-term operating lease liabilities in our Consolidated Balance Sheet. Finance leases are included in property and equipment, other current liabilities and other long term liabilities in our Consolidated Balance Sheet.

Lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Where our lease does not provide an implicit rate, we estimate the discount rate used to discount the future minimum lease payments using our incremental borrowing rate and other information available at the commencement date. The ROU assets also include all initial direct costs incurred. Our lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

4. CONTRACT ASSETS AND CONTRACT LIABILITIES

Contract assets and liabilities result due to the timing of revenue recognition, billings and cash collections.

Contract assets include our right to payment for goods and services already transferred to a customer when the right to payment is conditional on something other than the passage of time, for example contracts where we recognize revenue over time but do not have a contractual right to payment until we complete the performance obligations. Contract assets are included in accounts receivable in our Consolidated Balance Sheet.

Contract liabilities consist of advance payments received and billings in excess of revenue recognized. We generally receive up-front payments relating to our consortia studies; we recognize revenue over the life of the study as the testing and analysis results are made available to our consortia members. We record billings in excess of revenue recognized for contracts with a duration less than twelve months as unearned revenue. We classify contract liabilities for contracts with a duration greater than twelve months as current or non-current based on the timing of when we expect to recognize revenue. The current portion of contract liabilities is included in unearned revenue and the non-current portion of contract liabilities is included in other long-term liabilities in our Consolidated Balance Sheet.

The balance of contract assets and contract liabilities consisted of the following (in thousands):

 

 

June 30,

2019

 

 

December 31,

2018

 

Contract assets

 

 

 

 

 

 

 

 

Current

 

$

892

 

 

$

1,145

 

Non-Current

 

 

 

 

 

188

 

 

 

$

892

 

 

$

1,333

 

Contract Liabilities

 

 

 

 

 

 

 

 

Current

 

$

6,379

 

 

$

5,963

 

Non-current

 

 

576

 

 

 

1,401

 

 

 

$

6,955

 

 

$

7,364

 

 

10

 

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June 30,

2019

 

Estimate of when contract liabilities will be recognized as revenue

 

 

 

 

within 12 months

 

$

6,379

 

within 12 to 24 months

 

 

576

 

greater than 24 months

 

 

 

We did not recognize any impairment losses on our receivables and contract assets for the three and six months ended June 30, 2019.

5. ACQUISITIONS

In 2018, we acquired a business providing downhole technologies associated with perforating systems for $49.1 million in cash. These downhole technologies will significantly enhance Core Lab's Production Enhancement operations and its ability to bring new and innovative product offerings to our clients. We have estimated the fair value of tangible assets acquired to be $4.3 million, and intangible assets, including patents, customer-relationship benefits, non-compete agreements and trade secrets to be $8.5 million. We have accounted for this acquisition by allocating the purchase price to the net assets acquired based on their estimated fair values at the date of acquisition which resulted in an increase to goodwill of $36.3 million. We have not finalized the assessment of the fair values of assets acquired and liabilities assumed; estimates of certain assets and liabilities require significant judgments and assumptions, and our estimates of acquisition date fair value will be determined upon finalization of our analysis. During the three months ended June 30, 2019, we increased our estimate of the fair value of intangible assets by $4.7 million. The fair value estimates are subject to further adjustment during the measurement period subsequent to the acquisition date, not to exceed one year. The acquisition is included in the Production Enhancement business segment.

The acquisition of this business did not have a material impact on our Consolidated Balance Sheet or Consolidated Statements of Operations.

6. DISCONTINUED OPERATIONS

In 2018, in a continuing effort to streamline our business and align our business strategy for further integration of services and products, the Company committed to divest the business of our full range of permanent downhole monitoring systems and related services, which had been part of our Production Enhancement segment.

On June 7, 2019, we entered into a definitive purchase agreement for the divestiture of our full range of permanent downhole monitoring systems and related services, which was previously part of our Production Enhancement segment for approximately $16.6 million in cash. The purchase agreement also provides for additional proceeds of up to $2.5 million based on the results of operations of the sold business in 2019 and 2020, none of which has been recognized. A pre-tax gain of $8.8 million was recognized in connection with this transaction, subject to adjustments for working capital purposes and is classified in Income from discontinued operations in the Consolidated Statements of Operations.

The associated results of operations are separately reported as Discontinued Operations for all periods presented on the Consolidated Statements of Operations. Balance sheet items for this discontinued business, including an allocation of goodwill from the Production Enhancement segment, have been reclassified to Other current assets and Other current liabilities in the Consolidated Balance Sheet as of December 31, 2018. Cash flows from this discontinued business are shown below. As such, the results from continuing operations for the Company and segment highlights for Production Enhancement, exclude these discontinued operations.

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Selected data for this discontinued business consisted of the following (in thousands):

 

 

 

Three Months Ended

 

 

 

June 30,

2019

 

 

June 30,

2018

 

Service revenue

 

$

466

 

 

$

427

 

Product sales

 

 

2,465

 

 

 

1,179

 

Total revenue

 

 

2,931

 

 

 

1,606

 

Cost of services, exclusive of depreciation expense shown below

 

 

345

 

 

 

309

 

Cost of product sales, exclusive of depreciation expense shown below

 

 

1,554

 

 

 

1,361

 

Depreciation and amortization

 

 

 

 

 

44

 

Other expense

 

 

117

 

 

 

14

 

Operating income (loss)

 

 

915

 

 

 

(122

)

Gain on sale

 

 

8,804

 

 

 

 

Income (loss) from discontinued operations before income tax expense

 

 

9,719

 

 

 

(122

)

Income tax expense

 

 

1,748

 

 

 

206

 

Income (loss) from discontinued operations, net of income taxes

 

$

7,971

 

 

$

(328

)

 

 

 

Six Months Ended

 

 

 

June 30,

2019

 

 

June 30,

2018

 

Service revenue

 

$

1,165

 

 

$

902

 

Product sales

 

 

4,233

 

 

 

1,710

 

Total revenue

 

 

5,398

 

 

 

2,612

 

Cost of services, exclusive of depreciation expense shown below

 

 

690

 

 

 

874

 

Cost of product sales, exclusive of depreciation expense shown below

 

 

3,196

 

 

 

2,180

 

Depreciation and amortization

 

 

 

 

 

102

 

Other expense

 

 

91

 

 

 

22

 

Operating income (loss)

 

 

1,421

 

 

 

(566

)

Gain on sale

 

 

8,804

 

 

 

 

Income (loss) from discontinued operations before income tax expense

 

 

10,225

 

 

 

(566

)

Income tax expense

 

 

1,995

 

 

 

108

 

Income (loss) from discontinued operations, net of income taxes

 

$

8,230

 

 

$

(674

)

 

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Current assets

 

$

 

 

$

3,712

 

Non-current assets

 

 

 

 

 

1,848

 

Total assets

 

$

 

 

$

5,560

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

 

$

1,633

 

Non-current liabilities

 

 

 

 

 

82

 

Total liabilities

 

$

 

 

$

1,715

 

 

Net cash provided by (used in) operating activities of discontinued operations for the six months ended June 30, 2019 and 2018 was $(1.8) million and $0.1 million, respectively.

Net cash provided by investing activities of discontinued operations for the six months ended June 30, 2019 and 2018 was $16.6 million and $0.0 million, respectively.

 

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7. LONG-TERM DEBT, NET

We have no financing lease obligations.

Long-term debt is as follows (in thousands):  

 

 

June 30,

2019

 

 

December 31,

2018

 

Senior Notes

 

$

150,000

 

 

$

150,000

 

Credit Facility

 

 

142,000

 

 

 

142,000

 

Total long-term debt

 

 

292,000

 

 

 

292,000

 

Less: Debt issuance costs

 

 

(1,978

)

 

 

(2,230

)

Long-term debt, net

 

$

290,022

 

 

$

289,770

 

 

We have two series of senior notes outstanding with an aggregate principal amount of $150 million ("Senior Notes") issued in a private placement transaction. Series A consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.01% and are due in full on September 30, 2021. Series B consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.11% and are due in full on September 30, 2023. Interest on each series of the Senior Notes is payable semi-annually on March 30 and September 30.

The aggregate borrowing commitment under our revolving credit facility (the “Credit Facility”) is $300 million. The Credit Facility provides an option to increase the commitment under the Credit Facility by an additional $100 million to bring the total borrowings available to $400 million if certain prescribed conditions are met by the Company. The Credit Facility bears interest at variable rates from LIBOR plus 1.375% to a maximum of LIBOR plus 2.00%. Any outstanding balance under the Credit Facility is due June 19, 2023, when the Credit Facility matures. Our available capacity at any point in time is reduced by borrowings outstanding at the time and outstanding letters of credit which totaled $20.1 million at June 30, 2019, resulting in an available borrowing capacity under the Credit Facility of $137.9 million. In addition to those items under the Credit Facility, we had $12.8 million of outstanding letters of credit and performance guarantees and bonds from other sources as of June 30, 2019.

The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (consolidated EBITDA divided by interest expense) and a leverage ratio (consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in each agreement) and interest expense are calculated using the most recent four fiscal quarters. The Credit Facility has the more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and a maximum leverage ratio of 2.5 to 1.0. The terms of our Credit Facility allow us to negotiate in good faith to amend any ratio or requirement to preserve the original intent of the agreement if any change in accounting principle would affect the computation of any financial ratio or requirement of the Credit Facility. The adoption on January 1, 2019 of ASU 2016-02 does not affect the calculation of consolidated EBITDA under the agreement. We believe that we are in compliance with all such covenants contained in our credit agreements. Certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million. See Note 15 - Derivative Instruments and Hedging Activities.

The estimated fair value of total debt at June 30, 2019 and December 31, 2018 approximated the book value of total debt. The fair value was estimated using Level 2 inputs by calculating the sum of the discounted future interest and principal payments through the date of maturity.

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8. PENSION

Defined Benefit Plan

We provide a noncontributory defined benefit pension plan covering substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2000. The pension benefit is based on years of service and final pay or career average pay, depending on when the employee began participating. The benefits earned by the employees are immediately vested.

The following table summarizes the components of net periodic pension cost under the Dutch Plan (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Service cost

 

$

189

 

 

$

392

 

 

$

381

 

 

$

741

 

Interest cost

 

 

259

 

 

 

336

 

 

 

519

 

 

 

636

 

Expected return on plan assets

 

 

(229

)

 

 

(290

)

 

 

(461

)

 

 

(549

)

Amortization of prior service cost

 

 

(25

)

 

 

(18

)

 

 

(50

)

 

 

(39

)

Amortization of actuarial loss

 

 

14

 

 

 

84

 

 

 

29

 

 

 

168

 

Net periodic pension cost

 

$

208

 

 

$

504

 

 

$

418

 

 

$

957

 

During the six months ended June 30, 2019, we contributed $0.6 million to fund the estimated 2019 premiums on investment contracts held by the Dutch Plan.

9. COMMITMENTS AND CONTINGENCIES

We have been and may from time to time be named as a defendant in legal actions that arise in the ordinary course of business. These include, but are not limited to, employment-related claims and contractual disputes or claims for personal injury or property damage which occur in connection with the provision of our services and products. A liability is accrued when a loss is both probable and can be reasonably estimated.

10. EQUITY

During the three and six months ended June 30, 2019, we repurchased 8,830 and 16,056 of our common shares for $0.6 million and $1.1 million, respectively, which were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares under that plan. Such common shares, unless canceled, may be reissued for a variety of purposes such as future acquisitions, non-employee director stock awards or employee stock awards. We distributed 29,853 and 54,008 treasury shares upon vesting of stock-based awards during the three and six months ended June 30, 2019.

In February and May 2019, we paid a quarterly dividend of $0.55 per share of common stock. In addition, on July 12, 2019, we declared a quarterly dividend of $0.55 per share of common stock for shareholders of record on July 22, 2019 and payable on August 12, 2019.

Accumulated other comprehensive income (loss) consisted of the following (in thousands):

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Prior service cost

 

$

555

 

 

$

593

 

Unrecognized net actuarial loss

 

 

(6,221

)

 

 

(6,243

)

Fair value of derivatives, net of tax

 

 

(693

)

 

 

194

 

Total accumulated other comprehensive (loss)

 

$

(6,359

)

 

$

(5,456

)

 

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11. EARNINGS PER SHARE

We compute basic earnings per common share by dividing net income attributable to Core Laboratories N.V. by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common shares include additional shares in the weighted average share calculations associated with the incremental effect of dilutive restricted stock awards and contingently issuable shares, as determined using the treasury stock method. The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Weighted average basic common shares

     outstanding

 

 

44,354

 

 

 

44,203

 

 

 

44,339

 

 

 

44,191

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance shares

 

 

104

 

 

 

205

 

 

 

115

 

 

 

255

 

Restricted stock

 

 

357

 

 

 

85

 

 

 

394

 

 

 

69

 

Weighted average diluted common and

      potential common shares outstanding

 

 

44,815

 

 

 

44,493

 

 

 

44,848

 

 

 

44,515

 

 

12. OTHER (INCOME) EXPENSE, NET

The components of other (income) expense, net, were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Gain on sale of assets

 

$

(61

)

 

$

81

 

 

$

(307

)

 

$

(508

)

Results of non-consolidated subsidiaries

 

 

(24

)

 

 

(11

)

 

 

(97

)

 

 

(69

)

Foreign exchange

 

 

(218

)

 

 

654

 

 

 

(181

)

 

 

1,086

 

Rents and royalties

 

 

(487

)

 

 

(141

)

 

 

(593

)

 

 

(236

)

Employment related charges

 

 

(334

)

 

 

 

 

 

2,866

 

 

 

 

Return on pension assets and other pension costs

 

 

(240

)

 

 

(224

)

 

 

(482

)

 

 

(420

)

Gain on sale of business

 

 

(1,154

)

 

 

 

 

 

(1,154

)

 

 

 

Cost reduction and other charges

 

 

2,977

 

 

 

 

 

 

2,977

 

 

 

 

Other, net

 

 

533

 

 

 

(176

)

 

 

336

 

 

 

187

 

Total other expense, net

 

$

992

 

 

$

183

 

 

$

3,365

 

 

$

40

 

 

Foreign exchange gains and losses are summarized in the following table (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Gains) losses by currency

 

2019

 

 

2018

 

 

2019

 

 

2018

 

British Pound

 

$

165

 

 

$

104

 

 

$

178

 

 

$

(23

)

Canadian Dollar

 

 

29

 

 

 

243

 

 

 

88

 

 

 

357

 

Euro

 

 

92

 

 

 

(259

)

 

 

2

 

 

 

(16

)

Other currencies, net

 

 

(504

)

 

 

566

 

 

 

(449

)

 

 

768

 

Total loss, net

 

$

(218

)

 

$

654

 

 

$

(181

)

 

$

1,086

 

 

During the three months ended June 30, 2019, we sold a business for a cash payment of $3.0 million. As this represented a single location within our business units, the sale did not constitute a discontinued operation and, accordingly, the effects of this transaction are included in continuing operations.

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13. INCOME TAX EXPENSE

The effective tax rates for the three months ended June 30, 2019 and 2018 were 19.8% and 16.6%, respectively, and for the six months ended June 30, 2019 and 2018 were (61.7)% and 17.3%, respectively. The income tax expense of $4.8 million in the second quarter of 2019 decreased by $0.2 million compared to $5 million in the same period in 2018, due to the result of several items discrete to each quarter, along with changes in activity levels in jurisdictions with differing tax rates. Tax expense included a net tax benefit of $58.5 million which resulted from a corporate restructuring in the first quarter and tax expense of $26.7 million related to unremitted earnings of foreign subsidiaries that we no longer consider to be indefinitely reinvested, each of which was a discrete item in the first quarter of 2019.

14. LEASES

 

We have operating leases primarily consisting of offices and lab space, machinery and equipment and vehicles. The components of lease expense are as follows (in thousands):

 

 

Three months ended

 

 

Six months ended

 

 

June 30, 2019

 

 

June 30, 2019

 

Lease Cost

 

 

 

 

 

 

 

Operating lease cost

$

4,551

 

 

$

9,303

 

Short-term lease cost

 

328

 

 

 

622

 

Variable lease cost

 

240

 

 

 

359

 

Total lease cost

$

5,119

 

 

$

10,284

 

 

 

 

 

 

 

 

 

Other Information

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

Operating cash flows from operating leases

$

4,826

 

 

$

9,423

 

Right-of-use assets obtained in exchange for new lease obligations:

 

 

 

 

 

 

 

Operating leases

$

3,559

 

 

$

7,229

 

Weighted-average remaining lease term- operating leases

9.04 years

 

 

9.04 years

 

Weighted-average discount rate - operating leases

 

4.97

%

 

 

4.97

%

 

Scheduled undiscounted cash flows for non-cancellable leases at June 30, 2019 consist of the following (in thousands):

 

 

Operating Leases

 

Remainder of 2019

$

8,231

 

2020

 

14,002

 

2021

 

11,524

 

2022

 

10,176

 

2023

 

8,651

 

Thereafter

 

42,339

 

Total undiscounted lease payments

$

94,923

 

Less:  Imputed Interest

 

(19,218

)

Total lease liabilities

$

75,705

 

 

We adopted ASU 2017-06 using the cumulative effect transition method on January 1, 2019. As required, the following disclosure is provided for periods prior to adoption. Scheduled minimum rental commitments under non-cancellable operating leases at December 31, 2018, consist of the following (in thousands):

 

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Operating Leases

 

2019

$

16,267

 

2020

 

12,572

 

2021

 

9,774

 

2022

 

7,955

 

2023

 

4,938

 

Thereafter

 

14,815

 

Total commitments

$

66,321

 

 

 

 

 

 

The Company has elected to apply the short-term lease exemption to all of its classes of underlying assets. Accordingly, no ROU asset or lease liability is recognized for leases with a term of twelve months or less.

The Company has elected to apply the practical expedient for combining lease and non-lease components for vehicle leases and elected not to apply the practical expedient for combining lease and non-lease components to all other classes of underlying assets.

15. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to market risks related to fluctuations in interest rates. To mitigate these risks, we utilize derivative instruments in the form of interest rate swaps. We do not enter into derivative transactions for speculative purposes.

Interest Rate Risk

Our Credit Facility bears interest at variable rates from LIBOR plus 1.375% to a maximum of LIBOR plus 2.00%. As a result of two interest rate swap agreements, we are subject to interest rate risk on debt in excess of $50 million drawn on our Credit Facility.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million to hedge changes in the variable rate interest expense on $50 million of our existing or replacement LIBOR-priced debt. Under the first swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 1.73% through August 29, 2019, and under the second swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 2.5% through August 29, 2024. Each swap is measured at fair value and recorded in our Consolidated Balance Sheet as an asset or liability. They are designated and qualify as cash flow hedging instruments and are highly effective. Unrealized losses are deferred to shareholders' equity as a component of accumulated other comprehensive gain (loss) and are recognized in income as an increase or decrease to interest expense in the period in which the related cash flows being hedged are recognized in expense.

At June 30, 2019, we had fixed rate long-term debt aggregating $200 million and variable rate long-term debt aggregating $92 million, after taking into account the effect of the swaps.

The fair values of outstanding derivative instruments are as follows (in thousands):

 

 

Fair Value of Derivatives

 

 

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

Balance Sheet

Classification

Derivatives designated as hedges:

 

 

 

 

 

 

 

 

 

 

5 year interest rate swap

 

$

24

 

 

$

135

 

 

Other current assets

10 year interest rate swap

 

 

(1,082

)

 

 

(70

)

 

Other long-term (liabilities)

 

 

$

(1,058

)

 

$

65

 

 

 

 

The fair value of all outstanding derivatives was determined using a model with inputs that are observable in the market (Level 2) or can be derived from or corroborated by observable data.

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The effect of the interest rate swaps on the Consolidated Statement of Operations was as follows (in thousands):

 

 

Three Months Ended

 

 

Six Months

 

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Income Statement

Classification

Derivatives designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5 year interest rate swap

 

$

(47

)

 

$

(12

)

 

$

(96

)

 

$

(4

)

 

(Decrease) to interest expense

10 year interest rate swap

 

 

2

 

 

 

37

 

 

 

2

 

 

 

93

 

 

Increase to interest expense

 

 

$

(45

)

 

$

25

 

 

$

(94

)

 

$

89

 

 

 

 

16. FINANCIAL INSTRUMENTS

The Company's only financial assets and liabilities which are measured at fair value on a recurring basis relate to certain aspects of the Company's benefit plans and our derivative instruments. We use the market approach to value certain assets and liabilities at fair value using significant other observable inputs (Level 2) with the assistance of a third-party specialist. We do not have any assets or liabilities measured at fair value on a recurring basis using quoted prices in an active market (Level 1) or significant unobservable inputs (Level 3). Gains and losses related to the fair value changes in the deferred compensation assets and liabilities are recorded in General and administrative expense in the Consolidated Statements of Operations. Gains and losses related to the fair value of the interest rate swaps are recorded in Other comprehensive income. The following table summarizes the fair value balances (in thousands):

 

 

 

 

 

 

 

Fair Value Measurement at

 

 

 

 

 

 

 

June 30, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation assets (1)

 

$

47,907

 

 

$

 

 

$

47,907

 

 

$

 

5 year interest rate swap

 

 

24

 

 

 

 

 

 

24

 

 

 

 

 

 

$

47,931

 

 

$

 

 

$

47,931

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan

 

$

36,994

 

 

$

 

 

$

36,994

 

 

$

 

10 year interest rate swap

 

 

1,082

 

 

 

 

 

 

1,082

 

 

 

 

 

 

$

38,076

 

 

$

 

 

$

38,076

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurement at

 

 

 

 

 

 

 

December 31,

2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation assets (1)

 

$

42,161

 

 

$

 

 

$

42,161

 

 

$

 

5 year interest rate swap

 

 

135

 

 

 

 

 

 

135

 

 

 

 

 

 

$

42,296

 

 

$

 

 

$

42,296

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan

 

$

33,287

 

 

$

 

 

$

33,287

 

 

$

 

10 year interest rate swap

 

 

70

 

 

 

 

 

 

70

 

 

 

 

 

 

$

33,357

 

 

$

 

 

$

33,357

 

 

$

 

(1)

Deferred compensation assets consist of the cash surrender value of life insurance policies and are intended to assist in the funding of the deferred compensation agreements.

17. SEGMENT REPORTING

We operate our business in two reportable segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields.

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Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples to increase production and improve recovery of oil and gas from our clients' reservoirs. We provide laboratory based analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry. We also provide proprietary and joint industry studies based on these types of analysis.

 

Production Enhancement: Includes services and products relating to reservoir well completions, perforations, stimulations and production. We provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.

Results for these segments are presented below. We use the same accounting policies to prepare our segment results as are used to prepare our Consolidated Financial Statements. All interest and other non-operating income (expense) is attributable to Corporate & Other and is not allocated to specific segments. Summarized financial information concerning our segments is shown in the following table (in thousands):

 

 

Reservoir

Description

 

 

Production

Enhancement

 

 

Corporate &

Other 1

 

 

Consolidated

 

Three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

105,649

 

 

$

63,389

 

 

$

 

 

$

169,038

 

Inter-segment revenue

 

 

151

 

 

 

176

 

 

 

(327

)

 

 

 

Segment operating income

 

 

15,878

 

 

 

10,424

 

 

 

1,706

 

 

 

28,008

 

Total assets (at end of period)

 

 

342,843

 

 

 

290,967

 

 

 

147,708

 

 

 

781,518

 

Capital expenditures

 

 

2,744

 

 

 

4,281

 

 

 

22

 

 

 

7,047

 

Depreciation and amortization

 

 

3,834

 

 

 

1,544

 

 

 

408

 

 

 

5,786

 

Three months ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

102,107

 

 

$

73,368

 

 

$

 

 

$

175,475

 

Inter-segment revenue

 

 

73

 

 

 

101

 

 

 

(174

)

 

 

 

Segment operating income (loss)

 

 

14,760

 

 

 

18,427

 

 

 

262

 

 

 

33,449

 

Total assets (at end of period)

 

 

319,122

 

 

 

218,011

 

 

 

67,611

 

 

 

604,744

 

Capital expenditures

 

 

5,384

 

 

 

1,938

 

 

 

150

 

 

 

7,472

 

Depreciation and amortization

 

 

4,290

 

 

 

1,006

 

 

 

572

 

 

 

5,868

 

Six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

208,941

 

 

$

129,291

 

 

$

 

 

$

338,232

 

Inter-segment revenue

 

 

247

 

 

 

220

 

 

 

(467

)

 

 

 

Segment operating income

 

 

22,057

 

 

 

20,336

 

 

 

2,029

 

 

 

44,422

 

Total assets

 

 

342,843

 

 

 

290,967

 

 

 

147,708

 

 

 

781,518

 

Capital expenditures

 

 

4,646

 

 

 

7,132

 

 

 

452

 

 

 

12,230

 

Depreciation and amortization

 

 

7,821

 

 

 

2,727

 

 

 

825

 

 

 

11,373

 

Six months ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

202,916

 

 

$

142,577

 

 

$

 

 

$

345,493

 

Inter-segment revenue

 

 

120

 

 

 

152

 

 

 

(272

)

 

 

 

Segment operating income (loss)

 

 

29,517

 

 

 

36,114

 

 

 

134

 

 

 

65,765

 

Total assets

 

 

319,122

 

 

 

218,011

 

 

 

67,611

 

 

 

604,744

 

Capital expenditures

 

 

7,565

 

 

 

3,785

 

 

 

565

 

 

 

11,915

 

Depreciation and amortization

 

 

8,537

 

 

 

2,008

 

 

 

1,141

 

 

 

11,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) "Corporate & Other" represents those items that are not directly related to a particular segment, eliminations and the assets and liabilities of discontinued operations.

 

 

18. RECENT ACCOUNTING PRONOUNCEMENTS

Pronouncements Adopted in 2019

In February 2016, the FASB issued ASU 2016-02 ("Leases"), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. In July 2018, the FASB issued ASU 2018-11 ("Targeted Improvements to Leases"), which

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provides companies with an additional transition method that allows the effects of the adoption of the new standard to be recognized as a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We elected this optional transition method for adoption. The adoption of this standard on January 1, 2019 had a material impact to our Consolidated Balance Sheet; but not to our Consolidated Statement of Operations or Cash Flows. The most significant impact was the recognition of $77.5 million of ROU assets and liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.

Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU 2016-13 ("Measurement of Credit Losses on Financial Instruments") which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements, including accounting policies, processes and systems.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion summarizes the financial position of Core Laboratories N.V. and its subsidiaries as of June 30, 2019 and should be read in conjunction with (i) the unaudited consolidated interim financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 Annual Report").

General

Core Laboratories N.V. is a limited liability company incorporated and domiciled in the Netherlands. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description and production enhancement services and products to the oil and gas industry. These services and products can enable our clients to improve reservoir performance and increase oil and gas recovery from their producing fields. Core Laboratories N.V. has over 70 offices in more than 50 countries and employs approximately 4,500 people worldwide.

References to "Core Lab", the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report and relate collectively to Core Laboratories N.V. and its consolidated affiliates.

We operate our business in two reportable segments:  Reservoir Description and Production Enhancement. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields.

 

Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples to increase production and improve recovery of oil and gas from our clients' reservoirs. We provide laboratory based analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry. We also provide proprietary and joint industry studies based on these types of analysis.

 

Production Enhancement: Includes services and products relating to reservoir well completions, perforations, stimulations and production. We provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section, including those under the headings "Outlook" and "Liquidity and Capital Resources", and in other parts of this Quarterly Report, are forward-looking. In addition, from time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. Forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "continue", or other similar words, including statements as to the intent, belief, or current expectations of our directors, officers, and management with respect to our future operations, performance, or positions or which contain other forward-looking information. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, no assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While we believe that these statements are and will be accurate, our actual results and experience may differ materially from the anticipated results or other expectations expressed in our statements due to a variety of risks and uncertainties.

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We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see "Item 1A - Risk Factors" in our 2018 Annual Report and in Part II of this Quarterly Report, as well as the other reports filed by us with the Securities and Exchange Commission ("SEC").

Outlook

As part of our long-term growth strategy, we continue our efforts to expand our market presence by opening or expanding facilities in strategic areas and realizing synergies within our business lines subject to client demand and market conditions. We believe our market presence provides us a unique opportunity to service clients who have global operations whether they are international oil companies, national oil companies, or independent oil companies.

We are encouraged by the increased focus of our major clients regarding capital management, return on invested capital, free cash flow, and returning capital back to their shareholders, as opposed to a focus on production growth at any cost. The companies adopting value versus volume metrics tend to be the more technologically sophisticated operators and form the foundation of Core’s worldwide client base. We expect to benefit from our clients’ shift in focus from strictly production growth to employing higher technological solutions in their efforts to maximize economic production growth and estimated ultimate recovery ("EUR").

Crude oil prices rebounded, strengthened and stabilized in the first half of 2019 in comparison to the end of 2018. The price of crude oil at the end of the second quarter of 2019 improved approximately 30% from the end of the fourth quarter of 2018. During the first half of 2019, the balancing of the worldwide crude-oil markets has stabilized due to the continuation of the OPEC production cuts and crude-oil inventories modestly declining. These crude-oil market fundamentals drive the international activity levels of our clients, which are expected to continue to improve in the second half of 2019.

The U.S. completion growth rate appears to be moderating with the current level of crude oil prices and our clients continue to exercise discipline in managing their operations within their free cash flow and 2019 operating budgets. Combined, these issues could impact the rate of revenue growth opportunity for any company that is reliant on completions as a catalyst for growth.

Balancing of crude-oil supply and demand drives the crude-oil price which underpins the Final Investment Decisions (“FIDs”) and emerging international crude-oil field reinvestment. After five years of muted investment in international, offshore and deepwater projects, oil companies announced more than 30 FIDs in 2018, an increase of more than 20% from 2017. The renewed investment at a global level is critical in order to meet future supply needs. Recognition of the need for investment is evidenced by the FIDs announced over the last two years and Wood McKenzie’s estimation of another 30 upstream projects for 2019. These international, offshore and deepwater projects continue to progress in their initial phases of planning, mobilizing equipment and initial drilling of wells. However, Core Lab anticipates a slowing in further project announcements until confidence in the balance of global crude-oil markets is restored. The revenue opportunity for Reservoir Description occurs once the well has been drilled and core and fluid samples are taken and analyzed.

We continue to focus on large-scale core analyses and reservoir fluid characterization studies in the Asia-Pacific areas, offshore Europe and Africa, offshore South America, North America and the Middle East. We also focus on complex completions in unconventional tight-oil reservoirs, technological solutions and services for increasing daily productions and EURs.

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Results of Operations

Our results of operations as a percentage of applicable revenue were as follows (in thousands):

 

 

 

Three months ended June 30,

 

 

Change

 

 

 

2019

 

 

2018

 

 

$

 

 

%

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

117,874

 

 

70%

 

 

$

122,094

 

 

70%

 

 

$

(4,220

)

 

(3)%

 

Product sales

 

 

51,164

 

 

30%

 

 

 

53,381

 

 

30%

 

 

 

(2,217

)

 

(4)%

 

Total revenue

 

 

169,038

 

 

100%

 

 

 

175,475

 

 

100%

 

 

 

(6,437

)

 

(4)%

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation

   expense shown below*

 

 

86,007

 

 

73%

 

 

 

86,759

 

 

71%

 

 

 

(752

)

 

(1)%

 

Cost of product sales, exclusive of depreciation

   expense shown below*

 

 

38,444

 

 

75%

 

 

 

37,014

 

 

69%

 

 

 

1,430

 

 

4%

 

Total cost of services and product sales

 

 

124,451

 

 

74%

 

 

 

123,773

 

 

71%

 

 

 

678

 

 

1%

 

General and administrative expense

 

 

9,801

 

 

6%

 

 

 

12,202

 

 

7%

 

 

 

(2,401

)

 

(20)%

 

Depreciation and amortization

 

 

5,786

 

 

3%

 

 

 

5,868

 

 

3%

 

 

 

(82

)

 

(1)%

 

Other (income) expense, net

 

 

992

 

 

1%

 

 

 

183

 

 

—%

 

 

 

809

 

 

NM

 

Operating income

 

 

28,008

 

 

17%

 

 

 

33,449

 

 

19%

 

 

 

(5,441

)

 

(16)%

 

Interest expense

 

 

3,714

 

 

2%

 

 

 

3,296

 

 

2%

 

 

 

418

 

 

13%

 

Income before income tax expense

 

 

24,294

 

 

14%

 

 

 

30,153

 

 

17%

 

 

 

(5,859

)

 

(19)%

 

Income tax expense

 

 

4,808

 

 

3%

 

 

 

5,020

 

 

3%

 

 

 

(212

)

 

(4)%

 

Income from continuing operations

 

 

19,486

 

 

12%

 

 

 

25,133

 

 

14%

 

 

 

(5,647

)

 

(22)%

 

Income (loss) from discontinued operations, net of tax

 

 

7,971

 

 

5%

 

 

 

(328

)

 

—%

 

 

 

8,299

 

 

NM

 

Net Income

 

 

27,457

 

 

16%

 

 

 

24,805

 

 

14%

 

 

 

2,652

 

 

11%

 

Net income attributable to non-controlling

   interest

 

 

43

 

 

—%

 

 

 

53

 

 

—%

 

 

 

(10

)

 

(19)%

 

Net income attributable to Core Laboratories N.V.

 

$

27,414

 

 

16%

 

 

$

24,752

 

 

14%

 

 

$

2,662

 

 

11%

 

"NM" means not meaningful

 

*Percentage based on applicable revenue rather than total revenue

 

23

 

Return to Index


 

 

 

 

Three months ended

 

 

Change

 

 

 

June 30, 2019

 

 

March 31, 2019

 

 

$

 

 

%

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

117,874

 

 

70%

 

 

$

120,338

 

 

71%

 

 

$

(2,464

)

 

(2)%

 

Product sales

 

 

51,164

 

 

30%

 

 

 

48,856

 

 

29%

 

 

 

2,308

 

 

5%

 

Total revenue

 

 

169,038

 

 

100%

 

 

 

169,194

 

 

100%

 

 

 

(156

)

 

(0)%

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation

   expense shown below*

 

 

86,007

 

 

73%

 

 

 

90,366

 

 

75%

 

 

 

(4,359

)

 

(5)%

 

Cost of product sales, exclusive of depreciation

   expense shown below*

 

 

38,444

 

 

75%

 

 

 

37,017

 

 

76%

 

 

 

1,427

 

 

4%

 

Total cost of services and product sales

 

 

124,451

 

 

74%

 

 

 

127,383

 

 

75%

 

 

 

(2,932

)

 

(2)%

 

General and administrative expense

 

 

9,801

 

 

6%

 

 

 

17,437

 

 

10%

 

 

 

(7,636

)

 

(44)%

 

Depreciation and amortization

 

 

5,786

 

 

3%

 

 

 

5,587

 

 

3%

 

 

 

199

 

 

4%

 

Other (income) expense, net

 

 

992

 

 

1%

 

 

 

2,373

 

 

1%

 

 

 

(1,381

)

 

NM

 

Operating income

 

 

28,008

 

 

17%

 

 

 

16,414

 

 

10%

 

 

 

11,594

 

 

71%

 

Interest expense

 

 

3,714

 

 

2%

 

 

 

3,726

 

 

2%

 

 

 

(12

)

 

(0)%

 

Income before income tax expense

 

 

24,294

 

 

14%

 

 

 

12,688

 

 

7%

 

 

 

11,606

 

 

91%

 

Income tax expense (benefit)

 

 

4,808

 

 

3%

 

 

 

(27,610

)

 

(16)%

 

 

 

32,418

 

 

NM

 

Income from continuing operations

 

 

19,486

 

 

12%

 

 

 

40,298

 

 

24%

 

 

 

(20,812

)

 

(52)%

 

Income from discontinued operations, net of tax

 

 

7,971

 

 

5%

 

 

 

259

 

 

—%

 

 

 

7,712

 

 

NM

 

Net income

 

 

27,457

 

 

16%

 

 

 

40,557

 

 

24%

 

 

 

(13,100

)

 

(32)%

 

Net income attributable to non-controlling

   interest

 

 

43

 

 

—%

 

 

 

47

 

 

—%

 

 

 

(4

)

 

(9)%

 

Net income attributable to Core Laboratories N.V.

 

$

27,414

 

 

16%

 

 

$

40,510

 

 

24%

 

 

$

(13,096

)

 

(32)%

 

"NM" means not meaningful

 

*Percentage based on applicable revenue rather than total revenue

 

24

 

Return to Index


 

 

 

 

Six months ended June 30,

 

 

Change

 

 

 

2019

 

 

2018

 

 

$

 

 

%

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

238,212

 

 

70%

 

 

$

241,880

 

 

70%

 

 

$

(3,668

)

 

(2)%

 

Product sales

 

 

100,020

 

 

30%

 

 

 

103,613

 

 

30%

 

 

 

(3,593

)

 

(3)%

 

Total revenue

 

 

338,232

 

 

100%

 

 

 

345,493

 

 

100%

 

 

 

(7,261

)

 

(2)%

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation

   expense shown below*

 

 

176,373

 

 

74%

 

 

 

170,047

 

 

70%

 

 

 

6,326

 

 

4%

 

Cost of product sales, exclusive of depreciation

   expense shown below*

 

 

75,461

 

 

75%

 

 

 

73,044

 

 

70%

 

 

 

2,417

 

 

3%

 

Total cost of services and product sales

 

 

251,834

 

 

74%

 

 

 

243,091

 

 

70%

 

 

 

8,743

 

 

4%

 

General and administrative expense

 

 

27,238

 

 

8%

 

 

 

24,911

 

 

7%

 

 

 

2,327

 

 

9%

 

Depreciation and amortization

 

 

11,373

 

 

3%

 

 

 

11,686

 

 

3%

 

 

 

(313

)

 

(3)%

 

Other (income) expense, net

 

 

3,365

 

 

1%

 

 

 

40

 

 

—%

 

 

 

3,325

 

 

NM

 

Operating income

 

 

44,422

 

 

13%

 

 

 

65,765

 

 

19%

 

 

 

(21,343

)

 

(32)%

 

Interest expense

 

 

7,440

 

 

2%

 

 

 

6,416

 

 

2%

 

 

 

1,024

 

 

16%

 

Income before income tax expense

 

 

36,982

 

 

11%

 

 

 

59,349

 

 

17%

 

 

 

(22,367

)

 

(38)%

 

Income tax expense (benefit)

 

 

(22,802

)

 

(7)%

 

 

 

10,293

 

 

3%

 

 

 

(33,095

)

 

NM

 

Income from continuing operations

 

 

59,784

 

 

18%

 

 

 

49,056

 

 

14%

 

 

 

10,728

 

 

22%

 

Income (loss) from discontinued operations, net of tax

 

 

8,230

 

 

2%

 

 

 

(674

)

 

—%

 

 

 

8,904

 

 

NM

 

Net income

 

 

68,014

 

 

20%

 

 

 

48,382

 

 

14%

 

 

 

19,632

 

 

41%

 

Net income attributable to non-controlling

   interest

 

 

90

 

 

—%

 

 

 

103

 

 

—%

 

 

 

(13

)

 

(13)%

 

Net income attributable to Core Laboratories N.V.

 

$

67,924

 

 

20%

 

 

$

48,279

 

 

14%

 

 

$

19,645

 

 

41%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" means not meaningful

 

*Percentage based on applicable revenue rather than total revenue

 

Operating Results for the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018 and March 31, 2019 and for the Six Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018

Services Revenue

Services revenue, which is tied more to activities associated with the exploration and production of oil and gas outside the U.S., of $117.9 million in the second quarter of 2019 decreased from $122.1 million and $120.3 million in the second quarter of 2018 and first quarter of 2019, respectively. Services revenue of $238.2 million in the six months ended June 30, 2019 decreased from $241.9 million in the six months ended June 30, 2018. Crude oil prices strengthened throughout 2018 until the fourth quarter, when they temporarily dropped some 40%. Although, the crude oil prices partially rebounded and stabilized during the first half of 2019, our service revenue in the North America on-shore market decreased during the first half of 2019 compared to 2018. However, Core Lab is beginning to see improvement in the level of work performed for offshore and international exploration and production projects, which provides a more positive outlook and support for larger and longer-term projects. Although our clients announced final investment decisions in 2018 for several projects outside the U.S. and in offshore environments, significant activity on these projects will not start until later in 2019 and wells must be drilled and/or completed, stimulated, cored and have reservoir fluid samples collected, before we see a revenue opportunity.

International activity remained effectively flat through 2018 as most international development projects continued to be funded largely from operating budgets, however capital spending directed towards international projects has expanded during 2019. We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Eagle Ford, the Permian Basin and the Gulf of Mexico, along with Guyana, Malaysia and other international locations such as offshore South America, Australia, and the Middle East, including Kuwait and the United Arab Emirates.   

25

 

Return to Index


 

Product Sales Revenue

Product sales revenue, which is tied more to the completion of wells in North America, of $51.2 million in the second quarter of 2019, decreased 4.2% year-over-year from $53.4 million in the second quarter of 2018 but increased 4.7% from $48.9 million for the first quarter of 2019. Product sales revenue of $100.0 million in the six months ended June 30, 2019, decreased 3.5% from $103.6 million in the six months ended June 30, 2018. Our product sales revenue is primarily driven by completions of wells in the North American market and, more specifically, the activity associated with the completion of each stage in a wellbore. The sharp decrease of crude oil prices during the fourth quarter of 2018 combined with the supply chain logistics and take-away restrictions associated with the Permian Basin resulted in decreased activity for the U.S. onshore market at the end of the fourth quarter. This resulting decrease in the U.S. onshore activity has continued into the first half of 2019. We continue to benefit from our clients' acceptance of new products which were led by our newly introduced technologies, including our HERO® PerFRAC perforating system.

Cost of Services, excluding depreciation

Cost of services decreased to $86.0 million in the three months ended June 30, 2019 compared to $86.8 million and $90.4 million in the three months ended June 30, 2018 and March 31, 2019, respectively. Cost of services expressed as a percentage of services revenue increased to 73% for the three months ended June 30, 2019, compared to 71%  for the three months ended  June 30, 2018 but decreased from 75% for the three months ended March 31, 2019. Cost of services increased to $176.4 million in the six months ended June 30, 2019 compared to $170.0 million in the six months ended June 30, 2018. Cost of services expressed as a percentage of services revenue increased to 74% for the six months ended June 30, 2019, compared to 70% in the six months ended June 30, 2018. The increase in cost of services during the three and six months ended June 30, 2019 was primarily due to compensation and related charges.

Cost of Product Sales, excluding depreciation

Cost of product sales increased to $38.4 million in the three months ended June 30, 2019 compared to $37.0 million in both the three months ended June 30, 2018 and March 31, 2019. Cost of product sales expressed as a percentage of product sales revenue was 75% for the three months ended June 30, 2019, compared to 69% and 76% for the three months ended June 30, 2018 and March 31, 2019, respectively. Cost of product sales remained relatively consistent at $73.5 million in the six months ended June 30, 2019 compared to $73.0 million in the six months ended June 30, 2018. Cost of product sales expressed as a percentage of product sales revenue was 75% for the six months ended June 30, 2019, compared to 70% for the six months ended June 30, 2018. Cost of product sales as a percentage of product sales revenue is primarily reflective of how our fixed cost structure is absorbed by revenue.

General and Administrative Expense

General and administrative ("G&A") expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three months ended June 30, 2019 was $9.8 million compared to $12.2 million and $17.4 million for the three months ended June 30, 2018 and March 31, 2019, respectively. G&A expense for the six months ended June 30, 2019 was $27.2 million compared to $24.9 million for the six months ended June 30, 2018. The variances are primarily due to changes in compensation expense during those periods, including acceleration of stock compensation expense of $7.2 million recorded in the three months ended March 31, 2019, for retirement eligible employees.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended June 30, 2019 was $5.8 million compared to $5.9 million and $5.6 million for the three months ended June 30, 2018 and March 31, 2019, respectively. Depreciation and amortization expense for the six months ended June 30, 2019 was $11.4 million compared to $11.7 million for the six months ended June 30, 2018.

26

 

Return to Index


 

Other (Income) Expense, Net

The components of other (income) expense, net, were as follows (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Gain on sale of assets

 

$

(61

)

 

$

81

 

 

$

(307

)

 

$

(508

)

Results of non-consolidated subsidiaries

 

 

(24

)

 

 

(11

)

 

 

(97

)

 

 

(69

)

Foreign exchange

 

 

(218

)

 

 

654

 

 

 

(181

)

 

 

1,086

 

Rents and royalties

 

 

(487

)

 

 

(141

)

 

 

(593

)

 

 

(236

)

Employment related charges

 

 

(334

)

 

 

 

 

 

2,866

 

 

 

 

Return on pension assets and other pension costs

 

 

(240

)

 

 

(224

)

 

 

(482

)

 

 

(420

)

Gain on sale of business

 

 

(1,154

)

 

 

 

 

 

(1,154

)

 

 

 

Cost reduction and other charges

 

 

2,977

 

 

 

 

 

 

2,977

 

 

 

 

Other, net

 

 

533

 

 

 

(176

)

 

 

336

 

 

 

187

 

Total other expense, net

 

$

992

 

 

$

183

 

 

$

3,365

 

 

$

40

 

Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Gains) losses by currency

 

2019

 

 

2018

 

 

2019

 

 

2018

 

British Pound

 

$

165

 

 

$

104

 

 

$

178

 

 

$

(23

)

Canadian Dollar

 

 

29

 

 

 

243

 

 

 

88

 

 

 

357

 

Euro

 

 

92

 

 

 

(259

)

 

 

2

 

 

 

(16

)

Other currencies, net

 

 

(504

)

 

 

566

 

 

 

(449

)

 

 

768

 

Total loss, net

 

$

(218

)

 

$

654

 

 

$

(181

)

 

$

1,086

 

Interest Expense

Interest expense for the three months ended June 30, 2019 was $3.7 million compared to $3.3 million and $3.7 million for the three months ended June 30, 2018 and March 31, 2019, respectively. Interest expense for the six months ended June 30, 2019 was $7.4 million compared to $6.4 million for the six months ended June 30, 2018. The variances are primarily due to changes in the aggregated variable rate debt taken in the respective quarters in 2018 and 2019.

Income Tax Expense

The effective tax rate for the three months ended June 30, 2019 and 2018 was 19.8% and 16.6%, respectively. In the second quarter of 2019, we recorded net income tax expense of $4.8 million compared to income tax expense of $5.0 million in the same period in 2018. The effective rate was impacted by changes in activity levels in jurisdictions with differing tax rates. The effective tax rate for the six months ended June 30, 2019 and 2018 was (61.7)% and 17.3%, respectively. This was due to a corporate restructuring in the first quarter of 2019 which resulted in a net tax benefit of $58.5 million, and tax expense of $26.7 million related to unremitted earnings of foreign subsidiaries that we no longer consider to be indefinitely reinvested, each of which was a discrete item in the first quarter of 2019.

The tax benefit of the corporate restructuring is reflected as a deferred tax asset on the Consolidated Balance Sheet which will be realized over the years 2019 until 2033.

Discontinued Operations

27

 

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In 2018, in a continuing effort to streamline our business and align our business strategy for further integration of services and products, the Company committed to divest our full range of permanent downhole monitoring systems and related services, which have been part of our Production Enhancement segment. We entered into the definitive purchase agreement on June 7, 2019 for the divestiture of this business during the second quarter of 2019.

See Note 6, Discontinued Operations for additional information.

Segment Analysis

We operate our business in two reportable segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields. The following tables summarize our results by segment (in thousands):

 

 

Three months ended June 30,

 

 

2019/2018

 

 

Three months ended March 31,

 

 

Q2 / Q1

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

2019

 

 

$ Change

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

105,649

 

 

$

102,107

 

 

$

3,542

 

 

4%

 

 

$

103,292

 

 

$

2,357

 

 

2%

 

Production Enhancement

 

 

63,389

 

 

 

73,368

 

 

 

(9,979

)

 

(14)%

 

 

 

65,902

 

 

 

(2,513

)

 

(4)%

 

Consolidated

 

$

169,038

 

 

$

175,475

 

 

$

(6,437

)

 

(4)%

 

 

$

169,194

 

 

$

(156

)

 

(0)%

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

15,878

 

 

$

14,760

 

 

$

1,118

 

 

8%

 

 

$

6,179

 

 

$

9,699

 

 

157%

 

Production Enhancement

 

 

10,424

 

 

 

18,427

 

 

 

(8,003

)

 

(43)%

 

 

 

9,912

 

 

 

512

 

 

5%

 

Corporate and Other1

 

 

1,706

 

 

 

262

 

 

 

1,444

 

 

NM

 

 

 

323

 

 

 

1,383

 

 

NM

 

Consolidated

 

$

28,008

 

 

$

33,449

 

 

$

(5,441

)

 

(16)%

 

 

$

16,414

 

 

$

11,594

 

 

71%

 

(1) "Corporate and Other" represents those items that are not directly related to a particular segment.

      "NM" means not meaningful

 

 

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

208,941

 

 

$

202,916

 

 

$

6,025

 

 

3%

 

Production Enhancement

 

 

129,291

 

 

 

142,577

 

 

 

(13,286

)

 

(9)%

 

Consolidated

 

$

338,232

 

 

$

345,493

 

 

$

(7,261

)

 

(2)%

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

22,057

 

 

$

29,517

 

 

$

(7,460

)

 

(25)%

 

Production Enhancement

 

 

20,336

 

 

 

36,114

 

 

 

(15,778

)

 

(44)%

 

Corporate and Other1

 

 

2,029

 

 

 

134

 

 

 

1,895

 

 

NM

 

Consolidated

 

$

44,422

 

 

$

65,765

 

 

$

(21,343

)

 

(33)%

 

(1) "Corporate and Other" represents those items that are not directly related to a particular segment.

      "NM" means not meaningful

 

Reservoir Description

Revenue from the Reservoir Description segment of $105.6 million for the second quarter of 2019 increased 4% from $102.1 million in the second quarter of 2018, and increased 2% from $103.3 million in the first quarter of 2019. Revenue from the Reservoir Description segment of $208.9 million for the six months ended June 30, 2019 increased 3% from $202.9 million for the six months ended June 30, 2018. This segment’s operations continue to work on large-scale, long-term, crude-oil and liquefied natural gas (“LNG”) projects with an emphasis on producing fields located in offshore developments and international markets. We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Asia-Pacific areas, offshore Europe and Africa, offshore South America, North America, and the Middle East.

Operating income of $15.9 million in the second quarter of 2019 increased 8% year-over-year compared to $14.8 million in the second quarter of 2018 and increased 157% sequentially from $6.2 million in the first quarter of 2019. Operating income of

28

 

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$22.1 million for the six months ended June 30, 2019 decreased 25% compared to $29.5 million for the six months ended June 30, 2018. The year-over-year decrease was due to additional expense recorded for stock compensation related to retirement eligible employees and employment-related charges of $7.9 million in the first quarter of 2019 and severance and related charges of $1.7 million in the second quarter of 2019.

Operating margins were 15% in the second quarter of 2019, up from 14% during the second quarter of 2018 and up from 6% during the first quarter of 2019.

Production Enhancement

Revenue from the Production Enhancement segment, largely focused on North American unconventional tight-oil reservoirs, complex completions and stimulations as well as conventional offshore development projects, was $63.4 million in the second quarter of 2019, a decrease of 14% year-over-year from $73.4 million in the second quarter of 2018 and a decrease of 4% sequentially from $65.9 million in the first quarter of 2019. Revenue from the Production Enhancement segment was $129.3 million for the six months ended June 30, 2019, a decrease of 9% from $142.6 million for the six months ended June 30, 2018. The significant decrease in the crude oil commodity price in the fourth quarter of 2018, resulted in a decrease of drilling and well completion activities in the U.S. onshore market at the end of the fourth quarter 2018. The lower level of drilling and well completion activity continued into the first half of 2019. However, our clients continue to seek technological solutions for increasing daily production and estimated ultimate recoveries from their reservoirs and we continue to benefit from our clients' acceptance of new services and products which were led by the FLOWPROFILER EDSTM and HERO® PerFRAC technologies.

Operating income in the second quarter of 2019 was $10.4 million, a decrease from $18.4 million, or 43%, in the second quarter of 2018 and an increase from $9.9 million, or 5%, in the first quarter of 2019. Operating income for the six months ended June 30, 2019 was $20.3 million, a decrease from $36.1 million, or 44%, for the six months ended June 30, 2018. The increased profitability sequentially is due to increased demand for our higher margin products. The first half of 2019 includes accelerated stock compensation expense of $2.5 million, for retirement eligible employees, and cost reduction and other related charges of $1.3 million.

Operating margins were 16% in the second quarter of 2019, down from 25% in the second quarter of 2018 but up from 15% for the first quarter of 2019. Operating margins were 16% for the six months ended June 30, 2019, down from 25% for the six months ended June 30, 2018. The decrease in operating margin in the three and six months ended June 30, 2019 compared to the same periods in 2018 is primarily due to absorbing fixed costs against a lower revenue base, acceleration of stock compensation expense and cost reduction related expense in 2019.

Liquidity and Capital Resources

General

We have historically financed our activities through cash on hand, cash flows from operations, bank credit facilities, equity financing and the issuance of debt. Cash flows from operating activities provides the primary source of funds to finance operating needs, capital expenditures, our dividend and share repurchase program. As we are a Netherlands holding company, we conduct substantially all of our operations through subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us. There are no restrictions preventing any of our subsidiaries from repatriating earnings, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of June 30, 2019, $10.5 million of our $12.5 million of cash was held by our foreign subsidiaries.

Cash Flows

The following table summarizes cash flows (in thousands):

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Six months ended June 30,

 

 

2019/2018

 

 

 

2019

 

 

2018

 

 

% Change

 

Cash flows provided by/(used in):

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

42,236

 

 

$

50,083

 

 

 

(16

)%

Investing activities

 

 

7,054

 

 

 

(13,314

)

 

NM

 

Financing activities

 

 

(49,860

)

 

 

(38,148

)

 

 

(31

)%

Net change in cash and cash equivalents

 

$

(570

)

 

$

(1,379

)

 

 

59

%

Cash flows provided by operating activities for the six months ended June 30, 2019 compared to the same period in 2018 decreased primarily due to increased net income offset by changes in working capital.

The decrease in cash flows used in investing activities during the six months ended June 30, 2019 compared to the same period in 2018 was primarily attributable to the proceeds from the sale of two businesses in the second quarter of 2019.

Cash flows used in financing activities for the six months ended June 30, 2019 increased compared to the same period in 2018. Debt did not change during the six months ended June 30, 2019, as compared to debt increasing by $16 million during the same period in 2018. In the six months ended June 30, 2019, we repurchased 16,056 shares of our common stock for an aggregate purchase price of $1.1 million compared to the repurchase of 36,258 shares for an aggregate purchase price of $4.0 million during the same period in 2018. During the six months ended June 30, 2019, we used $48.8 million to pay dividends, which is consistent with the amount paid for the same period in 2018.

We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP, and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP (in thousands):

 

 

Six months ended June 30,

 

 

2019/2018

 

 

 

2019

 

 

2018

 

 

% Change

 

Free cash flow calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

42,236

 

 

$

50,083

 

 

 

(16

)%

Less: cash paid for capital expenditures

 

 

(12,230

)

 

 

(11,915

)

 

 

(3

)%

Free cash flow

 

$

30,006

 

 

$

38,168

 

 

 

(21

)%

The decrease in free cash flow for the six months ended June 30, 2019 compared to the same period in 2018 was primarily due to increased net income offset by changes in working capital.

Notes, Credit Facilities and Available Future Liquidity

We have two series of senior notes outstanding with an aggregate principal amount of $150 million ("Senior Notes") issued in a private placement transaction. Series A consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.01% and are due in full on September 30, 2021. Series B consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.11% and are due in full on September 30, 2023. Interest on each series of the Senior Notes is payable semi-annually on March 30 and September 30.

The aggregate borrowing commitment under our Credit Facility is $300 million. The Credit Facility provides an option to increase the commitment under the Credit Facility by an additional $100 million to bring the total borrowings available to $400 million if certain prescribed conditions are met by the Company. The Credit Facility bears interest at variable rates from

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LIBOR plus 1.375% to a maximum of LIBOR plus 2.00%. Any outstanding balance under the Credit Facility is due June 19, 2023, when the Credit Facility matures. Our available capacity at any point in time is reduced by borrowings outstanding at the time and outstanding letters of credit which totaled $20.1 million at June 30, 2019, resulting in an available borrowing capacity under the Credit Facility of $137.9 million. In addition to those items under the Credit Facility, we had $12.8 million of outstanding letters of credit and performance guarantees and bonds from other sources as of June 30, 2019.

The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (consolidated EBITDA divided by interest expense) and a leverage ratio (consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in each agreement) and interest expense are calculated using the most recent four fiscal quarters. The Credit Facility has the more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and a maximum leverage ratio of 2.5 to 1.0. The terms of our Credit Facility allow us to negotiate in good faith to amend any ratio or requirement to preserve the original intent of the agreement if any change in accounting principle would affect the computation of any financial ratio or requirement of the Credit Facility. The adoption on January 1, 2019 of ASU 2016-02 does not affect the calculation of consolidated EBITDA under the agreement. We believe that we are in compliance with all such covenants contained in our credit agreements. Certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million. See Note 15 - Derivative Instruments and Hedging Activities.

Our ability to maintain and grow our operating income and cash flow depends, to a large extent, on continued investing activities. We believe our future cash flows from operations, supplemented by our borrowing capacity and the ability to issue additional equity, should be sufficient to fund our debt requirements, capital expenditures, working capital, dividend payments and future acquisitions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information provided in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our 2018 Annual Report.

Item 4. Controls and Procedures

A complete discussion of our controls and procedures is included in our 2018 Annual Report.

Disclosure Controls and Procedures

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2019 at the reasonable assurance level.

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. Further, the design of disclosure controls and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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Changes in Internal Control Over Financial Reporting

There have been no changes in our system of internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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CORE LABORATORIES N.V.

PART II - OTHER INFORMATION

See Note 9 to our Consolidated Interim Financial Statements in Part I, Item 1 of this Quarterly Report.

Item 1A.  Risk Factors

Our business faces many risks. Any of the risks discussed in this Quarterly Report or our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. For a detailed discussion of the risk factors that should be understood by any investor contemplating investment in our securities, please refer to "Item 1A - Risk Factors" in our 2018 Annual Report.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

The following table provides information about purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

 

Period

 

Total Number

of Shares

Purchased

 

 

Average Price

Paid Per

Share

 

 

Total Number of Shares

Purchased as Part of a

Publicly Announced

Program

 

 

Maximum Number of

Shares That  May Yet be

Purchased Under the

Program (2)(3)

 

April 1 - 30, 2019 (1)

 

 

8,342

 

 

$

68.93

 

 

 

 

 

 

4,036,720

 

May 1 - 31, 2019 (1)

 

 

488

 

 

$

60.02

 

 

 

 

 

 

4,038,170

 

June 1 - 30, 2019 (1)

 

 

 

 

 

 

 

 

 

 

 

4,038,170

 

Total

 

 

8,830

 

 

$

68.44

 

 

 

 

 

 

 

 

 

(1)

During the quarter 8,830 shares were surrendered to us by participants in a stock-based compensation plan to settle any personal tax liabilities which may result from the award.

(2)

In connection with our initial public offering in September 1995, our shareholders authorized our Management Board to repurchase up to 10% of our issued share capital for a period of 18 months. This authorization was renewed at subsequent annual or special shareholder meetings. The repurchase of shares in the open market is at the discretion of management pursuant to this shareholder authorization.

(3)

We distributed 29,853 treasury shares upon vesting of stock-based awards during the three months ended June 30, 2019.

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Item 6.  Exhibits

 

Exhibit

No.

 

Exhibit Title

 

Incorporated by

reference from the

following documents

4.1

-

Form S-8 Registration Statement pursuant to 2014 Long-Term Incentive Plan

 

S-8 filed on May 8, 2019 (File No. 333-231277)

31.1

-

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Filed herewith

31.2

-

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Filed herewith

32.1

-

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

32.2

-

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

101.INS

-

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

 

Filed herewith

101.SCH

-

XBRL Schema Document

 

Filed herewith

101.CAL

-

XBRL Calculation Linkbase Document

 

Filed herewith

101.LAB

-

XBRL Label Linkbase Document

 

Filed herewith

101.PRE

-

XBRL Presentation Linkbase Document

 

Filed herewith

101.DEF

-

XBRL Definition Linkbase Document

 

Filed herewith

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Core Laboratories N.V., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

CORE LABORATORIES N.V.

 

 

 

Date:

July, 25 2019

By:

/s/ Christopher S. Hill

 

 

Christopher S. Hill

 

 

Chief Financial Officer

 

 

(Duly Authorized Officer and

 

 

Principal Financial Officer)

 

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