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CORE LABORATORIES N V - Quarter Report: 2020 September (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 September 30, 2020  

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 October 21, 2020 was 44,494,696.

 


 

CORE LABORATORIES N.V.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2020

INDEX

PART I - FINANCIAL INFORMATION

 

 

 

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) at September 30, 2020 and December 31, 2019

3

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended September 30, 2020 and 2019

4

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Nine Months Ended September 30, 2020 and 2019

5

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019

6

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019

7

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2020 and 2019

8

 

 

 

 

Notes to the Unaudited Interim Consolidated Financial Statements

9

 

 

 

Item 2.

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

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

Item 1A.

Risk Factors

37

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 6.

Exhibits

38

 

 

 

 

Signature

39

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CORE LABORATORIES N.V.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

(Unaudited)

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,146

 

 

$

11,092

 

Accounts receivable, net of allowance for credit losses of $3,103

   and $2,730 at 2020 and 2019, respectively

 

 

85,366

 

 

 

131,579

 

Inventories

 

 

42,908

 

 

 

50,163

 

Prepaid expenses

 

 

12,318

 

 

 

15,951

 

Income taxes receivable

 

 

8,091

 

 

 

6,527

 

Other current assets

 

 

6,060

 

 

 

5,925

 

TOTAL CURRENT ASSETS

 

 

169,889

 

 

 

221,237

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

117,123

 

 

 

123,506

 

RIGHT OF USE ASSETS

 

 

69,228

 

 

 

75,697

 

INTANGIBLES, net

 

 

8,651

 

 

 

17,450

 

GOODWILL

 

 

99,445

 

 

 

213,425

 

DEFERRED TAX ASSETS, net

 

 

74,939

 

 

 

67,312

 

OTHER ASSETS

 

 

51,539

 

 

 

56,046

 

TOTAL ASSETS

 

$

590,814

 

 

$

774,673

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

75,000

 

 

$

 

Accounts payable

 

 

22,806

 

 

 

35,611

 

Accrued payroll and related costs

 

 

33,473

 

 

 

26,689

 

Taxes other than payroll and income

 

 

5,646

 

 

 

8,366

 

Unearned revenues

 

 

8,021

 

 

 

13,381

 

Operating lease liabilities

 

 

11,807

 

 

 

11,841

 

Income taxes payable

 

 

7,234

 

 

 

6,324

 

Other current liabilities

 

 

8,149

 

 

 

9,382

 

TOTAL CURRENT LIABILITIES

 

 

172,136

 

 

 

111,594

 

LONG-TERM DEBT, net

 

 

189,566

 

 

 

305,283

 

LONG-TERM OPERATING LEASE LIABILITIES

 

 

56,649

 

 

 

64,660

 

DEFERRED COMPENSATION

 

 

49,316

 

 

 

50,485

 

DEFERRED TAX LIABILITIES, net

 

 

21,952

 

 

 

27,338

 

OTHER LONG-TERM LIABILITIES

 

 

29,486

 

 

 

33,173

 

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 44,494,696 outstanding at 2020 and 44,796,252

   issued and 44,465,562 outstanding at 2019

 

 

1,148

 

 

 

1,148

 

Additional paid-in capital

 

 

61,465

 

 

 

51,872

 

Retained earnings

 

 

37,364

 

 

 

160,539

 

Accumulated other comprehensive income (loss)

 

 

(8,049

)

 

 

(6,330

)

Treasury shares, at cost, 301,556 at 2020 and 330,690 at 2019

 

 

(24,296

)

 

 

(29,364

)

Total Core Laboratories N.V. shareholders' equity

 

 

67,632

 

 

 

177,865

 

Non-controlling interest

 

 

4,077

 

 

 

4,275

 

TOTAL EQUITY

 

 

71,709

 

 

 

182,140

 

TOTAL LIABILITIES AND EQUITY

 

$

590,814

 

 

$

774,673

 

 

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

3

 

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 CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

REVENUE:

 

 

 

 

 

 

 

 

Services

 

$

86,250

 

 

$

120,817

 

Product sales

 

 

19,132

 

 

 

52,383

 

Total revenue

 

 

105,382

 

 

 

173,200

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation expense shown below

 

 

63,802

 

 

 

86,243

 

Cost of product sales, exclusive of depreciation expense shown below

 

 

17,236

 

 

 

39,753

 

General and administrative expense, exclusive of depreciation

   expense shown below

 

 

8,937

 

 

 

11,012

 

Depreciation

 

 

4,967

 

 

 

5,199

 

Amortization

 

 

197

 

 

 

498

 

Other (income) expense, net

 

 

(1,088

)

 

 

(712

)

OPERATING INCOME (LOSS)

 

 

11,331

 

 

 

31,207

 

Interest expense

 

 

4,672

 

 

 

3,662

 

Income (loss) from continuing operations before income tax expense

 

 

6,659

 

 

 

27,545

 

Income tax expense (benefit)

 

 

3,663

 

 

 

3,335

 

Income (loss) from continuing operations

 

 

2,996

 

 

 

24,210

 

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

 

 

 

 

 

(397

)

Net income (loss)

 

 

2,996

 

 

 

23,813

 

Net income (loss) attributable to non-controlling interest

 

 

33

 

 

 

84

 

Net income (loss) attributable to Core Laboratories N.V.

 

$

2,963

 

 

$

23,729

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE INFORMATION:

 

 

 

 

 

 

 

 

Basic earnings (loss) per share from continuing operations

 

$

0.07

 

 

$

0.55

 

Basic earnings (loss) per share from discontinued operations

 

$

 

 

$

(0.01

)

Basic earnings (loss) per share attributable to Core Laboratories N.V.

 

$

0.07

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share from continuing operations

 

$

0.07

 

 

$

0.54

 

Diluted earnings (loss) per share from discontinued operations

 

$

 

 

$

(0.01

)

Diluted earnings (loss) per share attributable to Core Laboratories N.V.

 

$

0.07

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

Basic

 

 

44,491

 

 

 

44,371

 

Assuming Dilution

 

 

44,899

 

 

 

44,716

 

 

 

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

 


4

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

REVENUE:

 

 

 

 

 

 

 

 

Services

 

$

287,226

 

 

$

359,029

 

Product sales

 

 

86,292

 

 

 

152,403

 

Total revenue

 

 

373,518

 

 

 

511,432

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation expense shown below

 

 

211,797

 

 

 

262,616

 

Cost of product sales, exclusive of depreciation expense and inventory write-down shown below

 

 

75,052

 

 

 

115,214

 

General and administrative expense, exclusive of depreciation

   expense shown below

 

 

37,725

 

 

 

38,250

 

Depreciation

 

 

15,078

 

 

 

15,631

 

Amortization

 

 

952

 

 

 

1,439

 

Impairments and other charges

 

 

122,204

 

 

 

 

Inventory write-down

 

 

9,932

 

 

 

 

Other (income) expense, net

 

 

987

 

 

 

2,653

 

OPERATING INCOME (LOSS)

 

 

(100,209

)

 

 

75,629

 

Interest expense

 

 

11,452

 

 

 

11,102

 

Income (loss) from continuing operations before income tax expense

 

 

(111,661

)

 

 

64,527

 

Income tax expense (benefit)

 

 

(644

)

 

 

(19,467

)

Income (loss) from continuing operations

 

 

(111,017

)

 

 

83,994

 

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

 

 

 

 

 

7,833

 

Net income (loss)

 

 

(111,017

)

 

 

91,827

 

Net income attributable to non-controlling interest

 

 

157

 

 

 

174

 

Net income (loss) attributable to Core Laboratories N.V.

 

$

(111,174

)

 

$

91,653

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE INFORMATION:

 

 

 

 

 

 

 

 

Basic earnings (loss) per share from continuing operations

 

$

(2.50

)

 

$

1.89

 

Basic earnings (loss) per share from discontinued operations

 

$

 

 

$

0.18

 

Basic earnings (loss) per share attributable to Core Laboratories N.V.

 

$

(2.50

)

 

$

2.07

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share from continuing operations

 

$

(2.50

)

 

$

1.87

 

Diluted earnings (loss) per share from discontinued operations

 

$

 

 

$

0.17

 

Diluted earnings (loss) per share attributable to Core Laboratories N.V.

 

$

(2.50

)

 

$

2.04

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

Basic

 

 

44,470

 

 

 

44,349

 

Assuming Dilution

 

 

44,470

 

 

 

44,854

 

 

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

 

 

5

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net income (loss)

 

$

2,996

 

 

$

23,813

 

 

$

(111,017

)

 

$

91,827

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on fair value of interest rate swaps

 

 

170

 

 

 

(293

)

 

 

(2,620

)

 

 

(1,322

)

Interest rate swap amounts reclassified to net income (loss)

 

 

221

 

 

 

(8

)

 

 

444

 

 

 

(102

)

Income taxes on derivatives

 

 

(82

)

 

 

63

 

 

 

457

 

 

 

299

 

Total derivatives (loss)

 

 

309

 

 

 

(238

)

 

 

(1,719

)

 

 

(1,125

)

Pension and other postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization to net income (loss) of prior service cost

 

 

 

 

 

(25

)

 

 

 

 

 

(75

)

Amortization to net income (loss) of actuarial loss

 

 

 

 

 

15

 

 

 

 

 

 

44

 

Income taxes on pension and other postretirement benefit plans

 

 

 

 

 

3

 

 

 

 

 

 

8

 

Total pension and other postretirement benefit plans

 

 

 

 

 

(7

)

 

 

 

 

 

(23

)

Total other comprehensive income (loss)

 

 

309

 

 

 

(245

)

 

 

(1,719

)

 

 

(1,148

)

Comprehensive income (loss)

 

 

3,305

 

 

 

23,568

 

 

 

(112,736

)

 

 

90,679

 

Comprehensive income (loss) attributable to non-controlling interest

 

 

33

 

 

 

84

 

 

 

157

 

 

 

174

 

Comprehensive income (loss) attributable to Core Laboratories N.V.

 

$

3,272

 

 

$

23,484

 

 

$

(112,893

)

 

$

90,505

 

 

 

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

6

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(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

 

$

60,901

 

 

$

64,064

 

 

$

51,872

 

 

$

57,438

 

Stock-based compensation

 

 

564

 

 

 

434

 

 

 

9,593

 

 

 

7,060

 

Balance at End of Period

 

$

61,465

 

 

$

64,498

 

 

$

61,465

 

 

$

64,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

34,846

 

 

$

175,285

 

 

$

160,539

 

 

$

156,130

 

Dividends paid

 

 

(445

)

 

 

(24,399

)

 

 

(12,001

)

 

 

(73,168

)

Net income (loss) attributable to Core Laboratories N.V.

 

 

2,963

 

 

 

23,729

 

 

 

(111,174

)

 

 

91,653

 

Balance at End of Period

 

$

37,364

 

 

$

174,615

 

 

$

37,364

 

 

$

174,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

(8,358

)

 

$

(6,359

)

 

$

(6,330

)

 

$

(5,456

)

Amortization of deferred pension costs, net of tax

 

 

 

 

 

(7

)

 

 

 

 

 

(23

)

Interest rate swaps, net of tax

 

 

309

 

 

 

(238

)

 

 

(1,719

)

 

 

(1,125

)

Balance at End of Period

 

$

(8,049

)

 

$

(6,604

)

 

$

(8,049

)

 

$

(6,604

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

(26,434

)

 

$

(45,877

)

 

$

(29,364

)

 

$

(52,501

)

Stock-based compensation

 

 

2,295

 

 

 

2,877

 

 

 

6,661

 

 

 

10,592

 

Repurchase of common shares

 

 

(157

)

 

 

(411

)

 

 

(1,593

)

 

 

(1,502

)

Balance at End of Period

 

$

(24,296

)

 

$

(43,411

)

 

$

(24,296

)

 

$

(43,411

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

4,044

 

 

$

4,231

 

 

$

4,275

 

 

$

4,141

 

Non-controlling interest dividends

 

 

 

 

 

 

 

 

(355

)

 

 

 

Net income (loss) attributable to non-controlling interest

 

 

33

 

 

 

84

 

 

 

157

 

 

 

174

 

Balance at End of Period

 

$

4,077

 

 

$

4,315

 

 

$

4,077

 

 

$

4,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

66,147

 

 

$

192,492

 

 

$

182,140

 

 

$

160,900

 

Stock-based compensation

 

 

2,859

 

 

 

3,311

 

 

 

16,254

 

 

 

17,652

 

Repurchase of common shares

 

 

(157

)

 

 

(411

)

 

 

(1,593

)

 

 

(1,502

)

Dividends paid

 

 

(445

)

 

 

(24,399

)

 

 

(12,001

)

 

 

(73,168

)

Non-controlling interest dividends

 

 

 

 

 

 

 

 

(355

)

 

 

 

Amortization of deferred pension costs, net of tax

 

 

 

 

 

(7

)

 

 

 

 

 

(23

)

Interest rate swaps, net of tax

 

 

309

 

 

 

(238

)

 

 

(1,719

)

 

 

(1,125

)

Net income (loss)

 

 

2,996

 

 

 

23,813

 

 

 

(111,017

)

 

 

91,827

 

Balance at End of Period

 

$

71,709

 

 

$

194,561

 

 

$

71,709

 

 

$

194,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends per Share

 

$

0.01

 

 

$

0.55

 

 

$

0.27

 

 

$

1.65

 

 

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

7

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(111,017

)

 

$

83,994

 

Income (loss) from discontinued operations, net of tax

 

 

 

 

 

7,833

 

Net income (loss)

 

 

(111,017

)

 

 

91,827

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Stock-based compensation

 

 

16,254

 

 

 

17,652

 

Depreciation and amortization

 

 

16,030

 

 

 

17,070

 

Changes to value of life insurance policies

 

 

2,921

 

 

 

(2,110

)

Deferred income taxes

 

 

(13,014

)

 

 

(38,469

)

Impairments, inventory write-down and other charges

 

 

132,136

 

 

 

 

Gain on sale of business

 

 

 

 

 

(1,154

)

Gain on sale of discontinued operations

 

 

 

 

 

(8,411

)

Other non-cash items

 

 

834

 

 

 

309

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

45,229

 

 

 

(8,924

)

Inventories

 

 

(2,880

)

 

 

(7,202

)

Prepaid expenses and other current assets

 

 

1,935

 

 

 

5,285

 

Other assets

 

 

3,089

 

 

 

1,486

 

Accounts payable

 

 

(13,262

)

 

 

1,762

 

Accrued expenses

 

 

5,274

 

 

 

10,900

 

Unearned revenues

 

 

(5,359

)

 

 

(6,545

)

Other liabilities

 

 

(8,456

)

 

 

(5,251

)

Net cash provided by operating activities

 

 

69,714

 

 

 

68,225

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(8,578

)

 

 

(17,537

)

Patents and other intangibles

 

 

(377

)

 

 

(90

)

Proceeds from sale of assets

 

 

753

 

 

 

700

 

Premiums on life insurance policies

 

 

(1,328

)

 

 

(1,385

)

Proceeds from sale of business

 

 

 

 

 

2,980

 

Proceeds from sale of discontinued operations

 

 

 

 

 

14,789

 

Net cash used in investing activities

 

 

(9,530

)

 

 

(543

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of debt borrowings

 

 

(71,000

)

 

 

(96,000

)

Proceeds from debt borrowings

 

 

30,000

 

 

 

103,000

 

Dividends paid

 

 

(12,001

)

 

 

(73,168

)

Repurchase of common shares

 

 

(1,593

)

 

 

(1,502

)

Other financing activities

 

 

(1,536

)

 

 

 

Net cash used in financing activities

 

 

(56,130

)

 

 

(67,670

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

4,054

 

 

 

12

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

11,092

 

 

 

13,116

 

CASH AND CASH EQUIVALENTS, end of period

 

$

15,146

 

 

$

13,128

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

10,372

 

 

$

11,832

 

Cash payments for income taxes

 

$

13,856

 

 

$

11,081

 

 

 

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

 

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CORE LABORATORIES N.V.

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited interim 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 for the annual financial statements, 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, 2019 (the "2019 Annual Report"). Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2019 was derived from the 2019 audited consolidated financial statements.

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 nine months ended September 30, 2020 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2020.

References to “Core Lab”, "Core Laboratories", 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 nine months ended September 30, 2019.

2. INVENTORIES

Inventories consisted of the following (in thousands):

 

 

September 30,

2020

 

 

December 31,

2019

 

Finished goods

 

$

18,369

 

 

$

26,507

 

Parts and materials

 

 

20,727

 

 

 

21,419

 

Work in progress

 

 

3,812

 

 

 

2,237

 

Total inventories

 

$

42,908

 

 

$

50,163

 

 

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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. See Note 12, Inventory Write-down for additional information.

3. SIGNIFICANT ACCOUNTING POLICIES UPDATE

Our significant accounting policies are detailed in "Note 2: Summary of Significant Accounting Policies" of our 2019 Annual Report. Significant changes to our accounting policies as a result of adopting Topic 326 – Financial Instruments-Credit Losses and Topic 350 – Intangibles-Goodwill and Other are discussed below:

Financial Instruments-Credit Losses

We have adopted the expected credit losses methodology for measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss impairment methodology. Our financial instruments that are potentially subject to credit losses consist primarily of cash and cash equivalents and accounts receivable. There is no significant impact in our consolidated financial statements or on our accounting policies and processes upon the adoption of this standard.

Intangibles-Goodwill and Other

We assess goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount. If the fair value of a reporting unit is less than its carrying value, then there is an impairment loss limited to the amount of goodwill allocated to that reporting unit. Our reporting units are the same as our two reportable segments. On January 1, 2020, we adopted the FASB new methodology for assessing goodwill impairment, see Note 20, Recent Accounting Pronouncements for additional information.

4. CONTRACT ASSETS AND CONTRACT LIABILITIES

Contract assets and liabilities arise from differences in 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, we have 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 Sheets.

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 revenue recognition. 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 Sheets.

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

 

 

September 30,

2020

 

 

December 31,

2019

 

Contract assets

 

 

 

 

 

 

 

 

Current

 

$

1,350

 

 

$

2,183

 

Non-Current

 

 

 

 

 

244

 

 

 

$

1,350

 

 

$

2,427

 

Contract Liabilities

 

 

 

 

 

 

 

 

Current

 

$

1,558

 

 

$

4,473

 

Non-current

 

 

387

 

 

 

383

 

 

 

$

1,945

 

 

$

4,856

 

 

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September 30,

2020

 

Estimate of when contract liabilities will be recognized as revenue

 

 

 

 

within 12 months

 

$

1,558

 

within 12 to 24 months

 

 

387

 

greater than 24 months

 

 

 

We did not recognize any impairment losses on our receivables and contract assets for the three and nine months ended September 30, 2020 and 2019.

5. ACQUISITIONS

We had no significant acquisitions during the three and nine months ended September 30, 2020.

6. LONG-TERM DEBT, NET

We have no financing lease obligations.

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

 

 

September 30,

2020

 

 

December 31,

2019

 

Senior Notes

 

$

150,000

 

 

$

150,000

 

Credit Facility

 

 

116,000

 

 

 

157,000

 

Total debt

 

 

266,000

 

 

 

307,000

 

Less: Debt issuance costs

 

 

(1,434

)

 

 

(1,717

)

Less: Current maturities of long-term debt

 

 

(75,000

)

 

 

 

Long-term debt, net

 

$

189,566

 

 

$

305,283

 

 

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.

On June 22, 2020, we entered into Amendment No. 1 (the “Amendment”) to the Seventh Amended and Restated Credit Agreement, dated June 19, 2018 (as amended, the “Credit Facility”). The Amendment increases the maximum leverage ratio permitted under the Credit Facility for certain periods. Pursuant to the terms of the Amendment, the maximum leverage ratio permitted under the Credit Facility is as follows:

Quarter ending

 

Maximum leverage ratio permitted

 

June 30, 2020

 

 

3.00

 

September 30, 2020

 

 

3.00

 

December 31, 2020

 

 

3.00

 

March 31, 2021

 

 

3.00

 

June 30, 2021

 

 

3.00

 

September 30, 2021

 

 

2.75

 

December 31, 2021 and thereafter

 

 

2.50

 

Moreover, the Amendment modified the range of variable interest rates that the Credit Facility may bear to be a range from LIBOR plus 1.500% to LIBOR plus 2.875% and included the addition of a LIBOR floor of 0.50%.  The Amendment also reduced the aggregate borrowing commitment under the Credit Facility to $225 million and the amount by which we may elect to increase the facility size, known as the “accordion” feature, to $50 million, subject to the satisfaction of certain conditions. Any outstanding balance under the Credit Facility is due on maturity on June 19, 2023. Our available capacity at any point in time is reduced by outstanding borrowings and outstanding letters of credit which totaled $13.3 million at September 30, 2020,

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resulting in an available borrowing capacity under the Credit Facility of $95.7 million. In addition to indebtedness under the Credit Facility, we had $6.6 million of outstanding letters of credit and performance guarantees and bonds from other sources as at September 30, 2020.

The Credit Facility remains unsecured, and contains customary representations, warranties, terms and conditions for similar types of facilities.

The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (calculated as consolidated EBITDA divided by interest expense) and a leverage ratio (calculated as 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 and Senior Notes each include a cross-default provision, whereby a default under one agreement may trigger a default in the other agreement. The Credit Facility has more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and permits a maximum leverage ratio as described above. The Credit Facility allows non-cash charges such as impairment of assets, stock compensation and other non-cash charges to be added back in the calculation of consolidated EBITDA. The terms of our Credit Facility also 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 principles would affect the computation of any financial ratio or covenant of the Credit Facility. In accordance with the terms of the Credit Facility, our leverage ratio is 2.49, and our interest coverage ratio is 5.39, each for the period ended September 30, 2020. We believe that we are in compliance with all covenants contained in our Credit Facility and Senior Notes. Our parent, Core Laboratories N.V., together with certain of our material, wholly-owned subsidiaries, are guarantors or co-borrowers under the Credit Facility and Senior Notes.

We entered into two interest rate swap agreements for a total notional amount of $50 million, including one of which was entered during the nine months ended September 30, 2020. See Note 16, Derivative Instruments and Hedging Activities for additional information.

The estimated fair value of total debt at September 30, 2020 and December 31, 2019 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 maturity date.

During the three months ended September 30, 2020, the Company incurred approximately $1.5 million in professional service fees and expenses associated with the evaluation of various corporate debt issuances and/or debt refinancing opportunities. These corporate finance and capital structure costs were expensed immediately and classified as interest expense.

Subsequent to the three months ended September 30, 2020, on October 16, 2020, we, along with Core Laboratories (U.S.) Interests Holdings, Inc. as issuer, entered into two new series of senior notes with aggregate principal amount of $60 million in a private placement transaction (“2020 Senior Notes”). The 2020 Senior Notes are scheduled to be issued and funded on January 12, 2021. Series A of the 2020 Senior Notes consists of $45 million in aggregate principal amount that bear interest at a fixed rate of 4.09% and are due in full on January 12, 2026. Series B of the 2020 Senior Notes consists of $15 million in aggregate principal amount that bear interest at a fixed rate of 4.38% and are due in full on January 12, 2028. Interest on each series of the 2020 Senior Notes is payable semi-annually on June 30 and December 30, commencing on June 30, 2021.

The terms of the 2020 Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (calculated as consolidated EBITDA divided by interest expense) and a leverage ratio (calculated as consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in the Note Purchase Agreement) and interest expense are calculated using the most recent four fiscal quarters; and a priority indebtedness ratio (calculated as Priority Indebtedness divided by Consolidated Total Assets (as defined in the Notes Purchase Agreement.) The financial covenants for the 2020 Senior Notes Agreement are aligned with the Credit Facility and the associated Note Purchase Agreement also allows renegotiation of the ratios in consideration of changes in accounting principles. Our parent, Core Laboratories N.V., together with certain of our material, wholly-owned subsidiaries, are guarantors or co-borrowers under the 2020 Senior Notes.

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7. PENSION

Defined Benefit Plan

Prior to January 2020, we provided a noncontributory defined benefit pension plan covering substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2000. During 2019, there was a curtailment of the Dutch Plan for our Dutch employees whose pension benefit was based on years of service and final pay or career average pay, depending on when the employee began participating. These employees have been moved into the Dutch defined contribution plan. However, the unconditional indexation for this group of participants continues for so long as they remain in active service with the Company. There is no further contribution to fund the Dutch Plan since December 31, 2019.

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Service cost

 

$

 

 

$

191

 

 

$

 

 

$

572

 

Interest cost

 

 

179

 

 

 

259

 

 

 

514

 

 

 

778

 

Expected return on plan assets

 

 

(164

)

 

 

(231

)

 

 

(472

)

 

 

(692

)

Amortization of prior service cost

 

 

 

 

 

(25

)

 

 

 

 

 

(75

)

Amortization of actuarial loss

 

 

 

 

 

15

 

 

 

 

 

 

44

 

Net periodic pension cost

 

$

15

 

 

$

209

 

 

$

43

 

 

$

627

 

 

8. 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 and 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.

 

9. EQUITY

During the three and nine months ended September 30, 2020, we repurchased 7,500 and 55,000 of our common shares for $0.2 million and $1.6 million, respectively. Included in this total were rights to 25,000 shares valued at $0.5 million, 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 24,929 and 84,134 treasury shares upon vesting of stock-based awards during the three and nine months ended September 30, 2020, respectively.

In February, May and August 2020, we paid a quarterly dividend of $0.25, $0.01 and $0.01 per share of common stock, respectively. In addition, on October 15, 2020 we declared a quarterly dividend of $0.01 per share of common stock for shareholders of record on October 26, 2020 and payable on November 17, 2020.

Accumulated other comprehensive loss, net of tax, consisted of the following (in thousands):

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Unrecognized net actuarial loss

 

$

(5,640

)

 

$

(5,640

)

Fair value of derivatives

 

 

(2,409

)

 

 

(690

)

Total accumulated other comprehensive loss

 

$

(8,049

)

 

$

(6,330

)

 

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10. 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Weighted average basic common shares

     outstanding

 

 

44,491

 

 

 

44,371

 

 

 

44,470

 

 

 

44,349

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance shares

 

 

345

 

 

 

341

 

 

 

 

 

 

394

 

Restricted stock

 

 

63

 

 

 

4

 

 

 

 

 

 

111

 

Weighted average diluted common and

      potential common shares outstanding

 

 

44,899

 

 

 

44,716

 

 

 

44,470

 

 

 

44,854

 

 

For the nine months ended September 30, 2020, the number of outstanding performance and restricted shares of Core Laboratories N.V. common stock that were excluded from the diluted earnings per share calculation, as their impact would be antidilutive, were as follows (in thousands):

 

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

Performance shares

 

 

348

 

Restricted stock

 

 

71

 

 

 

11. IMPAIRMENTS AND OTHER CHARGES

The coronavirus disease 2019 (“COVID-19”) global pandemic resulted in government mandated shut-downs, cross-border travel restrictions, home sheltering and social distancing efforts to contain the virus and mitigate the incidence of infection. The COVID-19 mitigation efforts globally resulted in a sharp decline in the consumption of crude-oil and refined petroleum products, which in turn led to a significant decrease in spot and forward commodity prices. These events have resulted in substantial declines in the valuation of companies operating in the oil and gas services industry, including Core Laboratories. As a result, in March 2020, we determined that it was more likely than not that the fair value of our reporting units was less than their carrying value, which triggered an updated impairment assessment by the Company as of March 31, 2020. We performed an impairment test in accordance with ASC Topic 360, Impairment or Disposal of Long-Lived Assets and ASC Topic 350, Intangibles-Goodwill and Other, on our indefinite-lived and long-lived assets related to asset groups, and our reporting units.

We have two reporting units that are the same as our two reportable segments, with goodwill balances aggregating $213.4 million as of March 31, 2020. We performed a detailed quantitative impairment assessment of our reporting units. We determined that the fair value of one of the reporting units, our Production Enhancement segment representing approximately $114.0 million of the goodwill, was less than the carrying value. As a result, we concluded that the goodwill associated with our Production Enhancement segment was fully impaired, resulting in a $114.0 million goodwill impairment charge in March of 2020. We determined that the Reservoir Description reporting unit’s fair value is above the carrying value, which represented the remaining balance of $99.4 million of goodwill.

We identified a triggering event for one of the asset groups under the Production Enhancement reporting unit. The estimated fair value, based on applying the income approach model, of one of the asset groups was determined to be below its carrying value. As of March 31, 2020, we recorded a charge of $8.2 million to impair the intangible assets relating to the business acquisition of Guardian Technology in 2018. This impairment charge was associated with our Production Enhancement segment.

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During the three months ended June 30, 2020 and September 30, 2020, respectively, we determined that there were no triggering events which require the Company to perform further impairment assessment for any of its reporting units or asset groups.

12. INVENTORY WRITE-DOWN

During the nine months ended September 30, 2020 as a result of the continuing adverse impact of COVID-19 and significant reduction in rig count and completions that affect the current consumption and anticipated demand for certain of our products, in June 2020, we recorded an additional inventory obsolescence and write-down of $9.9 million in our Production Enhancement segment.

13. OTHER (INCOME) EXPENSE, NET

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Gain on sale of assets

 

$

(206

)

 

$

(151

)

 

$

(556

)

 

$

(458

)

Results of non-consolidated subsidiaries

 

 

33

 

 

 

(96

)

 

 

(176

)

 

 

(193

)

Foreign exchange

 

 

982

 

 

 

570

 

 

 

308

 

 

 

389

 

Rents and royalties

 

 

(114

)

 

 

(134

)

 

 

(356

)

 

 

(727

)

Employment related charges

 

 

 

 

 

 

 

 

 

 

 

2,866

 

Return on pension assets and other pension costs

 

 

(161

)

 

 

(232

)

 

 

(468

)

 

 

(714

)

Gain on sale of business

 

 

 

 

 

(58

)

 

 

 

 

 

(1,154

)

Curtailment

 

 

 

 

 

 

 

 

(1,034

)

 

 

 

Cost reduction and other charges

 

 

 

 

 

 

 

 

3,943

 

 

 

2,977

 

Loss (recovery) on lease abandonment

 

 

(122

)

 

 

 

 

 

504

 

 

 

 

Rebates and other credits

 

 

(763

)

 

 

 

 

 

(763

)

 

 

 

Other, net

 

 

(737

)

 

 

(611

)

 

 

(415

)

 

 

(333

)

Total other (income) expense, net

 

$

(1,088

)

 

$

(712

)

 

$

987

 

 

$

2,653

 

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(Gains) losses by currency

 

2020

 

 

2019

 

 

2020

 

 

2019

 

British Pound

 

$

361

 

 

$

163

 

 

$

373

 

 

$

341

 

Canadian Dollar

 

 

106

 

 

 

197

 

 

 

410

 

 

 

285

 

Euro

 

 

682

 

 

 

18

 

 

 

594

 

 

 

20

 

Other currencies, net

 

 

(167

)

 

 

192

 

 

 

(1,069

)

 

 

(257

)

Total (gain) loss, net

 

$

982

 

 

$

570

 

 

$

308

 

 

$

389

 

 

 

14. INCOME TAX EXPENSE

The Company recorded an income tax expense of $3.7 million and $3.3 million for the three months ended September 30, 2020 and 2019, respectively, and income tax benefit of $0.6 million and $19.5 million for the nine months ended September 30, 2020 and 2019, respectively. The effective tax rate for the three and nine months ended September 30, 2020 were 55.0% and 0.6% recorded on income from continuing operations before taxes of $6.7 million and loss of $111.7 million, respectively. The income tax expense for the nine months ended September 30, 2020, was primarily impacted by the impairment of goodwill, intangible assets and other charges recorded during these periods, which were largely not deductible for tax purposes.

The effective tax rate for the three months ended September 30, 2019 was 12.1% on income from continuing operations before tax of $27.5 million. The effective tax rate for the nine months ended September 30, 2019 was (30.2%) on income from continuing operations before tax of $64.5 million. Tax benefit for the nine months ended September 30, 2019 includes a net tax

15

 

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benefit of $58.5 million, which resulted from a corporate restructuring in the first quarter of 2019 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.

15. 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating lease expense

 

$

4,356

 

 

$

4,724

 

 

$

12,982

 

 

$

14,027

 

Short-term lease expense

 

 

359

 

 

 

402

 

 

 

1,223

 

 

 

1,024

 

Variable lease expense

 

 

312

 

 

 

162

 

 

 

1,086

 

 

 

521

 

Total lease expense

 

$

5,027

 

 

$

5,288

 

 

$

15,291

 

 

$

15,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Operating cash flows used for operating leases

 

$

4,250

 

 

$

4,306

 

 

$

13,203

 

 

$

13,729

 

Right-of-use assets obtained in exchange for new lease liabilities

 

$

2,098

 

 

$

3,837

 

 

$

4,502

 

 

$

11,066

 

Weighted-average remaining lease term- operating leases

 

8.68 years

 

 

9.18 years

 

 

8.68 years

 

 

9.18 years

 

Weighted-average discount rate - operating leases

 

 

4.76

%

 

 

4.95

%

 

 

4.76

%

 

 

4.95

%

 

Scheduled undiscounted cash flows for non-cancellable leases at September 30, 2020 consist of the following (in thousands):

 

 

Operating Leases

 

Remainder of 2020

$

3,807

 

2021

 

13,527

 

2022

 

11,787

 

2023

 

9,998

 

2024

 

7,674

 

Thereafter

 

37,019

 

Total undiscounted lease payments

 

83,812

 

Less:  Imputed interest

 

(15,356

)

Total operating lease liabilities

$

68,456

 

 

During the three and nine months ended September 30, 2020, the Company recorded a net loss (recovery) on lease abandonment of $(0.1) million and $0.5 million, for certain properties that ceased in use and are expected to provide no future economic benefits.

 

The Company has elected to apply the short-term lease exemption to all of its classes of underlying assets. Accordingly, no right of use asset or operating 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.

16. 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.

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Interest Rate Risk

Our Credit Facility bears interest at variable rates from LIBOR plus 1.500% to a maximum of LIBOR plus 2.875% and includes the addition of a LIBOR floor of 0.50%. 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.

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 2.5% through August 29, 2024. In February 2020, we entered into the second swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 1.3% through February 28, 2025. 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 September 30, 2020, we had fixed rate long-term debt aggregating $200 million and variable rate long-term debt aggregating $66 million, after taking into account the effect of the swap.

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

 

 

Fair Value of Derivatives

 

 

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

Balance Sheet

Classification

Derivatives designated as hedges:

 

 

 

 

 

 

 

 

 

 

5 year interest rate swap

 

$

(916

)

 

$

 

 

Other current (liabilities)

10 year interest rate swap

 

 

(2,315

)

 

 

(1,054

)

 

Other long-term (liabilities)

 

 

$

(3,230

)

 

$

(1,054

)

 

 

 

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

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Income Statement

Classification

Derivatives designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5 year interest rate swap

 

$

72

 

 

$

(24

)

 

$

117

 

 

$

(120

)

 

Increase (decrease) to interest expense

10 year interest rate swap

 

 

149

 

 

 

16

 

 

 

327

 

 

 

18

 

 

Increase (decrease) to interest expense

 

 

$

221

 

 

$

(8

)

 

$

444

 

 

$

(102

)

 

 

 

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17. 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

 

 

 

 

 

 

 

September 30, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation assets (1)

 

$

42,498

 

 

$

 

 

$

42,498

 

 

$

 

 

 

$

42,498

 

 

$

 

 

$

42,498

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation liabilities

 

$

33,829

 

 

$

 

 

$

33,829

 

 

$

 

5 year interest rate swap

 

 

916

 

 

 

 

 

 

916

 

 

 

 

10 year interest rate swap

 

 

2,315

 

 

 

 

 

 

2,315

 

 

 

 

 

 

$

37,059

 

 

$

 

 

$

37,059

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurement at

 

 

 

 

 

 

 

December 31,

2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation assets (1)

 

$

47,009

 

 

$

 

 

$

47,009

 

 

$

 

 

 

$

47,009

 

 

$

 

 

$

47,009

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation liabilities

 

$

34,081

 

 

$

 

 

$

34,081

 

 

$

 

10 year interest rate swap

 

 

1,054

 

 

 

 

 

 

1,054

 

 

 

 

 

 

$

35,135

 

 

$

 

 

$

35,135

 

 

$

 

(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.

18. 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 approximately $16.6 million in cash. A pre-tax gain of $8.3 million was recognized in connection with this transaction, subject to adjustments for working capital purposes and is classified as Income from discontinued operations in the Consolidated Statements of Operations. 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.

The associated results of operations are separately reported as Discontinued Operations for all periods presented on the Consolidated Statements of Operations. 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

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

Services

 

$

 

 

$

1,165

 

Product sales

 

 

 

 

 

4,233

 

Total revenue

 

 

 

 

 

5,398

 

Cost of services

 

 

 

 

 

690

 

Cost of product sales

 

 

 

 

 

3,196

 

Other expense

 

 

 

 

 

91

 

Operating income (loss)

 

 

 

 

 

1,421

 

Gain on sale

 

 

(485

)

 

 

8,319

 

Income (loss) from discontinued operations before income tax expense

 

 

(485

)

 

 

9,740

 

Income tax expense (benefit)

 

 

(88

)

 

 

1,907

 

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

 

$

(397

)

 

$

7,833

 

 

There are no activities recorded for the three and nine months ended September 30, 2020 and no balances recorded for the discontinued operations as of September 30, 2020 and December 31, 2019.

Net cash provided by operating activities of discontinued operations for the nine months ended September 30, 2020 and 2019 was $0.0 million and $0.1 million, respectively.

19. 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.

 

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.

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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 September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

80,060

 

 

$

25,322

 

 

$

 

 

$

105,382

 

Inter-segment revenue

 

 

43

 

 

 

39

 

 

 

(82

)

 

 

 

Segment operating income (loss)

 

 

11,022

 

 

 

(321

)

 

 

630

 

 

 

11,331

 

Total assets (at end of period)

 

 

306,369

 

 

 

128,832

 

 

 

155,613

 

 

 

590,814

 

Capital expenditures

 

 

1,377

 

 

 

641

 

 

 

154

 

 

 

2,172

 

Depreciation and amortization

 

 

3,391

 

 

 

1,512

 

 

 

261

 

 

 

5,164

 

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

109,339

 

 

$

63,861

 

 

$

 

 

$

173,200

 

Inter-segment revenue

 

 

99

 

 

 

199

 

 

 

(298

)

 

 

 

Segment operating income

 

 

18,835

 

 

 

11,456

 

 

 

916

 

 

 

31,207

 

Total assets (at end of period)

 

 

347,475

 

 

 

287,431

 

 

 

152,790

 

 

 

787,696

 

Capital expenditures

 

 

3,260

 

 

 

1,982

 

 

 

65

 

 

 

5,307

 

Depreciation and amortization

 

 

3,684

 

 

 

1,650

 

 

 

363

 

 

 

5,697

 

Nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

271,203

 

 

$

102,315

 

 

$

 

 

$

373,518

 

Inter-segment revenue

 

 

205

 

 

 

443

 

 

 

(648

)

 

 

 

Segment operating income (loss)

 

 

35,618

 

 

 

(137,944

)

 

 

2,117

 

 

 

(100,209

)

Total assets (at end of period)

 

 

306,369

 

 

 

128,832

 

 

 

155,613

 

 

 

590,814

 

Capital expenditures

 

 

4,609

 

 

 

3,753

 

 

 

216

 

 

 

8,578

 

Depreciation and amortization

 

 

10,364

 

 

 

4,860

 

 

 

806

 

 

 

16,030

 

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from unaffiliated clients

 

$

318,280

 

 

$

193,152

 

 

$

 

 

$

511,432

 

Inter-segment revenue

 

 

346

 

 

 

419

 

 

 

(765

)

 

 

 

Segment operating income

 

 

40,892

 

 

 

31,792

 

 

 

2,945

 

 

 

75,629

 

Total assets (at end of period)

 

 

347,475

 

 

 

287,431

 

 

 

152,790

 

 

 

787,696

 

Capital expenditures

 

 

7,906

 

 

 

9,114

 

 

 

517

 

 

 

17,537

 

Depreciation and amortization

 

 

11,505

 

 

 

4,377

 

 

 

1,188

 

 

 

17,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

20. RECENT ACCOUNTING PRONOUNCEMENTS

Pronouncements Adopted in 2020

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 adopted this standard on January 1, 2020, and there has been no significant impact on our consolidated financial statements or on our accounting policies and processes.

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In January 2017, the FASB issued ASU 2017-04 (“Simplifying the Test for Goodwill Impairment”) which eliminates a step in computing the implied fair value of goodwill with a new methodology of an entity performing an annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. We adopted this standard on January 1, 2020, and although the new methodology was applied for the goodwill impairment analysis performed for the three month period ended March 31, 2020, it did not change the conclusion that goodwill had been impaired, and there has been no significant impact on our consolidated financial statements or on our accounting policies and processes as a result of adopting this updated accounting standard.

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

The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories N.V. and its subsidiaries as of September 30, 2020 and should be read in conjunction with (i) the unaudited interim consolidated 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, 2019 (the "2019 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 3,800 people worldwide.

References to "Core Lab", “Core Laboratories”, 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 2019 Annual Report and “Item 8.01- Other Events” in the Current Report Form 8-K filed on June 23, 2020, as well as the other reports filed by us with the Securities and Exchange Commission ("SEC").

Outlook

The events occurring during 2020 associated with the COVID-19 pandemic and global government mandated shut-downs, home sheltering and social distancing policies have caused a significant decline in the demand for crude oil and associated products.  The significant decline in demand has resulted in a significant decline in the price of crude oil, which has also resulted in a high degree of uncertainty about future demand and the future price for crude oil. U.S. land drilling and completion activity have experienced the most significant impact, as the rig count and completion of wells have declined significantly during the first nine months of 2020 from previous levels. International activity has also been impacted by disruption to our clients’ operations. Additionally, our clients experienced disruptions from four named tropical weather systems in the Gulf of Mexico during the third quarter. Although physical damage to Core Lab’s facilities were minor; our clients experienced interruptions of business activity due to pre-storm preparations, offshore facility evacuations, local area flooding, power outages, and post-storm clean-up. As a result, it is anticipated that the activity associated with the energy markets and our clients will remain low and the commodity price of crude oil will also continue to be depressed and volatile for the remainder of 2020.

While the full impact of COVID-19 and the long-term worldwide impact still remains unknown, Core Laboratories has continued to operate as an essential business with timely delivery of products and services to our clients during the COVID-19 global pandemic. Continued government restrictions, widespread growth in infections, travel restrictions, quarantines, and site closures have led to business disruptions, which lessened somewhat during the third quarter of 2020, but are expected to continue for the remainder of the year and possibly beyond 2020. These disruptions have primarily been associated with operational workflows stemming from travel, product delivery, as well as suspensions and delays in client projects. We have not experienced any significant disruptions in our supply chain, and do not anticipate significant disruption in our supply chain. We have also implemented a continuity plan across our global organization to protect the health of employees while servicing the clients.

As part of our long-term growth strategy, we continue 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 in strategic areas provides us a unique opportunity to serve our clients who have global operations whether they are international oil companies, national oil companies, or independent oil companies.

Our major clients continue to focus on capital management return on invested capital (“ROIC”), free cash flow, and returning capital back to their shareholders, as opposed to a focus on production growth. The companies adopting value versus volume metrics tend to be the more technologically sophisticated operators and form the foundation of Core Lab’s worldwide client base. Considering a longer-term strategy, we expect to be well positioned as our clients continue their focus on employing higher technological solutions in their efforts to optimize production and estimated ultimate recovery in the most cost efficient environmentally responsible manner.

We believe operators will continue to manage their capital spending within reduced budgets and maintain their focus on strengthening their balance sheets with an effort to generate positive free cash flow. This shift was apparent throughout the first nine months of 2020 as the significant declines, year-over-year, in the U.S. onshore rig count, U.S. land completion activity, and decline in international rig count have continued through September 2020. As a result, we believe the U.S. onshore activity in the remainder of 2020 will remain approximately at current levels or slightly improve, and any improvements will continue to be constrained by these factors.

Core Laboratories expects international field development spending will be negatively impacted by reduced operating budgets which have also been adversely impacted by COVID-19. Reservoir Description continues to work with clients and discuss the progression of longer-term international projects. Longer-term international and offshore projects which are

23

 

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commonly announced through Final Investment Decisions (“FIDs”) and subsequently initiated are not as susceptible or at-risk to delay or suspension due to shorter-term volatility in crude oil commodity price. During the third quarter of 2020, the crude-oil prices averaged between $40- $43 per barrel and remained relatively consistent throughout the quarter compared to high volatility experienced earlier in the year. Additionally, the reservoir fluids analysis that is performed on projects associated with current producing fields, continues to be critical and will be less affected by lower commodity prices for crude oil. The revenue opportunity for Reservoir Description occurs once the well has been drilled and core and fluid samples are recovered from the well and analyzed. The adverse impact from COVID-19 and the depression of crude-oil prices has resulted in increased uncertainty associated with the activity levels and revenue opportunities from these international and offshore projects, however most of the larger projects, especially the projects that have already been commissioned and are in development, are focused on a longer term forecast versus a short to mid-term assessment of the crude oil commodity prices.

In response to market conditions, Core Lab’s Board of Supervisory Directors (the “Supervisory Board”) approved a plan to reduce the Company’s future quarterly dividends to $0.01 per share beginning with the second quarter of 2020 and to focus excess free cash flow towards the reduction of debt. In March 2020, the Company enacted cost control plans and expanded these initiatives in June of 2020, which include: (i) corporate and operating cost reductions; (ii) annual capital expenditures reduced to approximately $11 - $12 million, and (iii) eliminating all non-essential costs. The corporate and operating cost reductions include reductions in workforce and reduction of senior executive and employee compensation. Although activities have declined in the third quarter of 2020 due to the factors discussed above, this decline has been partially offset by the effectiveness of the Company’s cost control initiatives. Lastly, the proceeds from the 2020 Senior Notes are intended to be used exclusively to reduce outstanding debt and increase liquidity under the Company’s Credit Facility as we work towards our long-term strategy of reducing debt.    

Specifically, the Company has reduced senior executives’ annual base salary by 20% for the foreseeable future. Core Lab believes these immediate actions, as well as continued assessment of market conditions, will allow Core Lab, as it has for over 83 years, to navigate through these challenging times. Core Lab remains focused on preserving the quality of service for its clients and producing returns for its shareholders.

24

 

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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 September 30,

 

 

Change

 

 

 

2020

 

 

2019

 

 

$

 

 

%

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

86,250

 

 

82%

 

 

$

120,817

 

 

70%

 

 

$

(34,567

)

 

(29)%

 

Product sales

 

 

19,132

 

 

18%

 

 

 

52,383

 

 

30%

 

 

 

(33,251

)

 

(63)%

 

Total revenue

 

 

105,382

 

 

100%

 

 

 

173,200

 

 

100%

 

 

 

(67,818

)

 

(39)%

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation

   expense shown below*

 

 

63,802

 

 

74%

 

 

 

86,243

 

 

71%

 

 

 

(22,441

)

 

(26)%

 

Cost of product sales, exclusive of depreciation

   expense shown below*

 

 

17,236

 

 

90%

 

 

 

39,753

 

 

76%

 

 

 

(22,517

)

 

(57)%

 

Total cost of services and product sales

 

 

81,038

 

 

77%

 

 

 

125,996

 

 

73%

 

 

 

(44,958

)

 

(36)%

 

General and administrative expense, exclusive of depreciation expense shown below

 

 

8,937

 

 

8%

 

 

 

11,012

 

 

6%

 

 

 

(2,075

)

 

(19)%

 

Depreciation and amortization

 

 

5,164

 

 

5%

 

 

 

5,697

 

 

3%

 

 

 

(533

)

 

(9)%

 

Other (income) expense, net

 

 

(1,088

)

 

(1)%

 

 

 

(712

)

 

—%

 

 

 

(376

)

 

53%

 

Operating income (loss)

 

 

11,331

 

 

11%

 

 

 

31,207

 

 

18%

 

 

 

(19,876

)

 

(64)%

 

Interest expense

 

 

4,672

 

 

4%

 

 

 

3,662

 

 

2%

 

 

 

1,010

 

 

28%

 

Income (loss) from continuing operations before income tax expense

 

 

6,659

 

 

6%

 

 

 

27,545

 

 

16%

 

 

 

(20,886

)

 

(76)%

 

Income tax expense (benefit)

 

 

3,663

 

 

3%

 

 

 

3,335

 

 

2%

 

 

 

328

 

 

10%

 

Income (loss) from continuing operations

 

 

2,996

 

 

3%

 

 

 

24,210

 

 

14%

 

 

 

(21,214

)

 

(88)%

 

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

 

 

 

 

—%

 

 

 

(397

)

 

—%

 

 

 

397

 

 

NM

 

Net income (loss)

 

 

2,996

 

 

3%

 

 

 

23,813

 

 

14%

 

 

 

(20,817

)

 

(87)%

 

Net income (loss) attributable to non-controlling

   interest

 

 

33

 

 

—%

 

 

 

84

 

 

—%

 

 

 

(51

)

 

NM

 

Net income (loss) attributable to Core Laboratories

   N.V.

 

$

2,963

 

 

3%

 

 

$

23,729

 

 

14%

 

 

$

(20,766

)

 

(88)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current ratio (1)

 

0.99:1

 

 

 

 

 

 

1.92:1

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt to EBITDA ratio (2)

 

3.09:1

 

 

 

 

 

 

2.29:1

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt to Adjusted EBITDA ratio (3)

 

2.49:1

 

 

 

 

 

 

1.81:1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" means not meaningful

 

*Percentage based on applicable revenue rather than total revenue

 

(1)  Current ratio is calculated as follows:  current assets divided by current liabilities.

 

(2)  Debt to EBITDA ratio is calculated as follows:  debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization and certain non-cash adjustments.

 

(3)  Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows:  debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.

 

25

 

Return to Index


 

 

 

 

Three Months Ended

 

 

Change

 

 

 

September 30, 2020

 

 

June 30, 2020

 

 

$

 

 

%

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

86,250

 

 

82%

 

 

$

91,009

 

 

79%

 

 

$

(4,759

)

 

(5)%

 

Product sales

 

 

19,132

 

 

18%

 

 

 

24,727

 

 

21%

 

 

 

(5,595

)

 

(23)%

 

Total revenue

 

 

105,382

 

 

100%

 

 

 

115,736

 

 

100%

 

 

 

(10,354

)

 

(9)%

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation

   expense shown below*

 

 

63,802

 

 

74%

 

 

 

67,054

 

 

74%

 

 

 

(3,252

)

 

(5)%

 

Cost of product sales, exclusive of depreciation

   expense and inventory write-down shown

   below*

 

 

17,236

 

 

90%

 

 

 

23,626

 

 

96%

 

 

 

(6,390

)

 

(27)%

 

Total cost of services and product sales

 

 

81,038

 

 

77%

 

 

 

90,680

 

 

78%

 

 

 

(9,642

)

 

(11)%

 

General and administrative expense, exclusive of depreciation expense shown below

 

 

8,937

 

 

8%

 

 

 

9,221

 

 

8%

 

 

 

(284

)

 

(3)%

 

Depreciation and amortization

 

 

5,164

 

 

5%

 

 

 

5,425

 

 

5%

 

 

 

(261

)

 

(5)%

 

Inventory write-down

 

 

 

 

—%

 

 

 

9,932

 

 

9%

 

 

 

(9,932

)

 

NM

 

Other (income) expense, net

 

 

(1,088

)

 

(1)%

 

 

 

3,045

 

 

3%

 

 

 

(4,133

)

 

NM

 

Operating income (loss)

 

 

11,331

 

 

11%

 

 

 

(2,567

)

 

(2)%

 

 

 

13,898

 

 

NM

 

Interest expense

 

 

4,672

 

 

4%

 

 

 

3,369

 

 

3%

 

 

 

1,303

 

 

39%

 

Income (loss) from continuing operations before income tax expense

 

 

6,659

 

 

6%

 

 

 

(5,936

)

 

(5)%

 

 

 

12,595

 

 

NM

 

Income tax expense (benefit)

 

 

3,663

 

 

3%

 

 

 

(261

)

 

—%

 

 

 

3,924

 

 

NM

 

Income (loss) from continuing operations

 

 

2,996

 

 

3%

 

 

 

(5,675

)

 

(5)%

 

 

 

8,671

 

 

NM

 

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

 

 

 

 

—%

 

 

 

 

 

—%

 

 

 

 

 

NM

 

Net income (loss)

 

 

2,996

 

 

3%

 

 

 

(5,675

)

 

(5)%

 

 

 

8,671

 

 

NM

 

Net income (loss) attributable to non-controlling

   interest

 

 

33

 

 

—%

 

 

 

41

 

 

—%

 

 

 

(8

)

 

NM

 

Net income (loss) attributable to Core Laboratories

   N.V.

 

$

2,963

 

 

3%

 

 

$

(5,716

)

 

(5)%

 

 

$

8,679

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current ratio (1)

 

0.99:1

 

 

 

 

 

 

1.93:1

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt to EBITDA ratio (2)

 

3.09:1

 

 

 

 

 

 

2.82:1

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt to Adjusted EBITDA ratio (3)

 

2.49:1

 

 

 

 

 

 

2.21:1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" means not meaningful

 

*Percentage based on applicable revenue rather than total revenue

 

(1)  Current ratio is calculated as follows:  current assets divided by current liabilities.

 

(2)  Debt to EBITDA ratio is calculated as follows:  debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization and certain non-cash adjustments.

 

(3)  Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows:  debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.

 

26

 

Return to Index


 

 

 

 

Nine Months Ended September 30,

 

 

Change

 

 

 

2020

 

 

2019

 

 

$

 

 

%

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

$

287,226

 

 

77%

 

 

$

359,029

 

 

70%

 

 

$

(71,803

)

 

(20)%

 

Product sales

 

 

86,292

 

 

23%

 

 

 

152,403

 

 

30%

 

 

 

(66,111

)

 

(43)%

 

Total revenue

 

 

373,518

 

 

100%

 

 

 

511,432

 

 

100%

 

 

 

(137,914

)

 

(27)%

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation

   expense shown below*

 

 

211,797

 

 

74%

 

 

 

262,616

 

 

73%

 

 

 

(50,819

)

 

(19)%

 

Cost of product sales, exclusive of depreciation

   expense and inventory write-down shown

   below*

 

 

75,052

 

 

87%

 

 

 

115,214

 

 

76%

 

 

 

(40,162

)

 

(35)%

 

Total cost of services and product sales

 

 

286,849

 

 

77%

 

 

 

377,830

 

 

74%

 

 

 

(90,981

)

 

(24)%

 

General and administrative expense, exclusive of depreciation expense shown below

 

 

37,725

 

 

10%

 

 

 

38,250

 

 

7%

 

 

 

(525

)

 

(1)%

 

Depreciation and amortization

 

 

16,030

 

 

4%

 

 

 

17,070

 

 

3%

 

 

 

(1,040

)

 

(6)%

 

Impairments and other charges

 

 

122,204

 

 

33%

 

 

 

 

 

—%

 

 

 

122,204

 

 

NM

 

Inventory write-down

 

 

9,932

 

 

3%

 

 

 

 

 

—%

 

 

 

9,932

 

 

NM

 

Other (income) expense, net

 

 

987

 

 

—%

 

 

 

2,653

 

 

1%

 

 

 

(1,666

)

 

(63)%

 

Operating income (loss)

 

 

(100,209

)

 

(27)%

 

 

 

75,629

 

 

15%

 

 

 

(175,838

)

 

NM

 

Interest expense

 

 

11,452

 

 

3%

 

 

 

11,102

 

 

2%

 

 

 

350

 

 

3%

 

Income (loss) from continuing operations before income tax expense

 

 

(111,661

)

 

(30)%

 

 

 

64,527

 

 

13%

 

 

 

(176,188

)

 

NM

 

Income tax expense (benefit)

 

 

(644

)

 

—%

 

 

 

(19,467

)

 

(4)%

 

 

 

18,823

 

 

(97)%

 

Income (loss) from continuing operations

 

 

(111,017

)

 

(30)%

 

 

 

83,994

 

 

16%

 

 

 

(195,011

)

 

NM

 

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

 

 

 

 

—%

 

 

 

7,833

 

 

2%

 

 

 

(7,833

)

 

NM

 

Net income (loss)

 

 

(111,017

)

 

(30)%

 

 

 

91,827

 

 

18%

 

 

 

(202,844

)

 

NM

 

Net income (loss) attributable to non-controlling

   interest

 

 

157

 

 

—%

 

 

 

174

 

 

—%

 

 

 

(17

)

 

NM

 

Net income (loss) attributable to Core Laboratories

   N.V.

 

$

(111,174

)

 

(30)%

 

 

$

91,653

 

 

18%

 

 

$

(202,827

)

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current ratio (1)

 

0.99:1

 

 

 

 

 

 

1.92:1

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt to EBITDA ratio (2)

 

3.09:1

 

 

 

 

 

 

2.29:1

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt to Adjusted EBITDA ratio (3)

 

2.49:1

 

 

 

 

 

 

1.81:1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" means not meaningful

 

*Percentage based on applicable revenue rather than total revenue

 

(1)  Current ratio is calculated as follows:  current assets divided by current liabilities.

 

(2)  Debt to EBITDA ratio is calculated as follows:  debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization and certain non-cash adjustments.

 

(3)  Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows:  debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.

 

Operating Results for the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019 and June 30, 2020 and for the Nine Months Ended September 30, 2020 compared to the Nine Months Ended September 30, 2019

Services Revenue

Services revenue is primarily tied to activities associated with the exploration and production of oil, gas and derived products outside the U.S. For the three months ended September 30, 2020, services revenue of $86.3 million decreased year-over-year from $120.8 million for the three months ended September 30, 2019 and decreased sequentially from $91.0 million for the three months ended June 30, 2020. During the third quarter of 2020, crude-oil prices remained relatively consistent and price

27

 

Return to Index


 

fluctuations were less volatile compared to the first six months of 2020. However, the events occurring during first and second quarters of 2020 associated with COVID-19 pandemic and global government mandated shut-downs, home sheltering and social distancing policies have caused a significant decline in the demand for crude oil and associated products. This resulted in decreased and disrupted activity by our clients and disruptions to our revenue generating operational activities leading to a sharp decrease in service revenue in both the U.S. and international markets, disruptions to the markets outside the U.S. onshore during the first three quarters of 2020. These events as well as several tropical storms disrupting activity in the Gulf of Mexico, during the most recent quarter of 2020 caused services revenue to continue to decline in the three months ended September 30, 2020 when compared to the three months ended June 30, 2020. The COVID-19 pandemic has resulted in a delay of work performed for projects within the offshore and international markets. The decline in the demand for crude oil resulted in a more severe decrease of activity in the U.S. onshore market, which is expected to be depressed for a longer term.

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, Suriname, Malaysia and other international locations such as offshore South America, Australia, and the Middle East, including Kuwait and the United Arab Emirates. Analysis of crude oil derived products also occurs in every major producing region of the world.

Product Sales Revenue

Product sales revenue has shifted in 2020 and become more tied to the completion of wells in North America and the U.S. onshore market have decreased in excess of 70% as compared to 2019. Additionally, our laboratory instrumentation and equipment are sold primarily to universities and oil companies across the globe. For the three months ended September 30, 2020, product sales revenue, of $19.1 million decreased 63% year-over-year from $52.4 million in the three months ended September 30, 2019 and decreased 23% from $24.7 million for the three months ended June 30, 2020. For the nine months ended September 30, 2020, product sales revenue, of $86.3 million decreased 43% year-over-year from $152.4 million in the nine months ended September 30, 2019. Rig count is one indicator of activity levels associated with the exploration and production of oil and gas. The average rig count for North America decreased from the three months ended September 30, 2019 to the three months ended September 30, 2020 by over 71% and decreased over 28% from the three months ended June 30, 2020.

Cost of Services, excluding depreciation

Cost of services was $63.8 million for the three months ended September 30, 2020, a 26% decrease compared to $86.2 million in the three months ended September 30, 2019 and a 5% decrease compared to $67.1 million for the three months ended June 30, 2020. Cost of services expressed as a percentage of services revenue increased to 74% for the three months ended September 30, 2020, compared to 71% for the three months ended September 30, 2019 and remained flat from the three months ended June 30, 2020. Cost of services decreased to $211.8 million in the nine months ended September 30, 2020 compared to $262.6 million in the nine months ended September 30, 2019. Cost of services expressed as a percentage of services revenue slightly increased to 74% for the nine months ended September 30, 2020 compared to 73% for the nine months ended September 30, 2019. The decrease in cost of services during the three and nine months ended September 30, 2020 was primarily due to compensation and related charges associated with cost reduction initiatives implemented in 2020.  

Cost of Product Sales, excluding depreciation

Cost of product sales of $17.2 million for the three months ended September 30, 2020 decreased when compared to $39.8 million for the three months ended September 30, 2019 and $23.6 million for the three months ended June 30, 2020. Cost of product sales of $75.1 million in the nine months ended September 30, 2020 decreased when compared to $115.2 million in the nine months ended September 30, 2019. Given product sales are primarily associated with our Production Enhancement segment and the North American market, cost of sales are impacted by decreased activities associated with clients operating in these segments and geographic markets. Cost of product sales expressed as a percentage of product sales revenue for the three months ended September 30, 2020 was 90% compared to 76% for the three months ended September 30, 2019 and 96% for the three months ended June 30, 2020. Cost of product sales expressed as a percentage of product sales revenue was 87% for the nine months ended September 30, 2020, compared to 76% for the nine months ended September 30, 2019. Higher cost of

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product sales as a percentage of products sales revenue in the three and nine months ended September 30, 2020 was primarily due to absorbing fixed costs against a decreased revenue base. The improvement in the three months ended September 30, 2020 as compared to the three months ended June 30, 2020, was associated with the expansion and implementation of cost reduction initiatives.

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 September 30, 2020 was $8.9 million compared to $11.0 million and $9.2 million for the three months ended September 30, 2019 and June 30, 2020, respectively. The variances are primarily due to changes in compensation expense during those periods.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended September 30, 2020 was $5.2 million compared to $5.7 million and $5.4 million for the three months ended September 30, 2019 and June 30, 2020, respectively.

Impairments, inventory write-down and other charges

During the nine months ended September 30, 2020, the events associated with the global spread of COVID-19, and the resulting sharp decrease in the price of crude oil, which caused a sharp decrease in the consumption and demand for crude oil, led to a triggering event in March 2020. In response to the triggering event, the Company updated its analysis associated with future cash flows and the valuation of assets and potential impairment of goodwill and intangible assets. Our updated analysis resulted in the Company recording a charge of $114.0 million for impairment of goodwill and $8.2 million for impairments to intangible assets in March 2020 in our Production Enhancement segment. In addition, in June 2020, we recorded a charge of $9.9 million associated with inventory obsolescence and a valuation write-down related to our Production Enhancement segment.

During the three months ended June 30, 2020 and September 30, 2020, respectively, we determined that there were no triggering events which require the Company to perform further impairment assessment for any of its reporting units.

Other (Income) Expense, Net

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Gain on sale of assets

 

$

(206

)

 

$

(151

)

 

$

(556

)

 

$

(458

)

Results of non-consolidated subsidiaries

 

 

33

 

 

 

(96

)

 

 

(176

)

 

 

(193

)

Foreign exchange

 

 

982

 

 

 

570

 

 

 

308

 

 

 

389

 

Rents and royalties

 

 

(114

)

 

 

(134

)

 

 

(356

)

 

 

(727

)

Employment related charges

 

 

 

 

 

 

 

 

 

 

 

2,866

 

Return on pension assets and other pension costs

 

 

(161

)

 

 

(232

)

 

 

(468

)

 

 

(714

)

Gain on sale of business

 

 

 

 

 

(58

)

 

 

 

 

 

(1,154

)

Curtailment

 

 

 

 

 

 

 

 

(1,034

)

 

 

 

Cost reduction and other charges

 

 

 

 

 

 

 

 

3,943

 

 

 

2,977

 

Loss (recovery) on lease abandonment

 

 

(122

)

 

 

 

 

 

504

 

 

 

 

Rebates and other credits

 

 

(763

)

 

 

 

 

 

(763

)

 

 

 

Other, net

 

 

(737

)

 

 

(611

)

 

 

(415

)

 

 

(333

)

Total other (income) expense, net

 

$

(1,088

)

 

$

(712

)

 

$

987

 

 

$

2,653

 

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We recorded cost reduction and other charges associated with severance expense for reductions in our workforce of $3.9 million for the nine months ended September 30, 2020, and $3.0 million for the nine months ended September 30, 2019.

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(Gains) losses by currency

 

2020

 

 

2019

 

 

2020

 

 

2019

 

British Pound

 

$

361

 

 

$

163

 

 

$

373

 

 

$

341

 

Canadian Dollar

 

 

106

 

 

 

197

 

 

 

410

 

 

 

285

 

Euro

 

 

682

 

 

 

18

 

 

 

594

 

 

 

20

 

Other currencies, net

 

 

(167

)

 

 

192

 

 

 

(1,069

)

 

 

(257

)

Total (gain) loss, net

 

$

982

 

 

$

570

 

 

$

308

 

 

$

389

 

Interest Expense

Interest expense for the three months ended September 30, 2020 was $4.7 million compared to $3.7 million and $3.4 million for the three months ended September 30, 2019 and June 30, 2020, respectively. Interest expense for the nine months ended September 30, 2020 was $11.5 million compared to $11.1 million for the nine months ended September 30, 2019. The variances are primarily due to changes in the interest rate associated with aggregated variable rate debt in the respective quarters. During the three months ended September 30, 2020, the Company incurred approximately $1.5 million in professional fees and expenses associated with the evaluation of various corporate debt issuances and/or debt refinancing opportunities. These corporate finance and capital structure costs were expensed immediately and classified as interest expense.  

Income Tax Expense

 

The Company recorded an income tax expense of $3.7 million and benefit of $0.6 million for the three and nine months ended September 30, 2020 compared to income tax expense of $3.3 million and an income tax benefit of $19.5 million for the three and nine months ended September 30, 2019. The effective tax rate for the three and nine months ended September 30, 2020 were 55% and 0.6%. The effective tax rate for the three and nine months ended September 30, 2019 were 12.1% and (30.2%). The income tax benefit for the nine months ended September 30, 2020, was primarily impacted by the impairment of goodwill, intangible assets and other charges recorded during these periods, which were largely not deductible for tax purposes. Tax benefit for the nine months ended September 30, 2019 includes a net tax benefit of $58.5 million which resulted from a corporate restructuring in the first quarter of 2019 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.

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 our full range of permanent downhole monitoring systems and related services, which had 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 18, 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 improving reservoir performance and increasing the recovery of oil and gas from new and existing fields. The following tables summarize our results by segment (in thousands):

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Three Months Ended September 30,

 

 

2020/2019

 

 

Three Months Ended June 30,

 

 

Q3 / Q2

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

 

2020

 

 

$ Change

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

80,060

 

 

$

109,339

 

 

$

(29,279

)

 

(27)%

 

 

$

88,442

 

 

$

(8,382

)

 

(10)%

 

Production Enhancement

 

 

25,322

 

 

 

63,861

 

 

 

(38,539

)

 

(60)%

 

 

 

27,294

 

 

 

(1,972

)

 

(7)%

 

Consolidated

 

$

105,382

 

 

$

173,200

 

 

$

(67,818

)

 

(39)%

 

 

$

115,736

 

 

$

(10,354

)

 

(9)%

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

11,022

 

 

$

18,835

 

 

$

(7,813

)

 

(42)%

 

 

$

13,534

 

 

$

(2,512

)

 

(19)%

 

Production Enhancement

 

 

(321

)

 

 

11,456

 

 

 

(11,777

)

 

NM

 

 

 

(16,324

)

 

 

16,003

 

 

(98)%

 

Corporate and Other1

 

 

630

 

 

 

916

 

 

 

(286

)

 

NM

 

 

 

223

 

 

 

407

 

 

NM

 

Consolidated

 

$

11,331

 

 

$

31,207

 

 

$

(19,876

)

 

(64)%

 

 

$

(2,567

)

 

$

13,898

 

 

NM

 

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

      "NM" means not meaningful

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

271,203

 

 

$

318,280

 

 

$

(47,077

)

 

(15)%

 

Production Enhancement

 

 

102,315

 

 

 

193,152

 

 

 

(90,837

)

 

(47)%

 

Consolidated

 

$

373,518

 

 

$

511,432

 

 

$

(137,914

)

 

(27)%

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Description

 

$

35,618

 

 

$

40,892

 

 

$

(5,274

)

 

(13)%

 

Production Enhancement

 

 

(137,944

)

 

 

31,792

 

 

 

(169,736

)

 

NM

 

Corporate and Other1

 

 

2,117

 

 

 

2,945

 

 

 

(828

)

 

NM

 

Consolidated

 

$

(100,209

)

 

$

75,629

 

 

$

(175,838

)

 

NM

 

(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 $80.1 million for the three months ended September 30, 2020 decreased from $109.3 million and $88.4 million for the three months ended September 30, 2019 and the three months ended June 30, 2020, respectively. Revenue from the Reservoir Description segment of $271.2 million for the nine months ended September 30, 2020 decreased 15% from $318.3 million for the nine months ended September 30, 2019. Reservoir Description operations are heavily exposed to international and offshore activity levels, including the existing producing fields across the globe, with approximately 80% of its revenue sourced from producing fields and development projects outside the U.S. Year-over-year financial performance in this segment is a result of delayed progress on international and offshore projects by clients due to disruptions associated with the COVID-19 pandemic and a lower crude-oil price market. During the three months ended September 30, 2020, crude-oil prices were less volatile and averaged between $40 - $43 per barrel as compared to the previous quarter. We continue to focus on large-scale core analysis and reservoir fluids characterization studies in the Asia-Pacific region, offshore Europe and Africa, offshore South America, North America, and the Middle East as well as both newly developed fields and brownfield extensions in offshore areas such as Australia, Brazil, Guyana, the Gulf of Mexico, the Middle East and the North Sea. Analysis of crude oil derived products also occurs in every major producing region of the world. In particular, we anticipate increased demand for our proprietary laboratory technological services in the Middle East as a result of several factors, including Core Lab’s completion of a comprehensive reservoir fluid laboratory in Doha, Qatar earlier this year, resumption of production from the Wafra oilfield located within the onshore Partitioned Neutral Zone in the southern part of Kuwait, as well as the expansion of the North Gas Field in Qatar.

Operating income of $11.0 million for the three months ended September 30, 2020 decreased 42% year-over-year compared to $18.8 million for the three months ended September 30, 2019, and 19% sequentially compared to $13.5 million for the three months ended June 30, 2020. The decrease in operating income sequentially for the three months ended September 30, 2020

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was primarily due to lower activity levels arising from delays in international and offshore projects. Operating income for the nine months ended September 30, 2020 of $35.6 million decreased 13% compared to $40.9 million for the nine months ended September 30, 2019 and was primarily due to lower activity levels, partially offset by lower compensation expenses resulting from cost reduction plans implemented in 2020.

Operating margins were 14% for the three months ended September 30, 2020, which decreased from 17% and 15% for the three months ended September 30, 2019 and for the three months ended June 30, 2020, respectively. The lower margin was primarily as a result of reduced productivity of workflows in our laboratories as a result of further delays in certain international and offshore projects due to disruptions associated with the COVID-19 pandemic. For the nine months ended September 30, 2020, operating margins were 13% comparable to the same period in 2019, as the lower revenue in 2020, was offset by lower compensation expenses and other charges associated with cost reduction initiatives.

Production Enhancement

Revenue from the Production Enhancement segment, was $25.3 million for the three months ended September 30, 2020, a decrease of 60% year-over-year from $63.9 million for the three months ended September 30, 2019 and decreased 7% sequentially compared to $27.3 million for the three months ended June 30, 2020. Revenue from the Production Enhancement segment was $102.3 million for the nine months ended September 30, 2020, a decrease of 47% year-over-year from $193.2 million for the nine months ended September 30, 2019. Production Enhancement operations are largely focused on complex completions in unconventional tight-oil reservoirs in the U.S. as well as conventional projects across the globe. The significant decrease in the price of and demand for crude oil associated with the events caused by the COVID-19 pandemic, which began in March 2020 and continued through the second and third quarters of 2020, has resulted in a much lower level of drilling and well completion activity in the U.S. onshore market. The average rig count for North America decreased 71% year-over-year as compared to the three months ended September 30, 2019 and decreased 28% sequentially from the three months ended June 30, 2020. Delays in air and vessel cargo transit and dislocation in other parts of the global supply chain have resulted in disruptions to our clients’ projects and temporary delay of shipments of our products to international markets. Notwithstanding the industry downturn, our clients remain focused on using technological solutions for their projects to optimize and improve daily production and estimated ultimate recovery from their reservoirs. We continue to develop new technologies and benefit from our clients' acceptance of new services and products which were led by the HERO® PerFRAC, GoGunTM, FLOWPROFILER EDSTM and ReFRAC technologies.

Operating loss of $0.3 million for the three months ended September 30, 2020 as compared to operating income of $11.5 million for the three months ended September 30, 2019, was primarily due to significant lower activity levels in the U.S. onshore market as the result of the factors described above. The improvement compared to the operating loss of $16.3 million for the three months ended June 30, 2020, was primarily due to the absence of charges for inventory obsolescence and valuation write-down of $9.9 million, and severance expense associated with cost reduction initiatives of $1.3 million recorded in the three months ended June 30, 2020. Additionally, the cost reduction plans established earlier in 2020 were more fully implemented and realized during the three month periods ended September 30, 2020. Operating loss for the nine months ended September 30, 2020 of $137.9 million, was primarily impacted by a charge of $122.2 million for impairment of goodwill and intangible assets, inventory obsolescence and valuation write-down of $9.9 million and total severance expense of $2.6 million recorded during this period, as compared to year-over-year operating income of $31.8 million for the nine months ended September 30, 2019.

Operating margins for the three months ended September 30, 2020 were (1%), as compared to 18% in the three months ended September 30, 2019, and (60%) in the three months ended June 30, 2020. The negative operating margins in the second and third quarter of 2020 were primarily due to lower revenue and the charges recorded as described above.

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

32

 

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operating needs, capital expenditures, our dividend and share repurchase program. 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 and debt, should be sufficient to fund our debt requirements, capital expenditures, working capital, dividend payments and future acquisitions. The Company will continue to monitor and evaluate the availability of debt and equity markets.

In response to market conditions, Core Lab’s Supervisory Board approved a plan to reduce the Company’s future quarterly dividends to $0.01 per share beginning with the second quarter of 2020 and to focus excess free cash flow on debt reduction. In March 2020, the Company enacted cost control plans and expanded these initiatives in June of 2020, which include: (i) corporate and operating cost reductions; (ii) annual capital expenditures reduced to approximately $11 million - $12 million, and (iii) eliminating all non-essential costs. The corporate and operating cost reductions include reductions in workforce and reduction of senior executive and employee compensation. Although activities have declined in the third quarter of 2020 due to the factors discussed above, this decline has been partially offset by the effectiveness of the Company’s cost control initiatives. On June 22, 2020, also in response to market conditions, we entered into Amendment No. 1 (the “Amendment”) to the Seventh Amended and Restated Credit Agreement, dated as of June 19, 2018 (as amended, the “Credit Facility”). The Amendment provides, among other things, an increase to the maximum leverage ratio permitted under the Credit Facility for certain periods. See Note 6, Long-Term Debt, Net, for additional information. Additionally, on October 16, 2020, the Company entered into an agreement to issue $60 million in notes (the “2020 Senior Notes”) in a private placement, which are scheduled to be issued and funded at the closing January 12, 2021. The Company intends to use the net proceeds from the 2020 Senior Notes to reduce outstanding debt under the Company’s Credit Facility, which will increase the available borrowing capacity and liquidity for Core Lab. We intend to maintain sufficient borrowing capacity under the Credit Facility to both retire the maturing debt obligations in September 2021, and provide additional liquidity, should the company require it for other purposes. See Note 6, Long-Term Debt, Net for additional information.

We are a Netherlands holding company, and therefore we conduct substantially all of our operations through our 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 September 30, 2020, $8.9 million of our $15.1 million of cash was held by our foreign subsidiaries.

Cash Flows

The following table summarizes cash flows (in thousands):

 

 

Nine Months Ended September 30,

 

 

2020/2019

 

 

 

2020

 

 

2019

 

 

% Change

 

Cash flows provided by/(used in):

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

69,714

 

 

$

68,225

 

 

2%

 

Investing activities

 

 

(9,530

)

 

 

(543

)

 

NM

 

Financing activities

 

 

(56,130

)

 

 

(67,670

)

 

17%

 

Net change in cash and cash equivalents

 

$

4,054

 

 

$

12

 

 

NM

 

Cash flows provided by operating activities for the nine months ended September 30, 2020 compared to the same period in 2019 reflect a small increase, which is the result of lower net income, but offset by cash generated from lower levels of working capital.

The decrease in cash flows used in investing activities during the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to $17.8 million of proceeds from the sale of businesses in 2019, offset by the lower capital expenditure of $8.6 million as compared to $17.5 million for the nine months ended September 30, 2019.

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Cash flows used in financing activities for the nine months ended September 30, 2020 decreased compared to the same period in 2019. Cash was used to reduce debt by $41.0 million during the nine months ended September 30, 2020, as compared to an increase in debt of $7.0 million during the same period in 2019.

During the three and nine months ended September 30, 2020, we repurchased 7,500 and 55,000 of our common shares for an aggregate purchase price of $0.2 million and $1.6 million, respectively.

During the nine months ended September 30, 2020, we used $12.0 million to pay dividends, as compared to the $73.2 million paid for the same period in 2019.

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):

 

 

Nine Months Ended September 30,

 

 

2020/2019

 

 

 

2020

 

 

2019

 

 

% Change

 

Free cash flow calculation:

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

69,714

 

 

$

68,225

 

 

2%

 

Less: cash paid for capital expenditures

 

 

(8,578

)

 

 

(17,537

)

 

(51)%

 

Free cash flow

 

$

61,136

 

 

$

50,688

 

 

21%

 

Although revenue and earnings have decreased significantly in 2020 as compared to 2019, free cash flow has increased for the nine months ended September 30, 2020 compared to the same period in 2019. The increase in free cash flow was primarily attributable to cash generated from reduced working capital and lower capital expenditures in 2020.

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.

On June 22, 2020, we entered into the Amendment to the Seventh Amended and Restated Credit Agreement, dated June 19, 2018. The Amendment increases the maximum leverage ratio permitted under the Credit Facility for certain periods. Pursuant to the terms of the Amendment, the maximum leverage ratio permitted under the Credit Facility is as follows:

Quarter ending

 

Maximum leverage ratio permitted

 

June 30, 2020

 

 

3.00

 

September 30, 2020

 

 

3.00

 

December 31, 2020

 

 

3.00

 

March 31, 2021

 

 

3.00

 

June 30, 2021

 

 

3.00

 

September 30, 2021

 

 

2.75

 

December 31, 2021 and thereafter

 

 

2.50

 

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Moreover, the Amendment modified the range of variable interest rates that the Credit Facility may bear to be a range from LIBOR plus 1.500% to LIBOR plus 2.875%, and included the addition of a LIBOR floor of 0.50%. The Amendment, also reduced the aggregate borrowing capacity under the Credit Facility to $225 million and the amount by which we may elect to increase the facility size, known as the “accordion” feature, to $50 million, subject to the satisfaction of certain conditions. Any outstanding balance under the Credit Facility is due on maturity on June 19, 2023. Our available capacity at any point in time is reduced by outstanding borrowings and outstanding letters of credit which totaled $13.3 million at September 30, 2020, resulting in an available borrowing capacity under the Credit Facility of $95.7 million. In addition to indebtedness under the Credit Facility, we had $6.6 million of outstanding letters of credit and performance guarantees and bonds from other sources as at September 30, 2020.

The Credit Facility remains unsecured, and contains customary representations, warranties, terms and conditions for similar types of facilities.

During the three and nine months ended September 30, 2020, in connection with executing the Amendment, we recorded an additional expense of $0.0 million and $0.3 million, respectively, associated with unamortized debt issuance cost.

The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (calculated as consolidated EBITDA divided by interest expense) and a leverage ratio (calculated as 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 and Senior Notes each include a cross-default provision, whereby a default under one agreement may trigger a default in the other agreement. The Credit Facility has more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and permits a maximum leverage ratio as described above. The Credit Facility allows non-cash charges such as impairment of assets, stock compensation and other non-cash charges to be added back in the calculation of consolidated EBITDA. The terms of our Credit Facility also 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 principles would affect the computation of any financial ratio or covenant of the Credit Facility. In accordance with the terms of the Credit Facility, our leverage ratio is 2.49, and our interest coverage ratio is 5.39, each for the period ended September 30, 2020. We believe that we are in compliance with all covenants contained in our Credit Facility and Senior Notes. Our parent, Core Laboratories N.V., together with certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.

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 2.5% through August 29, 2024, and under the second swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 1.3% through February 28, 2025. See Note 16, Derivative Instruments and Hedging Activities for additional information.

Subsequent to the three months ended September 30, 2020, on October 16, 2020, we, along with Core Laboratories (U.S.) Interests Holdings, Inc. as issuer, entered into two new series of senior notes with aggregate principal amount of $60 million in a private placement transaction (“2020 Senior Notes”). The 2020 Senior Notes are scheduled to be issued and funded on January 12, 2021. Series A of the 2020 Senior Notes consists of $45 million in aggregate principal amount that bear interest at a fixed rate of 4.09% and are due in full on January 12, 2026. Series B of the 2020 Senior Notes consists of $15 million in aggregate principal amount that bear interest at a fixed rate of 4.38% and are due in full on January 12, 2028. Interest on each series of the 2020 Senior Notes is payable semi-annually on June 30 and December 30, commencing on June 30, 2021. See Note 6, Long-Term Debt, Net for additional information.

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 2019 Annual Report.

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Item 4. Controls and Procedures

A complete discussion of our controls and procedures is included in our 2019 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 September 30, 2020 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.

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 September 30, 2020, 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 8 to our Interim Consolidated 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.

As of September 2020, the vast and accelerated spread of the COVID-19 virus has resulted in significant disruptions to the global economy. The retraction and, in some instances shutting-down of certain countries or regions has and will continue to have a very significant impact to both international and domestic organizations. Core Laboratories is considered an essential business associated with the energy industry, and thus operations have continued throughout the pandemic mitigation actions across the globe. The events and impact to the global economy associated with COVID-19 have resulted in an elevated level of risk for several of the topics described in the “Item 1A - Risk Factors" in our 2019 Annual Report.

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 2019 Annual Report and “Item 8.01 – Other Events” in the Current Report on Form 8-K filed on June 23, 2020.

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)

 

July 1 - 31, 2020 (1)

 

 

3,012

 

 

$

20.36

 

 

 

 

 

 

4,167,627

 

August 1 - 31, 2020 (1)

 

 

4,488

 

 

$

21.33

 

 

 

 

 

 

4,178,069

 

September 1 - 30, 2020

 

 

 

 

$

 

 

 

 

 

 

4,178,069

 

Total

 

 

7,500

 

 

$

20.94

 

 

 

 

 

 

 

 

 

(1)

During the three months ended September 30, 2020 7,500 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 24,929 treasury shares upon vesting of stock-based awards during the three months ended September 30, 2020.

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Item 6.  Exhibits

 

Exhibit

No.

 

Exhibit Title

 

Incorporated by

reference from the

following documents

10.1

-

Amendment No. 1 to Credit Agreement, by and among Core Laboratories N.V., Core Laboratories (U.S.) Interests Holding, Inc., and the lenders party thereto and Bank of America, N.A., as administrative agent, dated June 22, 2020

 

Form 8-K, June 23, 2020 (File No. 001-14273)

10.2

-

Note Purchase Agreement, by and among Core Laboratories (U.S.) Interests Holdings, Inc., as issuer, Core Laboratories N.V., as parent guarantor, and the purchasers party thereto, dated October 16, 2020

 

Form 8-K, October 16, 2020 (File No. 001-14273)

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

-

Inline 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

-

Inline XBRL Schema Document

 

Filed herewith

101.CAL

-

Inline XBRL Calculation Linkbase Document

 

Filed herewith

101.LAB

-

Inline XBRL Label Linkbase Document

 

Filed herewith

101.PRE

-

Inline XBRL Presentation Linkbase Document

 

Filed herewith

101.DEF

-

Inline XBRL Definition Linkbase Document

 

Filed herewith

104

-

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

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:

October 22, 2020

By:

/s/ Christopher S. Hill

 

 

Christopher S. Hill

 

 

Chief Financial Officer

 

 

(Duly Authorized Officer and

 

 

Principal Financial Officer)

 

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