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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-26710
CORE LABORATORIES N.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THE NETHERLANDS NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HERENGRACHT 424
1017 BZ AMSTERDAM
THE NETHERLANDS NOT APPLICABLE
(Address of principal executive
offices) (Zip Code)
Registrant's telephone number, including area code: (31-20) 420-3191
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Common Shares, NLG. 03 Par Value Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
As of March 16, 1998, the number of common shares outstanding was 24,768,921. At
that date, the aggregate market value of common shares held by non-affiliates of
the registrant was approximately $402,813,098.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF 10-K
1. Proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934
with respect to the 1998 annual meeting of shareholders. PART III
================================================================================
CORE LABORATORIES N.V.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business.............................
Item 2. Properties...........................
Item 3. Legal Proceedings....................
Item 4. Submission of Matters to a Vote of
Security Holders.....................
PART II
Item 5. Market for the Common Shares and
Related Shareholder Matters..........
Item 6. Selected Financial Data..............
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...........................
Item 8. Financial Statements and
Supplementary Data...................
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................
PART III
Item 10. Directors and Executive Officers of
the Registrant.......................
Item 11. Executive Compensation...............
Item 12. Security Ownership of Certain
Beneficial Owners and Management.....
Item 13. Certain Relationships and Related
Transactions.........................
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K....
PART I
ITEM 1. BUSINESS
GENERAL
Core Laboratories N.V. ("Core Laboratories" or the "Company") was
established in 1936 and is one of the world's leading providers of proprietary
and patented reservoir description, production enhancement and reservoir
management services for optimizing reservoir performance and maximizing
hydrocarbon recovery from new and existing fields. The Company's customers
include major, national, and independent oil and gas producers. In addition, the
Company manufactures and sells petroleum reservoir rock and fluid analysis
instrumentation and other integrated systems which complements its services
operations. Core Laboratories currently operates over 70 facilities in over 50
countries and has approximately 3,400 employees.
RECENT DEVELOPMENTS
SCOTT PICKFORD ACQUISITION
On March 1, 1997, the Company acquired the outstanding shares of Scott Pickford
plc and its subsidiaries ("Scott Pickford") for approximately $14.9 million.
Scott Pickford, a London-based company, provides petroleum reservoir management,
geoscience, geophysical and engineering services to its customers by utilizing
petrophysical and phase behavior data sets measured by Core Laboratories. Scott
Pickford specializes in large field studies and equity determinations primarily
in the North Sea.
SAYBOLT ACQUISITION
On May 12, 1997, the Company consummated the acquisition of all the outstanding
shares of Saybolt International B.V. and its subsidiaries ("Saybolt"), a
privately held Netherlands company, for $67 million in cash and the assumption
of $5 million of net debt. Saybolt operates in over 50 countries and is an
international leader in providing analytical and field services to characterize
properties of crude oil and petroleum products for the oil industry. These
services complement phase behavior data sets measured on reservoir fluids by
Core Laboratories. Saybolt has an existing presence in the former Soviet Union
which provides the operating experience and base from which Core Laboratories
can offer reservoir description, production enhancement and reservoir management
services.
TWO-FOR-ONE STOCK SPLIT
On October 22, 1997, the Company declared a two-for-one split of its common
shares payable on December 19, 1997, to shareholders of record as of the close
of business on December 1, 1997. All agreements concerning stock options and
other commitments payable in the Company's common shares provide for the
issuance of additional shares in the event of a declaration of a stock split. An
amount equal to the par value of the common shares issued was transferred from
additional paid-in capital to the common share account. All references to number
of shares, except shares authorized, and per share information have been
restated to reflect the stock split.
PUBLIC OFFERING
On November 20, 1997, the Company successfully completed a public offering in
which it sold 2,800,000 of its common shares and received net proceeds of $47.2
million. In addition, the underwriter's overallotment was exercised for 164,862
common shares in December 1997 and resulted in additional net proceeds of $2.8
million.
STIM-LAB MERGER
On December 29, 1997, the Company completed the acquisition of all of the
outstanding shares of Stim-Lab, Inc. ("Stim-Lab"), a privately held Company
based in Duncan, Oklahoma. Stim-Lab is a world leader in hydraulic fracturing
and well stimulation technologies. The merger was accounted for as a pooling of
interests and the Company issued approximately 459,000 common shares in exchange
for all of the outstanding shares of Stim-Lab. Stim-Lab's results of operations
for the year ended December 31, 1997 have been combined with that of the
Company's. Consolidated financial statements for prior years were not restated
due to immateriality.
BUSINESS STRATEGY
The Company's business strategy is to continue the expansion of its operations
through (i) continued development of proprietary hydrocarbon production
enhancement technologies, services and products through client-driven research
and development, (ii) expanded services and product lines offered throughout the
Company's global infrastucture, and (iii) acquisition of complementary
businesses that add key technologies or market presence and enhance existing
products and services.
DEVELOPMENT OF NEW TECHNOLOGIES, SERVICES AND PRODUCTS
The Company's research and development strategy is designed to maintain and
enhance its market leadership position in its principal businesses by
emphasizing the development of technology, services and products to meet the
needs of its customers, who are continually seeking to lower their costs of
finding, developing, producing and refining hydrocarbons. The Company's strategy
reflects the trend towards increased utilization of advanced technologies to
enhance the efficiency of development drilling, reduce the costs associated with
production of known reserves, maximize the efficiency of secondary and tertiary
recovery techniques, and reduce finding and development costs for new reserves.
While the aggregate number of wells being drilled per year has remained
relatively constant in recent years, oil and gas producers have increased
expenditures on high-technology services that better described the reservoir,
assists them in enhancing production, and improves the management of their
reservoirs. They are also spending more on advanced reservoir rock and fluid
analysis that assist in the development of more complete and comprehensive
analyses of reservoir characteristics and hydrocarbon fluids. The Company
intends to continue to concentrate its efforts on technologies that enhance
development and production efficiencies, as opposed to the more volatile
exploration sector of the oil and gas industry.
INTERNATIONAL EXPANSION OF SERVICES AND PRODUCTS
Another component of the Company's business strategy is to broaden the spectrum
of services and products offered to its clients internationally. This goal is
expected to be accomplished through the integration of the services and products
obtained through acquisitions
into many of the Company's over 70 offices located in more than 50 different
countries. Management believes this integration will expand the related markets
served by ProTechnics Company (a December 31, 1996 acquisition), Scott
Pickford, Saybolt, Stim-Lab and other potential future acquisitions.
ACQUISITIONS
The Company continually reviews potential acquisitions in existing or related
business areas to add key technologies, enhance market presence or complement
existing businesses. The Company's recent acquisitions reflect the Company's
desire to broaden the services offered to its clients.
IMPACT OF BUSINESS STRATEGY
The Company believes that the implementation of these strategies has contributed
to the significant increase in income before interest expense, income tax and an
extraordinary item to $28.4 million for the year ended December 31, 1997, from
$12.8 million for the year ended December 31, 1996.
OPERATIONS
The Company derives its revenues from services and sales to customers primarily
in one industry segment, the oil and gas industry.
SERVICES
The Company provides three related services for optimizing reservoir performance
and maximizing hydrocarbon recovery from new and existing fields.
o RESERVOIR DESCRIPTION SERVICES: Encompasses the petrophysical
characterizations of petroleum reservoir rock and the phase behavior
relationships of reservoir fluids and gases.
o PRODUCTION ENHANCEMENT SERVICES: Includes field applications of
proprietary technologies to maximize the efficiency and effectiveness of
well completions and stimulations.
o RESERVOIR MANAGEMENT SERVICES: Combines and integrates data sets from
reservoir description and production enhancement services to maximize daily
hydrocarbon production and recovery from a well or field.
Typically, rock and fluids samples are collected from wells drilled into known
or potential petroleum reservoirs and sent to the Company for analyses. These
analyses accurately measure the petrophysical properties of the rocks and
pressure-volume-temperature relationships of the reservoir fluids to help
determine the commercial viability of the hydrocarbon accumulation and to
develop a production program that maximizes ultimate hydrocarbon recovery. The
data also are used to calibrate and validate wireline logs that may be used to
estimate certain properties of the reservoir. Without measured calibration data,
wireline log estimates can produce erroneous values, which could lead to
incorrect decisions regarding the development or abandonment of hydrocarbon
accumulations.
The data generated by the Company's analyses are used during all stages of the
well cycle from exploration to primary and secondary production and decisions
concerning the abandonment of a property. Recent advances in drilling and coring
technologies have significantly reduced the cost of retrieving core samples from
reservoirs and the Company expects these developments to lead to increased use
of reservoir data obtained from rock core sample analyses. The data generated by
the Company's analyses also provides information that is used to improve the
processing and interpretation of 2-D and 3-D seismic programs and management
believes such data will be used as a component of reservoir production
management based on emerging 4-D seismic technologies. Oil and gas producers
have been increasing expenditures for analytical services to reduce their risks
in developing and producing oil and gas reservoirs and to lower their costs of
finding, developing and producing oil and gas.
The most basic analyses of rock properties provided by the Company measure
porosity and permeability, which determine the storage and flow capacities of
potential reservoirs. In addition to basic measurements, which are made at
surface conditions, the Company is increasingly providing technologically
advanced analyses of reservoir rock and fluids involving the simulation of the
reservoir's actual subsurface conditions. The Company also performs advanced
analyses of reservoir fluids at varying pressure and temperature conditions to
determine their physical and chemical properties at various points during the
producing life of a field.
As a result of the December 31, 1996 merger with ProTechnics Company
("ProTechnics"), the Company provides production enhancement services used to
design and measure the effectiveness of well completion and stimulation programs
and to maximize the hydrocarbon yields of enhanced recovery projects. The
services offered are field extensions of the laboratory studies of reservoir
rocks and fluids conducted by Core Laboratories.
The Company is one of the leading providers of services that measure the
effectiveness of well stimulations and completions via their proprietary
ZeroWash and SpectraScan technologies. The Company is also the leader in
determining the efficiencies of enhanced recovery projects through field tracer
surveys. The Company is currently developing electromagnetic wireless
communication tools that can be used to monitor various bottom hole well
conditions during completion or production operations, as well as measurement
while drilling systems. The Company has won Special Meritorious Engineering
Awards for its innovative technologies in three of the past four years at the
annual Offshore Technology Conference. The Company employs these new
technologies to complement laboratory services associated with the prevention of
formation damage, phase behavior relationships of downhole reservoir fluids, and
better design of water or miscible floods for enhanced recovery projects.
With the recent acquisition of Scott Pickford, the Company has expanded into
reservoir management services providing solutions from designing the well
completion, stimulation or enhanced recovery project to measuring the
performance in the field. Demand for these services has been increasing,
especially internationally, as oil and gas companies put more emphasis on
producing incremental amounts of hydrocarbons from established fields.
The Company also provides analytical testing of petroleum products, including
octane testing and the analysis of crude oil, natural gas, lubricants, greases
and other petroleum products and chemicals. The Company's services operations
serve a diverse customer base including oil and gas exploration and production
companies; petroleum refineries and processors; and engineering and consulting
firms.
The Company adheres to the strict quality standards that are demanded by various
in-house and proprietary procedures, as well as standards established by the
American Society of Testing and Materials, which are used in a variety of
petroleum services analyses. Management believes the Company demonstrates its
commitment to quality by providing resources, money, time and education to
maintain its reputation as a high-quality provider of high-technology analytical
and consulting services.
Ongoing research and development are an important part of the Company's services
operations. The Company has in the past committed significant resources to
research and development and anticipates that it will continue to do so in the
future. Over the years, the Company has made a number of technological advances,
including the development of key technologies utilized in the Company's
operations. Substantially all of the new technologies have resulted from
requests and guidance from the Company's clients, especially major oil
companies.
Services are offered worldwide through the Company's technology network of over
70 sales, services and operating facilities located in over 50 countries.
Services accounted for approximately 86%, 76% and 71% of the Company's total
revenues for the years ended December 31, 1997, 1996 and 1995, respectively.
SALES
Core Laboratories manufactures and sells petroleum reservoir rock and fluid
analysis instrumentation and other integrated systems which complements its
services operation. The Company designs and manufactures a wide range of
laboratory instrumentation and equipment for reservoir rock and fluids analyses,
including a majority of the proprietary equipment used in the Company's services
facilities. The sale of the Company's proprietary equipment to non-competing
customers has generated additional revenues for its services operation by
maintaining and enhancing customer relations and generating demand for
complementary services.
The Company also provides integrated octane measurement systems and process
analyzer systems that are used for the measurement, analysis and monitoring of
various process streams. The full range of products and services includes
on-line process and laboratory equipment, engineering services, and education
programs to refineries throughout the world.
The Company currently offers its products worldwide through 6 manufacturing
facilities. Sales revenue accounted for approximately 14%, 24% and 29% of the
Company's total revenues for the years ended December 31, 1997, 1996 and 1995,
respectively.
The sales backlog at December 31, 1997 was approximately $12.8 million, compared
with $9.6 million at December 31, 1996.
MARKETING AND SALES
The Company markets and sells its services and products through a combination of
print advertising, technical seminars, trade shows and sales personnel and
representatives. Print advertising is placed on a regular basis in trade and
technical magazines targeted to the Company's customers. Direct sales and
marketing are carried out by the Company's integrated sales force and operating
managers and enhanced by sales representatives and distributors in various
markets where the Company does not have offices.
RESEARCH AND DEVELOPMENT
The market for the Company's products and services is characterized by changing
technology. As a result, the Company's success is dependent upon its ability to
develop or acquire new products and services on a cost-effective basis and to
introduce them into the marketplace in a timely manner. Core Laboratories
intends to continue committing substantial financial resources and effort to the
development of new products and services.
PATENTS AND TRADEMARKS
The Company believes its patents, trademarks and other intellectual property
rights are an important factor in maintaining its technological advantage.
Typically, the Company will seek to protect its intellectual technology in all
jurisdictions where the Company believes the cost of such protection is
warranted.
INTERNATIONAL OPERATIONS
Core Laboratories operates facilities in over 50 countries. The Company's
non-U.S. operations accounted for approximately 57%, 36% and 40% of the
Company's revenues during the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's business is subject to various risks beyond its
control, such as instability of foreign economies and governments, currency
fluctuations, overlap of different tax structures, and changes in laws and
policies affecting trade and investment. Any of such factors may cause
facilities in some countries to become unprofitable, possibly resulting in the
closing of such facilities. The Company attempts to limit its exposure to
foreign currency fluctuations by limiting the amount in which its foreign
contracts are denominated in a currency other than U.S. dollars to an amount
generally equal to expenses expected to be incurred in such foreign currency.
The Company has not historically engaged in and does not currently intend to
engage in any significant hedging or currency trading transactions designed to
mitigate adverse currency fluctuations.
ENVIRONMENTAL REGULATION
The Company's operations use many chemicals and gases, therefore, the Company is
subject to a variety of federal, state, local and foreign laws and regulations
related to the use, storage, discharge and disposal of such chemicals and gases
and other emissions and wastes. Consistent with the Company's quality assurance
and control principles, the Company has established proactive environmental
policies with respect to the handling and disposal of such chemicals, gases,
emissions and waste materials from its operations. The Company has engaged
outside consultants to audit its environmental activities and has implemented
health and safety education and training programs. The Company has not suffered
material environmental claims in the past. Management believes that the
Company's operations are currently in compliance with applicable environmental
laws and regulations, and that continued compliance with existing requirements
will not have a material adverse effect on the Company. However, public interest
in the protection of the environment has increased dramatically in recent years
and the Company anticipates that the trend of more expansive and stricter
environmental laws and regulations will continue, the occurrence of which may
result in increased capital expenditures or operating expenses by the Company.
COMPETITION
The businesses in which the Company engages are highly competitive. Several of
the Company's competitors are divisions or subsidiaries of companies that are
larger and have greater financial and other resources than the Company. While no
one company competes with the Company in all of its product and service lines,
the Company faces significant competition, primarily from independent, regional
companies. The Company competes in different product and service lines to
various degrees on the basis of price, technical performance, availability,
quality, and technical support. The Company's ability to compete successfully
depends on elements both within and outside of its control, including successful
and timely development of new products and services, performance and quality,
customer service, pricing, industry trends, and general economic trends.
EMPLOYEES
As of December 31, 1997, the Company had approximately 3,400 employees. The
Company does not have any material collective bargaining agreements and
considers relations with its employees to be good.
ITEM 2. PROPERTIES
Currently, Core Laboratories has over 70 facilities in more than 50 countries
which contain over 1 million square feet. In these locations, the Company
typically leases the office facilities. The Company serves its worldwide
customers through 6 advanced technology centers which are located in Dallas,
Texas; Calgary, Canada; Jakarta, Indonesia; Kuala Lumpur, Malaysia; Aberdeen,
United Kingdom; and Maracaibo, Venezuela.
ITEM 3. LEGAL PROCEEDINGS
In the latter part of 1996, prior to its acquisition by the Company, Saybolt,
Inc., an indirect subsidiary of the parent, Saybolt International B.V., was
informed that the Environmental Protection Agency ("EPA") and the U.S.
Department of Justice ("DOJ") had commenced a criminal investigation into
certain practices at three of Saybolt's U.S. laboratories. The investigation has
focused on instances in which Saybolt employees in New Jersey, Massachusetts and
Connecticut may have failed to report accurate RFG test results to customers and
the EPA. The Company is cooperating with this investigation and, in addition,
has begun its own internal review of the matter. If the EPA and/or the DOJ
conclude that Saybolt was in noncompliance with any of the applicable rules and
regulations, the Company may be subject to fines, civil or criminal proceedings,
sanctions and/or the revocation of its licenses and/or authorization to perform
certain services governed by the EPA, customs or other agencies, or to continue
to conduct business in certain areas.
The U.S. Attorney's Offices for Massachusetts and New Jersey and the DOJ are
conducting a criminal investigation as to whether Saybolt committed violations
of U.S. laws regulating international business actions of U.S. persons. On
January 29, 1998 the U.S. Attorney's Office for the District of Massachusetts
announced that the former president of Saybolt, Inc. had been arrested and
charged with violating the Foreign Corrupt Practices Act and the Travel Act. The
criminal complaint alleged that such person participated in arranging the
payment of $50,000 to Panamanian officials in 1995 in an effort to obtain a
lease and certain tax benefits from the Panamanian government for Saybolt de
Panama S.A.
The alleged violation occurred more than a year before the Company's acquisition
of Saybolt in May 1997 and was discovered during the EPA investigation of
Saybolt.
Representatives of the Company and their attorneys in the two above described
matters have held discussion with officials at the U.S. Attorney's Offices for
Massachusetts, Connecticut and New Jersey and the DOJ in an attempt to resolve
all disputes concerning Saybolt. As a result of these discussions. The Copmany
believes that the amount required to resolve these issues will not exceed $5.0
million. The Company believes that it has indemnify rights against the former
shareholders of Saybolt to cover contingencies and breaches of provisions of the
agreement entered into at the same time of the acquisition of Saybolt. While no
assuarance can be made as to the ultimate outcome of these matters, the Company
does not believe that such matters will have a material
adverse effect on the financial condition of the Company.
The Company may from time to time be subject to legal proceedings and claims
which arise in the ordinary course of its business. Management believes that the
outcome of these legal actions will not have a material adverse effect upon the
consolidated financial position or future results or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE COMMON SHARES AND RELATED SHAREHOLDER MATTERS
PRICE RANGE OF COMMON SHARES
The Company's common shares trade and are quoted on Nasdaq National Market
("Nasdaq") under the symbol CRLBF. The following table shows for the periods
indicated the high and low sales prices of the common shares as reported by
Nasdaq, restated to reflect the two-for-one stock split.
HIGH LOW
---- ---
1997
First Quarter........................... 11 8 3/8
Second Quarter.......................... 13 1/16 8 3/16
Third Quarter........................... 18 7/16 12
Fourth Quarter.......................... 22 7/8 13 3/4
1996
First Quarter........................... 6 1/2 4 7/8
Second Quarter.......................... 8 5 7/8
Third Quarter........................... 8 1/4 6 3/16
Fourth Quarter.......................... 8 5/8 7 5/8
On March 27, 1998 the closing price, as quoted by Nasdaq, was $24 1/4 per share.
As of March 16, 1998, there were 24,768,921 common shares outstanding held by
approximately 107 record holders and approximately 3,593 beneficial holders.
DIVIDEND POLICY
The Company has never paid cash dividends on its common shares and currently has
no plans to pay dividends on the common shares. The Company expects that it will
retain all available earnings generated by its operations for the development
and growth of its business. Any future determination as to the payment of
dividends will be made in the discretion of the Company's Supervisory Board of
Directors and will depend upon the Company's operating results, financial
condition, capital requirements, general business conditions and such other
factors as the Supervisory Board deems relevant. Because the Company is a
holding company that conducts substantially all of its operations through
subsidiaries, the ability of the Company to pay cash dividends on the common
shares is dependent upon the ability of its subsidiaries to pay cash dividends
or otherwise distribute or advance funds to the Company and on the terms and
conditions of its existing and future credit arrangements as may exist from time
to time. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial data
for the periods indicated. The selected historical consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
consolidated financial statements included elsewhere herein:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
SERVICES AND SALES...................... $ 214,851 $ 105,368 $ 87,593 $ 25,910 $ 5,441
OPERATING EXPENSES:
Costs of services and sales........ 170,671 84,643 71,786 22,099 4,385
General and administrative
expenses......................... 5,974 3,559 2,719 666 390
Depreciation and amortization...... 10,822 4,600 3,262 986 210
Transaction costs associated with
merger........................... -- 355 -- -- --
Other income, net.................. (1,056) (603) (130) (81) (202)
-------------- ---------- ---------- --------- ---------
INCOME BEFORE INTEREST EXPENSE, INCOME
TAX, AND EXTRAORDINARY ITEM........... 28,440 12,814 9,956 2,240 658
INTEREST EXPENSE........................ 6,384 1,418 3,000 1,066 101
-------------- ---------- ---------- --------- ---------
INCOME BEFORE INCOME TAX AND
EXTRAORDINARY ITEM.................... 22,056 11,396 6,956 1,174 557
INCOME TAX EXPENSE...................... 6,617 3,719 2,174 412 179
-------------- ---------- ---------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM........ 15,439 7,677 4,782 762 378
EXTRAORDINARY ITEM, net of tax benefit
of $400............................... -- -- (911) -- --
-------------- ---------- ---------- --------- ---------
NET INCOME.............................. 15,439 7,677 3,871 762 378
LESS -- Net income applicable to
preferred loan stock.................. -- -- (334) (113) --
-------------- ---------- ---------- --------- ---------
NET INCOME APPLICABLE TO COMMON
SHARES................................ $ 15,439 $ 7,677 $ 3,537 $ 649 $ 378
============== ========== ========== ========= =========
BASIC PER SHARE DATA:
Basic income before extraordinary
item............................. $ 0.66 $ 0.36 $ 0.26 $ 0.12 $ 0.20
Extraordinary item................. -- -- (0.05) -- --
-------------- ---------- ---------- --------- ---------
Basic net income................... $ 0.66 $ 0.36 $ 0.21 $ 0.12 $ 0.20
============== ========== ========== ========= =========
Weighted average basic common
shares outstanding............... 23,255,641 21,184,500 17,164,550 5,388,790 1,871,694
============== ========== ========== ========= =========
DILUTED PER SHARE DATA:
Diluted income before extraordinary
item............................. $ 0.65 $ 0.36 $ 0.26 $ 0.12 $ 0.20
Extraordinary item................. -- -- (0.05) -- --
-------------- ---------- ---------- --------- ---------
Diluted net income................. $ 0.65 $ 0.36 $ 0.21 $ 0.12 $ 0.20
============== ========== ========== ========= =========
Weighted average diluted common
shares outstanding............... 23,936,325 21,381,804 17,270,578 5,388,790 1,871,694
============== ========== ========== ========= =========
DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ---------- ---------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital..................... $ 55,573 $ 25,205 $ 24,459 $ 15,325 $ 372
Total assets....................... 238,016 79,691 71,379 59,877 2,944
Long-term debt, including current
maturities....................... 73,698 16,024 16,269 31,865 219
Shareholders' equity............... 114,113 47,411 39,665 13,652 1,712
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain matters discussed herein may contain forward-looking statements that are
subject to risks and uncertainties. Such risks and uncertainties include, but
are not limited to, the following: the continued expansion of services is
dependent upon the Company's ability to continue to develop or acquire new and
useful technology; the improvement of margins is subject to the risk that
anticipated synergies of existing and recently acquired businesses and future
acquisitions will not be realized; the Company's dependence on one industry
segment, oil and gas; the risks and uncertainties attendant to adverse industry,
economic, and financial market conditions, including stock prices, interest
rates and credit availability; and competition in the Company's markets. Should
one or more of these risks or uncertainties materialize and should any of the
underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated.
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere herein.
BUSINESS DEVELOPMENT
The Company was established in 1936 and is one of the world's leading providers
of proprietary and patented reservoir description, production enhancement and
management services for optimizing reservoir performance and maximizing
hydrocarbon recovery from new and existing fields. The Company's customers
include major, national and independent oil and gas producers. In addition, the
Company manufactures and sells petroleum reservoir rock and fluid analysis
instrumentation and other integrated systems.
The Company's business strategy is to continue the expansion of its operations
through (i) continued development of proprietary hydrocarbon production
enhancement technologies, services and products through client-driven research
and development, (ii) expanded services and product lines offered throughout the
Company's global infrastructure, and (iii) acquisition of complementary
businesses that add key technologies or market presence and enhance existing
products and services.
The Company's research and development efforts recently have been directed
towards development of Wireless Electromagnetic Telemetry ("EM Telemetry"). EM
Telemetry allows the recording of bottomhole pressure and temperature data and
the transmission of that data to the surface in real-time. Usage of EM Telemetry
allows actual pressure (which is often significantly different than calculated
pressure) to be measured. EM Telemetry has applications not only in conducting
hydraulic fracturing and acid treatments, but also for daily maintenance of
optimum production efficiency.
The Company's acquisition strategy is to continue to seek acquisitions of
complementary businesses that add key technologies, expand market presence and
enhance the Company's existing products and services. This strategy is
exemplified by the 1996 merger of ProTechnics and the 1997 acquisitions of Scott
Pickford, Saybolt, and Stim-Lab (the "Acquired Businesses").
On November 20, 1997, the Company successfully completed a public offering in
which it sold 2,800,000 of its common shares and received net proceeds of $47.2
million. In addition, the underwriter's overallotment was exercised for 164,862
common shares in December 1997 and resulted in additional net proceeds of $2.8
million. The total net proceeds of $50.0 million were used to repay $43.9
million in debt and the remainder was retained for working capital.
RESULTS OF OPERATIONS
The following table sets forth certain percentage relationships based on the
Company's consolidated revenue for the periods indicated. The table reflects the
merger of Stim-Lab for all of 1997 (accounted for as poolings of interests) as
well as the results of the acquisitions of Scott Pickford beginning March 1,
1997 and Saybolt beginning May 1, 1997 (both accounted for as purchases).
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Services............................. 86.0% 76.4% 71.3%
Sales................................ 14.0 23.6 28.7
--------- --------- ---------
100.0 100.0 100.0
Operating expenses:
Costs of services............... 77.6* 80.6* 81.7*
Costs of sales.................. 91.0* 79.6* 82.7*
General and administrative
expenses...................... 2.8 3.4 3.1
Depreciation and amortization... 5.0 4.4 3.7
Transaction costs associated
with merger................... -- .3 --
Other income, net............... (.5) (.6) (.1)
--------- --------- ---------
Income before interest expense,
income tax, and extraordinary
item............................... 13.2 12.2 11.4
Interest expense..................... 3.0 1.4 3.4
--------- --------- ---------
Income before income tax and
extraordinary item................. 10.2 10.8 8.0
Income tax expense................... 3.0 3.5 2.5
--------- --------- ---------
Income before extraordinary item..... 7.2% 7.3% 5.5%
========= ========= =========
* Percentage based on applicable segment revenue, and not total revenue.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Total revenue for 1997 was $214.9 million, an increase of 103.9% from $105.4
million in the prior year. Revenue gains of 129.6% were realized by the
Company's services operations for 1997 compared to 1996. Services revenue
primarily increased as a result of increased demand for reservoir description,
production enhancement, and reservoir management services, and the inclusion of
revenues from the Acquired Businesses.
Costs of services as a percentage of services revenue decreased compared to
prior year due to improved cost savings and operating efficiencies.
Costs of sales as a percentage of sales revenue for the year ended 1997
increased compared to a year ago due to sales of lower margin products.
General and administrative expenses increased $2.4 million in 1997 to $6.0
million as a result of increased personnel cost attributable to the Company's
growth. The Company's ongoing program to maintain tight controls over expenses
has resulted in maintaining general and administrative expenses as a percentage
of sales under 4%. As a percentage of revenue, general and administrative
expenses declined to 2.8% for 1997 as compared to 3.4% for 1996.
Depreciation and amortization expense for 1997 increased to $10.8 million
compared to $4.6 million in 1996 primarily due to capital expenditures for new
equipment and the inclusion of depreciation and amortization from the Acquired
Businesses.
Interest expense increased $5.0 million in 1997 as compared to 1996. The
increase is primarily due to the additional borrowings used to finance the Scott
Pickford and Saybolt acquisitions.
The Company's effective income tax rate was 30.0% and 32.6% in 1997 and 1996,
respectively. The Company's tax rate is less than the statutory rate of 35.0% in
The Netherlands, primarily due to lower tax rates and export sales benefits in
countries where the Company operated through subsidiaries, and is partially
offset by state and provincial taxes.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Total revenue for 1996 was $105.4 million, an increase of 20.3% from $87.6
million in the prior year. Revenue gains of 28.9% were realized by the Company's
services operations for 1996 compared to 1995. Services revenue primarily
increased as a result of (i) increased demand for reservoir core and fluids
analysis, (ii) increased demand for tracing and logging services and (iii)
additional revenue from acquisitions.
Costs of services and sales as a percentage of services and sales revenue for
1996 improved slightly compared to a year ago due to improved cost savings and
efficiencies.
General and administrative expenses increased $0.8 million in 1996 to $3.6
million. The increase was primarily attributable to costs associated with
becoming a publicly traded company and increased personnel costs due to growth.
The Company's ongoing program to maintain tight controls over expenses has
resulted in maintaining general and administrative expenses as a percentage of
sales under 4%. As a percentage of net sales, general and administrative
expenses were 3.4% and 3.1% for 1996 and 1995, respectively.
Depreciation and amortization expense for 1996 increased to $4.6 million
compared to $3.3 million in 1995 primarily due to capital expenditures for new
equipment and the inclusion of depreciation and amortization from acquisitions.
Transaction costs totaling $0.4 million associated with the ProTechnics merger,
which was accounted for as a pooling of interests, were expensed in the fourth
quarter of 1996 and primarily consist of legal, accounting and investment
banking fees.
Other income for 1996 increased $0.5 million from 1995 due to remuneration of
$0.3 million from the State of California for property taken through rights of
eminent domain in connection with road construction and exchange gains on
transactions denominated in foreign currencies.
Interest expense decreased 52.7% to $1.4 million in 1996 compared to $3.0
million in 1995, due to a repayment of debt from the net proceeds of the initial
public offering in September 1995.
The Company's effective income tax rate was 32.6% and 31.3% in 1996 and 1995,
respectively. The Company's tax rate is less than the statutory rate of 35.0% in
The Netherlands, primarily due to lower tax rates and export sales benefits in
countries where the Company operated through subsidiaries, and is partially
offset by state and provincial taxes.
LIQUIDITY AND CAPITAL RESOURCES
On May 12, 1997, the Company entered into an Unsecured Credit Facility, which
was used to finance the acquisitions of Scott Pickford and Saybolt, as well as
refinance a previous credit facility. The Unsecured Credit Facility provides for
(i) a term loan of $55 million, (ii) a term loan denominated in British pounds
having a U.S. dollar equivalency of $15 million, (iii) a committed revolving
debt facility of $50 million and (iv) a Netherlands guilder denominated
revolving debt facility with a U.S. dollar equivalency of $5 million. Loans
under the Unsecured Credit Facility will generally bear interest from LIBOR plus
0.75% to a maximum of LIBOR plus 1.75%. The term loans require quarterly
principal payments beginning March 31, 1999 with the final principal payment due
June 30, 2002. The revolving debt facilities require interest payments only,
until maturity on June 30, 2002. The terms of the Unsecured Credit Facility
require the Company to meet certain financial covenants, including certain
minimum equity and cash flow tests. Management believes that the Company is in
compliance with all such covenants contained in its credit agreements.
As part of the purchase of Scott Pickford, the Company issued unsecured loan
notes as an alternative to the cash consideration paid for the outstanding
shares of Scott Pickford. The loan notes bear interest payable semi-annually, at
the rate of LIBOR less 1.0% per annum. Holders of the loan notes have the right
to redeem the loan notes at par on each interest payment date. Unless previously
redeemed or purchased, the loan notes will be redeemed at par on June 30, 2002.
Core Laboratories has generally funded its activities from cash flow from
operations, although the Company financed substantially all of the purchase
price for the acquisitions of Scott Pickford and Saybolt and issued
approximately 459,000 common shares to consummate the Stim-Lab merger. The
Company used existing cash and borrowed approximately $107.0 million under the
Unsecured Credit Facility to fund (i) $67.0 million paid in connection with
Saybolt Acquisition, and (ii) to retire approximately $31.1 million of its
existing indebtedness. The Company used the net proceeds of approximately $50.0
million from the public offering to repay $43.9 million in debt and the
remaining $6.1 million was retained for working capital. Of the $43.9 million of
debt repayment, $42.2 million was repaid in December 1997 and $1.7 million was
repaid in January 1998.
At December 31, 1997, the Company had working capital of $55.6 million (of which
$10.5 million was cash and short-term investments) and a current ratio of 2.3 to
1.0 compared to working capital of $25.2 million (of which $2.9 million was cash
and short-term investments) and a current ratio of 2.5 to 1.0 at December 31,
1996. The Company is a holding company that conducts substantially all of its
operations through subsidiaries. Consequently, the Company's cash flow is wholly
dependent upon the ability of its subsidiaries to pay cash dividends or
otherwise distribute or advance funds to the Company. All of the Company's
material subsidiaries are guarantors or co-borrowers under the Unsecured Credit
Facility.
The Company expects to fund any future acquisitions primarily through a
combination of working capital, cash flow from operations, bank borrowings
(including the Unsecured Credit Facility), and issuances of additional equity.
Although the Unsecured Credit Facility imposes certain limitations on the
incurrence of additional indebtedness, in general the Company will be permitted
to assume, among other things, indebtedness of acquired businesses, subject to
compliance with the financial covenants of the Unsecured Credit Facility.
The Company anticipates that its cash flow from operations will provide cash in
excess of the Company's normal working capital needs and planned capital
expenditures for property, plant and equipment. Capital expenditures for 1997
were $15.3 million and for 1996 totaled $6.3 million.
Due to the relatively low levels of inflation experienced in 1995, 1996 and
1997, inflation has not had a significant effect on the Company's results of
operations in recent periods.
OTHER MATTERS
YEAR 2000 CONVERSION
Management believes conversion to a year 2000 compliant environment will not
present a material consideration for the Company's current operations. The
Company is currently engaged in a comprehensive project to upgrade its computer
software systems to programs which are year 2000 compliant. The Company does not
anticipate that total future costs associated with potential year 2000
compliance issues will have a material adverse impact on its consolidated
financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the financial statements and supplementary data required by this Item 8, see
index to consolidated financial statements and schedules at Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Part III (Items 10 through 13) is omitted because the Registrant expects to file
with the Securities and Exchange Commission within 120 days after the close of
the year ended December 31, 1997, a definitive proxy statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934. If for any reason such
a statement is not filed within such a period, this Report will be appropriately
amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
The following reports, financial statements and schedules are filed herewith on
the pages indicated:
PAGE
----
CORE LABORATORIES N.V. AND
SUBSIDIARIES (THE "COMPANY"):
Reports of Independent Public
Accountants........................
Consolidated Balance Sheets as of
December 31, 1997 and 1996.........
Consolidated Statements of Operations
for the Years Ended December 31,
1997, 1996 and 1995................
Consolidated Statements of Changes in
Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and
1995...............................
Consolidated Statements of Cash Flows
for the Years Ended December 31,
1997, 1996 and 1995................
Notes to Consolidated Financial
Statements.........................
FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable, not required
under the instructions, or the information requested is set forth in the
consolidated financial statements or related notes hereto.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
The following exhibits are incorporated by reference to the filing indicated or
are filed herewith.
INCORPORATED BY
REFERENCE FROM THE
EXHIBIT NO. EXHIBIT TITLE FOLLOWING DOCUMENTS
- ------------------------ ------------------------------------------------------------------- --------------------------------
3.1 -- Articles of Association of the Company, as amended (including Form F-1, September 20, 1995
English translation)
4.1 -- Form of certificate representing Common Shares Form F-1, September 20, 1995
10.1 -- Core Laboratories N.V. 1995 Long-Term Incentive Plan (as amended Proxy Statement dated May 2,
and restated effective as of May 29, 1997). 1997 for Annual Meeting of
Shareholders
10.2 -- Core Laboratories N.V. 1995 Nonemployee Director Stock Option Plan Proxy Statement dated May 2,
(as amended and restated effective as of May 29, 1997). 1997 for Annual Meeting of
Shareholders
10.3 -- Form of Registration Rights Agreement to be entered into by the Form 10-Q, November 10, 1995
Company and certain of its shareholders, dated September 15, 1995.
10.4 -- Purchase and Sale Agreement between Core Holdings B.V. and Western Form F-1, September 20, 1995
Atlas International, Inc., Western Atlas International, Nigeria
Ltd., Western Atlas de Venezuela, C.A., Western Atlas Canada Ltd.
and Core Laboratories Australia Pty. Ltd. dated as of September 30,
1994
10.5 -- Non-competition Agreement between Western Atlas International, Inc. Form F-1, September 20, 1995
and Core Holdings B.V. dated as of September 30, 1994
10.6 -- Form of Indemnification Agreement to be entered into by the Company Form F-1, September 20, 1995
and certain of its directors and officers
10.7 -- Indemnification Agreements, each dated as of October 20, 1995, Form 10-Q, November 10, 1995
between the Company and each of its directors and executive
officers
10.8 -- Stock Purchase Agreement among Core Laboratories N.V., Saybolt Form 8-K, May 12, 1997
International B.V. and the shareholders of Saybolt International
B.V., dated as of April 16, 1997
10.9 -- Amended and Restated Credit Agreement among Core Laboratories N.V. Form S-3, November 20, 1997
and Core Laboratories Inc., Core Laboratories (U.K.) Limited, and
the bank group dated as of July 18, 1997
10.10 -- Escrow Agreement among Core Laboratories N.V., each of the For 8-K, May 12, 1997
shareholders of Saybolt International B.V. and Chase Manhattan Bank
dated as of May 12, 1997
10.11 -- Core Laboratories Supplemental Executive Retirement Plan effective Filed Herewith
as of January 1, 1998
23.1 -- Consent of Arthur Andersen LLP Filed Herewith
23.2 -- Consent of Grant Thornton LLP Filed Herewith
27.0 -- Financial Data Schedule Filed Herewith
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CORE LABORATORIES N.V.
BY: CORE LABORATORIES INTERNATIONAL B.V.
DATE: MARCH 31, 1998 BY: /s/JACOBUS SCHOUTEN
JACOBUS SCHOUTEN
SUPERVISORY DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED, ON THE 31ST DAY OF MARCH, 1998.
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------------------
/s/DAVID M. DEMSHUR President, Chief Executive Officer and Supervisory Director
DAVID M. DEMSHUR (Principal Executive Officer and Authorized Representative
in the United States)
/s/JOSEPH R. PERNA Senior Vice President and Supervisory
JOSEPH R. PERNA Director
/s/RICHARD L. BERGMARK Chief Financial Officer, Treasurer and
RICHARD L. BERGMARK Supervisory Director (Principal
Financial and Accounting Officer)
/s/STEPHEN D. WEINROTH Supervisory Director
STEPHEN D. WEINROTH
/s/JAMES A. READ Supervisory Director
JAMES A. READ
/s/JACOBUS SCHOUTEN Supervisory Director
JACOBUS SCHOUTEN
/s/TIMOTHY J. PROBERT Supervisory Director
TIMOTHY J. PROBERT
/s/BOB G. AGNEW Supervisory Director
BOB G. AGNEW
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Supervisory Board of Directors and Shareholders of
Core Laboratories N.V.:
We have audited the accompanying consolidated balance sheets of Core
Laboratories N.V. (a Netherlands corporation) and subsidiaries (the Company) as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the 1995 consolidated financial
statements of ProTechnics Company and subsidiaries, a company acquired during
1996 in a transaction accounted for as a pooling of interests, as discussed in
Note 3. Such statements are included in the 1995 consolidated financial
statements of Core Laboratories N.V. and reflect total assets of 8 percent and
total revenues of 9 percent in 1995 of the consolidated totals. The consolidated
financial statements of ProTechnics Company and subsidiaries were audited by
other auditors whose report has been furnished to us and our opinion, insofar as
it relates to amounts included for ProTechnics Company and subsidiaries for
1995, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Core Laboratories N.V. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles
as applied in the United States of America.
ARTHUR ANDERSEN LLP
Houston, Texas
February 25, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ProTechnics Company and Subsidiaries
We have audited the consolidated balance sheets of ProTechnics Company (a Nevada
corporation) and Subsidiaries as of March 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years then ended (not presented separately herein). These financial
statements are the responsibility of ProTechnics Company's management. Our
responsibiity is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatment. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ProTechnics
Company and Subsidiaries as of March 31, 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the two years
then ended in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
July 19, 1996
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
1997 1996
---------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 10,510 $ 2,935
Accounts receivable, less allowance
for doubtful accounts of $6,455
and $919 in 1997 and 1996,
respectively..................... 67,537 27,993
Inventories........................ 12,473 9,472
Prepaid expenses and other......... 5,771 1,223
Deferred income tax asset.......... 1,380 927
---------- ---------
Total current assets........ 97,671 42,550
PROPERTY, PLANT AND EQUIPMENT:
Land............................... 3,024 1,370
Buildings and leasehold
improvements....................... 22,260 11,402
Machinery and equipment............ 39,888 19,853
Construction in process............ 4,512 3,189
---------- ---------
69,684 35,814
Less -- accumulated depreciation... (16,130) (8,109)
---------- ---------
53,554 27,705
INTANGIBLES AND GOODWILL, net of
accumulated amortization of $2,263
and $506 in 1997 and 1996,
respectively....................... 82,809 8,417
LONG-TERM INVESTMENT................. 1,188 250
NON-CURRENT DEFERRED INCOME TAX
ASSET................................ 594 245
OTHER LONG-TERM ASSETS............... 2,200 524
---------- ---------
Total assets................ $ 238,016 $ 79,691
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................. $ 3,077 $ 4,430
Short-term debt.................... 427 --
Accounts payable................... 14,152 5,909
Accrued payroll and related
costs.............................. 8,073 3,141
Taxes other than payroll and
income............................. 2,178 668
Unearned revenue................... 2,257 30
Income taxes payable............... 3,788 1,008
Deferred income tax liability...... 1,946 604
Other accrued expenses............. 6,200 1,555
---------- ---------
Total current liabilities... 42,098 17,345
LONG-TERM DEBT....................... 70,621 11,594
DEFERRED COMPENSATION................ 2,385 373
NON-CURRENT DEFERRED INCOME TAX
LIABILITY............................ 2,570 1,970
MINORITY INTEREST.................... 1,212 212
LONG-TERM LEASE OBLIGATION........... 156 --
OTHER LONG-TERM LIABILITIES.......... 4,861 786
COMMITMENTS AND CONTINGENCIES (Note
10)
SHAREHOLDERS' EQUITY:
Preference shares, NLG .03 par
value; 3,000,000 shares
authorized, none issued or
outstanding...................... -- --
Common shares, NLG .03 par value;
30,000,000 shares authorized,
24,703,621 and 21,185,276 issued
and outstanding at 1997 and 1996,
respectively..................... 426 186
Additional paid-in capital......... 86,823 35,500
Retained earnings.................. 26,864 11,725
---------- ---------
Total shareholders'
equity........................ 114,113 47,411
---------- ---------
Total liabilities and
shareholders' equity.... $ 238,016 $ 79,691
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1997 1996 1995
--------- --------- ---------
SERVICES............................. $ 184,839 $ 80,503 $ 62,478
SALES................................ 30,012 24,865 25,115
--------- --------- ---------
214,851 105,368 87,593
OPERATING EXPENSES:
Costs of services............... 143,364 64,853 51,018
Costs of sales.................. 27,307 19,790 20,768
General and administrative
expenses....................... 5,974 3,559 2,719
Depreciation and amortization... 10,822 4,600 3,262
Transaction costs associated
with merger.................... -- 355 --
Other income, net............... (1,056) (603) (130)
--------- --------- ---------
INCOME BEFORE INTEREST EXPENSE,
INCOME TAX, AND EXTRAORDINARY
ITEM............................... 28,440 12,814 9,956
INTEREST EXPENSE..................... 6,384 1,418 3,000
--------- --------- ---------
INCOME BEFORE INCOME TAX AND
EXTRAORDINARY ITEM................. 22,056 11,396 6,956
INCOME TAX EXPENSE................... 6,617 3,719 2,174
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM..... 15,439 7,677 4,782
EXTRAORDINARY ITEM, net of tax
benefit of $400.................... -- -- (911)
--------- --------- ---------
NET INCOME........................... 15,439 7,677 3,871
LESS -- Net income applicable to
preferred loan stock............... -- -- (334)
--------- --------- ---------
NET INCOME APPLICABLE TO COMMON
SHARES............................. $ 15,439 $ 7,677 $ 3,537
========= ========= =========
BASIC PER SHARE DATA:
Basic income before
extraordinary item............. $ .66 $ .36 $ .26
Extraordinary item.............. -- -- (.05)
--------- --------- ---------
Basic net income................ $ .66 $ .36 $ .21
========= ========= =========
Weighted average basic common
shares outstanding............. 23,255,641 21,184,500 17,164,550
========= ========= =========
DILUTED PER SHARE DATA:
Diluted income before
extraordinary item............. $ .65 $ .36 $ .26
Extraordinary item.............. -- -- (.05)
--------- --------- ---------
Diluted net income.............. $ .65 $ .36 $ .21
========= ========= =========
Weighted average diluted common
shares outstanding............. 23,936,325 21,381,804 17,270,578
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
COMMON SHARES
PREFERRED ------------------ ADDITIONAL
LOAN NUMBER OF PAID-IN RETAINED
STOCK SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- --------- ------ ---------- -------- ---------
BALANCE, December 31, 1994.............. 7,500 15,444,176 268 5,078 806 13,652
--------- --------- ------ ---------- -------- ---------
INITIAL PUBLIC OFFERING................. -- 5,600,000 102 29,924 -- 30,026
PREFERRED LOAN STOCK DIVIDEND........... -- -- -- -- (447) (447)
REDEMPTION OF PREFERRED LOAN STOCK...... (7,500) -- -- -- -- (7,500)
EQUITY TRANSACTIONS OF POOLED COMPANY... -- 113,288 2 61 -- 63
NET INCOME.............................. -- -- -- -- 3,871 3,871
--------- --------- ------ ---------- -------- ---------
BALANCE, December 31, 1995.............. -- 21,157,464 372 35,063 4,230 39,665
--------- --------- ------ ---------- -------- ---------
STOCK OPTIONS EXERCISED................. -- 1,000 -- 6 -- 6
EQUITY TRANSACTIONS OF POOLED COMPANY... -- 26,812 -- 245 (259) (14)
ADJUSTMENT FOR CHANGE IN FISCAL YEAR OF
POOLED COMPANY........................ -- -- -- -- 77 77
NET INCOME.............................. -- -- -- -- 7,677 7,677
--------- --------- ------ ---------- -------- ---------
BALANCE, December 31, 1996.............. -- 21,185,276 372 35,314 11,725 47,411
--------- --------- ------ ---------- -------- ---------
ADJUSTMENT FOR POOLING OF INTEREST...... -- 482,541 8 1,311 (300) 1,019
PUBLIC OFFERING......................... -- 2,964,862 45 49,960 -- 50,005
STOCK OPTIONS EXERCISED................. -- 70,942 1 238 -- 239
NET INCOME.............................. -- -- -- -- 15,439 15,439
--------- --------- ------ ---------- -------- ---------
BALANCE, December 31, 1997.............. $ -- 24,703,621 $426 $86,823 $26,864 $ 114,113
========= ========= ====== ========== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(THOUSANDS OF DOLLARS)
1997 1996 1995
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................... $ 15,439 $ 7,677 $ 3,871
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and amortization.... 11,037 4,600 3,479
Adjustment for change in fiscal
year of pooled company.......... -- 77 --
Extraordinary item, net of tax
benefit of $400................. -- -- 911
(Gain) loss on sale of fixed
assets........................... (149) (9) 12
Changes in assets and
liabilities --
Increase in accounts
receivable...................... (14,443) (2,107) (1,791)
(Increase) decrease in
inventories..................... (1,348) (913) 943
(Increase) decrease in prepaid
expenses and other............ (102) 242 (283)
Increase (decrease) in accounts
payable......................... (8,741) (854) 2,391
Increase in accrued payroll.... 3,889 42 504
Increase in accrued income
taxes payable................... 2,780 296 560
Increase (decrease) in other
accrued expenses................ (12,095) (700) (3,431)
Other.......................... 1,790 482 (119)
---------- --------- ---------
Net cash provided by
operating activities.......... (1,943) 8,833 7,047
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (15,303) (6,283) (3,183)
Proceeds from sale of fixed
assets............................. 550 28 1,597
Acquisition of Saybolt, net........ (63,364) -- --
Acquisition of Scott Pickford,
net................................ (13,975) -- --
Acquisition of Gulf States
Analytical, Inc.................... -- (4,310) --
Return on investment in China
Corelab Ltd. ...................... -- 150 --
Acquisition of Pastech Inc., net... -- -- (5,017)
Acquisition of PACE Incorporated... -- -- (2,830)
Acquisition of Core Laboratories
division, net...................... -- -- (1,778)
Proceeds from maturities of
investment securities.............. -- -- 499
Other.............................. -- -- 12
---------- --------- ---------
Net cash used in investing
activities....................... (92,092) (10,415) (10,700)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public
offerings.......................... 50,005 -- 30,026
Proceeds from common shares and
preferred loan stock issuances... -- -- 63
Payments on long-term debt......... (93,732) (10,145) (31,789)
Borrowings under long-term debt.... 146,891 9,900 15,740
Retirement of preferred loan
stock.............................. -- -- (7,500)
Prepayment penalty on long-term
debt............................... -- -- (140)
Decrease in short-term debt........ (181) (190) (599)
Dividends on preferred loan
stock.............................. -- -- (447)
Other.............................. (1,373) 12 (21)
---------- --------- ---------
Net cash provided by (used in)
financing activities............... 101,610 (423) 5,333
---------- --------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS........................ 7,575 (2,005) 1,680
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 2,935 4,940 3,260
---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 10,510 $ 2,935 $ 4,940
========== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
CORE LABORATORIES N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS
Core Laboratories N.V., and its wholly owned subsidiaries (the "Company")
derives its revenues from customers primarily from one industry segment, the oil
and gas industry, and conducts its worldwide business through two closely
related operations: Services and Sales.
SERVICES
The Company provides three related services for optimizing reservoir performance
and maximizing hydrocarbon recovery from new and existing fields.
o RESERVOIR DESCRIPTION SERVICES: Encompasses the petrophysical
characterizations of petroleum reservoir rock and the phase behavior
relationships of reservoir fluids and gases.
o PRODUCTION ENHANCEMENT SERVICES: Includes field applications of
proprietary technologies to maximize the efficiency and effectiveness of
well completions and stimulations.
o RESERVOIR MANAGEMENT SERVICES: Combines and integrates data sets from
reservoir description and production enhancement services to maximize daily
hydrocarbon production and recovery from a well or field.
SALES
The Company's sales operation manufactures and sells petroleum reservoir rock
and fluid analysis instrumentation and other integrated systems which complement
its services operation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and have been prepared in accordance with United States generally
accepted accounting principles. All significant intercompany transactions and
balances have been eliminated. The equity method of accounting is used for all
investments in which the Company has less than a majority interest except for
one joint venture interest where the cost method of accounting is applied as the
Company does not exercise significant influence or control. In addition, a
minority interest liability has been recorded in the accompanying consolidated
financial statements for those subsidiaries in which the Company has minority
investments. Certain 1996 items have been reclassified to conform with the 1997
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash includes all highly liquid debt instruments with an original maturity of
three months or less when purchased.
INVENTORIES
Inventories are primarily items used for sales or services provided to
customers. Inventories are stated at the lower of average cost (includes direct
material, labor and overhead) or estimated realizable value.
PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment are stated at cost. Allowances for
depreciation and amortization are calculated using the straight-line method
based on the estimated useful lives of the related assets as follows:
Buildings............................... 10-40 years
Machinery and equipment................. 3-10 years
Accelerated depreciation methods are used for tax purposes. Expenditures for
repairs and maintenance are charged to expense as incurred and major renewals
and betterments are capitalized. Cost and accumulated depreciation applicable to
assets retired or sold are removed from the accounts, and any resulting gain or
loss is included in the statement of operations. The Company incurred
$2,383,000, $1,385,000 and $1,596,000 of repair and maintenance expense for the
years ended December 31, 1997, 1996 and 1995, respectively.
INTANGIBLES AND GOODWILL
Intangibles and goodwill are amortized using the straight-line method over their
estimated useful lives, which range from 5 to 40 years. Intangibles include
patents, trademarks, service marks and trade names. Goodwill represents the
excess purchase price over the fair value of net assets acquired for
acquisitions accounted for as purchases. The Company continually evaluates
whether subsequent events or circumstances have occurred that indicate the
remaining useful life of intangibles and goodwill may warrant revision or that
the remaining balance of intangibles and goodwill may not be recoverable by
determining whether the carrying amount of the intangible assets can be
recovered through projected undiscounted future cash flows over the remaining
amortization period. Management believes that there have been no events or
circumstances that warrant revision to the remaining useful life or which affect
the recoverability of intangibles and goodwill.
LONG-TERM INVESTMENT
A long-term investment of $1,188,000 at December 31, 1997 represents the
Company's investment in affiliated companies in which they hold less than a
majority interest. These investments are accounted for using the equity method
of accounting.
INCOME TAXES
Income tax expense includes The Netherlands, United States ("U.S."), other
foreign countries and local state and provincial income taxes. The Company
accounts for income taxes in accordance with the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." This accounting standard requires companies to
recognize deferred tax assets or liabilities for the differences between the
financial statement carrying amount and tax bases of existing assets and
liabilities using presently enacted tax rates.
REVENUE RECOGNITION
Revenues are primarily recognized as services are completed and provided or as
products are shipped.
FOREIGN CURRENCIES
The Company's functional currency is the U.S. dollar. Accordingly, foreign
entities translate monetary assets and liabilities at year-end exchange rates,
while non-monetary items are translated at historical rates. Income and expense
accounts are translated at the average rates
in effect during the year, except for depreciation and cost of sales, which are
translated at historical rates. Due to immateriality, gains and losses resulting
from the translation of foreign financial statements and from foreign currency
transactions are included in other income and expense in the Consolidated
Statements of Operations.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as incurred.
CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily trade accounts receivable. The Company derives its
worldwide revenues from services and sales to customers primarily in the oil and
gas industry. The Company maintains an allowance for losses based upon the
expected collectibility of all trade accounts receivable. The carrying values of
cash, trade accounts receivable and accounts payable approximate their fair
market values due to the short-term maturities of these instruments. Management
believes that the carrying amount of long-term debt approximates fair value as
the majority of the borrowings bear interest at floating market interest rates.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which establishes standards for computing
and presenting earnings per share. This standard, effective for fiscal year
1997, replaces the presentation and calculation of primary earnings per share,
as prescribed by Accounting Principles Board ("APB") No. 15, with a
presentation and calculation of basic earnings per share. In addition, this
standard requires dual presentation of basic and diluted earnings per share on
the Consolidated Statement of Operations. Basic earnings per common share is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is determined by assuming that all stock options outstanding have been
converted using the average price for the period. Prior period amounts have been
restated in accordance with the requirements of the pronouncement.
3. ACQUISITIONS
1997 ACQUISITIONS
On December 29, 1997, the Company completed the acquisition of all of the
outstanding shares of Stim-Lab, Inc. ("Stim-Lab"), a privately held Company
based in Duncan, Oklahoma. Stim-Lab is a world leader in hydraulic fracturing
and well stimulation technologies. The merger was accounted for as a pooling of
interests and the Company issued approximately 459,000 common shares in exchange
for all of the outstanding shares of Stim-Lab. Stim-Lab's results of operations
for the year ended December 31, 1997 have been combined with that of the
Company's. Consolidated financial statements for prior years were not restated
due to immateriality.
On May 12, 1997, the Company consummated the acquisition of all the outstanding
shares of Saybolt International B.V. and its subsidiaries ("Saybolt"), a
privately held Netherlands company, for $67 million in cash and the assumption
of $5 million of net debt. Saybolt operates in over 50 countries and is an
international leader in providing analytical and field services to characterize
properties of crude oil and petroleum products for the oil industry. The
transaction was accounted for under the purchase method, which resulted in the
recording of approximately $64.0 million of goodwill which is being amortized
over a 40-year period. Financing for the transaction was provided through the
Unsecured Credit Facility (see Note 5). Saybolt's results of operations are
included with those of the Company beginning on May 1, 1997. The purchase price
allocations have been completed on a preliminary basis, thus as additional
information concerning the value of the assets
acquired and liabilities assumed becomes known additional adjustments will be
made to the purchase price allocation included in the accompanying financial
statements.
On March 1, 1997, the Company acquired the outstanding shares of Scott Pickford
plc and its subsidiaries ("Scott Pickford") for approximately $14.9 million.
Scott Pickford, a London-based company, provides petroleum reservoir management,
geoscience, geophysical and engineering services to its customers by utilizing
petrophysical and phase behavior data sets measured by Core Laboratories. Scott
Pickford specializes in large field studies and equity determinations primarily
in the North Sea. The acquisition was financed through borrowings, accounted for
using the purchase method of accounting and resulted in the recording of
approximately $12.2 million of goodwill which is being amortized over a 40-year
period. Scott Pickford's results of operations are included with those of the
Company beginning March 1, 1997.
1996 ACQUISITIONS
On December 31, 1996, the Company issued approximately 2.2 million common shares
in exchange for the outstanding stock of ProTechnics and subsidiaries
("Protechnics"). In addition, outstanding employee stock options to purchase
ProTechnics common shares were converted into options to purchase approximately
174,000 shares of the Company's common shares. The acquisition has been
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated to include the consolidated
financial statements of ProTechnics (which were adjusted to conform to the
Company's accounting policies) for all periods prior to the acquisition.
ProTechnics had a March 31 fiscal year end and, accordingly, the ProTechnics
statements of operations for the year ended March 31, 1996 has been combined
with the Company's statements of operations for the calendar year ended December
31, 1995. In order to conform ProTechnics year end to the Company's calendar
year end, the consolidated statement of operations for fiscal 1996 includes
three months for ProTechnics which are also included in the consolidated
statement of operations for the fiscal year ended December 31, 1995.
Accordingly, an adjustment has been made in fiscal 1996 to retained earnings for
the duplication of net loss of $77,000 for such three month period.
ProTechnics' historical consolidated financial statements have been adjusted to
conform to the accounting policies and practices of the Company. These
adjustments primarily related to conforming ProTechnics' accounting policies for
the capitalization of inventory, property, plant and equipment, and other assets
to those of the Company. The effect of these conforming adjustments increased
ProTechnics' net loss by $177,000 and $27,000 in the years ended March 31, 1996
and 1995, respectively.
In connection with the acquisition, $0.4 million of transaction costs ($0.2
million after tax, or $0.02 per share) were incurred and have been charged to
expense in 1996. The cost and expenses consisted primarily of legal, accounting
and investment banking fees.
On January 5, 1996, the Company acquired substantially all of the assets of Gulf
States Analytical, Inc. for approximately $4.3 million in cash. The transaction
was recorded using the purchase method of accounting. Financing for the
transaction was provided through the Company's credit agreement.
1995 ACQUISITIONS
On December 22, 1995, the Company acquired substantially all the assets of four
analytical testing laboratories from PACE Incorporated for approximately $2.8
million in cash. The transaction was recorded using the purchase method of
accounting. The Company borrowed $2.5 million under its credit agreement to
complete the acquisition.
On July 19, 1995, the Company acquired all of the outstanding common shares of
Pastech, Inc. for approximately $5.3 million in cash. The Company borrowed $5.0
million under its revolving credit facility to complete this acquisition.
Subsequently, the Company used a portion of the proceeds from its initial public
offering to repay the debt. The transaction was recorded using the purchase
method of accounting, which resulted in the recording of approximately $2.9
million of goodwill which is being amortized over a 20-year period.
The following information presents the results of operations on a pro forma
basis as though the public offering, acquisitions of Scott Pickford and Saybolt,
and the merger of Stim-Lab all occurred on January 1, 1996. Information is
presented for informational purposes only, and may not be indicative of actual
operating results that would have been achieved. All amounts are in thousands,
except per share data.
YEAR ENDED DECEMBER
31,
---------------------
1997 1996
---------- ---------
(UNAUDITED)
Revenues................................ $ 230,128 $ 199,402
Income before extraordinary item........ $ 16,849 $ 9,234
Basic income per share before
extraordinary item.................... $ .72 $ .38
Diluted income per share before
extraordinary item.................... $ .70 $ .38
4. INVENTORIES
Inventories consisted of the following at December 31, 1997 and 1996 (in
thousands):
1997 1996
---------- ---------
Parts and materials..................... $ 4,558 $ 4,011
Work in process......................... 7,915 5,461
---------- ---------
Total.............................. $ 12,473 $ 9,472
========== =========
5. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 is summarized in the following
table (in thousands):
1997 1996
--------- ---------
Unsecured Credit Facility with a bank
group:
$70,000 term loan facility......... $ 70,000 $ --
$55,000 revolving debt facility.... -- --
Loan notes.............................. 1,165 --
Unsecured credit facility with a bank
group:
$14,000 term loan facility......... -- 9,375
$15,000 guidance facility.......... -- 5,440
Other indebtedness...................... 2,533 1,209
--------- ---------
Total debt.................... 73,698 16,024
Less -- current maturities.............. 3,077 4,430
--------- ---------
Total long-term debt.......... $ 70,621 $ 11,594
========= =========
On May 12, 1997, the Company entered into an Unsecured Credit Facility which was
used to finance the acquisition of Scott Pickford and Saybolt, as well as
refinance a previous credit facility. The Unsecured Credit Facility provides for
(i) a term loan of $55 million, (ii) a term
loan denominated in British pounds having a U.S. dollar equivalency of $15
million, (iii) a committed revolving debt facility of $50 million, and (iv) a
Netherlands guilder denominated revolving debt facility with U.S. dollar
equivalency of $5 million. At December 31, 1997, approximately $55.0 million was
available for borrowing under the revolving credit facility. Loans under the
Unsecured Credit Facility will generally bear interest from LIBOR plus 0.75% to
a maximum of LIBOR plus 1.75%. The term loans require quarterly principal
payments beginning March 31, 1999 with the final principal payment due June 30,
2002. The revolving debt facilities require interest payments only, until
maturity on June 30, 2002. The terms of the Unsecured Credit Facility will
require the Company to meet certain financial covenants, including certain
minimum equity and cash flow tests. Management believes that the Company is in
compliance with all such covenants contained in its credit agreements.
As part of the purchase of Scott Pickford, the Company issued unsecured loan
notes as an alternative to the cash consideration paid for the outstanding
shares of Scott Pickford. The loan notes bear interest payable semi-annually, at
the rate of LIBOR less 1.0% per annum. Holders of the loan notes have the right
to redeem the loan notes at par on each interest payment date. Unless previously
redeemed or purchased, the loan notes will be redeemed at par on June 30, 2002.
Scheduled maturities of long-term debt over the next five years are: $3,077,000
in 1998, $14,100,000 in 1999, $21,109,000 in 2000, $21,119,000 in 2001,
$14,129,000 in 2002 and $164,000 thereafter. Total cash payments for interest
was $5,273,000, $1,343,400, and $3,067,500 for 1997, 1996, and 1995,
respectively.
On November 20, 1997, the Company successfully completed a public offering in
which it sold 2,800,000 of its common shares and received net proceeds of $47.2
million. In addition, the underwriter's overallotment was exercised for 164,862
common shares in December 1997 and resulted in additional net proceeds of $2.8
million. The total net proceeds of $50.0 million were used to repay $43.9
million in debt and the remainder was retained for working capital.
6. INCOME TAXES
The components of income before income tax and extraordinary item for 1997,
1996, and 1995 are as follows (in thousands):
1997 1996 1995
--------- --------- ---------
United States........................... $ 7,248 $ 4,589 $ 3,246
Other countries......................... 14,808 6,807 3,710
--------- --------- ---------
Income before income tax and
extraordinary item................ $ 22,056 $ 11,396 $ 6,956
========= ========= =========
The components of income tax expense (benefit) for 1997, 1996, and 1995, are as
follows (in thousands):
1997 1996 1995
--------- --------- ---------
Current --
United States federal................. $ 2,279 $ 1,135 $ 1,155
Other countries....................... 2,660 1,245 596
State and provincial.................. 619 125 244
--------- --------- ---------
Total Current................. $ 5,558 $ 2,505 $ 1,995
--------- --------- ---------
Deferred --
United States federal................. $ (99) $ 88 $ (58)
Other countries....................... 1,158 1,126 237
--------- --------- ---------
Total deferred................ 1,059 1,214 179
--------- --------- ---------
Income tax expense............ $ 6,617 $ 3,719 $ 2,174
========= ========= =========
The difference between The Netherlands statutory income tax rate and the
Company's estimated tax rate as reported in the accompanying consolidated
statements of operations for 1997, 1996, and 1995 are as follows:
1997 1996 1995
--------- --------- ---------
The Netherlands income tax rate......... 35% 35% 35%
Subsidiary rates lower than The
Netherlands............................. (9) (4) (4)
Foreign sales corporation benefits...... (1) (2) (1)
Research and development credits........ -- -- (1)
Change in valuation allowance........... 2 3 1
State and provincial income taxes....... 3 1 3
Other................................... -- -- (2)
--------- --------- ---------
Effective tax rate...................... 30% 33% 31%
========= ========= =========
Deferred tax assets and liabilities result from various temporary differences
between the financial statement carrying amount and tax basis of existing assets
and liabilities. Deferred tax assets and liabilities as of December 31, 1997 and
1996, respectively, are summarized as follows (in thousands):
1997 1996
--------- ---------
Deferred tax assets --
Reserves and other liabilities..... $ 916 $ 610
Carryforwards...................... 1,561 906
Allowance for receivables.......... 285 146
Inventories........................ 78 58
Other........................... 101 147
--------- ---------
2,941 1,867
--------- ---------
Deferred tax liabilities --
Intangibles.......................... (1,085) (742)
Property, plant and equipment........ (1,291) (1,118)
Receivables.......................... (1,735) (638)
Other................................ (405) (197)
--------- ---------
(4,516) (2,695)
Valuation allowance.................. (967) (574)
--------- ---------
Net deferred tax liability......... $ (2,542) $ (1,402)
========= =========
The valuation allowance increased due to the uncertainty of realization of net
operating loss carryforwards in certain foreign tax jurisdictions. The Company's
net deferred tax liability is set forth in the consolidated balance sheet as of
December 31, 1997 and 1996, respectively, and is calculated as follows (in
thousands):
1997 1996
--------- ---------
Current deferred tax asset........... $ 1,380 $ 927
Non-current deferred tax asset....... 594 245
Current deferred tax liability....... (1,946) (604)
Non-current deferred tax liability... (2,570) (1,970)
--------- ---------
Net deferred tax liability.... $ (2,542) $ (1,402)
========= =========
Cash payments for income tax, net of refunds, were $2,150,000, $2,169,000 and
$1,462,000 in 1997, 1996 and 1995 respectively.
7. CAPITAL STOCK
PREFERRED LOAN STOCK
In September 1995, the Company redeemed in full its six percent nonvoting,
nonconvertible $7,500,000 preferred loan stock. The redemption was funded using
a portion of the proceeds from the initial public offering.
REDEEMABLE CUMULATIVE PREFERENCE SHARES
In September 1995, the Company retired the authorized but unissued redeemable
cumulative preference shares with a par value of NLG .02 ($0.01) per share.
PREFERENCE SHARES
In August 1995, the Company authorized 3,000,000 preference shares with a par
value of NLG .03 ($0.02) no per share preference shares have been issued by the
Company.
COMMON SHARES
In August 1995, the Company increased its authorized common shares to
30,000,000, effected a 200-for-three stock split, and reduced the par value of
its common stock from NLG 2 ($1.15) per share to NLG .03 ($0.02) per share.
Accordingly, the accompanying consolidated financial statements have been
restated to reflect this stock split for all periods presented.
In September 1995, the Company completed its initial public offering of
5,600,000 common shares and received proceeds of approximately $30.0 million,
net of expenses. The Company used such proceeds to redeem in full its $7.5
million preferred loan stock outstanding and to repay outstanding indebtedness.
In connection with this repayment of indebtedness, the Company incurred an
extraordinary loss of $1.3 million ($.9 million net of taxes) during the quarter
ended September 30, 1995, for the write-off of deferred debt costs and a
repayment penalty incurred on the debt retired.
In December 1996, the Company issued approximately 2,200,000 common shares in
exchange for the outstanding shares of ProTechnics.
On October 22, 1997, the Company declared a two-for-one split of its common
shares payable on December 19, 1997, to shareholders of record as of the close
of business on December 1, 1997. All agreements concerning stock options and
other commitments payable in the Company's common shares provide for
the issuance of additional shares in the event of a declaration of a stock
split. An amount equal to the par value of the common shares issued was
transferred from additional paid-in capital to the common share account. All
references to number of shares, except shares authorized, and to per share
information have been restated to reflect the stock split.
In November 1997, the Company successfully completed a public offering in which
it sold 2,964,862 of its common shares (including the exercise of the
underwriter's overallotment of 164,862 common shares) and received net proceeds
of $50.0 million. The Company used the net proceeds to paydown $43.9 million in
existing debt and retained $6.1 million for working capital.
In December 1997, the Company issued approximately 459,000 common shares in
exchange for the outstanding shares of Stim-Lab.
The following table summarizes the calculation of weighted average common shares
outstanding for purposes of the computation of earnings per share:
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
------------ --------- ---------
Weighted average basic common shares
outstanding........................... 23,255,641 21,184,500 17,164,550
Dilutive Stock Options.................. 680,684 197,304 106,028
------------ --------- ---------
Weighted average diluted common shares
outstanding........................... 23,936,325 21,381,804 17,270,578
============ ========= =========
8. STOCK OPTIONS
EMPLOYEE STOCK PLANS
The 1995 Long-Term Incentive Plan (the "Plan") was amended and restated
effective as of May 29, 1997, to authorize an additional 1,600,000 common shares
resulting in a maximum aggregate of 2,900,000 common shares for grant to
eligible employees. Options granted pursuant to the Plan are exercisable for a
period of 10 years and will vest in equal installments over four years, so long
as the option holder remains an employee of the Company as of the date of
exercise. The exercise price of options granted under the Plan equals the market
price of the common shares on the date of grant.
1995 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
The 1995 Nonemployee Director Stock Option Plan (the "Nonemployee Director
Plan"), was amended and restated May 29, 1997 to authorize an additional
100,000 common shares for a maximum aggregate of 200,000 common shares for grant
to eligible Directors of the Company. Pursuant to the Nonemployee Director Plan,
beginning in 1996, 10,000 options were granted to each eligible Director and
20,000 were granted to the Chairman on the day after the annual shareholders'
meeting. The options are exercisable for a period of 10 years and will vest on
the day before the next annual meeting following the date of grant. The exercise
price of options granted under the Plan equals the market price of the common
shares on the date of grant.
PROTECHNICS STOCK OPTION PLAN
In connection with the merger of ProTechnics, certain outstanding employee stock
options to purchase ProTechnics common shares were converted into options to
purchase 173,760 shares of the Company's common shares. Pursuant to the
ProTechnics stock option plans, such options remain exercisable for a period of
5 years from the original grant date. Future grants to ProTechnics' employees
will be made under the Plan.
Information regarding the Company's stock option plans are summarized below:
WEIGHTED
NONEMPLOYEE PROTECHNICS AVERAGE
DIRECTOR STOCK OPTION EXERCISE
OPTIONS: THE PLAN PLAN PLAN TOTAL PRICE
- ------------------------------------- -------- ----------- ------------ ------- --------
Outstanding at December 31, 1995..... 555,000 8,000 173,760 736,760 5.09
======== =========== ============ ======= ========
Granted at $6.25 per share........... -- 8,000 -- 8,000 6.25
Granted at $6.00 per share........... 8,000 -- -- 8,000 6.00
Granted at $7.88 per share........... 8,000 -- -- 8,000 7.88
Less --
Exercised at $6.00 per share.... 1,000 -- -- 1,000 6.00
Canceled........................ 50,000 -- -- 50,000 6.00
-------- ----------- ------------ ------- --------
Outstanding at December 31, 1996..... 520,000 16,000 173,760 709,760 $ 5.08
======== =========== ============ ======= ========
Granted at $8.38 per share........... 779,000 -- -- 779,000 8.38
Granted at $11.25 per share.......... 30,000 -- -- 30,000 11.25
Granted at $17.88 per share.......... 4,000 -- -- 4,000 17.88
Granted at $17.50 per share.......... 2,000 -- -- 2,000 17.50
Less --
Exercised at $6.00 per share.... 27,000 -- -- 27,000 6.00
Exercised at $1.28 per share.... -- -- 33,954 33,954 1.28
Exercised at $2.75 per share.... -- -- 7,988 7,988 2.75
Canceled........................ 37,000 -- -- 37,000 8.38
-------- ----------- ------------ ------- --------
Outstanding at December 31, 1997..... 1,271,000 16,000 131,818 1,418,818 6.09
======== =========== ============ ======= ========
Exercisable at December 31, 1997..... 228,500 16,000 131,818 376,318
======== =========== ============ =======
Available for grant at December 31,
1997............................... 1,601,000 184,000 none 1,785,000
======== =========== ============ =======
The exercise prices of options outstanding at December 31, 1997 and 1996, ranged
from $1.28 to $17.88 per share and from $1.28 to $7.88 per share, respectively.
The weighted average contractual life remaining on outstanding share options was
8.3 years at December 31, 1997.
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for its stock-based compensation
plans. APB Opinion 25 does not require compensation costs to be recorded on
options which have exercise prices at least equal to the market price of the
stock on the date of grant. Accordingly, no compensation cost has been
recognized for the Company's stock-based plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share data):
1997 1996
--------- ---------
Net income:
As reported..................... $ 15,439 $ 7,677
Proforma........................ $ 14,571 $ 7,268
Basic net income per share:
As reported..................... $ .66 $ .36
Proforma........................ $ .63 $ .34
Diluted net income per share:
As reported..................... $ .65 $ .36
Proforma........................ $ .61 $ .34
The fair value of options granted in 1997 and 1996 of $7.08 and $4.00,
respectively, was estimated using the Black-Scholes option-pricing model with
the following assumptions: risk-free interest rates of 5.6% in 1997 and 6.7% in
1996, no dividends in 1997 and 1996; expected volatility of 39 percent in 1997
and 35 percent in 1996; and expected option lives of 10 years for the options
granted in 1997 and 1996. Because the SFAS No. 123 method of accounting has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that expected in future
years.
9. RETIREMENT AND OTHER BENEFIT PLANS
The Company has eight defined contribution plans (the "Plans") for the benefit
of all qualified employees in the United States, Canada and the United Kingdom.
In accordance with the specific plan, the Company matches the required portion
of employee contributions up to specified limits, and under certain plans the
Company may contribute a portion of the net profits of the Company annually in
accordance with the Plans. For the years ended 1997, 1996 and 1995 the Company
expensed $2,251,000, $1,430,000, and $1,190,000 respectively, for its matching
and profit-sharing contributions to the Plans.
The Company provides a retirement benefit to substantially all of its Dutch
employees equal to 1.75% of each employee's final pay for each year of service,
subject to a maximum of 70%. Funding for this benefit is in the form of premiums
paid to an insurance company based upon each employee's age and current salary.
Salary increases require higher premiums which are paid over future years and
are reflected, at their net present value, as a provision for pension
backservice liabilities. Employees are 100% vested at all times. In the event an
employee leaves the company, the Company is required to immediately pay the
backservice pension liability to the insurance company. The insurance company
has assumed substantially all risk associated with the plan.
The Company also operates a defined benefit plan for a portion of its U.S.
employees; such plan was suspended on December 31, 1997. The benefits paid are
based on years of service and the employee's final average earnings. Pension
costs in 1997 were $217,763. The Company recognized a curtailment gain of
approximately $1.4 million related to the plan's suspension.
The components of net pension costs (income) in 1997 are as follows:
Service cost-benefits earned during
the period........................... $ 450,120
Interest cost on projected
obligation........................... 571,456
Actual return on assets.............. (1,118,868)
Net amortization and accrual......... 315,055
----------
Net pension costs (income)........... $ 217,763
==========
Actuarial assumptions used for this calculation are as follows:
Discount rate........................ 7.5%
Rate of return....................... 8.0%
Rate of compensation increase........ 5.0%
In July 1997, the Company established deferred compensation contracts for
certain officers. The plan's benefits are fully vested and benefits are paid
when the participants attain their 65th year of age. The charge to expense for
officer deferred compensation in 1997 was approximately $238,000. Life insurance
policies with cash surrender value were purchased for the purpose of funding the
officer deferred compensation contracts.
The Company also maintains deferred compensation contracts with certain key
employees. Vesting is based upon age and years of service. Life insurance
contracts with cash surrender value have been purchased which fund these
agreements. The charge to expense for the key employee deferred compensation
contracts in 1997 was approximately $83,000.
10. COMMITMENTS AND CONTINGENCIES
In the latter part of 1996, prior to its acquisition by the Company, Saybolt,
Inc., an indirect subsidiary of the parent, Saybolt International B.V., was
informed that the Environmental Protection Agency ("EPA") and the U.S.
Department of Justice ("DOJ") had commenced a
criminal investigation into certain practices at three of Saybolt's U.S.
laboratories. The investigation has focused on instances in which Saybolt
employees in New Jersey, Massachusetts and Connecticut may have failed to report
accurate RFG results to customers and the EPA. The Company is cooperating with
this investigation and, in addition, has begun its own internal review of the
matter. If the EPA and/or the DOJ conclude that Saybolt was in noncompliance
with any of the applicable rules and regulations, the Company may be subjected
to fines, civil or criminal proceedings, sanctions and/or the revocation of its
licenses and/or authorization to perform certain services governed by the EPA,
customers or other agencies, or to continue to conduct business in certain
areas.
The U.S. Attorney's Offices for Massachusetts and New Jersey and the DOJ are
conducting a criminal investigation as to whether Saybolt committed violations
of U.S. laws regulating international business actions of U.S. persons. On
January 29, 1998 the U.S. Attorney's Office for the District of Massachusetts
announced that the former president of Saybolt, Inc. had been arrested and
charged with violating the Foreign Corrupt Practices Act and the Travel Act. The
criminal complaint alleged that such person participated in arranging the
payment of $50,000 to Panamanian officials in 1995 in an effort to obtain a
lease and certain tax benefits from the Panamanian government for Saybolt de
Panama S.A. The alleged violation occurred more than a year before the Company's
acquisition of Saybolt in May 1997 and was discovered during the EPA
investigation of Saybolt.
Representatives of the Company and their attorneys in the two above described
matters have held discussion with officials at the U.S. Attorney's Offices for
Massachusetts, Connecticut and New Jersey and the DOJ in an attempt to resolve
all disputes concerning Saybolt. As a result of these discussions, The Company
believes that the amount required to resolve these issues will not exceed $5.0
million. The Company believes that it has indemnity rights against the former
shareholders of Saybolt to cover contingencies and breaches of provisions of the
agreement entered into at the same time of the acquisition of Saybolt. While no
assuarance can be made as to the ultimate outcomeof these matters, the Company
does not believe that such matters will have a material
adverse effect on the financial condition of the Company.
The Company may from time to time be subject to legal proceedings and claims
which arise in the ordinary course of its business. Management believes that the
outcome of these legal actions will not have a material adverse effect upon the
consolidated financial position or future results or operations of the Company.
As security for bids and performance on certain contracts, the Company was
contingently liable at December 31, 1997, the amount of approximately $1.3
million under standby letters of credit and bank guarantees.
Minimum rental commitments under non-cancelable operating leases as of December
31, 1997, consist of the following (in thousands):
Year ended December 31 --
1998............................ $ 5,729
1999............................ 3,184
2000............................ 1,796
2001............................ 788
2002............................ 583
Thereafter...................... 655
---------
$ 12,735
=========
Operating lease commitments relate principally to equipment and office space.
Rental expense for operating leases, including amounts for short-term leases
with nominal future rental commitments, was approximately $5,749,000, $3,721,000
and $2,835,000 for 1997, 1996 and 1995, respectively.
The Company has entered into various capital leases which provide for future
minimum lease payments over the next five years as follows: $427,000 in 1998,
$118,000 in 1999, $25,000 in 2000, and $13,000 in 2001.
11. INDUSTRY SEGMENTS AND INTERNATIONAL OPERATIONS
The Company derives its revenues from services and sales to customers primarily
in one industry segment, the oil and gas industry. The following is a summary of
the Company's United States and other foreign operations for 1997, 1996, and
1995, (in thousands):
YEAR ENDED
--------------------------------
1997 1996 1995
---------- --------- ---------
Revenues --
United States...................... $ 92,697 $ 67,644 $ 52,521
Other countries.................... 122,154 37,724 35,072
---------- --------- ---------
$ 214,851 $ 105,368 $ 87,593
========== ========= =========
Operating income --
United States...................... $ 9,522 $ 5,024 $ 6,382
Other countries.................... 17,862 7,187 3,444
---------- --------- ---------
$ 27,384 $ 12,211 $ 9,826
========== ========= =========
Identifiable assets --
United States...................... $ 60,511 $ 46,140 $ 43,174
Other countries.................... 177,505 33,551 28,205
---------- --------- ---------
$ 238,016 $ 79,691 $ 71,379
========== ========= =========
Operating income includes sales and services, costs of sales and services,
general and administrative expenses, depreciation and amortization. United
States revenues include $11.4 million, $11.9 million and $13.3 million in 1997,
1996 and 1995 respectively, exported to various international markets.
No single customer accounts for 10 percent or more of consolidated revenues for
any of the periods presented.
12. UNAUDITED SELECTED QUARTERLY RESULTS OF OPERATIONS
Summarized quarterly financial data for the four quarters ended December 31,
1997 and 1996 is as follows (in thousands, except share and per share data).
QUARTER ENDED
----------------------------------------------------------
12/31/97 9/30/97 6/30/97 3/31/97
------------- ------------- ------------- -------------
Service and sales revenue............... $ 68,451 $ 63,457 $ 54,911 $ 28,032
Operating expenses...................... 58,048 54,779 48,705 24,879
Interest expense........................ 2,226 2,403 1,459 296
------------- ------------- ------------- -------------
Income before income tax and
extraordinary item.................... $ 8,177 $ 6,275 $ 4,747 $ 2,857
============= ============= ============= =============
Net income applicable to common
shares................................ $ 5,614 $ 4,421 $ 3,354 $ 2,050
============= ============= ============= =============
Per share data:
Basic earnings per share........... $ .24 $ .20 $ .15 $ .09
============= ============= ============= =============
Weighted average common shares
outstanding...................... 23,329,382 21,719,046 21,677,382 21,656,882
============= ============= ============= =============
Diluted earnings per share......... $ .23 $ .20 $ .15 $ .09
============= ============= ============= =============
Weighted average common share and
common share equivalents......... 24,232,951 22,467,989 22,157,392 21,990,168
============= ============= ============= =============
QUARTER ENDED
----------------------------------------------
12/31/96 9/30/96 6/30/96 3/31/96
---------- ---------- ---------- ----------
Service and sales revenue............... $ 28,485 $ 25,460 $ 25,944 $ 25,479
Operating expenses...................... 25,116 21,940 22,772 22,726
Interest expense........................ 314 351 348 405
---------- ---------- ---------- ----------
Income before income tax and
extraordinary item.................... $ 3,055 $ 3,169 $ 2,824 $ 2,348
========== ========== ========== ==========
Net income applicable to common
shares................................ $ 2,056 $ 2,142 $ 1,897 $ 1,582
========== ========== ========== ==========
Per share data:
Basic earnings per share........... $ .10 $ .10 $ .09 $ .07
========== ========== ========== ==========
Weighted average common shares
outstanding...................... 21,185,168 21,183,876 21,157,064 21,157,064
========== ========== ========== ==========
Diluted earnings per share......... $ .10 $ .10 $ .09 $ .07
========== ========== ========== ==========
Weighted average of common shares
and common share equivalents
outstanding...................... 21,448,070 21,401,094 21,349,134 21,265,474
========== ========== ========== ==========