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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, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--------- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File Number 001-14273
CORE LABORATORIES N.V.
(Exact name of Registrant as specified in its charter)
The Netherlands Not Applicable
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Herengracht 424
1017 BZ Amsterdam
The Netherlands Not Applicable
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (31-20)420-3191
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Shares, NLG 0.03 New York Stock Exchange
Par Value Per Share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
-----
As of March 19, 2002, the number of common shares outstanding was 33,208,571.
At that date, the aggregate market value of common shares held by non-affiliates
of the registrant was approximately $476,647,757.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT Part of 10-K
- --------
1. Proxy statement to be filed pursuant to Regulation PART III
14A under the Securities Exchange Act of 1934 with
respect to the 2002 annual meeting of shareholders.
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CORE LABORATORIES N.V.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Page
PART I ----
Item 1. Business................................................................................... 1
Item 2. Properties................................................................................. 7
Item 3. Legal Proceedings ......................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 7
PART II
Item 5. Market for the Common Shares and Related Shareholder Matters .............................. 8
Item 6. Selected Financial Data ................................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................................ 19
Item 8. Financial Statements and Supplementary Data................................................ 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 19
PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 20
Item 11. Executive Compensation..................................................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 20
Item 13. Certain Relationships and Related Transactions............................................. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 21
PART I
ITEM 1. BUSINESS
General
Core Laboratories N.V. ("Core Laboratories", "we", "our" or "us") 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 to the oil and gas industry. These services are directed
toward enabling our clients to improve reservoir performance and increase oil
and gas recovery from their producing fields. We have over 70 offices in more
than 50 countries and have approximately 4,300 employees.
Business Strategy
Our business strategy is to continue to provide advanced technologies
that improve reservoir performance by (i) continuing the development of
proprietary technologies through client-driven research and development, (ii)
expanding the services and products offered throughout our global network of
offices and (iii) acquiring complementary technologies that add key technologies
or market presence and enhance existing products and services.
Development of New Technologies, Services and Products
We conduct research and development to meet the needs of our customers
who are continually seeking new technologies to lower their costs of finding,
developing and producing oil and gas. While the aggregate number of wells being
drilled per year has fluctuated relative to market conditions, oil and gas
producers have, on a proportional basis, increased expenditures on
high-technology services which improve their understanding of the reservoir
thereby increasing production of oil and gas from their producing fields. We
intend to continue concentrating our efforts on technologies that enhance
development and production efficiencies.
International Expansion of Services and Products
Another component of our business strategy is to broaden the spectrum of
services and products offered to our clients on a global basis. We plan to use
our worldwide network of offices to offer many of our new services and products
that have been developed internally or obtained through acquisitions. This
allows us to enhance our revenues through efficient utilization of our worldwide
network.
Acquisitions
We continually review potential acquisitions to add key technologies,
enhance market presence or complement existing businesses. Our recent
acquisitions reflect our desire to broaden the services we offer within our
three primary business segments to our clients. Our 2001 acquisitions are
summarized as follows:
o In August 2001, we purchased from Tesco Corporation all of the
assets associated with Tesco's Gris Gun ("Gris Gun") business.
Gris Gun supplies wellbore perforating gun systems and other
related completion products primarily to the Canadian market.
These products and services are similar to the systems and
completion products we offer worldwide through our Production
Enhancement segment.
o In May 2001, we acquired PROMORE Engineering Inc. ("PROMORE").
PROMORE is a leading provider of innovative solutions for
production optimization and monitoring reservoir environments with
permanent real-time systems.
1
More information relating to acquisitions is included in Note 3 of the
Notes to Consolidated Financial Statements.
Operations
We derive our revenues from services and sales to customers primarily in
the oil and gas industry.
Our reservoir optimization technologies are interrelated and are
organized into three complementary segments. Disclosure relating to the results
of these business segments is included in Note 11 of the Notes to Consolidated
Financial Statements.
o Reservoir Description: Encompasses the characterization of
petroleum reservoir rock, fluid and gas samples. We provide
analytical and field services to characterize properties of crude
oil and petroleum products to the oil and gas industry.
o Production Enhancement: Includes products and services relating to
reservoir well completions, perforations, stimulations and
production. We provide integrated services to evaluate the
effectiveness of well completions and to develop solutions aimed
at increasing the effectiveness of enhanced oil recovery projects.
o Reservoir Management: Combines and integrates information from
reservoir description and production enhancement services to
increase production and improve recovery of oil and gas from our
clients' reservoirs.
We offer our services worldwide through our global network of offices.
Services accounted for approximately 81%, 77% and 81% of our revenues from
operations for the years ended December 31, 2001, 2000 and 1999, respectively.
We manufacture products primarily in four facilities for distribution on
a global basis. Product sales accounted for approximately 19%, 23% and 19% of
our revenues from operations for the years ended December 31, 2001, 2000 and
1999, respectively.
The sales backlog at December 31, 2001 was approximately $5.5 million,
compared to $6.0 million at December 31, 2000. Sources of raw material are
readily available and our sales backlog should be filled in 2002.
Reservoir Description
Commercial oil and gas fields consist of porous and permeable reservoir
rocks that contain natural gas, crude oil and water. Due to the density
differences of the fluids, natural gas typically caps the field and overlies an
oil layer, which overlies the water. We provide services that characterize the
porous reservoir rock and all three reservoir fluids. Services relating to these
fluids include determining quality and measuring quantity of the fluids and
their derived products.
We analyze samples of reservoir rocks for their porosity, which
determines reservoir storage capacity, and for their permeability, which defines
the ability of the fluids to flow through the rock. These measurements are used
to determine how much oil and gas are present in a reservoir and the rates at
which the oil and gas can be produced. We also use our proprietary technologies
to correlate the reservoir description data to wireline logs and seismic data.
These data sets are also used to determine the different acoustic velocities of
reservoir rocks containing water, oil and natural gas. These velocity
measurements are used in conjunction with our in-reservoir seismic monitoring
services.
2
Production Enhancement
The data we produce to describe a reservoir system is used to enhance
oil and gas production so that it will exceed the average oilfield recovery
factor which is approximately 40%. Two production-enhancement methods commonly
used are (i) hydraulic fracturing of the reservoir rock to improve flow and (ii)
flooding the field with water, carbon dioxide or hydrocarbon gases to force more
oil and gas to the wellbore. Many oilfields today are hydraulically fractured
and flooded to maximize oil and gas recovery. Our technologies play a key role
in the success of both methods.
The hydraulic fracturing of a producing formation is achieved by pumping
a proppant material in a gel slurry into the reservoir zone at extremely high
pressures. This forces fractures to open in the rock and "props" or holds the
fractures open so that reservoir fluids can flow to the production wellbore.
Our data on rock type and strength are critical for determining the
proper design of the hydraulic fracturing job. In addition, our testing
indicates whether the gel slurry is compatible with the reservoir fluids so that
damage does not occur to the porous rock network. Our proprietary ZeroWash(tm)
tracer technology is also used to determine that the proppant material was
properly placed in the fracture to ensure effective flow and increased recovery.
We conduct dynamic flow tests of the reservoir fluids through the
reservoir rock, at actual reservoir pressure and temperature, to realistically
simulate the actual flooding of a producing zone. We use patented technologies,
such as our Saturation Monitoring by the Attenuation of X-rays (SMAX(tm)), to
help design the enhanced recovery project. After a field flood is initiated, we
are often involved in monitoring the progress of the flood to ensure the maximum
amount of incremental production.
We are also an industry leader in high-performance perforating and
completion systems engineered to maximize well productivity by reducing,
eliminating or overcoming formation damage during the completion of oil and gas
wells. Our acquisition of the assets relating to the Gris Gun business reflects
a continuation of our growth strategy to add technologies that can enhance our
market position.
Among the numerous technologies we offer is the Completion Profiler(tm).
The Completion Profiler(tm) is a unique completion system we developed to
determine flow rates from reservoir zones after they have been hydraulically
fractured. This provides our clients with production information without
additional well time. Patent applications covering the technology have been
filed in the United States and in certain foreign jurisdictions.
We have also realized a high level of market acceptance with our new
PackScan(tm) technology. PackScan(tm) is a tool used to monitor the wellbore in
an unconsolidated reservoir. PackScan(tm) measures the density changes in the
area around the tool and is designed to observe the changes within the wellbore
to verify the completeness of the gravel pack protection of the wellbore.
Reservoir Management
Reservoir description and production enhancement information, when
applied across an entire oilfield, is used to maximize daily production and the
ultimate total recovery from the reservoir. We are involved in numerous
large-scale reservoir management projects, applying proprietary and
state-of-the-art techniques from the earliest phases of a field development
program until the last economic barrel of oil is recovered.
These projects are of increasing importance to oil companies as the
incremental barrel is often the lowest cost and most profitable barrel in the
reservoir. Producing incremental barrels increases our clients' cash flows and
we believe these increased cash flows from the incremental production will
result in
3
increased capital expenditures, ultimately leading to future
opportunities for us.
As an example of our desire to collect as many reservoir parameters
directly in the reservoir, we added the ability to collect, and monitor on a
real-time and permanent basis, temperature, pressure and production flow. These
new industry leading technologies were added to our service lines when we
acquired PROMORE in May 2001.
Marketing and Sales
We market and sell our services and products through a combination of
print advertising, technical seminars, trade shows and sales representatives.
Direct sales and marketing are carried out by our sales force, technical experts
and operating managers, as well as by sales representatives and distributors in
various markets where we do not have offices.
Research and Development
The market for our products and services is characterized by changing
technology and frequent product introduction. As a result, our success is
dependent upon our 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. We view the cost to acquire many of our technologies to be, in essence,
expenditures to gain the benefit of the acquired company's research and
development projects. Research and development expenditures are charged to
expense as incurred. We intend to continue committing substantial financial
resources and effort to the development of new products and services. Over the
years, we have made a number of technological advances, including the
development of key technologies utilized in our operations. Substantially all of
the new technologies have resulted from requests and guidance from our clients,
particularly major oil companies. Additional disclosure relating to research and
development is included in Note 2 of the Notes to Consolidated Financial
Statements.
Patents and Trademarks
We believe our patents, trademarks and other intellectual property
rights are an important factor in maintaining our technological advantage,
although no one patent is considered essential to our success. Typically, we
will seek to protect our intellectual technology in all jurisdictions where we
believe the cost of such protection is warranted. While we have patented some of
our key technologies, we do not patent all of our proprietary technology even
where regarded as patentable. In addition to patents, in many instances we
protect our trade secrets through confidentiality agreements with our employees
and our customers.
International Operations
We operate facilities in more than 50 countries. Our non-U.S. operations
accounted for approximately 59%, 60% and 56% of our revenues from operations
during the years ended December 31, 2001, 2000 and 1999, respectively. In
addition, some of our revenues in the U.S. are generated by projects located
outside the U.S.
[GEOGRPAHIC BREAKDOWN OF REVENUE GRAPH]
While we are subject to fluctuations and changes in currency exchange
rates relating to our international operations, we attempt to limit our exposure
to foreign currency fluctuations by limiting the amount in which our foreign
contracts are denominated in a currency other than the U.S. dollar to an amount
generally equal to the expenses expected to be incurred in such foreign
currency. We have not historically engaged in and do not currently
4
intend to
engage in any significant hedging or currency trading transactions designed to
compensate for adverse currency fluctuations. More information on international
operations is included in Note 11 of the Notes to Consolidated Financial
Statements.
Environmental Regulation
We are subject to a variety of governmental regulations relating to the
use, storage, discharge and disposal of chemicals and gases used in our
analytical and manufacturing processes. Consistent with our quality assurance
and control principles, we have established proactive environmental policies
with respect to the handling and disposal of such chemicals, gases, emissions
and waste materials. We have engaged outside consultants to audit our
environmental activities and have implemented health and safety education and
training programs. We believe that our 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
our financial position or results of operations. Public interest in the
protection of the environment, however, has increased dramatically in recent
years. We anticipate that the trend toward more expansive and stricter
environmental laws and regulations will continue, the occurrence of which may
require us to increase capital expenditures or operating expenses.
Competition
The businesses in which we engage are competitive. Some of our
competitors are divisions or subsidiaries of companies that are larger and have
greater financial and other resources than we have. While no one company
competes with us in all of our product and service lines, we face competition in
these lines, primarily from independent, regional companies. We compete in
different product and service lines to various degrees on the basis of price,
technical performance, availability, quality and technical support. Our ability
to compete successfully depends on elements both within and outside of our
control, including successful and timely development of new products and
services, performance and quality, customer service, pricing, industry trends
and general economic trends.
Reliance on the Oil and Gas Industry
Our business and operations are substantially dependent upon the
condition of the global oil and gas industry. Future downturns in the oil and
gas industry, or in the oilfield services business, may have a material adverse
effect on our financial position or results of operations.
The oil and gas industry is highly cyclical and has been subject to
significant economic downturns at various times as a result of numerous factors
affecting the supply of and demand for oil and natural gas, including the level
of capital expenditures of the oil and gas industry; the level of drilling
activity; the level of production activity; market prices of oil and gas;
worldwide economic conditions; interest rates and the cost of capital;
environmental regulations; tax policies; political requirements of national
governments; coordination by the Organization of Petroleum Exporting Countries
("OPEC"); cost of producing oil and natural gas; and technological advances.
Employees
As of December 31, 2001, we had approximately 4,300 employees. We do not
have any material collective bargaining agreements and consider relations with
our employees to be good.
Risk Factors
Our forward-looking statements are based on assumptions that we believe
to be reasonable but that may not prove to be accurate. All of our
forward-looking information is, therefore, subject to risks and uncertainties
that could cause actual results to differ materially from the results expected.
Although it is not
5
possible to identify all factors, these risks and
uncertainties include the risk factors discussed below.
Industry risks
The oil and gas industry is highly cyclical and there are numerous
factors affecting the supply of and demand for oil and natural gas, which
include:
o market prices of oil and gas;
o cost of producing oil and natural gas;
o the level of drilling and production activity;
o mergers, consolidations and downsizing among our clients;
o coordination by OPEC; and
o the impact of commodity prices on the expenditure levels of our
customers.
Business risks
Our results of operations could be adversely affected by risks and
uncertainties in the business environment in which we operate, including:
o competition in our markets;
o the realization of anticipated synergies from acquired businesses
and future acquisitions;
o our ability to continue to develop or acquire new and useful
technology; and
o interest rates and the cost of capital.
International risks
We conduct our business in over 50 countries and are subject to
political and economic instability and the laws and regulations in the countries
in which we operate. These include:
o global economic conditions;
o political actions and requirements of national governments
including trade restrictions, and embargos and expropriations
of assets;
o potential income tax liabilities in multiple jurisdictions;
o fluctuations and changes in currency exchange rates; and
o the impact of inflation.
Other risks
The events of September 11, the economic downturn and political events
that followed and continue to unfold could result in lower demand for our
products and services. Our client base could be impacted by events we cannot
predict or we could be impacted by a change in the conduct of business,
transportation and security measures. In addition we are subject to other risk
factors such as the impact of environmental regulations, litigation risks as
well as the dependence on the oil and gas industry. Many of these risks are
beyond our control. In addition, future trends for pricing, margins, revenues
and profitability remain difficult to predict in the industries we serve and
under current economic and political conditions. We do not feel obligated to
publicly update any of our forward-looking statements.
6
ITEM 2. PROPERTIES
Currently, we have over 70 offices (totaling more than one million
square feet) in more than 50 countries. In these locations, we typically lease
our office facilities. We serve our worldwide customers through six Advanced
Technology Centers ("ATC's") which are located in Houston, Texas; Calgary,
Canada; Jakarta, Indonesia; Rotterdam, The Netherlands; Aberdeen, Scotland; and
Maracaibo, Venezuela. The ATC's are supported by over 50 regional specialty
centers located throughout the global energy producing provinces. Our facilities
are adequately utilized for current operations. However, expansion into new
facilities may be required to accommodate future growth.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims
that arise in the ordinary course of business. We believe that the outcome of
current legal actions will not have a material adverse effect upon our financial
position or results of operations.
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 year ended December 31, 2001.
7
PART II
ITEM 5. MARKET FOR THE COMMON SHARES AND RELATED SHAREHOLDER MATTERS
Price Range of Common Shares
Our common shares trade on the New York Stock Exchange ("NYSE") under
the symbol "CLB". The range of high and low sales prices per share of the common
shares as reported by the NYSE are set in the following table for the periods
indicated.
2001 High Low
---- ------- --------
First Quarter........................................... $27.63 $18.05
Second Quarter.......................................... 26.14 15.85
Third Quarter........................................... 20.30 9.90
Fourth Quarter.......................................... 17.65 11.25
2000
----
First Quarter........................................... $29.13 $18.38
Second Quarter.......................................... 31.38 23.00
Third Quarter........................................... 29.75 15.69
Fourth Quarter.......................................... 28.56 18.44
On March 19, 2002, the closing price, as quoted by the NYSE, was $14.59
per share. As of March 19, 2002, there were 33,208,571 common shares held by
approximately 207 record holders and approximately 12,743 beneficial holders.
Dividend Policy
We have never paid dividends on our common shares and currently have no
plans to pay dividends on the common shares. We expect that we will retain all
available earnings generated by our operations for the development and growth of
our business. Any future determination as to the payment of dividends will be
made at the discretion of our Supervisory Board and will depend upon our
operating results, financial condition, capital requirements, general business
conditions and such other factors as they deem relevant. Because we are a
holding company that conducts substantially all of our operations through
subsidiaries, our ability to pay cash dividends on the common shares is
dependent upon the ability of our subsidiaries to pay cash dividends or
otherwise distribute or advance funds to us and on the terms and conditions of
our existing and future credit arrangements. See "Liquidity and Capital
Resources" included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Recent Issuance of Unregistered Securities
In connection with our 2001 acquisitions, we issued approximately
706,000 common shares, with an estimated value of $14.5 million. Disclosure
related to recent issuances of common shares is included in Note 3 of the Notes
to Consolidated Financial Statements. With respect to the shares issued in each
acquisition, we relied on exemption from registration under Section 4(2) of the
Securities Act of 1933.
8
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated
financial data for the periods indicated. We have restated all prior periods to
reflect the pooling-of-interests acquisition of PROMORE in 2001. Results from
our environmental testing assets are included in all periods through September
30, 1999. These assets were sold effective September 30, 1999. 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 our consolidated financial statements.
Years Ended December 31,
------------------------
2001 (1),(3) 2000 (1) 1999 (1),(3) 1998 (1),(2) 1997 (1),(4)
------------- ------------- ------------- ------------- -------------
Financial Statement Data: (in thousands, except per share data)
Revenues................................. $ 376,572 $ 340,933 $ 325,827 $ 319,685 $ 254,334
Income from continuing operations........ 20,632 17,830 2,196 21,256 18,010
Working capital.......................... 139,342 121,330 93,574 62,644 53,523
Total assets............................. 439,500 413,346 374,526 369,266 268,144
Long-term debt, including current
maturities............................ 95,543 83,738 87,230 91,889 78,099
Shareholders' equity..................... 275,606 251,065 212,728 203,954 120,749
Per Share Data:
Income from continuing operations:
Basic................................. $ 0.62 $ 0.55 $ 0.07 $ 0.73 $ 0.72
Diluted............................... $ 0.60 $ 0.53 $ 0.07 $ 0.70 $ 0.70
Weighted average common shares outstanding:
Basic................................. 33,075 32,388 31,449 29,226 25,159
Diluted............................... 34,272 33,539 32,443 30,252 25,863
Other Data:
Diluted earnings per share from
continuing operations
excluding goodwill amortization... $ 0.72 $ 0.65 $ 0.19 $ 0.80 $ 0.75
Restructuring and other charges.......... $ 8,725 $ -- $ 17,706 $ -- $ --
Current Ratio............................ 4.5:1 3.2:1 2.8:1 1.9:1 1.9:1
Debt to Capitalization Ratio............. 25% 24% 27% 30% 37%
1) See Note 3 of the Notes to Consolidated Financial Statements for a
discussion of acquisitions made in 2001, 2000 and 1999.
2) In 1998, we sold our packaged analyzer business line. The total
loss relating to this sale and discontinuance of operations
was $3,591.
3) In 1999 and 2001, we recorded restructuring, write-offs and
other charges as discussed in Note 12 of the Notes to Consolidated
Financial Statements.
4) Information for 1997 includes the purchase acquisitions of Scott
Pickford plc (March 1997) and Saybolt International
B.V. (May 1997).
[DEBT TO CAPITALIZATION GRAPH]
[CURRENT RATIO GRAPH]
[TOTAL ASSETS GRAPH]
9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Oil and gas prices remained strong during the first half of 2001 before
declining for the remainder of the year due to, among other reasons, the global
economic slowdown which reduced demand for oil and natural gas. While we
recognized record levels of revenue in early 2001, the rate of growth in
revenues decreased in the latter part of 2001 primarily as a result of the
decline of the North American natural gas market. Activity outside North America
has been less volatile than domestic activity. We continue our efforts to expand
our market presence by opening strategic facilities and realizing synergies
within our business lines. Also, as a result of the consolidation in the oil and
gas industry, some of our customers have used and may continue to use their
global presence and market influence to seek economies of scale and pricing
concessions.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial position and
results of operations are based on financial statements prepared in conformity
with GAAP and require 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 under different assumptions or conditions. We
evaluate our estimates on an ongoing basis and base these estimates on our
historical experience as well as on various other assumptions that we believe
are reasonable in a given circumstance. We believe the following accounting
policies are critical to our business operations and to the understanding of our
results of operations:
o revenue recognition;
o valuation of long-lived and intangible assets and goodwill;
o estimating valuation allowances related to inventory; and
o accounting for income taxes.
For a detailed discussion of our accounting policies see Note 2 of the Notes to
Consolidated Financial Statements.
Revenues are recognized as services are completed or as product title
is transferred, usually when delivery occurs. All advance client payments are
classified as unearned revenues until services are completed or as product title
is transferred. We recognize revenue consistent with the guidance set forth in
the Securities and Exchange Commission's ("SEC's") Staff Accounting Bulletin
No. 101, ("SAB 101"), as amended by SAB 101A and 101B. If there is any change in
or to the underlying assumptions we follow as prescribed by SAB 101 such as
whether: (i) persuasive evidence an arrangement exists; (ii) delivery has
occurred or services rendered; (iii) the fee is fixed and determinable; and
(iv) collectibility is reasonably assured; then it could have a material adverse
effect upon our financial position and results of operations.
We account for our goodwill and other intangibles based on the
Financial Accounting Standards Board's ("FASB's") Statement of Financial
Accounting Standard ("SFAS") 121 "Accounting for the Impairment of Long-Lived
Assets." Effective January 1, 2002, we will account for goodwill and other
intangible assets based on SFAS 142 "Goodwill and Other Intangible Assets" which
requires that goodwill is no longer amortized but tested for impairment annually
or more frequently if circumstances indicate a potential impairment. For a
detailed discussion on the application of these and other accounting policies,
see Note 2 of the Notes to Consolidated Financial Statements. The measurement of
possible impairment is based primarily on the ability to recover the balance of
the related asset from expected future operating cash flows on an undiscounted
basis. If the underlying assumptions we follow change, our conclusions relating
10
to whether or not an impairment exists could change. Any resulting impairment
loss could result in a material adverse effect upon our financial position and
results of operations.
Our valuation reserve for inventory is based on historical data, and
various assumptions and judgments. Should these assumptions and judgments not
come to fruition our valuation would change. The industry we operate in is
characterized by rapid technological change and new product development that
could result in an increase in obsolete inventory. Our valuation reserve for
inventory at December 31, 2001 was $1.8 million compared to $1.4 million at
December 31, 2000. If we over or underestimate demand for inventory, it
could result in a material adverse effect upon our financial position and
results of operations.
Our income tax expense includes income taxes of The Netherlands, U.S.
and other foreign countries as well as local, state and provincial income taxes.
We recognize deferred tax assets or liabilities for the differences between the
financial statement carrying amount and tax basis of assets and liabilities
using tax rates at the end of the period. The valuation allowance recorded is
based on estimates and assumptions of taxable income into the future and a
determination is made of the magnitude of deferred tax assets which are more
likely than not to be realized. As of December 31, 2001, we had recorded
approximately $4.4 million of valuation allowances related to our net deferred
tax assets. If these estimates and related assumptions change in the future, we
may be required to record additional valuation allowances against our deferred
tax assets which could result in a material adverse effect upon our financial
position and results of operations.
Business
Core Laboratories was established in 1936 and is currently traded on
the New York Stock Exchange.
We provide our products and services to the world's major, national and
independent oil companies. Our specialty services and products are designed to
improve oil and gas recovery from new and existing fields through the following
business segments:
o Reservoir Description: Encompasses the characterization of
petroleum reservoir rock, fluid and gas samples. We provide
analytical and field services to characterize properties of crude
oil and petroleum products to the oil and gas industry.
o Production Enhancement: Includes products and services relating to
reservoir well completions, perforations, stimulations and
production. We provide integrated services to evaluate the
effectiveness of well completions and to develop solutions aimed
at increasing the effectiveness of enhanced oil recovery projects.
o Reservoir Management: Combines and integrates information from
reservoir description and production enhancement services to
increase production and improve recovery of oil and gas from our
clients' reservoirs.
We plan to continue the expansion of our operations through (i)
continuing the development of proprietary technologies through client-driven
research and development, (ii) expanding the services and products offered
throughout our global network of offices and (iii) acquiring complementary
businesses that add key technologies or market presence and enhance existing
products and services.
We continued to pursue our acquisition strategy, as illustrated by our
most recent acquisition of PROMORE. We have also acquired assets beneficial to
our growth strategy from Gris Gun. In addition, we believe that we have
positioned ourselves for increased profitability by restructuring certain
operations and creating operating efficiencies within our manufacturing
divisions.
11
Results of Operations
Our revenues are derived from services and product sales. Strong demand
for our services led to revenue growth of 16% to $304.6 million in 2001 compared
to $263.5 million in 2000. With activity levels higher than in previous years,
our reservoir optimization services were in higher demand. These increases were
primarily derived from an increase in activity levels in the first half of 2001
in North America for our production enhancement projects. Service revenue in
2000 increased by $15.9 million from $247.6 million in 1999. This excluded 1999
revenues of $17.9 million attributable to our environmental testing assets,
which were disposed of in the third quarter of 1999. The increase in service
revenues in 2000 reflected a recovery from the depressed market conditions in
1999.
[SERVICE REVENUE AND COST OF SERVICE GRAPH]
Costs of services in 2001 were $232.7 million, an increase of $20.1
million as compared to 2000. Cost of services in 2000 decreased $3.1 million
from $215.7 million in 1999. Costs of services expressed as a percentage of
service revenue were 76% in 2001 and 81% in 2000 and 1999. In 1999 and again in
2001 we took actions to reduce our cost structure including personnel reductions
and office consolidations. We realized improved service margins as a result of
the 1999 restructuring charge and anticipate further improvements on our service
margins related to the actions taken in 2001.
Decreased sales demand led to a decline in sales revenue of 7% to $72.0
million in 2001 compared to $77.4 million in 2000. The decrease was primarily a
result of the lower levels of North America natural gas related activity by our
customers. Sales revenue in 2000 increased by $17.0 million from $60.4 million
in 1999. Increased spending for well completion and stimulation technologies
primarily drove the increase in sales revenues in 2000.
[SALES REVENUE AND COST OF SALES GRAPH]
Costs of sales in 2001 were $60.6 million, a decrease of $1.7 million
as compared to 2000. Costs of sales in 2000 increased $11.4 million from $50.9
million in 1999. Costs of sales expressed as a percentage of sales revenues were
84% in 2001, 80% in 2000 and 84% in 1999. In 2001, in an effort to improve
manufacturing efficiencies, we recorded expenses in cost of sales of
approximately $3.3 million for several initiatives. These initiatives were
implemented in the fourth quarter whereby certain processes and business
practices were evaluated and improvements were made.
General and administrative expenses are comprised of corporate
management and centralized administrative services which benefit our operating
subsidiaries. General and administrative expenses are typically fixed in nature
and are measured in relation to sales. In 2001, general and administrative
expenses as a percent of revenue were 4.2% as compared to 4.0% in 2000, which is
an increase of 5%. General and administrative expenses increased $2.4 million in
2001 as compared to 2000. In 2000, general and administrative expenses increased
$1.2 million as
12
compared to 1999. The increase in both years was attributable to
the number of people necessary to support the growth in our operations. General
and administrative expenses expressed as a percentage of revenues remained below
5% for all periods.
Depreciation and amortization expense for 2001 increased $3.2 million
as compared to 2000. In 2000 we had a decrease in depreciation of $0.8 million
as compared to 1999. The increased depreciation expense in 2001 was partially
attributable to the 2001 capital expenditures of $29.0 million and a full year
of depreciation for the $33.4 million of capital expenditures in the prior year.
The decrease in 2000 as compared to 1999 was due primarily to the sale of our
environmental testing business, the effect of asset retirements and the effect
of assets which had become fully depreciated.
Amortization of goodwill in 2001 was $4.2 million and $4.1 million in
2000 and 1999. Upon adoption of SFAS 142 in 2002, we will no longer amortize
goodwill, but instead will test for impairment annually or more frequently if
circumstances indicate a potential impairment.
During the fourth quarter of 2001, we recorded write-offs and other
charges of $5.8 million. These charges were comprised of inventory write-downs
of $3.9 million, charges of $0.4 million to write fixed assets down to their
fair value, and other costs of $1.5 million to migrate data from legacy computer
systems to a global information system database.
Also, during the fourth quarter of 2001 we had several transactions
which impacted certain operations that were not viewed as ongoing. We
restructured certain operations in Mexico, the U.K., the U.S. and other
countries to improve operating efficiencies. This restructuring expense included
write-offs of assets and leasehold improvements, and an accrual for facility
restoration, severance benefits and lease termination costs. Approximately 100
field employees were terminated. During 2002, we intend to relocate one of our
operations from Dallas to the Houston Advanced Technology Center and another
facility from Mexico City, Mexico to Villahermosa, Mexico. This charge of
approximately $3.0 million affected each of our operating segments as follows:
Reservoir Description - $0.8 million; Production Enhancement - $0.1 million;
Reservoir Management - $2.1 million. Substantially all employee terminations
will be completed by the end of the first quarter of 2002. Total cash required
for this restructuring charge of $2.1 million will be funded from operating
activities. Cash required for the costs incurred through December 31, 2001 was
$0.5 million. This charge is summarized in the following table:
Restructuring Charges
(Dollars in Thousands)
Lease Asset
Obligations Severance Restoration Write-offs (1) Other Total
----------- ----------- ----------- ----------- ----------- -----------
Total restructuring charges.............. $ 598 $ 951 $ 380 $ 862 $ 184 $ 2,975
Less: Costs incurred through
December 31, 2001............... 38 394 -- 862 40 1,334
----------- ----------- ----------- ----------- ----------- -----------
Accrual remaining........................ $ 560 $ 557 $ 380 $ -- $ 144 $ 1,641
=========== =========== =========== =========== =========== ===========
1) The fixed assets and leasehold improvements were disposed of by
the end of December 2001. The write-off approximates the carrying
amount as these assets were abandoned or sold for salvage value.
Depreciation expense was reduced by approximately $20 in 2001, and
will be reduced by $82 in 2002 and $281 thereafter. The asset
write-offs of $862 were attributable to the Reservoir Management
segment.
In the first quarter of 1999, we recorded write-offs and other charges
totaling $10.7 million. This amount included $4.4 million of asset write-offs,
$2.6 million related to facility closures and personnel reductions and $3.7
million associated with the termination of the proposed acquisition of
GeoScience Corp.
In the fourth quarter of 1999, we recorded a $7.0 million charge to
cover the cost of exiting redundant facilities and restructuring certain of our
operations. This charge affected each of our operating segments as follows:
Reservoir Description - $2.8 million; Production Enhancement - $1.9 million;
Reservoir Management - $2.3 million.
13
Interest expense for 2001 was $7.9 million, a decrease of approximately
$0.4 million as compared to 2000, after an additional decrease of $0.3 million
compared to 1999. The decrease in interest expense was primarily attributable to
lower borrowing costs.
The decrease in the effective income tax rate to 28% in 2001 from 32%
in 2000 and 36% in 1999 reflects the relative increase in international earnings
taxed at rates lower than The Netherlands statutory rate.
Other Information
The impact of the 2001 restructuring, write-offs and other charges
is summarized in the following table:
Summary of 2001 restructuring, write-offs and other charges Year Ended
(Amounts in thousands except share data) Fourth December 31,
Quarter 2001 2001
------------ -------------
Revenues................................................................. $ 96,869 $ 376,572
Costs of services and sales........................................... 79,466 293,308
Other operating expenses.............................................. 18,632 46,687
Inventory and asset write-offs (1).................................... (4,235) (4,235)
Global information system (2)......................................... (1,515) (1,515)
Restructuring charge (3).............................................. (2,975) (2,975)
Other charges (4)..................................................... (3,290) (3,290)
------------ -------------
Operating income before interest expense, income tax expense,
restructuring, write-offs and other charges........................... 10,786 48,592
Interest expense...................................................... 2,000 7,921
------------ -------------
Operating income before income tax expense, restructuring,
write-offs and other charges.......................................... 8,786 40,671
Income tax expense.................................................... 2,460 11,388
------------ -------------
Operating income excluding restructuring, write-offs and other
charges.............................................................. $ 6,326 $ 29,283
============ =============
Weighted average diluted common shares outstanding................... 33,925,969 34,271,512
============ =============
1) Includes inventory write-offs due to the move of a Dallas facility
to Houston - $1,446, a slowdown in activity levels in North
America - $2,434 and other fixed asset write-offs - $355.
2) Costs to migrate data from legacy computer systems to global
information system.
3) Restructuring charges primarily relating to the Reservoir
Management segment.
4) Included in cost of services and sales are charges of $3,290
relating to manufacturing efficiency initiatives incurred in the
fourth quarter of 2001.
14
Segment Analysis
Our operations are managed primarily in three complementary segments -
Reservoir Description, Production Enhancement and Reservoir Management.
Segment Information
Revenues
For the Years Ended December 31, 2001 2000 1999
(Dollars in Thousands) ---------------- ---------------- ----------------
Reservoir Description....................... $ 213,917 $ 192,741 $ 200,584
Production Enhancement...................... 104,262 92,326 65,342
Reservoir Management........................ 58,393 55,866 59,901
---------------- ---------------- ----------------
Total Revenues........................ $ 376,572 $ 340,933 $ 325,827
================ ================ ================
Income (loss) before interest, taxes and
unusual charges
For the Years Ended December 31, 2001 (1) 2000 1999 (2)
(Dollars in Thousands) ---------------- ---------------- ----------------
Reservoir Description....................... $ 33,277 $ 23,356 $ 22,095
Production Enhancement...................... 14,314 14,370 11,339
Reservoir Management........................ (2,002) (3,492) (3,614)
Corporate and other......................... (287) 156 (108)
---------------- ---------------- ----------------
Income before interest, taxes and
unusual charges.................... $ 45,302 $ 34,390 $ 29,712
================ ================ ================
1) Segment amounts exclude unusual charges totaling $8,725 in 2001.
The unusual charges, which are comprised of write-offs,
restructuring charges and other charges in the fourth quarter of
2001, were allocated as follows: Reservoir Description - $2,549;
Production Enhancement - $2,133; Reservoir Management - $2,528 and
Corporate and other - $1,515.
2) Segment amounts exclude unusual charges totaling $17,706 in 1999.
The unusual charges, which are comprised of write-offs,
restructuring charges and other charges in the first quarter and
fourth quarter of 1999, were allocated as follows: Reservoir
Description - $8,397; Production Enhancement - $2,854; Reservoir
Management - $2,759 and Corporate and other - $3,696.
Reservoir Description
Reservoir Description revenues for 2001 were $213.9 million, an
increase of 11% compared to 2000. During the year, we introduced technology in
our Gulf of Mexico operations in the form of well site and laboratory analysis
of unconsolidated core from deepwater reservoirs. Improved market conditions in
the Middle East, Venezuela and Asia Pacific also contributed to the revenue
growth. Revenues for 2000 were $192.7 million, an increase of 5% compared to
1999 revenues after excluding the revenues attributable to our environmental
testing assets, which were sold in 1999. When revenues attributable to our
environmental testing assets are included in 1999, this segment's revenues
decreased by 4%.
[RESERVOIR DESCRIPTION REVENUE GRAPH]
Income before interest, taxes and unusual charges in 2001 increased
$9.9 million as compared to 2000. Reduced operating costs in the U.S. due to the
consolidation of businesses in late 1999 became fully
15
realized in 2001. We
experienced an increase of $1.3 million in 2000 as compared to 1999. Our margins
in this segment came under pressure in 1999 as our clients reduced spending in
response to lower oil and gas prices.
Production Enhancement
Production Enhancement revenues for 2001 were $104.3 million, an
increase of 13% compared to 2000 revenues. The introduction of two new services,
PackScan(TM) and Completion Profiler(TM), contributed to the increase in
revenue. In addition, we increased Canadian market penetration with proprietary
perforating charges and gun systems. The rate of growth slowed in 2001 compared
to 2000 due to the slowdown in activity levels by our clients in the North
American natural gas markets. Revenues for 2000 were $92.3 million, an increase
of 41% as compared to 1999 revenues.
[PRODUCTION ENHANCEMENT REVENUE GRAPH]
Income before interest, taxes and unusual charges in 2001 remained
virtually unchanged as compared to 2000. In 2001, in an effort to improve
manufacturing efficiencies, we recorded expense in cost of sales of
approximately $3.3 million for several initiatives. These initiatives were
implemented in the fourth quarter whereby certain processes and business
practices were evaluated and improvements were made. These costs were offset by
income increases due to new initiatives with our downhole completion
technologies and incremental margins on fracture diagnostic and field flood
monitoring services. In 2000, we experienced an increase of $3.0 million as
compared to 1999 as the introduction of new services and products in our
production enhancement segment increased.
Reservoir Management
Reservoir Management revenues for 2001 were $58.4 million, an increase
of 4% compared to 2000 revenues. This increase was attributable to the new
technologies derived from our acquisition of PROMORE. Revenues for 2000 were
$55.9 million, a decrease of 7% compared to 1999 revenues. Demand for our
geophysical related services was weak across most regions.
[RESERVOIR MANAGEMENT REVENUE GRAPH]
Although the loss before interest, taxes and unusual charges improved
in 2001 compared to 2000, we still experienced a loss of $2.0 million in 2001,
compared to a loss of $3.5 million in 2000. We recorded a restructuring charge
of $3.0 million during 2001 to reflect our costs to restructure and refocus this
segment of our business. Beginning in 2001 certain facilities were downsized or
closed, causing our workforce in this segment to be reduced by 45% from the
highest levels in 2001. We have taken and will continue to take actions,
including, but not limited to, employee terminations and facility
consolidations, when appropriate, to control our costs and generate additional
service revenues in order to improve our results in this segment. We experienced
a loss of $3.6 million in 1999.
Liquidity and Capital Resources
We have historically financed our activities through cash flows from
operations, bank credit facilities, equity financing and the issuance of debt.
During the year ended December 31, 2001, cash flows from operating
activities were $28.3 million, an increase of $21.0 million and $23.1 million
from the corresponding periods in 2000 and 1999,
16
respectively. The increase from
2000 was partially related to improved receivable turnover while the increase
compared to 1999 resulted from higher relative margins. At December 31, 2001, we
had working capital of $139.3 million compared to working capital of $121.3
million at December 31, 2000 and $93.6 million at December 31, 1999. We are a
Netherlands holding company and we conduct substantially all of our operations
through subsidiaries. Consequently, our cash flow is dependent upon the ability
of our subsidiaries to pay cash dividends or otherwise distribute or advance
funds to us.
Our financing activities provided $14.5 million in 2001, a decrease of
$0.8 million compared to 2000 while 1999 financing activities used $4.6 million,
primarily due to a net reduction in borrowings. Our investing activities used
$40.8 million in 2001 compared to using $28.9 million in 2000 while 1999
investing activities provided $8.9 million, primarily due to proceeds from the
sale of our environmental testing assets. The significant financing and
investing activities in 2001 were as follows:
o We incurred capital expenditures from operations of $29.0 million
which was primarily due to investments made in instruments, tools,
computers and facilities in all of our business segments.
o Our total borrowings under our Credit Facility were approximately
$20.0 million, while payments on the Credit Facility were
approximately $7.0 million.
o We acquired Gris Gun for approximately $12.8 million in cash.
We maintain financial flexibility through our $100 million Credit
Facility of which $80 million was available at December 31, 2001. In addition,
we have Senior Notes, which bear interest at an average interest rate of 8.16%.
The Senior Notes require semi-annual interest payments; interest payments on the
Credit Facility are made based on the interest period selected. We are subject
to certain covenants under the terms of the Credit Facility and Senior Notes and
we believe that we were in compliance with all such covenants as of December 31,
2001.
Our ability to maintain and grow our operating income and cash flow is
dependent upon continued capital spending. We believe our future cash flow from
operations, supplemented, if necessary, by our borrowing capacity and issuances
of additional equity should be sufficient to fund debt requirements, capital
expenditures, working capital and future acquisitions.
Due to the low inflationary rates in 2001, 2000 and 1999, the impact of
inflation on our results of operations was insignificant.
Accounting Pronouncements
In June 2001, the FASB issued two statements, SFAS 141, "Business
Combinations", and SFAS 142, "Goodwill and Other Intangible Assets", that amend
Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations", and
supersede APB Opinion No. 17, "Intangible Assets." SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations and
establishes the purchase method of accounting as the only acceptable method on
all business combinations initiated after June 30, 2001. Five of our recent
acquisitions were accounted for using the pooling-of-interests method of
accounting. Goodwill resulting from a business combination after June 30, 2001
is to be recognized as an asset but not amortized, while goodwill existing at
June 30, 2001 was amortized through December 31, 2001. Beginning January 1,
2002, we will no longer amortize goodwill but will test for impairment annually
or more frequently if circumstances indicate a potential impairment. Under the
requirements, we expect to reflect impairment of goodwill of approximately $15.0
million as a result of adoption of this standard on January 1, 2002. This
impairment will be reflected in the statement of income as a cumulative effect
of a change in accounting principle. The cessation of goodwill amortization
under the guidelines will result in a reduction of approximately $4.2 million in
annual operating expenses, assuming no additional impairment of goodwill.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS
17
143 addresses financial accounting and reporting
for obligations associated with the retirement of long-lived assets and the
associated asset retirement costs. SFAS 143 requires that the fair value of a
liability associated with an asset retirement be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated retirement costs are capitalized as part of the carrying amount of
the long-lived asset and subsequently depreciated over the life of the asset.
SFAS 143 will be effective for fiscal years beginning after December 31, 2002.
We do not expect the adoption of SFAS 143 to have a material adverse effect upon
our financial position or results of operations.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." SFAS 144 provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets and modifies the accounting and reporting of
discontinued operations. SFAS 144 is effective for fiscal years beginning after
December 31, 2001. We do not expect the adoption of SFAS 144 to have a material
adverse effect upon our financial position or results of operations.
In November 2001, the Emerging Issues Task Force ("EITF") staff issued
announcement Topic D-103, "Income Statement Characterization of Reimbursements
Received for "Out-of-Pocket" Expenses Incurred." As a result, customer
reimbursements, including those relating to travel and other out-of-pocket
expenses, and other similar third-party costs, will be required to be included
as revenues effective January 1, 2002, and an equivalent amount of reimbursable
expenses will be included in expenses. We do not expect EITF Topic D-103 to have
an impact on our financial position or results of operations.
Outlook
We have established internal earnings targets that are based on current
market conditions. We anticipate North American spending by our clients to
decline from 2001 levels and international markets to remain at or below 2001
levels in response to lower crude oil prices. We expect the spending levels of
our clients' to increase in the second half of 2002.
We expect to meet ongoing working capital and capital expenditure
requirements from a combination of cash flow from operations and available
borrowings under our revolving Credit Facilities.
Forward Looking Statements
This discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, concerning among other things, our expected revenues,
expenses and profit, our prospects, and business strategies and development, all
of which are subject to certain risks, uncertainties and assumptions. We based
our statements on our current expectations, estimates, historical trends,
current conditions and other factors we believe are appropriate under the
circumstances. Such statements are subject to various risks and uncertainties
related to the oil and gas industry, business conditions, international markets,
international political climates and other factors that are beyond our control.
We caution you that these statements are not guarantees of future performance.
Accordingly, our actual outcomes and results may differ materially from what we
express or forecast in the forward-looking statements. Should one or more of
these risks or uncertainties materialize, or should our underlying assumptions
prove incorrect, our actual results may vary materially from those expected,
estimated or projected.
18
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We are exposed to market risk, which is the potential loss arising from
adverse changes in market prices and rates. We do not enter, or intend to enter,
into derivative financial instruments for trading or speculative purposes. We do
not believe that our exposure to market risks, which are primarily related to
interest rate changes and fluctuations in foreign exchange rates, are material.
During 1999, we issued fixed rate Senior Notes denominated in U.S. dollars. The
proceeds were used to pay off variable rate term loans. This significantly
reduced our exposure to market risk. This section should be read in conjunction
with Note 4 - "Long-Term Debt" and Note 8 - "Concentration of Credit Risk" of
the Notes to Consolidated Financial Statements.
Interest Rate Risk
We are exposed to interest rate risk on our Credit Facility debt which
carries a variable interest rate. At December 31, 2001, our variable rate debt
outstanding of $20.0 million approximated its fair value. A one percent change
in the interest rate would not cause a material change in interest expense on an
annual basis. We attempt to balance the benefit of variable rate debt that has
inherent increased risk with fixed rate debt that has less market risk.
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.
19
PART III
Part III (Items 10 through 13) will be incorporated by reference
pursuant to Regulation 14A under the Securities Exchange Act of 1934. The
Registrant expects to file a definitive proxy statement with the Securities and
Exchange Commission within 120 days after the close of the year ended December
31, 2001.
20
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
Report of Independent Public Accountants........................ 24
Consolidated Balance Sheets as of December 31, 2001 and 2000.... 25
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999.......................... 26
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 2001, 2000 and 1999...... 27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.......................... 28
Notes to Consolidated Financial Statements...................... 29
Financial Statement Schedules
All schedules have been omitted because they are not applicable, not
required under the instructions, or the information requested is set forth in
the consolidated financial statements or related notes hereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2001.
21
(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 10-K, March 31, 1999
10.1 -- Core Laboratories N.V. 1995 Long-Term Incentive Plan (as amended and Proxy Statement dated May 2,
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 -- Form of Indemnification Agreement to be entered into by the Company Form F-1, September 20, 1995
and certain of its directors and officers
10.6 -- Indemnification Agreements, each dated as of October 20, 1995, Form 10-Q, November 10, 1995
between the Company and each of its directors and executive officers
10.7 -- Amended and Restated Credit Agreement among Core Laboratories N.V., Form S-3, November 20, 1997
Core Laboratories, Inc., Core Laboratories (U.K.) Limited, Bankers
Trust Company, NationsBank, N.A. and the Bank Group, dated as of
July 18, 1997
10.8 -- Core Laboratories Supplemental Executive Retirement Plan effective Form 10-K, March 31, 1998
as of January 1, 1998
10.9 -- Core Laboratories Supplemental Executive Retirement Plan for John D. Form 10-Q, November 15, 1999
Denson effective January 1, 1999
10.10 -- Core Laboratories Supplemental Executive Retirement Plan for Monty Form 10-Q, November 15, 1999
L. Davis effective January 1, 1999
10.11 -- Amendment to Core Laboratories Supplemental Executive Retirement Form 10-Q, November 15, 1999
Plan filed January 1, 1998, effective July 29, 1999
10.12 -- Amendment to Amended and Restated Credit Agreement among Core Form 10-Q, November 15, 1999
Laboratories N.V., Core Laboratories, Inc., Core Laboratories (U.K.)
Limited, Bankers Trust Company, Bank of America, N.A. and the Bank
Group, dated as of July 22, 1999
10.13 -- Note and Guarantee Agreement by Core Laboratories, Inc. for Form 10-Q, November 15, 1999
Guaranteed Senior Notes, Series A, and Guaranteed Senior Notes,
Series B, dated as of July 22, 1999
10.14 -- First Amendment to Core Laboratories N.V. 1995 Long-Term Incentive Form 10-K, March 15, 2001
Plan (as amended and restated effective as of May 29, 1997)
10.15 -- Second Amendment to Core Laboratories N.V. 1995 Nonemployee Director Form 10-K, March 15, 2001
Stock Option Plan (as amended and restated effective as of May 29,
1997)
10.16 -- Form of Restated Employment Agreement between Core Laboratories N.V. Filed Herewith
and David Michael Demshur dated as of December 31, 2001
10.17 -- Form of Restated Employment Agreement between Core Laboratories N.V. Filed Herewith
and Richard Lucas Bergmark dated as of December 31, 2001
10.18 -- Form of Restated Employment Agreement between Core Laboratories N.V. Filed Herewith
and John David Denson dated as of December 31, 2001
10.19 -- Form of Restated Employment Agreement between Core Laboratories N.V. Filed Herewith
and Monty Lee Davis dated as of December 31, 2001
21.1 -- Subsidiaries of the Registrant Filed Herewith
23.1 -- Consent of Arthur Andersen LLP Filed Herewith
22
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 21, 2002 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 21st day of March, 2002.
Signature Title
--------- -----
/s/ DAVID M. DEMSHUR President, Chief Executive Officer
- -------------------------------------------------------------- Chairman and Supervisory Director
David M. Demshur
/s/ RICHARD L. BERGMARK Executive Vice President, Chief
- -------------------------------------------------------------- Financial Officer, Treasurer and
Richard L. Bergmark Supervisory Director
/s/ C. BRIG MILLER Chief Accounting Officer
- --------------------------------------------------------------
C. Brig Miller
/s/ BOB G. AGNEW Supervisory Director
- --------------------------------------------------------------
Bob G. Agnew
/s/ JOSEPH R. PERNA Supervisory Director
- --------------------------------------------------------------
Joseph R. Perna
/s/ TIMOTHY J. PROBERT Supervisory Director
- --------------------------------------------------------------
Timothy J. Probert
/s/ JACOBUS SCHOUTEN Supervisory Director
- --------------------------------------------------------------
Jacobus Schouten
/s/ RENE R. JOYCE Supervisory Director
- --------------------------------------------------------------
Rene R. Joyce
/s/ D. JOHN OGREN Supervisory Director
- --------------------------------------------------------------
D. John Ogren
/s/ ALEXANDER VRIESENDORP Supervisory Director
- --------------------------------------------------------------
Alexander Vriesendorp
23
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 as of December
31, 2001 and 2000, 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, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Core Laboratories
N.V. and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with the accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 21, 2002
24
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(In thousands, except share and per share data)
ASSETS 2001 2000
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 14,456 $ 12,519
Accounts receivable, less allowance for doubtful accounts
of $7,829 and $9,080 in 2001 and 2000, respectively...................... 104,933 113,214
Inventories ................................................................ 41,109 33,514
Prepaid expenses and other.................................................. 9,728 7,085
Deferred tax asset.......................................................... 9,123 10,265
---------- ----------
Total current assets ................................................... 179,349 176,597
PROPERTY, PLANT AND EQUIPMENT, net............................................... 97,615 84,556
INTANGIBLES AND GOODWILL, net.................................................... 151,257 148,027
OTHER LONG-TERM ASSETS........................................................... 11,279 4,166
---------- ----------
Total assets ........................................................... $ 439,500 $ 413,346
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ....................................... $ 454 $ 733
Current lease obligations................................................... 52 247
Accounts payable............................................................ 19,721 25,931
Accrued payroll and related costs .......................................... 6,808 8,364
Taxes other than payroll and income......................................... 4,141 4,766
Unearned revenues........................................................... 3,198 3,842
Income tax payable ......................................................... 893 5,314
Other accrued expenses ..................................................... 4,740 6,070
---------- ----------
Total current liabilities .............................................. 40,007 55,267
LONG-TERM DEBT .................................................................. 95,089 83,005
DEFERRED COMPENSATION............................................................ 2,369 3,642
DEFERRED TAX LIABILITY .......................................................... 13,350 7,531
LONG-TERM LEASE OBLIGATIONS...................................................... 32 35
OTHER LONG-TERM LIABILITIES...................................................... 12,232 12,169
COMMITMENTS AND CONTINGENCIES (NOTE 10)
MINORITY INTEREST................................................................ 815 632
SHAREHOLDERS' EQUITY:
Preference shares, NLG 0.03 par value; 3,000,000 shares authorized,
none issued or outstanding.............................................. -- --
Common shares, NLG 0.03 par value; 100,000,000 shares authorized,
33,204,571 and 32,814,018 issued and outstanding at 2001
and 2000, respectively.................................................. 546 540
Additional paid-in capital ................................................. 186,751 182,848
Retained earnings........................................................... 88,309 67,677
---------- ----------
Total shareholders' equity.............................................. 275,606 251,065
---------- ----------
Total liabilities and shareholders' equity......................... $ 439,500 $ 413,346
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
25
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands, except share and per share data)
2001 2000 1999
----------- ----------- ------------
SERVICES ..................................................... $ 304,568 $ 263,519 $ 265,458
SALES......................................................... 72,004 77,414 60,369
----------- ----------- ------------
376,572 340,933 325,827
OPERATING EXPENSES:
Costs of services ....................................... 232,683 212,553 215,695
Costs of sales........................................... 60,625 62,252 50,909
General and administrative expenses ..................... 15,929 13,540 12,301
Depreciation and amortization............................ 18,361 15,231 15,992
Goodwill amortization.................................... 4,174 4,130 4,127
Write-offs and other charges............................. 5,750 -- 10,670
Restructuring charges.................................... 2,975 -- 7,036
Other (income) expense, net.............................. (502) (1,163) (2,909)
------------ ----------- ------------
INCOME FROM OPERATIONS BEFORE INTEREST
EXPENSE AND INCOME TAX EXPENSE........................... 36,577 34,390 12,006
INTEREST EXPENSE ............................................. 7,921 8,314 8,558
----------- ----------- ------------
INCOME FROM OPERATIONS BEFORE
INCOME TAX EXPENSE....................................... 28,656 26,076 3,448
INCOME TAX EXPENSE ........................................... 8,024 8,246 1,252
----------- ----------- ------------
NET INCOME ................................................... $ 20,632 $ 17,830 $ 2,196
=========== =========== ============
PER SHARE DATA:
Basic earnings per share...................................... $ 0.62 $ 0.55 $ 0.07
=========== =========== ============
WEIGHTED AVERAGE BASIC COMMON
SHARES OUTSTANDING.................................... 33,074,665 32,387,751 31,449,485
=========== =========== ============
Diluted earnings per share.................................... $ 0.60 $ 0.53 $ 0.07
=========== =========== ============
WEIGHTED AVERAGE DILUTED COMMON
SHARES OUTSTANDING.................................... 34,271,512 33,539,295 32,442,717
=========== =========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
26
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999
( In thousands, except share data)
Common Shares
------------------------
Additional
Number of Paid-In Retained
Shares Amount Capital Earnings Total
--------------- --------- ----------- ------------ -------------
BALANCE, December 31, 1998 (as previously
reported)......................................... 30,623,032 $ 513 $ 155,769 $ 47,097 $ 203,379
ADJUSTMENT FOR POOLING OF INTEREST ............... 567,626 6 15 554 575
--------------- --------- ----------- ------------ ------------
RESTATED BALANCE, December 31, 1998............... 31,190,658 519 155,784 47,651 203,954
--------------- --------- ----------- ------------ -------------
SHARES ISSUED FOR 1999 PURCHASE ACQUISITIONS...... 284,524 4 4,558 --- 4,562
ADJUSTMENT FOR POOLING OF INTEREST ............... 15,209 --- 20 (184) (164)
STOCK OPTIONS EXERCISED........................... 290,703 4 1,992 --- 1,996
NET INCOME........................................ --- --- --- 2,380 2,380
--------------- --------- ----------- ------------ -------------
BALANCE, December 31, 1999........................ 31,781,094 527 162,354 49,847 212,728
--------------- --------- ----------- ------------ -------------
EXERCISE OF OVER-ALLOTMENT OPTION................. 696,748 9 17,239 --- 17,248
ADJUSTMENT FOR POOLING OF INTEREST................ 30,516 --- 118 (1,322) (1,204)
STOCK OPTIONS EXERCISED........................... 305,660 4 3,137 --- 3,141
NET INCOME........................................ --- --- --- 19,152 19,152
--------------- --------- ----------- ------------ -------------
BALANCE, December 31, 2000........................ 32,814,018 540 182,848 67,677 251,065
--------------- --------- ----------- ------------ -------------
STOCK OPTIONS EXERCISED........................... 290,553 4 2,956 --- 2,960
SHARES ISSUED FOR MINORITY INTEREST............... 100,000 2 947 --- 949
NET INCOME........................................ --- --- --- 20,632 20,632
--------------- --------- ----------- ------------ -------------
BALANCE, December 31, 2001........................ 33,204,571 $ 546 $ 186,751 $ 88,309 $ 275,606
=============== ========= =========== ============ =============
The accompanying notes are an integral part of these consolidated
financial statements.
27
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands)
2001 2000 1999
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 20,632 $ 17,830 $ 2,196
Adjustments to reconcile to net cash
provided by (used in) operating activities--
Depreciation and amortization.......................... 18,361 15,231 15,992
Goodwill amortization.................................. 4,174 4,130 4,127
Gain on sale of fixed assets........................... (153) (627) (777)
Deferred income tax benefit............................ (17) (1,243) (1,433)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... 2,905 (25,840) 1,458
Increase in inventories.............................. (2,190) (8,542) (11,982)
(Increase) decrease in prepaid expenses and other.... (2,456) 3,268 18
(Increase) decrease in net deferred tax.............. 6,961 (1,077) (1,134)
Increase (decrease) in accounts payable.............. (6,798) 5,025 (939)
Decrease in accrued liabilities...................... (9,356) (364) (2,183)
Increase (decrease) in other long-term liabilities... (1,542) (2,661) 1,054
Other ............................................... (2,203) 2,129 (1,190)
---------- ---------- ----------
Net cash provided by operating activities ....... 28,318 7,259 5,207
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (29,045) (33,352) (20,172)
Acquisitions, net of cash acquired....................... (12,810) -- 3,945
Proceeds from sale of assets ............................ 1,561 4,135 25,322
Other ................................................... (548) 299 (172)
---------- ---------- ----------
Net cash provided by (used in) investing activities.... (40,842) (28,918) 8,923
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from over-allotment option.................. --- 17,248 --
Repayment of debt ....................................... (8,664) (23,992) (106,747)
Borrowings under debt facilities......................... 20,021 20,231 102,304
Capital lease obligations, net........................... (211) (1,750) (666)
Stock options exercised.................................. 2,960 3,141 1,996
Debt issuance costs...................................... 544 564 (1,206)
Other.................................................... (189) (96) (264)
---------- ---------- ----------
Net cash provided by (used in) financing activities.... 14,461 15,346 (4,583)
NET CHANGE IN CASH AND CASH EQUIVALENTS....................... 1,937 (6,313) 9,547
CASH AND CASH EQUIVALENTS, beginning of period................ 12,519 18,832 9,285
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period...................... $ 14,456 $ 12,519 $ 18,832
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
28
CORE LABORATORIES N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. DESCRIPTION OF BUSINESS
Core Laboratories N.V., a Netherlands corporation, and its wholly owned
subsidiaries ("Core Laboratories", "we", "our" or "us") is one of the world's
leading providers of proprietary and patented reservoir description, production
enhancement and reservoir management services. These services enable our clients
to improve reservoir performance and increase oil and gas recovery from their
producing fields. We provide our services to the world's major, national and
independent oil companies. We currently operate over 70 offices in more than 50
countries.
Our business units have been aggregated into three complementary
segments which provide products and services for improving reservoir performance
and increasing oil and gas recovery from new and existing fields.
o Reservoir Description: Encompasses the characterization of
petroleum reservoir rock, fluid and gas samples. We provide
analytical and field services to characterize properties of crude
oil and petroleum products to the oil and gas industry.
o Production Enhancement: Includes products and services relating to
reservoir well completions, perforations, stimulations and
production. We provide integrated services to evaluate the
effectiveness of well completions and to develop solutions aimed
at increasing the effectiveness of enhanced oil recovery projects.
o Reservoir Management: Combines and integrates information from
reservoir description and production enhancement services to
increase production and improve recovery of oil and gas from our
clients' reservoirs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Core Laboratories and have been prepared in accordance with United States
("U.S.") generally accepted accounting principles ("GAAP"). All significant
intercompany transactions and balances have been eliminated. The equity method
of accounting is used for all investments in which we have less than a majority
interest and do not exercise control. Minority interest has been recorded to
reflect outside ownership attributable to consolidated subsidiaries that are
less than 100% owned.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates under different assumptions or conditions.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and all highly liquid
debt instruments with an original maturity of three months or less when
purchased.
29
Inventories
Inventories consist of manufactured goods, materials and supplies used
for sales or services provided to customers. Inventories are stated at the lower
of average or standard cost (includes direct material, labor and overhead) or
estimated net realizable value, and are reflected net of valuation reserves of
$1,847,000 and $1,376,000 in 2001 and 2000, respectively. Inventories consisted
of the following (in thousands):
2001 2000
------------- -------------
Finished goods......................... $ 30,120 $ 27,144
Parts and materials.................... 6,561 4,127
Work in process........................ 4,428 2,243
------------- -------------
Total inventory.......... $ 41,109 $ 33,514
============= =============
Property, Plant and Equipment
Investments in property, plant and equipment are stated at cost.
Allowances for depreciation and amortization are calculated using the
straight-line method based on the estimated useful lives of the related assets
as follows:
Buildings .................................. 10 - 40 years
Machinery and equipment .................... 3 - 10 years
The components of property, plant and equipment are as follows (in
thousands):
2001 2000
---------- ----------
Land $ 6,653 $ 2,750
Building and leasehold improvements......... 35,261 32,204
Machinery and equipment..................... 112,064 94,754
---------- ----------
Total property, plant and equipment... 153,978 129,708
Less - accumulated depreciation....... 56,363 45,152
---------- ----------
Net property, plant and equipment... $ 97,615 $ 84,556
========== ==========
Expenditures for repairs and maintenance are charged to expense as
incurred and major renewals and improvements are capitalized. Cost and
accumulated depreciation applicable to assets retired or sold are removed from
the accounts, and any resulting gain or loss is included in the Consolidated
Statements of Operations. We incurred and expensed approximately $3,386,000,
$3,100,000 and $3,240,000 in repair and maintenance costs for the years ended
December 31, 2001, 2000 and 1999, respectively.
Accounting for the Impairment of Long-Lived Assets
We account for impairment of long-lived assets in accordance with the
Financial Accounting Standards Board's ("FASB's") Statement of Financial
Accounting Standards ("SFAS") 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. The statement sets forth guidance as to when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such an
impairment. We periodically assess the recoverability of our long-lived assets.
The measurement of possible impairment is based primarily on the ability to
recover the balance of the related asset from expected future operating cash
flows on an undiscounted basis. No impairments were recognized for the year
ended December 31, 2001.
30
Intangibles and Goodwill
Intangibles include patents, trademarks, service marks and trade names.
Goodwill represents the excess of purchase price over the value of the net
assets and individual identifiable intangibles acquired in acquisitions
accounted for as purchases. Intangibles and goodwill acquired prior to July 1,
2001 are charged to expense in equal amounts over their estimated useful lives.
Additional information relating to intangibles and goodwill is included in Note
2 - Recent Pronouncements. The components of intangibles and goodwill are as
follows (in thousands):
Original
Life
in Years 2001 2000
-------- ---------- ---------
(in thousands)
Acquired trade secrets........................... 5 $ 165 $ 125
Acquired patents, trademarks and trade names..... 10-20 4,944 3,686
Acquired trade name.............................. 40 4,704 4,614
---------- ---------
Total intangibles.......................... 9,813 8,425
---------- ---------
Goodwill......................................... 5-10 3,146 2,638
Goodwill......................................... 20 3,736 3,736
Goodwill......................................... 40 147,784 147,784
Goodwill (1)..................................... N/A 6,062 --
---------- ---------
Total goodwill............................. 160,728 154,158
---------- ---------
Total intangibles and goodwill........... 170,541 162,583
Less - accumulated amortization................. 19,284 14,556
---------- ---------
Net intangibles and goodwill............. $ 151,257 $ 148,027
========== =========
1) Acquired after June 30, 2001. See "Recent Pronouncements" for
more information.
Long-Term Investments
Long-term investments of $951,000 and $615,000 at December 31, 2001 and
2000, respectively, are included in other long-term assets and represent our
investment in unconsolidated affiliated companies. These investments are
accounted for using the equity method of accounting.
Income Taxes
Income tax expense includes income taxes of The Netherlands, U.S. and
other foreign countries as well as local, state and provincial income taxes. We
recognize deferred tax assets or liabilities for the differences between the
financial statement carrying amount and tax basis of assets and liabilities
using tax rates in effect at the end of the period.
Revenue Recognition
Revenues are recognized as services are completed or as product title
is transferred, usually when delivery occurs. All advance client payments are
classified as unearned revenues until services are completed or products are
shipped.
Foreign Currencies
Our functional currency is the U.S. dollar. Accordingly, foreign
entities remeasure monetary assets and liabilities to U.S. dollars at year-end
exchange rates, while non-monetary items are remeasured at historical rates.
Revenues and expenses are remeasured at the applicable month-end rate, except
for depreciation and amortization and certain components of cost of sales, which
are remeasured at historical rates. Remeasurement gains and losses are included
in other income and expense in the Consolidated
31
Statements of Operations. For
the years ended December 31, 2001 and 2000, remeasurement gains and losses did
not have a material effect on our financial position or results of operations.
For the year ended December 31, 1999, we recognized a remeasurement gain of
approximately $2,028,000.
Research and Development
While we have acquired many of our new technologies, we incur expenses
relating to our ongoing research and development program. Research and
development expenditures are charged to expense as incurred. We incurred
approximately $4,428,000, $5,343,000 and $2,071,000 in research and development
expenses for the years ended December 31, 2001, 2000 and 1999, respectively.
Earnings Per Share
We present earnings per share in accordance with SFAS No. 128,
"Earnings per Share" which requires dual presentation of both basic and diluted
earnings per share on the Consolidated Statements of Operations. Basic earnings
per common share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the net additional shares which
would be issued if all dilutive stock options outstanding were exercised.
The following table summarizes the calculation of weighted average
common shares outstanding used in the computation of earnings per share:
2001 2000 1999
------------- ------------- -------------
Weighted average basic common
shares outstanding....................... 33,074,665 32,387,751 31,449,485
Effect of dilutive stock options (1)........ 1,196,847 1,151,544 993,232
------------- ------------- -------------
Weighted average diluted common
shares outstanding....................... 34,271,512 33,539,295 32,442,717
============= ============= =============
1) Options totaling 705,801, 14,676 and 78,310 equivalent common
shares for the twelve months ended December 31, 2001, 2000 and
1999, respectively, were not included because the impact of these
options was anti-dilutive.
Recent Pronouncements
In June 2001, the FASB issued two statements, SFAS 141, "Business
Combinations", and SFAS 142, "Goodwill and Other Intangible Assets", that amend
Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations", and
supersede APB Opinion No. 17, "Intangible Assets." SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations and
establishes the purchase method of accounting as the only acceptable method on
all business combinations initiated after June 30, 2001. Five of our recent
acquisitions were accounted for using the pooling-of-interests method of
accounting. Goodwill resulting from a business combination after June 30, 2001
is to be recognized as an asset but not amortized, while goodwill existing at
June 30, 2001 was amortized through December 31, 2001. Beginning January 1,
2002, we will no longer amortize goodwill but will test for impairment annually
or more frequently if circumstances indicate a potential impairment. Under the
requirements, we expect to reflect impairment of goodwill of approximately $15.0
million as a result of adoption of this standard on January 1, 2002. This
impairment will be reflected in the statement of income as a cumulative effect
of a change in accounting principle. The cessation of goodwill amortization
under the guidelines will result in a reduction of approximately $4.2 million in
annual operating expenses, assuming no additional impairment of goodwill.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of long-lived assets and the
associated asset retirement costs. SFAS 143 requires that the fair value of a
liability associated with an asset retirement be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated retirement costs are capitalized as part of the carrying
32
amount of
the long-lived asset and subsequently depreciated over the life of the asset.
SFAS 143 will be effective for fiscal years beginning after December 31, 2002.
We do not expect SFAS 143 to have a material adverse effect upon our financial
position or results of operations.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." SFAS 144 provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets and modifies the accounting and reporting of
discontinued operations. SFAS 144 is effective for fiscal years beginning after
December 31, 2001. We do not expect SFAS 144 to have a material adverse effect
upon our financial position or results of operations.
In November 2001, the Emerging Issues Task Force ("EITF") staff issued
announcement Topic D-103, "Income Statement Characterization of Reimbursements
Received for "Out-of-Pocket" Expenses Incurred." As a result, customer
reimbursements, including those relating to travel and other out-of-pocket
expenses, and other similar third-party costs, will be required to be included
as revenues effective January 1, 2002, and an equivalent amount of reimbursable
expenses will be included in expenses. We do not expect EITF Topic D-103 to have
an impact on our financial position or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. ACQUISITIONS
2001 Acquisitions
On August 1, 2001, we acquired all of the assets of Tesco Corporation's
Gris Gun ("Gris Gun") business for approximately $12.8 million. Gris Gun
supplies wellbore perforating gun systems and other related completion products
primarily to the Canadian market. The transaction was accounted for using the
purchase method of accounting and resulted in an increase in goodwill of
approximately $6.1 million. In accordance with SFAS 142, goodwill relating to
this purchase was not amortized.
On May 24, 2001, we acquired all of the outstanding shares of PROMORE
Engineering Inc. ("PROMORE"), a privately held company based in Canada. PROMORE
provides innovative solutions for production optimization and monitoring of
reservoir environments with permanent real-time systems. We issued approximately
606,000 shares in exchange for all of the outstanding shares of PROMORE. The
transaction was accounted for using the pooling-of-interests method of
accounting. Accordingly, our consolidated financial statements have been
restated for all periods prior to the date of acquisition to include the
financial position and results of operations of PROMORE.
2000 Acquisitions
On December 20, 2000, we acquired all of the outstanding shares of Core
Petrophysics, Inc. ("CPI"), a privately held company based in Houston, Texas.
CPI is engaged in the petrophysical characterization of partially consolidated
and unconsolidated reservoirs which make up the majority of deepwater reservoirs
around the world. We issued approximately 516,000 shares in a share-for-share
exchange. The transaction was accounted for using the pooling-of-interests
method of accounting. Accordingly, our consolidated financial statements have
been restated for all periods prior to the date of acquisition to include the
financial position and results of operations of CPI.
On June 20, 2000, we acquired all of the outstanding shares of
Production Enhancement Corporation ("PENCOR"), a privately held company based in
Broussard, Louisiana. PENCOR provides
33
fluid phase behavior services used to characterize crude oils, natural gases
and other reservoir fluids. We issued approximately 275,000 shares in exchange
for all of the outstanding shares of PENCOR and assumed approximately $2.5
million in debt. The transaction was accounted for using the
pooling-of-interests method of accounting. Accordingly, our consolidated
financial statements have been restated for all periods prior to the date of
acquisition to include the financial position and results of
operations of PENCOR.
On January 12, 2000, we acquired all of the outstanding shares of
TomoSeis Corporation ("TomoSeis"), a privately held company based in Houston,
Texas. TomoSeis provides detailed reservoir imaging services that are a
component of timelapse (4D) seismic and reservoir monitoring programs. We issued
approximately 232,000 shares and assumed outstanding stock options exercisable
for approximately 396,000 of our common shares. Proceeds from the exercise of
these stock options would be approximately $2.1 million. The transaction was
accounted for using the pooling-of-interests method of accounting. Accordingly,
our consolidated financial statements have been restated for all periods prior
to the date of acquisition to include the financial position and results of
operations of TomoSeis.
1999 Acquisitions
On August 2, 1999, we acquired all of the outstanding shares of
Reservoirs, Inc. ("Reservoirs"), a privately held company based in Texas.
Reservoirs provides reservoir description services to the oil industry and is a
recognized leader in the geology and petrophysics of deepwater reservoirs. We
issued approximately 252,000 shares in a transaction that was accounted for
using the purchase method of accounting. The transaction resulted in an
allocation of approximately $4.1 million to goodwill, which is being amortized
over a 20-year period. Beginning January 1, 2002, we will no longer amortize
goodwill but will test for impairment annually or more frequently if
circumstances indicate a potential impairment.
On July 1, 1999, we acquired all of the outstanding shares of
Coherence Technology Company, Inc. ("CTC"), a privately held company based in
Texas. CTC provides specialized seismic data processing and interpretation
services and is exclusively licensed by BP Amoco to provide its patented
Coherence Cube data processing technology to the worldwide petroleum industry.
We issued approximately 171,000 shares in a transaction which was accounted for
as a pooling-of-interests. As part of the transaction, we assumed approximately
$1.0 million in CTC bank debt and also issued approximately 135,000 shares to a
second lender as debt repayment. Our consolidated financial statements have been
restated for all prior periods to include the financial position and results of
operations of CTC.
On January 7, 1999, we acquired receivables and certain fixed assets
from Isotag Specialist, Inc. ("Isotag"), and its related company, Fred Calaway
and Co. Both companies were privately held and based in Texas. Isotag provides
production enhancement and related services. We issued approximately 33,000
shares for the assets of Isotag and accounted for the transaction using the
purchase method of accounting. The transaction resulted in an allocation of
approximately $0.4 million to goodwill, which is being amortized over a 20-year
period. Beginning January 1, 2002, we will no longer amortize goodwill but will
test for impairment annually or more frequently if circumstances indicate a
potential impairment.
4. LONG-TERM DEBT
Long-term debt is summarized in the following table (in thousands):
2001 2000
---------- ----------
Credit Facility with a bank group:
$100,000 revolving debt facilities..... $ 20,000 $ 7,000
Senior notes................................ 75,000 75,000
Other indebtedness.......................... 543 1,738
---------- ----------
Total debt.................. 95,543 83,738
Less - current maturities................... 454 733
---------- ----------
Total long-term debt........ $ 95,089 $ 83,005
========== ==========
34
In July 1999, we entered into a $100 million Credit Facility
which provides for (i) a committed revolving debt facility of $95 million and
(ii) a Netherlands guilder denominated revolving debt facility with U.S. dollar
equivalency of $5 million. At December 31, 2001, approximately $80 million was
available for borrowing under the revolving Credit Facility. Loans under the
Credit Facility bear interest from LIBOR plus 1.25% to a maximum of LIBOR plus
1.75%. The average interest rate in effect at December 31, 2001 was 3.78% and
the average for 2001 was 5.32%. The revolving Credit Facilities require interest
payments only, until maturity in June 2004.
In July 1999, we issued $75 million in Senior Notes which bear an
average interest rate of 8.16% and require annual principal payments beginning
in July 2005 and continuing through July 2011.
The terms of the Credit Facility and Senior Notes require us to meet
certain financial covenants, including certain minimum equity and cash flow
tests. We believe that we are in compliance with all such covenants contained in
our credit agreements. All of our material wholly owned subsidiaries are
guarantors or co-borrowers under both credit agreements.
Scheduled maturities of long-term debt (in thousands):
2002....................................... $ 454
2003....................................... 89
2004....................................... 20,000
2005....................................... ---
2006 and thereafter........................ 75,000
---------
Total long-term debt.................. $ 95,543
=========
Total cash payments for interest were $7,022,000, $7,003,000 and
$4,946,000 for 2001, 2000 and 1999, respectively.
5. INCOME TAXES
The components of income from operations before income taxes for 2001,
2000 and 1999 are as follows (in thousands):
2001 2000 1999
---------- ---------- ----------
United States................... $ (2,717) $ (3,546) $ (14,159)
Other countries................. 31,373 29,622 17,607
---------- ---------- ----------
Income before income tax... $ 28,656 $ 26,076 $ 3,448
========== ========== ==========
The components of income tax expense (benefit) for 2001, 2000 and 1999
are as follows (in thousands):
2001 2000 1999
---------- ---------- ----------
Current:
United States.............. $ -- $ 198 $ (2,259)
Other countries............ 7,279 9,089 4,648
State and provincial....... 762 202 296
---------- ---------- ----------
Total current......... 8,041 9,489 2,685
---------- ---------- ----------
Deferred:
United States.............. 115 (1,166) (2,428)
Other countries............ (52) 174 1,454
State and provincial....... (80) (251) (459)
---------- ---------- ----------
Total deferred........ (17) (1,243) (1,433)
---------- ---------- ----------
Income tax expense.. $ 8,024 $ 8,246 $ 1,252
========== ========== ==========
35
The difference between income tax computed using The Netherlands
statutory income tax rate of 35% and our income tax expense as reported in the
accompanying Consolidated Statements of Operations for 2001, 2000 and 1999 are
as follows (in thousands):
2001 2000 1999
---------- ---------- ----------
Tax at The Netherlands
income tax rate............ $ 10,030 $ 9,127 $ 1,207
International earnings taxed
at rates lower than The
Netherlands statutory rate. (6,879) (4,241) (2,932)
Extraterritorial income
exclusion benefit.......... (51) (18) --
Goodwill amortization and other
non-deductible expenses.... 2,880 2,646 2,361
Change in valuation allowance.... 1,362 781 779
State and provincial taxes....... 682 (49) (163)
---------- ---------- ----------
Income tax expense....... $ 8,024 $ 8,246 $ 1,252
========== ========== ==========
Deferred tax assets and liabilities result from various temporary
differences between the financial statement carrying amount and the tax basis of
existing assets and liabilities. Deferred tax assets and liabilities as of
December 31, 2001 and 2000 are summarized as follows (in thousands):
2001 2000
---------- ----------
Deferred tax assets:
Net operating loss carryforward............... $ 11,625 $ 11,591
Receivables................................... 1,852 546
Inventories................................... -- 126
Other......................................... -- 545
---------- ----------
Total deferred tax assets................ 13,477 12,808
Valuation allowance........................... (4,354) (2,543)
---------- ----------
Net deferred tax asset............... 9,123 10,265
---------- ----------
Deferred tax liabilities:
Intangibles................................... (1,469) (1,490)
Property, plant and equipment................. (824) (768)
Other......................................... (11,057) (5,273)
---------- ----------
Total deferred tax liabilities........... (13,350) (7,531)
---------- ----------
Net deferred tax asset (liability)... $ (4,227) $ 2,734
========== ==========
At December 31, 2001, we had net operating loss carryforwards for
income tax purposes in various tax jurisdictions. Of those carryforwards that
are subject to expiration, they will expire, if unused, over the years 2002
through 2020. We anticipate taxable income in 2002 will allow for the full
utilization of these carryforwards. We provide a valuation allowance due to the
likelihood of not utilizing the net operating loss carryforwards in certain
foreign tax jurisdictions. Other deferred tax liabilities are provided for
revenues and expenses that may be recognized by the various tax jurisdictions in
periods that differ from when recognized for financial reporting purposes. Cash
payments of income taxes, net of refunds, were $7,900,000, $3,368,000 and
$4,413,000 in 2001, 2000 and 1999, respectively.
6. STOCK OPTIONS
We have two main stock option plans; the 1995 Long-Term Incentive Plan
(the "Plan") and the 1995 Nonemployee Director Stock Option Plan (the
"Nonemployee Director Plan"). We also assumed stock options outstanding for
three of our acquisitions: CTC, Reservoirs and TomoSeis. See Note 3 for more
information on these acquisitions.
36
Employee Stock Option Plan
The maximum number of shares under the Plan was initially limited to
1,300,000 common shares but was amended and restated effective as of May 1997
and May 2000 to authorize an additional 4,100,000 common shares for grant to
eligible employees. Options granted pursuant to the Plan are exercisable for a
period of 10 years and vest in equal installments over four years. The exercise
price of options granted under the Plan is the market value at the date of
grant.
1995 Nonemployee Director Stock Option Plan
The maximum number of shares under the Nonemployee Director Plan was
initially limited to 100,000 common shares but was amended and restated
effective as of May 1997 and May 2000 to authorize an additional 600,000 common
shares for grant to eligible Directors of Core Laboratories. Pursuant to the
Nonemployee Director Plan, beginning in 1996, 10,000 options are granted to each
eligible Director and 20,000 are granted to the chairman on an annual basis. The
options are exercisable for a period of 10 years and vest on the day before the
next annual shareholders meeting following the date of grant. The exercise price
of options granted under the plan is the market value at the date of grant.
Information regarding our stock options issued pursuant to our plans is
summarized below:
Weighted
Range of Average
Options: Shares Exercise Prices Exercise Price
------------ --------------- --------------
Balance at December 31, 1998................ 1,706,210 $1.28 - $24.38 $11.39
Options granted......................... 722,300 6.00 - 19.06 13.15
Options assumed through acquisitions.... 70,406 0.01 - 61.19 8.76
Options exercised....................... (290,703) 2.75 - 13.06 6.52
Options canceled........................ (60,056) 6.00 - 61.19 14.60
------------
Balance at December 31, 1999................ 2,148,157 0.01 - 61.19 12.54
------------
Options granted......................... 763,000 19.38 - 28.44 19.46
Options assumed through acquisitions.... 395,541 0.01 - 11.97 5.36
Options exercised....................... (305,660) 0.01 - 18.38 8.41
Options canceled........................ (186,078) 6.00 - 61.19 11.70
------------
Balance at December 31, 2000................ 2,814,960 0.01 - 61.19 13.79
------------
Options granted......................... 1,735,000 10.26 - 25.56 13.34
Options exercised....................... (290,553) 0.96 - 20.88 10.20
Options canceled........................ (241,625) 11.25 - 35.99 15.70
------------
Balance at December 31, 2001................ 4,017,782 $0.01 - $61.19 $13.63
============
The weighted average contractual life remaining on outstanding stock
options was seven years at December 31, 2001.
SFAS 123, "Accounting for Stock-Based Compensation", encourages, but
does not require, companies to record compensation cost for employee stock-based
compensation plans at fair value as determined by generally recognized option
pricing models such as the Black-Scholes model or the binomial model. Because
these models are inexact and subjective, we have adopted the disclosure-only
provisions of SFAS 123. We apply APB Opinion 25, "Accounting for Stock Issued to
Employees", which does not require compensation costs to be recorded on options
which have exercise prices at least equal to the market value of the stock on
the date of grant. Accordingly, we have not recognized compensation cost for our
stock-based plans. Had compensation cost for our stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the optional method prescribed by SFAS 123, our net
income and diluted earnings per share would have been reduced by $7.6 million,
or $0.22 per share, $8.4 million, or $0.25 per share and $7.9 million, or $0.24
per share in 2001, 2000 and 1999, respectively. The pro forma value of options
at the date of grant was estimated using the
37
Black-Scholes option-pricing model with the following assumptions:
2001 2000 1999
-------- -------- --------
Risk free interest rate................. 4.9% 5.0% 5.8%
Expected volatility..................... 63% 66% 70%
Expected lives (in years)............... 7 8 9
Weighted average fair value of options.. $ 8.95 $ 13.36 $ 8.86
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable
and accounts payable approximate fair value due to the short-term maturities of
these instruments. We believe that the carrying amount of long-term debt,
excluding Senior Notes, approximates fair value, as the majority of these
borrowings bear interest at floating market interest rates. The estimated fair
value of the $75,000,000 Senior Notes was approximately $78,848,000 at December
31, 2001, determined using long-term rates in effect on that date. These
estimates are not necessarily indicative of the amounts that could be realized
in a current market transaction.
8. CONCENTRATION OF CREDIT RISK
We derive our worldwide revenues from customers primarily in the oil
and gas industry. This industry concentration has the potential to impact our
overall exposure to credit risk, either positively or negatively, in that our
customers could be affected by similar changes in economic, industry or other
conditions. Although we have experienced losses on accounts receivable, our
portfolio of accounts receivable is comprised primarily of major international
corporate entities, government organizations and independent producers with
stable payment experience. However, we believe that the credit risk posed by
this industry concentration is offset by the creditworthiness of our customer
base.
9. RETIREMENT AND OTHER PLANS
During 2001, we maintained four defined contribution plans (the
"Plans") for the benefit of eligible employees in the United States, Canada and
the United Kingdom. One of our acquisitions, PENCOR, maintained defined
contribution plans prior to the date of acquisition. In accordance with the
terms of each plan, we match the required portion of employee contributions up
to specified limits and under certain plans, we may make discretionary
contributions annually in accordance with the Plans. For the years ended 2001,
2000 and 1999 we expensed $2,866,000, $2,079,000 and $1,601,000 respectively,
for our matching and discretionary contributions to the Plans.
We provide a retirement benefit to substantially all of our 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, in other long-term liabilities.
Employees are 100% vested at all times. In the event an employee leaves Core
Laboratories, we are required to pay the backservice pension liability to the
insurance company. The insurance company has assumed substantially all risk
associated with the plan.
We also operated a defined benefit plan for a portion of our U.S.
employees which was suspended on December 31, 1997. During 2001 we terminated
the plan and began satisfying all remaining liabilities. Most distributions to
participants have been made. This is being done through payment of lump sum
distributions and the purchase of annuities.
38
The components of net pension (cost) benefit related to the defined
benefit plan are as follows:
2001 2000 1999
---------- ---------- ----------
Service cost-benefits earned during the period...... $ --- $ 173,193 $ 144,082
Interest cost on projected obligation............... 260,988 527,362 512,090
Actual return on assets............................. (228,863) (816,831) (771,819)
Net amortization and accrual........................ 21,356 (56,443) --
---------- ---------- ----------
Total pension (cost) benefit................... $ 53,481 $ (172,719) $ (115,647)
========== ========== ==========
Actuarial assumptions used for this calculation are as follows:
2001 2000 1999
------ ------ ------
Discount rate...................... 5.32% 8.00% 8.00%
Rate of return..................... N/A N/A 8.00%
Rate of compensation increase...... N/A N/A N/A
We have established deferred compensation contracts for certain
officers. The benefits under these contracts are fully vested and benefits are
paid when the participants attain 65 years of age. The charge to expense for
officer deferred compensation in 2001, 2000 and 1999 was approximately $466,000,
$450,000 and $385,000, respectively. Life insurance policies with cash surrender
values have been purchased for the purpose of funding the officer deferred
compensation contracts.
10. COMMITMENTS AND CONTINGENCIES
From time to time, we may be subject to legal proceedings and claims
that arise in the ordinary course of business. We believe that the outcome of
current legal actions will not have a material adverse effect upon our financial
position or results of operations.
Core Laboratories and its subsidiaries do not maintain any off-balance
sheet debt or other similar financing arrangements nor has it formed any special
purpose entities for the purpose of maintaining off-balance sheet debt.
As security for bids and performance on certain contracts, we were
contingently liable at December 31, 2001, in the amount of approximately $1.8
million under standby letters of credit and bank guarantees. We do not believe
it is practicable to estimate the fair value of these financial instruments and
do not expect any material losses from their resolution since performance is not
likely to be required.
Minimum rental commitments under non-cancelable operating and capital
leases as of December 31, 2001, consist of the following (in thousands):
Year ended December 31-- Operating Capital
---------- ----------
2002.................................... $ 4,494 $ 52
2003.................................... 2,722 32
2004.................................... 1,749 --
2005.................................... 1,349 --
2006.................................... 927 --
Thereafter.............................. 8,606 --
---------- ----------
Total commitments.................. $ 19,847 $ 84
========== ==========
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 $6,993,000,
$6,629,000 and $3,798,000 for 2001, 2000 and 1999, respectively.
39
11. SEGMENT REPORTING
We manage our business segments separately due to the different
technologies each segment utilizes and requires (see Note 1). Results of these
segments are presented below using the same accounting policies as used to
prepare the Consolidated Balance Sheet and Statement of Operations. We evaluate
performance based on income or loss from operations before income tax, interest
and other non-operating income (expense). Summarized financial information
concerning our segments is shown in the following tables (in thousands):
Year Ended
-----------------------------------
2001 2000 1999
---------- ---------- ----------
REVENUES:
Reservoir Description (4)........... $ 213,917 $ 192,741 $ 200,584
Production Enhancement.............. 104,262 92,326 65,342
Reservoir Management................ 58,393 55,866 59,901
---------- ---------- ----------
Consolidated.................. $ 376,572 $ 340,933 $ 325,827
========== ========== ==========
Year Ended
-----------------------------------
2001 2000 1999
---------- ---------- ----------
INCOME (LOSS) BEFORE INTEREST
AND TAXES:
Reservoir Description (1),(2)....... $ 30,728 $ 23,356 $ 13,698
Production Enhancement (1),(2)...... 12,181 14,370 8,485
Reservoir Management (1),(2)........ (4,530) (3,492) (6,373)
Corporate and other (1),(2),(3)..... (1,802) 156 (3,804)
---------- ---------- ----------
Consolidated.................. $ 36,577 $ 34,390 $ 12,006
========== ========== ==========
Year Ended
-----------------------------------
2001 2000 1999
---------- ---------- ----------
DEPRECIATION AND AMORTIZATION:
Reservoir Description............... $ 10,289 $ 8,759 $ 9,673
Production Enhancement.............. 2,908 1,922 1,642
Reservoir Management................ 2,812 2,542 3,716
Corporate and other (3)............. 2,352 2,008 961
---------- ---------- ----------
Consolidated.................. $ 18,361 $ 15,231 $ 15,992
========== ========== ==========
Year Ended
-----------------------------------
2001 2000 1999
---------- ---------- ----------
GOODWILL AMORTIZATION:
Reservoir Description............... $ 2,383 $ 2,341 $ 2,325
Production Enhancement.............. 1,289 1,289 1,306
Reservoir Management................ 502 500 496
---------- ---------- ----------
Consolidated.................. $ 4,174 $ 4,130 $ 4,127
========== ========== ==========
40
As of December 31,
-----------------------------------
2001 2000 1999
---------- ---------- ----------
ASSETS:
Reservoir Description............... $ 135,401 $ 118,313 $ 133,421
Production Enhancement.............. 95,620 77,726 56,022
Reservoir Management................ 37,111 40,561 33,864
---------- ---------- ----------
Total Business Segments....... 268,132 236,600 223,307
---------- ---------- ----------
Corporate and other (3)............. 163,323 171,088 181,534
Intersegment Eliminations........... 8,045 5,658 (30,315)
---------- ---------- ----------
Consolidated.................. $ 439,500 $ 413,346 $ 374,526
========== ========== ==========
1) The income (loss) before interest and taxes for each segment
in 1999 has been reduced by restructuring, write-offs and other
charges. The amounts were allocated as follows: Reservoir
Description - $8,397; Production Enhancement - $2,854; Reservoir
Management - $2,759 and Corporate and other - $3,696.
2) The income (loss) before interest and taxes for each segment in
2001 has been reduced by restructuring, write-offs and other
charges. The amounts were allocated as follows: Reservoir
Description - $2,549; Production Enhancement - $2,133; Reservoir
Management - $2,528 and Corporate and other - $1,515.
3) "Corporate and other" represents those items that are not directly
related to a particular segment.
4) We sold substantially all of our U.S. environmental testing and
certain other assets to Severn Trent Laboratories, Inc., a
Delaware corporation, on September 30, 1999.
We are a Netherlands company and we derive our revenues from services
and sales to customers primarily in one industry segment, the oil and gas
industry. No single customer accounted for 10 percent or more of consolidated
revenues in any of the periods presented. The following is a summary of our U.S.
and foreign operations for 2001, 2000 and 1999 (in thousands):
Year Ended
------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues from unaffiliated customers:
United States............................ $ 152,768 $ 135,780 $ 142,681
Other countries.......................... 223,804 205,153 183,146
---------- ---------- ----------
Total............................... $ 376,572 $ 340,933 $ 325,827
========== ========== ==========
Income (loss) before interest and taxes:
United States............................ $ 4,955 $ 4,394 $ (6,616)
Other countries.......................... 31,622 29,996 18,622
---------- ---------- ----------
Total............................... $ 36,577 $ 34,390 $ 12,006
========== ========== ==========
Identifiable assets:
United States............................ $ 155,325 $ 129,766 $ 138,451
Other countries.......................... 284,175 283,580 236,075
---------- ---------- ----------
Total............................... $ 439,500 $ 413,346 $ 374,526
========== ========== ==========
Operating income includes income from operations before interest expense
and income taxes. U.S. revenues derived from exports were $27,155,000,
$45,497,000 and $34,660,000 in 2001, 2000 and 1999, respectively.
12. WRITE-OFFS AND RESTRUCTURING CHARGES
Write-offs and Other Charges
During the fourth quarter of 2001, we recorded write-offs and other
charges of $5.8 million. These charges are comprised of inventory write-downs of
$3.9 million, charges of $0.4 million to write fixed assets down to their fair
value, and certain costs of $1.5 million to migrate data from legacy computer
systems to a global information system database.
In the first quarter of 1999, we recorded write-offs and other charges
totaling $10.7 million. This amount included $4.4 million of asset write-offs,
$2.6 million related to facility closures and personnel
41
reductions, and $3.7
million associated with the termination of the proposed acquisition of
GeoScience Corp.
Restructuring Charges
Also, during the fourth quarter of 2001 we had several transactions
which impacted certain operations that were not viewed as ongoing. We
restructured certain operations in Mexico, the U.K., the U.S. and other
countries to improve operating efficiencies. This restructuring expense included
write-offs of assets and leasehold improvements, and an accrual for facility
restoration, severance benefits and lease termination costs. Approximately 100
field employees were terminated. During 2002, we intend to relocate one of our
operations from Dallas to the Houston Advanced Technology Center and another
facility from Mexico City, Mexico to Villahermosa, Mexico. This charge of
approximately $3.0 million affected each of our operating segments as follows:
Reservoir Description - $0.8 million; Production Enhancement - $0.1 million;
Reservoir Management - $2.1 million. Substantially all employee terminations
will be completed by the end of the first quarter of 2002. Total cash required
for this restructuring charge of $2.1 million will be funded from operating
activities. Cash required for the costs incurred through December 31, 2001 was
$0.5 million. This charge is summarized in the following table:
Restructuring Charges
(Dollars in Thousands)
Lease Asset
Obligations Severance Restoration Write-offs (1) Other Total
----------- ----------- ----------- ----------- ----------- -----------
Total restructuring charges.............. $ 598 $ 951 $ 380 $ 862 $ 184 $ 2,975
Less: Costs incurred through
December 31, 2001............... 38 394 -- 862 40 1,334
----------- ----------- ----------- ----------- ----------- -----------
Accrual remaining........................ $ 560 $ 557 $ 380 $ -- $ 144 $ 1,641
=========== =========== =========== =========== =========== ===========
1) The fixed assets and leasehold improvements were disposed of by
the end of December 2001. The write-off approximates the carrying
amount as these assets were abandoned or sold for salvage value.
Depreciation expense was reduced by approximately $20 in 2001, and
will be reduced by $82 in 2002 and $281 thereafter. The asset
write-offs of $862 were attributable to the Reservoir Management
segment.
In the fourth quarter of 1999, we recorded a $7.0 million charge to
cover the cost of exiting redundant facilities and restructuring certain of our
operations. This charge affected each of our operating segments as follows:
Reservoir Description - $2.8 million; Production Enhancement - $1.9 million;
Reservoir Management - $2.3 million.
42
13. UNAUDITED SELECTED QUARTERLY RESULTS OF OPERATIONS
Summarized quarterly financial data for the four quarters ended
December 31, 2001 and 2000 is as follows (in thousands, except share and per
share data):
Three months ended December 31, September 30, June 30, March 31,
2001 (1) 2001 2001 2001 (2)
-------------- -------------- -------------- --------------
Service and sales revenues........................ $ 96,869 $ 97,097 $ 91,260 $ 91,346
Cost of services and sales........................ 79,466 72,445 69,897 71,500
Other operating expenses.......................... 18,632 10,074 8,605 9,376
-------------- -------------- -------------- --------------
Income (loss) before interest expense and
income tax expense.......................... (1,229) 14,578 12,758 10,470
-------------- -------------- -------------- --------------
Interest expense.................................. 2,000 2,000 1,943 1,978
-------------- -------------- -------------- --------------
Income (loss) before income tax expense........... $ (3,229) $ 12,578 $ 10,815 $ 8,492
============== ============== ============== ==============
Net income (loss)................................. $ (2,325) $ 9,056 $ 7,787 $ 6,114
============== ============== ============== ==============
Per share data:
Basic earnings (loss) per share.......... $ (0.07) $ 0.27 $ 0.24 $ 0.19
============== ============== ============== ==============
Weighted average basic common shares
outstanding............................... 33,199,289 33,165,470 33,044,424 32,885,031
============== ============== ============== ==============
Diluted earnings (loss) per share................. $ (0.07) $ 0.27 $ 0.23 $ 0.18
============== ============== ============== ==============
Weighted average diluted common
shares outstanding........................ 33,925,969 33,795,537 34,192,362 33,958,092
============== ============== ============== ==============
Three months ended December 31, September 30, June 30, March 31,
2000 (2) 2000 (2) 2000 (2) 2000 (2)
-------------- -------------- -------------- --------------
Service and sales revenues........................ $ 99,442 $ 88,450 $ 80,243 $ 72,798
Cost of services and sales........................ 80,184 70,281 64,782 59,558
Other operating expenses.......................... 8,196 7,911 8,119 7,512
-------------- -------------- -------------- --------------
Income before interest expense
and income tax expense......................... 11,062 10,258 7,342 5,728
-------------- -------------- -------------- --------------
Interest expense.................................. 2,143 2,095 2,011 2,065
-------------- -------------- -------------- --------------
Income before income tax expense.................. $ 8,919 $ 8,163 $ 5,331 $ 3,663
============== ============== ============== ==============
Net income........................................ $ 5,740 $ 5,781 $ 3,797 $ 2,512
============== ============== ============== ==============
Per share data:
Basic earnings per share.......................... $ 0.17 $ 0.18 $ 0.12 $ 0.08
============== ============== ============== ==============
Weighted average basic common shares
outstanding............................... 32,806,352 32,783,862 32,085,620 31,843,688
============== ============== ============== ==============
Diluted earnings per share........................ $ 0.17 $ 0.17 $ 0.11 $ 0.08
============== ============== ============== ==============
Weighted average diluted common
shares outstanding........................ 33,886,040 33,724,079 33,587,555 33,248,680
============== ============== ============== ==============
1) In the fourth quarter of 2001, we recorded restructuring,
write-offs and other charges as discussed in Note 12 of the Notes
to Consolidated Financial Statements.
2) Includes the pooling-of-interests acquisition of PROMORE. See
Note 3 of the Notes to Consolidated Financial Statements for a
discussion of this acquisition.
43