CLB-2015.6.30-10Q


 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
(Mark One)
 
Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________ to ______________
 
Commission File Number:  001-14273
 
CORE LABORATORIES N.V.
(Exact name of registrant as specified in its charter)
 
The Netherlands
Not Applicable
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
Strawinskylaan 913
 
 
Tower A, Level 9
 
1077 XX Amsterdam
 
The Netherlands
Not Applicable
(Address of principal executive offices)
(Zip Code)
 
 
(31-20) 420-3191
(Registrant's telephone number, including area code)
 
None
(Former name, former address and former fiscal year, if changed since last report)

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 Q  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes Q  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Q
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
 
 
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨  No Q

The number of common shares of the registrant, par value EUR 0.02 per share, outstanding at July 23, 2015 was 42,570,287.




CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2015
 
INDEX
 
PART I - FINANCIAL INFORMATION
 
 
Page
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
June 30,
2015
 
December 31,
2014
ASSETS
(Unaudited)
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
22,580

 
$
23,350

Accounts receivable, net of allowance for doubtful accounts of $3,731 and $3,397 at 2015 and 2014, respectively
155,112

 
197,163

Inventories
47,585

 
43,371

Prepaid expenses
14,663

 
14,246

Income taxes receivable
13,836

 
10,980

Other current assets
12,872

 
12,710

TOTAL CURRENT ASSETS
266,648

 
301,820

PROPERTY, PLANT AND EQUIPMENT, net
148,452

 
149,014

INTANGIBLES, net
12,667

 
10,642

GOODWILL
178,718

 
164,464

DEFERRED TAX ASSETS, net
5,857

 
3,876

OTHER ASSETS
46,643

 
45,837

TOTAL ASSETS
$
658,985

 
$
675,653

LIABILITIES AND EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
42,323

 
$
47,084

Accrued payroll and related costs
38,412

 
34,617

Taxes other than payroll and income
9,187

 
11,199

Unearned revenue
14,757

 
11,009

Income taxes payable
8,320

 
8,333

Other current liabilities
23,881

 
19,624

TOTAL CURRENT LIABILITIES
136,880

 
131,866

LONG-TERM DEBT
421,508

 
356,000

DEFERRED COMPENSATION
43,971

 
42,705

DEFERRED TAX LIABILITIES, net
6,068

 
7,210

OTHER LONG-TERM LIABILITIES
43,298

 
43,879

COMMITMENTS AND CONTINGENCIES (Note 6)


 


EQUITY:
 
 
 

Preference shares, EUR 0.02 par value; 6,000,000 shares authorized,
none issued or outstanding

 

Common shares, EUR 0.02 par value;
200,000,000 shares authorized, 45,600,002 issued and 42,656,736 outstanding at 2015 and 45,600,002 issued and 43,636,984 outstanding at 2014
1,174

 
1,174

Additional paid-in capital

 

Retained earnings
432,812

 
415,906

Accumulated other comprehensive income (loss)
(11,232
)
 
(11,894
)
Treasury shares (at cost), 2,943,266 at 2015 and 1,963,018 at 2014
(421,633
)
 
(317,613
)
Total Core Laboratories N.V. shareholders' equity
1,121

 
87,573

Non-controlling interest
6,139

 
6,420

TOTAL EQUITY
7,260

 
93,993

TOTAL LIABILITIES AND EQUITY
$
658,985

 
$
675,653



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

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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Three Months Ended
 
June 30,
 
2015
 
2014
 
(Unaudited)
REVENUE:
 
 
 
Services
$
156,861

 
$
188,299

Product sales
47,028

 
79,263

Total revenue
203,889

 
267,562

OPERATING EXPENSES:
 

 
 

Cost of services, exclusive of depreciation expense shown below
98,462

 
111,706

Cost of product sales, exclusive of depreciation expense shown below
36,157

 
56,452

General and administrative expense, exclusive of depreciation expense shown below
12,634

 
11,148

Depreciation
6,752

 
6,027

Amortization
178

 
291

Other (income) expense, net
1,813

 
(2,196
)
OPERATING INCOME
47,893

 
84,134

Interest expense
3,116

 
2,794

Income before income tax expense
44,777

 
81,340

Income tax expense
10,075

 
17,244

Net income
34,702

 
64,096

Net income (loss) attributable to non-controlling interest
76

 
362

Net income attributable to Core Laboratories N.V.
$
34,626

 
$
63,734

EARNINGS PER SHARE INFORMATION:
 

 
 

Basic earnings per share attributable to Core Laboratories N.V.
$
0.81

 
$
1.43

 
 
 
 
Diluted earnings per share attributable to Core Laboratories N.V.
$
0.81

 
$
1.42

 
 
 
 
Cash dividends per share
$
0.55

 
$
0.50

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 

 
 

Basic
42,790

 
44,660

Diluted
42,959

 
44,910


















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

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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

 
Six Months Ended
 
June 30,
 
2015
 
2014
 
(Unaudited)
REVENUE:
 
 
 
Services
$
319,835

 
$
377,034

Product sales
97,697

 
153,431

Total revenue
417,532

 
530,465

OPERATING EXPENSES:
 

 
 

Cost of services, exclusive of depreciation expense shown below
201,257

 
222,277

Cost of product sales, exclusive of depreciation expense shown below
77,636

 
107,550

General and administrative expense, exclusive of depreciation expense shown below
25,308

 
21,667

Depreciation
13,097

 
12,369

Amortization
399

 
582

Other (income) expense, net
2,135

 
(941
)
Severance and other charges
7,090

 

OPERATING INCOME
90,610

 
166,961

Interest expense
5,519

 
5,157

Income before income tax expense
85,091

 
161,804

Income tax expense
19,347

 
36,555

Net income
65,744

 
125,249

Net income (loss) attributable to non-controlling interest
(281
)
 
451

Net income attributable to Core Laboratories N.V.
$
66,025

 
$
124,798

EARNINGS PER SHARE INFORMATION:
 

 
 

Basic earnings per share attributable to Core Laboratories N.V.
$
1.53

 
$
2.79

 
 
 
 
Diluted earnings per share attributable to Core Laboratories N.V.
$
1.53

 
$
2.77

 
 
 
 
Cash dividends per share
$
1.10

 
$
1.00

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 

 
 

Basic
43,063

 
44,783

Diluted
43,214

 
45,045















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

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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(Unaudited)
Net income
$
34,702

 
$
64,096

 
$
65,744

 
$
125,249

 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Gain (loss) in fair value of interest rate swaps
735

 

 
(405
)
 

Interest rate swap amounts reclassified to interest expense
245

 

 
488

 

Income taxes on derivatives
367

 

 
367

 

Total derivatives
1,347

 

 
450

 

 
 
 
 
 
 
 
 
Pension and other postretirement benefit plans
 
 
 
 
 
 
 
Prior service cost
 
 
 
 
 
 
 
Amortization to net income of transition asset
(22
)
 
(22
)
 
(44
)
 
(44
)
Amortization to net income of prior service cost
(19
)
 
1

 
(38
)
 
3

Amortization to net income of actuarial loss
184

 
135

 
367

 
270

Income taxes on pension and other postretirement benefit plans
(36
)
 
(28
)
 
(73
)
 
(57
)
Total pension and other postretirement benefit plans
107

 
86

 
212

 
172

 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
1,454

 
86

 
662

 
172

Comprehensive income
36,156

 
64,182

 
66,406

 
125,421

Comprehensive income (loss) attributable to non-controlling interest
76

 
362

 
(281
)
 
451

Comprehensive income attributable to Core Laboratories N.V.
$
36,080

 
$
63,820

 
$
66,687

 
$
124,970


























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

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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Six Months Ended
 
June 30,
 
2015
 
2014
 
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
65,744

 
$
125,249

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

 
 

Stock-based compensation
10,477

 
10,646

Depreciation and amortization
13,496

 
12,951

(Increase) decrease in value of life insurance policies
(657
)
 
(1,497
)
Deferred income taxes
2,534

 
(4,436
)
Other non-cash items
1,415

 
878

Changes in assets and liabilities:
 
 
 
Accounts receivable
41,359

 
261

Inventories
(4,045
)
 
(4,824
)
Prepaid expenses and other current assets
(3,078
)
 
(10,887
)
Other assets
1,752

 
1,219

Accounts payable
(4,594
)
 
1,464

Accrued expenses
(100
)
 
(3,256
)
Unearned revenue
3,749

 
957

Other long-term liabilities
(1,760
)
 
2,508

Net cash provided by operating activities
126,292

 
131,233

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(12,310
)
 
(19,787
)
Patents and other intangibles
(512
)
 
(304
)
Business acquisition, net of cash acquired
(13,824
)
 
(1,200
)
Proceeds from sale of assets
833

 
604

Premiums on life insurance
(1,564
)
 
(2,866
)
Net cash used in investing activities
(27,377
)
 
(23,553
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repayment of debt borrowings
(27,000
)
 
(37,041
)
Proceeds from debt borrowings
91,000

 
103,000

Excess tax benefits from stock-based compensation
(315
)
 
1,449

Debt financing costs
(279
)
 
(3
)
Non-controlling interest - dividend

 
(394
)
Dividends paid
(47,508
)
 
(44,937
)
Repurchase of common shares
(115,583
)
 
(125,294
)
Net cash used in financing activities
(99,685
)
 
(103,220
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(770
)
 
4,460

CASH AND CASH EQUIVALENTS, beginning of period
23,350

 
25,088

CASH AND CASH EQUIVALENTS, end of period
$
22,580

 
$
29,548













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

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CORE LABORATORIES N.V.
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of Core Laboratories N.V. and its subsidiaries for which we have a controlling voting interest and/or a controlling financial interest. These financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information using the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnote disclosures required by U.S. GAAP and should be read in conjunction with the audited financial statements and the summary of significant accounting policies and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 (the "2014 Annual Report").

Core Laboratories N.V. uses the equity method of accounting for investments in which it has less than a majority interest and over which it does not exercise control but does exert significant influence. We use the cost method to record certain other investments in which we own less than 20% of the outstanding equity and do not exercise control or exert significant influence. Non-controlling interests have been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than 100% owned. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included in these financial statements. Furthermore, the operating results presented for the three and six months ended June 30, 2015 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2015.

Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2014 was derived from the 2014 audited consolidated financial statements but does not include all disclosures in accordance with U.S. GAAP.

Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported net income or cash flows for the three and six months ended June 30, 2014.

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

2.  INVENTORIES

Inventories consist of the following (in thousands):
 
June 30,
2015
 
December 31,
2014
Finished goods
$
34,298

 
$
32,249

Parts and materials
10,817

 
9,147

Work in progress
2,470

 
1,975

Total inventories
$
47,585

 
$
43,371


We include freight costs incurred for shipping inventory to customers in the Cost of product sales line of the Consolidated Statements of Operations.

3.  ACQUISITIONS

In June 2015, we acquired a business providing additional reservoir fluids technology for $17.2 million in cash. We have accounted for this acquisition by allocating the purchase price to the net assets acquired based on their estimated fair values at the date of acquisition, resulting in an increase to goodwill of $14.3 million and an increase of $1.9 million in intangible assets. The acquisition was recorded in the Reservoir Description business segment.

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





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4.  LONG-TERM DEBT

We have no capital lease obligations. Long-term debt is summarized in the following table (in thousands):
 
June 30,
2015
 
December 31,
2014
Senior notes
$
150,000

 
$
150,000

Credit facility
270,000

 
206,000

Other Debt
1,622

 

Total long-term debt
421,622

 
356,000

Less - current maturities of long-term debt obligations
114

 

Long-term debt, net
$
421,508

 
$
356,000


We have two series of senior notes outstanding with an aggregate principal amount of $150 million ("Senior Notes") issued in a private placement transaction. Series A consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.01% and are due in full on September 30, 2021. Series B consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.11% and are due in full on September 30, 2023. Interest on each series of the Senior Notes is payable semi-annually on March 30 and September 30.
    
On March 13, 2015, we entered into an agreement to amend our revolving credit facility (the "Credit Facility") to increase the aggregate borrowing capacity from $350 million to $400 million and to keep the uncommitted availability of an additional $50 million to bring the total borrowings available to $450 million if certain prescribed conditions are met by the Company. The Credit Facility bears interest at variable rates from LIBOR plus 1.25% to a maximum of LIBOR plus 2.00%. Any outstanding balance under the Credit Facility is due August 29, 2019, when the Credit Facility matures. Our available capacity at any point in time is reduced by borrowings outstanding at the time and outstanding letters of credit which totaled $26.1 million at June 30, 2015, resulting in an available borrowing capacity under the Credit Facility of $103.9 million. In addition to those items under the Credit Facility, we had $12.5 million of outstanding letters of credit and performance guarantees and bonds from other sources as of June 30, 2015.

The terms of the Credit Facility and the Senior Notes require us to meet certain covenants, including, but not limited to, certain minimum cash flow ratios. We believe that we are in compliance with all such covenants contained in our credit agreements. Certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million. See Note 12 - Derivative Instruments and Hedging Activities.

The estimated fair value of total debt at June 30, 2015 and December 31, 2014 approximated the book value of total debt. The fair value was estimated using Level 2 inputs by calculating the sum of the discounted future interest and principal payments through the date of maturity.

5.  PENSIONS AND POSTRETIREMENT BENEFITS

Defined Benefit Plan

We provide a non-contributory defined benefit pension plan for substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2007 based on years of service and final pay or career average pay, depending on when the employee began participating. The benefits earned by the employees are immediately vested.

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The following table summarizes the components of net periodic pension cost under the Dutch Plan for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
440

 
$
372

 
$
903

 
$
742

Interest cost
294

 
452

 
603

 
902

Expected return on plan assets
(243
)
 
(335
)
 
(499
)
 
(669
)
Amortization of transition asset
(22
)
 
(22
)
 
(44
)
 
(44
)
Amortization of prior service cost
(19
)
 
1

 
(38
)
 
3

Amortization of actuarial loss
184

 
135

 
367

 
270

Net periodic pension cost
$
634

 
$
603

 
$
1,292

 
$
1,204


During the six months ended June 30, 2015, we contributed approximately $1.0 million to fund the estimated 2015 premiums on investment contracts held by the Dutch Plan.

Defined Contribution Plans

We maintain defined contribution plans for the benefit of eligible employees in certain countries including Canada, The Netherlands, the United Kingdom, and the United States.

Deferred Compensation Arrangements

We have entered into deferred compensation contracts for certain key employees. The benefits under these contracts are fully vested and benefits are paid when the participants attain 65 years of age.

We have adopted a non-qualified deferred compensation plan that allows certain highly compensated employees to defer a portion of their salary, commission and bonus, as well as the amount of any reductions in their deferrals under the deferred compensation plan for employees in the United States, due to certain limitations imposed by the U.S. Internal Revenue Code of 1986, as amended.

6. COMMITMENTS AND CONTINGENCIES

We have been and may from time to time be named as a defendant in legal actions that arise in the ordinary course of business. These include, but are not limited to, employment-related claims and contractual disputes or claims for personal injury or property damage which occur in connection with the provision of our services and products. Management does not currently believe that any of our pending contractual, employment-related, personal injury or property damage claims and disputes will have a material effect on our future results of operations, financial position or cash flow.

In connection with an audit of the 2008 and 2009 U.S. federal income tax returns of our U.S. consolidated group, the U.S. Internal Revenue Service has proposed that certain transfer pricing positions taken by the Company be adjusted, which could result in additional federal income tax of approximately $11 million plus interest for this two-year audit period. We believe that these transactions are valid as originally recorded, and we are appealing this proposed adjustment. It is our belief that we will prevail on this issue; consequently, we have made no additional income tax accrual for this proposed adjustment.

7.  EQUITY

During the three months ended June 30, 2015, we repurchased 359,732 of our common shares for $42.9 million. Included in this total were rights to 11,829 shares valued at $1.3 million that were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares under that plan. During the six months ended June 30, 2015, we repurchased 1,043,022 of our common shares for $115.8 million. Included in this total were rights to 18,478 shares valued at $2.0 million that were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares under that plan.Such common shares, unless canceled, may be reissued for a variety of purposes such as future

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acquisitions, non-employee director stock awards or employee stock awards. During the three and six months ended June 30, 2015, 40,128 and 62,774, respectively, treasury shares were distributed upon vesting of stock-based awards.

At the annual meeting of shareholders on May 21, 2015, our shareholders approved the cancellation of 1,250,000 shares of our common stock then held as treasury stock. These treasury shares will be cancelled after the expiration of the waiting period required under Dutch law. In accordance with ASC 505-30-30-8, we will charge the excess of the cost of the treasury stock over its par value to additional paid-in capital and retained earnings.

In February and May 2015, we paid a quarterly dividend of $0.55 per share of common stock. In addition, on July 7, 2015, we declared a quarterly dividend of $0.55 per share of common stock for shareholders of record on July 17, 2015 and payable on August 17, 2015.

The following table summarizes our changes in equity for the six months ended June 30, 2015 (in thousands):
 
Common Shares
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income (Loss)
 
Treasury Stock
 
Non-Controlling Interest
 
Total Equity
December 31, 2014
$
1,174

 
$

 
$
415,906

 
$
(11,894
)
 
$
(317,613
)
 
$
6,420

 
$
93,993

Stock based-awards

 
315

 
(1,611
)
 

 
11,773

 

 
10,477

Tax benefit of stock-based awards issued

 
(315
)
 

 

 

 

 
(315
)
Repurchase of common shares

 

 

 

 
(115,793
)
 

 
(115,793
)
Dividends paid

 

 
(47,508
)
 

 

 

 
(47,508
)
Amortization of deferred pension costs, net of tax

 

 

 
212

 

 

 
212

Interest rate swaps

 

 

 
450

 

 

 
450

Net income (loss)

 

 
66,025

 

 

 
(281
)
 
65,744

 
 
 
 
 
 
 
 
 
 
 
 
 

June 30, 2015
$
1,174

 
$

 
$
432,812

 
$
(11,232
)
 
$
(421,633
)
 
$
6,139

 
$
7,260


Accumulated other comprehensive income (loss) consisted of the following (in thousands):
 
June 30,
2015
 
December 31,
2014
Transition asset
$
33

 
$
65

Prior service cost
689

 
718

Unrecognized net actuarial loss
(11,322
)
 
(11,595
)
Fair value of derivatives, net of tax
(632
)
 
(1,082
)
Total accumulated other comprehensive income (loss)
$
(11,232
)
 
$
(11,894
)

8.  EARNINGS PER SHARE

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

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Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Weighted average basic common shares outstanding
42,790

 
44,660

 
43,063

 
44,783

Effect of dilutive securities:
 
 
 
 
 
 
 
Performance shares
104

 
111

 
86

 
105

Restricted stock
65

 
139

 
65

 
157

Weighted average diluted common and potential common shares outstanding
42,959

 
44,910

 
43,214

 
45,045


9. OTHER (INCOME) EXPENSE, NET

The components of other (income) expense, net, were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Sale of assets
$
(127
)
 
$
(180
)
 
$
(262
)
 
$
(298
)
Results of non-consolidated subsidiaries
(36
)
 
(52
)
 
(80
)
 
(130
)
Foreign exchange
1,002

 
(1,300
)
 
1,842

 
300

Rents and royalties
(119
)
 
(223
)
 
(255
)
 
(447
)
Other, net
1,093

 
(441
)
 
890

 
(366
)
Total other (income) expense, net
$
1,813

 
$
(2,196
)
 
$
2,135

 
$
(941
)

Foreign exchange (gain) loss by currency is summarized in the following table (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Angola Kwanza
372

 

 
508

 
(3
)
Australian Dollar
64

 
69

 
183

 
62

British Pound
(262
)
 
(222
)
 
112

 
(274
)
Canadian Dollar
(51
)
 
(860
)
 
1,223

 
168

Euro
295

 
(50
)
 
(760
)
 
2

Nigeria Naira
180

 
11

 
319

 
75

Russian Ruble
47

 
(136
)
 
(5
)
 
40

Other currencies, net
357

 
(112
)
 
262

 
230

Total (gain) loss
$
1,002

 
$
(1,300
)
 
$
1,842

 
$
300


10.  INCOME TAX EXPENSE

The effective tax rates for the three months ended June 30, 2015 and 2014 were 22.5% and 21.2%, respectively. The effective tax rates for the six months ended June 30, 2015 and 2014 were 22.7% and 22.6%, respectively. The change in tax expense is primarily the result of changes in activity levels among jurisdictions with different tax rates.

11.  SEVERANCE AND OTHER CHARGES

In response to lower commodity pricing and reduced spending by our clients related to oil and gas producing fields in 2015, we decided during the first quarter of 2015 to reduce our cost structure, primarily through a reduction in our workforce, to better align with anticipated activity levels for 2015, which is summarized below. As a result of these cost reductions, we recorded a charge of $7.1 million in the first quarter of 2015. Depending on how the market situation evolves, further actions may be necessary, which could result in additional charges in future periods.
Reduction in Force ($6.4 million): termination benefits expensed and paid or accrued at March 31, 2015,

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Facility Exit Costs ($0.5 million), and
Asset Write-Offs ($0.2 million): write-off of assets that have no associated future cash flows.
During the second quarter of 2015, we continued to closely monitor rig counts, crude oil and natural gas prices, and activity levels within the industry. We continued our reduction in force initiative which began in the first quarter of 2015, but no additional accruals or write-offs were recorded during the second quarter of 2015.

12.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Interest Rate Risk

Our Credit Facility bears interest at variable rates from LIBOR plus 1.25% to a maximum of LIBOR plus 2.00%. We are subject to interest rate risk on the debt carried through our Credit Facility.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million to hedge changes in the variable rate interest expense on $50 million of our existing or replacement LIBOR-priced debt. Under the first swap agreement of $25 million, we have fixed the interest rate at 2.98% through August 29, 2019, and under the second swap agreement of $25 million, we have fixed the interest rate at 3.75% through August 29, 2024. Each swap is measured at fair value and recorded in our Consolidated Balance Sheet as a liability. They are designated and qualify as cash flow hedging instruments and are highly effective. Unrealized gains/losses are deferred to shareholders' equity as a component of accumulated other comprehensive income/loss and are recognized in income as a decrease/increase to interest expense in the period in which the related cash flows being hedged are recognized in expense.

At June 30, 2015, we had fixed rate debt aggregating $200 million and variable rate debt aggregating $220 million, after taking into account the effect of the swaps.

The fair values of outstanding derivative instruments are as follows:
 
Fair Value of Derivatives
 
 
 
June 30, 2015
 
December 31, 2014
 
Balance Sheet Classification
Derivatives designated as hedges:
 
 
 
 
 
5 year interest rate swap
$
335

 
$
201

 
Other long-term liabilities
10 year interest rate swap
664

 
881

 
Other long-term liabilities
 
$
999

 
$
1,082

 
 

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

The effect of the interest rate swaps on the Consolidated Statement of Operations was as follows:
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
Income Statement Classification
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
5 year interest rate swap
$
98

 
$

 
$
195

 
$

 
Increase to interest expense
10 year interest rate swap
147

 

 
293

 

 
Increase to interest expense
 
$
245

 
$

 
$
488

 
$

 
 

13.  FINANCIAL INSTRUMENTS

The Company's only financial assets and liabilities which involve fair value measures relate to certain aspects of the Company's benefit plans and our derivative instruments. We use the market approach to value certain assets and liabilities at fair value using significant other observable inputs (Level 2) with the assistance of a third party specialist. We do not have any

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assets or liabilities measured at fair value on a recurring basis using quoted prices in an active market (Level 1) or significant unobservable inputs (Level 3). Gains and losses related to the fair value changes in the deferred compensation assets and liabilities are recorded in General and administrative expense in the Consolidated Statements of Operations. Gains and losses related to the fair value of the interest rate swaps are recorded in Other comprehensive income (loss). The following table summarizes the fair value balances (in thousands):
 
 
 
Fair Value Measurement at
 
 
 
June 30, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation trust assets (1)
$
24,115

 
$

 
$
24,115

 
$

Liabilities:
 

 
 

 
 
 
 
Deferred compensation plan
$
29,481

 
$

 
$
29,481

 
$

5 year interest rate swap
335

 

 
335

 

10 year interest rate swap
664

 

 
664

 

 
$
30,480

 
$

 
$
30,480

 
$


 
 
 
Fair Value Measurement at
 
 
 
December 31, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation trust assets (1)
$
24,199

 
$

 
$
24,199

 
$

Liabilities:
 

 
 
 
 
 
 
Deferred compensation plan
$
29,153

 
$

 
$
29,153

 
$

5 year interest rate swap
201

 

 
201

 

10 year interest rate swap
881

 

 
881

 

 
$
30,235

 
$

 
$
30,235

 
$

 
 
 
 
 
 
 
 
(1) Trust assets consist of the cash surrender value of life insurance policies intended to assist in the funding of the deferred compensation plan and are included in Other assets in the Balance Sheet.

14.  SEGMENT REPORTING

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

Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples. We provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry.
Production Enhancement: Includes services and products 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.
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.

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

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Reservoir Description
 
Production Enhancement
 
Reservoir Management
 
Corporate & Other 1
 
Consolidated
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
Revenue from unaffiliated clients
$
118,911

 
$
70,589

 
$
14,389

 
$

 
$
203,889

Inter-segment revenue
2,411

 
652

 
58

 
(3,121
)
 

Segment operating income (loss)
30,944

 
14,376

 
3,452

 
(879
)
 
47,893

Total assets (at end of period)
330,417

 
229,899

 
26,048

 
72,621

 
658,985

Capital expenditures
4,297

 
709

 
45

 
390

 
5,441

Depreciation and amortization
4,232

 
1,649

 
422

 
627

 
6,930

Three Months Ended June 30, 2014
 
 
 

 
 

 
 

 
 

Revenue from unaffiliated clients
$
130,589

 
$
110,993

 
$
25,980

 
$

 
$
267,562

Inter-segment revenue
2,763

 
384

 
347

 
(3,494
)
 

Segment operating income (loss)
36,341

 
37,660

 
9,794

 
339

 
84,134

Total assets (at end of period)
318,370

 
264,784

 
39,795

 
66,179

 
689,128

Capital expenditures
6,280

 
1,755

 
282

 
3,802

 
12,119

Depreciation and amortization
3,935

 
1,880

 
366

 
137

 
6,318

Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
Revenue from unaffiliated clients
$
240,670

 
$
145,734

 
$
31,128

 
$

 
$
417,532

Inter-segment revenue
5,187

 
1,369

 
207

 
(6,763
)
 

Segment operating income (loss)
59,474

 
24,299

 
7,318

 
(481
)
 
90,610

Total assets
330,417

 
229,899

 
26,048

 
72,621

 
658,985

Capital expenditures
8,734

 
2,512

 
266

 
798

 
12,310

Depreciation and amortization
8,015

 
3,410

 
853

 
1,218

 
13,496

Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
Revenue from unaffiliated clients
$
255,845

 
$
221,273

 
$
53,347

 
$

 
$
530,465

Inter-segment revenue
5,532

 
1,181

 
767

 
(7,480
)
 

Segment operating income (loss)
71,194

 
74,862

 
20,268

 
637

 
166,961

Total assets
318,370

 
264,784

 
39,795

 
66,179

 
689,128

Capital expenditures
11,096

 
2,830

 
367

 
5,494

 
19,787

Depreciation and amortization
7,783

 
3,775

 
605

 
788

 
12,951

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

15. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09 relating to revenue from contracts with customers (FASB ASC Topic 606), which provides guidance on revenue recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance requires entities to apply a five-step method to (1) identify the contract(s) with customers; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (on July 9, 2015, the FASB deferred the implementation date for one year). We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02 which affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interest in legal entities that are required to comply with or operate in accordance with requirements that are similar to those for registered money market funds. This pronouncement is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.

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

The following discussion summarizes the financial position of Core Laboratories N.V. and its subsidiaries as of June 30, 2015 and should be read in conjunction with (i) the unaudited consolidated interim financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the "2014 Annual Report").

General

Core Laboratories N.V. is a limited liability company incorporated and domiciled in The Netherlands. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description, production enhancement and reservoir management services and products to the oil and gas industry. These services and products can enable our clients to improve reservoir performance and increase oil and gas recovery from their producing fields. Core Laboratories N.V. has over 70 offices in more than 50 countries and employs approximately 4,400 people worldwide.

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

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

Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples. We provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry.
Production Enhancement: Includes services and products 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.
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.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section, including those under the headings "Outlook" and "Liquidity and Capital Resources", and in other parts of this Form 10-Q, are forward-looking. In addition, from time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. Forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "continue", or other similar words, including statements as to the intent, belief, or current expectations of our directors, officers, and management with respect to our future operations, performance, or positions or which contain other forward-looking information. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, no assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While we believe that these statements are and will be accurate, our actual results and experience may differ materially from the anticipated results or other expectations expressed in our statements due to a variety of risks and uncertainties.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see "Item 1A - Risk Factors" in our 2014 Annual Report on Form 10-K and in Part II of this document, as well as the other reports filed by us with the Securities and Exchange Commission (“SEC”).




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Outlook

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

During the fourth quarter of 2014, the prices for both WTI and Brent crude oil began to fall sharply, particularly after the OPEC meeting held on November 27, 2014. Average prices for the majority of the 2014 calendar year were in excess of $99 per barrel for WTI and in excess of $105 per barrel for Brent; however, were down to approximately $50 per barrel by year’s end. These depressed prices have caused a significant decrease in the activities associated with both the exploration and production of oil during 2015.

The North American land-based activity has been impacted more significantly with the average rig count decreasing by more than 56% in 2015 when compared to the 2014 fourth quarter levels. If the WTI crude oil price remains near its current level, we believe the significantly lower levels of industry activity experienced in the first half of 2015 may continue through the remainder of 2015, which could negatively impact our North America operations.

Outside of North America, activities associated with the exploration and production of oil have also decreased from 2014 levels, although not as significantly as the land-based activities in North America. The average international rig count in the first half 2015 is down approximately 13% as compared to the 2014 fourth quarter. These reduced international activities have impacted most regions, except the Middle East, where we continue to see sustained levels and some potential growth in 2015. As with North America land-based activity, we believe international activities will also remain at reduced levels, without a meaningful improvement in the current Brent crude oil prices.

We saw the U.S. production start to decline in the second quarter of 2015 which we believe is an indication that the balancing of worldwide crude-oil markets is underway. Additionally, the most recent International Energy Agency estimates project worldwide demand to increase in 2015 by 1.4 million barrels of oil per day in response to low commodity prices. With the very steep decline curves associated with the unconventional tight oil reservoirs in the U.S., we now believe that U.S. supply growth rolled over in April of 2015 and that year-over-year crude-oil production will be down several hundreds-of-thousands of barrels per day. Therefore, at current activity levels, U.S. production could fall significantly in 2015 and 2016, while worldwide oil production continues to stagnate or decrease slightly because recent international production gains may not be sustainable over the long term.

Response to Decline in Oilfield Services Activities

In response to lower commodity pricing and reduced spending by our clients related to oil and gas producing fields in 2015, we decided during the first quarter of 2015 to reduce our cost structure, primarily consisting of reductions in our workforce, to better align with anticipated activity levels for 2015, which is summarized below. As a result of these cost reductions, we recorded a charge of $7.1 million in the first quarter of 2015. Depending on how the market situation evolves, further actions may be necessary, which could result in additional charges in future periods.

Reduction in Force ($6.4 million): termination benefits expensed and paid or accrued at March 31, 2015,
Facility Exit Costs ($0.5 million), and
Asset Write-Offs ($0.2 million): write-off of assets that have no associated future cash flows.
During the second quarter of 2015, we continued to closely monitor rig counts, crude oil and natural gas prices, and activity levels within the industry. We continued our reduction in force initiative which began in the first quarter of 2015, but no additional accruals or write-offs were recorded during the second quarter of 2015.









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Results of Operations

Our results of operations as a percentage of applicable revenue were as follows (in thousands):
 
Three Months Ended June 30,
 
$ Change
% Change
 
2015
 
2014
 
2015/2014

2015/2014

REVENUE:
 
 
 
 

Services
$
156,861

 
77
%
 
$
188,299

 
70
 %
 
$
(31,438
)
(17
)%
Product sales
47,028

 
23
%
 
79,263

 
30
 %
 
(32,235
)
(41
)%
Total revenue
203,889

 
100
%
 
267,562

 
100
 %
 
(63,673
)
(24
)%
OPERATING EXPENSES:
 

 
 

 
 

 
 

 




Cost of services, exclusive of depreciation expense shown below*
98,462

 
63
%
 
111,706

 
59
 %
 
(13,244
)
(12
)%
Cost of product sales, exclusive of depreciation expense shown below*
36,157

 
77
%
 
56,452

 
71
 %
 
(20,295
)
(36
)%
Total cost of services and product sales
134,619

 
66
%
 
168,158

 
63
 %
 
(33,539
)
(20
)%
General and administrative expense
12,634

 
6
%
 
11,148

 
4
 %
 
1,486

13
 %
Depreciation and amortization
6,930

 
3
%
 
6,318

 
2
 %
 
612

10
 %
Other (income) expense, net
1,813

 
1
%
 
(2,196
)
 
(1
)%
 
4,009

NM

Operating income
47,893

 
23
%
 
84,134

 
31
 %
 
(36,241
)
(43
)%
Interest expense
3,116

 
2
%
 
2,794

 
1
 %
 
322

12
 %
Income before income tax expense
44,777

 
22
%
 
81,340

 
30
 %
 
(36,563
)
(45
)%
Income tax expense
10,075

 
5
%
 
17,244

 
6
 %
 
(7,169
)
(42
)%
Net income
34,702

 
17
%
 
64,096

 
24
 %
 
(29,394
)
(46
)%
Net income (loss) attributable to non-controlling interest
76

 
0
%
 
362

 
0
 %
 
(286
)
(79
)%
Net income attributable to Core Laboratories N.V.
$
34,626

 
17
%
 
$
63,734

 
24
 %
 
$
(29,108
)
(46
)%
"NM"  means not meaningful
 
 
 
* Percentage based on applicable revenue rather than total revenue.
 
 

 
 
 


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   Six Months Ended June 30,
 
$ Change
% Change
 
2015
 
2014
 
2015/2014

2015/2014
REVENUE:
 
 
 
 
Services
$
319,835

 
77
 %
 
$
377,034

 
71
 %
 
$
(57,199
)
(15
)%
Product sales
97,697

 
23
 %
 
153,431

 
29
 %
 
(55,734
)
(36
)%
Total revenue
417,532

 
100
 %
 
530,465

 
100
 %
 
(112,933
)
(21
)%
OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Cost of services, exclusive of depreciation expense shown below*
201,257

 
63
 %
 
222,277

 
59
 %
 
(21,020
)
(9
)%
Cost of product sales, exclusive of depreciation expense shown below*
77,636

 
79
 %
 
107,550

 
70
 %
 
(29,914
)
(28
)%
Total cost of services and product sales
278,893

 
67
 %
 
329,827

 
62
 %
 
(50,934
)
(15
)%
General and administrative expense
25,308

 
6
 %
 
21,667

 
4
 %
 
3,641

17
 %
Depreciation and amortization
13,496

 
3
 %
 
12,951

 
2
 %
 
545

4
 %
Other (income), net
2,135

 
1
 %
 
(941
)
 
0
 %
 
3,076

NM

Severance and other charges
7,090

 
2
 %
 

 
0
 %
 
7,090

NM

Operating income
90,610

 
22
 %
 
166,961

 
31
 %
 
(76,351
)
(46
)%
Interest expense
5,519

 
1
 %
 
5,157

 
1
 %
 
362

7
 %
Income before income tax expense
85,091

 
20
 %
 
161,804

 
31
 %
 
(76,713
)
(47
)%
Income tax expense
19,347

 
5
 %
 
36,555

 
7
 %
 
(17,208
)
(47
)%
Net income
65,744

 
16
 %
 
125,249

 
24
 %
 
(59,505
)
(48
)%
Net income (loss) attributable to non-controlling interest
(281
)
 
0
 %
 
451

 
0
 %
 
(732
)
(162
)%
Net income attributable to Core Laboratories N.V.
$
66,025

 
16
 %
 
$
124,798

 
24
 %
 
$
(58,773
)
(47
)%
"NM"  means not meaningful
 
 
 
* Percentage based on applicable revenue rather than total revenue.
 
 
 
 
 

Operating Results for the Three and Six Months Ended June 30, 2015 Compared to the Three and Six Months Ended June 30, 2014

Services Revenue

Services revenue decreased 17% to $156.9 million for the second quarter of 2015 when compared to $188.3 million for the second quarter of 2014. For the six months ended June 30, 2015, services revenue decreased to $319.8 million as compared to $377.0 million for the same period of 2014. Prices at the end of the second quarter of 2015 for WTI and Brent crude oil declined 44% and 46%, respectively, since the end of the second quarter of 2014. As a result, the global rig count plummeted, primarily in North America, resulting in decreased demand for our well analysis and completion services. Our continued focus on worldwide crude oil related and large natural gas liquefaction projects, especially those related to the development of deepwater fields off West and East Africa and the eastern Mediterranean, kept services revenue from declining further.

Product Sales Revenue

Revenue associated with product sales decreased to $47.0 million for the second quarter of 2015, compared to $79.3 million for the second quarter of 2014. For the six months ended June 30, 2015, product sales revenue decreased to $97.7 million compared to $153.4 million during the same period in 2014. Rig count at the end of the second quarter of 2015 for the US and Canada declined 54% and 46%, respectively, since the end of the second quarter of 2014, resulting in a dramatic decrease in the demand for our well completion products.

Cost of Services

Cost of services expressed as a percentage of services revenue increased to 63% for the three and six months ended June 30, 2015, compared to 59% for the same periods in 2014. The increase is primarily due to our fixed costs structure being absorbed on lower revenues in 2015 when compared to 2014.

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Cost of Product Sales

Cost of product sales expressed as a percentage of product sales revenue increased to 77% and 79% for the three and six months ended June 30, 2015, respectively, compared to 71% and 70%, respectively, for the same periods in 2014. These increases were primarily related to our fixed costs structure being absorbed on lower revenue in 2015 when compared to 2014. We took actions to reduce our cost structure in response to the sharp decline in North America activity during the first quarter of 2015. The cost benefits of these actions are reflected in the results for the second quarter of 2015 as we see a sequential improvement in the cost of product sales.
 
General and Administrative Expense

General and administrative ("G&A") expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three and six months ended June 30, 2015 was $12.6 million and $25.3 million, respectively, compared to $11.1 million and $21.7 million, respectively, for the same periods in 2014 primarily due to compensation expense.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three and six months ended June 30, 2015 was $6.9 million and $13.5 million, respectively, compared to $6.3 million and $13.0 million, respectively, for the same periods in 2014.

Severance and Other Charges

Based on the still falling oil and natural gas prices, the falling rig counts and reductions in CAPEX spending by our clients, we responded with a reduction in our workforce and recorded the following charges and credits in continuing operations during the quarter ending March 31, 2015:
Reduction in Force ($6.4 million): termination benefits expensed and paid or accrued at March 31, 2015,
Facility Exit Costs ($0.5 million), and
Asset Write-Offs ($0.2 million): write-off of assets that have no associated future cash flows.
During the second quarter of 2015, we continued to closely monitor rig counts, crude oil and natural gas prices, and activity levels within the industry. We continued our reduction in force initiative which began in the first quarter of 2015, but no additional accruals or write-offs were recorded during the second quarter of 2015.

Other (Income) Expense, Net

The components of other (income) expense, net, were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Sale of assets
$
(127
)
 
$
(180
)
 
$
(262
)
 
$
(298
)
Results of non-consolidated subsidiaries
(36
)
 
(52
)
 
(80
)
 
(130
)
Foreign exchange
1,002

 
(1,300
)
 
1,842

 
300

Rents and royalties
(119
)
 
(223
)
 
(255
)
 
(447
)
Other, net
1,093

 
(441
)
 
890

 
(366
)
Total other (income) expense, net
$
1,813

 
$
(2,196
)
 
$
2,135

 
$
(941
)

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Foreign exchange (gain) loss by currency is summarized in the following table (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Angola Kwanza
372

 

 
508

 
(3
)
Australian Dollar
64

 
69

 
183

 
62

British Pound
(262
)
 
(222
)
 
112

 
(274
)
Canadian Dollar
(51
)
 
(860
)
 
1,223

 
168

Euro
295

 
(50
)
 
(760
)
 
2

Nigeria Naira
180

 
11

 
319

 
75

Russian Ruble
47

 
(136
)
 
(5
)
 
40

Other currencies, net
357

 
(112
)
 
262

 
230

Total (gain) loss
$
1,002

 
$
(1,300
)
 
$
1,842

 
$
300



Interest Expense

Interest expense for the three months ended June 30, 2015 and 2014 was $3.1 million and $2.8 million, respectively. Interest expense for the six months ended June 30, 2015 and 2014 was $5.5 million and $5.2 million, respectively.

Income Tax Expense

The effective tax rates for the three months ended June 30, 2015 and 2014 were 22.5% and 21.2%, respectively. The effective tax rates for the six months ended June 30, 2015 and 2014 were 22.7% and 22.6%, respectively. The change in tax expense is primarily the result of changes in activity levels among jurisdictions with different tax rates.

Segment Analysis

Our operations are managed primarily in three complementary reportable segments - Reservoir Description, Production Enhancement and Reservoir Management. The following tables summarize our results by segment for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
 
Three Months Ended June 30,
 
$ Change
% Change
 
Three Months Ended March 31,
 
$ Change
% Change
 
 
2015
 
2014
 
2015/2014
2015/2014
 
2015
 
Q1/Q2
Q1/Q2
Revenue:
 
 
 
 
 

 
 
 
 
 
Reservoir Description
 
$
118,911

 
$
130,589

 
$
(11,678
)
(9
)%
 
$
121,759

 
$
(2,848
)
(2
)%
Production Enhancement
 
70,589

 
110,993

 
(40,404
)
(36
)%
 
75,145

 
(4,556
)
(6
)%
Reservoir Management
 
14,389

 
25,980

 
(11,591
)
(45
)%
 
16,739

 
(2,350
)
(14
)%
Consolidated
 
$
203,889

 
$
267,562

 
$
(63,673
)
(24
)%
 
$
213,643

 
$
(9,754
)
(5
)%
Operating income (loss):
 
 

 
 

 




 
 
 
 
 
Reservoir Description
 
$
30,944

 
$
36,341

 
$
(5,397
)
(15
)%
 
$
28,530

 
$
2,414

8
 %
Production Enhancement
 
14,376

 
37,660

 
(23,284
)
(62
)%
 
9,923

 
4,453

45
 %
Reservoir Management
 
3,452

 
9,794

 
(6,342
)
(65
)%
 
3,866