clb-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

 

For the transition period from ________________ to ______________

 

Commission File Number:  001-14273

 

CORE LABORATORIES N.V.

(Exact name of registrant as specified in its charter)

 

The Netherlands

 

Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

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

Strawinskylaan 913

 

 

Tower A, Level 9

 

 

1077 XX Amsterdam

 

 

The Netherlands

 

Not Applicable

(Address of principal executive offices)

 

(Zip Code)

 

(31-20) 420-3191

(Registrant's telephone number, including area code)

 

None

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   No

 

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

 

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

 

Large accelerated filer

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

 

 

 

 

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

 

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

Yes   No

 

The number of common shares of the registrant, par value EUR 0.02 per share, outstanding at April 24, 2019 was 44,353,347.

 


 

CORE LABORATORIES N.V.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2019

INDEX

PART I - FINANCIAL INFORMATION

 

 

 

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

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

3

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2019 and 2018

4

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018

5

 

 

 

 

Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2019 and 2018

6

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018

7

 

 

 

 

Notes to the Unaudited Consolidated Interim Financial Statements

8

 

 

 

Item 2.

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

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 6.

Exhibits

30

 

 

 

 

Signature

31

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CORE LABORATORIES N.V.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

ASSETS

 

(Unaudited)

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,206

 

 

$

13,116

 

Accounts receivable, net of allowance for doubtful accounts of $2,789

   and $2,650 at 2019 and 2018, respectively

 

 

132,859

 

 

 

129,157

 

Inventories

 

 

50,147

 

 

 

45,664

 

Prepaid expenses

 

 

14,433

 

 

 

15,351

 

Income taxes receivable

 

 

12,517

 

 

 

13,993

 

Other current assets

 

 

13,261

 

 

 

13,696

 

TOTAL CURRENT ASSETS

 

 

236,423

 

 

 

230,977

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

124,758

 

 

 

122,917

 

RIGHT OF USE ASSETS

 

 

77,537

 

 

 

-

 

INTANGIBLES, net

 

 

12,887

 

 

 

13,054

 

GOODWILL

 

 

219,139

 

 

 

219,412

 

DEFERRED TAX ASSETS

 

 

64,657

 

 

 

11,252

 

OTHER ASSETS

 

 

56,359

 

 

 

51,215

 

TOTAL ASSETS

 

$

791,760

 

 

$

648,827

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

44,467

 

 

$

41,155

 

Accrued payroll and related costs

 

 

32,768

 

 

 

22,549

 

Taxes other than payroll and income

 

 

7,071

 

 

 

7,488

 

Unearned revenue

 

 

18,430

 

 

 

17,325

 

Operating lease liabilities

 

 

13,003

 

 

 

-

 

Income taxes payable

 

 

2,326

 

 

 

2,917

 

Other current liabilities

 

 

10,550

 

 

 

11,113

 

TOTAL CURRENT LIABILITIES

 

 

128,615

 

 

 

102,547

 

LONG-TERM DEBT, net

 

 

294,896

 

 

 

289,770

 

LONG-TERM OPERATING LEASE LIABILITIES

 

 

64,090

 

 

 

-

 

DEFERRED COMPENSATION

 

 

48,087

 

 

 

49,359

 

DEFERRED TAX LIABILITIES

 

 

29,281

 

 

 

7,634

 

OTHER LONG-TERM LIABILITIES

 

 

39,438

 

 

 

38,617

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

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

   none issued or outstanding

 

 

 

 

 

 

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

   44,796,252 issued and 44,333,774 outstanding at 2019 and 44,796,252

   issued and 44,316,845 outstanding at 2018

 

 

1,148

 

 

 

1,148

 

Additional paid-in capital

 

 

65,084

 

 

 

57,438

 

Retained earnings

 

 

172,266

 

 

 

156,130

 

Accumulated other comprehensive income (loss)

 

 

(5,795

)

 

 

(5,456

)

Treasury shares (at cost), 462,478 at 2019 and 479,407 at 2018

 

 

(49,538

)

 

 

(52,501

)

Total Core Laboratories N.V. shareholders' equity

 

 

183,165

 

 

 

156,759

 

Non-controlling interest

 

 

4,188

 

 

 

4,141

 

TOTAL EQUITY

 

 

187,353

 

 

 

160,900

 

TOTAL LIABILITIES AND EQUITY

 

$

791,760

 

 

$

648,827

 

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

3

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

REVENUE:

 

 

 

 

 

 

 

 

Services

 

$

120,338

 

 

$

119,786

 

Product sales

 

 

48,856

 

 

 

50,232

 

Total revenue

 

 

169,194

 

 

 

170,018

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Cost of services, exclusive of depreciation expense shown below

 

 

92,359

 

 

 

83,288

 

Cost of product sales, exclusive of depreciation expense shown below

 

 

35,024

 

 

 

36,030

 

General and administrative expense, exclusive of depreciation

   expense shown below

 

 

17,437

 

 

 

12,709

 

Depreciation

 

 

5,239

 

 

 

5,582

 

Amortization

 

 

348

 

 

 

236

 

Other (income) expense, net

 

 

2,373

 

 

 

(143

)

OPERATING INCOME

 

 

16,414

 

 

 

32,316

 

Interest expense

 

 

3,726

 

 

 

3,120

 

Income from continuing operations before income tax expense

 

 

12,688

 

 

 

29,196

 

Income tax expense (benefit)

 

 

(27,610

)

 

 

5,273

 

Income from continuing operations

 

 

40,298

 

 

 

23,923

 

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

 

 

259

 

 

 

(346

)

Net income

 

 

40,557

 

 

 

23,577

 

Net income attributable to non-controlling interest

 

 

47

 

 

 

50

 

Net income attributable to Core Laboratories N.V.

 

$

40,510

 

 

$

23,527

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER SHARE INFORMATION:

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

0.91

 

 

$

0.54

 

Basic earnings (loss) per share from discontinued operations

 

$

-

 

 

$

(0.01

)

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

 

$

0.91

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations

 

$

0.90

 

 

$

0.54

 

Diluted earnings (loss) per share from discontinued operations

 

$

0.01

 

 

$

(0.01

)

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

 

$

0.91

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

Basic

 

 

44,323

 

 

 

44,179

 

Diluted

 

 

44,734

 

 

 

44,463

 

 

 

 

 

 

 

 

 

 

 

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

 

4

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Net income

 

$

40,557

 

 

$

23,577

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

Gain (loss) in fair value of interest rate swaps

 

 

(372

)

 

 

646

 

Interest rate swap amounts reclassified to interest expense

 

 

(49

)

 

 

64

 

Income taxes on derivatives

 

 

89

 

 

 

(150

)

Total derivatives

 

 

(332

)

 

 

560

 

Pension and other postretirement benefit plans

 

 

 

 

 

 

 

 

Prior service cost

 

 

 

 

 

 

 

 

Amortization to net income of prior service cost

 

 

(25

)

 

 

(21

)

Amortization to net income of actuarial loss

 

 

15

 

 

 

84

 

Income taxes on pension and other postretirement benefit

   plans

 

 

3

 

 

 

(15

)

Total pension and other postretirement benefit plans

 

 

(7

)

 

 

48

 

Total other comprehensive income (loss)

 

 

(339

)

 

 

608

 

Comprehensive income

 

 

40,218

 

 

 

24,185

 

Comprehensive income attributable to non-controlling interest

 

 

47

 

 

 

50

 

Comprehensive income attributable to Core Laboratories N.V.

 

$

40,171

 

 

$

24,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5

 

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CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Common Shares

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

1,148

 

 

$

1,148

 

Balance at End of Period

 

$

1,148

 

 

$

1,148

 

Additional Paid-In Capital

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

57,438

 

 

$

54,463

 

Stock based-awards

 

 

7,646

 

 

 

1,207

 

Balance at End of Period

 

$

65,084

 

 

$

55,670

 

Retained Earnings

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

156,130

 

 

$

173,855

 

Dividends paid

 

 

(24,374

)

 

 

(24,322

)

Net income attributable to Core Laboratories N.V.

 

 

40,510

 

 

 

23,527

 

Balance at End of Period

 

$

172,266

 

 

$

173,060

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

(5,456

)

 

$

(8,353

)

Amortization of deferred pension costs, net of tax

 

 

(7

)

 

 

48

 

Interest rate swaps, net of tax

 

 

(332

)

 

 

560

 

Balance at End of Period

 

$

(5,795

)

 

$

(7,745

)

Treasury Stock

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

(52,501

)

 

$

(76,269

)

Stock based-awards

 

 

3,450

 

 

 

5,084

 

Repurchase of common shares

 

 

(487

)

 

 

(3,310

)

Balance at End of Period

 

$

(49,538

)

 

$

(74,495

)

Non-Controlling Interest

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

4,141

 

 

$

3,888

 

Net income attributable to non-controlling interest

 

 

47

 

 

 

50

 

Balance at End of Period

 

$

4,188

 

 

$

3,938

 

Total Equity

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

160,900

 

 

$

148,732

 

Stock based-awards

 

 

11,096

 

 

 

6,291

 

Repurchase of common shares

 

 

(487

)

 

 

(3,310

)

Dividends paid

 

 

(24,374

)

 

 

(24,322

)

Amortization of deferred pension costs, net of tax

 

 

(7

)

 

 

48

 

Interest rate swaps, net of tax

 

 

(332

)

 

 

560

 

Net income

 

 

40,557

 

 

 

23,577

 

Balance at End of Period

 

$

187,353

 

 

$

151,576

 

 

 

 

 

 

 

 

 

 

Cash Dividends per Share

 

$

0.55

 

 

$

0.55

 

 

 

 

 

 

 

 

 

 

 

 

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

6

 

Return to Index


 

CORE LABORATORIES N.V.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

40,298

 

 

$

23,923

 

Income (loss) from discontinued operations, net of tax

 

 

259

 

 

 

(346

)

Net income

 

$

40,557

 

 

$

23,577

 

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

11,096

 

 

 

6,291

 

Depreciation and amortization

 

 

5,587

 

 

 

5,818

 

Changes to value of life insurance policies

 

 

(1,771

)

 

 

29

 

Deferred income taxes

 

 

(31,760

)

 

 

(256

)

Other non-cash items

 

 

(74

)

 

 

98

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,936

)

 

 

(5,913

)

Inventories

 

 

(4,407

)

 

 

(3,686

)

Prepaid expenses and other current assets

 

 

3,443

 

 

 

(901

)

Other assets

 

 

(2,882

)

 

 

742

 

Accounts payable

 

 

1,346

 

 

 

2,634

 

Accrued expenses

 

 

8,531

 

 

 

(2,281

)

Unearned revenues

 

 

825

 

 

 

188

 

Other long-term liabilities

 

 

(1,399

)

 

 

(3,247

)

Net cash provided by operating activities

 

$

25,156

 

 

$

23,093

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

$

(5,183

)

 

$

(4,443

)

Patents and other intangibles

 

 

86

 

 

 

(72

)

Proceeds from sale of assets

 

 

311

 

 

 

280

 

Premiums on life insurance

 

 

(419

)

 

 

(382

)

Net cash used in investing activities

 

$

(5,205

)

 

$

(4,617

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of debt borrowings

 

$

(32,000

)

 

$

(29,000

)

Proceeds from debt borrowings

 

 

37,000

 

 

 

37,000

 

Dividends paid

 

 

(24,374

)

 

 

(24,322

)

Repurchase of common shares

 

 

(487

)

 

 

(3,310

)

Net cash used in financing activities

 

$

(19,861

)

 

$

(19,632

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

90

 

 

 

(1,156

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

13,116

 

 

 

14,400

 

CASH AND CASH EQUIVALENTS, end of period

 

$

13,206

 

 

$

13,244

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

4,795

 

 

$

4,149

 

Cash payments for income taxes

 

$

1,476

 

 

$

4,056

 

 

 

 

 

 

 

 

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

 

 

7

 

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CORE LABORATORIES N.V.

NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

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

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

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

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

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

 

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

 

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

Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported net income or cash flows for the three months ended March 31, 2018.

2. INVENTORIES

Inventories consisted of the following (in thousands):

 

 

March 31,

2019

 

 

December 31,

2018

 

Finished goods

 

$

28,038

 

 

$

26,636

 

Parts and materials

 

 

19,023

 

 

 

13,704

 

Work in progress

 

 

3,086

 

 

 

5,324

 

Total inventories

 

$

50,147

 

 

$

45,664

 

 

8

 

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

3. SIGNIFICANT ACCOUNTING POLICIES UPDATE

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

Leases

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

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

4. CONTRACT ASSETS AND CONTRACT LIABILITIES

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

Contract assets include our right to payment for goods and services already transferred to a customer when the right to payment is conditional on something other than the passage of time, for example contracts where we recognize revenue over time but do not have a contractual right to payment until we complete the performance obligations. Contract assets are included in our accounts receivable and are not material as of March 31, 2019.

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

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

 

 

March 31,

2019

 

 

December 31,

2018

 

Contract assets

 

 

 

 

 

 

 

 

Current

 

$

791

 

 

$

1,145

 

Non-Current

 

 

244

 

 

 

188

 

 

 

$

1,035

 

 

$

1,333

 

Contract Liabilities

 

 

 

 

 

 

 

 

Current

 

$

7,595

 

 

$

5,963

 

Non-current

 

 

1,154

 

 

 

1,401

 

 

 

$

8,749

 

 

$

7,364

 

 

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March 31,

2019

 

Estimate of when contract liabilities will be recognized

 

 

 

 

within 12 months

 

$

7,595

 

within 12 to 24 months

 

 

1,154

 

greater than 24 months

 

 

-

 

 

We did not recognize any impairment losses on our receivables and contract assets for the three months ended March 31, 2019.

5. ACQUISITIONS

In 2018, we acquired a business providing downhole technologies associated with perforating systems for $49.1 million in cash. These downhole technologies will significantly enhance Core Lab's Production Enhancement operations and its ability to bring new and innovative product offerings to our clients. We have estimated the fair value of tangible assets acquired to be $4.3 million, and intangible assets, including patents, customer-relationship benefits, non-compete agreements and trade secrets to be $3.8 million. We have accounted for this acquisition by allocating the purchase price to the net assets acquired based on their estimated fair values at the date of acquisition which resulted in an increase to goodwill of $41.0 million. We have not finalized the assessment of the fair values of assets acquired and liabilities assumed; estimates of certain assets and liabilities require significant judgments and assumptions, and our estimates of acquisition date fair value will be determined upon finalization of our analysis. The fair value estimates are subject to adjustment during the measurement period subsequent to the acquisition date, not to exceed one year. The acquisition is included in the Production Enhancement business segment.

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

6. DISCONTINUED OPERATIONS

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

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

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

 

 

 

Three Months Ended

 

 

 

March 31,

2019

 

 

March 31,

2018

 

Services

 

$

699

 

 

$

476

 

Product sales

 

 

1,768

 

 

 

530

 

Total Revenue

 

 

2,467

 

 

 

1,006

 

Cost of services, exclusive of depreciation expense shown

   below

 

 

345

 

 

 

561

 

Cost of product sales, exclusive of depreciation expense

   shown below

 

 

1,642

 

 

 

822

 

Depreciation and amortization

 

 

-

 

 

 

58

 

Other (income) expense

 

 

(26

)

 

 

8

 

Operating Income

 

 

506

 

 

 

(443

)

Income tax expense (benefit)

 

 

247

 

 

 

(97

)

Income (loss) from discontinued operations, net of income

   taxes

 

$

259

 

 

$

(346

)

 

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Current assets

 

$

4,310

 

 

$

3,712

 

Non-current assets

 

 

1,832

 

 

 

1,848

 

Total assets

 

$

6,142

 

 

$

5,560

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

1,781

 

 

$

1,633

 

Non-current liabilities

 

 

83

 

 

 

82

 

Total liabilities

 

$

1,864

 

 

$

1,715

 

 

Net cash provided by operating activities of discontinued operations for the three months ended March 31, 2019 and 2018 was $0.7 million and $0.5 million, respectively.

7. LONG-TERM DEBT

We have no financing lease obligations. Long-term debt is as follows (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Senior Notes

 

$

150,000

 

 

$

150,000

 

Credit Facility

 

 

147,000

 

 

 

142,000

 

Total long-term debt

 

 

297,000

 

 

 

292,000

 

Less: Debt issuance costs

 

 

(2,104

)

 

 

(2,230

)

Long-term debt, net

 

$

294,896

 

 

$

289,770

 

 

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

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The aggregate borrowing commitment under our revolving credit facility (the “Credit Facility”) is $300 million. The Credit Facility provides an option to increase the commitment under the Credit Facility by an additional $100 million to bring the total borrowings available to $400 million if certain prescribed conditions are met by the Company. The Credit Facility bears interest at variable rates from LIBOR plus 1.375% to a maximum of LIBOR plus 2.00%. Any outstanding balance under the Credit Facility is due June 19, 2023, when the Credit Facility matures. Our available capacity at any point in time is reduced by borrowings outstanding at the time and outstanding letters of credit which totaled $17.7 million at March 31, 2019, resulting in an available borrowing capacity under the Credit Facility of $135.3 million. In addition to those items under the Credit Facility, we had $13.3 million of outstanding letters of credit and performance guarantees and bonds from other sources as of March 31, 2019.

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

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

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

8. PENSION

Defined Benefit Plan

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

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Service cost

 

$

192

 

 

$

349

 

Interest cost

 

 

260

 

 

 

300

 

Expected return on plan assets

 

 

(232

)

 

 

(259

)

Amortization of prior service cost

 

 

(25

)

 

 

(21

)

Amortization of actuarial loss

 

 

15

 

 

 

84

 

Net periodic pension cost

 

$

210

 

 

$

453

 

During the three months ended March 31, 2019, we contributed $0.6 million to fund the estimated 2019 premiums on investment contracts held by the Dutch Plan.

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9. COMMITMENTS AND CONTINGENCIES

We have been and may from time to time be named as a defendant in legal actions that arise in the ordinary course of business. These include, but are not limited to, employment-related claims and contractual disputes or claims for personal injury or property damage which occur in connection with the provision of our services and products. A liability is accrued when a loss is both probable and can be reasonably estimated. During the three months ended March 31, 2019, we recorded contingent liabilities in the amount of $3.2 million associated with these claims.

10. EQUITY

During the three months ended March 31, 2019, we repurchased 7,226 of our common shares for $0.5 million, which were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares under that plan. Such common shares, unless canceled, may be reissued for a variety of purposes such as future acquisitions, non-employee director stock awards or employee stock awards. We distributed 24,155 treasury shares upon vesting of stock-based awards during the three months ended March 31, 2019.

In February, 2019, we paid a quarterly dividend of $0.55 per share of common stock. In addition, on April 16, 2019, we declared a quarterly dividend of $0.55 per share of common stock for shareholders of record on April 26, 2019 and payable on May 21, 2019.

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

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Prior service cost

 

$

575

 

 

$

593

 

Unrecognized net actuarial loss

 

 

(6,232

)

 

 

(6,243

)

Fair value of derivatives, net of tax

 

 

(138

)

 

 

194

 

Total accumulated other comprehensive (loss)

 

$

(5,795

)

 

$

(5,456

)

 

11. EARNINGS PER SHARE

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Weighted average basic common shares outstanding

 

 

44,323

 

 

 

44,179

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Performance shares

 

 

393

 

 

 

231

 

Restricted stock

 

 

18

 

 

 

53

 

Weighted average diluted common and potential

   common shares outstanding

 

 

44,734

 

 

 

44,463

 

 

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12. OTHER (INCOME) EXPENSE, NET

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Sale of assets

 

$

(246

)

 

$

(152

)

Results of non-consolidated subsidiaries

 

 

(73

)

 

 

(58

)

Foreign exchange

 

 

37

 

 

 

432

 

Rents and royalties

 

 

(106

)

 

 

(94

)

Employment-related charges

 

 

3,200

 

 

 

-

 

Return on pension assets and other pension costs

 

 

260

 

 

 

300

 

Other, net

 

 

(699

)

 

 

(571

)

Total other (income) expense, net

 

$

2,373

 

 

$

(143

)

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Gains) losses by currency

 

2019

 

 

2018

 

British Pound

 

$

13

 

 

$

(128

)

Canadian Dollar

 

 

59

 

 

 

115

 

Euro

 

 

(90

)

 

 

246

 

Other currencies, net

 

 

55

 

 

 

199

 

Total loss, net

 

$

37

 

 

$

432

 

 

13. INCOME TAX EXPENSE

The effective tax rates for the three months ended March 31, 2019 and 2018 were (217.6)% and 18.1%, respectively. In the first quarter of 2019, we recorded net income tax benefit of $27.6 million compared to income tax expense of $5.3 million in the same period in 2018. This was due to a corporate restructuring which resulted in a net tax benefit of $58.5 million, and tax expense of $26.7 million related to unremitted earnings of foreign subsidiaries that we no longer consider to be indefinitely reinvested, each of which was a discrete item to the quarter ended March 31, 2019. In addition, the effective tax rate was impacted by changes in activity levels in jurisdictions with differing tax rates. Excluding discrete items, the effective tax rate was 19.7% and 20.9% for the three months ended March 31, 2019 and 2018, respectively.

14. LEASES

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

 

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Three Months Ended March 31, 2019

 

Lease Cost