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Core Laboratories Inc. /DE/ — Interim / Quarterly Report 2012
Aug 31, 2012
32685_ir_2012-08-31_b8c42d2a-a5e6-4982-abc1-ca5eeae5766b.pdf
Interim / Quarterly Report
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CORE LABORATORIES N.V.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IAS 34, "INTERIM FINANCIAL REPORTING"
Semi-Annual Report for June 30, 2012
Herengracht 424 1017 BZ Amsterdam The Netherlands
CORE LABORATORIES N.V.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS SEMI-ANNUAL REPORT FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2012
TABLE OF CONTENTS
| Semi-Annual Report of the Directors Interim Balance Sheets (Unaudited) as of June 30, 2012 and December 31, 2011 Interim Income Statements (Unaudited) for the Six Months Ended June 30, 2012 and 2011 Interim Statements of Other Comprehensive Income (Unaudited) for the Six Months Ended June 30, 2012 and 2011 Interim Statements of Changes in Equity (Unaudited) for the Six Months Ended June 30, 2012 and 2011 Interim Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2012 and 2011 Notes to the Condensed Consolidated Interim Financial Statements |
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| 2 7 8 9 10 12 13 |
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Semi-Annual Report of the Directors
Currency - United States Dollars (“$”)
Business review
Core Laboratories N.V. is a Netherlands limited liability company. 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 products and services to the oil and gas industry. These products and services 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 5,000 people worldwide.
References to "Core Lab", "we", "our" and similar phrases are used throughout this Semi-Annual Report and relate collectively to Core Laboratories N.V. and its consolidated affiliates.
Our business units have been aggregated into three complementary segments, which provide products and services for improving reservoir performance and increasing oil and gas recovery from new and existing fields.
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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.
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Production Enhancement: Includes products and services relating to reservoir well completions, perforations, stimulations and production. We provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
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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.
Financial Review
Revenue
Services Revenue
Services revenue increased to $338.4 million for the six months ended June 30, 2012, up 13% when compared to $298.3 million for the same period of 2011. The increase in services revenue was primarily due to our continued focus on worldwide crude-oil related and large natural gas for liquefaction projects, especially those related to the development of deepwater fields offshore West and East Africa, the eastern Mediterranean, and the Gulf of Mexico.
Product Sales Revenue
Revenue associated with product sales increased to $142.8 million for the six months ended June 30, 2012, up 6% from $134.2 million for the same period of 2011. The increase in product sales revenue was primarily driven by increasing market penetration and the evolution of our patented and proprietary diagnostics technologies and services.
Operating expenses
Cost of Services
Cost of services expressed as a percentage of services revenue was 62% for the six months ended June 30, 2012, an improvement when compared to 68% in the same period in 2011. During 2012, we recognized the benefit of a lower fixed cost structure that was established in 2011 when restructuring charges and other personnel costs were taken in the second quarter of 2011.
Cost of Product Sales
Cost of product sales expressed as a percentage of product sales revenue was 75% for the six months ended June 30, 2012, up from 72% during the same period in 2011. The cost of raw materials, especially specialty steel, increased substantially in
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the second half of 2011 which increased our cost of sales in 2012 as these raw materials are converted to finished goods and sold.
Operating margin
Operating margin for the six month period ended June 30, 2012 was 34.5% an increase of 360 basis points over the 30.9% for the same period of 2011. Our margins expanded as a result of higher revenues generated through our fixed cost structure.
Cash Flow
The following table summarizes cash flows for the six months ended June 30, 2012 and 2011 (in thousands):
| Cash provided by/(used in): Operating activities Investing activities Financing activities Net change in cash and cash equivalents |
Six Months Ended June 30, | Six Months Ended June 30, | % Change |
|---|---|---|---|
| 2012 | 2011 | ||
| 4 % 23 % (52)% (95)% |
|||
| $ (5,924) | $ (109,319) |
The increase in cash flows from operating activities for the first six months of 2012 compared to the same period in 2011 was primarily attributable to increased net income offset by decreases in current and long-term liabilities.
Cash flows used in investing activities were higher during 2012 when compared to 2011 primarily due to an increase in capital expenditures. Capital expenditures were $14.9 million and $12.0 million for the six month periods ended June 30, 2012 and 2011, respectively.
The decrease in cash flows used in financing activities for the first six months of 2012 when compared to the same period in 2011 was due to a decrease of $57.8 million in the amount used for settlement of Warrants, a decrease of $1.9 million in the amount paid for the repurchase of our common shares, and a decrease of $45.7 million in the amount of net debt reduction. In the first six months of 2011, we settled Warrants in the amount of $57.8 million. All of these Warrants were settled during 2011. During the first six months of 2012, we repurchased 403,383 shares for an aggregate price of $50.2 million compared to 574,174 shares for an aggregate price of $52.1 million during the same period in 2011. In the first six months of 2012 and 2011, our debt decreased by a net of $18.7 million and $64.5 million, respectively.
Equity
During the six months ended June 30, 2012, we repurchased 403,383 of our common shares for $50.2 million. Included in this total were rights to 38,590 shares valued at $4.9 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 acquisitions, nonemployee director stock awards or employee stock awards.
In February and May 2012, we paid a quarterly dividend of $0.28 per share of common stock. In addition, on July 10, 2012, we declared a quarterly dividend of $0.28 per share of common stock which was paid on August 20, 2012 to shareholders of record on July 20, 2012.
Segment Analysis
Our operations are managed primarily in three complementary segments - Reservoir Description, Production Enhancement and Reservoir Management. The following tables summarize our results by operating segment for the six months ended June 30, 2012 and 2011 (in thousands):
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| Revenue: Reservoir Description Production Enhancement Reservoir Management Consolidated Operating income (loss): Reservoir Description Production Enhancement Reservoir Management Corporate and Other1 Consolidated |
Six Months Ended June 30, | Six Months Ended June 30, | % Change |
|---|---|---|---|
| 2012 | 2011 | ||
| 7% 15% 20% 11% 32% 32% 7% NM 27% |
|||
| $ 481,197 | $ 432,518 | ||
| $ 70,179 63,030 14,998 (2,680) |
$ 53,149 47,884 14,027 (426) |
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| $ 145,527 | $ 114,634 |
(1) "Corporate and Other" represents those items that are not directly related to a particular segment
"NM" means not meaningful
Reservoir Description
Revenue from the Reservoir Description segment increased 7%, or $16.2 million, to $242.6 million for the six months ended June 30, 2012, compared to $226.4 million in the same period of 2011. This segment’s operations, which focus on international crude-oil related products, continued to benefit from large-scale core analyses and reservoir fluids characterization studies in the Asia-Pacific areas, offshore West and East Africa, the Eastern Mediterranean region and the Middle East, including Iraq, Kuwait, and the United Arab Emirates.
Operating income increased by 32%, or $17.0 million, to $70.2 million for the six months ended June 30, 2012, compared to $53.1 million for the same period of 2011. Operating margin for the six months ended June 30, 2012 was 29%, compared to 23% for the same period in 2011. This increase is a result of the reduction of staff during the latter part of 2011 resulting in a lower cost structure in 2012.
Production Enhancement
Revenue from the Production Enhancement segment increased by 15%, or $25.4 million, to $196.3 million for the six months ended June 30, 2012, compared to $170.9 million in the same period of 2011. The revenue increase was primarily due to demand for our stimulation diagnostic services both for fracture diagnostics in North America and flood diagnostics internationally.
Operating income increased by 32% to $63.0 million for the six months ended June 30, 2012 over the same period of 2011. Operating margins increased to 32% in the six months ended June 30, 2012 from 28% for the same period in 2011. The increase in operating income from 2011 to 2012 was primarily driven by increased revenue from services related to our proprietary and patented diagnostic technologies, such as SpectraChem[®] Plus+, SpectraScan[®] , ZeroWash[®] , our HERO™ line of perforating charges and gun systems and our HTD-Blast™ perforating system, which is used for the perforation of extendedreach horizontal wells in non-conventional reservoirs.
Reservoir Management
Revenue from the Reservoir Management segment increased by 20% to $42.3 million for the six months ended June 30, 2012 compared to $35.3 million for the same period of 2011. The increase in revenue was due to ongoing interest in several of our existing multi-client reservoir studies such as the Tight Oil Reservoirs of the Midland Basin study and the Eagle Ford Shale study along with studies of African east coast reservoirs potentials.
Operating income was $15.0 million for the six months ended June 30, 2012 compared to $14.0 million for the same period of 2011. Operating margins decreased to 35% in the six months ended June 30, 2012 compared to 40% for the same period in 2011. The higher margin in 2011 was a result of increased participation in completed projects.
Risk Factors
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The oil and gas industry is highly cyclical and demand for the majority of our oilfield products and services is substantially dependent on the level of expenditures by the oil and gas industry for the exploration, development and production of crude oil and natural gas reserves, which are sensitive to oil and natural gas prices and generally dependent on the industry's view of future oil and gas prices. There are numerous factors affecting the supply of and demand for our products and services, which are summarized as:
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general and economic business conditions;
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market prices of oil and gas and expectations about future prices;
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cost of producing and the ability to deliver oil and natural gas;
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the level of drilling and production activity;
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mergers, consolidations and downsizing among our clients;
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coordination by OPEC;
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the impact of commodity prices on the expenditure levels of our clients;
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financial condition of our client base and their ability to fund capital expenditures;
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the physical effects of climatic change, including adverse weather or geologic/geophysical conditions;
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the adoption of legal requirements or taxation relating to climate change that lower the demand for petroleum-based fuels;
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civil unrest or political uncertainty in oil producing or consuming countries;
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level of consumption of oil, gas and petrochemicals by consumers;
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changes in existing laws, regulations, or other governmental actions;
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the business opportunities (or lack thereof) that may be presented to and pursued by us;
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availability of services and materials for our clients to grow their capital expenditures; and
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availability of materials and equipment from key suppliers.
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. 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 our Annual Report and Financial Statements for the fiscal year ended December 31, 2011.
Outlook
We continue our efforts to expand our market presence by opening or expanding facilities in strategic areas and realizing synergies within our business lines. We believe our market presence provides us a unique opportunity to service clients who have global operations in addition to the national oil companies.
We have established internal earnings targets that are based on market conditions existing at the time our targets were established. Based on recent activity levels, we believe that the current level of activities, workflows, and operating margins both outside North America and within North America, particularly that relate to oil development projects, will grow moderately during the remainder of 2012. We believe that deepwater projects worldwide will increase during the remainder of 2012, particularly offshore Africa, the Middle East, Asia Pacific and deepwater Gulf of Mexico. In addition, we believe that activities in unconventional oil-shale reservoirs will increase during the remainder of 2012, not only in North America, but in South America and North Africa as well.
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Cautionary Statement Regarding Forward-Looking Statements
This Semi-Annual Report contains forward-looking statements. In addition, from time to time, we may publish forwardlooking 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.
Statement of Directors' Responsibilities
In accordance with the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht), section 5:25d, paragraph 2 sub c, we confirm that, to the best of our knowledge:
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the condensed consolidated interim financial statements for the six months ended June 30, 2012 have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union and give a true and fair view of the assets, the liabilities, the financial position and the profits or the loss of Core Laboratories N.V. and its consolidated companies (jointly referred to as "the Group"); and
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the interim management report for the six months ended June 30, 2012 gives a true and fair view of the information required pursuant to section 5:25d, subsection 8 and, as far as applicable, subsection 9 of the Dutch Act on Financial Supervision.
Amsterdam, The Netherlands, August 31, 2012
/s/ Richard L. Bergmark Richard L. Bergmark Executive Vice President, Chief Financial Officer, and Supervisory Director
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CORE LABORATORIES N.V. INTERIM BALANCE SHEET (In thousands of USD, except share data)
| ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets Investment in associates Deferred income tax asset Other financial assets Other assets TOTAL NON-CURRENT ASSETS CURRENT ASSETS Inventories Prepaid expenses and other current assets Income tax receivable Accounts receivable Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS SHAREHOLDERS' EQUITY Common shares, EUR 0.02 par value in 2012 and in 2011; 200,000,000 shares authorized, 49,037,808 issued and 47,366,753 outstanding at 2012 and 49,037,806 issued and 47,629,472 outstanding at 2011 Additional paid-in capital Retained earnings Other reserves Treasury shares (at cost), 1,671,055 at 2012 and 1,408,334 at 2011 TOTAL SHAREHOLDERS' EQUITY Non-controlling interest TOTAL EQUITY LIABILITIES NON-CURRENT LIABILITIES Borrowings Income tax payable Deferred income tax liabilities Unearned revenues Provisions TOTAL NON-CURRENT LIABILITIES CURRENT LIABILITIES: Accounts payable Borrowings Income tax payable Other taxes payable Payroll and social security contributions Unearned revenues Other accrued expenses TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES |
Ref. 6 7 8 9 11 9 |
June 30, 2012 (Unaudited) $ 118,665 217,239 1,216 50,828 18,983 3,334 410,265 58,181 17,291 8,912 170,707 23,408 278,499 $ 688,764 $ 1,376 91,456 337,981 (5,395) (149,088) 276,330 3,766 $ 280,096 $ 203,687 20,793 18,404 100 44,151 $ 287,135 $ 51,280 623 3,814 8,833 26,830 18,334 11,819 $ 121,533 408,668 $ 688,764 |
December 31, 2011 |
|---|---|---|---|
| $ 115,295 216,576 969 50,137 17,663 2,844 |
|||
| 403,484 53,214 15,566 1,414 170,805 29,332 |
|||
| 270,331 | |||
| $ 673,815 | |||
| $ 1,376 87,290 257,941 (5,512) (107,406) |
|||
| 233,689 3,752 |
|||
| $ 237,441 $ 220,478 20,316 19,549 100 42,504 |
|||
| $ 302,947 $ 57,639 2,344 793 8,566 34,670 19,154 10,261 |
|||
| $ 133,427 | |||
| 436,374 | |||
| $ 673,815 |
The accompanying notes are an integral part of these Consolidated Interim Financial Statements.
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CORE LABORATORIES N.V. INTERIM INCOME STATEMENT (In thousands of USD, except share and per share data)
| REVENUES: Services Sales TOTAL REVENUES: OPERATING EXPENSES: Cost of services Cost of sales GROSS PROFIT General and administrative expenses Other (income) expense, net OPERATING PROFIT Variance in fair value of derivative instruments (gain) loss, net Loss on exchange of senior exchangeable notes Finance income Finance costs Finance costs, net Share of profit (loss) of associates PROFIT (LOSS) BEFORE INCOME TAX EXPENSE Income tax expense PROFIT (LOSS) FOR THE PERIOD Attributable to: Equity holders of the parent Non-controlling interest EARNINGS PER SHARE INFORMATION: Basic earnings (loss) per share Diluted earnings (loss) per share WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (in thousands): Basic Diluted |
Ref. 17 13 14 15 16 16 16 16 |
Six Months Ended June 30, | Six Months Ended June 30, |
|---|---|---|---|
| 2012 2011 (Unaudited) $ 338,418 $ 298,333 142,779 134,185 481,197 432,518 208,254 202,480 106,765 96,206 315,019 298,686 166,178 133,832 22,083 20,719 (1,432) (1,521) 145,527 114,634 — 158,385 — 2,727 (15) (85) 4,367 5,207 4,352 166,234 247 117 141,422 (51,483) 34,744 32,764 $ 106,678 $ (84,247) $ 106,664 $ (83,882) 14 (365) $ 106,678 $ (84,247) $ 2.24 $ (1.84) $ 2.23 $ (1.71) 47,539 45,587 47,868 48,942 |
2011 | ||
| 432,518 202,480 96,206 |
|||
| 298,686 | |||
| 133,832 20,719 (1,521) |
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| 114,634 158,385 2,727 (85) 5,207 |
|||
| 166,234 117 |
|||
| (51,483) 32,764 |
|||
| $ (84,247) | |||
| $ (83,882) (365) |
|||
| $ (84,247) | |||
| $ (1.84) | |||
| $ (1.71) | |||
| 45,587 | |||
| 48,942 |
The accompanying notes are an integral part of these Consolidated Interim Financial Statements.
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CORE LABORATORIES N.V. INTERIM STATEMENT OF OTHER COMPREHENSIVE INCOME (In thousands of USD)
| Profit (loss) for the period Pension actuarial gain and (loss) Income taxes on pension actuarial gain and loss Net income (loss) recognized directly in equity Total comprehensive income (loss) for the period Attributable to: Equity holders of the parent Non-controlling interest |
Ref. 12 12 |
Six Months Ended June 30, | Six Months Ended June 30, |
|---|---|---|---|
| 2012 2011 (Unaudited) $ 106,678 $ (84,247) 155 177 (38) (52) 117 125 $ 106,795 $ (84,122) $ 106,781 $ (83,757) 14 (365) $ 106,795 $ (84,122) |
2011 | ||
| 125 | |||
| $ (84,122) | |||
| $ (83,757) (365) |
|||
| $ (84,122) |
The accompanying notes are an integral part of these Consolidated Interim Financial Statements.
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CORE LABORATORIES N.V. INTERIM STATEMENTS OF CHANGES IN EQUITY
(In thousands of USD, except share data)
| (Unaudited) BALANCE, January 1, 2011 Comprehensive income: Profit (loss) for the period Other comprehensive income: Pension actuarial gain Total other comprehensive income Total comprehensive (loss) Transactions with owners: Stock options exercised, net of capital taxes Stock-based compensation Tax benefit related to stock-based awards Exchange of senior exchangeable notes Settlement of warrants Repurchases of common shares Non-controlling interest - dividend Non-controlling interest - capital contribution Dividends paid BALANCE, June 30, 2011 |
Ref. | Number of Shares Outstanding 45,521,186 — 31,642 104,200 — 770,391 630,744 (574,174) — — — 46,483,989 |
Common Shares |
Additional Paid-In Capital $ 27,460 — (1,377) (200) 2,289 32,944 14,917 — — — — $ 76,033 |
Retained Earnings |
Other Reserves $ (5,265) — 125 — — — — — — — — — $ (5,140) |
Treasury Stock $ (242,690) — 1,618 5,616 — 43,452 38,188 (52,097) — — — $ (205,913) |
Non- controlling Interest $ 2,849 (365) — — — — — — 895 (240) — $ 3,139 |
Total Equity |
|---|---|---|---|---|---|---|---|---|---|
| 12 | $ 1,397 — |
$ 269,162 (83,882) |
$ 52,913 (84,247) 125 |
||||||
| 125 (84,122) |
|||||||||
| 8 8 14 13 8 8 |
— — — — — — — — — |
— — — — — — — — (22,709) |
241 5,416 2,289 76,396 53,105 (52,097) 895 (240) (22,709) |
||||||
| $ 1,397 | $ 162,571 | $ 32,087 |
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(Unaudited)
| BALANCE, January 1, 2012 Comprehensive income: Profit (loss) for the period Other comprehensive income: Pension actuarial gain Total other comprehensive income Total comprehensive (loss) Transactions with owners: Stock options exercised, net of capital taxes Stock-based compensation Tax benefit related to stock-based awards Repurchases of common shares Other Dividends paid BALANCE, June 30, 2012 |
Ref. | Number of Shares Outstanding 47,629,472 — 1,042 139,620 — (403,383) 2 — 47,366,753 |
Common Shares |
Additional Paid-In Capital $ 87,290 — (60) 760 3,466 — — — $ 91,456 |
Retained Earnings |
Other Reserves $ (5,512) — 117 — — — — — — $ (5,395) |
Treasury Stock $ (107,406) — 65 8,413 — (50,160) — — $ (149,088) |
Non- controlling Interest $ 3,752 14 — — — — — — $ 3,766 |
Total Equity |
|---|---|---|---|---|---|---|---|---|---|
| 12 | $ 1,376 — |
$ 257,941 106,664 |
$ 237,441 106,678 117 |
||||||
| 117 106,795 |
|||||||||
| 8 8 8 8 |
— — — — — — |
— — — — — (26,624) |
5 9,173 3,466 (50,160) — (26,624) |
||||||
| $ 1,376 | $ 337,981 | $ 74,742 |
The accompanying notes are an integral part of these Consolidated Interim Financial Statements.
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CORE LABORATORIES N.V. INTERIM STATEMENT OF CASH FLOWS (In thousands of USD)
| CASH FLOWS FROM OPERATING ACTIVITIES: Profit (loss) before income tax expense Adjustments to reconcile income to net cash provided by operating activities: Depreciation Amortization Equity in (earnings) loss of associates Stock-based compensation Finance costs (Gain) loss on sale of assets Gain on insurance recovery Loss on exchange of senior exchangeable notes Fair value (gains)/losses on other financial assets Fair value (gains)/losses on derivative instruments Changes in assets and liabilities: Accounts receivable Inventories Other assets Accounts payable Accrued expenses Other long-term liabilities Cash provided by operating activities Interest paid Income tax paid Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures Patents and other intangibles Acquisitions, net of cash acquired Cash in escrow Proceeds from sale of assets Proceeds from insurance recovery Interest received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt borrowings Proceeds from debt borrowings Stock options exercised Settlement of warrants Repurchase of common shares Dividends paid Non-controlling interest - (dividends)/capital contributions Debt financing costs Net cash used in financing activities NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, beginning of period CASH AND CASH EQUIVALENTS, end of period |
Ref. 14 6 13 7 9 9 8 13 8 8 9 |
Six Months Ended June 30, | Six Months Ended June 30, |
|---|---|---|---|
| 2012 2011 (Unaudited) $ 141,422 $ (51,483) 10,384 11,047 576 589 (247) (117) 9,172 5,417 4,352 5,122 (313) (138) (101) (779) — 2,727 (622) (2,505) — 158,385 (2,090) (5,587) (4,967) (8,529) (4,677) 161 (5,285) 16,622 (9,077) 19,816 5,263 5,563 143,790 156,311 (3,557) (136) (37,176) (57,259) 103,057 98,916 (14,894) (11,984) (684) (132) (556) — 2,188 — 379 171 101 884 15 85 (13,451) (10,976) (48,744) (64,477) 30,000 — 5 241 — (57,778) (50,160) (52,097) (26,624) (22,709) — 655 (7) (1,094) (95,530) (197,259) (5,924) (109,319) 29,332 133,880 $ 23,408 24,561 |
2011 | ||
| 156,311 (136) (57,259) |
|||
| 98,916 | |||
| (11,984) (132) — — 171 884 85 |
|||
| (10,976) | |||
| (64,477) — 241 (57,778) (52,097) (22,709) 655 (1,094) |
|||
| (197,259) | |||
| (109,319) 133,880 |
|||
| 24,561 |
The accompanying notes are an integral part of these Consolidated Interim Financial Statements.
CORE LABORATORIES N.V. NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IAS 34 JUNE 30, 2012
1. DESCRIPTION OF BUSINESS
Core Laboratories N.V. ("Core Laboratories", "we", "our" or "us") is a Netherlands limited liability company incorporated and domiciled in The Netherlands. The address of the registered office is Herengracht 424, 1017 BZ Amsterdam, The Netherlands. We were established in 1936 and are one of the world's leading providers of proprietary and patented reservoir description, production enhancement and reservoir management services to the oil and gas industry. These services are directed toward enabling our clients to improve reservoir performance and increase oil and gas recovery from their producing fields. We have over 70 offices in more than 50 countries and had approximately 5,000 and 5,000 employees in 2012 and 2011, respectively. We are listed on the New York Stock Exchange ("NYSE") and on the NYSE Euronext Amsterdam Stock Exchange.
Our business units have been aggregated into three complementary segments which provide products and services for improving reservoir performance and increasing oil and gas recovery from new and existing fields: (1) Reservoir Description, (2) Production Enhancement and (3) Reservoir Management. These business segments provide different services and utilize different technologies.
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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.
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Production Enhancement : Includes products and services relating to reservoir well completions, perforations, stimulations and production. We provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
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Reservoir Management : Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients' reservoirs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these condensed consolidated interim financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated and are consistent with those of the previous financial year.
Basis of Preparation
Our condensed consolidated interim financial statements for the six months ended June 30, 2012 have been prepared in accordance with IAS 34, "Interim Financial Reporting" ("IAS 34"). The condensed consolidated interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss. The condensed consolidated interim financial statements have not been audited and should be read in conjunction with the annual financial statements for the year ended December 31, 2011, which have been prepared in accordance with IFRS.
The accounting policies adopted are consistent with those of the previous financial year except as described below.
Estimates
The preparation of financial statements in conformity with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying our accounting policies. The significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended December 31, 2011, with the exception of changes in estimates that are required in determining the provision for income taxes.
Current and Deferred Income Taxes
Income tax expense is recognized based on management's estimate of the weighted average annual income tax rate expected for the full financial year. See Footnote 15, "Income Taxes".
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New and Amended Standards
There are no new IFRSs or IFRICs that are effective for the first time for this interim period that would have a material impact on our financial statements.
3. FINANCIAL RISKS AND RISK MANAGEMENT
The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as of December 31, 2011.
4. SEASONALITY OF OPERATIONS
The operations of the Group are only slightly impacted by seasonality effects from quarter to quarter.
5. SEGMENT REPORTING
We operate our business in three reportable segments: (1) Reservoir Description, (2) Production Enhancement and (3) Reservoir Management. These business segments provide different services and utilize different technologies.
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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.
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Production Enhancement : Includes products and services relating to reservoir well completions, perforations, stimulations and production. We provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
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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 business segments are presented below. We use the same accounting policies to prepare our business segment results as are used to prepare our condensed consolidated interim financial statements. We evaluate performance based on income or loss from continuing operations before income tax, interest and other non-operating income (expense). Summarized financial information concerning our segments is shown in the following table (in thousands):
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| (Unaudited) June 30, 2012 Revenues from unaffiliated customers Inter-segment revenues Segment income (loss) Finance costs Share of profit (loss) of associates Total assets Capital expenditures Intangible asset expenditures Depreciation and amortization June 30, 2011 Revenues from unaffiliated customers Inter-segment revenues Segment income (loss) Finance costs Loss on exchange of senior exchangeable notes Variance in fair value of derivative instruments (gain) loss, net Share of profit (loss) of associates Total assets Capital expenditures Intangible asset expenditures Depreciation and amortization |
Reservoir Description $ 242,568 1,296 70,179 — 247 306,113 6,146 18 6,992 $ 226,379 816 53,149 — — — 117 298,621 7,382 18 6,999 |
Production Enhancement $ 196,280 1,083 63,030 — — 266,153 4,268 662 2,500 $ 170,885 665 47,884 — — — — 228,210 3,303 92 3,217 |
Reservoir Management $ 42,349 804 14,998 — — 42,562 440 4 342 $ 35,254 954 14,027 — — — — 37,142 391 17 349 |
Corporate & Other1 $ — (3,183) (2,680) 4,352 — 74,731 4,040 — 1,126 $ — (2,435) (426) 5,122 2,727 158,385 — 75,090 908 5 1,071 |
Consolidated |
|---|---|---|---|---|---|
| $ 481,197 — 145,527 4,352 247 689,559 14,894 684 10,960 $ 432,518 — 114,634 5,122 2,727 158,385 117 639,063 11,984 132 11,636 |
(1)"Corporate and other" represents those items that are not directly related to a particular segment and eliminations.
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.
Segment assets consist primarily of cash and cash equivalents, trade and other receivables, inventories, property, plant and equipment and intangible assets. Unallocated assets in Corporate and Other is comprised of deferred taxation and miscellaneous assets related to the corporate function.
Capital expenditures comprise additions to property, plant and equipment.
Our general and administrative costs are allocated to the segments on a proportional basis relative to each segment's costs of sales.
6. OTHER FINANCIAL ASSETS
Other financial assets are primarily comprised of life insurance policies with cash surrender value which have been purchased by us to assist in funding deferred compensation arrangements with certain employees. These policies are carried at market value and the gain or loss recognized is the difference in the fair value actuarially calculated and the value recorded in our general ledger. The fair value of the life insurance policies increased by $0.6 million during the six months ended June 30, 2012.
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7. INVENTORIES
Inventories consisted of the following at June 30, 2012 and December 31, 2011 (in thousands):
| Finished goods Parts and materials Work in progress Inventories, net |
June 30, 2012 (Unaudited) $ 40,768 15,410 2,003 $ 58,181 |
December 31, 2011 |
|---|---|---|
| $ 32,604 18,004 2,606 |
||
| $ 53,214 |
The balances above are net of valuation reserves of $2.9 million and $2.9 million at June 30, 2012 and December 31, 2011, respectively.
8. EQUITY
Share capital
The authorized share capital of the Company as at June 30, 2012 amounts to EUR 4 million and consists of 200,000,000 ordinary shares with a par value of EUR 0.02 each.
Issued and paid in share capital amounts to $92.8 million and consists of 49,037,808 issued ordinary shares with a par value of EUR 0.02 each. Repurchased ordinary shares amounts to $149.1 million and consists of 1,671,055 ordinary shares with a par value of EUR 0.02 each.
The movements in the number of shares for the six months ended June 30, 2012 and 2011 are as follows:
| (Unaudited) Balance at January 1, 2012 Issue of ordinary shares for stock options Issue of ordinary shares for stock based-awards Cancellation of treasury shares Repurchased own shares Other Balance at June 30, 2012 |
Ordinary Shares 49,037,806 — — — — 2 49,037,808 |
Repurchased Ordinary Shares (1,408,334) 1,042 139,620 — (403,383) — (1,671,055) |
Shares Outstanding |
|---|---|---|---|
| 47,629,472 1,042 139,620 — (403,383) 2 |
|||
| 47,366,753 |
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| (Unaudited) Balance at January 1, 2011 Issue of ordinary shares for stock options Issue of ordinary shares for stock based-awards Issue of ordinary shares for exchange of Notes Issue of ordinary shares for exchange of Warrants Cancellation of treasury shares Repurchased own shares Balance at June 30, 2011 |
Ordinary Shares 49,739,912 — — — — — — 49,739,912 |
Repurchased Ordinary Shares (4,218,726) 31,642 104,200 770,391 630,744 — (574,174) (3,255,923) |
Shares Outstanding |
|---|---|---|---|
| 45,521,186 31,642 104,200 770,391 630,744 — (574,174) |
|||
| 46,483,989 |
Treasury Shares
During the six months ended June 30, 2012, we repurchased 403,383 of our common shares for $50.2 million, at an average price of $124.35 per share which included rights to 38,590 shares valued at $4.9 million, or $127.65 per share, that were surrendered to us pursuant to the terms of a stock-based compensation plan, in consideration of the exercise price of their stock options and their personal tax burdens that may result from the issuance of common shares under this plan. Subsequent to June 30, 2012, we have repurchased 193,513 shares at a total cost of approximately $21.9 million, including 2,427 shares relating to the vesting of restricted stock.
At the annual meeting of shareholders on May 16, 2012, the shareholders approved the cancellation of 1,138,224 shares of our common stock then held as treasury stock. These treasury shares were cancelled on August 1, 2012, after the expiration of the waiting period required under Dutch law. We charged the excess of the cost of the treasury stock over its par value to additional paid-in capital.
Dividends
Cash dividends of $0.28 per share were paid in February and May of 2012 totaling $26.6 million. On July 10, 2012, we declared a quarterly dividend of $0.28 per share of common stock which was paid on August 20, 2012 to shareholders of record on July 20, 2012.
9. BORROWINGS
Debt at June 30, 2012 and December 31, 2011 is summarized in the following table (in thousands):
| Current debt: Capital lease obligations Other indebtedness Total current debt Non-current debt: Senior Notes Credit facility Capital lease obligations Deferred debt acquisition costs Total non-current debt Borrowings, net |
June 30, 2012 December 31, 2011 (Unaudited) $ 49 $ 57 574 2,287 623 2,344 150,000 150,000 56,000 73,000 53 75 (2,366) (2,597) 203,687 220,478 $ 204,310 $ 225,166 |
|---|---|
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Our available capacity at any point in time is reduced by borrowings outstanding at the time and outstanding letters of credit and performance guarantees and bonds which totaled $16.0 million at June 30, 2012, resulting in an available borrowing capacity under the Credit Facility of $228.0 million. In addition to those items under the Credit Facility, we had $24.9 million of outstanding letters of credit and performance guarantees and bonds from other sources at June 30, 2012.
We do not have any exposure to sub-prime lending or collateralized debt obligations. We believe we are in compliance with the covenants on our existing debt. We believe our future cash flows from operating activities, supplemented by our borrowing capacity under existing facilities and our ability to issue additional equity should be sufficient to meet our contractual obligations, capital expenditures, working capital needs and to finance future acquisitions.
10. DERIVATIVE LIABILITIES
In 2006, Core Laboratories LP, an entity 100% indirectly owned by Core Laboratories N.V., issued $300 million aggregate principal amount of Senior Exchangeable Notes (the "Exchangeable Notes"). The Exchangeable Notes were exchangeable into shares of Core Laboratories N.V. common stock under certain circumstances whereby holders received cash for the principal amount plus any amount related to fractional shares, and any excess exchange value was delivered in whole shares of Core Laboratories N.V. common stock at the completion of the valuation period as defined under the Exchangeable Note Indenture agreement. The exchange component was separated from the note and recorded as a derivative with fair value changes recorded through the income statement. The fair value of the Exchangeable Notes at June 30, 2011 was $115.5 million. The Exchangeable Notes fully matured on October 31, 2011.
In 2006, we sold warrants that gave the holders the right to acquire our common shares. The fair value of the warrants at June 30, 2011 was $173.6 million. All of the warrants were fully settled by December 31, 2011.
11. PROVISIONS FOR OTHER LIABILITIES AND CHARGES
The components of provisions for June 30, 2012 are as follows (in thousands):
| (Unaudited) At June 30, 2012 At December 31, 2011 |
Termination Benefits $ 10,709 9,851 |
Deferred Compensation $ 26,384 24,116 |
Pension $ 4,555 5,503 |
Other $ 2,503 3,034 |
Total |
|---|---|---|---|---|---|
| $ 44,151 42,504 |
Termination Benefits
Termination benefits represent an accrual for future payouts guaranteed to employees upon departure from the Company. In 1998, we entered into employment agreements with our senior executive officers that provided for severance benefits. The value of the long-term liability for the benefits due upon severing the employment of these employees is approximately $6.7 million at June 30, 2012. The remaining $4.0 million balance is for the non-executive employees of the Company.
Deferred Compensation
Deferred Compensation relates to additional retirement liabilities for certain employees of the Company. These are not payable until the employee retires.
Pension
The unfunded pension liability as of June 30, 2012 was $4.6 million.
Other
Other provisions consist of amounts accrued related to claims from clients, and amounts due under certain service agreements and contractual commitments.
Claims from clients occur from disputes that may arise from the providing of services. These are investigated and resolved once a determination is made. The timing of any potential settlement varies for each claim.
12. PENSIONS
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Defined Benefit Plan
The components of net periodic pension cost under this plan for the six months ended June 30, 2012 and 2011 included (in thousands):
| Service cost Interest cost Expected return on plan assets Net periodic pension cost |
Six Months Ended June 30, | Six Months Ended June 30, |
|---|---|---|
| 2012 2011 (Unaudited) $ 572 $ 687 853 886 (610) (412) $ 815 $ 1,161 |
2011 | |
| $ 1,161 |
The net periodic pension cost of $0.8 million and $1.2 million for the six months ended June 30, 2012 and 2011, respectively was recognized in Cost of Services in the consolidated income statement.
13. (GAIN)/LOSS ON FAIR VALUE OF DERIVATIVES
In accordance with IAS 39, "Financial Instruments: Recognition and Measurement", we recorded the exchangeable feature of the Exchangeable Notes and the Warrants in the consolidated balance sheet as of the transaction date, and recognized subsequent changes in fair value in the consolidated income statement.
During the six months ended June 30, 2011, we early exchanged 64,477 of our Exchangeable Notes at the request of the noteholders. We recognized the change in the fair value of these Exchangeable Notes through our profit and loss accounts based on their value immediately prior to the settlement upon early exchange. The Exchangeable Notes fully matured on October 31, 2011.
During the six months ended June 30, 2011, the settlement of 3,213,678 of our Warrants was accelerated through a series of agreements with the holder of the Warrants. The Warrants were settled in two substantially equal 20-day tranches during May and June of 2011. In each of these tranches, the exercise price was adjusted based on the daily volume weighted average price of our common stock. These agreements gave us the option of settling in either cash or our common stock. We recognized the change in the fair value of the Warrants through our profit and loss accounts based on their value immediately prior to settlement. All of the Warrants were settled prior to December 31, 2011.
The change in the fair value of the derivatives during the six months ended June 30, 2012 and 2011 resulted in the following (in thousands):
| Exchangeable notes Warrants Total (gain)/loss on fair value of derivative instruments |
Six Months Ended June 30, | Six Months Ended June 30, |
|---|---|---|
| 2012 2011 (Unaudited) $ — $ 43,034 — 115,351 $ 158,385 |
2011 | |
| $ 158,385 |
14. (GAIN)/LOSS ON DEBT RETIREMENT
Under the terms of the Exchangeable Notes, defined criteria were met which allowed the Exchangeable Notes to be early exchanged during 2011. During the six months ended June 30, 2011, we received requests to exchange 64,477 Exchangeable Notes. The balance of debt discount associated with the Exchangeable Notes that were exchanged was written off resulting in a loss of $2.7 million for the period ending June 30, 2011. The Exchangeable Notes fully matured on October 31, 2011.
15. INCOME TAXES
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Income tax expense is recognized based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate for 2012 and 2011 were 25% and (65)%, respectively. The effective tax rates for the six months ended June 30, 2012 and 2011 were 25% and (64)%, respectively.
The change in effective tax rate is primarily due to non-deductible fluctuations in the fair value of the Company’s Warrants and Exchangeable Notes of $158.4 million in 2011. All of the Warrants and Exchangeable Notes were settled prior to December 31, 2011. See Footnote 13, "Gain/(Loss) on Variance of Derivative Liabilities".
16. EARNINGS PER SHARE
The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share (in thousands):
| Weighted average basic common shares outstanding Effect of dilutive securities: Stock options Contingent shares Restricted stock and other Senior exchangeable notes Warrants Weighted average diluted common and potential common shares outstanding |
Six Months Ended June 30, | Six Months Ended June 30, |
|---|---|---|
| 2012 2011 (Unaudited) 47,539 45,587 12 24 124 63 193 274 — 1,176 — 1,818 47,868 48,942 |
2011 | |
| 48,942 |
Included in the table above are 1,176,000 shares which were added to the share count for the six months ended June 30, 2011 for the dilutive effect of our Exchangeable Notes. These shares were included in calculating the impact to our dilutive earnings per share for the six months ended June 30, 2011. The Exchangeable Notes fully matured on October 31, 2011.
Included in the table above are 1,818,000 shares which were added to the share count for the six months ended June 30, 2011 because the average share price exceeded the strike price of the Warrants. These shares were included in calculating the impact to our dilutive earnings per share for the six months ended June 30, 2011. The Warrants were early settled by the end of 2011.
17. 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 products and services. 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.
As a result of a fire in 2011 at one of our supplier's facilities that provided certain high performance specialty steel tubulars used with the Company's perforating systems, we filed a claim under our business interruption insurance policy in the amount of $5 million. During the first six months of 2012, we received notice and payment from the insurer that they agreed with $3.4 million of the claim and will continue reviewing the remainder of the claim. As a result, we recorded a gain of $3.4 million. The claim is still open and any additional amounts agreed to will be recorded as a component of "Other (Income) Expense, Net" in that period.
We do not maintain any off-balance sheet debt or other similar financing arrangements nor have we formed any special purpose entities for the purpose of maintaining off-balance sheet debt.
18. RELATED PARTIES
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In 2012 and 2011, 38,590 shares valued at $4.9 million and 50,177 shares valued at $5.1 million, respectively, were surrendered to the Company pursuant to the terms of a stock-based compensation plan, in settlement by the participants of their exercise cost in the stock options and their personal tax burdens that may result from the issuance of common shares under this arrangement. These shares were surrendered at the then current market price on the date of settlement.
In 2012 and 2011, we granted stock to each of our non-employee Directors in the amount of 1,141 and 1,469 shares respectively. These shares will vest, without performance obligations, on March 31, 2015 and 2014, respectively.
We had no other significant related party transactions for the six month period ended June 30, 2012.
19. SUBSEQUENT EVENTS
During the first quarter of 2012, we received notice of partial settlement of $3.4 million for a business interruption claim we filed in 2011 with our property insurance carrier for reimbursement of loss. Subsequent to June 30, 2012, we have received an additional $1.0 million on this claim which will be recorded through profit and loss during the second half of 2012 as described in footnote 17, Commitments and Contingencies.
At the annual meeting of shareholders on May 16, 2012, the shareholders approved the cancellation of 1,138,224 shares of our common stock then held as treasury stock. These treasury shares were canceled on August 1, 2012, after the expiration of the waiting period required under Dutch law. We charged the excess of the cost of the treasury stock over its par value to additional paid-in capital.
On July 10, 2012, we declared a quarterly dividend of $0.28 per share of common stock which was paid on August 20, 2012 to shareholders of record on July 20, 2012.
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