Document


 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
(Mark One)
 
Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________ to ______________
 
Commission File Number:  001-14273
 
CORE LABORATORIES N.V.
(Exact name of registrant as specified in its charter)
 
The Netherlands
Not Applicable
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
Strawinskylaan 913
 
 
Tower A, Level 9
 
1077 XX Amsterdam
 
The Netherlands
Not Applicable
(Address of principal executive offices)
(Zip Code)
 
 
(31-20) 420-3191
(Registrant's telephone number, including area code)
 
None
(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

The number of common shares of the registrant, par value EUR 0.02 per share, outstanding at July 21, 2016 was 44,106,302.



CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2016
 
INDEX
 
PART I - FINANCIAL INFORMATION
 
 
Page
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
June 30,
2016
 
December 31,
2015
ASSETS
(Unaudited)
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
14,778

 
$
22,494

Accounts receivable, net of allowance for doubtful accounts of $2,940 and $4,136 at 2016 and 2015, respectively
111,752

 
145,689

Inventories
39,818

 
40,906

Prepaid expenses
10,912

 
12,053

Income taxes receivable
10,893

 
7,209

Other current assets
6,832

 
10,196

TOTAL CURRENT ASSETS
194,985

 
238,547

PROPERTY, PLANT AND EQUIPMENT, net
135,060

 
143,211

INTANGIBLES, net
9,700

 
10,041

GOODWILL
178,159

 
178,159

DEFERRED TAX ASSETS, net
9,537

 
11,693

OTHER ASSETS
44,665

 
43,607

TOTAL ASSETS
$
572,106

 
$
625,258

LIABILITIES AND EQUITY (DEFICIT)
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
29,404

 
$
33,474

Accrued payroll and related costs
34,512

 
36,475

Taxes other than payroll and income
6,714

 
9,495

Unearned revenue
11,114

 
14,101

Income taxes payable
1,352

 
1,733

Other current liabilities
13,119

 
25,480

TOTAL CURRENT LIABILITIES
96,215

 
120,758

LONG-TERM DEBT, net
208,237

 
430,987

DEFERRED COMPENSATION
43,570

 
43,478

DEFERRED TAX LIABILITIES, net
7,982

 
4,881

OTHER LONG-TERM LIABILITIES
49,151

 
48,853

COMMITMENTS AND CONTINGENCIES (Note 6)


 


EQUITY (DEFICIT):
 
 
 

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, 46,046,252 issued and 44,095,883 outstanding at
2016 and 44,350,002 issued and 42,375,905 outstanding at 2015
1,180

 
1,142

Additional paid-in capital
203,377

 
—

Retained earnings
204,287

 
219,207

Accumulated other comprehensive income (loss)
(11,605
)
 
(10,538
)
Treasury shares (at cost), 1,950,369 at 2016 and 1,974,097 at 2015
(235,388
)
 
(238,875
)
Total Core Laboratories N.V. shareholders' equity (deficit)
161,851

 
(29,064
)
Non-controlling interest
5,100

 
5,365

TOTAL EQUITY (DEFICIT)
166,951

 
(23,699
)
TOTAL LIABILITIES AND EQUITY (DEFICIT)
$
572,106

 
$
625,258



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

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

 
Three Months Ended
 
June 30,
 
2016
 
2015
 
(Unaudited)
REVENUE:
 
 
 
Services
$
118,172

 
$
156,861

Product sales
29,897

 
47,028

Total revenue
148,069

 
203,889

OPERATING EXPENSES:
 

 
 

Cost of services, exclusive of depreciation expense shown below
83,349

 
98,462

Cost of product sales, exclusive of depreciation expense shown below
26,650

 
36,157

General and administrative expense, exclusive of depreciation expense shown below
11,139

 
12,634

Depreciation
6,531

 
6,752

Amortization
220

 
178

Other (income) expense, net
(47
)
 
1,813

OPERATING INCOME
20,227

 
47,893

Interest expense
3,021

 
3,116

Income before income tax expense
17,206

 
44,777

Income tax expense
671

 
10,075

Net income
16,535

 
34,702

Net income (loss) attributable to non-controlling interest
(89
)
 
76

Net income attributable to Core Laboratories N.V.
$
16,624

 
$
34,626

EARNINGS PER SHARE INFORMATION:
 

 
 

Basic earnings per share attributable to Core Laboratories N.V.
$
0.38

 
$
0.81

 
 
 
 
Diluted earnings per share attributable to Core Laboratories N.V.
$
0.38

 
$
0.81

 
 
 
 
Cash dividends per share
$
0.55

 
$
0.55

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 

 
 

Basic
43,297

 
42,790

Diluted
43,505

 
42,959














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

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

 
Six Months Ended
 
June 30,
 
2016
 
2015
 
(Unaudited)
REVENUE:
 
 
 
Services
$
240,942

 
$
319,835

Product sales
60,774

 
97,697

Total revenue
301,716

 
417,532

OPERATING EXPENSES:
 

 
 

Cost of services, exclusive of depreciation expense shown below
168,643

 
201,257

Cost of product sales, exclusive of depreciation expense shown below
54,170

 
77,636

General and administrative expense, exclusive of depreciation expense shown below
22,189

 
25,308

Depreciation
13,158

 
13,097

Amortization
440

 
399

Other (income) expense, net
(51
)
 
2,135

Severance and other charges
—

 
7,090

OPERATING INCOME
43,167

 
90,610

Interest expense
6,455

 
5,519

Income before income tax expense
36,712

 
85,091

Income tax expense
5,060

 
19,347

Net income
31,652

 
65,744

Net income (loss) attributable to non-controlling interest
(54
)
 
(281
)
Net income attributable to Core Laboratories N.V.
$
31,706

 
$
66,025

EARNINGS PER SHARE INFORMATION:
 

 
 

Basic earnings per share attributable to Core Laboratories N.V.
$
0.74

 
$
1.53

 
 
 
 
Diluted earnings per share attributable to Core Laboratories N.V.
$
0.74

 
$
1.53

 
 
 
 
Cash dividends per share
$
1.10

 
$
1.10

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 

 
 

Basic
42,839

 
43,063

Diluted
43,008

 
43,214














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

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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
(Unaudited)
 
(Unaudited)
Net income
$
16,535

 
$
34,702

 
$
31,652

 
$
65,744

 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Gain (loss) in fair value of interest rate swaps
(800
)
 
735

 
(2,420
)
 
(405
)
Interest rate swap amounts reclassified to interest expense
211

 
245

 
424

 
488

Income taxes on derivatives
217

 
367

 
735

 
367

Total derivatives
(372
)
 
1,347

 
(1,261
)
 
450

 
 
 
 
 
 
 
 
Pension and other postretirement benefit plans
 
 
 
 
 
 
 
Prior service cost
 
 
 
 
 
 
 
Amortization to net income of transition asset
—

 
(22
)
 
—

 
(44
)
Amortization to net income of prior service cost
(19
)
 
(19
)
 
(38
)
 
(38
)
Amortization to net income of actuarial loss
148

 
184

 
296

 
367

Income taxes on pension and other postretirement benefit plans
(32
)
 
(36
)
 
(64
)
 
(73
)
Total pension and other postretirement benefit plans
97

 
107

 
194

 
212

 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
(275
)
 
1,454

 
(1,067
)
 
662

Comprehensive income
16,260

 
36,156

 
30,585

 
66,406

Comprehensive income (loss) attributable to non-controlling interest
(89
)
 
76

 
(54
)
 
(281
)
Comprehensive income attributable to Core Laboratories N.V.
$
16,349

 
$
36,080

 
$
30,639

 
$
66,687


























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

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CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Six Months Ended
 
June 30,
 
2016
 
2015
 
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
31,652

 
$
65,744

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

 
 

Stock-based compensation
11,087

 
10,477

Depreciation and amortization
13,598

 
13,496

Changes to value of life insurance policies
(497
)
 
(657
)
Deferred income taxes
(1,256
)
 
2,534

Other non-cash items
(1,670
)
 
1,415

Changes in assets and liabilities:
 
 
 
Accounts receivable
34,700

 
41,359

Inventories
805

 
(4,045
)
Prepaid expenses and other current assets
(2,344
)
 
(3,078
)
Other assets
733

 
1,752

Accounts payable
(3,826
)
 
(4,594
)
Accrued expenses
(6,079
)
 
(100
)
Unearned revenue
(2,987
)
 
3,749

Other long-term liabilities
(102
)
 
(1,760
)
Net cash provided by operating activities
73,814

 
126,292

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(5,302
)
 
(12,310
)
Patents and other intangibles
(99
)
 
(512
)
Business acquisition, net of cash acquired
—

 
(13,824
)
Proceeds from sale of assets
539

 
833

Premiums on life insurance
(970
)
 
(1,564
)
Net cash used in investing activities
(5,832
)
 
(27,377
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repayment of debt borrowings
(258,676
)
 
(27,000
)
Proceeds from debt borrowings
34,000

 
91,000

Excess tax benefits from stock-based compensation
(284
)
 
(315
)
Debt financing costs
—

 
(279
)
Non-controlling interest - dividend
(211
)
 
—

Dividends paid
(46,626
)
 
(47,508
)
Repurchase of common shares
(1,112
)
 
(115,583
)
Issuance of common shares
197,211

 
—

Net cash used in financing activities
(75,698
)
 
(99,685
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(7,716
)
 
(770
)
CASH AND CASH EQUIVALENTS, beginning of period
22,494

 
23,350

CASH AND CASH EQUIVALENTS, end of period
$
14,778

 
$
22,580













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

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

1.  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of Core Laboratories N.V. and its subsidiaries for which we have a controlling voting interest and/or a controlling financial interest. These financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information using the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnote disclosures required by U.S. GAAP and should be read in conjunction with the audited financial statements and the summary of significant accounting policies and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015 (the "2015 Annual Report").

Core Laboratories N.V. uses the equity method of accounting for investments in which it has less than a majority interest and over which it does not exercise control but does exert significant influence. We use the cost method to record certain other investments in which we own less than 20% of the outstanding equity and do not exercise control or exert significant influence. Non-controlling interests have been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than 100% owned. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included in these financial statements. Furthermore, the operating results presented for the three and six months ended June 30, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2016.

Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2015 was derived from the 2015 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.

2.  INVENTORIES

Inventories consist of the following (in thousands):
 
June 30,
2016
 
December 31,
2015
Finished goods
$
25,097

 
$
25,778

Parts and materials
13,055

 
12,637

Work in progress
1,666

 
2,491

Total inventories
$
39,818

 
$
40,906


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

3.  ACQUISITIONS

In the second quarter of 2015, we acquired a business providing additional reservoir fluids technology for $17.2 million in cash. We accounted for this acquisition by allocating the purchase price to the net assets acquired based on their estimated fair values at the date of acquisition, resulting in an increase to goodwill of $13.7 million and an increase of $2.0 million in intangible assets. The acquisition of this entity did not have a material impact on our Consolidated Balance Sheet or Consolidated Statements of Operations, and was recorded in the Reservoir Description business segment.


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4.  LONG-TERM DEBT

We have no capital lease obligations. Long-term debt is summarized in the following table (in thousands):
 
June 30,
2016
 
December 31,
2015
Senior notes
$
150,000

 
$
150,000

Credit facility
60,000

 
283,000

Other indebtedness
567

 
2,244

Total debt
210,567

 
435,244

Less: Short-term debt included in other indebtedness
(567
)
 
(2,244
)
Less: Debt issuance costs
(1,763
)
 
(2,013
)
Long-term debt, net
$
208,237

 
$
430,987


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.
    
We maintain a revolving credit facility ("Credit Facility") that allows for an aggregate borrowing capacity of $400 million. The Credit Facility also provides an option to increase the commitment under the Credit Facility by an additional $50 million to bring the total borrowings available to $450 million if certain prescribed conditions are met by the Company. The Credit Facility bears interest at variable rates from LIBOR plus 1.25% to a maximum of LIBOR plus 2.00%.

On May 17, 2016 we completed a public offering of 1,475,000 shares of our common stock. The purchase price paid by the underwriter was $116.67 per share. On May 26, 2016, the underwriters exercised in full their option to purchase an additional 221,250 shares of common stock at the public offering price of $116.67 per share. The net proceeds from these issuances of common stock were approximately $197.2 million, after deducting underwriting discounts and offering expenses. The proceeds were used to repay a portion of the outstanding borrowings under our Credit Facility. At June 30, 2016, the outstanding balance on our Credit Facility was $60 million.

Any outstanding balance under the Credit Facility is due August 29, 2019, when the Credit Facility matures. Our available capacity at any point in time is reduced by borrowings outstanding at the time and outstanding letters of credit which totaled $25.2 million at June 30, 2016, resulting in an available borrowing capacity under the Credit Facility of $314.8 million. In addition to those items under the Credit Facility, we had $10 million of outstanding letters of credit and performance guarantees and bonds from other sources as of June 30, 2016.

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. We believe that we are in compliance with all such covenants contained in our credit agreements. Certain of our material, wholly-owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.

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

The estimated fair value of total debt at June 30, 2016 and December 31, 2015 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.


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5.  PENSION

Defined Benefit Plan

We provide a non-contributory defined benefit pension plan for substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2007. 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 for the three and six months ended June 30, 2016 and 2015 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Service cost
$
375

 
$
440

 
$
733

 
$
903

Interest cost
342

 
294

 
669

 
603

Expected return on plan assets
(287
)
 
(243
)
 
(562
)
 
(499
)
Amortization of transition asset
—

 
(22
)
 
—

 
(44
)
Amortization of prior service cost
(19
)
 
(19
)
 
(38
)
 
(38
)
Amortization of actuarial loss
148

 
184

 
296

 
367

Net periodic pension cost
$
559

 
$
634

 
$
1,098

 
$
1,292


During the six months ended June 30, 2016, we contributed approximately $1.1 million to fund the estimated 2016 premiums on investment contracts held by the Dutch Plan.

6. COMMITMENTS AND CONTINGENCIES

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

7.  EQUITY

During the three months ended June 30, 2016, we repurchased 3,799 of our common shares for $0.4 million. During the six months ended June 30, 2016, we repurchased 10,164 of our common shares for $1.1 million. These consisted of rights to shares 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, non-employee director stock awards or employee stock awards. We distributed 11,736 and 33,892 treasury shares upon vesting of stock-based awards during the three and six months ended June 30, 2016, respectively.

In February and May 2016, we paid quarterly dividends of $0.55 per share of common stock. In addition, on July 7, 2016, we declared a quarterly dividend of $0.55 per share of common stock for shareholders of record on July 18, 2016 and payable on August 15, 2016.

On May 17, 2016 we completed a public offering of 1,475,000 shares of our common stock. The purchase price paid by the underwriter was $116.67 per share. On May 26, 2016, the underwriters exercised in full their option to purchase an additional 221,250 shares of common stock at the public offering price of $116.67 per share. The net proceeds from these issuances of common stock were approximately $197.2 million, after deducting underwriting discounts and offering expenses. The proceeds were used to repay a portion of the outstanding borrowings under our Credit Facility.

At the annual meeting of shareholders on May 19, 2016, our shareholders approved the cancellation of 1,250,000 shares of our common stock then held as treasury stock. This treasury stock will be cancelled on or about August 2, 2016, after the expiration of the waiting period required under Dutch law. In accordance with ASC 505-30-30-8, we will charge the excess of the cost of the treasury stock over its par value to additional paid-in capital.

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The following table summarizes our changes in equity for the six months ended June 30, 2016 (in thousands):
 
Shares Outstanding
 
Common Shares
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income (Loss)
 
Treasury Stock
 
Non-Controlling Interest
 
Total Equity
December 31, 2015
42,375,905

 
$
1,142

 
$
—

 
$
219,207

 
$
(10,538
)
 
$
(238,875
)
 
$
5,365

 
$
(23,699
)
Stock based-awards
33,892

 
—

 
6,488

 
—

 
—

 
4,599

 
—

 
11,087

Tax detriment of stock-based awards
—

 
—

 
(284
)
 
—

 
—

 
—

 
—

 
(284
)
Repurchase of common shares
(10,164
)
 
—

 
—

 
—

 
—

 
(1,112
)
 
—

 
(1,112
)
Issuance of common shares
1,696,250

 
38

 
197,173

 
—

 
—

 
—

 
—

 
197,211

Dividends paid
—

 
—

 
—

 
(46,626
)
 
—

 
—

 
—

 
(46,626
)
Non-controlling interest dividends
—

 
—

 
—

 
—

 
—

 
—

 
(211
)
 
(211
)
Amortization of deferred pension costs, net of tax
—

 
—

 
—

 
—

 
194

 
—

 
—

 
194

Interest rate swaps, net of tax
—

 
—

 
—

 
—

 
(1,261
)
 
—

 
—

 
(1,261
)
Net income
—

 
—

 
—

 
31,706

 
—

 
—

 
(54
)
 
31,652

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

June 30, 2016
44,095,883

 
$
1,180

 
$
203,377

 
$
204,287

 
$
(11,605
)
 
$
(235,388
)
 
$
5,100

 
$
166,951


Accumulated other comprehensive income (loss) consisted of the following (in thousands, net of tax):
 
June 30,
2016
 
December 31,
2015
Prior service cost
$
632

 
$
661

Unrecognized net actuarial loss
(9,978
)
 
(10,201
)
Fair value of derivatives
(2,259
)
 
(998
)
Total accumulated other comprehensive income (loss)
$
(11,605
)
 
$
(10,538
)


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8.  EARNINGS PER SHARE

We compute basic earnings per common share by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common shares include additional shares in the weighted average share calculations associated with the incremental effect of dilutive restricted stock awards and contingently issuable shares, as determined using the treasury stock method. The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Weighted average basic common shares outstanding
43,297

 
42,790

 
42,839

 
43,063

Effect of dilutive securities:
 
 
 
 
 
 
 
Performance shares
127

 
104

 
105

 
86

Restricted stock
81

 
65

 
64

 
65

Weighted average diluted common and potential common shares outstanding
43,505

 
42,959

 
43,008

 
43,214


9. OTHER (INCOME) EXPENSE, NET

The components of other (income) expense, net, were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Sale of assets
$
(122
)
 
$
(127
)
 
$
(488
)
 
$
(262
)
Results of non-consolidated subsidiaries
(136
)
 
(36
)
 
(324
)
 
(80
)
Foreign exchange
433

 
1,002

 
1,212

 
1,842

Rents and royalties
(98
)
 
(119
)
 
(199
)
 
(255
)
Other, net
(124
)
 
1,093

 
(252
)
 
890

Total other (income) expense, net
$
(47
)
 
$
1,813

 
$
(51
)
 
$
2,135


Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Angolan Kwanza
$
43

 
$
372

 
$
505

 
$
508

British Pound
247

 
(262
)
 
475

 
112

Canadian Dollar
(47
)
 
(51
)
 
(48
)
 
1,223

Euro
(40
)
 
295

 
170

 
(760
)
Nigerian Naira
148

 
180

 
158

 
319

Other currencies, net
82

 
468

 
(48
)
 
440

Total (gain) loss, net
$
433

 
$
1,002

 
$
1,212

 
$
1,842


10.  INCOME TAX EXPENSE

The effective tax rate for the three months ended June 30, 2016 was 3.9% compared to 22.5% for the three months ended June 30, 2015. The effective tax rate for the six months ended June 30, 2016 was 13.8% compared to 22.7% for the same period in 2015. Income tax expense of $0.7 million in the second quarter of 2016 decreased by $9.4 million compared to $10.1 million in the same period in 2015, primarily in the United States as taxable income recognized in the United States decreased by $68.8 million in 2016 compared to 2015. No other jurisdiction in which we operate had a material change in income tax expense.


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During the second quarter of 2016, we settled a tax audit covering the years 2010 through 2012 that resulted in the release of reserves for uncertain tax positions in the amount of $0.9 million which contributed to the lower effective tax rate in the quarter.

11.  SEVERANCE AND OTHER CHARGES

In 2015, in response to reduced spending by our clients on their oil and gas fields as a result of lower commodity prices for crude oil and natural gas, we reduced our cost structure, primarily through a reduction in our workforce, to better align with the decreasing activity levels into the foreseeable future. As a result of these cost reductions, we recorded severance charges of $8.8 million in 2015, of which $7.1 million was recorded during the six months ended June 30, 2015. Approximately $1.5 million was accrued and remaining to be paid at June 30, 2016.

During the second quarter of 2016, we continued to closely monitor rig counts, crude oil and natural gas prices, and activity levels within the industry. We continued to execute our cost reduction initiative which began in the first quarter of 2015, but no additional expenses associated with severance or asset impairments were recorded during the three or six months ended June 30, 2016.

12.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Interest Rate Risk

Our Credit Facility bears interest at variable rates from LIBOR plus 1.25% to a maximum of LIBOR plus 2.00%. As a result of two interest rate swap agreements, we are subject to interest rate risk on debt in excess of $50 million drawn on our Credit Facility.

In 2014, we entered into two interest rate swap agreements for a total notional amount of $50 million to hedge changes in the variable rate interest expense on $50 million of our existing or replacement LIBOR-priced debt. Under the first swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 1.73% through August 29, 2019, and under the second swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 2.5% through August 29, 2024. Each swap is measured at fair value and recorded in our Consolidated Balance Sheet as a liability. They are designated and qualify as cash flow hedging instruments. Unrealized losses are deferred to shareholders' equity as a component of accumulated other comprehensive loss (AOCL) and are recognized in income as an increase to interest expense in the period
in which the related cash flows being hedged are recognized in expense.

At June 30, 2016, we had fixed rate long-term debt aggregating $200 million and variable rate long-term debt aggregating $10 million, after taking into account the effect of the swaps.

The fair values of outstanding derivative instruments are as follows (in thousands):
 
Fair Value of Derivatives
 
 
 
June 30, 2016
 
December 31, 2015
 
Balance Sheet Classification
Derivatives designated as hedges:
 
 
 
 
 
5 year interest rate swap
$
851

 
$
353

 
Other long-term liabilities
10 year interest rate swap
2,727

 
1,229

 
Other long-term liabilities
 
$
3,578

 
$
1,582

 
 

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


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The effect of the interest rate swaps on the Consolidated Statement of Operations was as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
 
 
June 30, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
 
Income Statement Classification
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
5 year interest rate swap
$
81

 
$
98

 
$
163

 
$
195

 
Increase to interest expense
10 year interest rate swap
130

 
147

 
261

 
293

 
Increase to interest expense
 
$
211

 
$
245

 
$
424

 
$
488

 
 

13.  FINANCIAL INSTRUMENTS

The Company's only financial assets and liabilities which involve fair value measures relate to certain aspects of the Company's benefit plans and our derivative instruments. We use the market approach to value certain assets and liabilities at fair value using significant other observable inputs (Level 2) with the assistance of a third party specialist. We do not have any assets or liabilities measured at fair value on a recurring basis using quoted prices in an active market (Level 1) or significant unobservable inputs (Level 3). Gains and losses related to the fair value changes in the deferred compensation assets and liabilities are recorded in General and administrative expense in the Consolidated Statements of Operations. Gains and losses related to the fair value of the interest rate swaps are recorded in Other comprehensive income (loss). The following table summarizes the fair value balances (in thousands):
 
 
 
Fair Value Measurement at
 
 
 
June 30, 2016
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation trust assets (1)
$
23,176

 
$
—

 
$
23,176

 
$
—

Liabilities:
 

 
 

 
 
 
 
Deferred compensation plan
$
28,772

 
$
—

 
$
28,772

 
$
—

5 year interest rate swap
851

 
—

 
851

 
—

10 year interest rate swap
2,727

 
—

 
2,727

 
—

 
$
32,350

 
$
—

 
$
32,350

 
$
—


 
 
 
Fair Value Measurement at
 
 
 
December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation trust assets (1)
$
23,737

 
$
—

 
$
23,737

 
$
—

Liabilities:
 

 
 
 
 
 
 
Deferred compensation plan
$
29,155

 
$
—

 
$
29,155

 
$
—

5 year interest rate swap
353

 
—

 
353

 
—

10 year interest rate swap
1,229

 
—

 
1,229

 
—

 
$
30,737

 
$
—

 
$
30,737

 
$
—

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

14.  SEGMENT REPORTING

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


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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.
•
Production Enhancement: Includes services and products relating to reservoir well completions, perforations, stimulations and production. We provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
•
Reservoir Management: Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients' reservoirs.

Results for these segments are presented below. We use the same accounting policies to prepare our segment results as are used to prepare our Consolidated Financial Statements. All interest and other non-operating income (expense) is attributable to Corporate & Other and is not allocated to specific segments. Summarized financial information concerning our segments is shown in the following table (in thousands):
 
Reservoir Description
 
Production Enhancement
 
Reservoir Management
 
Corporate & Other 1
 
Consolidated
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
Revenue from unaffiliated clients
$
102,962

 
$
39,149

 
$
5,958

 
$
—

 
$
148,069

Inter-segment revenue
386

 
164

 
24

 
(574
)
 
—

Segment operating income (loss)
19,209

 
755

 
422

 
(159
)
 
20,227

Total assets (at end of period)
309,308

 
192,729

 
17,925

 
52,144

 
572,106

Capital expenditures
2,266

 
160

 
8

 
10

 
2,444

Depreciation and amortization
4,454

 
1,343

 
335

 
619

 
6,751

Three Months Ended June 30, 2015
 
 
 

 
 

 
 

 
 

Revenue from unaffiliated clients
$
118,911

 
$
70,589

 
$
14,389

 
$
—

 
$
203,889

Inter-segment revenue
2,411

 
652

 
58

 
(3,121
)
 
—

Segment operating income (loss)
30,944

 
14,376

 
3,452

 
(879
)
 
47,893

Total assets (at end of period)
330,417

 
229,899

 
26,048

 
72,621

 
658,985

Capital expenditures
4,297

 
709

 
45

 
390

 
5,441

Depreciation and amortization
4,232

 
1,649

 
422

 
627

 
6,930

Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
Revenue from unaffiliated clients
$
204,511

 
$
83,294

 
$
13,911

 
$
—

 
$
301,716

Inter-segment revenue
2,293

 
384

 
29

 
(2,706
)
 
—

Segment operating income (loss)
37,429

 
4,896

 
909

 
(67
)
 
43,167

Total assets (at end of period)
309,308

 
192,729

 
17,925

 
52,144

 
572,106

Capital expenditures
4,340

 
538

 
16

 
408

 
5,302

Depreciation and amortization
8,890

 
2,768

 
698

 
1,242

 
13,598

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

 
$
145,734

 
$
31,128

 
$
—

 
$
417,532

Inter-segment revenue
5,187

 
1,369

 
207

 
(6,763
)
 
—

Segment operating income (loss)
59,474

 
24,299

 
7,318

 
(481
)
 
90,610

Total assets (at end of period)
330,417

 
229,899

 
26,048

 
72,621

 
658,985

Capital expenditures
8,734

 
2,512

 
266

 
798

 
12,310

Depreciation and amortization
8,015

 
3,410

 
853

 
1,218

 
13,496

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


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15. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-02 ("Amendments to the Consolidation Analysis") which amends the guidelines for determining whether certain legal entities should be consolidated. This update eliminates the presumption that a general partner should consolidate a limited partnership and modifies the evaluation of whether limited partnerships are variable interest entities or voting interest entities. Overall, the amendments in this Update are an improvement to current GAAP because they simplify the Codification and reduce the number of consolidation models through the elimination of the indefinite deferral of Statement 167 and because they place more emphasis on risk of loss when determining a controlling financial interest. This update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. We adopted this standard on January 1, 2016. The adoption of this standard had no effect on our current consolidated financial statements or on the entities that we consolidate.

In November 2015, the FASB issued ASU 2015-17 ("Balance Sheet Classification of Deferred Taxes") to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This pronouncement is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. We early adopted this standard for our fiscal year beginning on January 1, 2016 and applied the adoption prospectively. The adoption of this standard had no effect on our current Consolidated Statements of Operations and Consolidated Statement of Cash Flows but had an immaterial effect on our Consolidated Balance Sheet with the reclassification of certain deferred tax balance sheet accounts. The comparative prior period Consolidated Balance Sheet as of December 31, 2015 was not retrospectively adjusted.

In May 2014, the FASB issued ASU 2014-09 ("Revenue from Contracts with Customers"), which provides guidance on revenue recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance requires entities to apply a five-step method to (1) identify the contract(s) with customers; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (on July 9, 2015, the FASB deferred the implementation date for one year). Since the issuance of ASU 2014-09, the FASB has issued several amendments which clarify certain points in the new Topic 606 - Revenue from Contracts with Customers, including ASU 2016-08 ("Principal versus Agent Considerations - Reporting Revenue Gross versus Net"), ASU 2016-10 ("Identifying Performance Obligations and Licensing"), ASU 2016-11 ("Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting"), and ASU 2016-12 ("Narrow-Scope Improvements and Practical Expedients"). We anticipate adopting all of these standards at the same time. We are evaluating the impact that the adoption of these standards will have on our consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11 ("Simplifying the Measurement of Inventory") to require the measurement of inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This pronouncement is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this standard will have no material effect on our current consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 ("Leases"), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 ("Improvements to Employee Share-Based Payment Accounting") which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.


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In June 2016, the FASB issued ASU 2016-13 ("Measurement of Credit Losses on Financial Instruments") which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.


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

The following discussion summarizes the financial position of Core Laboratories N.V. and its subsidiaries as of June 30, 2016 and should be read in conjunction with (i) the unaudited consolidated interim financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "2015 Annual Report").

General

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

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

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

•
Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples. We provide analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry.
•
Production Enhancement: Includes services and products relating to reservoir well completions, perforations, stimulations and production. We provide integrated services to evaluate the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
•
Reservoir Management: Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients' reservoirs.

Cautionary Statement Regarding Forward-Looking Statements

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

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see "Item 1A - Risk Factors" in our 2015 Annual Report and in Part II of this Quarterly Report, as well as the other reports filed by us with the Securities and Exchange Commission ("SEC").




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Outlook

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

During 2015, average crude oil prices decreased approximately 48% compared to 2014, which resulted in a significant decrease in activities and spending related to the exploration and production of oil and natural gas. Although crude oil prices showed some strengthening during the second quarter of 2016, with West Texas Intermediate ("WTI") increasing from $36.94 per barrel at March 31, 2016 to $48.27 per barrel at June 30, 2016, they are still well below prices from June 30, 2014 when WTI was $106.07 per barrel.

In North America, land-based activity continues to be the most significantly impacted by these lower commodity prices. The quarterly average rig count in North America has decreased 49% since December 31, 2015.

Outside of North America, activities associated with the exploration and production of oil and gas have also decreased from 2015 levels, although not as significantly as the land-based activities in North America. The quarterly average international rig count for the second quarter of 2016 is down approximately 19% from the same period in 2015. These reduced international activities have impacted most regions, except the Middle East, where we continue to see sustained levels for the second quarter of 2016.

We saw U.S. crude oil production continue its sharp decline in the second quarter of 2016 which we believe is an indication that the balancing of worldwide crude-oil markets is well underway. With the very steep decline curves associated with the unconventional tight oil reservoirs in the U.S., we now believe that U.S. supply growth rolled over in April of 2015 and that year-over-year crude-oil production in 2016 will be down several hundreds-of-thousands of barrels per day. Therefore, at current industry activity levels, U.S. crude oil production could continue to fall significantly throughout 2016, while worldwide oil production continues to stagnate or decrease slightly because the prior year's international production gains may not be sustainable over the long term. The net worldwide decline rate is predicated on sharper decline curve rates for tight-oil reservoirs and the significant decline in maintenance capital expenditures for the existing crude oil production base. Coupled with the continuing decline in global production and the continuing increase in global energy consumption, this should create a tight crude oil supply market beginning in the second half of 2016, which should lead to increased crude prices and industry activity levels worldwide. This expectation does not take into account any unanticipated demand or supply fluctuations caused by industry or geopolitical events.

Response to Decline in Oilfield Services Activities

In 2015, in response to reduced spending by our clients on their oil and gas fields as a result of lower commodity prices for crude oil and natural gas, we reduced our cost structure, primarily through a reduction in our workforce, to better align with the decreasing activity levels into the foreseeable future. As a result of these cost reductions, we recorded severance charges of $8.8 million in 2015, of which $7.1 million was recorded in the six months ended June 30, 2015. Approximately $1.5 million was accrued and remaining to be paid at June 30, 2016.

During the second quarter of 2016, we continued to closely monitor rig counts, crude oil and natural gas prices, and activity levels within the industry. We continued to execute our cost reduction initiative which began in the first quarter of 2015, but no additional accruals or write-offs were recorded during the three or six months ended June 30, 2016.


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Results of Operations

Our results of operations as a percentage of applicable revenue were as follows (in thousands):
 
Three Months Ended June 30,
 
$ Change
% Change
 
2016
 
2015
 
2016/2015

2016/2015

REVENUE:
 
 
 
 

Services
$
118,172

 
80
 %
 
$
156,861

 
77
%
 
$
(38,689
)
(25
)%
Product sales
29,897

 
20
 %
 
47,028

 
23
%
 
(17,131
)
(36
)%
Total revenue
148,069

 
100
 %
 
203,889

 
100
%
 
(55,820
)
(27
)%
OPERATING EXPENSES:
 

 
 

 
 

 
 

 




Cost of services, exclusive of depreciation expense shown below*
83,349

 
71
 %
 
98,462

 
63
%
 
(15,113
)
(15
)%
Cost of product sales, exclusive of depreciation expense shown below*
26,650

 
89
 %
 
36,157

 
77
%
 
(9,507
)
(26
)%
Total cost of services and product sales
109,999

 
74
 %
 
134,619

 
66
%
 
(24,620
)
(18
)%
General and administrative expense
11,139

 
8
 %
 
12,634

 
6
%
 
(1,495
)
(12
)%
Depreciation and amortization
6,751

 
5
 %
 
6,930

 
3
%
 
(179
)
(3
)%
Other (income) expense, net
(47
)
 
(1
)%
 
1,813

 
2
%
 
(1,860
)
NM

Operating income
20,227

 
14
 %
 
47,893

 
23
%
 
(27,666
)
(58
)%
Interest expense
3,021

 
2
 %
 
3,116

 
1
%
 
(95
)
(3
)%
Income before income tax expense
17,206

 
12
 %
 
44,777

 
22
%
 
(27,571
)
(62
)%
Income tax expense
671

 
1
 %
 
10,075

 
5
%
 
(9,404
)
(93
)%
Net income
16,535

 
11
 %
 
34,702

 
17
%
 
(18,167
)
(52
)%
Net income (loss) attributable to non-controlling interest
(89
)
 
—
 %
 
76

 
—
%
 
(165
)
NM

Net income attributable to Core Laboratories N.V.
$
16,624

 
11
 %
 
$
34,626

 
17
%
 
$
(18,002
)
(52
)%
"NM"  means not meaningful
 
 
 
* Percentage based on applicable revenue rather than total revenue.
 
 

 
 
 



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Three Months Ended
 
$ Change
% Change
 
Jun 30, 2016
 
Mar 31, 2016
 
2016/2015
2016/2015
REVENUE:
 
 
 
 
 
 
 
 
 
 
Services
$
118,172

 
80
 %
 
$
122,770

 
80
%
 
$
(4,598
)
(4
)%
Product sales
29,897

 
20
 %
 
30,877

 
20
%
 
(980
)
(3
)%
Total revenue
148,069

 
100
 %
 
153,647

 
100
%
 
(5,578
)
(4
)%
OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Cost of services, exclusive of depreciation expense shown below*
83,349

 
71
 %
 
85,294

 
69
%
 
(1,945
)
(2
)%
Cost of product sales, exclusive of depreciation expense shown below*
26,650

 
89
 %
 
27,520

 
89
%
 
(870
)
(3
)%
Total cost of services and product sales
109,999

 
74
 %
 
112,814

 
73
%
 
(2,815
)
(2
)%
General and administrative expense
11,139

 
8
 %
 
11,050

 
7
%
 
89

1
 %
Depreciation and amortization
6,751

 
5
 %
 
6,847

 
4
%
 
(96
)
(1
)%
Other (income) expense, net
(47
)
 
(1
)%
 
(4
)
 
1
%
 
(43
)
NM

Operating income
20,227

 
14
 %
 
22,940

 
15
%
 
(2,713
)
(12
)%
Interest expense
3,021

 
2
 %
 
3,434

 
2
%
 
(413
)
(12
)%
Income before income tax expense
17,206

 
12
 %
 
19,506

 
13
%
 
(2,300
)
(12
)%
Income tax expense
671

 
1
 %
 
4,389

 
3
%
 
(3,718
)
(85
)%
Net income
16,535

 
11
 %
 
15,117

 
10
%
 
1,418

9
 %
Net income (loss) attributable to non-controlling interest
(89
)
 
—
 %
 
35

 
—
%
 
(124
)
NM

Net income attributable to Core Laboratories N.V.
$
16,624

 
11
 %
 
$
15,082

 
10
%
 
$
1,542

10
 %
"NM"  means not meaningful
 
 
 
 
 
 
 
 
 
 
* Percentage based on applicable revenue rather than total revenue.
 
 
 
 
 
 
 


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   Six Months Ended June 30,
 
$ Change
% Change
 
2016
 
2015
 
2016/2015

2016/2015
REVENUE:
 
 
 
 
Services
$
240,942

 
80
 %
 
$
319,835

 
77
 %
 
$
(78,893
)
(25
)%
Product sales
60,774

 
20
 %
 
97,697

 
23
 %
 
(36,923
)
(38
)%
Total revenue
301,716

 
100
 %
 
417,532

 
100
 %
 
(115,816
)
(28
)%
OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Cost of services, exclusive of depreciation expense shown below*
168,643

 
70
 %
 
201,257

 
63
 %
 
(32,614
)
(16
)%
Cost of product sales, exclusive of depreciation expense shown below*
54,170

 
89
 %
 
77,636

 
79
 %
 
(23,466
)
(30
)%
Total cost of services and product sales
222,813

 
74
 %
 
278,893

 
67
 %
 
(56,080
)
(20
)%
General and administrative expense
22,189

 
7
 %
 
25,308

 
6
 %
 
(3,119
)
(12
)%
Depreciation and amortization
13,598

 
5
 %
 
13,496

 
3
 %
 
102

1
 %
Other (income), net
(51
)
 
0
 %
 
2,135

 
0
 %
 
(2,186
)
NM

Severance and other charges
—

 
0
 %
 
7,090

 
2
 %
 
(7,090
)
NM

Operating income
43,167

 
14
 %
 
90,610

 
22
 %
 
(47,443
)
(52
)%
Interest expense
6,455

 
2
 %
 
5,519

 
1
 %
 
936

17
 %
Income before income tax expense
36,712

 
12
 %
 
85,091

 
20
 %
 
(48,379
)
(57
)%
Income tax expense
5,060

 
2
 %
 
19,347

 
5
 %
 
(14,287
)
(74
)%
Net income
31,652

 
10
 %
 
65,744

 
16
 %
 
(34,092
)
(52
)%
Net income (loss) attributable to non-controlling interest
(54
)
 
(1
)%
 
(281
)
 
0
 %
 
227

(81
)%
Net income attributable to Core Laboratories N.V.
$
31,706

 
11
 %
 
$
66,025

 
16
 %
 
$
(34,319
)
(52
)%
"NM"  means not meaningful
 
 
 
* Percentage based on applicable revenue rather than total revenue.
 
 
 
 
 

Operating Results for the Three Months Ended June 30, 2016 Compared to the Three Months Ended March 31, 2016 and June 30, 2015 and for the Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015

Services Revenue

Services revenue decreased 3.7% to $118.2 million for the second quarter of 2016 from $122.8 million for the first quarter of 2016. Services revenue also decreased as compared to $156.9 million for the second quarter of 2015. The average rig count for the second quarter of 2016 was 19% and 35% lower than the average rig count during the first quarter of 2016 and the second quarter of 2015, respectively. During these same time periods however, our services revenue was down only 4% sequentially and 25% year-over-year, as demand for our analytical, diagnostic, and completion services was less impacted by the significant decrease in drilling activities. For the six months ended June 30, 2016, services revenue decreased 25% to $240.9 million as compared to $319.8 million for the same period of 2015. The average global rig count for the first half of 2016 fell by 39% compared to the same period in 2015, primarily driven by decreases in North America. Our continued focus on worldwide crude oil related and large natural gas liquefaction projects, especially those related to the development of deepwater fields off West and East Africa and the eastern Mediterranean, kept services revenue from declining further.

Product Sales Revenue

Revenue associated with product sales decreased 3.2% to $29.9 million for the second quarter of 2016, from $30.9 million for the first quarter of 2016. Revenue associated with product sales also decreased as compared to $47 million for the second quarter of 2015. Our product sales revenue is primarily driven by sales in the North American market where the quarterly average rig count for the second quarter of 2016 declined 35% sequentially and declined 53% year-over-year; however, as a result of our differentiated well completion products in the market place, our revenue during the second quarter of 2016 decreased only 3% and 36% from our revenue for the first quarter of 2016 and second quarter of 2015, respectively. For the six months ended June 30, 2016, product sales revenue decreased 38% to $60.8 million compared to $97.7 million during the same period in 2015 where the average rig count in North America decreased by 56%.

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Cost of Services

Cost of services expressed as a percentage of services revenue increased to 71% for the three months ended June 30, 2016, compared to 69% and 63% for the three months ended March 31, 2016 and June 30, 2015, respectively. Cost of services expressed as a percentage of services revenue increased to 70% for the six months ended June 30, 2016, compared to 63% for the same period in 2015. These increases were primarily due to a reduced absorption rate of our fixed-cost structure across lower revenues in 2016.

Cost of Product Sales

Cost of product sales expressed as a percentage of product sales revenue was 89% for the three months ended June 30, 2016, compared to 89% and 77% for the three months ended March 31, 2016 and June 30, 2015, respectively. Cost of product sales expressed as a percentage of product sales revenue increased to 89% for the six months ended June 30, 2016, compared to 79% for the same period in 2015. The increases were primarily due to a reduced absorption rate of our fixed-cost structure across lower revenue in 2016.
 
General and Administrative Expense

General and administrative ("G&A") expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three months ended June 30, 2016 was $11.1 million compared to $11.1 million and $12.6 million for the three months ended March 31, 2016 and June 30, 2015, respectively. G&A expense for the six months ended June 30, 2016 was $22.2 million compared to $25.3 million for the same period in 2015. The decreases are primarily due to lower compensation expense.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended June 30, 2016 was $6.8 million compared to $6.8 million and $6.9 million for the three months ended March 31, 2016 and June 30, 2015, respectively. Depreciation and amortization expense for the six months ended June 30, 2016 was $13.6 million compared to $13.5 million for the same period in 2015.

Severance and Other Charges

In 2015, in response to reduced spending by our clients on their oil and gas fields as a result of lower commodity prices for crude oil and natural gas, we reduced our cost structure, primarily through a reduction in our workforce, to better align with the decreasing activity levels into the foreseeable future. As a result of these cost reductions, we recorded severance charges of $8.8 million in 2015, of which $7.1 million was recorded during the six months ended June 30, 2015. Approximately $1.5 million was accrued and remaining to be paid at June 30, 2016.

During the second quarter of 2016, we continued to closely monitor rig counts, crude oil and natural gas prices, and activity levels within the industry. We continued to execute our cost reduction initiative which began in the first quarter of 2015, but no additional expenses associated with severance or asset impairments were recorded during the three or six months ended June 30, 2016.


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                                                                    Return to Index


Other (Income) Expense, Net

The components of other (income) expense, net, were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015