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CLB > SEC Filings for CLB > Form 10-Q on 19-Apr-2013All Recent SEC Filings

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Quarterly Report

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 March 31, 2013 and should be read in conjunction with (i) the unaudited consolidated interim financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the "2012 Annual Report").


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 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 5,000 people worldwide.

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

Our business units have been aggregated into three complementary segments, which provide services and products for improving reservoir performance and increasing oil and gas recovery from new and existing fields.

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

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

• Reservoir Management: Combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from our clients' reservoirs.

Cautionary Statement Regarding Forward-Looking Statements

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

The oil and gas industry is highly cyclical and demand for the majority of our oilfield services and products 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 services and products, which are summarized as:

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•general and economic business conditions;
•market prices of oil and gas and expectations about future prices;
•cost of producing and the ability to deliver oil and natural gas;
•the level of drilling and production activity;
•mergers, consolidations and downsizing among our clients;
•coordination by OPEC;
•the impact of commodity prices on the expenditure levels of our clients;
•financial condition of our client base and their ability to fund capital expenditures;
•the physical effects of climatic change, including adverse weather or geologic/geophysical conditions;
• the adoption of legal requirements or taxation relating to climate change that lower the demand for petroleum-based fuels;

•civil unrest or political uncertainty in oil producing or consuming countries;
•level of consumption of oil, gas and petrochemicals by consumers;
•changes in existing laws, regulations, or other governmental actions;
•the business opportunities (or lack thereof) that may be presented to and pursued by us;
•availability of services and materials for our clients to grow their capital expenditures; and
•availability of materials and equipment from key suppliers
•cyber attacks on our network that disrupt operations or result in lost critical data.

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 "Item 1A - Risk Factors" in our 2012 Annual Report and in Part II of this document, as well as the other reports filed by us with the Securities and Exchange Commission ("SEC").


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 within North America will remain similar to that experienced in the first quarter of 2013, but we believe activity outside North America, particularly those relating to oil development projects, will grow moderately throughout 2013.

Results of Operations

Our results of operations as a percentage of applicable revenue were as follows
(in thousands):

                                                               Return to Index

(Unaudited)                                  Three Months Ended March 31,                  % Change
                                           2013                        2012              2013/2012
Services                         $ 182,481           70  %   $ 162,669           69  %          12  %
Product sales                       78,446           30  %      71,522           31  %          10  %
Total revenue                      260,927          100  %     234,191          100  %          11  %
Cost of services, exclusive of
depreciation expense shown
below*                             110,153           60  %      98,010           60  %          12  %
Cost of product sales, exclusive
of depreciation expense shown
below*                              53,492           68  %      51,130           71  %           5  %
Total cost of services and
product sales                      163,645           63  %     149,140           64  %          10  %
General and administrative
expenses                            12,809            5  %      10,174            4  %          26  %
Depreciation and amortization        6,025            2  %       5,883            3  %           2  %
Other (income) expense, net           (589 )          -  %      (4,912 )         (2 )%         (88 )%
Operating income                    79,037           30  %      73,906           32  %           7  %
Interest expense                     2,269            1  %       2,190            1  %           4  %
Income before income tax expense    76,768           29  %      71,716           31  %           7  %
Income tax expense                  20,036            8  %      17,786            8  %          13  %
Net income                          56,732           22  %      53,930           23  %           5  %
Net income (loss) attributable
to non-controlling interests           216            -  %         (21 )          -  %      (1,129 )%
Net income attributable to Core
Laboratories N.V.                $  56,516           22  %   $  53,951           23  %           5  %

* Percentage based on applicable revenue rather than total revenue.

Operating Results for the Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012 (unaudited)

Services Revenue

Services revenue increased to $182.5 million for the first quarter of 2013, up 12% when compared to $162.7 million for the first quarter of 2012. 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 was up almost 10% to $78.4 million for the first quarter of 2013, compared to $71.5 million for the first quarter of 2012. The increase in revenue was due to projects providing permanent reservoir monitoring systems to the oil sands in Canada and greater market penetration of our patented and proprietary perforating technologies despite the decline in drilling activity in North America. North America rig count was down over 10% this quarter compared to the first quarter of last year.

Cost of Services

Cost of services expressed as a percentage of services revenue was 60% for the quarter ended March 31, 2013, unchanged from 60% in the same period in 2012.

Cost of Product Sales

Cost of product sales expressed as a percentage of product sales revenue was 68% for the quarter ended March 31, 2013, an improvement from 71% during the same period in 2012. The decrease in cost of sales as a percentage of product sales revenue was primarily due to the growing demand for our new technologies which led to an overall increase in sales, which improved absorption of our fixed cost structure.

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General and Administrative Expenses

General and administrative expenses include corporate management and centralized administrative services that benefit our operations. General and administrative expenses were $12.8 million for the first quarter of 2013, which represents 4.9% of revenue, an increase from the first quarter of 2012 when general and administrative expenses represented 4.3% of revenue, which was primarily attributable to benefit and compensation expenses during the period.

Depreciation and Amortization Expense

Depreciation and amortization expense was $6.0 million for the first quarter of 2013 compared to $5.9 million in the first quarter of 2012.

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