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Core Laboratories N.V. 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
CLB-2011.6.30-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
(Mark One)
 
Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
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 of other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
Herengracht 424
 
1017 BZ 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 28, 2011 was 46,585,151.



CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2011
 
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,
2011
 
December 31,
2010
ASSETS
(Unaudited)
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
24,561

 
$
133,880

Accounts receivable, net of allowance for doubtful accounts of $3,731 and  
$3,396 at 2011 and 2010, respectively
160,208

 
154,726

Inventories, net
42,508

 
33,979

Prepaid expenses and other current assets
27,414

 
26,735

TOTAL CURRENT ASSETS
254,691

 
349,320

PROPERTY, PLANT AND EQUIPMENT, net
105,126

 
104,223

INTANGIBLES, net
8,202

 
8,660

GOODWILL
154,217

 
154,217

DEFERRED TAX ASSETS, net
6,802

 

OTHER ASSETS
23,195

 
19,622

TOTAL ASSETS
$
552,233

 
$
636,042

LIABILITIES AND EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
61,331

 
$
44,710

Accrued payroll and related costs
28,087

 
28,621

Taxes other than payroll and income
9,116

 
7,796

Unearned revenue
22,830

 
20,181

Income tax payable
12,234

 
21,004

Short-term debt – Senior Exchangeable Notes
89,747

 
147,543

Other accrued expenses
12,753

 
9,498

TOTAL CURRENT LIABILITIES
236,098

 
279,353

DEFERRED COMPENSATION
24,001

 
21,241

DEFERRED TAX LIABILITIES, net

 
2,198

OTHER LONG-TERM LIABILITIES
37,749

 
32,046

COMMITMENTS AND CONTINGENCIES

 

EQUITY COMPONENT OF SHORT-TERM DEBT – SENIOR EXCHANGEABLE NOTES
2,183

 
8,864

EQUITY:
 
 
 

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

 

Common shares, EUR 0.02 par value;
200,000,000 shares authorized, 49,739,912 issued and 46,483,989 outstanding at 2011 and
49,739,912 issued and 45,521,186 outstanding at 2010
1,397

 
1,397

Additional paid-in capital

 

Retained earnings
459,634

 
536,991

Accumulated other comprehensive income (loss)
(6,055
)
 
(6,207
)
Treasury shares (at cost), 3,255,923 at 2011 and 4,218,726 at 2010
(205,913
)
 
(242,690
)
Total Core Laboratories N.V. shareholders' equity
249,063

 
289,491

Non-controlling interest
3,139

 
2,849

TOTAL EQUITY
252,202

 
292,340

TOTAL LIABILITIES AND EQUITY
$
552,233

 
$
636,042

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,
 
2011
 
2010
 
(Unaudited)
REVENUE:
 
 
 
Services
$
169,756

 
$
153,010

Product sales
56,029

 
45,892

Total Revenue
225,785

 
198,902

OPERATING EXPENSES:
 

 
 

Cost of services, exclusive of depreciation expense shown below
112,001

 
96,411

Cost of product sales, exclusive of depreciation expense shown below
40,272

 
32,506

General and administrative expenses
9,757

 
9,211

Depreciation
5,507

 
5,430

Amortization
298

 
336

Other expense, net
147

 
1,288

OPERATING INCOME
57,803

 
53,720

Loss on exchange of Senior Exchangeable Notes
210

 

Interest expense
2,499

 
4,114

Income before income tax expense
55,094

 
49,606

Income tax expense
14,710

 
15,244

Net income
40,384

 
34,362

Net income (loss) attributable to non-controlling interest
(67
)
 
146

Net income attributable to Core Laboratories N.V.
$
40,451

 
$
34,216

EARNINGS PER SHARE INFORMATION:
 

 
 

Basic earnings per share attributable to Core Laboratories N.V.
$
0.88

 
$
0.77

Diluted earnings per share attributable to Core Laboratories N.V.
$
0.83

 
$
0.71

Cash dividends per share
$
0.25

 
$
0.06

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 

 
 

Basic
45,945

 
44,651

Diluted
48,662

 
47,957














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,
 
2011
 
2010
 
(Unaudited)
REVENUE:
 
 
 
Services
$
322,870

 
$
296,452

Product sales
109,648

 
90,787

Total Revenue
432,518

 
387,239

OPERATING EXPENSES:
 

 
 

Cost of services, exclusive of depreciation expense shown below
212,733

 
191,768

Cost of product sales, exclusive of depreciation expense shown below
76,290

 
62,737

General and administrative expenses
19,281

 
15,591

Depreciation
11,047

 
10,849

Amortization
589

 
671

Other (income) expense, net
(1,724
)
 
490

OPERATING INCOME
114,302

 
105,133

Loss on exchange of Senior Exchangeable Notes
839

 

Interest expense
4,859

 
8,173

Income before income tax expense
108,604

 
96,960

Income tax expense
22,228

 
30,312

Net income
86,376

 
66,648

Net income (loss) attributable to non-controlling interest
(365
)
 
227

Net income attributable to Core Laboratories N.V.
$
86,741

 
$
66,421

EARNINGS PER SHARE INFORMATION:
 

 
 

Basic earnings per share attributable to Core Laboratories N.V.
$
1.90

 
$
1.48

Diluted earnings per share attributable to Core Laboratories N.V.
$
1.77

 
$
1.40

Cash dividends per share
$
0.50

 
$
0.12

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 

 
 

Basic
45,587

 
44,743

Diluted
48,942

 
47,396














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,
 
2011
 
2010
 
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
86,376

 
$
66,648

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

 
 

Net (recovery) provision for doubtful accounts
40

 
811

Provisions for inventory obsolescence
357

 
298

Equity in earnings of affiliates
(117
)
 
(239
)
Stock-based compensation
5,923

 
3,836

Depreciation and amortization
11,636

 
11,520

Non-cash interest expense
4,144

 
7,735

(Gain) loss on sale of assets
(138
)
 
8

Gain on insurance recovery
(779
)
 

Loss on exchange of Senior Exchangeable Notes
839

 

Realization of pension obligation
152

 
171

(Increase) decrease in value of life insurance policies
(685
)
 
765

Deferred income taxes
(10,735
)
 
(8,822
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(5,627
)
 
(4,618
)
Inventories
(8,886
)
 
(1,876
)
Prepaid expenses and other current assets
1,055

 
23,896

Other assets
(623
)
 
(540
)
Accounts payable
8,639

 
6,519

Accrued expenses
(2,080
)
 
7,698

Other long-term liabilities
8,463

 
(2,450
)
Net cash provided by operating activities
97,954

 
111,360

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(11,984
)
 
(12,696
)
Patents and other intangibles
(132
)
 
(142
)
Business Acquisitions

 
(9,000
)
Proceeds from sale of assets
171

 
125

Proceeds from insurance recovery
884

 

Premiums on life insurance
(1,243
)
 
(921
)
Net cash used in investing activities
(12,304
)
 
(22,634
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repayment of debt borrowings
(64,477
)
 

Stock options exercised
241

 
295

Excess tax benefits from stock-based compensation
2,289

 
798

Debt financing costs
(1,094
)
 

Settlement of warrants
(57,777
)
 

Non-controlling interest - contributions
895

 

Non-controlling interest - dividend
(240
)
 
(181
)
Dividends paid
(22,709
)
 
(5,375
)
Repurchase of common shares
(52,097
)
 
(91,686
)
Net cash used in financing activities
(194,969
)
 
(96,149
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(109,319
)
 
(7,423
)
CASH AND CASH EQUIVALENTS, beginning of period
133,880

 
181,045

CASH AND CASH EQUIVALENTS, end of period
$
24,561

 
$
173,622



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 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, 2010.

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. Non-controlling interest has 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 the periods presented have been included in these financial statements.  Furthermore, the operating results presented for the three and six months ended June 30, 2011 may not necessarily be indicative of the results that may be expected for the year ended December 31, 2011.

Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2010 was derived from the 2010 audited consolidated financial statements but does not include all disclosures in accordance with U.S. GAAP.

Certain reclassifications were made to prior period amounts in order to conform to the current period presentation.  These reclassifications had no impact on the reported net income for the three and six month periods ended June 30, 2011.

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 subsidiaries.

2.  INVENTORIES

Inventories consist of the following (in thousands):

 
June 30,
2011
 
December 31,
2010
 
(Unaudited)
 
 
Finished goods
$
31,843

 
$
24,476

Parts and materials
8,716

 
6,727

Work in progress
1,949

 
2,776

Total inventories, net
$
42,508

 
$
33,979


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

3. GOODWILL AND INTANGIBLES

We account for intangible assets with indefinite lives, including goodwill, in accordance with the applicable accounting guidance, which requires us to evaluate these assets for impairment annually, or more frequently if an indication of impairment has occurred.  Based upon our most recent evaluation, we determined that goodwill is not impaired.  We amortize intangible assets with a defined term on a straight-line basis over their respective useful lives.

In 2010, we acquired fracture diagnostics assets for $9.0 million in cash.  The acquisition was recorded in the Production Enhancement business segment and resulted in an increase of $5.6 million in goodwill and an increase of $3.2 million in intangible assets.  The intangible assets will be amortized over a period of 36 to 60 months.




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4.  DEBT

Debt is summarized in the following table (in thousands):

 
June 30,
2011
 
December 31,
2010
 
(Unaudited)
 
 
Senior exchangeable notes
$
91,930

 
$
156,407

Discount on senior exchangeable notes
(2,183
)
 
(8,864
)
Net senior exchangeable notes
$
89,747

 
$
147,543


In 2006, Core Laboratories LP, an entity 100% indirectly owned by Core Laboratories N.V., issued $300.0 million aggregate principal amount of Senior Exchangeable Notes (the "Notes") which are fully and unconditionally guaranteed by Core Laboratories N.V. and mature on October 31, 2011.  The Notes bear interest at a rate of 0.25% per year paid on a semi-annual basis.

With the additional amortization of the discount on the Notes, the effective interest rate is 7.48% for the three and six month period ended June 30, 2011, which resulted in additional non-cash interest expense of $1.8 million and $3.9 million for the three months ended June 30, 2011 and 2010, respectively, and $4.0 million and $7.7 million for the six months ended June 30, 2011 and 2010, respectively.  Each Note carries a $1,000 principal amount and is exchangeable into shares of Core Laboratories N.V. common stock under certain circumstances at an exchange price of $45.51 per share, or 21.9738 shares per Note.  Upon exchange, holders will receive cash for the principal amount plus any amount related to fractional shares, and any excess exchange value will be delivered in whole shares of Core Laboratories N.V. common stock at the completion of the valuation period as defined under our Notes agreement.  At June 30, 2011, the Notes were trading at 243% of their face value which is equivalent to $131.5 million of value in excess of the aggregate principal amount. At December 31, 2010, the Notes were trading at 197% of their face value which is equivalent to $151.7 million of value in excess of the aggregate principal amount.  There were 91,930 and 156,407 Notes outstanding at June 30, 2011 and December 31, 2010, respectively.

Under the terms of the Notes, defined criteria were met which allowed the Notes to be early exchanged during the second quarter of 2011, as it was during the first quarter of 2011, and as a result the equity component of the Notes at June 30, 2011 was classified as temporary equity.  This balance combined with the debt amount reflects the amount that could result in cash settlement upon exchange.  We received nine requests to exchange 17,909 Notes which were settled during the second quarter for $17.9 million in cash and 213,936 shares of our common stock, all of which were treasury shares, resulting in a loss of $0.2 million.  We also received five requests during the second quarter to exchange 888 Notes which we will settle during the third quarter upon completion of the requisite holding period per the Note Indenture agreement.

On April 19, 2011, we entered into an agreement for an amended revolving credit facility(the "Credit Facility") that we maintain that allowed for an aggregate borrowing capacity of $300.0 million at June 30, 2011. The Credit Facility also provided an option to increase the commitment under the Credit Facility to $350.0 million, if certain conditions are met.  The Credit Facility bears interest at variable rates from LIBOR plus 1.75% to a maximum of LIBOR plus 2.50%.  Any outstanding balance under the Credit Facility is due in December 2015 when the Credit Facility matures.   Interest payment terms are variable depending upon the specific type of borrowing under this facility. Our available capacity is reduced by outstanding letters of credit and performance guarantees and bonds totaling $14.5 million at June 30, 2011 relating to certain projects in progress.  Our available borrowing capacity under the Credit Facility at June 30, 2011 was $285.5 million.  As of June 30, 2011, we had $17.9 million of outstanding letters of credit and performance guarantees and bonds in addition to those under the Credit Facility.

The terms of the Credit Facility require us to meet certain financial and operational covenants. We believe that we were in compliance with all such covenants at June 30, 2011.  All of our material, wholly owned subsidiaries are guarantors or co-borrowers under the Credit Facility.

5.  PENSIONS AND OTHER POSTRETIREMENT BENEFITS

We provide a noncontributory defined benefit pension plan covering substantially all of our Dutch employees (the "Dutch Plan") who were hired prior to 2007 based on years of service and final pay or career average pay, depending on when the employee began participating. The benefits earned by the employees are immediately vested.  We fund the future obligations of the Dutch Plan by purchasing investment contracts from a large multi-national insurance company.  The investment contracts

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are purchased annually and expire after five years at which time they are replaced with new contracts that are adjusted to include changes in the benefit obligation for the current year and redemption of the expired contracts.  We determine the fair value of
these plan assets with the assistance of an actuary using observable inputs (Level 2).  We make annual premium payments to the insurance company, based on each employee's age and current salary.

The following table summarizes the components of net periodic pension cost under this plan for the three and six months ended June 30, 2011 and 2010 (in thousands):

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2011
 
2010
 
2011
 
2010
 
(Unaudited)
 
(Unaudited)
Service cost
$
352

 
$
304

 
$
687

 
$
627

Interest cost
454

 
352

 
886

 
728

Expected return on plan assets
(211
)
 
(111
)
 
(412
)
 
(230
)
Amortization of transition asset
(22
)
 
(22
)
 
(44
)
 
(44
)
Amortization of prior service cost
40

 
40

 
80

 
80

Amortization of net loss
84

 
95

 
168

 
189

Net periodic pension cost
$
697

 
$
658

 
$
1,365

 
$
1,350


During the six months ended June 30, 2011, we contributed approximately $1.9 million, as determined by the insurance company, to fund the estimated 2011 premiums on investment contracts held by the Dutch Plan.

We have adopted a non-qualified deferred compensation plan that allows certain highly compensated employees to defer a portion of their salary, commission and bonus, as well as the amount of any reductions in their deferrals under the deferred compensation plan for employees in the United States (the "Deferred Compensation Plan"), due to certain limitations imposed by the U.S. Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").  The Deferred Compensation Plan also provides for employer contributions to be made on behalf of participants equal in amount to certain forfeitures of, and/or reductions in, employer contributions that participants could have received under the 401(k) Plan in the absence of certain limitations imposed by the Internal Revenue Code. Employer contributions to the Deferred Compensation Plan vest ratably over a period of five years. Contributions to the plan are invested in equity and other investment fund assets, and carried on the balance sheet at fair value.  A participant's plan benefits include the participant's deferrals, the vested portion of the employer's contributions, and deemed investment gains and losses on such amounts. The benefits under these contracts are fully vested and payment of benefits generally commences as of the last day of the month following the termination of services except that the payment of benefits for select executives generally commences on the first working day following a six month waiting period following the date of termination.

On a recurring basis, we use the market approach to value certain assets and liabilities at fair value at quoted prices in an active market (Level 1) and certain assets and liabilities using significant other observable inputs (Level 2). We do not have any assets or liabilities measured at fair value on a recurring basis using 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 Expenses in the Consolidated Statements of Operations.  The following table summarizes the fair value balances (in thousands):

(Unaudited)
 
 
Fair Value Measurement at
 
 
 
June 30, 2011
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation plan trust assets
$
10,156

 
$

 
$
10,156

 
$

Liabilities:
 

 
 

 
 
 
 
Deferred compensation plan
$
15,203

 
$
2,932

 
$
12,271

 
$



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Fair Value Measurement at
 
 
 
December 31, 2010
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation plan trust assets
$
8,802

 
$

 
$
8,802

 
$

Liabilities:
 

 
 
 
 
 
 
Deferred compensation plan
$
13,063

 
$
2,275

 
$
10,788

 
$


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 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.

7.  EQUITY

During the three months ended June 30, 2011, we repurchased 23,409 of our common shares for $2.3 million. These shares were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares under that plan. During the six months ended June 30, 2011, we repurchased 574,174 of our common shares for $52.1 million. Included in this total were rights to 29,680 shares valued at $2.9 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, employee stock awards, exchange of the Notes, or settlement of outstanding warrants.

In February and May 2011, we paid a quarterly dividend of $0.25 per share of common stock.  In addition, on July 12, 2011, we declared a quarterly dividend of $0.25 per share of common stock for shareholders of record on July 22, 2011 and payable on August 22, 2011.

In 2006, we sold warrants on our common shares, which have an exercise price of $61.25 per share, and will settle in January 2012.  The warrant agreement calls for the net value of these warrants to be settled with Core Laboratories N.V. common shares. 

In May 2011, we reached an agreement with the holder of the warrants to accelerate the settlement of 25% of the warrants. This agreement called for the daily settlement of 82,402 warrants using an exercise price which was adjusted based on the daily volume weighted average price. During May and June 2011, we settled 1,648,040 of the outstanding warrants using a calculated exercise price which averaged $59.57 during the period. These settlements resulted in the distribution of 630,744 shares of treasury stock. There was a second agreement entered into during the first week of June 2011 with the holder of the warrants to accelerate the settlement of an additional 25% of the original number of warrants during the months of June and July 2011. During June 2011, we settled 1,565,638 warrants using a calculated exercise price which averaged $60.24 during the period. We had the option to settle this tranche of warrants with cash or shares. These settlements resulted in a distribution of $57.8 million in cash during June 2011 with an additional $8.0 million in cash and 37,692 shares distributed in July 2011.

The following table summarizes our changes in equity for the six months ended June 30, 2011 (in thousands):


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Common
 
Additional
Paid-In
 
Retained
 
Accumulated
Other
Comprehensive
 
Treasury
 
Non-
Controlling
 
Total
(Unaudited)
Shares
 
Capital
 
Earnings
 
Income (Loss)
 
Stock
 
Interest
 
Equity
December 31, 2010
$
1,397

 
$

 
$
536,991

 
$
(6,207
)
 
$
(242,690
)
 
$
2,849

 
$
292,340

Stock options exercised

 
(1,377
)
 

 

 
1,618

 

 
241

Stock based-awards

 
307

 

 

 
5,616

 

 
5,923

Tax benefit of stock-based awards issued

 
2,289

 

 

 

 

 
2,289

Repurchase of common shares

 

 

 

 
(52,097
)
 

 
(52,097
)
Dividends paid

 

 
(22,709
)
 

 

 

 
(22,709
)
Equity component of short-term debt

 
6,681

 

 

 

 

 
6,681

Exchange of Senior Exchangeable Notes

 
(5,031
)
 
(40,311
)
 

 
43,452

 

 
(1,890
)
Settlement of warrants

 
(2,869
)
 
(101,078
)
 

 
38,188

 

 
(65,759
)
Non-controlling interest contribution

 

 

 

 

 
895

 
895

Non-controlling interest dividends

 

 

 

 

 
(240
)
 
(240
)
Comprehensive income:
 

 
 

 
 

 
 

 
 

 
 

 
 

Amortization of deferred pension costs, net of tax

 

 

 
152

 

 


 
152

Net income (loss)

 

 
86,741

 

 

 
(365
)
 
86,376

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
86,528

June 30, 2011
$
1,397

 
$

 
$
459,634

 
$
(6,055
)
 
$
(205,913
)
 
$
3,139

 
$
252,202



Comprehensive Income

The components of comprehensive income consisted of the following (in thousands):

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2011
 
2010
 
2011
 
2010
 
(Unaudited)
 
(Unaudited)
Net income
$
40,384

 
$
34,362

 
$
86,376

 
$
66,648

Amortization of deferred pension costs, net of tax
76

 
86

 
152

 
171

Total comprehensive income
$
40,460

 
$
34,448

 
$
86,528

 
$
66,819








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

 
June 30,
2011
 
December 31,
2010
 
(Unaudited)
 
 
Prior service cost
$
(793
)
 
$
(853
)
Transition asset
292

 
324

Unrecognized net actuarial loss
(5,554
)
 
(5,678
)
Total accumulated other comprehensive income (loss)
$
(6,055
)
 
$
(6,207
)

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 employee stock options, 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,
 
2011
 
2010
 
2011
 
2010
 
(Unaudited)
 
(Unaudited)
Weighted average basic common shares outstanding
45,945

 
44,651

 
45,587

 
44,743

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
23

 
55

 
24

 
56

Contingent shares
68

 
44

 
63

 
37

Restricted stock and other
230

 
568

 
274

 
550

 Senior exchangeable notes
1,097

 
1,823

 
1,176

 
1,586

 Warrants
1,299

 
816

 
1,818

 
424

Weighted average diluted common and potential common shares outstanding
48,662

 
47,957

 
48,942

 
47,396


In 2006, we sold warrants on our common shares, which have an exercise price of $61.25 per share, and will settle in January 2012.  The warrant agreement calls for the net value of these warrants to be settled with Core Laboratories N.V. common shares. 

Included in the table above are 1,299,000 and 816,000 shares which were added to the share count for the three months ended June 30, 2011 and 2010, respectively, and 1,818,000 and 424,000 shares which were added to the share count for the six months ended June 30, 2011 and 2010, respectively, 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 three and six months ended June 30, 2011 and 2010.

9. OTHER (INCOME) EXPENSE, NET

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


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Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2011
 
2010
 
2011
 
2010
 
(Unaudited)
 
(Unaudited)
(Gain) loss on sale of assets
$
(75
)
 
$
39

 
$
(138
)
 
$
8

Foreign exchange (gain) loss
(9
)
 
1,712

 
(521
)
 
1,621

Interest income
(30
)
 
(130
)
 
(85
)
 
(142
)
Rents and royalties
(382
)
 
(218
)
 
(833
)
 
(700
)
Gain on insurance recovery
(69
)
 

 
(779
)
 

Legal entity realignment
711

711


 
711

 

Other, net
1

 
(115
)
 
(79
)
 
(297
)
Total other (income) expense, net
$
147

 
$
1,288

 
$
(1,724
)
 
$
490


During the third quarter of 2010, an office and laboratory facility was damaged by fire, resulting in the loss of the laboratory portion of the building, as well as some of the laboratory equipment.  The final settlement was reached in the first quarter of 2011, which resulted in a gain of $0.8 million.

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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2011
 
2010
 
2011
 
2010
 
(Unaudited)
 
(Unaudited)
British Pound
$
44

 
$
158

 
$
(47
)
 
$
416

Canadian Dollar
(124
)
 
149

 
(543
)
 
(236
)
Euro
41

 
1,619

 
(25
)
 
1,589

Mexican Peso
36

 
(14
)
 
142

 
94

Russian Ruble
(24
)
 
(69
)
 
(219
)
 
(15
)
Other currencies, net
18

 
(131
)
 
171

 
(227
)
Total (gain) loss
$
(9
)
 
$
1,712

 
$
(521
)
 
$
1,621


10.  INCOME TAX EXPENSE

The effective tax rates for the three months ended June 30, 2011 and 2010 were 26.7% and 30.7%, respectively.  The effective tax rates for year to date 2011 and 2010 were 20.5% and 31.3%, respectively. Included in income tax expense is the reversal in the six months ended June 30, 2011 of $10.4 million in tax liabilities provided over the period of 2007-2010 as a result of recently concluded audits of prior year returns.  The liability reversal reflects the impact of positions sustained in certain audits.

11.  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.

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 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.
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.

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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 Consolidated Financial Statements.  We evaluate performance based on income or loss before income tax, interest and other non-operating income (expense). All interest and other non-operating income (expense) is attributable to the Corporate & Other area and is not allocated to specific business segments. Summarized financial information concerning our segments is shown in the following table (in thousands):

(Unaudited)
Reservoir Description
 
Production Enhancement
 
Reservoir Management
 
Corporate & Other 1
 
Consolidated
Three Months Ended June 30, 2011
 
 
 
 
 
 
 
 
 
Revenues from unaffiliated customers
$
118,758

 
$
88,787

 
$
18,240

 
$

 
$
225,785

Inter-segment revenues
447

 
357

 
595

 
(1,399
)
 

Segment operating income
26,629

 
24,500

 
7,307

 
(633
)
 
57,803

Total assets
272,298

 
208,114

 
19,146

 
52,675

 
552,233

Capital expenditures
4,079

 
2,499

 
284

 
743

 
7,605

Depreciation and amortization
3,517

 
1,578

 
169

 
541

 
5,805

Three Months Ended June 30, 2010
 
 
 

 
 

 
 

 
 

Revenues from unaffiliated customers
$
106,528

 
$
79,717

 
$
12,657

 
$

 
$
198,902

Inter-segment revenues
248

 
419

 
427

 
(1,094
)
 

Segment operating income (loss)
25,074

 
26,152

 
3,672

 
(1,178
)
 
53,720

Total assets
258,759

 
190,512

 
14,245

 
189,145

 
652,661

Capital expenditures
4,600

 
720

 
219

 
1,002

 
6,541

Depreciation and amortization
3,523

 
1,626

 
166

 
451

 
5,766

Six Months Ended June 30, 2011
 
 
 
 
 
 
 
 
 
Revenues from unaffiliated customers
$
226,379

 
$
170,885

 
$
35,254

 
$

 
$
432,518

Inter-segment revenues
816

 
665

 
954

 
(2,435
)
 

Segment operating income (loss)
53,067

 
47,762

 
13,971

 
(498
)
 
114,302

Total assets
272,298

 
208,114

 
19,146

 
52,675

 
552,233

Capital expenditures
7,382

 
3,303

 
391

 
908

 
11,984

Depreciation and amortization
6,999

 
3,217

 
349

 
1,071

 
11,636

Six Months Ended June 30, 2010
 
 
 
 
 
 
 
 
 
Revenues from unaffiliated customers
$
210,621

 
$
148,561

 
$
28,057

 
$

 
$
387,239

Inter-segment revenues
548

 
713

 
715

 
(1,976
)
 

Segment operating income (loss)
50,215

 
47,095

 
9,292

 
(1,469
)
 
105,133

Total assets
258,759

 
190,512

 
14,245

 
189,145

 
652,661

Capital expenditures
9,929

 
1,392

 
257

 
1,118

 
12,696

Depreciation and amortization
7,030

 
3,249

 
324

 
917

 
11,520

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

12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Core Laboratories N.V. has fully and unconditionally guaranteed all of the Notes issued by Core Laboratories LP in 2006. Core Laboratories LP is an entity 100% indirectly owned by Core Laboratories N.V.

The following condensed consolidating financial information is included so that separate financial statements of Core Laboratories LP are not required to be filed with the U.S. Securities and Exchange Commission (the "SEC"). The condensed consolidating financial statements present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.

The following condensed consolidating financial information presents: balance sheets as of June 30, 2011 and December 31, 2010, statements of operations for each of the three and six months ended June 30, 2011 and 2010 and the statements of cash flows for each of the six months ended June 30, 2011 and 2010 of (a) Core Laboratories N.V., parent/guarantor, (b) Core Laboratories LP, issuer of public debt securities guaranteed by Core Laboratories N.V., (c) the non-guarantor subsidiaries, (d) consolidating adjustments

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necessary to consolidate Core Laboratories N.V. and its subsidiaries and (e) Core Laboratories N.V. on a consolidated basis.

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Condensed Consolidating Balance Sheets (Unaudited)
 
 
 
 
 
 
 
 
(In thousands)
June 30, 2011
 
Core Laboratories N.V. (Parent/ Guarantor)
 
Core Laboratories LP (Issuer)
 
Other Subsidiaries (Non- Guarantors)
 
Consolidating Adjustments
 
Consolidated Total
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,240

 
$
6,138

 
$
9,183

 
$

 
$
24,561

Accounts receivable, net
281

 
35,209

 
124,718

 

 
160,208

Inventories, net

 
4,264

 
38,244

 

 
42,508

Prepaid expenses and other current assets
6,122

 
8,632

 
12,660

 

 
27,414

Total current assets
15,643

 
54,243

 
184,805

 

 
254,691

PROPERTY, PLANT AND EQUIPMENT, net

 
20,921

 
84,205

 

 
105,126

GOODWILL AND INTANGIBLES, net
46,986

 
15,445

 
99,988

 

 
162,419

INTERCOMPANY RECEIVABLES
18,720

 
89,185

 
397,713

 
(505,618
)
 

INVESTMENT IN AFFILIATES
566,537

 

 
1,596,076

 
(2,161,801
)
 
812

DEFERRED TAX ASSET
2,453

 

 
5,978

 
(1,629
)
 
6,802

OTHER ASSETS
3,347

 
15,713

 
3,323

 

 
22,383

TOTAL ASSETS
$
653,686

 
$
195,507

 
$
2,372,088

 
$
(2,669,048
)
 
$
552,233

LIABILITIES AND EQUITY
 
 
 

 
 

 
 

 
 

CURRENT LIABILITIES:


 
 

 
 

 
 

 
 

Accounts payable
$
8,968

 
$
8,974

 
$
43,389

 
$

 
$
61,331

Short-term debt

 
89,747

 

 

 
89,747

Other accrued expenses
2,366

 
30,844

 
51,810

 

 
85,020

Total current liabilities
11,334

 
129,565

 
95,199

 

 
236,098

LONG-TERM DEBT

 

 

 

 

DEFERRED COMPENSATION
6,476

 
17,421

 
104

 

 
24,001

DEFERRED TAX LIABILITY

 
762

 
867

 
(1,629
)
 

INTERCOMPANY PAYABLES
372,606

 

 
133,012

 
(505,618
)
 

OTHER LONG-TERM LIABILITIES
14,207

 
2,963

 
20,579

 

 
37,749

Equity Component of Short-term Debt -Senior Exchangeable Notes

 
2,183

 

 

 
2,183

SHAREHOLDERS' EQUITY
249,063

 
42,613

 
2,119,188

 
(2,161,801
)
 
249,063

NON-CONTROLLING INTEREST

 

 
3,139

 

 
3,139

TOTAL EQUITY
249,063

 
42,613

 
2,122,327

 
(2,161,801
)
 
252,202

TOTAL LIABILITIES AND EQUITY
$
653,686

 
$
195,507

 
$
2,372,088

 
$
(2,669,048
)
 
$
552,233



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Condensed Consolidating Balance Sheets
 
 
 
 
 
 
 
 
(In thousands)
December 31, 2010
 
Core Laboratories N.V. (Parent/ Guarantor)
 
Core Laboratories LP (Issuer)
 
Other Subsidiaries (Non- Guarantors)
 
Consolidating Adjustments
 
Consolidated Total
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
11,162

 
$
88,612

 
$
34,106

 
$

 
$
133,880

Accounts receivable, net
10

 
33,637

 
121,079

 

 
154,726

Inventories, net

 
4,127

 
29,852

 

 
33,979

Prepaid expenses and other current assets
5,641

 
9,437

 
11,657

 

 
26,735

 
16,813

 
135,813

 
196,694

 

 
349,320

PROPERTY, PLANT AND EQUIPMENT, net

 
21,139

 
83,084

 

 
104,223

GOODWILL AND INTANGIBLES, net
46,986

 
15,838

 
100,053

 

 
162,877

INTERCOMPANY RECEIVABLES
21,749

 
164,945

 
242,754

 
(429,448
)
 

INVESTMENT IN AFFILIATES
553,693

 

 
1,567,416

 
(2,120,414
)
 
695

DEFERRED TAX ASSET
2,810

 

 
6,436

 
(9,246
)
 

OTHER ASSETS
3,209

 
13,099

 
2,619

 

 
18,927

TOTAL ASSETS
$
645,260

 
$
350,834

 
$
2,199,056

 
$
(2,559,108
)
 
$
636,042

LIABILITIES AND EQUITY
 
 

 
 

 
 

 
 

CURRENT LIABILITIES:
 

 
 

 
 

 
 

 
 

Accounts payable
$
336

 
$
5,144

 
$
39,230

 
$

 
$
44,710

Short-term debt

 
147,543

 

 

 
147,543

Other accrued expenses
2,291

 
29,250

 
55,559

 

 
87,100

 
2,627

 
181,937

 
94,789

 

 
279,353

DEFERRED COMPENSATION
6,159

 
14,981

 
101

 

 
21,241

DEFERRED TAX LIABILITY

 
11,444

 

 
(9,246
)
 
2,198

INTERCOMPANY PAYABLES
333,651

 

 
95,797

 
(429,448
)
 

OTHER LONG-TERM LIABILITIES
13,332

 
1,099

 
17,615

 

 
32,046

Equity Component of Short-term Debt -Senior Exchangeable Notes

 
8,864

 

 

 
8,864

SHAREHOLDERS' EQUITY
289,491

 
132,509

 
1,987,905

 
(2,120,414
)
 
289,491

NON-CONTROLLING INTEREST