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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended January 31, 2000.
[ ] 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: 0-20578
Layne Christensen Company
(Exact name of registrant as specified in its charter)
DELAWARE 48-0920712
----------------- ---------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1900 Shawnee Mission Parkway, Mission Woods, Kansas 66205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 362-0510
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the 3,685,068 shares of Common Stock of
the Registrant held by non-affiliates of the Registrant on April 3, 2000,
computed by reference to the closing sale price of such stock as reported on the
NASDAQ National Market System, was $17,964,706. At April 3, 2000, there were
11,691,129 shares of the Registrant's Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following document are incorporated by reference into the
indicated parts of this report: definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders to be filed with the Commission pursuant to Regulation
14A--Part III.
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PART I
Item 1. Business
General
Layne Christensen Company provides drilling services and related
products and services in four principal markets: water-related products and
services, mineral exploration drilling, geotechnical construction and oil and
gas services and production. Layne Christensen's customers include
municipalities, industrial companies, mining companies, oil and gas companies
and consulting and engineering firms located principally in the United States,
Canada, Mexico, Australia, Africa and South America.
The Company acquired Christensen Boyles Corporation ("CBC") in December
1995, which expanded the Company's mineral exploration drilling business
domestically and marked the Company's entry into Chile and Peru and other South
American countries through CBC's affiliated companies. The CBC acquisition also
gave the Company substantial capabilities in designing and manufacturing drill
rigs, diamond drill bits and related equipment used by the mineral exploration
industry.
On July 25, 1997, the Company, through its wholly owned subsidiary
Layne Christensen Australia Pty Limited, consummated a tender offer to the
security holders of Stanley Mining Services Limited ("Stanley"), a company
listed on the Australian Stock Exchange. Stanley is an Australian mineral
exploration company that provides services predominantly to gold mining
companies in Australia and Africa. In October 1996, Stanley acquired 51% of
Glindemann & Kitching Pty Ltd. ("G&K"), a drilling contractor based and
operating in Western Australia that specializes in diamond core exploration
drilling for gold projects. On September 5, 1997, G&K repurchased the remaining
49% of G&K's outstanding stock thereby making G&K a wholly owned subsidiary of
Stanley. The acquisition by the Company of all the outstanding capital stock of
Stanley and the repurchase by G&K of all of G&K's capital stock not previously
owned by Stanley are referred to as the "Stanley Acquisition."
On August 19, 1997, the Company completed a secondary stock offering of
5,750,000 shares of its common stock, par value $0.01 per share, 2,756,565 of
which were sold by the Company and the balance of which were sold by certain of
the Company's existing stockholders. The proceeds received by the Company from
the shares it sold were used to reduce the debt incurred in connection with the
Stanley Acquisition.
The Company maintains its executive offices at 1900 Shawnee Mission
Parkway, Mission Woods, Kansas 66205. The Company's telephone number is (913)
362-0510.
Market Overview
The principal markets in which the Company operates are: water-related
products and services, mineral exploration drilling, geotechnical construction
and oil and gas services and production. In addition, the Company's mineral
exploration drilling includes drill and blast operations used in mine
development. For purposes of this Form 10-K, the phrase "mineral exploration
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drilling" includes drill and blast operations, unless otherwise noted. The
characteristics of each of these markets vary, particularly with respect to the
maturity and cyclicality of the market in various geographic areas. In each of
these markets, however, the purchaser of drilling services and products
generally demands technical expertise, knowledge of local geological conditions,
project management skills, access to significant amounts of capital equipment
and cost effective pricing. See Note 11 to the Consolidated Financial Statements
for certain financial information about the Company's services and products
operating segments and its foreign operations.
Water-Related Services and Products
Through its Integrated Groundwater Services Division ("IGS"), the
Company markets a full line of water-related services and products, including
hydrological studies and related engineering services, water well design, water
well drilling and development, pump sales, installation and service and repair
and maintenance. The Company has recently expanded this market to include large
diameter Ranney(R) collector wells, design and construction of water treatment
facilities and the manufacture and sale of water treatment products. In
addition, the Company's environmental services related to the assessment and
monitoring of groundwater contaminants are included within this market.
Demand for the design and construction of water treatment facilities is
driven by the economies and efficiencies gained through the bundling of design,
build and operate services traditionally performed by independent service
providers. The Company is targeting the same customer base it has serviced in
its traditional water service businesses. The Company competes with engineering
and consulting firms in this market.
Demand for water well drilling services is driven by the need to access
groundwater, which is affected by many factors including population movements
and expansions, such as new housing developments, deteriorating water quality
and limited availability of surface water. Groundwater is a vital natural
resource that is pumped from the earth for drinking water, irrigation and
industrial use. In many parts of the United States and other parts of the world,
groundwater is the only reliable source of water. Groundwater is located in
saturated geological zones at varying depths beneath the surface and accumulates
in subsurface strata (aquifers). Surface water, the other major source of
potable water, comes principally from large lakes and rivers.
The water well drilling market is highly fragmented, consisting of
several thousand water well drilling contractors in the United States. However,
the Company believes that a substantial majority of these contractors are
regionally and locally based, and are primarily involved in drilling low volume
water wells for agricultural and residential customers, markets in which the
Company does not generally compete. The Company's target groundwater drilling
market consists of high volume water wells drilled principally for municipal and
industrial customers. These wells have more stringent design specifications and
are deeper and larger in diameter than low-volume residential and agricultural
wells. Drillers for high-volume wells must have strong technical expertise,
expert knowledge of local geology, large drilling equipment and the ability to
procure sizable performance bonds.
The demand for well and pump repair and maintenance depends upon the
age and use of the well and pump, the quality of material and workmanship
applied in
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the original well installation and changes in the depth and quality of the
aquifer. Repair and rehabilitation work is often required on an emergency basis
or within a relatively short period of time after a performance decline is
recognized and is often awarded to the firm that initially drilled the well.
Scheduling flexibility, together with appropriate expertise and equipment, are
critical for a repair and maintenance service provider. Like the water well
drilling market, the market for repair and maintenance is highly fragmented. It
consists of most well drilling companies as well as firms that provide solely
repair and maintenance services.
Demand for the Company's environmental products and environmental
drilling services is driven by public concern over groundwater contamination and
resulting regulatory requirements to investigate and remediate contaminated
sites and aquifers. Environmental drilling services are utilized to assess,
investigate, monitor and improve water quality and pumping capacity. Customers
are typically national and regional consulting firms engaged by federal and
state agencies as well as industrial companies that need to assess or clean up
groundwater contamination sources.
Mineral Exploration Drilling
Demand for mineral exploration drilling and products is driven by the
demand for identifying, defining and developing underground mineral deposits.
Factors influencing the demand for mineral-related drilling services include
growth in the economies of developing countries, international political
conditions, inflation and foreign exchange levels, commodity prices, the
economic feasibility of mineral exploration and production, the discovery rate
of new mineral reserves and the ability of mining companies to access capital
for their activities.
In recent years, important changes in the international mining industry
have led to the development and growth of mineral exploration in developing
regions of the world, including Africa, Asia and South America. Certain
countries, such as Chile and Peru, have liberalized their mining codes to permit
foreign investment, and investment conditions generally have improved in those
countries. At the same time, stricter environmental permitting rules in the
United States and Canada have delayed or blocked the development of certain
projects forcing mining companies to look overseas for growth. In addition,
technological advancements now allow development of mineral resources previously
regarded as uneconomical. The mining exploration industry has also increased its
focus on these areas due to their early stage of mining development, relative to
the more mature mining regions of the world such as the United States and South
Africa.
Mining companies hire exploration drillers to extract samples from
sites that the mining companies analyze for mineral content. Mineral exploration
drilling requires a high level of expertise and technical competence because the
samples extracted must be free of contamination and accurately reflect the
underlying mineral deposit. Familiarity with the local geology is critical to
acquiring this competence. Mineral exploration drilling consists of exploratory
drilling and definitional drilling. Exploratory drilling is conducted to
determine if there is a minable mineral deposit (an orebody) on the site.
Definitional drilling is typically conducted at a site to assess whether it
would be economical to mine. The demand for definitional drilling has increased
in
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recent years as new and less expensive mining techniques have made it feasible
to mine previously uneconomical orebodies.
In drill and blast operations conducted at open pit mines under
production, the driller drills holes for the placement of explosives; the
explosives are then detonated to loosen and dislodge earth, which is hauled away
by the mining company for processing. Drill and blast contracts typically have
lower margins than traditional mineral exploration drilling projects; however,
they provide more stable revenues because drill and blast contracts typically
have a duration of three to five years whereas traditional mineral exploration
projects typically have substantially shorter terms. To win drill and blast
contracts, a drilling company must be familiar with the mine site and its
geology, have proven drill and blast expertise and personnel and easily
transferable rigs and appropriate drilling equipment that can be dedicated to
the site.
Geotechnical Construction Services
Geotechnical construction services are used to modify weak and unstable
soils, decrease water flow in bedrock and provide support and groundwater
control for excavation. Methods used include cement and chemical grouting,
vibratory ground improvement and ground freezing, techniques for stabilizing
soils; jet grouting, a high-pressure method for providing subsurface support;
and dewatering, a method for lowering the water table. Geotechnical construction
services are important during the construction of dams, tunnels, shafts, water
lines, subways and other civil construction projects. Demand for geotechnical
construction services is driven primarily by the demand for these infrastructure
improvements. The customers for these services are primarily heavy civil
construction contractors, governmental agencies, mining companies and the
industrial sector. The geotechnical construction services industry is highly
fragmented.
Oil and Gas
The Company's oil and gas operations offer conventional oil field
fishing services, coil tubing fishing services and resonance technology
solutions for stuck tubulars. In addition, these operations include land-based
oil and gas exploration activities in the Gulf of Mexico region. The Company's
services in these operations are offered to oil and gas companies. The market
for these services includes both land and offshore open hole and cased hole
activities.
Demand for oil and gas services is driven by the demand for
identifying, defining and developing underground oil and gas reserves. Factors
influencing the demand for oil and gas services include consumption levels for
these commodities, growth in the economies of developing countries,
international political conditions, commodity prices, the economic feasibility
of oil and gas exploration and production, the discovery rate of new oil and gas
reserves and the ability of oil and gas companies to access capital for their
activities.
Business Strategy
The Company's growth strategy is to expand its current geographic
markets and enter into new business lines that build on the Company's core
competencies. Key elements of this strategy are as follows:
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Expand Traditional Water Services to Include Design, Build, Own and Operate
Services
Layne Christensen is currently the largest provider of water well drilling
services in the United States, operating in all regions of the country. In
addition, the Company offers many services related to water well drilling
including hydrological studies, site selection, well design, design and
construction of water treatment facilities and large diameter Ranney(R)
collector wells and water treatment products. The Company's growth strategy is
to bundle its traditional products and service offerings and market the
combination downstream to the design, build, own and operate market for water
treatment and distribution facilities. The Company believes that by combining
these services into one turnkey project, the customer can expedite the typical
design, build project and achieve economies and efficiencies over traditional
unbundled services.
Expand Mineral Exploration Drilling Internationally
The Company believes that its best mineral exploration drilling
opportunities exist in Australasia, Africa and South America. To position itself
to take advantage of such opportunities, the Company intends to expand its
international mineral exploration business through internal expansion and
acquisitions. The Company believes that the foreign enterprises and their local
affiliates acquired through the acquisitions of CBC and Stanley create the
opportunity to expand their businesses by leveraging their local market
expertise and the Company's technical competence, access to transferable
drilling equipment and employee training and safety programs. With the
additional resources and capabilities provided by its acquisitions of CBC and
Stanley, the Company believes it will be better positioned to expand its
operations in countries such as Argentina, Bolivia, Brazil, Tanzania and Zambia,
where it expects the mineral exploration industry to grow.
Expand Water Well Drilling Internationally
The Company intends to build its groundwater business internationally
by leveraging the mineral exploration services that it currently provides to
mining customers. Mining companies frequently need to implement a dewatering
program that requires the installation of wells to remove groundwater from the
mine excavation or to construct a groundwater well to obtain process water for
use in connection with mining activities. For example, the Company completed a
project through one of the Company's Chilean affiliates for the completion of
multiple water production wells in the Collahuasi mine in Northern Chile, with
technical support provided through Layne Christensen. Many developing countries
also have significant and growing requirements to access groundwater to satisfy
their potable water needs. In all of its regions, the Company intends to
concentrate on large scale industrial and government water well drilling
projects.
Expand Presence in Geotechnical Construction Services
In the geotechnical construction services market, the Company intends
to leverage its drilling capabilities, industry contacts, reputation, project
management skills and growing geographic presence to expand this business. In
particular, the Company's strategy is to focus on relatively larger, technically
demanding projects using its grouting, jet grouting, vibratory ground
improvement and ground freezing capabilities.
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Expand Presence in Domestic Oil and Gas Industry
The Company expects to continue to invest in new business opportunities
within the domestic oil and gas industry. Although the size and scope of the
companies acquired to-date have been relatively small, the Company believes this
new division has potential for future growth.
Services and Products
Layne Christensen's current business is divided into four primary
areas: water-related products and services; mineral exploration drilling
services and products; geotechnical construction services; and oil and gas
services and production.
Overview of the Company's Drilling Techniques
The types of drilling techniques employed by the Company in its
drilling activities have different applications:
- Conventional and reverse circulation rotary rigs are used in
water well and mineral exploration drilling primarily for
drilling large diameter wells and employ air or drilling fluid
circulation for removal of cuttings and borehole
stabilization.
- Dual tube drilling, an innovation advanced by the Company
primarily for mineral exploration and environmental drilling,
conveys the drill cuttings to the surface inside the drill
pipe. This drilling method is critical in mineral exploration
drilling and environmental sampling because it provides
immediate representative samples and because the drill
cuttings do not contact the surrounding formation thus
avoiding contamination of the borehole while providing
reliable, uncontaminated samples. Because this method involves
circulation of the drilling fluid inside the casing, it is
highly suitable for penetration of underground voids or faults
where traditional drilling methods would result in the loss of
circulation of the drilling fluid, thereby preventing further
penetration.
- Diamond core drilling is used in mineral exploration drilling
to core solid rock, thereby providing geologists and engineers
with solid rock samples for evaluation.
- Cable tool drilling, which requires no drilling fluid, is used
primarily in water well drilling for larger diameter wells.
While slower than other drilling methods, it is well suited
for penetrating boulders, cobble and rock.
- Auger drilling is used principally in water well and
environmental drilling for efficient completion of relatively
small diameter, shallow wells. Auger rigs are equipped with a
variety of auger sizes and soil sampling equipment.
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Water-Related Services and Products
Integrated Groundwater Services
The Company provides a full range of services for the design and
construction of water treatment facilities, including hydrological studies, site
selection, well field design and facilities construction and operation. In
addition to water treatment plants, these services are provided in connection
with the Company's large diameter Ranney(R) collector wells, surface water
intakes, pumping stations and well houses. The Company has the capability to
design, build, own and operate the complete water supply system. In addition,
the Company offers non-recourse financing options for these services to its
traditional municipal and industrial customers.
Drilling Services
The Company provides complete water well systems on a turnkey basis,
offering the comprehensive range of services required to provide professionally
designed, constructed and maintained municipal, industrial and, to a lesser
extent, agricultural water wells. Although it may not perform each of the
services it offers on every project, the Company has the capability to provide
every element of a water well system, including test hole drilling, well casing
and screen selection and installation, gravel packing, grout sealing, well
development and testing and pump selection, equipment sales and installation.
Layne Christensen provides water well drilling services in most regions of the
United States and in certain foreign countries.
Water well drilling requires the integration of hydrogeology and
engineering with the techniques of well drilling because the drilling methods
and size and type of equipment depend upon the depth of the wells and the
geological formations encountered at the project site. The Company has extensive
well archives and equipment in addition to technical personnel to determine
geological conditions and aquifer characteristics in most locations in the
United States, enabling it to locate suitable water-bearing formations to meet a
wide variety of customer requirements. The Company provides feasibility studies
using complex geophysical survey methods and has the expertise to analyze the
survey results and define the source, depth and magnitude of an aquifer. It can
then estimate recharge rates, specify required well design features, plan well
field design and develop water management plans. To conduct these services, the
Company maintains a staff of professional employees including civil and
geological engineers, geologists, hydrogeologists, geophysicists, and
microbiologists.
As part of its water well drilling and installation business, the Company
sells a wide variety of pumps manufactured by third parties, including vertical
turbine, submersible, shortcoupled and horizontal centrifugal pumps. The Company
also sells and installs water treatment equipment, which is typically installed
at or near the wellhead, including chlorinators, aerators, filters and controls.
In addition, the Company sells miscellaneous supplies manufactured by the
Company as well as third parties for use in the water well drilling industry,
including well casing, well screens, drill pipe and bits, drilling fluids and
well cleaning supplies.
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Well and Pump Repair and Maintenance
Periodic repair and maintenance of well equipment is required during
the life of a well. In locations where the groundwater contains both bacteria
and iron, screen openings may become blocked with organic growth, reducing the
capacity and productivity of the well. Similarly, groundwater with high mineral
content may cause the buildup of scale on well screens, also reducing the
capacity and productivity of the well.
The Company offers complete repair and maintenance services for
existing wells, pumps and related equipment through a network of local offices
throughout its geographic markets in the United States. In addition to its well
service rigs, the Company has equipment capable of conducting downhole closed
circuit televideo inspections (one of the most effective methods for
investigating water well problems), enabling the Company to diagnose better and
respond more quickly to well and maintenance problems.
The Company's trained and experienced personnel can perform a variety
of well rehabilitation techniques, including chemical and mechanical methods,
and can perform bacteriological well evaluation and water chemistry analysis.
The Company also has the capability and inventory to repair, in its own machine
shops, most water well pumps, regardless of manufacturer, as well as to repair
well screens, casings and related equipment such as chlorinators, aerators and
filtration systems.
Environmental Drilling
The Company offers a wide range of environmental drilling services
including: investigative drilling, installation and testing of wells that
monitor the extent of groundwater contamination, installation of recovery wells
that extract contaminated groundwater for treatment (pump and treat remediation)
and specialized site safety programs associated with drilling at contaminated
sites. Monitoring wells are installed to determine the nature and extent of
known or suspected subsurface contamination as well as to monitor an area for
future contamination. In addition, monitoring wells are often installed
surrounding underground petroleum or chemical storage tanks to monitor for
possible future tank leaks or product spills. After monitoring and testing the
groundwater, recovery wells may be installed to extract contaminated water from
the aquifer for treatment or disposal.
In its environmental health services department, the Company employs a
full-time staff qualified to prepare site specific health and safety plans for
customers who have workers employed on hazardous waste cleanup sites as required
by Occupation and Safety Health Administration ("OSHA") and Mine Safety and
Health Administration of the Department of Labor ("MSHA").
Mineral Exploration Drilling and Products
Drilling Services
The Company provides drilling services for geological assessment, in
site mining and mineral exploration. These services are used primarily by major
gold and copper producers based in the United States and Canada, and to a lesser
extent, iron ore producers. In response to a shift in recent years by many of
these producers to foreign markets in search of economically minable orebodies,
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the Company commenced mineral exploration drilling operations in Mexico in 1991.
With its acquisition of CBC in December 1995, the Company acquired foreign
affiliates operating in South America with facilities in Chile and Peru. These
affiliates have projects in Argentina, Bolivia, Brazil, Chile, Mexico and Peru,
among other locations. In addition, with the Stanley Acquisition, the Company
now has operations in Australia and Africa.
Products
With its acquisition of CBC, the Company expanded its operations to
include the manufacture and marketing of drill rigs and drill bits used by the
Company and third party drilling contractors involved in mineral exploration and
mine development in various parts of the world. The Company uses its experience
gained from completing a wide range of drilling projects to design products,
particularly drill bits, that are well suited to current drilling applications,
and from time to time, will design and manufacture products for custom
applications. The Company's products are designed and manufactured to meet its
own rigid standards of quality and utility as well as the standards of various
trade associations.
Layne Christensen manufactures a line of diamond core mineral
exploration drill rigs which are designed to meet the specialized work
requirements of mineral exploration sites and can also be used at environmental
sites. The Company's line of rig accessory equipment and tools includes subs,
bushings and adapters; water swivels; a variety of safety related equipment; and
hoisting, lowering and pulling equipment.
The diamond drill bit products manufactured by the Company include
products incorporating matrix powder technology coupled with both synthetic and
natural diamonds. The principal categories of drilling bits are surface set
diamond bits, impregnated synthetic diamond bits and polycrystalline synthetic
diamond bits. Each category of bit is specifically designed for maximum drilling
efficiency in different geological formations and drilling applications, and the
Company frequently updates and redesigns its bits for various formations and
applications. The Company's bit products also include reamers and stabilizers
for stabilizing and centering the drill bit. The Company distributes its
products to distributors, general contractors, mineral exploration companies and
equipment and parts suppliers.
The Company engages in on-going engineering, research and development
activities to improve its existing products and to design and develop new
products for both existing and new drilling applications. To further promote
efficiency, reduce development costs and enhance customer relationships, the
Company's research and engineering staff works closely with its customers to
design and develop custom-engineered drilling solutions.
Geotechnical Construction Services
Geotechnical construction services include those services provided by
the Company to the heavy civil construction market to provide ground
modification for construction work in unstable soils during the construction of
dams, tunnels, shafts and other civil construction projects. Services offered
include cement and chemical grouting, jet grouting, drain hole drilling,
installation of ground anchors, tie backs, rock bolts and instrumentation. The
Company offers expertise in selecting the appropriate support techniques to be
applied in various
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geological conditions. In addition, the Company has extensive experience in the
placement of measuring devices capable of monitoring water levels and ground
movement.
The Company also offers artificial ground freezing capabilities,
typically utilized as an alternative method to dewatering large diameter
excavation and tunneling projects. As an example of an application for this
technology, the Company completed a project for Echo Bay Mines Ltd. to construct
a subsurface frozen earth barrier around a future open pit gold mine in Timmins,
Ontario, Canada.
Operations
The Company operates on a decentralized basis, with approximately 78
sales and operations offices located in most regions of the United States as
well as in Canada, Australia, Africa, Mexico, Italy and Thailand. In addition,
the Company, through its foreign affiliates, operates out of locations in
Mexico, South America and Europe.
The Company is primarily organized domestically by geographic regions,
with an eastern and western regional vice president, a vice president
responsible for integrated groundwater services and geotechnical services and a
vice president responsible for products/international locations. District
managers are in charge of individual district office profit centers. The
district managers report to their respective regional vice president on a
regular basis. Each district office employs a field superintendent who is in
charge of projects in the field and sales engineers who are responsible for
marketing the Company's services in their district as well as for monitoring the
progress of projects. The Company has formed and staffed a business development
team for its integrated groundwater services initiatives. The Company does not
conduct significant marketing activities for its traditional water well and
mineral exploration drilling services. Instead, the Company's sales engineers
cultivate and maintain contacts with existing and potential customers. In this
way, the Company learns of and is in a position to compete for proposed drilling
projects in the region.
In its foreign affiliates, where the Company does not have majority
ownership or operating control, day-to-day operating decisions are made by local
management. The Company's vice presidents oversee the Company's interests in its
foreign affiliates as well as the operations of its foreign subsidiaries. In
addition, the Company manages its interests in its foreign affiliates through
regular management meetings and analysis of comprehensive operating and
financial information. In its significant foreign affiliates, the Company has
entered into shareholder agreements that give it limited board representation
rights and require super-majority votes in certain circumstances.
Customers and Contracts
Each of the Company's service and product lines has major customers;
however, no single customer accounted for 10% or more of the Company's revenues
in any of the past three fiscal years.
Generally, the Company negotiates its service contracts with industrial
and mining companies and other private entities, while its service contracts
with municipalities are generally awarded on a bid basis. The Company's
contracts vary in length depending upon the size and scope of the project. The
majority of such
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contracts are awarded on a fixed price basis, subject to change of circumstance
and force majeure adjustments, while a smaller portion are awarded on a cost
plus basis. Substantially all of the contracts are cancelable for, among other
reasons, the convenience of the customer.
In the water-related services and products line, the Company's
customers are typically municipalities and local operations of industrial
businesses. Of the Company's water-related services and products revenues in
fiscal 2000, approximately 51% were derived from municipalities and
approximately 13% were derived from industrial businesses while the balance was
derived from other customer groups. The term "municipalities" is used to include
local water districts, water utilities, cities, counties and other local
governmental entities and agencies that have the responsibility to provide water
supplies to residential and commercial users. In the drilling of new water
wells, the Company targets customers that require compliance with detailed and
demanding specifications and regulations and that often require bonding and
insurance, areas in which the Company believes it has competitive advantages
over its competitors due to its drilling expertise and financial resources.
Customers for the Company's mineral exploration drilling services in
the United States, Mexico, Canada, Australia, Africa and South America are
primarily gold and copper producers. The Company's largest customers in its
mineral exploration drilling business are multi-national corporations
headquartered primarily in the United States and Canada. Customers for mineral
exploration products manufactured or sold by the Company include distributors,
general contractors, mineral exploration companies and equipment and parts
suppliers.
In its geotechnical construction services product line, the Company's
customers are primarily heavy civil construction contractors, governmental
agencies, mining companies and industrial companies. The Company often acts as a
specialty subcontractor when it provides geotechnical construction services.
In its oil and gas services line, the Company's customers are primarily
oil and gas companies that conduct exploration and production activities in the
Gulf of Mexico region.
Backlog
The Company's backlog consists of executed service and product purchase
contracts, or portions thereof, not yet performed by the Company. The Company
believes that its backlog does not have any significance other than as a
short-term business indicator because substantially all of the contracts
comprising the backlog are cancelable for, among other reasons, the convenience
of the customer. The Company's backlog was approximately $75,967,000 at January
31, 2000, compared to approximately $68,787,000 at January 31, 1999. The
Company's backlog as of year end is generally completed within the following
fiscal year.
Competition
The Company's competition for its integrated groundwater services
division's design and build services are primarily local and national
engineering and consulting firms which have traditionally performed engineering
services and, in some cases, construction oversight for these activities.
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The Company's competition in the water well drilling business consists
primarily of small, local water well drilling operations and some regional
competitors. Oil and natural gas well drillers generally do not compete in the
water well drilling business because the typical well depths are greater for oil
and gas and, to a lesser extent, the technology and equipment utilized in these
businesses are different. Only a small percentage of all companies that perform
water well drilling services have the technical competence and drilling
expertise to compete effectively for high volume municipal and industrial
projects, which typically are more demanding than projects in the agricultural
or residential well markets. In addition, smaller companies often do not have
the financial resources or bonding capacity to compete for large projects.
However, there are no proprietary technologies or other significant factors
which prevent other firms from entering these local or regional markets or from
consolidating together into larger companies more comparable in size to the
Company. Water well drilling work is usually obtained on a competitive bid basis
for municipalities, while work for industrial customers is obtained on a
negotiated or informal bid basis.
As is the case in the water well drilling business, the well repair and
maintenance business is characterized by a large number of relatively small
competitors. The Company believes only a small percentage of the companies
performing these services have the technical expertise necessary to diagnose
complex problems, perform many of the sophisticated rehabilitation techniques
offered by the Company or repair a wide range of pumps in their own facilities.
In addition, many of these companies have only a small number of pump service
rigs. Repair and maintenance projects are typically negotiated at the time of
repair or contracted for in advance depending upon the lead time available for
the repair work. Since pump repair and rehabilitation work is typically
negotiated on an emergency basis or within a relatively short period of time,
those companies with available rigs and the requisite expertise have a
competitive advantage by being able to respond quickly to repair requests.
In its mineral exploration drilling business, the Company competes with
a number of drilling companies as well as vertically integrated mining companies
that conduct their own exploration drilling or drill and blast activities; some
of these competitors have greater capital and other resources than the Company.
In the mineral exploration drilling market, the Company competes based on price,
technical expertise and reputation. The Company believes it has a
well-recognized reputation for expertise and performance in this market,
although the Company is not the largest company providing these services on a
national or international basis. The Company believes that this market is
becoming more competitive, particularly in the United States. Mineral
exploration drilling work is typically performed on a negotiated basis. In the
market for the Company's manufactured mineral exploration drilling products, the
Company's competitors consist of the Boart Longyear Group, an indirect
subsidiary of Anglo-American Industrial Corporation, Ltd., and a small number of
other manufacturers.
The geotechnical construction services market is highly fragmented as a
result of the large area served, the wide range of techniques offered and the
large number and variety of contractors. In this market, the Company competes
based upon a combination of reputation, innovation and price.
In the oil and gas services market, Layne Christensen competes with a
number of oil and gas service companies, many of which have greater capital and
other resources than the Company. The Company competes in this market based on
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quality of service, technology, responsiveness and, to a lesser extent, price.
The Company's primary competitors in this market are Baker Hughes, Inc.,
Weatherford International and Smith International, Inc.
Employees and Training
At January 31, 2000, the Company had 2,739 employees, 230 of whom were
hourly employees and members of collective bargaining units represented by
locals affiliated with major labor unions in the United States. The Company
believes that its relationship with its employees is satisfactory.
In all of the Company's service lines, an important competitive factor
is technical expertise. As a result, the Company emphasizes the training and
development of its personnel. Periodic technical training is provided for senior
field employees covering such areas as pump installation, drilling technology
and electrical troubleshooting. In addition, the Company emphasizes strict
adherence to all health and safety requirements and offers incentive pay based
upon achievement of specified safety goals. This emphasis encompasses developing
site-specific safety plans, ensuring regulatory compliance and training
employees in regulatory compliance and good safety practices. Training includes
an OSHA-mandated 40-hour hazardous waste and emergency response training course
as well as the required annual eight hour updates. The Company has an
environmental health sciences staff which allows it to offer such training
in-house. This staff also prepares health and safety plans for specific sites
and provides input and analysis for the health and safety plans prepared by
others.
On average, the Company's field supervisors and drillers have 15 and 10
years, respectively, of experience with the Company. Many of the Company's
professional employees have advanced academic backgrounds in agricultural,
chemical, civil, industrial, geological and mechanical engineering, geology,
geophysics and metallurgy. The Company believes that its size and reputation
allow it to compete effectively for highly qualified professionals.
Regulatory and Environmental Matters
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation, OSHA
and MSHA in the United States as well as their counterparts in foreign
countries. In addition, the Company's activities are subject to regulation under
various environmental laws regarding emissions to air, discharges to water and
management of wastes and hazardous substances. To the extent the Company fails
to comply with these various regulations, it could be subject to monetary fines,
suspension of operations and other penalties. In addition, these and other laws
and regulations affect the Company's mineral drilling services and product
customers and influence their determination whether to conduct mineral
exploration and development.
Many localities require well operating licenses which typically specify
that wells be constructed in accordance with applicable regulations. Various
state, local and foreign laws require that water wells and monitoring wells be
installed by licensed well drillers. The Company maintains well drilling and
contractor's licenses in those jurisdictions in which it operates and in which
such licenses are required. In addition, the Company employs licensed engineers,
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geologists and other professionals necessary to the conduct of its business. In
those circumstances in which the Company does not have a required professional
license, it subcontracts that portion of the work to a firm employing the
necessary professionals.
Potential Liability and Insurance
The Company's drilling activities involve certain operating hazards
that can result in personal injury or loss of life, damage and destruction of
property and equipment, damage to the surrounding areas, release of hazardous
substances or wastes and other damage to the environment, interruption or
suspension of drill site operations and loss of revenues and future business.
The magnitude of these operating risks is amplified when the Company, as is
frequently the case, conducts a project on a fixed-price, "turnkey" basis where
the Company delegates certain functions to subcontractors but remains
responsible to the customer for the subcontracted work. In addition, the Company
is exposed to potential liability under foreign, federal, state and local laws
and regulations, contractual indemnification agreements or otherwise in
connection with its provision of services and products. For example, the Company
could be held responsible for contamination caused by an accident which occurs
as a result of the Company drilling through a contaminated water source and
creating a channel through which the contaminants migrate to an uncontaminated
water source. Litigation arising from any such occurrences may result in the
Company's being named as a defendant in lawsuits asserting large claims.
Although the Company maintains insurance protection that it considers
economically prudent, there can be no assurance that any such insurance will be
sufficient or effective under all circumstances or against all claims or hazards
to which the Company may be subject or that the Company will be able to continue
to obtain such insurance protection. A successful claim or damage resulting from
a hazard for which the Company is not fully insured could have a material
adverse effect on the Company. In addition, the Company does not maintain
political risk insurance or business interruption insurance with respect to its
foreign operations.
Applicable Legislation
There are a number of complex foreign, federal, state and local
environmental laws which impact the demand for the Company's mining and
environmental drilling services. A change in these laws, or changes in
governmental policies regarding the funding, implementation or enforcement of
the laws, could have a material adverse effect on the Company.
Under Superfund and comparable state laws, the potential liability of
real property buyers and lenders secured by real property for the cost of
responding to past or present release of hazardous substances at or from that
property has prompted a widespread practice of phased environmental audits as a
condition to the sale and financing of real estate. These audits may include
soil and groundwater testing to determine the nature and extent of contamination
that may impact the value of the property or give rise to liability for the new
owner.
Item 2. Properties and Equipment
The Company's corporate headquarters are located in Mission Woods,
Kansas (a suburb of Kansas City, Missouri), in approximately 30,000 square feet
of office space leased by the Company pursuant to a written lease agreement
which
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expires February 28, 2005. The Company's manufacturing operations are primarily
conducted from an approximately 84,000 square foot plant located in Salt Lake
City, Utah and owned by the Company (the "Plant").
As of January 31, 2000, the Company (excluding foreign affiliates)
owned or leased approximately 600 drill and well service rigs throughout the
world, a substantial majority of which were located in the United States. This
includes rigs used primarily in each of its service lines as well as
multi-purpose rigs. In addition, as of January 31, 2000, the Company's foreign
affiliates owned or leased approximately 117 drill rigs.
Item 3. Legal Proceedings
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect on the Company's business or consolidated financial
position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders of the Company
during the last quarter of the fiscal year ended January 31, 2000.
Item 4A. Executive Officers of the Registrant
Executive officers of the Company are appointed by the Board of
Directors for such terms as shall be determined from time to time by the Board,
and serve until their respective successors are selected and qualified or until
their respective earlier death, retirement, resignation or removal.
Set forth below are the name, age and position of each executive
officer of the Company.
Name Age Position
---- --- --------
Andrew B. Schmitt 51 President, Chief Executive Officer and
Director
Gregory F. Aluce 44 Senior Vice President
H. Edward Coleman 62 Senior Vice President
Eric R. Despain 51 Senior Vice President
Norman E. Mehlhorn 59 Senior Vice President
Jerry W. Fanska 51 Vice President--Finance and Treasurer
Kent B. Magill 47 Vice President-General Counsel and
Secretary
The business experience of each of the executive officers of the
Company during the last five fiscal years is as follows:
Andrew B. Schmitt has served as President and Chief Executive Officer
of the Company since October 1993. For approximately two years prior to joining
the
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Company, Mr. Schmitt managed two privately-owned hydrostatic pump and motor
manufacturing companies and an oil and gas service company. He served as
President of the Tri-State Oil Tools Division of Baker Hughes Incorporated from
February 1988 to October 1991.
Gregory F. Aluce has served as the Company's Senior Vice President
since April 14, 1998 and is responsible for the Company's integrated groundwater
services and geotechnical construction services. Mr. Aluce has over 20 years
experience in various areas of the Company's operations.
H. Edward Coleman has served as an officer of the Company since 1976
and as its Senior Vice President since 1985 and is responsible for most of the
Company's operations in the eastern half of the country. Mr. Coleman has nearly
40 years experience in various areas of the Company's operations.
Eric R. Despain has served as the Company's Senior Vice President since
February 1996 and is responsible for the Company's manufacturing facilities and
operations in Australasia and Africa. Prior to joining the Company in December
1995, Mr. Despain was President and a member of the Board of Directors of CBC
since 1986.
Norman E. Mehlhorn has served as the Company's Senior Vice President
since September 1992 and as Vice President from 1986 to September 1992 and is
responsible for most of the Company's operations in the western half of the
country. Mr. Mehlhorn has nearly 40 years experience in the drilling business,
with particular emphasis on dual tube drilling technology.
Jerry W. Fanska has served as the Company's Vice President--Finance and
Treasurer since April 1994 and as Controller since December 1993. Prior to
joining Layne Christensen, Mr. Fanska served as corporate controller of The
Marley Company since October 1992 and as its Internal Audit Manager since April
1984.
Kent B. Magill has served as the Company's Vice President-General
Counsel and Secretary since August 1992 and served as Vice President and
Associate General Counsel of The Marley Company since May 1989.
There is no arrangement or understanding between any executive officer
and any other person pursuant to which such executive officer was selected as an
executive officer of the Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market
through the NASDAQ National Market System under the symbol LAYN. The stock has
been traded in this market since the Company became a publicly-held company on
August 20, 1992. The following table sets forth the range of high and low sales
prices of the Company's stock by quarter for fiscal 2000 and 1999, as reported
by the NASDAQ National Market System. These quotations represent prices between
dealers and do not include retail mark-up, mark-down or commissions.
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Fiscal Year 2000 High Low
---------------- ---- ---
First Quarter $ 7 1/8 $ 4 5/8
Second Quarter 7 1/4 5 1/2
Third Quarter 12 3/8 6 1/4
Fourth Quarter 9 1/2 5 13/16
Fiscal Year 1999 High Low
---------------- ---- ---
First Quarter $17 5/8 $13 1/4
Second Quarter 17 1/4 11
Third Quarter 13 9
Fourth Quarter 12 1/8 5 7/8
At March 30, 2000, there were approximately 169 owners of record of the
Company's common stock.
The Company has not paid any cash dividends on its common stock.
Moreover, the Board of Directors of the Company does not anticipate paying any
cash dividends in the foreseeable future. The Company's future dividend policy
will depend on a number of factors including future earnings, capital
requirements, financial condition and prospects of the Company and such other
factors as the Board of Directors may deem relevant, as well as restrictions
under the Credit Agreement between the Company, various financial institutions
and Bank of America National Trust and Savings Association as agent ("Credit
Agreement"), the Note Agreement between the Company and Massachusetts Mutual
Life Insurance Company and other restrictions which may exist under other credit
arrangements existing from time to time. The Credit Agreement limits the cash
dividends payable by the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources"
under Item 7 and Note 8 of the Notes to Consolidated Financial Statements.
Item 6. Selected Financial Data
The following selected historical financial information as of and for
each of the five fiscal years ended January 31, 2000 has been derived from the
Company's audited Consolidated Financial Statements. During fiscal years 2000,
1999, 1998 and 1996, the Company completed various acquisitions, which are more
fully described in Note 2 of the Notes to Consolidated Financial Statements. The
acquisitions have been accounted for under the purchase method of accounting
and, accordingly, the Company's consolidated results include the effects of the
acquisitions from the date of each acquisition. The information below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under Item 7 and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Form 10-K.
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Fiscal Years Ended
January 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Income Statement Data
(in thousands, except
per share amounts):
Revenues $281,445 $284,248 $294,600 $222,853 $167,271
Cost of revenues
(exclusive of
depreciation
shown below) 207,105 204,953 213,717 161,602 122,078
-------- -------- -------- -------- --------
Gross profit 74,340 79,295 80,883 61,251 45,193
Selling, general and
administrative expenses 53,781 49,938 45,908 38,956 28,260
Depreciation and
amortization 23,016 22,361 15,681 10,974 8,233
-------- -------- -------- -------- --------
Operating income (loss) (2,457) 6,996 19,294 11,321 8,700
Other income (expense):
Equity in earnings
(losses) of foreign
affiliates (27) 1,128 3,022 3,895 -
Interest (4,818) (4,987) (3,618) (2,447) (767)
Other, net (108) 629 (267) 161 407
-------- ------- -------- -------- --------
Income (loss) before
income taxes (7,410) 3,766 18,431 12,930 8,340
Income tax expense - 2,486 7,004 4,913 3,753
Minority interest,
net of taxes (255) (79) - - -
-------- ------- -------- -------- -------
Net income (loss) $ (7,665) $ 1,201 $ 11,427 $ 8,017 $ 4,587
======== ======= ======== ======== ========
Basic earnings (loss)
per share $ (0.66) $ 0.10 $ 1.13 $ 0.90 $ 0.62
======== ======= ======== ======== ========
Diluted earnings (loss)
per share $ (0.66) $ 0.10 $ 1.09 $ 0.88 $ 0.61
======== ======= ======== ======== ========
at January 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance Sheet Data
(in thousands):
Working capital $ 45,245 $ 46,211 $ 39,661 $ 29,643 $ 26,796
Total assets 245,335 251,503 242,852 142,421 134,177
Long-term debt 59,929 63,500 57,500 30,314 28,428
Total stockholders'
equity 106,840 113,270 114,259 62,664 53,972
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto under Item 8.
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Cautionary Language Regarding Forward-Looking Statements
This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
of 1934. Such statements are indicated by words or phrases such as "anticipate,"
"estimate," "project," "believe," "intend," "expect," "plan" and similar words
or phrases. Such statements are based on current expectations and are subject to
certain risks, uncertainties and assumptions, including but not limited to
prevailing prices for various metals, unanticipated slowdowns in the Company's
major markets, the impact of competition, the effectiveness of operational
changes expected to increase efficiency and productivity, worldwide economic and
political conditions and foreign currency fluctuations that may affect worldwide
results of operations. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially and adversely from those anticipated, estimated or
projected. These forward-looking statements are made as of the date of this
filing, and the Company assumes no obligation to update such forward-looking
statements or to update the reasons why actual results could differ materially
from those anticipated in such forward-looking statements.
Results of Operations
The Company substantially consummated the acquisition of Stanley Mining
Services Pty., Limited ("Stanley") at the end of July 1997 (the "Stanley
Acquisition"). Stanley has been reflected in Layne Christensen's results of
operations beginning August 1, 1997. The Stanley Acquisition has been accounted
for using the purchase method of accounting.
With the Stanley Acquisition and other smaller acquisitions thereafter,
the percentage of the Company's revenues and operating income tied to the mining
industry has increased substantially. Demand for the Company's mineral
exploration drilling services and products depends upon the level of mineral
exploration and development activities conducted by mining companies,
particularly with respect to gold and copper. Mineral exploration is highly
speculative and is influenced by a variety of factors, including the prevailing
prices for various metals that often fluctuate widely. In this connection, the
decline in the prices of various metals has continued to adversely impact the
level of mineral exploration and development activities conducted by mining
companies and has had, and could continue to have, a material adverse effect on
the Company.
At the end of each fiscal year, potential impairment with respect to
the Company's long-lived assets is reviewed by comparing the sum of undiscounted
projected future cash flows attributable to each business unit to the carrying
value of the assets of that business unit. Projected future cash flows for each
business unit are estimated for a period approximating the remaining lives of
that unit's long-lived assets, based on earnings history, market conditions and
assumptions reflected in internal operating plans and strategies. Under this
analysis, the Company has determined that the cash flows from the mineral
exploration business would be sufficient to recover the carrying value of its
long-lived assets and, therefore, that the value of such assets is not impaired.
The projected future cash flows represent management's best estimates. Because
these estimates are based on subjective assumptions, an impairment write-down
may be required in the future if the projected future cash flows decline.
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The following table, which is derived from the Company's Consolidated
Financial Statements as discussed in Item 6, presents, for the periods
indicated, the percentage relationship which certain items reflected in the
Company's statements of income bear to revenues and the percentage increase or
decrease in the dollar amount of such items period-to-period. In fiscal 2000,
the Company announced the formation of its Integrated Groundwater Services
Division. This division is intended to vertically integrate the Company's water
well drilling and maintenance and environmental drilling product lines. In
conjunction with the formation of this division, service revenues for these
product lines for 1999 and 1998 have been reclassified to conform to the 2000
presentation in the following table and in comparisons of fiscal 2000 to fiscal
1999 thereafter.
Period-to-Period
Change
Fiscal Years Ended ------
January 31, 2000 1999
--------------------------------- vs. vs.
Revenues: 2000 1999 1998 | 1999 1998
---- ---- ---- ---- ----
Integrated groundwater |
services 58.8% 55.3% 47.3% | 5.2% 12.9%
Mineral exploration drilling 23.1 27.6 27.1 | (17.1) (1.8)
Geotechnical construction 12.5 9.7 15.3 | 28.4 (39.3)
Other services .2 - - | * *
----- ----- -----
Total service revenues 94.6 92.6 89.7 | 1.2 (.5)
Product sales 5.4 7.4 10.3 | (28.0) (30.2)
----- ----- -----
Total revenues 100.0% 100.0% 100.0% | (1.0) (3.5)
===== ===== =====
Cost of revenues: |
Cost of service revenues 73.2% 71.8% 72.4% | 3.3 (1.4)
Cost of product sales 79.6 76.4 73.5 | (25.0) (27.4)
Total cost of revenues 73.6 72.1 72.5 | 1.0 (4.1)
----- ----- -----
Gross profit 26.4 27.9 27.5 | (6.2) (2.0)
Selling, general and |
administrative expenses 19.1 17.6 15.6 | 7.7 8.8
Depreciation and amortization 8.2 7.8 5.4 | 44.0 39.3
----- ----- -----
Operating income (loss) (0.9) 2.5 6.5 | (135.1) (63.7)
Other income (expense): |
Equity in earnings (losses) |
of foreign affiliates 0.0 0.4 1.0 | (102.4) (62.7)
Interest (1.7) (1.8) (1.1) | (3.4) 37.8
Other, net 0.0 0.2 (0.1) | * *
----- ----- -----
Income (loss) before income taxes (2.6) 1.3 6.3 | * (79.6)
Income tax expense 0.0 0.9 2.4 | (100.0) (64.5)
Minority interest, net of taxes (0.1) 0.0 - | * *
----- ----- -----
Net income (loss) (2.7)% 0.4% 3.9% | * (89.5)
===== ===== =====
* Not meaningful.
Comparison of Fiscal 2000 to Fiscal 1999
Results of Operations
Revenues for fiscal 2000 decreased $2,803,000, or 1.0%, to $281,445,000
compared to $284,248,000 for fiscal 1999. Integrated groundwater services
revenues increased 5.2% to $165,525,000 for fiscal 2000 compared to revenues of
$157,411,000 for fiscal 1999. The year-to-year increase in integrated
groundwater services revenues was primarily the result of increased demand for
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certain domestic water-related services. Mineral exploration drilling revenues
decreased 17.1% to $64,937,000 for fiscal 2000 from $78,305,000 for fiscal 1999.
The decrease for the year was primarily a result of lower demand for the
Company's services in areas outside North America as a result of the decrease in
exploration and development activities conducted by mining companies in those
areas. Geotechnical construction revenues increased 28.4% to $35,190,000 for
fiscal 2000 compared to revenues of $27,409,000 for fiscal 1999. The increase in
geotechnical revenues was primarily a result of the Company's continued
development of recently purchased technologies to serve this market. Product
sales decreased 28.0% to $15,209,000 for fiscal 2000 from $21,123,000 for fiscal
1999. The decrease was a result of the lower demand for the Company's products
in the mining industry as previously discussed.
Gross profit as a percentage of revenues was 26.4% for fiscal 2000
compared to 27.9% for fiscal 1999. The decrease in gross profit was primarily
attributable to reduced profits at the Company's manufacturing facility and at
the Company's mineral exploration locations in Australasia and Africa.
Selling, general and administrative expenses increased to $53,781,000
for fiscal 2000 compared to $49,938,000 for fiscal 1999. The increase for the
year was primarily a result of expenses arising from various operations acquired
during fiscal 2000.
Depreciation and amortization increased to $23,016,000 for fiscal 2000
compared to $22,361,000 for fiscal 1999. The increase in depreciation and
amortization for the year was attributable to property additions and various
acquisitions that occurred during the year, partially offset by lower capital
spending in the mineral exploration division.
Equity in earnings (losses) of foreign affiliates was ($27,000) for
fiscal 2000 compared to $1,128,000 for the last year. The decrease was primarily
a result of lower exploration and development activities conducted by mining
companies in Latin America.
Income taxes were a benefit of zero for fiscal 2000 compared to an
expense of $2,486,000 for the last year. The unusual effective rate for the year
was primarily a result of the increased impact of certain non-deductible
expenses in light of lower taxable earnings in the respective periods, combined
with a reduction in the amount of earnings from certain foreign affiliates and
subsidiaries relative to the Company's overall earnings.
Comparison of Fiscal 1999 to Fiscal 1998
Results of Operations
Revenues for fiscal 1999 decreased $10,352,000, or 3.5%, to
$284,248,000 compared to $294,600,000 for fiscal 1998. Water well drilling and
maintenance revenues increased 14.0% to $137,095,000 for fiscal 1999 compared to
revenues of $120,280,000 for fiscal 1998. The increase in water well drilling
and maintenance revenues was primarily the result of the acquisition of certain
assets of Hydro Group, Inc., a New Jersey-based drilling contractor, in March
1998 (the "Hydro Acquisition"). Additionally, the Company experienced stronger
demand for services at various domestic locations. Mineral exploration drilling
revenues decreased 1.8% to $78,305,000 for fiscal 1999 from $79,726,000 for
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fiscal 1998. The decrease was primarily a result of lower demand for the
Company's services as a result of the decrease in exploration and development
activities conducted by mining companies. The decrease was less than it
otherwise would have been as fiscal 1999 included a full year of revenues
following the Stanley Acquisition. Geotechnical drilling revenues decreased
39.3% to $27,409,000 for fiscal 1999 compared to revenues of $45,191,000 for
fiscal 1998. Exclusive of the Company's ground freeze project in Timmins,
Ontario, Canada, for Echo Bay Mines, Ltd. (the "Timmins Project"), which was
completed in the first quarter of fiscal 1999, geotechnical drilling revenues
increased 24.0% in fiscal 1999. The increase in the base geotechnical business
revenues was primarily a result of increased activity in this market.
Environmental drilling revenue increased 6.1% to $20,316,000 for fiscal 1999
compared to revenues of $19,157,000 for fiscal 1998. The Company believes the
improvement was largely attributable to an increase in the number of larger and
more technically demanding projects, which were substantially completed during
the year. Product sales decreased 30.2% to $21,123,000 for fiscal 1999 from
$30,246,000 for fiscal 1998. The decrease was a result of the lower demand for
the Company's services in the mining industry as previously discussed.
Gross profit as a percentage of revenues was 27.9% for fiscal 1999
compared to 27.5% for fiscal 1998. The increase was primarily attributed to the
Company realizing better than previously expected gross profit margins on
certain complex international projects which were finalized during the year.
Selling, general and administrative expenses increased to $49,938,000
for fiscal 1999 compared to $45,908,000 for fiscal 1998. The increase was
primarily a result of the Hydro Acquisition and other smaller acquisitions.
Depreciation and amortization increased to $22,361,000 for fiscal 1999
compared to $15,681,000 in fiscal 1998. The increase in depreciation and
amortization was primarily a result of the Hydro Acquisition and additions to
property and equipment since last year.
Equity in earnings of foreign affiliates was $1,128,000 for fiscal 1999
compared to $3,022,000 in fiscal 1998. The decrease from the previous period was
primarily a result of lower exploration and development activities conducted by
mining companies in Latin America.
Income tax expense was $2,486,000 for fiscal 1999 compared to
$7,004,000 in fiscal 1998. The effective tax rate for the year ended January 31,
1999, increased to 66% compared to 38% for the year ended January 31, 1998. This
was primarily a result of a combination of a reduction in the amount of equity
in earnings of foreign affiliates (on which income tax is normally not provided
as foreign tax credits are generally available to offset the tax liability) and
the increased impact of certain non-deductible expenses resulting from lower
earnings for the fiscal year.
Fluctuation in Quarterly Results
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the award and completion of contracts, the
recording of related revenues and unanticipated additional costs incurred on
projects. The Company's revenues on large drilling contracts are recognized on a
percentage of completion basis for individual contracts based upon the ratio of
costs incurred to total estimated costs at completion. Contract price and
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24
cost estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. A significant number of the
Company's contracts contain fixed prices and assign responsibility to the
Company for cost overruns for the subject projects; as a result, revenues and
gross margin may vary from those originally estimated and, depending upon the
size of the project, variations from estimated contract performance could affect
the Company's operating results for a particular quarter. Many of the Company's
contracts are also subject to cancellation by the customer upon short notice
with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to decrease
in the winter months when adverse weather conditions interfere with access to
drilling sites and the ability to drill; as a result, the Company's revenues and
earnings in its second and third quarters tend to be higher than revenues and
earnings in its first and fourth quarters. Accordingly, as a result of the
foregoing as well as other factors, quarterly results should not be considered
indicative of results to be expected for any other quarter or for any full
fiscal year. See the Company's Consolidated Financial Statements and Notes
thereto.
Inflation
Management believes that the Company's operations for the periods
discussed have not been adversely affected by inflation or changing prices.
Liquidity and Capital Resources
The primary source of the Company's liquidity in fiscal 2000, 1999 and
1998 was its cash from operating activities of $13,162,000, $13,637,000 and
$14,270,000, respectively. Cash from operations and borrowings under the
Company's revolving credit agreement were utilized primarily for additions to
property and equipment of $12,816,000 and various acquisitions. See Note 2 to
the Consolidated Financial Statements. Capital expenditures during fiscal 2000
were directed primarily toward expansion and upgrading of the Company's
equipment and facilities. The Company expects to spend approximately $10,000,000
in the next fiscal year for capital expenditures. The Company anticipates fiscal
2001 capital expenditures will be used to maintain the Company's equipment and
capabilities and to accelerate its expansion into oil and gas services. The
Company also plans to pursue consolidation opportunities in the mineral
exploration market. As of January 31, 2000, the Company had no material
commitments outstanding for capital assets.
The Company maintains a reducing revolving cash borrowing facility (the
"Credit Agreement"). At January 31, 2000, the aggregate commitment under this
facility was $80,000,000. This commitment was voluntarily reduced by the Company
to $64,000,000, effective February 14, 2000. Borrowings under the Credit
Agreement have been used to complete various acquisitions. See Note 2 to the
Consolidated Financial Statements. The Company's borrowings and outstanding
letter of credit commitments under the Credit Agreement were $38,500,000 and
24
25
$5,147,000, respectively, at January 31, 2000. See Note 8 to the Consolidated
Financial Statements.
The Company's working capital as of January 31, 2000, 1999 and 1998 was
$45,245,000, $46,211,000 and $39,661,000, respectively. The increase in working
capital in fiscal 1999 was primarily the result of the Hydro Acquisition as
discussed in Note 2 to the Consolidated Financial Statements. The Company
believes borrowings from its available Credit Agreement and cash from operations
will be sufficient to meet the Company's operating cash requirements and to fund
its budgeted capital expenditures for fiscal 2001.
Costs estimated to be incurred in the future for employee medical
benefits and casualty insurance programs resulting from claims which have
occurred are accrued currently. Under the terms of the Company's agreement with
the various insurance carriers administering these claims, the Company is not
required to remit the total premium until the claims are actually paid by the
insurance companies. These costs are not expected to significantly impact
liquidity in future periods. See Note 10 to the Consolidated Financial
Statements.
Year 2000 Discussion
The Year 2000 ("Y2K") problem relates to the fact that many computer
programs use only two digits to refer to a year. As a result, many computer
programs do not properly recognize a year that begins with "20" instead of "19"
(the "Y2K Issue"). Other than the Company's financial reporting systems, the
nature of the Company's business is such that it is generally not reliant upon
date sensitive information technology ("IT") and non-information technology
("non-IT") systems. The Company believes that issues related to Y2K compliance
of its IT and non-IT systems did not have a material adverse impact on its
business operations or financial results.
To date, the Company has not experienced any major disruptions related
to the Y2K date change. In addition, we are not aware of significant Y2K
disruptions impacting our customers or suppliers. We will continue to monitor
our critical systems over the next several months but do not anticipate a
significant impact as a result of the Y2K date change. The Company has primarily
utilized internal resources to assess, test, remediate and implement software
and equipment related to Y2K. Incremental cost directly related to Y2K issues
for the Company were not material.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are interest
rates on variable rate debt, equity risk on investments, and foreign exchange
rates giving rise to translation and transaction gains and losses.
The Company centrally manages its debt and investment portfolios
considering overall financing strategies and tax consequences. A description of
the Company's variable rate debt is in Note 8 to the Notes to Consolidated
Financial Statements appearing on page 46 of this Form 10-K. Assuming then
existing debt levels, an instantaneous change in interest rates of one
percentage point would impact the Company's interest expense by $385,000 and
$135,000 at January 31, 2000 and 1999, respectively. The Company's investments
are described in Note 1 to the Consolidated Financial Statements. The
investments are carried
25
26
at market value and are held for long-term investing purposes rather than
trading purposes.
Operating in international markets involves exposure to possible
volatile movements in currency exchange rates. Currently, the Company's primary
international operations are in Australia, Africa, Mexico, Canada, Indonesia,
Italy and Thailand. The operations are described in Notes 1 and 11 to the
Consolidated Financial Statements. The majority of the Company's contracts in
Africa and Mexico are U.S. dollar based, providing a natural reduction in
exposure to currency fluctuations.
As currency exchange rates change, translation of the income statements
of the Company's international operations into U.S. dollars may affect
year-to-year comparability of operating results. We estimate that a ten percent
change in foreign exchange rates would have impacted operating income for the
years ended January 31, 2000 and 1999 by approximately $426,000 and $222,000,
respectively. This represents approximately ten percent of the international
segment operating income after adjusting for primarily U.S. dollar-based
operations. This quantitative measure has inherent limitations, as it does not
take into account any governmental actions, changes in customer purchasing
patterns or changes in the Company's financing and operating strategies.
Foreign exchange gains and losses in the Company's Consolidated
Statements of Income reflect transaction gains and losses and translation gains
and losses from the Company's Mexican and African operations which use the U.S.
dollar as their functional currency. Net foreign exchange gains and losses for
2000, 1999 and 1998 were not significant.
26
27
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
Independent Auditors' Report ............................................ 28
Financial Statements:
Consolidated Balance Sheets as of January 31, 2000 and 1999........... 29
Consolidated Statements of Income for the Years
Ended January 31, 2000, 1999 and 1998.............................. 31
Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 2000, 1999 and 1998.............................. 32
Consolidated Statements of Cash Flows for the Years Ended
January 31, 2000, 1999 and 1998 ................................... 33
Notes to Consolidated Financial Statements............................ 35
Financial Statement Schedule II....................................... 54
All other schedules have been omitted because they are not applicable
or not required as the required information is included in the Consolidated
Financial Statements of the Company or the Notes thereto.
27
28
INDEPENDENT AUDITORS' REPORT
Layne Christensen Company:
We have audited the accompanying consolidated balance sheets of Layne
Christensen Company and subsidiaries (together, the "Company") as of January 31,
2000 and 1999, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of January
31, 2000 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 30, 2000
28
29
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets
As of January 31, 2000 and 1999
(In Thousands of Dollars)
ASSETS 2000 1999
---------- -------
Current assets:
Cash and cash equivalents $ 3,751 $ 2,094
Customer receivables, less allowance
of $3,437 and $3,064, respectively 44,785 42,057
Costs and estimated earnings in excess of
billings on uncompleted contracts 11,086 7,854
Inventories 29,974 31,286
Deferred income taxes 10,324 9,571
Other 5,303 8,991
--------- ---------
Total current assets 105,223 101,853
--------- ---------
Property and equipment:
Land 9,435 9,340
Buildings 16,668 16,490
Machinery and equipment 167,579 163,227
--------- ---------
193,682 189,057
Less--Accumulated depreciation (110,687) (96,217)
--------- ---------
Net property and equipment 82,995 92,840
--------- ---------
Other assets:
Investment in foreign affiliates 19,381 19,732
Intangible assets, at cost less accumulated
amortization of $3,688 and $2,393,
respectively 33,570 32,755
Other 4,166 4,323
--------- ---------
Total other assets 57,117 56,810
--------- ---------
$ 245,335 $ 251,503
========= =========
See Notes to Consolidated Financial Statements.
29
30
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets(Continued)
As of January 31, 2000 and 1999
(In Thousands of Dollars, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------------------------------ ------------ --------
Current liabilities:
Accounts payable $ 16,762 $ 17,202
Current maturities of long-term debt 3,571 --
Accrued compensation 12,068 11,223
Accrued insurance expense 7,357 7,298
Other accrued expenses 10,119 11,519
Billings in excess of costs and estimated
earnings on uncompleted contracts 10,101 8,400
--------- ---------
Total current liabilities 59,978 55,642
--------- ---------
Non-current and deferred liabilities:
Long-term debt 59,929 63,500
Deferred income taxes 1,380 2,283
Accrued insurance expense 5,000 5,454
Other 2,052 2,439
Minority interest 10,156 8,915
--------- ---------
Total non-current and deferred
liabilities 78,517 82,591
--------- ---------
Contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share,
5,000,000 shares authorized, none issued
and outstanding -- --
Common stock, par value $.01 per share,
30,000,000 shares authorized, 11,691,129
and 11,641,192 shares issued and outstanding,
respectively 117 116
Capital in excess of par value 83,463 83,095
Retained earnings 29,150 36,815
Accumulated other comprehensive loss (5,738) (6,604)
Notes receivable from management stockholders (152) (152)
--------- ---------
Total stockholders' equity 106,840 113,270
--------- ---------
$ 245,335 $ 251,503
========= =========
See Notes to Consolidated Financial Statements.
30
31
Layne Christensen Company and Subsidiaries
Consolidated Statements of Income
For the Years Ended January 31, 2000, 1999 and 1998
(In Thousands of Dollars, except per share data)
2000 1999 1998
------------ ----------- -------
Revenues:
Service revenues $ 266,236 $ 263,125 $ 264,354
Product sales 15,209 21,123 30,246
---------- ---------- ----------
Total revenues 281,445 284,248 294,600
---------- ---------- ----------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 194,996 188,818 191,497
Cost of product sales 12,109 16,135 22,220
---------- ---------- ----------
Total cost of revenues 207,105 204,953 213,717
---------- ---------- ----------
Gross profit 74,340 79,295 80,883
Selling, general and administrative
expenses 53,781 49,938 45,908
Depreciation and amortization 23,016 22,361 15,681
---------- ---------- ----------
Operating income (loss) (2,457) 6,996 19,294
Other income (expense):
Equity in earnings (losses)
of foreign affiliates (27) 1,128 3,022
Interest (4,818) (4,987) (3,618)
Other, net (108) 629 (267)
----------- ---------- ---------
Income (loss) before income taxes (7,410) 3,766 18,431
Income tax expense - 2,486 7,004
Minority interest, net of taxes (255) (79) -
---------- ---------- --------
Net income (loss) $ (7,665) $ 1,201 $ 11,427
========== ========== =========
Basic earnings (loss) per share $ (0.66) $ 0.10 $ 1.13
========== ========== =========
Diluted earnings (loss) per share $ (0.66) $ 0.10 $ 1.09
========== ========== =========
Weighted average number of common
and dilutive equivalent shares
outstanding:
Weighted average shares
outstanding - basic 11,675,000 11,639,000 10,128,000
Dilutive stock options - 268,000 400,000
---------- ---------- ----------
Weighted average shares
outstanding - diluted 11,675,000 11,907,000 10,528,000
========== ========== ==========
See Notes to Consolidated Financial Statements.
31
32
Layne Christensen Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended January 31, 2000, 1999 and 1998
(In Thousands of Dollars)
Notes
Accumulated Receivable
Common Stock Capital in Other From
-------------------- Excess of Retained Comprehensive Management
Shares Amount Par Value Earnings Income (Loss) Stockholders Total
--------- --------- --------- ---------- ------------- ------------ -------
Balance, January 31, 1997 8,871,467 $ 89 $ 39,293 $ 24,187 $ (706) $ (199) $ 62,664
--------
Comprehensive income
Net income - - - 11,427 - - 11,427
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $61 - - - - 97 - 97
Foreign currency
translation adjustments,
net of taxes of $2,174 - - - - (3,826) - (3,826)
Unrealized gain on
available for sale
investments, net of
taxes of $153 - - - - 250 - 250
--------
Comprehensive income 7,948
--------
Issuance of stock for
incentive compensation
program 3,524 - 113 - - - 113
Issuance of stock, net of
expenses 2,756,565 27 43,483 - - - 43,510
Payments on notes receivable - - - - - 24 24
---------- -------- -------- ------- ----------- --------- --------
Balance, January 31, 1998 11,631,556 116 82,889 35,614 (4,185) (175) 114,259
--------
Comprehensive income
Net income - - - 1,201 - - 1,201
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $34 - - - - (53) - (53)
Foreign currency
translation adjustments,
net of taxes of $962 - - - - (1,294) - (1,294)
Unrealized loss on
available for sale
investments, net of
taxes of $669 - - - - (1,072) - (1,072)
--------
Comprehensive loss (1,218)
--------
Issuance of stock for
incentive compensation
program 9,636 - 206 - - - 206
Payments on notes receivable - - - - - 23 23
---------- -------- -------- --------- ----------- ---------- --------
Balance, January 31, 1999 11,641,192 116 83,095 36,815 (6,604) (152) 113,270
--------
Comprehensive income
Net loss - - - (7,665) - - (7,665)
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $365 - - - - 580 - 580
Foreign currency
translation adjustments,
net of taxes of $460 - - - - 641 - 641
Unrealized loss on
available for sale
investments, net of
taxes of $264 - - - - (355) - (355)
---------
Comprehensive loss (6,799)
---------
Issuance of stock for
incentive compensation
program 5,845 - 82 - - - 82
Issuance of stock, net of
expenses 44,092 1 286 - - - 287
---------- -------- -------- --------- ----------- ---------- ---------
Balance, January 31, 2000 11,691,129 $ 117 $ 83,463 $ 29,150 $ (5,738) $ (152) $ 106,840
========== ======== ======== ========= =========== ========== =========
32
33
See Notes to Consolidated Financial Statements.
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2000, 1999 and 1998
(In Thousands of Dollars)
2000 1999 1998
--------- -------- ------
Cash flow from operating activities:
Net income (loss) $ (7,665) $ 1,201 $ 11,427
Adjustments to reconcile net income
(loss) to cash from operations:
Depreciation and amortization 23,016 22,361 15,681
Deferred income taxes (2,060) (1,741) (176)
Equity in (earnings) losses of
foreign affiliates 27 (1,128) (3,022)
Dividends received from foreign
affiliates 377 852 756
Minority interest 392 232 -
(Gain) loss from disposal of property
and equipment 50 (1,679) 99
Changes in current assets and liabilities,
(exclusive of effects of acquisitions):
(Increase) decrease in customer
receivables (2,466) 11,364 (6,947)
Increase in costs and estimated
earnings in excess of billings on
uncompleted contracts (3,164) (1,070) (77)
(Increase) decrease in inventories 1,346 234 (5,438)
(Increase) decrease in other current
assets 3,685 (6,313) 524
Decrease in accounts payable and
accrued expenses (1,617) (10,438) (679)
Increase in billings in excess of
costs and estimated earnings on
uncompleted contracts 1,546 352 2,523
Other, net (305) (590) (401)
--------- --------- --------
Cash from operating activities 13,162 13,637 14,270
--------- --------- --------
Cash flow from investing activities:
Additions to property and equipment (12,816) (16,817) (22,425)
Proceeds from disposal of property and
equipment 2,476 3,963 1,239
Acquisition of businesses, net of cash
acquired (891) (8,378) (53,942)
Purchase of available for sale investments - (427) (3,111)
Investment by minority interest in
joint ventures - 600 -
Investment in foreign affiliates and
joint ventures (293) - (20)
--------- -------- --------
Cash used in investing activities (11,524) (21,059) (78,259)
--------- -------- --------
See Notes to Consolidated Financial Statements.
- Continued -
33
34
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows - (Continued)
For the Years Ended January 31, 2000, 1999 and 1998
(In Thousands of Dollars)
2000 1999 1998
--------- --------- ------
Cash flow from financing activities:
Net borrowings under revolving facility - $ 6,000 $ 28,500
Repayments of long-term debt - - (5,899)
Payments on notes receivable from
management stockholders - 23 24
Issuance of common stock, net of expenses - - 43,510
Debt issuance costs - - (725)
-------- ------- --------
Cash from financing activities - 6,023 65,410
-------- ------- --------
Effects of exchange rate changes on cash 19 539 (164)
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents 1,657 (860) 1,257
Cash and cash equivalents at beginning
of year 2,094 2,954 1,697
-------- -------- ---------
Cash and cash equivalents at end of year $ 3,751 $ 2,094 $ 2,954
======== ======== =========
See Notes to Consolidated Financial Statements.
- Concluded -
34
35
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
(1) Summary of Significant Accounting Policies
Description of Business -- Layne Christensen Company and subsidiaries
(together, the "Company") provides comprehensive water supply services and
geotechnical construction services in most regions in the United States, and
provides mineral exploration drilling services primarily in the western United
States, Australia, Africa, Mexico, Canada and Indonesia. Its customers include
municipalities, industrial companies, mining companies, environmental consulting
and engineering firms and, to a lesser extent, agribusinesses. In addition, the
Company manufactures diamond core bits, drilling rigs and other equipment
utilized in the mineral exploration, mine development and pre-construction
analysis markets throughout the United States and internationally.
Fiscal Year - References to years are to the fiscal years then ended.
Investment in Affiliated Companies - Investments in affiliates (33% to
50% owned) in which the Company exercises significant influence over operating
and financial policies are accounted for on the equity method.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions have been eliminated. Financial information for the
Company's foreign affiliates and certain foreign subsidiaries is reported in the
Company's consolidated financial statements with a one-month lag in reporting
periods. The effect of this one month lag on the Company's financial results is
not significant.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Transactions and Translation - The cash flows and
financing activities of the Company's Mexican and African operations are
primarily denominated in the U.S. dollar. Accordingly, these operations use the
U.S. dollar as their functional currency and translate monetary assets and
liabilities at year-end exchange rates while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year, except for depreciation, certain cost of
revenues and selling expenses. Gains or losses from changes in exchange rates
are recognized in consolidated income in the year of occurrence.
Other foreign subsidiaries and affiliates use local currencies as their
functional currency. Assets and liabilities have been translated to U.S. dollars
at year-end exchange rates. Income and expense items have been translated at
35
36
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
exchange rates which approximate the average of the rates prevailing during each
year. Translation adjustments are reported as a separate component of
accumulated other comprehensive income (loss). As a result of the acquisition of
an Australian company during 1998 (see Note 2), the Company has reflected
substantial changes in the cumulative translation account during 2000, 1999 and
1998, primarily attributed to the devaluation of the Australian dollar.
Net foreign currency transaction gains and losses for 2000, 1999 and
1998 were not significant.
Revenue Recognition - Revenue is recognized on large, long-term
contracts using the percentage of completion method based upon materials
installed and labor costs incurred. Changes in job performance, job conditions,
and estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Revenue is recognized on smaller, short-term contracts using the completed
contract method. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Inventories - The Company values inventories at the lower of cost
(first- in, first-out, including material, labor, and manufacturing overhead
costs) or market (in thousands of dollars):
2000 1999
------- ------
Raw materials $ 1,422 $ 1,627
Work in process 547 1,788
Finished products, parts and supplies 28,005 27,871
------- -------
Total $29,974 $31,286
======= =======
Property and Equipment and Related Depreciation - Property and
equipment (including major renewals and improvements) are recorded at cost.
Depreciation is provided using the straight-line method. Depreciation expense
was $21,721,000, $21,454,000 and $15,123,000 in fiscal 2000, 1999 and 1998,
respectively. The lives used for the more significant items within each property
classification are as follows:
Years
-----
Buildings 15 - 35
Machinery and equipment 3 - 10
Intangible Assets - Intangible assets consist of goodwill related to
acquisitions, purchased technical manuals and other assets which are being
amortized over their estimated economic lives which range from 10 to 35 years.
Amortization expense for intangible assets was $1,295,000, $1,058,000 and
$626,000 for 2000, 1999 and 1998, respectively.
Investments - During 2000, 1999 and 1998, the Company, through its
wholly owned subsidiary Layne Christensen Australia Pty Limited ("Layne
Australia"),
36
37
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
purchased certain common stock of publicly traded companies on the Australian
Stock Exchange. The Company has classified these investments as available-for-
sale. The non-current investments have a cost basis of $3,723,000 and
$3,538,000, and are reported at their fair values of approximately $1,766,000
and $2,200,000 at January 31, 2000 and 1999, respectively. The gross unrealized
losses of $1,957,000 and $1,338,000, net of taxes of $780,000 and $516,000 at
January 31, 2000 and 1999, respectively, have been recorded as a component of
accumulated other comprehensive income (loss).
Impairment of Long-Lived Assets - At each balance sheet date, a
determination is made by management as to whether the value of long-lived
assets, including intangible assets and assets to be disposed of, has been
impaired. The determination is based on several criteria, including, but not
limited to, revenue trends, undiscounted operating cash flows and other
operating factors.
Accrued Insurance Expense - Costs estimated to be incurred in the
future for employee medical benefits and casualty insurance programs resulting
from claims which have been incurred are accrued currently. Under the terms of
the Company's agreement with the various insurance carriers administering these
claims, the Company is not required to remit the total premium until the claims
are actually paid by the insurance companies (see Note 10).
Fair Value of Financial Instruments - The carrying amounts of financial
instruments including cash and cash equivalents, customer receivables and
accounts payable approximate fair value at January 31, 2000 and 1999, because of
the relatively short maturity of those instruments. Investments in equity
securities are carried at quoted market values. See Note 8 for disclosure
regarding the fair value of indebtedness of the Company.
Consolidated Statements of Cash Flows - Highly liquid investments with
a remaining maturity of three months or less at the time of purchase are
considered cash equivalents.
The amounts paid for income taxes and interest are as follows (in
thousands of dollars):
2000 1999 1998
------- ------- ------
Income taxes - $7,645 $8,454
Interest $4,892 4,406 3,345
Supplemental Noncash Transactions -- In 2000 and 1999, the Company
issued 5,845 and 9,636 shares of common stock, respectively, and 57,812 and
21,504 stock options, respectively, related to 1999 and 1998 compensation
awards.
Income Taxes - Income taxes are provided using the asset/liability
method, in which deferred taxes are recognized for the tax consequences of
temporary differences between the financial statement carrying amounts and tax
bases of existing assets and liabilities. See Note 5.
37
38
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
Earnings Per Share - Earnings per common share are based upon the
weighted average number of common and dilutive equivalent shares outstanding.
Options to purchase common stock are included based on the treasury stock method
for dilutive earnings per share except when their effect is antidilutive.
Stock-Based Compensation - Stock-based compensation may be accounted
for either based on the estimated fair value of the awards at the date they are
granted (the "SFAS 123 Method") or based on the difference, if any, between the
market price of the stock at the date of grant and the amount the employee must
pay to acquire the stock (the "APB 25 Method"). The Company uses the APB 25
Method to account for its stock-based compensation programs (see Note 9). Pro
forma net income (loss) for 2000, 1999 and 1998, determined as if the SFAS 123
Method had been applied, would have been ($8,732,000), $363,000 and $11,204,000,
respectively. Basic and diluted earnings (loss) per share would have been
($0.75) for 2000, $0.03 for 1999 and $1.11, and $1.06, respectively, for 1998.
Comprehensive Income - Accumulated balances of Other Comprehensive Loss
are as follows (in thousands of dollars):
Unrealized Accumulated
Cumulative Gain (Loss) Unrecognized Other
Translation On Pension Comprehensive
Adjustment Investments Liability Loss
----------- ----------- ----------- -------------
Balance, January 31, 1998 $ (3,908) $ 250 $ (527) $ (4,185)
Period change (1,294) (1,072) (53) (2,419)
---------- ---------- ----------- ------------
Balance, January 31, 1999 (5,202) (822) (580) (6,604)
Period change 641 (355) 580 866
---------- ---------- ----------- ------------
Balance, January 31, 2000 $ (4,561) $ (1,177) $ - $ (5,738)
========== ========== --------- ============
Reclassifications - Certain 1999 and 1998 amounts have been
reclassified to conform with the 2000 presentation.
(2) Acquisitions
On June 1, 1999, the Company acquired the outstanding stock of Toledo Oil
and Gas Service, Inc., an oil and gas services company based in Broussard,
Louisiana, for $169,000 cash, $287,000 in common stock, and a contingent payment
of $100,000. The contingent payment will be held by the Company in escrow for
one year from the date of the acquisition to provide security to the Company for
the accuracy and performance of certain covenants guaranteed by the acquired
company. The payment will be made at the end of the contingency period in common
stock of the Company. The contingent stock was valued at $6.50 per share, the
average trading price for the ten trading days immediately preceding the
acquisition. The acquisition has been accounted for using the purchase method of
accounting and the operations of Toledo Oil and Gas Service, Inc. have been
included from the date of acquisition.
38
39
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
On June 4, 1999, the Company purchased certain assets of Vibration
Technology, an oil and gas services company based in Shreveport, Louisiana, for
$253,000 in cash. The acquisition has been accounted for using the purchase
method of accounting.
On August 26, 1999, the Company, through its wholly owned subsidiary
Layne Christensen Canada Limited ("Layne Canada"), purchased substantially all
of the assets of Basal Drilling, Inc., based in Alberta, Canada, for $469,000 in
cash and issuance of a one-year promissory note for $270,000. Basal Drilling is
a multi-services drilling company. The acquisition has been accounted for using
the purchase method of accounting.
Had the acquisitions in fiscal 2000 taken place as of February 1, 1999,
pro forma operating results would not vary significantly from those reported.
On March 26, 1998, the Company completed a transaction to purchase
certain assets of Hydro Group, Inc., a New Jersey-based drilling contractor (the
"Hydro Acquisition") for approximately $6,293,000 in cash. The acquisition has
been accounted for using the purchase method of accounting and accordingly, the
operations of Hydro Group, Inc. have been included from the date of acquisition.
On December 31, 1998, the Company also acquired certain assets of Colog
Inc., a geophysical services company, based in Golden, Colorado, for
approximately $800,000 in cash. The acquisition has been accounted for using the
purchase method of accounting.
On January 20, 1999, the Company acquired the outstanding stock of
Tecniwell S.r.l., a manufacturer of pumps and accessories used in the
geotechnical construction industry, based in Podenzano, Italy, for approximately
$1,285,000 in cash and a contingent payment of $500,000. The contingent payment
will be held by the Company in escrow for a period of five years from the date
of the acquisition to provide security to the Company for the accuracy and
performance of certain covenants guaranteed by the acquired company. The payment
will be made at the end of the contingency period in common stock of the
Company. The contingent stock was valued at $9.85 per share, the average trading
price for the ten trading days immediately preceding the acquisition. The
acquisition has been accounted for using the purchase method of accounting.
Had the acquisitions in fiscal 1999 taken place as of February 1, 1998,
pro forma operating results would not have been significantly different from
those reported.
On May 20, 1997, the Company, through its wholly owned subsidiary Layne
Christensen Australia Pty Limited ("Layne Australia"), made a tender offer to
the security holders of Stanley Mining Services Limited ("Stanley"), a company
listed on the Australian Stock Exchange (the "Stanley Acquisition"). Stanley is
an Australian mineral exploration drilling company that provides services
predominantly to mining companies in Australia and Africa. As of October 1,
39
40
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
1996, Stanley purchased 51% of Glindemann & Kitching Pty Ltd. ("G&K"), a
drilling contractor based and operating in Western Australia that specializes in
diamond core exploration drilling for gold projects. The remaining 49% of G&K
was acquired by Stanley as of July 1, 1997, for a purchase price of $7,814,000.
The purchase price was paid on September 5, 1997.
The Stanley Acquisition was substantially consummated on July 25, 1997
for a purchase price of approximately $50,070,000, consisting of a cash purchase
price for the tender offer of $48,337,000 and $1,733,000 of transaction costs.
The Company also assumed approximately $12,523,000 of Stanley's existing
indebtedness. The Company accounted for the acquisition using the purchase
method of accounting. Stanley has been reflected in the Company's results of
operations beginning August 1, 1997. The purchase price has been allocated based
on fair values of assets and liabilities as of July 31, 1997. On August 19,
1997, the Company completed the sale of 2,756,565 shares of Common Stock in a
public offering. Net proceeds to the Company from the offering of approximately
$43,510,000 were used to reduce the debt incurred under the Credit Agreement in
connection with the Stanley Acquisition.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the acquisitions of
Stanley and G&K and the stock offering had occurred at the beginning of fiscal
year 1998, with pro forma adjustments to give effect to interest expense on
acquisition debt, amortization of goodwill and certain other adjustments,
together with related income tax effects:
(in thousands, except per share data) 1998
------------------------------------- --------
Revenues $323,565
Net income 12,638
Basic earnings per share 1.09
Diluted earnings per share 1.05
The pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the acquisition been
consummated as of February 1, 1998, nor are they necessarily indicative of
future operating results.
In July 1997, the Company also acquired the outstanding stock of Stamm-
Scheele, Inc., a water well drilling and maintenance company in Louisiana, for
approximately $2,574,000 in cash. The acquisition has been accounted for using
the purchase method of accounting. In October 1997, the Company also acquired
certain assets of Afridrill Limited, a mineral exploration company located in
East Africa, for approximately $3,700,000 in cash and certain contingent future
cash payments of approximately $684,000. The acquisition has been accounted for
using the purchase method of accounting. Had these acquisitions taken place as
of February 1, 1997, pro forma operating results would not have been
significantly different from those reported.
40
41
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
The above acquisitions had the following effect on the Company's
consolidated financial position (in thousands of dollars):
2000 1999 1998
-------- -------- ------
Property and equipment $1,328 $8,435 $27,662
Working capital (396) (1,046) (971)
Intangible and other assets 420 1,608 33,391
Non-current and deferred
liabilities (461) (619) (6,140)
------ ------ -------
Total purchase price,
net of cash acquired $ 891 $ 8,378 $53,942
====== ======= =======
(3) Investments in Foreign Affiliates
The Company's investments in foreign affiliates are carried at the
Company's equity in the underlying net assets plus an additional $4,753,000 as a
result of purchase accounting. This additional amount is being amortized over
the remaining useful lives of the applicable underlying assets ranging from 20
to 35 years. Accumulated amortization at January 31, 2000 and 1999, was $519,000
and $389,000, respectively. These affiliates, which generally are engaged in
mineral exploration drilling and the manufacture and supply of drilling
equipment, parts and supplies, are as follows:
Percentage
Owned
----------
Christensen Chile, S.A. (Chile) 49.99%
Christensen Commercial, S.A. (Chile) 50.00%
Geotec Boyles Bros., S.A. (Chile) 49.75%
Boyles Bros. Diamantina, S.A. (Peru) 29.49%
Christensen Commercial, S.A. (Peru) 50.00%
Geotec, S.A. (Peru) 35.38%
Boytec, S.A. (Panama) 49.99%
Technidrill, Ltd. (France) 49.00%
Christensen Boyles GmbH (Germany) 33.35%
Plantel Industrial S.A. (Chile) 50.00%
Boytec Sondajes de Mexico, S.A. de C.V. (Mexico) 49.99%
Boyles Bros. do Brazil, S.A. (Brazil) 40.00%
Geoductos Chile, S.A. (Chile) 50.00%
Financial information from foreign affiliates is reported with a
one-month lag in the reporting period. Summarized financial information of the
Company's foreign affiliates, as of January 31, 2000, 1999 and 1998, and for the
years then ended, was as follows (in thousands of dollars):
41
42
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
2000 1999 1998
------- ------- ------
Total assets $57,645 $65,303 $69,953
Total liabilities 17,932 23,634 33,015
Revenues 51,552 75,088 87,996
Gross profit 6,094 13,406 18,526
Operating income 1,282 4,446 9,293
Net income 152 2,613 6,884
The Company has transactions and balances with foreign affiliates
which resulted in the following amounts being included in the Consolidated
Financial Statements as of January 31, 2000, 1999 and 1998, and for the years
then ended (in thousands of dollars):
2000 1999 1998
------- ------- ------
Accounts receivable $ 566 $ 173 $2,736
Notes receivable 1,333 2,568 -
Revenues 1,374 3,045 7,574
Undistributed equity in earnings of foreign affiliates totaled
$4,043,000, $4,447,000 and $4,171,000 as of January 31, 2000, 1999 and 1998,
respectively.
(4) Costs and Estimated Earnings on Uncompleted Contracts (in thousands of
dollars):
2000 1999
-------- ------
Costs incurred on uncompleted contracts $ 80,153 $ 65,031
Estimated earnings 29,591 21,791
-------- --------
109,744 86,822
Less: Billings to date 108,759 87,368
-------- --------
$ 985 $ (546)
======== ========
Included in accompanying balance
sheets under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 11,086 $ 7,854
Billings in excess of costs and estimated
earnings on uncompleted contracts (10,101) (8,400)
-------- --------
$ 985 $ (546)
======== ========
The Company generally does not bill contract retainage amounts until the
contract is completed. The Company bills its customers based on specific
contract terms. Substantially all billed amounts are collectible within one
year.
42
43
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
(5) Income Taxes
Income before income taxes is as follows (in thousands of dollars):
2000 1999 1998
--------- -------- ------
Domestic $ 4,825 $ 6,758 $ 11,916
Foreign (12,235) (2,992) 6,515
-------- ------- --------
$ (7,410) $ 3,766 $ 18,431
======== ======= ========
Components of income tax expense are (in thousands of dollars):
2000 1999 1998
------- ------- ------
Currently due:
U.S. federal $ (118) $ 366 $ 5,012
State and local (188) 537 1,272
Foreign 1,017 2,726 1,660
------- ------- -------
711 3,629 7,944
------- ------- -------
Deferred:
U.S. federal 672 (355) (1,185)
State and local 79 (11) (157)
Foreign (1,462) (777) 402
------- ------- -------
(711) (1,143) (940)
------- ------- -------
$ - $ 2,486 $ 7,004
======= ======= =======
Deferred income taxes result from temporary differences between the
financial statement and tax bases of the Company's assets and liabilities. The
sources of these differences and their cumulative tax effects are (in thousands
of dollars):
43
44
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
2000 1999
--------------------------------- -----------------------------------
Assets Liabilities Total Assets Liabilities Total
------ ----------- ----- ------ ----------- -----
Contract income $ 1,942 - $1,942 $2,627 - $2,627
Accrued insurance
expense 1,943 - 1,943 2,247 - 2,247
Employee compensation 980 - 980 891 - 891
Bad debts 1,186 - 1,186 1,011 $ (111) 900
Inventory 1,183 $ (2,707) (1,524) 1,317 (2,848) (1,531)
Other accrued expenses 6,288 (520) 5,768 4,568 (395) 4,173
Loss carryforwards 29 - 29 264 - 264
------- -------- ------ ------- -------- ------
Current 13,551 (3,227) 10,324 12,925 (3,354) 9,571
------- --------- ------ ------- -------- ------
Accelerated depreciation 155 (7,837) (7,682) 20 (8,430) (8,410)
Cumulative translation
adjustment 2,670 - 2,670 3,136 - 3,136
Accrued insurance
expense 2,134 - 2,134 2,107 - 2,107
Loss carryforwards 1,928 - 1,928 2,099 - 2,099
Unrealized (gain)/loss
on investments 780 - 780 751 (235) 516
Employee compensation 310 (161) 149 621 (196) 425
Other 506 (1,865) (1,359) 198 (2,354) (2,156)
------- -------- ------ ------- -------- ------
Noncurrent 8,483 (9,863) (1,380) 8,932 (11,215) (2,283)
------- -------- ------ ------- -------- ------
$22,034 $(13,090) $8,944 $21,857 $(14,569) $7,288
======= ======== ====== ======= ======== ======
The Company has several Australian and African subsidiaries which
have generated tax losses. The majority of these losses have been utilized to
reduce the Company's U.S. federal and state income tax expense.
For federal income tax purposes, the Company has net operating loss
carryforwards totaling $5,100,000 at January 31, 2000. The net operating loss
carryforwards expire between 2010 and 2015. The Company also generated state net
operating losses which can be carried forward.
At January 31, 2000, undistributed earnings of foreign subsidiaries
and foreign affiliates included $13,450,000 for which no U.S. federal income or
foreign withholding taxes have been provided as foreign tax credits should
become available under current tax law to significantly reduce or eliminate the
resulting U.S. income tax liability.
A reconciliation of the total income tax expense to the statutory
federal rate is as follows (in thousands of dollars):
44
45
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
2000 1999 1998
------------------------- ------------------- ------------------------
Effective Effective Effective
Amount Rate Amount Rate Amount Rate
------ --------- ------ --------- ------ -------
Income tax at statutory
rate $(2,519) (34.0)% $1,280 34.0% $6,451 35.0%
State income tax, net of
federal income tax
benefit (71) (1.0) 342 9.1 654 3.5
Difference in tax expense
resulting from:
Non-deductible expenses 448 6.0 394 10.4 404 2.2
Unremitted income of
foreign affiliates 9 0.1 (189) (5.0) (1,057) (5.7)
Taxes on foreign
operations 1,825 24.6 793 21.1 797 4.3
Other, net 308 4.3 (134) (3.6) (245) (1.3)
------- ------ ------ ---- ------ ----
$ - - $2,486 66.0% $7,004 38.0%
======= ====== ====== ==== ====== ====
(6) Leases
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year from
January 31, 2000 are as follows (in thousands of dollars):
2001 $4,049
2002 3,423
2003 2,502
2004 1,900
2005 1,226
Operating leases are primarily for automobiles, light trucks, and
office and shop facilities. Rent expense under operating leases (including
insignificant amounts of contingent rental payments) was $5,163,000, $5,742,000
and $4,605,000 in 2000, 1999 and 1998, respectively.
(7) Employee Benefit Plans
The Company sponsors a pension plan covering certain hourly employees
not covered by union-sponsored, multi-employer plans. Benefits are computed
based mainly on years of service. The Company makes annual contributions to the
plan substantially equal to the amounts required to maintain the qualified
status of the plans. Contributions are intended to provide for benefits related
to past and current service with the Company. Assets of the plan consist
primarily of stocks, bonds and government securities.
The following table sets forth the plan's funded status as of December
31, 1999 and 1998 (the measurement dates) and the amounts recognized in the
Company's balance sheets at January 31, 2000 and 1999 (in thousands of dollars):
45
46
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
2000 1999
------- ------
Benefit obligation at beginning of year $5,624 $4,973
Service cost 181 152
Interest cost 388 362
Actuarial (gain) loss (884) 440
Benefits paid (273) (303)
------ ------
Benefit obligation at end of year 5,036 5,624
------ ------
Fair value of plan assets at beginning of year 5,010 4,554
Actual return on plan assets 352 613
Employer contribution 204 146
Benefits paid (273) (303)
------ ------
Fair value of plan assets at end of year 5,293 5,010
------ ------
Funded status 257 (614)
Unrecognized actuarial gain (loss) (30) 945
Unrecognized prior services cost 61 71
------ ------
Net amount recognized $ 288 $ 402
====== ======
Amounts recognized in the Company's balance sheets at January 31, 2000 and 1999
(in thousands of dollars) consist of:
2000 1999
------- ------
Prepaid benefit cost $ 288 $ 402
Accrued benefit liability - (1,016)
Intangible asset - 71
Accumulated other comprehensive income - 945
------ ------
Net amount recognized $ 288 $ 402
====== ======
Net periodic pension cost for 2000, 1999 and 1998 includes the following
components (in thousands of dollars):
2000 1999 1998
------ ------ -----
Service cost $ 181 $ 152 $ 137
Interest cost 388 362 343
Expected return on assets (346) (317) (301)
Net amortization 96 77 67
------ ------ ------
Net periodic pension cost $ 319 $ 274 $ 246
====== ====== ======
The Company has recognized the full amount of its actuarially determined
pension liability and the related intangible asset. The unrecognized pension
cost has been recorded as a charge to stockholders' equity after giving effect
to the related future tax benefit.
The projected benefit obligation for 2000, 1999 and 1998 was computed
using a discount rate of 8.0%, 6.75% and 7.25%, respectively, and an estimated
long-term rate of return on assets of 8.75%. Benefit level assumptions for 2000,
1999 and 1998 are based on fixed amounts per year of credited service.
46
47
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
The Company also participates in a number of defined benefit,
multi-employer plans. These plans are union-sponsored, and the Company makes
contributions equal to the amounts accrued for pension expense. Total union
pension expense for these plans was $992,000, $683,000 and $646,000 in 2000,
1999 and 1998, respectively. Information regarding assets and accumulated
benefits of these plans has not been made available to the Company.
The Company's salaried and certain hourly employees participate in
Company- sponsored, defined contribution plans. Company contributions are
determined annually at the discretion of the Board of Directors of the Company.
Total expense for the Company's portion of these plans was $791,000, $808,000
and $1,349,000 in 2000, 1999 and 1998, respectively. The Company reserves the
right to amend or terminate the plans, but the Company cannot recover
contributions already paid.
(8) Indebtedness
During July 1997, contemporaneously with the consummation of the
Stanley Acquisition (see Note 2), the Company amended its existing credit
agreement to provide a reducing revolving credit facility ("Credit Agreement").
As of January 31, 2000, the commitment under the Credit Agreement had been
reduced to $80,000,000, less any outstanding letter of credit commitments
($20,000,000 sublimit). Effective with an amendment to the Credit Agreement
dated February 14, 2000, the Company voluntarily reduced the outstanding
commitment amount to $64,000,000. The Credit Agreement was used to finance the
Stanley Acquisition and refinance the Company's existing indebtedness under a
$30,000,000 credit facility, and is available for working capital and capital
expenditures and for other general corporate purposes. As of January 31, 2000,
letters of credit in an aggregate amount of $5,147,000 had been issued on behalf
of the Company. The Credit Agreement will terminate in July 2002 and any
borrowings thereunder will mature at that time. Layne Australia is eligible to
draw down up to $30,000,000 ($15,000,000 effective with an amendment to the
Credit Agreement, dated February 14, 2000) under the Credit Agreement. The
Credit Agreement provides for guarantees by certain of the Company's domestic
subsidiaries and contains certain covenants including restrictions on the
incurrence of additional indebtedness and liens, payment of dividends, sale of
assets or other dispositions, transactions with affiliates, mandatory
prepayments based on the proceeds from the sale of assets and debt and equity
securities and certain financial maintenance covenants, including among others,
minimum interest coverage and maximum leverage ratios. The Credit Agreement
provides for interest at variable rates equal to (i) for loans in Australian
dollars, an Australian Bill rate plus .50% to .875% (depending upon debt to
capitalization ratios), or (ii) for loans in United States dollars, at the
Company's option, a Eurodollar rate plus .50% to .875% (depending upon debt to
capitalization ratios), or an alternate reference rate as defined in the Credit
Agreement. As of January 31, 2000, outstanding borrowings under the Credit
Agreement were $38,500,000, at an average interest rate of 7.190%. The variable
interest rates on the outstanding balance approximate the current market rates.
Maximum borrowings outstanding under the Company's then existing credit
agreements during 2000, 1999 and 1998 were $44,000,000, $49,000,000 and
47
48
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
$58,000,000, respectively, and the average outstanding borrowings were
$40,583,000, $42,458,000 and $21,250,000, respectively. The weighted average
interest rates were 7.0%, 7.0% and 7.3%, respectively.
During March 1996, the Company completed the private placement of an
unsecured note agreement (subsequently amended) for $25,000,000 ("Senior
Notes"). The Senior Notes bear a fixed interest rate of 6.75% and will be due
March 15, 2006 with annual installments of $3,571,000 beginning March 15, 2000.
As of January 31, 2000 and 1999, such interest rate approximates market for
similar securities. Financial guarantees and covenants are similar to those in
the Credit Agreement.
Loan costs incurred in securing long-term financing are amortized over
the term of the respective loan agreement. Amortization of these costs for 2000,
1999 and 1998 was $221,000, $252,000 and $180,000, respectively. Amortization of
loan costs is included in interest expense in the statements of income.
Long-term debt is as follows (in thousands of dollars):
2000 1999
------- -------
Senior Notes $25,000 $25,000
Revolving credit facility 38,500 38,500
------- -------
Total long-term debt - net 63,500 63,500
Less current maturities 3,571 -
------- -------
$59,929 $63,500
======= =======
As of January 31, 2000, long-term debt will mature as follows (in
thousands of dollars):
2001 $ 3,571
2002 3,571
2003 42,071
2004 3,571
2005 3,571
Thereafter 7,145
(9) Stock and Stock Option Plans
In October 1998, the Company adopted a Rights Agreement whereby the
Company has authorized and declared a dividend of one preferred share purchase
right ("Right") for each outstanding common share of the Company. Subject to
limited exceptions, the Rights are exercisable if a person or group acquires or
announces a tender offer for 25% or more of the Company's common stock. Each
right will entitle shareholders to buy one one-hundredth of a share of a newly
created Series A Junior Participating Preferred Stock of the Company at an
exercise price of $45.00. The Company is entitled to redeem the Right at $.01
per Right at any time before a person has acquired 25% or more of the Company's
outstanding common stock. The Rights expire 10 years from the date of grant.
48
49
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
The Company has reserved 500,000 shares of common stock for issuance
under Employee Incentive Compensation Plans. Issuance of shares under the Plans
is based on performance as determined annually by a committee appointed by the
Company's Board of Directors. During 2000, 1999 and 1998, 5,845, 9,636 and 3,524
shares, respectively, were issued at $5.50, $13.72 and $15.20 per share,
respectively.
The Company also has two stock option plans which provide for the
granting of options to purchase up to an aggregate of 2,000,000 shares of common
stock at a price fixed by the Board of Directors or a committee.
Significant option groups outstanding at January 31, 2000 and related
weighted average price and life information follows:
Average Remaining
Options Options Exercise Life
Grant Date Outstanding Exercisable Price (Years)
- ---------- ----------- ----------- -------- --------
8/92 72,164 72,164 $ .882 2
8/92 97,434 97,434 7.000 2
12/93 258,317 258,317 6.420 4
5/94 39,000 39,000 6.375 4
2/96 158,500 126,800 10.500 6
4/97 14,553 5,821 11.400 7
2/98 265,000 106,000 14.000 8
4/98 19,443 3,889 10.290 8
4/99 399,187 - 5.139 9
7/99 10,000 - 6.063 9
All options were granted at an exercise price equal to the fair market
value of the Company's common stock at the date of grant. The weighted average
fair value at the date of grant for options granted during fiscal year 2000,
1999 and 1998 were $3.95, $9.57 and $12.68 per option, respectively. The options
have a ten year term from the date of grant and vest ratably over periods of
four to five years. The fair value of options at date of grant was estimated
using the Black- Scholes model with the following weighted average assumptions:
2000 1999 1998
---- ---- ----
Expected life years 10 10 10
Interest rate 6.5% 6.5% 6.5%
Volatility 59% 47% 50%
Dividend yield 0% 0% 0%
49
50
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
Shares Under Option Shares Exercisable
-------------------- --------------------
Weighted Weighted
Number Average Number of Average
of Shares Price Shares Price
--------- ----- ------ -----
Stock Option Activity Summary:
Outstanding, February 1, 1997 641,915 7.069 352,544 5.779
Granted 15,727 11.400 -
Canceled - - -
Vested - - 153,951
--------- --------
Outstanding, January 31, 1998 657,642 7.172 506,495 6.283
Granted 334,004 13.761 -
Canceled - - -
Vested - - 119,965
--------- --------
Outstanding, January 31, 1999 991,646 9.391 626,460 7.344
Granted 454,187 5.111 -
Canceled (112,235) 10.395 (16,335)
Vested - - 99,300
--------- --------
Outstanding, January 31, 2000 1,333,598 7.862 709,425 7.858
========= ========
(10) Contingencies
The Company's drilling activities involve certain operating hazards
that can result in personal injury or loss of life, damage and destruction of
property and equipment, damage to the surrounding areas, release of hazardous
substances or wastes and other damage to the environment, interruption or
suspension of drill site operations and loss of revenues and future business.
The magnitude of these operating risks is amplified when the Company, as is
frequently the case, conducts a project on a fixed-price, "turnkey" basis where
the Company delegates certain functions to subcontractors but remains
responsible to the customer for the subcontracted work. In addition, the Company
is exposed to potential liability under foreign, federal, state and local laws
and regulations, contractual indemnification agreements or otherwise in
connection with its provision of services and products. Litigation arising from
any such occurrences may result in the Company's being named as a defendant in
lawsuits asserting large claims. Although the Company maintains insurance
protection that it considers economically prudent, there can be no assurance
that any such insurance will be sufficient or effective under all circumstances
or against all claims or hazards to which the Company may be subject or that the
Company will be able to continue to obtain such insurance protection. A
successful claim or damage resulting from a hazard for which the Company is not
fully insured could have a material adverse effect on the Company. In addition,
the Company does not maintain political risk insurance or business interruption
insurance with respect to its foreign operations.
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a
50
51
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
material adverse effect upon its business or consolidated financial position,
results of operations or cash flows.
(11) Operating Segments and Foreign Operations
The Company is a multi-national company operating predominantly in two
operating segments. The first operating segment includes the Company's service
operations with wholly owned operations in the United States, Australia, East
Africa, Mexico, Canada, Indonesia and Thailand, as well as a 50% owned joint
venture in West Africa, which are consolidated into the Company's January 31,
2000 financial statements. The service segment primarily derives its revenues
from the following product lines: integrated groundwater services, mineral
exploration drilling and geotechnical construction. The second operating
segment, products, includes the manufacturing and supply of drilling equipment,
parts and supplies. The product operations are primarily in the United States.
Refer to Note 3 for information on other foreign investments.
Revenues, operating income, total assets, capital expenditures and
depreciation and amortization pertaining to the Company's operating segments are
presented below (in thousands of dollars). Total revenues of foreign
subsidiaries are those revenues related to the operations of those subsidiaries.
Intersegment sales are accounted for based on the estimated fair market value of
the products sold. In computing operating income for foreign subsidiaries, no
allocations of general corporate expenses have been made. Total assets of
foreign subsidiaries are those assets related to the operations of those
subsidiaries, including goodwill. Corporate assets are all assets of the Company
not directly associated with an operating segment, and consist primarily of
cash, deferred income taxes and investments in foreign affiliates (see Note 3).
51
52
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
Revenues 2000 1999 1998
---- ---- ----
Services
United States $211,644 $193,702 $181,846
-------- -------- --------
Foreign:
Canada 8,263 11,387 38,242
Australia 8,316 11,889 10,554
Africa 28,231 35,311 17,948
Other Foreign 9,782 10,836 15,764
-------- -------- --------
Total Foreign 54,592 69,423 82,508
-------- -------- --------
Total Services 266,236 263,125 264,354
-------- -------- --------
Products 25,390 33,526 47,336
Intersegment revenues (10,181) (12,403) (17,090)
-------- -------- --------
Total Products 15,209 21,123 30,246
-------- -------- --------
$281,445 $284,248 $294,600
======== ======== ========
Operating Income
Services
United States $ 12,673 $ 12,036 $ 16,841
-------- -------- --------
Foreign:
Canada 150 1,292 7,006
Australia (1,701) (154) 1,293
Africa (2,968) (140) (299)
Other Foreign (2,401) 340 2,720
-------- -------- --------
Total Foreign (6,920) 1,338 10,720
-------- -------- --------
Total Services 5,753 13,374 27,561
Products (3,120) (647) 1,278
Corporate (5,090) (5,731) (9,545)
-------- -------- --------
$ (2,457) $ 6,996 $ 19,294
======== ======== ========
Total Assets
Services
United States $ 93,562 $ 92,846 $ 79,258
-------- -------- --------
Foreign:
Canada 8,212 5,667 10,416
Australia 54,223 53,828 64,024
Africa 27,690 32,577 21,241
Other Foreign 13,199 14,915 13,932
-------- -------- --------
Total Foreign 103,324 106,987 109,613
-------- -------- --------
Total Services 196,886 199,833 188,871
Products 22,577 23,114 28,584
Corporate 25,872 28,556 25,397
-------- -------- --------
$245,335 $251,503 $242,852
======== ======== ========
Capital Expenditures
Services $ 12,649 $ 16,472 $ 21,363
Products 167 345 882
-------- -------- --------
$ 12,816 $ 16,817 $ 22,425
======== ======== ========
Depreciation and Amortization
Services $ 22,336 $ 21,566 $ 15,030
Products 680 795 651
-------- -------- --------
$ 23,016 $ 22,361 $ 15,681
======== ======== ========
52
53
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2000, 1999 and 1998
Of the Products sales to unaffiliated customers, approximately
$2,117,000, $3,090,000 and 9,581,000 in 2000, 1999 and 1998, respectively, were
export sales, principally to Latin and South America.
(12) Quarterly Results (Unaudited)
Unaudited quarterly financial data is as follows (see Note 2 regarding
the Stanley acquisition) (thousands of dollars, except per share data):
First Second Third Fourth
-------- -------- -------- -------
2000:
Revenues $70,033 $73,238 $70,971 $67,203
Gross profit 18,508 20,511 18,916 16,405
Net loss (1,214) (1,176) (1,354) (3,921)
Basic loss
per share (0.10) (0.10) (0.12) (0.34)
Diluted loss
per share (0.10) (0.10) (0.12) (0.34)
First Second Third Fourth
------- ------ ------- -------
1999:
Revenues $68,341 $78,686 $74,451 $62,770
Gross profit 18,583 23,486 20,920 16,306
Net income (loss) 1,026 2,985 1,137 (3,947)
Basic earnings (loss)
per share 0.09 0.26 0.10 (0.34)
Diluted earnings (loss)
per share 0.09 0.25 0.10 (0.34)
53
54
SCHEDULE II
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
Additions
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts Deductions Other End of Period
---------- ---------- ----------- ---------- ----- -------------
Allowance for customer
receivables
Fiscal year ended January 31, 1998 $1,002 $1,168 $671 $ (795) $ 537 (a) $2,583
Fiscal year ended January 31, 1999 2,583 975 480 (2,450) 1,476 (a) 3,064
Fiscal year ended January 31, 2000 3,064 952 661 (1,240) - 3,437
Reserves for Inventories:
Fiscal year ended January 31, 1998 1,997 145 (1,854) 3,478 (a) 3,766
Fiscal year ended January 31,1999 3,766 1,000 (1,003) 395 (a) 4,158
Fiscal year ended January 31, 2000 4,158 (677) 3,481
(a) Represents reserves recorded in connection with various acquisitions.
See Note 2 to the Consolidated Financial Statements.
54
55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 25, 2000, (i) contains, under
the caption "Election of Directors," certain information required by Item 10 of
Form 10-K and such information is incorporated herein by this reference (except
that the information set forth under the following subcaptions thereunder is
expressly excluded from such incorporation: "Compensation of Directors" and
"Meetings of the Board and Committees"), and (ii) contains, under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance," certain information
required by Item 10 of Form 10-K and such information is incorporated herein by
this reference. The information required by Item 10 of Form 10-K as to executive
officers is set forth in Item 4A of Part I hereof.
Item 11. Executive Compensation
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held May 25, 2000, contains, under the
caption "Executive Compensation and Other Information," the information required
by Item 11 of Form 10-K and such information is incorporated herein by this
reference (except that the information set forth under the following subcaptions
is expressly excluded from such incorporation: "Report of Board of Directors and
Compensation Committee on Executive Compensation" and "Company Performance").
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 25, 2000, contains, under the
caption "Ownership of Layne Christensen Common Stock," the information required
by Item 12 of Form 10-K and such information is incorporated herein by this
reference.
Item 13. Certain Relationships and Related Transactions
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 25, 2000, contains, under the
caption "Executive Compensation and Other Information-Certain Change-In-Control
Agreements," the information required by Item 13 of Form 10-K and such
information is incorporated herein by this reference.
55
56
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits:
1. Financial Statements:
The financial statements are listed in the index for Item 8 of this
Form 10- K.
2. Financial Statement Schedules:
The financial statement schedules are listed in the index for Item 8 of
this Form 10-K.
3. Exhibits:
The exhibits filed with or incorporated by reference in this report are
listed below:
Exhibit No. Description
4(1) - Restated Certificate of Incorporation of the
Registrant (filed with the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 3(1) and incorporated
herein by this reference)
4(2) - Bylaws of the Registrant (filed with Amendment No. 2
to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 3(2) and incorporated herein by
reference)
4(3) - Specimen Common Stock Certificate (filed with Amendment
No. 3 to the Registrant's Registration Statement
(File No. 33-48432) as Exhibit 4(1) and incorporated
herein by reference)
4(4) - Amended and Restated Credit Agreement, dated as of
July 25, 1997, among the Company, Layne Christensen
Australia Pty Limited, National Trust and Savings
Association, various financial institutions, Bank of
America, as Letter of Credit Issuer, and Bank of
America National Trust and Savings Association, as
Agent ("Credit Agreement") (filed with Amendment No.
3 to the Company's Form S-2 Registration Statement
(File No. 333-29581) as Exhibit 10(12) and
incorporated herein by this reference)
4(4.1) - First Amendment to the Credit Agreement dated
December 5, 1997 (filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended January
31, 1999 (File No. 0-20578), as Exhibit 4(4.1) and
incorporated herein by this reference)
4(4.2) - Second Amendment to the Credit Agreement dated
February 23, 1998 (filed with the Registrant's Annual
Report on Form 10-K
56
57
for the fiscal year ended January 31, 1999 (File No.
0-20578), as Exhibit 4(4.2)and incorporated herein by
this reference)
4(4.3) - Third Amendment to the Credit Agreement dated October
16, 1998 (filed with the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1999
(File No. 0-20578), as Exhibit 4(4.3) and incorporated
herein by this reference)
4(4.4) - Fourth Amendment to the Credit Agreement dated as of
April 20, 1999 (filed with the Company's Form 10-Q for
the quarter ended April 30, 1999 (File No. 0-20578) as
Exhibit 4(1) and incorporated herein by reference)
4(4.5) - Fifth Amendment to the Credit Agreement dated as of
February 14, 2000
4(5) - Note Agreement dated as of March 15, 1996, between
the Company and Massachusetts Mutual Life Insurance
Company ("Purchaser") for the issuance and sale to
Purchaser of $25,000,000 aggregate principal amount
of 6.75% Senior Notes due March 15, 2006 (filed with
the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 10(14) and incorporated herein
by this reference)
4(6) - Amendment to Note Agreement, dated as of July 25,
1997, between the Company and Massachusetts Mutual
Life Insurance Company (filed with Amendment No. 3 to
the Company's Form S-2 Registration Statement (File
No. 333-29581) as Exhibit 10(14) and incorporated
herein by this reference)
4(7) - Rights Agreement, dated October 12, 1998, between
Layne Christensen Company and National City Bank,
which includes the Form of Certificate of
Designations of Series A Junior Participating
Preferred Stock of Layne Christensen Company as
Exhibit A, the Form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred
Shares as Exhibit C. (Filed with the Company's Form
8-K dated October 12, 1998 (File No. 0-20578) as
Exhibit 4(1) and incorporated herein by reference.
10(1) - Tax Liability Indemnification Agreement between the
Registrant and The Marley Company (filed with
Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(2) and
incorporated herein by reference)
10(2) - Lease Agreement between the Registrant and Parkway
Partners, L.L.C. dated December 21, 1994 (filed with
the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995 (File No. 0-20578)
as Exhibit 10(2) and incorporated herein by
reference)
10(2.1) - First Modification & Ratification of Lease, dated as
of February 26, 1996, between Parkway Partners,
L.L.C. and the Registrant (filed with the
Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996 (File No. 0-
57
58
20578), as Exhibit 10(2.1) and incorporated herein by
this reference)
10(2.2) - Second Modification and Ratification of Lease
Agreement between Parkway Partners, L.L.C. and Layne
Christensen Company dated April 28, 1997 (filed with
the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999 (File No.
0-20578), as Exhibit 10(2.2) and incorporated herein
by this reference)
10(2.3) - Third Modification and Extension Agreement between
Parkway Partners, L.L.C. and Layne Christensen
Company dated November 3, 1998 (filed with the
Company's 10-Q for the quarter ended October 31, 1998
(File No. 0-20578) as Exhibit 10(1) and incorporated
herein by reference)
**10(3) - Form of The Layne Capital Accumulation Plan and Trust
Agreement (filed with the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference)
**10(4) - Layne, Inc. 1992 Stock Option Plan (filed with
Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(6) and
incorporated herein by reference)
**10(5) - Form of Stock Option Agreement between the Company
and management of the Company (filed with Amendment
No. 3 to the Registrant's Registration Statement
(File No. 33-48432) as Exhibit 10(7) and incorporated
herein by reference)
**10(6) - Form of Non Qualified Stock Option Agreement
(Spin-Off Options) between the Company and Robert J.
Dineen (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-
48432)as Exhibit 10(9) and incorporated herein by
reference)
10(7) - Insurance Liability Indemnity Agreement between the
Company and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement
(File No. 33-48432) as Exhibit 10(10) and
incorporated herein by reference)
**10(8) - Form of the Layne, Inc. Executive Incentive
Compensation Plan (filed with the Registrant's Form
10-Q for the quarterly period ended July 31, 1994
(File No. 33-48432) as Exhibit 10(2) and incorporated
herein by reference)
10(9) - Agreement between The Marley Company and the Company
relating to tradename (filed with the Registrant's
Registration Statement (File No.33-48432) as Exhibit
10(10) and incorporated herein by reference)
**10(10) - Form of Subscription Agreement for management of the
Company (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No.
33-48432) as Exhibit 10(16) and incorporated herein
by reference)
58
59
**10(11) - Form of Subscription Agreement between the Company and Robert
J. Dineen (filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit 10(17)and
incorporated herein by reference)
10(12) - Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement") (filed with
Amendment No. 3 to the Company's Form S-2 Registration
Statement (File No. 333-29581) as Exhibit 10(12) and
incorporated herein by this reference)
10(12.1) - First Amendment to the Credit Agreement dated December
5, 1997 (filed with the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1999
(File No. 0-20578), as Exhibit 4(4.1) and incorporated
herein by this reference)
10(12.2) - Second Amendment to the Credit Agreement dated February
23, 1998 (filed with the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1999
(File No. 0-20578), as Exhibit 4(4.2)and incorporated
herein by this reference)
10(12.3) - Third Amendment to the Credit Agreement dated October
16, 1998 (filed with the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1999
(File No. 0-20578), as Exhibit 4(4.3) and incorporated
herein by this reference)
10(12.4) - Fourth Amendment to the Credit Agreement dated as of
April 20, 1999 (filed with the Company's Form 10-Q for
the quarter ended April 30, 1999 (File No. 0-20578) as
Exhibit 4(1) and incorporated herein by reference)
10(12.5) - Fifth Amendment to the Credit Agreement dated as of
February 14, 2000
**10(13) - Letter Agreement between Andrew B. Schmitt and the
Company dated October 12, 1993 (filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1995 (File No. 0-20578) as
Exhibit 10(13) and incorporated herein by reference)
10(14) - Note Agreement dated as of March 15, 1996, between the
Company and Massachusetts Mutual Life Insurance Company
("Purchaser") for the issuance and sale to Purchaser of
$25,000,000 aggregate principal amount of 6.75% Senior
Notes due March 15, 2006 (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14)
and incorporated herein by this reference)
10(15) - Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life
Insurance Company (filed with Amendment No. 3 to the
Company's Form S-2
59
60
Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference)
**10(16) - Form of Incentive Stock Option Agreement between the
Company and management of the Company (filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996 (File No. 0-20578), as
Exhibit 10(15) and incorporated herein by this
reference)
10(17) - Registration Rights Agreement, dated as of November 30,
1995, between the Company and Marley Holdings, L.P.
(filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 10(17) and incorporated herein by
this reference)
10(18) - Stockholders Agreement, dated as of December 28, 1995,
among the Company, Marley Holdings, L.P., Greylock
Investments Limited Partnership and certain other
stockholders of the Registrant identified therein (filed
with the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996 (File No. 0-20578),
as Exhibit 10(18) and incorporated herein by this
reference)
**10(19) - Form of Stock Option Agreement between the Company and
Management of the Company effective February 1, 1998
(filed with the Company's Form 10-Q for the quarter
ended April 30, 1998 (File No. 0-20578) as Exhibit 10(1)
and incorporated herein by reference)
**10(20) - Form of Incentive Stock Option Agreement between the
Company and Management of the Company effective April
20, 1999 (filed with the Company's Form 10-Q for the
quarter ended April 30, 1999 (File No. 0-20578) as
Exhibit 10(2) and incorporated herein by reference)
**10(21) - Form of Non-Qualified Stock Option Agreement between the
Company and Management of the Company effective as of
April 20, 1999 (filed with the Company's Form 10-Q for
the quarter ended April 30, 1999 (File No. 0-20578) as
Exhibit 10(3) and incorporated herein by reference)
11(1) - Statement regarding Computation of per share earnings
22(1) - List of Subsidiaries
23(1) - Consent of Deloitte & Touche LLP
27(1) - Financial Data Schedule
- ---------------------------
** Management contracts or compensatory plans or arrangements required to be
identified by Item 14(a)(3).
(b) Reports on Form 8-K:
60
61
No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year ended January 31, 2000.
(c) Exhibits
The exhibits filed with this report on Form 10-K are identified above
under Item 14(a)(3).
(d) Financial Statement Schedules
The financial statement schedules filed with this report on Form 10-K
are identified above under Item 14(a)(2).
61
62
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LAYNE CHRISTENSEN COMPANY
By /S/ Andrew B. Schmitt
----------------------------
Andrew B. Schmitt
President and
Dated: April 27, 2000 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature and Title Date
/S/Andrew B. Schmitt April 27, 2000
- -----------------------------------------------------------------------
Andrew B. Schmitt
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/S/Jerry W. Fanska April 27, 2000
- -----------------------------------------------------------------------
Jerry W. Fanska
Vice President--Finance and Treasurer
(Principal Financial and Accounting Officer)
/S/Robert J. Dineen April 20, 2000
- -----------------------------------------------------------------------
Robert J. Dineen
Director
/S/ Edward A. Gilhuly April 20, 2000
- -----------------------------------------------------------------------
Edward A. Gilhuly
Director
/S/ Todd A. Fisher April 20, 2000
- -----------------------------------------------------------------------
Todd A. Fisher
Director
/S/ Donald K. Miller April 20, 2000
- -----------------------------------------------------------------------
Donald K. Miller
Director
/S/ Sheldon R. Erikson April 20, 2000
- -----------------------------------------------------------------------
Sheldon R. Erikson
Director
62
63
Exhibit Index
Exhibit No. Description Page
4(1) Restated Certificate of Incorporation of the Registrant
(filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 3(1) and incorporated herein by this
reference) *
4(2) Bylaws of the Registrant (filed with Amendment No. 2 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 3(2) and incorporated herein by reference) *
4(3) Specimen Common Stock Certificate (filed with Amendment No.
3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 4(1) and incorporated herein by
reference) *
4(4) Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement")(filed with
Amendment No. 3 to the Company's Form S-2 Registration
Statement (File No. 333-29581) as Exhibit 10(12) and
incorporated herein by this reference) *
4(4.1) First Amendment to the Credit Agreement dated December 5, 1997
(filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.1)
and incorporated herein by this reference) *
4(4.2) Second Amendment to the Credit Agreement dated February 23,
1998 (filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1999 (File No. 0-20578),
as Exhibit 4(4.2)
and incorporated herein by this reference) *
4(4.3) Third Amendment to the Credit Agreement dated October 16, 1998
(filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.3)
and incorporated herein by this reference) *
4(4.4) Fourth Amendment to the Credit Agreement dated
as of April 20, 1999 (filed with the Company's
Form 10-Q for the quarter ended April 30, 1999
(File No. 0-20578) as Exhibit 4(1) and
incorporated herein by reference) *
4(4.5) Fifth Amendment to the Credit Agreement dated
as of February 14, 2000 68
63
64
4(5) Note Agreement dated as of March 15, 1996, between the Company
and Massachusetts Mutual Life Insurance Company ("Purchaser")
for the issuance and sale to Purchaser of $25,000,000
aggregate principal amount of 6.75% Senior Notes due March 15,
2006 (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as
Exhibit 10(14) and incorpo-
rated herein by this reference) *
4(6) Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life Insurance
Company filed with Amendment No. 3 to the Company's Form
S-2 Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference) *
10(1) Tax Liability Indemnification Agreement between the
Registrant and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 10(2) and incorporated herein by
reference) *
10(2) Lease Agreement between the Registrant and Parkway Partners,
L.L.C. dated December 21, 1994 (filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1995 (File No. 0-20578) as Exhibit 10(2) and
incorporated herein by reference) *
10(2.1) First Modification & Ratification of Lease, dated as of
February 26, 1996, between Parkway Partners, L.L.C. and
the Registrant (filed with the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(2.1) and incorporated
herein by this reference) *
10(2.2) Second Modification and Ratification of Lease Agreement
between Parkway Partners, L.L.C. and Layne Christensen
Company dated April 28, 1997 (filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1999 (File No. 0-20578), as Exhibit 10(2.2)
and incorporated herein by this reference) *
10(2.3) Third Modification and Extension Agreement between Parkway
Partners, L.L.C. and Layne Christensen Company dated
November 3, 1998 (filed with the Company's 10-Q for the
quarter ended October 31, 1998 (File No. 0-20578) as
Exhibit 10(1) and incorporated herein by reference) *
10(3) Form of The Layne Capital Accumulation Plan and Trust
Agreement (filed with the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference) *
63
65
10(4) Layne, Inc. 1992 Stock Option Plan (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(6) and incorporated herein
by reference) *
10(5) Form of Stock Option Agreement between the Company and
management of the Company (filed with Amendment No. 3 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(7) and incorporated herein by reference) *
10(6) Form of Non Qualified Stock Option Agreement (Spin-Off
Options) between the Company and Robert J. Dineen (filed
with Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432)as Exhibit 10(9) and
incorporated herein by reference) *
10(7) Insurance Liability Indemnity Agreement between the
Company and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(10) and incorporated herein
by reference) *
10(8) Form of the Layne, Inc. Executive Incentive Compensation Plan
(filed with the Registrant's Form 10-Q for the quarterly
period ended July 31, 1994 (File No. 33-48432)
as Exhibit 10(2) and incorporated herein by reference) *
10(9) Agreement between The Marley Company and the Company relating
to tradename (filed with the Registrant's Registration
Statement (File No.33-48432) as Exhibit
10(10) and incorporated herein by reference) *
10(10) Form of Subscription Agreement for management of the
Company(filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit
10(16) and incorporated herein by reference) *
10(11) Form of Subscription Agreement between the Company and
Robert J. Dineen (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(17)and incorporated herein by reference) *
10(12) Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement") (filed with
Amendment No. 3 to the Company's Form S-2 Registration
Statement (File No. 333-29581) as Exhibit 10(12) and
incorporated
herein by this reference) *
10(12.1) First Amendment to the Credit Agreement dated
December 5, 1997 (filed with the Registrant's Annual
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66
Report on Form 10-K for the fiscal year ended
January 31, 1999 (File No. 0-20578), as Exhibit 4(4.1)
and incorporated herein by this reference) *
10(12.2) Second Amendment to the Credit Agreement dated February 23,
1998 (filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1999 (File No. 0-20578),
as Exhibit 4(4.2)
and incorporated herein by this reference) *
10(12.3) Third Amendment to the Credit Agreement dated October 16, 1998
(filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.3)
and incorporated herein by this reference) *
10(12.4) Fourth Amendment to the Credit Agreement dated
as of April 20, 1999 (filed with the Company's
Form 10-Q for the quarter ended April 30, 1999
(File No. 0-20578) as Exhibit 4(1) and
incorporated herein by reference) *
10(12.5) Fifth Amendment to the Credit Agreement dated
as of February 14, 2000 79
10(13) Letter Agreement between Andrew B. Schmitt and the Company
dated October 12, 1993 (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January
31, 1995 (File No. 0-20578) as Exhibit 10(13) and
incorporated herein by reference) *
10(14) Note Agreement dated as of March 15, 1996, between the Company
and Massachusetts Mutual Life Insurance Company ("Purchaser")
for the issuance and sale to Purchaser of $25,000,000
aggregate principal amount of 6.75% Senior Notes due March 15,
2006 (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as
Exhibit 10(14) and
incorporated herein by this reference) *
10(15) Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life Insurance
Company (filed with Amendment No. 3 to the Company's Form
S-2 Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference) *
10(16) Form of Incentive Stock Option Agreement between the Company
and management of the Company (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(15) and
incorporated herein by this reference) *
10(17) Registration Rights Agreement, dated as of November 30, 1995,
between the Company and Marley Holdings, L.P. (filed with
the Company's Annual Report on Form 10-K for the fiscal year
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67
ended January 31, 1996 (File No. 0-20578), as Exhibit 10(17)
and incorporated herein by this reference) *
10(18) Stockholders Agreement, dated as of December 28, 1995, among
the Company, Marley Holdings, L.P., Greylock Investments
Limited Partnership and certain other stockholders of the
Registrant identified therein (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(18) and
incorporated herein by this reference) *
10(19) Form of Stock Option Agreement between the Company and
Management of the Company effective February 1, 1998 (filed
with the Company's Form 10-Q for the quarter ended April 30,
1998 (File No. 0-20578) as Exhibit 10(1) and
incorporated herein by reference) *
10(20) Form of Incentive Stock Option Agreement between the Company
and Management of the Company effective April 20, 1999 (filed
with the Company's Form 10-Q for the quarter ended April 30,
1999 (File No. 0-20578) as
Exhibit 10(2) and incorporated herein by reference) *
10(21) Form of Non-Qualified Stock Option Agreement between the
Company and Management of the Company effective as of April
20, 1999 (filed with the Company's Form 10-Q for the quarter
ended April 30, 1999 (File No. 0-20578)
as Exhibit 10(3) and incorporated herein by reference) *
11(1) Statement regarding Computation of per share earnings 90
22(1) List of Subsidiaries 91
23(1) Consent of Deloitte & Touche LLP 92
27(1) Financial Data Schedule 93
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* Incorporated herein by reference.
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