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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------- -------
----------
Commission File Number 33-48432
Layne Christensen Company
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0920712
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
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
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
There were 11,852,650 shares of common stock, $.01 par value per share,
outstanding on December 2, 2002.
PART I
ITEM 1. Financial Statements
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
October 31, January 31,
2002 2002
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,871 $ 2,983
Customer receivables, less allowance
of $3,491 and $3,596, respectively 44,851 43,603
Costs and estimated earnings in excess of
billings on uncompleted contracts 13,291 11,912
Inventories 18,663 21,885
Deferred income taxes 12,655 10,181
Income taxes receivable 1,102 3,074
Other 3,533 2,738
--------- ---------
Total current assets 96,966 96,376
--------- ---------
Property and equipment:
Land 8,218 8,163
Buildings 16,657 16,112
Machinery and equipment 165,054 162,967
Uncompleted wells, equipment, and facilities 1,778 -
--------- ---------
191,707 187,242
Less - Accumulated depreciation (133,277) (128,460)
--------- ---------
Net property and equipment 58,430 58,782
--------- ---------
Other assets:
Investment in affiliates 19,496 19,504
Goodwill 1,659 21,884
Deferred income taxes 8,853 4,270
Other 3,353 1,526
--------- ---------
Total other assets 33,361 47,184
--------- ---------
$ 188,757 $ 202,342
========= =========
See Notes to Consolidated Financial Statements.
2
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)
October 31, January 31,
2002 2002
----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,998 $ 16,762
Current maturities of long-term debt 3,719 20,071
Accrued compensation 11,344 14,785
Accrued insurance expense 8,175 5,794
Other accrued expenses 7,864 10,983
Income taxes payable 6,553 4,049
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,936 8,419
--------- ---------
Total current liabilities 64,589 80,863
--------- ---------
Noncurrent and deferred liabilities:
Long-term debt 30,406 14,286
Accrued insurance expense 6,673 6,358
Other 3,460 4,287
Minority interest 886 656
--------- ---------
Total noncurrent and deferred liabilities 41,425 25,587
--------- ---------
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, 11,846,652 and 11,707,694
shares issued and outstanding 118 117
Capital in excess of par value 84,116 83,605
Retained earnings 10,328 24,302
Accumulated other comprehensive loss (11,774) (12,027)
Notes receivable from management stockholders (45) (105)
--------- ---------
Total stockholders' equity 82,743 95,892
--------- ---------
$ 188,757 $ 202,342
========= =========
See Notes to Consolidated Financial Statements.
3
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
Three Months Nine Months
Ended October 31, Ended October 31,
(unaudited) (unaudited)
------------------------------- -------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues $ 69,657 $ 76,217 $ 214,298 $ 236,163
Cost of revenues (exclusive
of depreciation shown below) 49,844 54,680 153,777 172,087
------------ ------------ ------------ ------------
Gross profit 19,813 21,537 60,521 64,076
Selling, general and
administrative expenses 15,306 15,314 44,743 44,498
Depreciation and amortization 3,638 4,225 11,225 13,836
------------ ------------ ------------ ------------
Operating income 869 1,998 4,553 5,742
Other income (expense):
Equity in earnings of affiliates 209 590 683 1,104
Interest (631) (853) (1,900) (3,271)
Other, net 794 294 1,141 1,170
------------ ------------ ------------ ------------
Income before income taxes 1,241 2,029 4,477 4,745
Income tax expense 1,031 1,319 3,134 3,084
Minority interest, net of
income taxes (10) (12) (192) (162)
------------ ------------ ------------ ------------
Income before extraordinary
item and cumulative effect
of accounting change 200 698 1,151 1,499
Extraordinary loss on early
extinguishment of debt,
net of income taxes of $439 - - (696) -
Cumulative effect of accounting
change, net of income taxes
of $5,796 - - (14,429) -
------------ ------------ ------------ ------------
Net income (loss) $ 200 $ 698 $ (13,974) $ 1,499
============ ============ ============ ============
Basic income (loss) per share:
Income before extraordinary item
and cumulative effect of
accounting change $ .02 $ .06 $ .10 $ .13
Extraordinary loss - - (.06) -
Cumulative effect of accounting
change - - (1.22) -
------------ ------------ ------------ ------------
Net income (loss) per share $ .02 $ .06 $ (1.18) $ .13
============ ============ ============ ============
Diluted income (loss) per share:
Income before extraordinary item
and cumulative effect of
accounting change $ .02 $ .06 $ .09 $ .12
Extraordinary loss - - (.06) -
Cumulative effect of accounting
change - - (1.19) -
------------ ------------ ------------ ------------
Net income (loss) per share $ .02 $ .06 $ (1.16) $ .12
============ ============ ============ ============
Weighted average shares outstanding 11,864,000 11,758,000 11,796,000 11,758,000
Dilutive stock options 299,000 337,000 334,000 261,000
------------ ------------ ------------ ------------
12,163,000 12,095,000 12,130,000 12,019,000
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
4
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Nine Months
Ended October 31,
-----------------------
2002 2001
-------- --------
(unaudited)
Cash flow from operating activities:
Net income (loss) $(13,974) $ 1,499
Adjustments to reconcile net income (loss) to cash
from operations:
Depreciation and amortization 11,225 13,836
Deferred income taxes (1,580) 732
Equity in earnings of affiliates (683) (1,104)
Dividends received from affiliates 1,750 683
Minority interest 192 248
Gain from disposal of property and equipment (926) (678)
Gain on sale of business - (3,991)
Loss on sale of investment - 3,329
Loss on extinguishment of debt, net of tax 696 -
Cumulative effect of accounting change, net of tax 14,429 -
Changes in current assets and liabilities:
(Increase) decrease in customer receivables (916) 2,130
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts (1,349) (1,183)
Decrease in inventories 1,936 2,001
(Increase) decrease in other current assets 822 (501)
Increase (decrease) in accounts payable and
accrued expenses (648) 891
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 1,532 438
Other, net (552) (2,212)
-------- --------
Cash from operating activities 11,954 16,118
-------- --------
Cash flow from investing activities:
Additions to property and equipment (9,202) (7,271)
Additions to uncompleted wells, equipment,
and facilities (1,778) -
Proceeds from disposal of property and equipment 1,362 3,045
Proceeds from sale of business 1,800 8,165
Investment in affiliates (1,059) -
-------- --------
Cash from (used in) investing activities (8,877) 3,939
-------- --------
Cash flow from financing activities:
Net borrowings (repayments) under revolving facility 43,500 (17,500)
Repayment of long-term debt (43,732) (3,571)
Prepayment penalty on early extinguishment of debt (1,135) -
Debt issuance costs (1,709) -
Payments on notes receivable from management
stockholders 60 11
Issuance of common stock 512 -
-------- --------
Cash used in financing activities (2,504) (21,060)
-------- --------
Effects of exchange rate changes on cash (685) 470
-------- --------
Net decrease in cash and cash equivalents (112) (533)
Cash and cash equivalents at beginning of period 2,983 3,421
-------- --------
Cash and cash equivalents at end of period $ 2,871 $ 2,888
======== ========
See Notes to Consolidated Financial Statements.
5
LAYNE CHRISTENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts of Layne Christensen
Company and its subsidiaries (together the "Company"). All significant
intercompany transactions have been eliminated. Investments in affiliates (10%
to 50% owned) in which the Company exercises influence over operating and
financial policies are accounted for on the equity method. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements of the Company for the year ended January 31,
2002 as filed in its Annual Report on Form 10-K.
The accompanying unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of financial position,
results of operations and cash flows. Results of operations for interim periods
are not necessarily indicative of results to be expected for a full year.
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.
Through its Energy Services and Production division, the Company engages in the
operation, development, production and acquisition of natural gas properties,
principally focusing on coalbed methane projects. The Company follows the
full-cost method of accounting for these properties. Under this method, all
productive and nonproductive costs incurred in connection with the exploration
for and development of oil and gas reserves are capitalized. Such capitalized
costs include lease acquisition, geological and geophysical work, delay rentals,
drilling, completing and equipping oil and gas wells, including salaries,
benefits and other internal costs directly attributable to these activities.
Costs associated with production and general corporate activities are expensed
in the period incurred. As of October 31, 2002, the Company has capitalized
$1,778,000 related to uncompleted wells, equipment and facilities. These are
unevaluated properties and therefore are not being amortized and reserves have
not yet been established.
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. The effective tax rate in excess of the statutory federal rate for
the three and nine months ended October 31, 2002 was a result of the impact of
6
non-deductible expenses and the tax treatment of certain foreign operations.
Earnings per 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.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective February 1, 2002. The
adoption of SFAS No. 142 resulted in the Company ceasing to amortize goodwill,
the expense of which totaled $281,000 and $844,000 for the three months and nine
months ended October 31, 2001, respectively. See Note 5. The adoption of SFAS
No. 144 did not have a significant impact on the financial position, results of
operations, or cash flows of the Company.
The amounts (refunded) paid for income taxes and interest are as follows (in
thousands):
Nine Months Ended
October 31,
---------------------
2002 2001
------- -------
Income taxes $ (571) $ 3,052
Interest 2,049 3,812
Reclassifications - Certain 2001 amounts have been reclassified to conform with
the 2002 presentation.
2. Inventories
The Company values inventories at the lower of cost (first-in, first-out) or
market (in thousands):
As of
--------------------------
October 31, January 31,
2002 2002
------- -------
Raw materials $ 19 $ 275
Work in process 59 541
Finished products, parts and supplies 18,585 21,069
------- -------
Total $18,663 $21,885
======= =======
3. Indebtedness
On July 9, 2002, the Company established a new credit facility ("Credit
Agreement") with General Electric Capital Corporation as agent for a group of
banks. The Credit Agreement was used to refinance borrowings outstanding under
the Company's previous revolving credit facility ("Previous Credit Agreement")
and to pay the outstanding balance under the Company's unsecured note agreement
("Senior Notes"). The Credit Agreement provides a $35,000,000 revolving credit
facility that is available for working capital, capital expenditures, and for
7
other general corporate purposes. The maximum available under the revolving
credit facility is $35,000,000, less any outstanding letter of credit
commitments (which are subject to a $15,000,000 sublimit). Availability under
the revolving credit facility is dependent on a borrowing base consisting
primarily of domestic customer receivables and inventories. The Credit Agreement
also includes a $35,000,000 term loan ("Term Loan") that is payable in
increasing quarterly installments beginning October 1, 2002 and ending July 8,
2007.
The Credit Agreement is secured by a majority of the assets of the Company and
certain of its subsidiaries, including but not limited to, accounts receivable,
inventory and equipment. The Credit Agreement contains certain covenants
including restrictions on the incurrence of additional indebtedness and liens,
transactions with affiliates, sale of assets or other dispositions, lease
transactions and certain financial maintenance covenants, including among
others, minimum EBITDA, minimum interest coverage and maximum leverage. The
Credit Agreement provides for interest at variable rates equal to, at the
Company's option, a Libor rate plus 2.75% to 3.25% (depending upon leverage
ratios), or an alternate reference rate as defined in the Credit Agreement.
The Company's floating rate debt exposes it to changes in interest rates going
forward. During September 2002, the Company entered into an interest rate swap
agreement (the "Swap Agreement"), which has been designated and is accounted for
as a cash flow hedge to effectively convert a portion of the Term Loan to a
fixed rate basis, thus reducing the impact of interest rate changes. The Company
will pay the counterparties interest at 2.53% and receive interest based on a
variable Libor rate (1.80% as of October 31, 2002). The notional principal is
reduced each quarter based on 50% of the scheduled principal payments on the
Company's Term Loan. The notional principal was $17,063,000 as of October 31,
2002. The Swap Agreement calls for quarterly interest payments which commenced
on October 1, 2002, and will terminate September 9, 2004.
The Company recorded an extraordinary loss of $696,000, net of taxes, or $.06
per share, as a result of the early redemption of the balance outstanding under
the Senior Notes. The loss consisted of a prepayment penalty and prepaid fees
associated with the Senior Notes, net of tax benefits of $439,000.
October 31, January 31,
2002 2002
------- -------
Current maturities of long-term debt:
Term Loan $ 3,719 $ -
Senior Notes - 3,571
Previous Credit Agreement - 16,500
------- -------
Total current maturities of long-term debt 3,719 20,071
------- -------
Long-term debt:
Term Loan 30,406 -
Senior Notes - 14,286
------- -------
Total long-term debt 30,406 14,286
------- -------
Total debt $34,125 $34,357
======= =======
8
4. Investment in Affiliates
In September, 2002, the Company invested in a joint venture with a
privately-held limited partnership to develop a water storage bank on property
located in California. The Company invested $1,059,000 to acquire 10% ownership
in the joint venture as of October 31, 2002. The investment will be accounted
for using the equity method as the Company exercises significant influence over
the operating and financial policies of the venture.
5. Goodwill
Effective February 1, 2002, the Company adopted SFAS No. 142. SFAS No. 142
requires that upon adoption and at least annually thereafter, goodwill be tested
for impairment by applying a fair value based test. Periodic amortization of
goodwill is no longer permitted under SFAS No. 142. Thus, the Company's
Consolidated Statements of Income for fiscal year 2003 include no periodic
amortization of goodwill.
SFAS 142 requires companies to make an initial assessment of goodwill for
impairment for each of its reporting units within six months after adoption. The
Company completed this initial assessment of goodwill during the second quarter
of fiscal year 2003 and determined a transitional impairment charge was
required. At February 1, 2002, the Company had $21,884,000 of goodwill recorded
in its consolidated balance sheet, consisting primarily of goodwill associated
with its mineral exploration segment. In assessing goodwill, the Company
assigned assets and liabilities to its reporting units and developed a
discounted cash flow analysis to determine the fair value of the reporting
units. Based on this model, the Company determined that the mineral exploration
goodwill was impaired. As a result, the Company recorded a non-cash charge of
$20,225,000, net of taxes of $5,796,000, as a cumulative effect of a change in
accounting principle at February 1, 2002 in accordance with SFAS No. 142. After
giving effect to the change, results of operations for the first quarter of
fiscal year 2003 were a net loss of $14,178,000, or $1.17 per share, versus net
income of $251,000, or $.02 per share, as originally reported.
The carrying amount of goodwill attributed to each operating segment with
goodwill balances follows (in thousands):
Impairment
February 1, 2002 Adjustment October 31, 2002
---------------- ---------- ----------------
Geoconstruction Services $ 1,499 $ - $ 1,499
Energy Services and Production 160 - 160
Mineral Exploration 20,225 (20,225) -
-------- -------- --------
$ 21,884 $(20,225) $ 1,659
======== ======== ========
Actual results of operations before the cumulative effect of accounting change
for the three and nine months ended October 31, 2002, and proforma results of
operations for the three and nine months ended October 31, 2001 and the three
fiscal years ended January 31, 2002, had the Company applied the nonamortization
provisions of SFAS No. 142 in those periods follow (in thousands, except per
share amounts):
9
Three Months Ended Nine Months Ended
October 31, October 31,
2002 2001 2002 2001
--------- --------- --------- ---------
Reported income before extraordinary
item and cumulative effect of
accounting change $ 200 $ 698 $ 1,151 $ 1,499
Add back: Goodwill amortization,
net of related tax effects - 216 - 649
--------- --------- --------- ---------
Adjusted income before extraordinary
item and cumulative effect of
accounting change $ 200 $ 914 $ 1,151 $ 2,148
========= ========= ========= =========
Basic earnings per share:
Reported income before extraordinary
item and cumulative effect of
accounting change $ .02 $ .06 $ .09 $ .13
Add back: Goodwill amortization,
net of related tax effects - .02 - .05
--------- --------- --------- ---------
Adjusted income before extraordinary
item and cumulative effect of
accounting change $ .02 $ .08 $ .09 $ .18
========= ========= ========= =========
Diluted earnings per share:
Reported income before extraordinary
item and cumulative effect of
accounting change $ .02 $ .06 $ .09 $ .12
Add back: Goodwill amortization,
net of related tax effects - .02 - .05
--------- --------- --------- ---------
Adjusted income before extraordinary
item and cumulative effect of
accounting change $ .02 $ .08 $ .09 $ .17
========= ========= ========= =========
Years ended January 31,
2002 2001 2000
--------- --------- ---------
Reported net income (loss) $ 1,078 $ (5,926) $ (7,665)
Add back: Goodwill amortization,
net of related tax effects 862 934 968
--------- --------- ---------
Adjusted net income (loss) $ 1,940 $ (4,992) $ (6,697)
========= ========= =========
Basic earnings per share:
Reported net income (loss) $ .09 $ (.50) $ (.66)
Add back: Goodwill amortization,
net of related tax effects .08 .07 .09
--------- --------- ---------
Adjusted net income (loss) $ .17 $ (.43) $ (.57)
========= ========= =========
10
Years ended January 31,
2002 2001 2000
-------- -------- --------
Diluted earnings per share:
Reported net income (loss) $ .09 $ (.50) $ (.66)
Add back: Goodwill amortization,
net of related tax effects .07 .07 .09
-------- -------- --------
Adjusted net income (loss) $ .16 $ (.43) $ (.57)
======== ======== ========
6. Other Comprehensive Income (Loss)
Components of other comprehensive income (loss) are summarized as follows (in
thousands):
Three Months Nine Months
Ended October 31, Ended October 31,
----------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income (loss) $ 200 $ 698 $(13,974) $ 1,499
Other comprehensive income (loss),
net of taxes:
Foreign currency translation
adjustments 83 181 403 (662)
Unrealized gain (loss) on
available for sale investments (4) 2,143 (40) 1,859
Unrealized loss on interest rate
Swap Agreement (110) - (110) -
Change in unrecognized pension
liability - - - 1
-------- -------- -------- --------
Other comprehensive income (loss) $ 169 $ 3,022 $(13,721) $ 2,697
======== ======== ======== ========
The components of accumulated other comprehensive loss for the nine months ended
October 31, 2002 are as follows (in thousands):
Interest Accumulated
Cumulative Unrealized Rate Unrecognized Other
Translation Loss On Swap Pension Comprehensive
Adjustment Investments Agreement Liability Loss
-------- -------- -------- -------- --------
Balance, February 1, 2002 $(10,992) $ (45) $ - $ (990) $(12,027)
Period changes 403 (40) (110) - 253
-------- -------- -------- -------- --------
Balance, October 31, 2002 $(10,589) $ (85) $ (110) $ (990) $(11,774)
======== ======== ======== ======== ========
7. Operating Segments
The Company is a multinational company which provides sophisticated services and
related products to a variety of markets. The Company is organized into discrete
divisions based on its primary product lines. The Company's reportable segments
are defined as follows:
11
Water Resources Division
This division provides a full line of water-related services and products
including hydrological studies, site selection, well design, drilling and well
development, pump installation, and repair and maintenance. The division's
offerings include large diameter Ranney(R) collector wells, design and
construction of water treatment facilities, and the manufacture and sale of
products to treat volatile inorganics in groundwater. The division also offers
environmental services to assess and monitor groundwater contaminants.
Mineral Exploration Division
This division provides a complete range of drilling services for the mineral
exploration industry. Its aboveground and underground drilling activities
include all phases of core drilling, diamond, reverse circulation, dual tube,
hammer and rotary air-blast methods.
Geoconstruction Services Division
This division focuses on services that improve soil stability, primarily jet
grouting, grouting, vibratory ground improvement and ground-freezing services.
The division also manufactures a line of high-pressure pumping equipment used in
grouting operations and geotechnical drilling rigs used for directional
drilling.
Energy Services and Production Division
This division offers a variety of specialized services including shallow gas and
tar sands exploration drilling, conventional oilfield fishing services, coil
tubing fishing services, resonance technology solutions for stuck tubulars and
land-based oil and gas search and development.
Products and Other
This grouping includes the Company's supply operation which distributes drilling
equipment, parts and supplies and other miscellaneous operations which do not
fall into the above divisions. Historically, it has also included a
manufacturing operation producing diamond drilling rigs, diamond bits, core
barrels and drill rods ("Christensen Products"). On August 8, 2001, the Company
sold its Christensen Products business to a subsidiary of Atlas Copco.
Revenues and operating income pertaining to the Company's operating segments are
presented below. Intersegment sales are accounted for based on the estimated
fair market value of the products sold or services provided. The Corporate
operating loss consists of unallocated corporate expenses, primarily general and
administrative functions and incentive compensation. 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. Operating segment revenues, operating income and assets are
summarized as follows (in thousands):
12
Three Months Nine Months
Ended October 31, Ended October 31,
------------------------- -------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues
Water resources $ 43,525 $ 45,582 $ 130,767 $ 132,026
Mineral exploration 13,888 13,480 41,821 45,911
Geoconstruction services 6,750 6,275 22,673 20,464
Energy services and
production 3,508 5,715 12,242 20,943
Products and other 2,852 7,176 9,524 24,552
Intersegment products
and other revenues (866) (2,011) (2,729) (7,733)
--------- --------- --------- ---------
Total revenues $ 69,657 $ 76,217 $ 214,298 $ 236,163
========= ========= ========= =========
Three Months Nine Months
Ended October 31, Ended October 31,
------------------------- -------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Operating income (loss)
Water resources $ 6,509 $ 6,554 $ 19,376 $ 18,025
Mineral exploration (1,569) (896) (2,294) (2,522)
Geoconstruction services 359 636 2,340 1,609
Energy services and
production (676) 214 (2,678) 1,389
Products and other (261) (198) (1,035) (345)
Corporate (3,493) (4,312) (11,156) (12,414)
--------- --------- --------- ---------
Total operating income $ 869 $ 1,998 $ 4,553 $ 5,742
========= ========= ========= =========
October 31, January 31,
2002 2002
--------- ---------
Assets
Water resources $ 59,569 $ 60,802
Mineral exploration 45,630 68,235
Geoconstruction services 21,208 18,274
Energy services and
production 15,295 11,352
Products and other 9,740 14,165
Corporate 37,315 29,514
--------- ---------
Total assets $ 188,757 $ 202,342
========= =========
Three Months Nine Months
Ended October 31, Ended October 31,
------------------------- -------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Geographic Information:
Revenues
North America $ 59,049 $ 64,666 $ 181,458 $ 200,677
Africa/Australia 9,069 10,184 28,453 32,607
Other foreign 1,539 1,367 4,387 2,879
--------- --------- --------- ---------
Total revenues $ 69,657 $ 76,217 $ 214,298 $ 236,163
========= ========= ========= =========
13
On August 8, 2001, the Company signed a definitive agreement to sell its
Christensen Products business to a subsidiary of Atlas Copco. The Company
received $8,165,000 in the third quarter of last year and recorded a gain on the
sale of $3,991,000. As part of the definitive agreement, the Company agreed to
repurchase certain inventory items that remained unsold by Atlas Copco as of
August 8, 2002, and recorded a repurchase obligation of approximately $1,600,000
in connection with the sale. The obligation was settled on August 9, 2002 with a
payment of $1,013,000. Approximately $1,800,000 in additional cash was received
on February 1, 2002 upon the sale of certain assets and inventory at book value.
Products and other segment revenues for the nine months ended October 31, 2002,
and 2001, respectively, include $920,000 and $11,275,000 of revenue from
Christensen Products. Intersegment revenues for the nine months ended October
31, 2002 and 2001, respectively, include $224,000 and $5,106,000 from
Christensen Products. Products and other segment operating loss for the nine
months ended October 31, 2002 and 2001, respectively, includes ($661,000) and
($560,000) from Christensen Products. Amounts related to Christensen Products
for the nine months ended October 31, 2002 were primarily the result of residual
manufacturing orders completed during the period and increased costs associated
with a longer than expected closing of the Christensen Products plant.
Operating income for the nine months ended October 31, 2002 and 2001,
respectively, includes $813,000 and $53,000 of expenses related to the Company's
oil and gas exploration activities in the Gulf of Mexico region of the United
States.
8. 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 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 for 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 with respect to its foreign operations.
14
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 upon its business or consolidated financial position,
results of operations or cash flows.
9. New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 provides new guidance on accounting for early
extinguishments of debt as extraordinary items. SFAS No. 145 is effective for
the Company's fiscal year beginning February 1, 2003. Management is currently
assessing the impact SFAS 145 will have on the Company's results of operations.
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Cautionary Language Regarding Forward-Looking Statements
This Form 10-Q 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.
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 depressed prices of various metals and general
uncertainty in the global economy have 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.
15
Results of Operations
The following table presents, for the periods indicated, the percentage
relationship which certain items reflected in the Company's consolidated
statements of income bear to revenues and the percentage increase or decrease in
the dollar amount of such items period to period.
Three Months Nine Months
Ended Ended Period-to-Period
October 31, October 31, Change
------------------- ----------------------- -------------------------
2002 2001 2002 2001 Three Nine
---- ---- ---- ---- Months Months
------ ------
Revenues:
Water resources 62.5% 59.8% 61.0% 55.9% (4.5)% (1.0)%
Mineral exploration 19.9 17.7 19.5 19.4 3.0 (8.9)
Geoconstruction services 9.7 8.2 10.5 8.7 7.6 10.8
Energy services and production 5.0 7.5 5.8 8.9 (38.6) (41.5)
Products and other 2.9 6.8 3.2 7.1 (61.5) (59.6)
----- ----- ----- -----
Total net revenues 100.0% 100.0% 100.0% 100.0% (8.6) (9.3)
Cost of revenues 71.6 71.7 71.8 72.9 (8.8) (10.6)
Gross profit 28.4 28.3 28.2 27.1 (8.0) (5.5)
Selling, general and
administrative expenses 22.0 20.1 20.9 18.8 (0.1) 0.6
Depreciation and amortization 5.2 5.6 5.1 5.9 (13.9) (18.9)
----- ----- ----- -----
Operating income (loss) 1.2 2.6 2.2 2.4 (56.5) (20.7)
Other income (expense):
Equity in earnings of
foreign affiliates 0.3 0.8 0.3 0.5 (64.6) (38.1)
Interest (0.9) (1.1) (0.9) (1.4) (26.0) (41.9)
Other, net 1.1 0.4 0.5 0.5 * (2.5)
----- ----- ----- -----
Income (loss) before income
taxes and minority interest 1.7 2.7 2.1 2.0 (38.8) (5.6)
Income tax expense 1.5 1.7 1.4 1.3 * *
Minority interest, net of
income taxes - - (0.2) **
----- ----- ----- -----
Income before extraordinary item 0.2 1.0 0.5 0.6 (71.3) (23.2)
Extraordinary loss on early
extinguishment of debt
(net of tax) - - (0.3) - * *
Cumulative effect of accounting
change (net of tax) - - (6.7) - * *
----- ----- ----- -----
Net income (loss) 0.2% 1.0% (6.5)% 0.6% * *
===== ===== ===== ===== ==== ====
- ------------------
* Not meaningful.
RESULTS OF OPERATIONS
Revenues for the three months ended October 31, 2002 decreased $6,560,000, or
8.6%, to $69,657,000 while revenues for the nine months ended October 31, 2002
decreased $21,865,000, or 9.3%, to $214,298,000 from the same periods last year.
See further discussion of results of operations by division below.
Gross profit as a percentage of revenues was 28.4% and 28.2% for the three and
nine months ended October 31, 2002 compared to 28.3% and 27.1% for the three and
16
nine months ended October 31, 2001. The increase in gross profit percentage for
the nine months ended October 31, 2002 was primarily attributable to improved
pricing and margins at the Company's domestic water locations.
Selling, general and administrative expenses were $15,306,000 for the three
months ended October 31, 2002 and $44,743,000 for the nine months ended October
31, 2002 (22.0% and 20.9% of revenues, respectively) compared to $15,314,000 and
$44,498,000 for the three and nine months ended October 31, 2001 (20.1% and
18.8% of revenues, respectively). The increases as a percentage of revenue for
the three and nine months ended October 31, 2002 were primarily a result of
start-up expenses related to Layne Water Development and Storage, the Company's
continued expansion of its coalbed methane business development activities, and
the relative level of fixed costs in the Company's operating divisions.
Depreciation and amortization decreased to $3,638,000 and $11,225,000 for the
three and nine months ended October 31, 2002 compared to $4,225,000 and
$13,836,000 for the same periods last year. The decreases in depreciation and
amortization were the result of less depreciation from assets fully amortized in
prior periods in the mineral exploration division and ceasing to amortize
goodwill upon adoption of SFAS No. 142.
Interest expense decreased $222,000 and $1,371,000 for the three and nine months
ended October 31, 2002 as compared to the same periods last year. The decreases
were primarily a result of decreases in the Company's average borrowings and in
interest rates for the period.
Income tax expense of $1,031,000 and $3,134,000 was recorded for the three and
nine months ended October 31, 2002 compared to $1,319,000 and $3,084,000 for the
same periods last year. The effective rate in excess of the statutory federal
rate was a result of the impact of nondeductible expenses and the tax treatment
of certain foreign operations.
WATER RESOURCES DIVISION
(in thousands)
Three Months Ended Nine Months Ended
October 31, October 31,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $ 43,525 $ 45,582 $130,767 $132,026
Operating income 6,509 6,554 19,376 18,025
Water resources revenue decreased 4.5% to $43,525,000 for the three months ended
October 31, 2002 and decreased 1.0% to $130,767,000 for the nine months ended
October 31, 2002 compared to $45,582,000 and $132,026,000 for the three and nine
months ended October 31, 2001. The decreases in revenues for the three and nine
months ended October 31, 2002 were primarily attributable to lower demand for
the Company's services in certain areas of the United States due to reduced
municipal spending and resulting competitive pressures. The decreases for the
periods were partially offset by increased revenue due to increased
infrastructure needs created by population growth in the western United States
and a large project being performed by multiple divisions.
17
Operating income for the water resources division was flat at $6,509,000 for the
three months ended October 31, 2002 and increased 7.5% to $19,376,000 for the
nine months ended October 31, 2002 compared to $6,554,000 and $18,025,000 for
the three and nine months ended October 31, 2001. The increase in operating
income for the nine months ended October 31, 2002 was primarily attributable to
improved margins at the Company's domestic water supply locations and the large
multi-divisional project note above.
MINERAL EXPLORATION DIVISION
(in thousands)
Three Months Ended Nine Months Ended
October 31, October 31,
----------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $ 13,888 $ 13,480 $ 41,821 $ 45,911
Operating loss (1,569) (896) (2,294) (2,522)
Mineral exploration revenues increased 3.0% to $13,888,000 and decreased 8.9% to
$41,821,000 for the three and nine months ended October 31, 2002 compared to
revenues of $13,480,000 and $45,911,000 for the three and nine months ended
October 31, 2001. The increase for the three months ended October 31, 2002 was
due to increased exploration activity in North America and Australia partially
offset by reduced mining activity in Africa. The decrease for the nine months
ended October 31, 2002 was primarily the result of reduced mining activity in
certain areas of Africa.
The operating loss for the mineral exploration division was $1,569,000 for the
three months ended October 31, 2002 and $2,294,000 for the nine months ended
October 31, 2002 compared to operating losses of $896,000 and $2,522,000 for the
three and nine months ended October 31, 2001. Results of operations for the
periods reflect improved operating results in North America and Australia,
offset by operating losses in Africa. Also included in the three months ended
October 31, 2002 are approximately $1,000,000 of costs, including the write-off
of certain inventory, associated with the strategic relocation of the Company's
base of operations in West Africa.
GEOCONSTRUCTION SERVICES DIVISION
(in thousands)
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------- --------------------
2002 2001 2002 2001
------- ------- ------- -------
Revenues $ 6,750 $ 6,275 $22,673 $20,464
Operating income 359 636 2,340 1,609
Geoconstruction services revenues increased 7.6% to $6,750,000 and 10.8% to
22,673,000 for the three and nine months ended October 31, 2002 compared to
$6,275,000 and $20,464,000 for the three and nine months ended October 31, 2001.
The increases in revenue for the periods were attributable to two large
construction projects in Hawaii, the Company's multi-divisional project noted
above, and increased equipment sales as a result of new product offerings at the
Company's manufacturing subsidiary in Italy.
18
The geoconstruction services division had operating income of $359,000 for the
three months ended October 31, 2002 and operating income of $2,340,000 for the
nine months ended October 31, 2002 compared to $636,000 for the three months
ended October 31, 2001 and $1,609,000 for the nine months ended October 31,
2001. The decrease for the three months ended October 31, 2002 was primarily
attributable to lower margins due to competitive pressure in the Company's
markets. The increase for the nine months ended October 31, 2002 was due to the
Hawaii projects, the multi-divisional project noted above, and last year
included higher costs associated with complications on certain of the Company's
ground-freezing projects.
ENERGY SERVICES AND PRODUCTION DIVISION
(in thousands)
Three months ended Nine months ended
October 31, October 31,
----------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $ 3,508 $ 5,715 $ 12,242 $ 20,943
Operating income (loss) (676) 214 (2,678) 1,389
Energy services revenues decreased 38.6% to $3,508,000 and 41.5% to $12,242,000
for the three and nine months ended October 31, 2002 compared to revenues of
$5,715,000 and $20,943,000 for the three and nine months ended October 31, 2001.
The decreases were primarily the result of reduced exploration activity by the
Company's Canadian drilling unit and depressed market conditions for our oil and
gas services in the Gulf of Mexico region of the United States, which was also
adversely affected by two hurricanes during the three months ended October 31,
2002.
Operating losses for the energy services and production division were $676,000
and $2,678,000 for the three and nine months ended October 31, 2002 compared to
operating income of $214,000 and $1,389,000 for the three and nine months ended
October 31, 2001. The decreases in operating profit were the result of start-up
expenses for a new service location in Louisiana, reduced profit in the
Company's service businesses due to adverse weather and depressed market
conditions and expenses related to the Company's energy exploration activities
and coalbed methane development efforts.
PRODUCTS AND OTHER
(in thousands)
Three months ended Nine months ended
October 31, October 31,
--------------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues $ 1,986 $ 5,165 $ 6,795 $ 16,819
Operating loss (261) (198) (1,035) (345)
Products and other sales decreased 61.5% to $1,986,000 and 59.6% to $6,795,000
for the three and nine months ended October 31, 2002 compared to $5,165,000 and
$16,819,000 for the three and nine months ended October 31, 2001. The decreases
in sales were primarily the result of the sale of Christensen Products to a
subsidiary of Atlas Copco in the third quarter of last year.
19
Operating losses for products and other were $261,000 and $1,035,000 for the
three and nine months ended October 31, 2002 compared to operating losses of
$198,000 and $345,000 for the same periods last year. The operating losses for
the three months ended October 31, 2002 were primarily attributable to increased
losses at the Company's supply locations due to a competitive market and
resulting pricing pressures. The operating losses for the nine months ended
October 31, 2002 were primarily the result of closing costs associated with
certain operations, primarily Christensen Products, and competitive pressures in
the Company's supply business.
Corporate expenses not allocated to individual divisions were $3,493,000 and
$11,156,000 for the three and nine months ended October 31, 2002 compared to
$4,312,000 and $12,414,000 for the three and nine months ended October 31, 2001.
The decrease in unallocated corporate expenses were attributable to reduced
incentive-related accruals during the periods.
CHANGES IN FINANCIAL CONDITION
Cash from operations was $11,954,000 for the nine months ended October 31, 2002
compared to $16,118,000 for the same period last year. The decrease in cash from
operations was primarily attributable to reduced operating performance and an
increase in customer receivables in the Company's geoconstruction division. The
increased receivables in the geoconstruction division were due to increased
revenues and a collection period which is generally longer than the Company's
other divisions.
The Company believes that borrowings from its available credit agreement and
cash from operations will be sufficient for the Company's seasonal cash
requirements and to fund its anticipated capital expenditures for the balance of
the fiscal year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the 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. On an on-going basis, management evaluates its
estimates and judgments, which are based on historical experience and on various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Our accounting policies are more fully described in Note 1 to the financial
statements, located elsewhere in this Form 10-Q and in our Annual Report on Form
20
10-K for the year ended January 31, 2002. We believe that the following
represent our more critical estimates and assumptions used in the preparation of
our consolidated financial statements, although not all inclusive.
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. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.
Goodwill and Other Intangibles - In June 2001, the Financial Accounting
Standards Board issued SFAS No. 142, which was effective for the Company as of
February 1, 2002. SFAS No. 142 substantially changes the accounting for
goodwill, requiring that goodwill and other intangible assets with indefinite
useful lives cease to be amortized, but instead periodically tested for
impairment. This statement also requires that within six months of adoption,
goodwill be tested for impairment at the reporting unit level as of the date of
adoption.
As disclosed in the consolidated financial statements, the Company had goodwill
of $21,884,000 at January 31, 2002. The goodwill was primarily attributable to
the Company's Mineral Exploration Division. The process of evaluating goodwill
for impairment involves the determination of the fair value of the Company's
reporting units. Inherent in such fair value determinations are certain
judgments and estimates, including the interpretation of current economic
indicators and market valuations, and assumptions about the Company's strategic
plans with regard to its operations. The Company completed the initial
assessment of goodwill during the second quarter of fiscal year 2003 and
determined a transitional impairment charge was required. As a result, the
Company took a non-cash charge of $20,225,000, which was recorded, net of taxes
of $5,796,000, as a cumulative effect of a change in accounting principle in
accordance with SFAS No. 142. To the extent additional information arises or the
Company's strategies change, it is possible that the Company's conclusions
regarding impairment of the remaining goodwill could change and result in a
material effect on its financial position or results of operations.
Other Long-lived Assets - In evaluating the fair value and future benefits of
long-lived assets, we perform an analysis of the anticipated future net cash
flows of the related long-lived assets and reduce their carrying value by the
excess, if any, of the result of such calculation. We believe at this time that
the long-lived assets' carrying values and useful lives continue to be
appropriate.
Accrued Insurance Expense - We record estimates for certain health and welfare,
workers' compensation, and casualty insurance costs that are self-insured
programs. Should a greater amount of claims occur compared to what was estimated
or costs of the medical profession increase beyond what was anticipated,
reserves recorded may not be sufficient and additional costs to the consolidated
financial statements could be required.
21
Litigation and Other Contingencies - The Company is involved in litigation
incidental to its business, the disposition of which is expected to have no
material effect on the Company's financial position or results of operations. It
is possible, however, that future results of operations for any particular
quarterly or annual period could be materially affected by changes in the
Company's assumptions related to these proceedings. The Company accrues its best
estimate of the probable cost for the resolution of legal claims. Such estimates
are developed in consultation with outside counsel handling these matters and
are based upon a combination of litigation and settlement strategies. To the
extent additional information arises or the Company's strategies change, it is
possible that the Company's estimate of its probable liability in these matters
may change.
The Company's contractual obligations and commercial commitments are summarized
as follows:
Payments/Expiration by Period
Less than
Total 1 year 1-3 years 4-5 years
------- ------- ------- -------
Contractual Obligations and Other
Commercial Commitments
Debt $34,125 $ 3,719 $15,531 $14,875
Operating leases 16,138 5,824 8,880 1,434
Ausdrill promissory note 1,200 1,200 - -
------- ------- ------- -------
Total contractual cash
obligations 51,463 10,743 24,411 16,309
------- ------- ------- -------
Standby letters of credit 6,911 6,911 - -
------- ------- ------- -------
Total contractual obligations
and commercial commitments $58,374 $17,654 $24,411 $16,309
======= ======= ======= =======
ITEM 3. 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 and an associated interest rate Swap Agreement
appears in Note 3 to the Consolidated Financial Statements in this Form 10-Q.
Assuming then existing debt levels and the Swap Agreement, an instantaneous
change in interest rates of one percentage point would impact the Company's
annual interest expense by $170,000 and $165,000 at October 31, 2002 and January
31, 2002, respectively. The Company's investments are described in Note 1 to the
Consolidated Financial Statements appearing in the Company's January 31, 2003
Form 10-K. The investments are carried 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
22
international operations are in Australia, Africa, Mexico, Canada, and Italy.
The operations are described in Note 1 to the Consolidated Financial Statements
appearing in the Company's January 31, 2002 Form 10-K and Note 7 of this Form
10-Q. 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 not significantly impact operating income for the
nine months ended October 31, 2002 and 2001. 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.
ITEM 4. Controls and Procedures
(a) Based on an evaluation of disclosure controls and procedures for the period
ended October 31, 2002 conducted by our Chief Executive Officer and Chief
Financial Officer within the last ninety (90) days, we conclude that our
disclosure controls and procedures are effective.
(b) Based on an evaluation of our internal controls conducted by management
within the last ninety (90) days, no significant deficiencies or material
weaknesses were identified and we have not made any significant changes in our
internal controls or in other factors that could significantly affect internal
controls since such evaluation.
23
PART II
ITEM 1 - Legal Proceedings
NONE
ITEM 2 - Changes in Securities
NOT APPLICABLE
ITEM 3 - Defaults Upon Senior Securities
NOT APPLICABLE
ITEM 4 - Submission of Matters to a Vote of Security Holders
NONE
ITEM 5 - Other Information
NONE
ITEM 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Credit Agreement dated as of July 9, 2002, among the Company, Boyles
Bros. Drilling Company, Christensen Boyles Corporation, Layne Water Development
and Storage LLC, Layne Texas, Incorporated, Mid-Continent Drilling Company,
Shawnee Oil & Gas, LLC, Stamm-Scheele Incorporated, Toledo Oil & Gas Services,
Inc., Vibration Technology Inc., various financial institutions, LaSalle Bank
National Association, as revolving credit agent, lender, and letter of credit
issuer, and General Electric Capital Corporate, as agent and lender.
b) Reports on Form 8-K
Form 8-K filed on August 29, 2002 related to the Company's section 906
certifications.
24
* * * * * * * * * *
SIGNATURES
Pursuant to the requirements 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
--------------------------------
(Registrant)
DATE: December 6, 2002 /s/A.B. Schmitt
--------------------------------
A.B. Schmitt, President
and Chief Executive Officer
DATE: December 6, 2002 /s/Jerry W. Fanska
--------------------------------
Jerry W. Fanska, Vice President
Finance - Treasurer
CERTIFICATIONS
I, Andrew B. Schmitt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Layne Christensen
Company
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
25
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 2002
/s/A.B. Schmitt
----------------------------------
A.B. Schmitt, President
and Chief Executive Officer
I, Jerry W. Fanska, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Layne Christensen
Company
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
26
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
d. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
e. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 2002
/s/Jerry W. Fanska
---------------------------------
Jerry W. Fanska, Vice President
Finance - Treasurer
27
EXHIBIT LIST
Page No.
4.1 Credit Agreement dated as of July 9, 2002, among the
Company, Boyles Bros. Drilling Company, Christensen
Boyles Corporation, Layne Water Development and Storage LLC,
Layne Texas, Incorporated, Mid-Continent Drilling Company,
Shawnee Oil & Gas, LLC, Stamm-Scheele Incorporated,
Toledo Oil & Gas Services, Inc., Vibration Technology Inc.,
various financial institutions, LaSalle Bank National
Association, as revolving credit agent, lender, and
letter of credit issuer, and General Electric Capital
Corporate, as agent and lender...................................29
28