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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, 1997.
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: 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 2,440,634 shares of Common Stock of
the Registrant held by non-affiliates of the Registrant on March 31, 1997,
computed by reference to the closing sale price of such stock as reported on the
NASDAQ National Market System, was $39,050,144. At March 31, 1997, there were
8,871,467 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 1997 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
Business--Layne Christensen Company ("Layne Christensen" or the
"Company") is a provider of water well drilling, well and pump repair and
maintenance, mineral exploration drilling and environmental drilling services.
The Company also manufactures and markets a wide range of equipment used by
drilling contractors involved in mineral and energy exploration, mine
development and pre-construction analysis. Layne Christensen's customers include
municipalities, industrial companies, mining companies, environmental consulting
and engineering firms and, to a lesser extent, agribusiness. The Company serves
the needs of its customers through locations covering most regions of the United
States, Mexico, Canada, Thailand and, through its affiliated companies, Latin
and South America. Layne Christensen believes that it has the most extensive
geographic coverage of any company that offers water well drilling, well and
pump repair and maintenance or environmental drilling services in the United
States.
Corporate History--Through a series of predecessors, the Company has
been in business since the late 1800s when Mahlon Layne introduced a series of
important innovations in the water well drilling industry. In 1975, the Company
acquired the well drilling and pump installation and repair business of The
Singer Company, adding 17 locations to the Company's operations. The Company was
incorporated in Delaware in 1981 (succeeding to the business of its predecessor)
in connection with the acquisition of substantially all the assets of The Marley
Company ("Marley"), the Company's former parent corporation, by a corporation
formed by Kohlberg Kravis Roberts & Co., L.P. ("KKR") and its affiliates.
In connection with its initial public offering in August 1992, the
Company engaged in a series of related transactions (the "Concurrent
Transactions"). Immediately prior to the public offering, the shares of Common
Stock held by Marley were distributed to Marley Holdings, L.P., a Limited
Partnership ("Marley Holdings") and the other stockholders of Marley in a
spin-off transaction (the "Spin-Off"). The Marley stockholders received
approximately 1.45 shares of the Company's Common Stock for each share of Marley
common stock held by them. Certain members of the Company's management who held
options to purchase Marley common stock issued under Marley employee stock
option plans received options ("Spin-Off Options") to purchase approximately
1.45 shares of Common Stock of the Company for each share of Marley common stock
for which they held Marley options. In August 1993, Marley Holdings sold all its
ownership interest in Marley. Marley Holdings continues to hold approximately
51.9% of the Company.
In a December 1995 merger transaction, the Company acquired Christensen
Boyles Corporation ("CBC"), a world leader in providing diamond core drilling
services for mineral exploration and among the largest manufacturers of diamond
core bits, core barrels, drilling rigs and related equipment used by the mining
industry. As a result of this transaction, the Company changed its name from
Layne, Inc. to Layne Christensen Company effective March 28, 1996.
Market Overview
The relevant markets for the Company include water well drilling, well
and pump repair and maintenance, mineral exploration drilling, environmental
drilling, geotechnical construction services and products. The demand for water
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well drilling services is principally driven by the need to access groundwater,
which is caused by many factors including population movements and expansions,
deteriorating water quality and limited availability of surface water. The
demand for well and pump repair and maintenance depends upon the age and use of
the well, the quality of material and workmanship applied in the original
installation of the well and changes in the depth and quality of the aquifer
accessed by the well. The demand for mineral exploration drilling is driven by
the need to identify and define underground mineral deposits. The demand for the
Company's geotechnical construction services and products is driven principally
by the demand for infrastructure improvements, such as dams, tunnels, water
lines and subways and, to a lesser extent, building construction activity. The
demand for the Company's environmental drilling services is driven principally
by heightened public concern over groundwater contamination and the resulting
regulatory requirements to investigate and remediate contaminated sites and
aquifers. The Company's products are manufactured for the mineral, geotechnical
construction and environmental drilling industries and, as a result, demand for
those products is driven by the demand for these drilling services.
Drilling Services
The Company's drilling services business is divided into five primary
service lines: water well drilling, well and pump repair and maintenance,
mineral exploration drilling, geotechnical construction and other services, and
environmental drilling.
Water Well Drilling
The water well drilling market is highly fragmented, with over 3,700
water well drilling contractors in the United States. The Company believes that
a substantial majority of these contractors are regionally or locally based, and
are involved primarily in drilling low volume water wells for small agricultural
and residential customers, a market in which the Company does not compete. The
Company targets high volume water wells, which are drilled for municipal,
industrial or, to a lesser extent, agricultural customers. In general, these
wells have more stringent specifications, particularly as they relate to the
straightness of the well and the well design. In addition, high volume water
wells are, on average, deeper and larger in diameter than the typical low volume
agricultural or residential well. In order for a driller to compete for high
volume water well projects, it must have a higher level of technical expertise,
greater knowledge of local geology and larger drilling equipment than is
required for low production water wells. Most decisions regarding the selection
of a water well contractor are made at the local level by consulting engineers
and city management for municipalities and by consultants and company operations
officers for industrial businesses. Water well drilling work is usually bid for
municipalities and negotiated or informally bid for industrial customers.
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.
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Water well drilling requires the integration of hydrogeology and
engineering with the techniques of well drilling because the drilling methods
and equipment depend upon the geological formations encountered at the project
site. For example, some geological formations contain voids which can cause a
loss of circulation of the drilling fluids required by certain drilling methods.
In these formations, depending upon the size of the well, the preferred method
of drilling may be the reverse circulation rotary drilling method which, by
reversing the circulation of the drilling fluid, minimizes the risk of loss of
circulation. Other geological formations require deep wells, sometimes with
casing and grouting set at depths of over 2,000 feet. In these cases, the
preferred method of drilling may be direct circulation mud rotary drilling
which, in certain geology, is more productive than reverse circulation drilling.
The Company believes that it has the ability to meet a wide variety of
customer requirements for water well design and construction. The Company has
the extensive archives, technical personnel and equipment to determine
geological conditions and aquifer characteristics in most locations, enabling it
to locate suitable water-bearing formations. The Company provides feasibility
studies using geophysical methods such as electrical resistivity, seismic
refraction and ground penetrating radar. Other analytical methods may include
test hole drilling, geophysical logging, aquifer pumping tests and soil boring
analysis. The Company has the expertise to analyze these 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. Layne Christensen has water well projects in most regions of
the United States and has an extensive list of customers.
The Company believes that it has the technical ability and experience
to specify and install the most efficient pump for a given well design and
aquifer characteristics. As part of its water well drilling and installation
business, the Company sells a wide variety of pumps, including vertical
turbines, submersibles, shortcoupled and horizontal centrifugal pumps. In
addition, the Company sells and installs certain water treatment equipment,
which is typically installed at or near the wellhead, including chlorinators,
aerators, filters and controls.
Well and Pump Repair and Maintenance
Problems requiring water well repair are usually revealed by noticeable
performance declines, failures of key components, pumpage of sand or otherwise
poor quality water. Pump repair and well rehabilitation work is often required
on an emergency basis or within a relatively short period of time after a
performance decline is noticed. Those companies with the requisite expertise,
equipment and scheduling flexibility have a competitive advantage by being able
to respond quickly to repair requests. Repair and maintenance projects are
typically negotiated on the spot or contracted for in advance depending upon the
lead time available for the repair work. In instances where significant
expenditures are required by the customer or where lead time is available,
repair and maintenance projects may be bid.
Repair and maintenance customers are primarily municipalities,
industrial concerns and agribusinesses. Small agricultural concerns and
residential users comprise a very small portion of this market as it is often
not cost effective to repair a small well. The market for well and pump repair
and maintenance is also fragmented. Although most participants in this market
provide both drilling and repair and maintenance services, some provide only
repair and maintenance
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services. However, only a small percentage of companies performing these
services are capable of diagnosing complex problems and selecting and applying
the appropriate rehabilitation techniques.
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 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. In addition, the Company believes it benefits
from offering both water well drilling and repair and maintenance services
because the company that installs a well may be more likely to be called upon to
maintain or repair it.
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.
Periodic repair and maintenance of well equipment is required during
the life of a well. Well equipment includes the motor, pump, shaft, casing and
well screen. 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.
Mineral Exploration Drilling
Mining companies primarily require drilling services for geological
assessment in two areas, exploratory 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
that was previously mined to assess whether additional reserves are economical
to mine. In general, mining companies hire a driller to extract samples from a
site for the mining company to analyze. Mineral 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.
The demand for definitional drilling has increased in recent years as
new and less expensive mining techniques have made it feasible to mine
previously uneconomical orebodies. The development and use of these improved
mining methods have made certain gold and copper orebodies in the United States
and certain other countries economically minable over the last few years. In
addition, mining companies have recently expanded their efforts to explore for
minerals in Mexico and Latin America because of the existence of sizeable
orebodies and the probable economic feasibility of developing them.
The Company provides drilling services for geological assessment, in
situ mining and mineral exploration. These services are used primarily by gold
and copper producers based in the United States and Canada. In response to a
shift in recent years by many of these producers to foreign markets in search of
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economically minable orebodies, the Company commenced mineral exploration
drilling operations in a portion of Mexico in 1991. In addition, with its recent
acquisition of CBC, the Company now has foreign affiliates operating in Latin
America with facilities in Chile and Peru. These affiliates are among the
leaders in their respective markets for mineral exploration drilling services.
The Company believes that it is the leading practitioner of the dual tube method
of drilling, which allows the recovery of uncontaminated samples while drilling,
a feature which is critical in mineral exploration drilling. Because this method
requires the use of little or no drilling fluids, 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.
Geotechnical Construction and Other Services
Geotechnical construction includes those services provided by the
Company to the civil construction market. Services offered include cement and
chemical grouting, jet grouting, drain hole drilling, installation of ground
anchors, tie backs, rock bolts and instrumentation. The Company also offers
artificial ground freezing capabilities, typically utilized as an alternative
method to dewatering large excavation and tunneling projects. The Company's
proprietary jet grouting techniques offer the potential for barrier placement
technology to be implemented at environmentally sensitive or previously
contaminated sites. Included in these services is the ability to install
advanced ground stabilization, measuring and monitoring instruments into drill
holes. This technology is important during the construction of dams, tunnels,
shafts, and other civil construction projects. Stabilization is achieved through
the use of drain pipes, rock anchors, soil anchors and rock bolts. The Company
offers expertise in selecting the appropriate techniques to be applied in
various geological conditions. The Company also has extensive experience in the
placement of measuring devices capable of monitoring water levels and ground
movement.
In conjunction with the Company's water well drilling and environmental
drilling services, a subsidiary of the Company provides environmental and
hydrogeological consulting services to support groundwater development,
environmental protection and remediation programs. Specific services offered
include geophysical surveys, aquifer testing and analysis, computer modeling,
well and well field design and rehabilitation analysis, and environmental
assessments. Personnel include civil and geological engineers, geologists,
hydrogeologists, geophysicists, and microbiologists.
Environmental Drilling
The demand for environmental drilling services is directly related to
the public's concern over the past two decades about groundwater contamination.
Numerous and often complex federal, state and local laws have been enacted for
the purpose of investigating and remediating pollution of underground aquifers
as well as controlling or preventing the potential environmental hazards caused
by groundwater contamination. Wells are often utilized as part of a site
investigation mandated by the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("Superfund") or by the Resource
Conservation and Recovery Act of 1976.
The Company offers a wide range of environmental drilling services
including: investigative drilling, installation and testing of wells that
monitor the spread of groundwater contamination, installation of recovery wells
that
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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.
The Company's national presence and large equipment inventory allow it
to work with most drilling methods, sampling techniques, well depths and well
diameters and give it the capability to seek and perform multiple-rig projects,
which may be beyond the capacity of many of its competitors. The Company
believes that it is the leading operator of dual tube drilling equipment in the
United States, which the Company believes provides it a competitive advantage.
Dual tube percussion rigs allow customers to immediately evaluate the drill
cuttings in the order that they are drilled and provide more reliable
information as to the exact location of any subsurface contamination.
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 the Occupational Safety and Health Administration ("OSHA").
Products
With its 1995 acquisition of CBC, the Company expanded its operations
to include the manufacture and marketing of a wide range of equipment used by
drilling contractors involved in mineral and energy exploration, mine
development, pre-construction analysis, as well as soils and environmental
testing. These products address specialized drilling and sampling projects with
a comprehensive, integrated approach that includes job assessment and planning,
custom designed products and innovative drilling and sampling techniques. The
Company uses its experience gained from completing a wide range of projects to
design sampling tools and conventional and wireline coring equipment, navigated
directional drilling motors, drill rods with special threads, stainless and
special monitoring casing alloys, drill bits, core bits, reamers and
stabilizers, and drill and sampling machines.
The Company offers a variety of performance tested drill steel to meet
its customers' needs. The Company's designs and materials meet rigid standards
of quality and utility. The Company-produced wireline core barrels are core
recovery tools designed for operation at the bottom of the drill string where a
core bit cuts the core that is collected and retained inside the core barrel.
Retrieving the core requires pulling the core barrel through the inside of the
string of rods, utilizing the Company's unique quad latch, and then removing the
inner tube from the core barrel to retrieve the core. The Company believes its
wireline coring systems represent the state-of-the-art in coring performance.
The Company also offers a full line of conventional coring systems.
The Company manufactures a line of multipurpose drill rigs which are
designed to meet the specialized work requirements of mineral exploration and
environmental sites. The Company also manufactures diamond drill bit products
including products incorporating matrix powder technology coupled with new
synthetic and natural stones. This variety of bits is matched to the formations
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at the drill site. 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 formations ranging from soft to hard.
In addition to its own manufactured products, the Company sells
miscellaneous supplies manufactured by others to third parties for use in the
well drilling industry, including well casings, well screens, drill stems and
bits, drilling fluids and well cleaning supplies.
Business Strategy
The Company's strategy is to utilize its significant technical
capabilities, wide variety of drilling equipment and extensive network of
locations to provide comprehensive, high quality drilling services in most
regions of the United States, as well as Mexico, Canada, Thailand, Latin and
South America. In addition, the Company plans to emphasize its capabilities in
the well and pump repair and maintenance service line where the Company believes
it has an enhanced competitive position as a result of its technical expertise
and multiple locations.
In all its service lines, the Company benefits from its technical
expertise, wide variety of transferable drilling equipment, extensive geological
archives, centralized employee training programs and large customer base. The
Company maintains a sizeable staff of hydrogeologists and engineers as well as
experienced drilling crews familiar with most types of geological formations and
drilling techniques to support its network of locations.
In the water well drilling market, the Company's strategy is to
maintain its industry-leading position in the United States and to focus on the
design and installation of high production municipal and industrial water wells.
These wells require greater technical competence and more sophisticated drilling
equipment than most drilling contractors currently have the capability to
provide. The Company also intends to better utilize its large and varied
inventory of equipment and technical expertise through aggressive marketing of
its water well drilling services. In connection with the Company's recent
acquisition of CBC and CBC's foreign affiliates, increased focus has been
directed towards opportunities in international markets for this service line.
In the well and pump repair and maintenance market, the Company's
strategy is to utilize its wide variety of transferable drilling equipment and
diagnostic tools, extensive technical capabilities, archive of well records and
related geological information and extensive list of water well customers and
potential customers to provide prompt, high quality repair and maintenance
services through its network of locations. As a part of its focus on technically
demanding services, the Company is emphasizing expansion of its product
offerings in the well rehabilitation market segment.
In the mineral exploration drilling market, the Company's strategy is
to maintain its strong competitive position in the United States and to expand
its presence in Mexico. In addition, with its acquisition of CBC, the Company is
now a leader in providing diamond core drilling services. The Company intends to
continue to expand its presence in Latin and South America through its foreign
affiliates operating out of facilities in Panama, Chile and Peru.
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In the civil construction market, the Company's strategy is to focus on
relatively larger, technically demanding projects utilizing the Company's
grouting and ground freezing capabilities. These projects offer the Company an
opportunity to utilize its expertise and design capabilities in these areas.
In the environmental drilling market, the Company's strategy is to
focus on the relatively more complex and demanding projects, particularly those
projects that may require the use of multiple rigs, multiple drilling techniques
or specialized drilling equipment such as dual tube drilling rigs. These
projects utilize the Company's extensive technical capabilities and wide variety
of drilling equipment, which the Company believes provides it with competitive
advantages relative to other drilling contractors.
In the products market, the Company's strategy is to be a leader in
advanced manufacturing technology and superior quality drilling products and
equipment. 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 customized drilling solutions.
Equipment
The Company has approximately 520 drilling and well service rigs
operating throughout the world, including approximately 480 in the United
States. This includes rigs used primarily in each of its service lines as well
as multi-purpose rigs. The Company also owns or leases, excluding rig-mounted
vehicles, approximately 1,300 vehicles for use in its business throughout the
world, including approximately 1,180 in the United States.
As a result of the diversity of its equipment, the Company is able to
perform most drilling techniques that well customers require. Types of drilling
equipment employed by the Company include: rotary rigs, dual tube rigs, auger
rigs, cable tool rigs and diamond core rigs.
The types of drilling techniques employed by the Company have different
applications:
- Rotary rigs are used 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, causes
the drill cuttings to be circulated to the surface inside the
casing and without contacting the formation, avoiding contamination
of the borehole and providing reliable samples. Dual tube drilling
is also effective in penetrating fractured formations containing
voids, which can cause loss of external drilling fluid circulation.
- Diamond core drilling is used 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 for
larger diameter wells. While slower than other drilling methods, it
is well suited for penetrating boulders, cobble and rock.
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- Auger drilling is used for efficient completion of relatively small
diameter, shallow wells. Auger rigs are equipped with a variety of
auger sizes and soil sampling equipment.
Customers
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.
In the water well drilling service line, the Company's customers are
typically municipalities and the local operations of industrial businesses. In
fiscal 1997, approximately 59% of the Company's water well drilling revenues
were derived from municipalities, approximately 26% were derived from industrial
businesses and the balance were 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. As a result of increasing pressures by the public on local governments in
general to limit spending, the amount available for spending on water well
projects may be reduced. Large reductions in such spending by a significant
number of municipalities or local governmental agencies could have a material
adverse effect on the Company. 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.
In the well and pump repair and maintenance service line, the Company's
customers also include local municipalities and local operations of industrial
businesses. In fiscal 1997, approximately 52% of the Company's repair and
maintenance revenues were derived from municipalities, approximately 27% were
derived from industrial businesses and the balance were derived from other
customer groups.
Customers for mineral exploration drilling services in the United
States, Mexico, Canada and Latin and South America are primarily gold and copper
producers. Most of these customers are multi-national corporations headquartered
primarily in the United States and Canada. Customers for mineral exploration
products manufactured by the Company include major mineral exploration
companies, municipalities, drilling companies and equipment and parts suppliers.
The Company's primary environmental drilling customers are regional or
national consulting firms retained by federal or state agencies or by industrial
companies to assist in the assessment and cleanup of groundwater contamination.
Customers for the Company's products are comprised primarily of major mineral
exploration companies, equipment suppliers for the mining industry and small
public municipalities and government agencies. The Company acts as a specialty
subcontractor for its specialty contract services and its customers are
primarily heavy civil contractors, large commercial developers and, to a lesser
extent, governmental agencies.
Operations and Sales
The Company operates on a decentralized basis, with locations grouped
into district office profit centers located in most regions of the United
States. As of January 31, 1997, the Company operated out of 60 locations in the
United States. In addition, the Company, through its foreign subsidiaries and
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affiliates, operates out of locations in Canada, Mexico, Thailand, Latin and
South America, and Europe. The Company is primarily organized in eastern and
western geographic regions, each with a regional vice president in charge of
operations and district managers 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's sales engineers
cultivate and maintain contacts with existing and potential customers. In this
way, the Company learns of proposed drilling projects in the region and is in a
position to compete for them. The foreign affiliates and manufacturing
operations report to a senior vice president.
Competition
The Company regularly performs services in almost every region of the
United States, except the northeastern United States. The Company's principal
competitors for its drilling services are local and regional firms located
throughout the United States. The Company may not have the largest operation in
any particular regional or local market in which it competes.
The Company's competition in the water well drilling and repair and
maintenance businesses 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
technology, expertise and equipment utilized in the businesses differ
significantly. 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. The largest other
participant in these service lines is located in the northeastern United States.
As is the case in the water well drilling business, the well and pump
repair and maintenance business is characterized by a large number of relatively
small competitors. 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 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. Since pump repair and
rehabilitation work is typically negotiated, sometimes 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 the mineral exploration drilling market, the Company competes based
on price, 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 basis. The Company believes that this market is becoming more
competitive, particularly in the United States. Work is typically performed on a
negotiated basis.
In the environmental drilling market, Layne Christensen competes with
different types of drillers depending on the services involved. Small site
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assessments and routine underground storage tank assessment and remediation
projects are highly competitive and attract a large number of local drilling
competitors. More sophisticated and demanding projects generally require the
expertise and resources of larger drilling operators who have access to multiple
rigs and alternative drilling techniques. The larger drilling companies
generally also have the requisite expertise and safety training to assess the
risks associated with drilling on sites having higher contamination levels and
larger amounts of hazardous wastes. Accurate risk assessment enables the Company
to select projects prudently and to better manage risks associated with those
projects. The Company focuses on the more technically demanding projects in this
area and avoids the smaller and highly competitive site assessment and
remediation projects. Environmental drilling contracts are usually bid or
negotiated at the initial stage but major contract extensions are often
negotiated.
In the market for the Company's manufactured products, the Company's
competitors consist primarily of a small number of large manufacturers and
additional smaller regional companies. The Company competes in this market based
on price, technical design and reputation.
Training and Experience of Personnel
In all of the Company's service lines, an important competitive factor
is the availability of 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. This 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 sixteen
and ten years, respectively, of experience with the Company. In addition, many
of the Company's professional employees have academic backgrounds in
agricultural, chemical, civil, industrial and mechanical engineering, geology,
microbiology and metallurgy. The Company believes that its size and reputation
allow it to compete effectively for highly qualified professionals.
Employees
At January 31, 1997, the Company had 1,832 employees, 158 of whom were
hourly employees who were members of collective bargaining units represented by
locals affiliated with major labor unions. The Company believes that its
relationship with its employees is satisfactory.
Backlog
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 $40,966,000
at January 31, 1997, compared to approximately $38,663,000 at January 31, 1996.
The Company's backlog is generally completed within the following fiscal year.
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13
Permits, Licenses and Regulatory Approvals
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state and
local laws. Many localities require well operating licenses which typically
specify that wells be constructed in accordance with applicable regulations. The
Company believes that it benefits from strict enforcement of such regulations
because it believes its abilities and technical expertise give it a competitive
advantage. Various state and local 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, 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
In connection with the Company's environmental drilling and consulting
services, the Company is exposed to potential environmental liability under
federal, state and local laws and regulations, contractual indemnification
agreements or otherwise. For example, the Company could be held responsible for
contamination caused by an accident which occurs in the course of a cleanup
effort in which the Company provided drilling or consulting services or for
cross-contamination 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. It is difficult to assess accurately
the areas and magnitude of potential risk resulting from the Company's
environmental services. The remainder of the Company's services present the
normal and customary risks associated with a construction-related business.
The Company maintains commercial general liability insurance with an
aggregate of $2 million for products and completed operations and $2 million for
all other coverages under the policy. The Company also has $50 million in excess
coverage, but these policies exclude pollution claims. For pollution claims, the
Company maintains a separate contractors' pollution liability and professional
liability insurance ("CPL") policy which provides $20 million of coverage for
each occurrence and $20 million of coverage in the aggregate for all claims made
during the policy's three year term. The Company believes that it carries
environmental insurance that is a cost-effective level of insurance coverage in
light of the risks associated with its business. No assurance can be given,
however, that the amount and scope of coverage maintained by the Company will be
adequate to cover the risks associated with its business and, in particular,
with its environmental drilling services business. In addition, the CPL policy
is a "claims made" policy which only covers claims made during the term of the
policy. If the policy terminates or lapses and retroactive coverage is not
obtained, a claim subsequently made, even if based on events or acts which
occurred during the term of the policy, would not be covered by the policy. No
assurance can be given that the Company will be able to continue to obtain
insurance coverage or, if insurance is obtained, that the dollar amount of any
liabilities incurred in connection with its business will not exceed the policy
limits.
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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
The Company's corporate headquarters are located in Mission Woods,
Kansas (a suburb of Kansas City, Missouri), in approximately 28,000 square feet
of office space leased from Parkway Partners, L.L.C., pursuant to a written
lease agreement which expires February 28, 2000. In addition, 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"). The Plant is subject to a commercial deed of trust which provides
security for the Company's note to a lender in the amount of approximately
$1,400,000. At January 31, 1997, the Company's regional and district offices
were operating throughout the United States and through its wholly-owned
subsidiaries in Mexico, Canada and Thailand in 60 separate facilities, of which
25 were owned and 35 were leased. All of the Company's properties have been
adequately maintained and are appropriate for their present usage.
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 upon its 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, 1997.
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.
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15
Set forth below are the name, age and position of each executive
officer of the Company.
Name Age Position
---- --- --------
Andrew B. Schmitt 48 President, Chief Executive Officer and
Director
H. Edward Coleman 59 Senior Vice President
Norman E. Mehlhorn 56 Senior Vice President
Eric R. Despain 48 Senior Vice President
Kent B. Magill 44 Vice President-General Counsel and
Secretary
Jerry W. Fanska 48 Vice President--Finance and Treasurer
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 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.
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 over
35 years experience in various areas of the Company's operations.
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.
Eric R. Despain has served as the Company's Senior Vice President since
February 1996. Prior to joining the Company in December 1995, Mr. Despain was
President and a member of the Board of Directors of CBC since 1986.
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 Marley since May 1989.
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 Marley
since October 1992 and as Internal Audit Manager of Marley since April 1984.
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.
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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 bid
prices of the Company's stock by quarter for fiscal 1997 and 1996, 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 and do not
necessarily represent actual transactions.
Fiscal Year 1997 High Low
---------------- ---- ---
First Quarter $11 3/4 $10
Second Quarter 13 10 1/4
Third Quarter 13 3/8 11
Fourth Quarter 15 1/2 12 3/8
Fiscal Year 1996 High Low
---------------- ---- ---
First Quarter $ 8 1/4 $ 6 1/4
Second Quarter 8 1/8 7 1/8
Third Quarter 9 1/2 7 1/4
Fourth Quarter 11 1/2 8 1/4
At March 15, 1997, there were approximately 230 owners of record of the
Company's common stock.
The Company has not paid any cash dividends on its common stock during
its two most recent fiscal years. 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 for the fiscal
years ended January 31, 1997, 1996 and 1995, pro forma and historical for the
twelve and nine months ended January 31, 1994, respectively, pro forma for the
nine months ended January 31, 1993, and historical for the fiscal year ended
April 30, 1993, has been derived from the Company's consolidated financial
statements. Financial information for fiscal years 1997, 1996, 1995 and 1993 and
for the nine months ended January 31, 1994 has been derived from the Company's
audited consolidated financial statements. Financial information at January 31,
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17
1993, and for the twelve months ended January 31, 1994 and nine months ended
January 31, 1993, has been derived from unaudited consolidated financial
statements, which in the opinion of the Company, include all adjustments
necessary for a fair presentation of such information. During fiscal year 1996,
the Company completed a merger with CBC which has been accounted for under the
purchase method of accounting (see Note 2 of the Notes to Consolidated Financial
Statements) and, accordingly, the Company's consolidated results include the
operations of CBC from the date of acquisition. The information below should
also 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.
Twelve
Fiscal Years Months Nine Months Fiscal
Ended Ended Ended Year Ended
January 31, January 31, January 31, April 30,
1997 1996 1995 1994 1994 1993 1993
---- ---- ---- ---- ---- ---- ----
Income Statement Data
(in thousands, except
per share amounts):
Revenues $222,853 $167,271 $166,830 $169,766 $127,315 $126,237 $168,688
Cost of revenues
(exclusive of
depreciation
shown below) 161,602 122,078 123,814 130,004 97,361 91,981 124,624
-------- -------- ------- -------- ------- ------- --------
Gross profit 61,251 45,193 43,016 39,762 29,954 34,256 44,064
Selling, general
and administrative
expenses 38,956 28,260 28,860 31,985 23,309 21,919 30,595
Depreciation 10,974 8,233 7,811 8,737 6,600 6,066 8,203
Restructuring
charge - - - 12,000 12,000 - -
-------- -------- ------- -------- ------- ------- --------
Operating income
(loss) 11,321 8,700 6,345 (12,960) (11,955) 6,271 5,266
Other income
(expense):
Equity in earnings
of foreign
affiliates 3,895 - - - - - -
Interest (2,447) (767) (779) (2,048) (1,550) (1,514) (2,012)
Other, net 161 407 (84) (198) 40 183 (55)
-------- -------- ------- -------- ------- ------- --------
Income (loss) before
income taxes 12,930 8,340 5,482 (15,206) (13,465) 4,940 3,199
Income tax (benefit)
expense 4,913 3,753 2,522 (5,736) (4,970) 2,173 1,407
-------- -------- ------- -------- ------- ------- --------
Net income (loss) $ 8,017 $ 4,587 $ 2,960 $ (9,470) $(8,495) $ 2,767 $ 1,792
======== ======== ======= ======== ======= ======= ========
Net income (loss)
per common and
equivalent share $ 0.88 $ 0.61 $ 0.40 $ (1.31) $ (1.17) $ 0.44 $ 0.28
======== ======== ======= ======== ======= ======= ========
At January 31, At April 30
--------------------------------------------------- -----------
1997 1996 1995 1994 1993 1993
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA
(IN THOUSANDS):
Working capital $ 29,643 $ 26,796 $13,578 $29,545 $30,233 $ 32,401
Total assets 143,650 134,177 79,094 90,250 98,778 101,448
Long-term debt 30,314 28,428 -- 18,900 21,000 22,000
Total stockholders' equity 62,664 53,972 40,273 37,348 46,887 45,984
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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.
Results of Operations
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.
Period-to-Period
Change
------
Fiscal Years Ended 1997 1996
January 31, vs. vs.
Revenues: 1997 1996 1995 1996 1995
---- ---- ---- ---- ----
Water well drilling 28.5% 34.3% 33.1% | 10.7% 3.8%
Well and pump repair and |
maintenance 20.5 25.8 27.6 | 6.0 (6.3)
Mineral exploration drilling 22.2 11.2 10.9 | 162.8 3.5
Environmental drilling 10.4 15.1 18.3 | (8.0) (17.1)
Geotechnical construction |
and other services 6.6 5.5 3.7 | 60.0 49.0
----- ----- ----- |
Total service revenues 88.2 91.9 93.6 | 27.8 (1.5)
Product sales 11.8 8.1 6.4 | 94.7 26.2
----- ----- ----- |
Total revenues 100.0% 100.0% 100.0% | 33.2 .3
===== ===== ===== |
Cost of revenues: |
Cost of service revenues 72.5% 72.2% 73.8% | 28.4 (3.6)
Cost of product sales 72.4 81.5 80.1 | 72.8 28.4
Total cost of revenues 72.5 73.0 74.2 | 32.4 (1.4)
----- ----- ----- |
Gross profit 27.5 27.0 25.8 | 35.5 5.1
Selling, general and |
administrative expenses 17.5 16.9 17.3 | 37.8 (2.1)
Depreciation 4.9 4.9 4.7 | 33.3 5.4
----- ----- ----- |
Operating income 5.1 5.2 3.8 | 30.1 37.1
Other income (expense): |
Equity in earnings of |
foreign affiliates 1.7 - - | * *
Interest (1.1) (.5) (.5) | * (1.5)
Other, net .1 .2 - | (60.4) *
----- ----- ----- |
Income before income taxes 5.8 4.9 3.3 | 55.0 52.1
Income tax expense 2.2 2.2 1.5 | 30.9 48.8
----- ----- ----- |
Net income 3.6% 2.7% 1.8% | 74.8 55.0
===== ===== ===== |
* Not meaningful.
Comparison of Fiscal 1997 to Fiscal 1996
Results of Operations
The Company's 1997 results include the effect of the December 1995
merger with Christensen Boyles Corporation ("CBC") (the "Merger"), a world
leader in providing diamond core drilling services for mineral exploration and
among the
18
19
largest manufacturers of diamond core bits, core barrels, drilling rigs and
related equipment used by the mining industry. The Merger was treated as a
purchase for financial accounting purposes, and accordingly the results of
operations include CBC from the acquisition date.
Revenues for fiscal 1997 increased $55,582,000 or 33.2% to $222,853,000
from fiscal 1996. Water well drilling revenues increased 10.7% to $63,529,000
for fiscal 1997 compared to revenues of $57,385,000 for fiscal 1996. The Company
believes the increase in water well drilling revenues for the year is mainly the
result of continued increases in domestic municipal spending in certain areas of
the United States combined with increased sales of water well equipment. Well
and pump repair and maintenance revenues increased 6.0% to $45,750,000 for
fiscal 1997 from $43,166,000 for fiscal 1996. The Company experienced an
increase in activity in several markets for these services. Mineral exploration
drilling revenues increased 162.8% to $49,395,000 for fiscal 1997 from
$18,794,000 for fiscal 1996. The increase is the result of the addition, through
the Merger, of CBC's domestic and Canadian drilling operations and continued
strong mining demand in Mexico. Environmental drilling revenues decreased 8.0%
to $23,260,000 for fiscal 1997 from $25,278,000 for fiscal 1996. The Company
believes the decrease for the year is mainly the result of a continuing soft
market for the environmental services offered by the Company. Product sales
increased 94.7% to $26,309,000 for fiscal 1997 from $13,516,000 for fiscal 1996,
as a result of the domestic production facilities of CBC acquired in the Merger.
Gross profit margin was 27.5% for 1997 compared to 27.0% for 1996. The
increase in gross profit margin is primarily attributable to increased margins
on product sales as a result of sales of drilling equipment and bits from
manufacturing facilities acquired in the Merger which have higher gross profit
margins than those associated with the Company's products distribution business.
The increase in gross profit margin on product sales was partially offset by
lower gross profit margin on CBC's service revenues.
Selling, general and administrative expenses increased to $38,956,000
for fiscal 1997 compared to $28,260,000 for fiscal 1996. The dollar increase in
selling, general and administrative expenses is a result of the Merger,
compensation related expenses and growth in operations. As a percentage of
revenues, selling, general and administrative expenses were 17.5% in fiscal 1997
and 16.9% in fiscal 1996. The increase as a percentage of revenue is due to
increased requirements for certain incentive-related expenses and a generally
higher percentage of selling expenses on product sales than contracting
revenues.
Depreciation increased to $10,974,000 for fiscal 1997 compared to
$8,233,000 for fiscal 1996. The increase in depreciation is primarily a result
of assets acquired in the Merger, and the capital expenditures made by the
Company in the last several years.
Equity in earnings of foreign affiliates was $3,895,000 for fiscal
1997. These earnings are a result of the investments in foreign affiliates
acquired in connection with the Merger. The affiliates are reported on a one
month lag, and therefore had no impact on the Company's fiscal 1996 operations.
See Note 3 of the Notes to Consolidated Financial Statements for additional
information on the affiliates.
19
20
Interest expense increased $1,680,000 for fiscal 1997 compared to
fiscal 1996. The increase is a result of the increased borrowings necessitated
by the Merger.
Income taxes of $4,913,000 for fiscal 1997 increased from $3,753,000
for fiscal 1996 as a result of higher income before taxes compared to the prior
year. The effective tax rate for fiscal 1997 was 38.0% compared to 45.0% for
fiscal 1996. This improvement in the Company's effective tax rate is a result of
the tax treatment of the Company's earnings from foreign affiliates acquired
through the Merger. U.S. Federal income taxes are generally not provided by the
Company on the equity earnings of the affiliates as foreign tax credits should
become available under current tax law to significantly reduce or eliminate the
resulting U.S. income tax liability.
Comparison of Fiscal 1996 to Fiscal 1995
Results of Operations
Revenues increased to $167,271,000 in fiscal 1996 from $166,830,000 in
fiscal 1995. Revenues from water well drilling increased 3.8% to $57,385,000 in
fiscal 1996 compared to $55,278,000 in fiscal 1995. The Company believes the
increase in water well drilling revenues for the year is mainly the result of
increased domestic municipal spending in certain areas of the country and the
Company's international expansion. This increase was offset in part by the
significant adverse effect of weather and economic conditions on the Company's
southern California operations. Well and pump repair and maintenance revenues
decreased 6.3% to $43,166,000 in fiscal 1996 compared to $46,066,000 in fiscal
1995. The Company experienced a decrease in activity in certain markets for
these services, particularly in southern California, in addition to decreases
resulting from certain office closures in fiscal 1995. Environmental revenues
decreased 17.1% to $25,278,000 in fiscal 1996 compared to $30,487,000 in fiscal
1995. The Company believes these decreases are a result of closing certain
offices during fiscal 1995 and a continuing decline in the overall market for
the environmental services offered by the Company. The decline in environmental
revenues was partially offset by strong current demand in the Arizona market
serviced by the Company which is being influenced by increased enforcement of
state environmental laws. Mineral exploration drilling and other services
revenues increased 18.4% to $41,442,000 in fiscal 1996 compared to $34,999,000
in fiscal 1995. A portion of the increase, $2,526,000, is the result of the
merger with CBC. The remaining increase reflects increased demand in the
international markets served by the Company partially offset by decreased
domestic demand.
Gross profit increased to $45,193,000 or 27.0% of revenues in fiscal
1996 compared to $43,016,000 or 25.8% of revenues in fiscal 1995. The increase
in gross profit is primarily attributable to higher margins for all product
lines. The increase in margins is a result of an ongoing effort to improve
pricing and efficiencies in the delivery of services.
Selling, general and administrative expenses decreased to $28,260,000
or 16.9% of revenues in fiscal 1996 compared to $28,860,000 or 17.3% of revenues
in fiscal 1995. The decrease in selling, general and administrative expenses is
primarily attributable to lower requirements for certain incentive-related
expenses.
Depreciation expense increased to $8,233,000 or 4.9% of revenues in
fiscal 1996 compared to $7,811,000 or 4.7% of revenues in fiscal 1995. The
increase is
20
21
the result of increased capital spending during the past two fiscal years in an
effort to upgrade certain equipment and expand internationally.
Interest expense remained flat in fiscal 1996 compared to fiscal 1995.
This was the result of a lower level of borrowings during the majority of fiscal
1996 offset by increased borrowings as a result of the merger with CBC.
Other income, net increased to $407,000 in fiscal 1996 compared to a
loss of $84,000 in fiscal 1995. Fiscal 1995 included a $474,000 exchange loss
primarily as a result of the Mexican Peso devaluation.
Income taxes increased to $3,753,000 in fiscal 1996 compared to
$2,522,000 in fiscal 1995 as a result of higher income before income taxes
compared to the prior year. The effective tax rate for fiscal 1996 decreased to
45% compared to 46% in fiscal 1995 as a result of the merger with CBC.
Fluctuation in Quarterly Results
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the completion of smaller, short-term
contracts and the recording of revenues and from unanticipated additional costs
incurred on projects. In addition, water well, environmental and mineral
drilling activities and related revenues tend to decrease in the winter months
when adverse weather conditions interfere with access to drilling sites and the
ability to drill. Accordingly, quarterly results should not be considered
indicative of results to be expected for any other quarter or for any full
fiscal year.
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 1997, 1996 and
1995 was its cash from operating activities of $17,116,000, $7,268,000 and
$23,308,000, respectively. The change in cash from operating activities from
fiscal 1996 to 1997 was primarily the result of improved net income, dividends
received from foreign affiliates and accounts receivable collections.
Cash from operations, along with borrowings under the Company's
revolving credit agreement, was primarily utilized for investing activities
which included additions of $18,544,000 to property and equipment. Capital
expenditures during fiscal 1997 were primarily directed toward upgrading the
Company's equipment and facilities and international expansion. The Company
expects to spend approximately $10,000,000 in the next fiscal year for capital
expenditures. The Company anticipates fiscal 1998 capital expenditures will be
used to continue to upgrade the Company's equipment and capabilities. As of
January 31, 1997, the Company had no material commitments outstanding for
capital assets.
During March 1996, the Company completed the private placement of an
unsecured note agreement for $25,000,000 to replace a term loan the Company had
previously obtained from one of its lenders. The Company also entered into a new
credit agreement ("Credit Agreement") to replace the existing credit agreement
and provide a revolving cash borrowing facility of $30,000,000 less any
21
22
outstanding letter of credit commitments. See Note 8 of the Notes to
Consolidated Financial Statements.
The Company's working capital as of January 31, 1997, 1996 and 1995 was
$29,643,000, $26,796,000 and $13,578,000, respectively. The increase in working
capital in fiscal 1997 over fiscal 1996 was the result of improved operating
cash flow as discussed above. The Company also recorded $2,800,000 in accrued
integration costs in connection with the merger with CBC. This has been reduced
by total cash expenditures of $2,013,000, all of which have been funded by
operations. The actions anticipated in the remaining amount are expected to be
substantially completed during 1998. The Company believes borrowings from its
available Credit Agreement and cash from operations will be sufficient to meet
the Company's seasonal cash requirements and to fund its budgeted capital
expenditures for the fiscal 1998 year.
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 of the Notes to Consolidated Financial
Statements.
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 ............................................... 23
Financial Statements:
Consolidated Balance Sheets as of January 31, 1997 and 1996.............. 24
Consolidated Statements of Income for the Years
Ended January 31, 1997, 1996 and 1995................................. 26
Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 1997, 1996 and 1995................................. 27
Consolidated Statements of Cash Flows for the Years Ended
January 31, 1997, 1996 and 1995 ...................................... 28
Notes to Consolidated Financial Statements............................... 30
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.
22
23
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,
1997 and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 1997 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 7, 1997
23
24
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets
As of January 31, 1997 and 1996
(In Thousands of Dollars)
ASSETS 1997 1996
---------- ------
Current assets:
Cash and cash equivalents $ 1,697 $ 382
Customer receivables, less allowance
of $1,002 and $887, respectively 32,031 33,572
Costs and estimated earnings in excess of
billings on uncompleted contracts 10,284 9,777
Inventories 17,739 15,495
Deferred income taxes 6,356 7,082
Other 1,675 1,305
-------- --------
Total current assets 69,782 67,613
-------- --------
Property and equipment:
Land 7,922 4,469
Buildings 13,555 12,064
Machinery and equipment 101,945 93,497
-------- --------
123,422 110,030
Less--Accumulated depreciation (69,015) (62,141)
-------- --------
Net property and equipment 54,407 47,889
-------- --------
Other assets:
Investment in foreign affiliates 17,172 14,921
Investment in domestic affiliate - 2,203
Intangible assets, at cost less accumulated
amortization 521 525
Property and equipment held for sale 713 198
Other 1,055 828
-------- --------
Total other assets 19,461 18,675
-------- --------
$143,650 $134,177
======== ========
See Notes to Consolidated Financial Statements.
24
25
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets(Continued)
As of January 31, 1997 and 1996
(In Thousands of Dollars, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ --------
Current liabilities:
Accounts payable $ 12,550 $ 13,225
Current maturities of long-term debt 114 105
Accrued compensation 8,348 8,869
Accrued insurance expense 5,410 4,936
Accrued integration costs 787 2,703
Other accrued expenses 6,876 7,088
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,054 3,891
--------- ---------
Total current liabilities 40,139 40,817
--------- ---------
Non-current and deferred liabilities:
Long-term debt 30,314 28,428
Deferred income taxes 3,307 2,323
Accrued insurance expense 5,775 6,198
Other 1,451 2,439
--------- ---------
Total non-current and deferred
liabilities 40,847 39,388
--------- ---------
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, 8,871,467
and 8,839,845 shares issued and outstanding,
respectively 89 88
Capital in excess of par value 39,293 38,954
Retained earnings 24,187 16,170
Notes receivable from management stockholders (199) (313)
Unrecognized pension cost (624) (777)
Cumulative translation adjustment (82) (150)
--------- ---------
Total stockholders' equity 62,664 53,972
--------- ---------
$ 143,650 $ 134,177
========= =========
See Notes to Consolidated Financial Statements.
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26
Layne Christensen Company and Subsidiaries
Consolidated Statements of Income
For the Years Ended January 31, 1997, 1996 and
1995 (In Thousands of Dollars, except per share data)
1997 1996 1995
------------ ----------- ----------
Revenues:
Service revenues $ 196,544 $ 153,755 $ 156,121
Product sales 26,309 13,516 10,709
--------- --------- ---------
Total revenues 222,853 167,271 166,830
--------- --------- ---------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 142,562 111,061 115,231
Cost of product sales 19,040 11,017 8,583
--------- --------- ---------
Total cost of revenues 161,602 122,078 123,814
--------- --------- ---------
Gross profit 61,251 45,193 43,016
Selling, general and administrative
expenses 38,956 28,260 28,860
Depreciation 10,974 8,233 7,811
--------- --------- ---------
Operating income 11,321 8,700 6,345
Other income (expense):
Equity earnings of foreign
affiliates 3,895 - -
Interest (2,447) (767) (779)
Other, net 161 407 (84)
--------- --------- ---------
Income before income taxes 12,930 8,340 5,482
Income tax expense 4,913 3,753 2,522
--------- --------- ---------
Net income $ 8,017 $ 4,587 $ 2,960
========= ========= =========
Net income per common and dilutive
equivalent share $ 0.88 $ 0.61 $ 0.40
========= ========= =========
Weighted average number of common and dilutive
equivalent shares outstanding:
Weighted average shares
outstanding 8,865,000 7,451,000 7,301,000
Dilutive stock options 281,000 66,000 47,000
--------- --------- ---------
9,146,000 7,517,000 7,348,000
========= ========= =========
See Notes to Consolidated Financial Statements.
26
27
Layne Christensen Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended January 31, 1997, 1996 and 1995
(In Thousands of Dollars)
Notes
Receivable
Common Stock Capital in from Unrecognized Cumulative
------------ Excess of Retained Management Pension Translation
Shares Amount Par Value Earnings Stockholders Cost Adjustment
------ ------ --------- -------- ------------ ---- ----------
Balance, February 1, 1994 7,301,002 $ 73 $29,580 $ 8,623 $ (391) $ (516) $ (21)
Issuance of notes
receivable from
management - - - - (50) - -
Payments on notes
receivables - - - - 106 - -
Unrecognized pension
liability - - - - - 28 -
Net income - - - 2,960 - - -
Cumulative translation
adjustment - - - - - - (119)
--------- ------ ------- ------- ------ ------- ------
Balance, January 31, 1995 7,301,002 73 29,580 11,583 (335) (488) (140)
Issuance of stock for
acquisition 1,506,194 15 9,158 - - - -
Issuance of stock for
incentive compensation
program 32,649 - 216 - - - -
Payments on notes
receivable - - - - 22 - -
Unrecognized pension
liability - - - - - (289) -
Net income - - - 4,587 - - -
Cumulative translation
adjustment - - - - - - (10)
--------- ------ ------- ------- ------ ------- ------
Balance, January 31, 1996 8,839,845 88 38,954 16,170 (313) (777) (150)
Issuance of stock for
incentive compensation
program 31,622 1 339 - - - -
Payments on notes
receivable - - - - 114 - -
Unrecognized pension
liability - - - - - 153 -
Net income - - - 8,017 - - -
Cumulative translation
adjustment - - - - - - 68
--------- ------ ------- ------- ------ ------- ------
Balance, January 31, 1997 8,871,467 $ 89 $39,293 $24,187 $ (199) $ (624) $ (82)
========= ====== ======= ======= ====== ======= ======
See Notes to Consolidated Financial Statements.
27
28
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended January 31, 1997, 1996 and 1995
(In Thousands of Dollars)
1997 1996 1995
--------- ---------- ----------
Cash flow from operating activities:
Net income $ 8,017 $ 4,587 $ 2,960
Adjustments to reconcile net income
to cash from operations:
Depreciation and amortization 11,261 8,392 7,978
Deferred income taxes 1,710 (48) 677
Equity earnings of foreign affiliates (3,895) - -
Dividends received from foreign
affiliates 1,990 279 -
(Gain) loss from disposal of property and
equipment 110 (330) (164)
Changes in current assets and liabilities,
net of effects from acquisitions:
(Increase) decrease in customer
receivables 2,275 (1,490) 1,884
Increase in costs and estimated
earnings in excess of billings
on uncompleted contracts (507) (402) (1,059)
(Increase) decrease in inventories (1,623) (345) 996
(Increase) decrease in other current
assets (370) (185) 1,202
Increase (decrease) in accounts
payable and accrued expenses (2,987) (5,374) 8,478
Increase in billings in excess of
costs and estimated earnings on
uncompleted contracts 2,163 1,304 786
Other, net (1,028) 880 (430)
-------- -------- --------
Cash from operating activities 17,116 7,268 23,308
-------- -------- --------
Cash flow from investing activities:
Additions to property and equipment (18,544) (12,454) (8,732)
Proceeds from disposal of property and
equipment 1,070 798 348
Proceeds from disposal of property held for
disposal - 486 1,386
Acquisition, net of cash acquired - (22,801) -
Investment in foreign affiliate (346) (200) -
Investment in domestic affiliate 282 (118) -
-------- -------- --------
Cash from investing activities (17,538) (34,289) (6,998)
-------- -------- --------
See Notes to Consolidated Financial Statements.
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29
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows - (Continued)
For the Years Ended January 31, 1997, 1996 and 1995
(In Thousands of Dollars)
1997 1996 1995
--------- --------- ---------
Cash flow from financing activities:
Proceeds from long-term debt $ 25,000 $ 25,000 $ -
Net borrowings under revolving credit
facility 500 3,500 -
Repayments of long-term debt (23,605) (1,508) (21,900)
Issuance of notes receivable from
management stockholders - - (50)
Payments on notes receivable from
management stockholders 114 22 106
Debt issuance costs (272) (190) (92)
-------- ------- --------
Cash from financing activities 1,737 26,824 (21,936)
-------- ------- --------
Effects of exchange rate changes on cash - -- (401)
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents 1,315 (197) (6,027)
Cash and cash equivalents at beginning
of year 382 579 6,606
-------- ------- --------
Cash and cash equivalents at end of year $ 1,697 $ 382 $ 579
======== ======= ========
See Notes to Consolidated Financial Statements.
29
30
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
Description of Business--Layne Christensen Company and subsidiaries
(together, the "Company") provides comprehensive services for water well
drilling (including related equipment sales), well and pump repair and
maintenance and environmental drilling in most regions in the United States, and
provides mineral exploration drilling services primarily in the western United
States, Mexico and Canada. Its customers include municipalities, industrial
companies, mining companies, environmental consulting and engineering firms and,
to a lesser extent, agribusiness. 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 wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated. Financial
information for the Company's foreign subsidiaries and affiliates is reported in
the Company's consolidated financial statements on a one month lag.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
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 subsidiary are primarily
denominated in the U.S. dollar. Accordingly, this subsidiary uses the U.S.
dollar as its functional currency and translates 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
exchange rates which approximate the average of the rates prevailing during each
year. Translation adjustments are reported as a separate component of
stockholders' equity.
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31
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies--(Continued)
Net foreign currency transaction gains and losses for 1997 and 1996 are
not significant. Included in the consolidated statement of income for 1995 are
net losses of $474,000.
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):
1997 1996
------- ------
Raw materials $ 1,790 $ 2,070
Work in process 1,568 846
Finished products, parts and supplies 14,381 12,579
------- -------
Total $17,739 $15,495
======= =======
Property and Equipment and Related Depreciation - Property and
equipment (including major renewals and improvements) are recorded at cost.
Property and equipment held for sale is carried at the lower of depreciated cost
or estimated net realizable value. Depreciation is provided using the
straight-line method. 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 purchased technical
manuals, well records and other assets which are being amortized over their
estimated economic lives which, for the more significant items, range from three
to thirty-five years. Amortization expense for intangible assets was $116,000,
$125,000 and $144,000 for 1997, 1996 and 1995, respectively. Accumulated
amortization of intangible assets at January 31, 1997 and 1996 was $709,000 and
$593,000, respectively.
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.
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32
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies--(Continued)
Effective February 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The adoption did not have a material effect on the consolidated financial
statements.
Accrued Insurance Expense - 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 (see Note 10).
Fair Value of Financial Instruments - SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments for which it is practicable to estimate that
value. The carrying amounts of financial instruments including cash and cash
equivalents, customer receivables and accounts payable approximate fair value at
January 31, 1997 and 1996 because of the relatively short maturity of those
instruments. See Note 8 for disclosure regarding 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 Company's cash equivalents consist principally
of funds deposited in a short-term asset management account and are carried at
cost which approximates market. The amounts paid for income taxes and interest
are as follows (in thousands of dollars):
1997 1996 1995
------- ------- ------
Income taxes $ 2,855 $ 3,743 $ 1,625
Interest 1,750 631 785
Supplemental Noncash Transactions--In 1996, the Company issued
1,506,194 shares of common stock in connection with an acquisition of a business
(see Note 2). The following table summarizes the Company's acquisition in 1996
(in thousands of dollars):
Fair value of assets acquired $ 49,674
Less: liabilities incurred or assumed 26,873
--------
Cash paid, net of cash acquired $ 22,801
========
In 1997 and 1996, the Company issued 31,622 and 32,649 shares,
respectively, of common stock to employees related to 1996 and 1995 compensation
awards. Total value of these awards was approximately $340,000 and $216,000,
respectively, which was accrued at January 31, 1996 and 1995, respectively.
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.
32
33
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies--(Continued)
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
except when their effect is antidilutive.
Stock-Based Compensation - Effective February 1, 1996, the Company
adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under SFAS 123, stock-compensation would be accounted for based
on the estimated fair value of the awards at the date they are granted. As
permitted by the Statement, the Company will continue to account for its
stock-based compensation programs (see Note 9) under APB Opinion No. 25 which
requires compensation cost to be recognized 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. Pro forma net income and earnings per
share for 1997, determined as if the new method had been applied, would have
been $7,842,000 and $0.86, respectively. As there were no options granted during
1996, there is no pro forma effect on 1996 results. Because the SFAS 123 method
of accounting has not been applied to options granted prior to 1996, the pro
forma compensation cost may not be representative of that to be expected on a
pro forma basis in future years.
Reclassifications - Certain 1996 and 1995 amounts have been
reclassified to conform with the 1997 presentation.
(2) Acquisitions
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
on December 28, 1995, the Company purchased all of the outstanding shares and
options for common stock of Christensen Boyles Corporation ("CBC") for
approximately 1,506,000 shares of restricted common stock of the Company and
approximately $9,056,000 in cash and accrued $2,800,000 (and related tax
benefits of $1,081,000) for integration costs and $460,000 for transaction
costs. The restricted common stock of the Company issued in connection with the
Merger was valued at $6.09 per share, as determined by a fair market-value
analysis conducted by an independent investment banking firm. The acquisition is
referred to as the "Merger". The Company also paid-off approximately $13,971,000
and assumed $1,491,000 of CBC's existing indebtedness. A portion of the cost of
the Merger was financed by a $25,000,000 term loan (see Note 8). The Company's
consolidated results include the operations of CBC from the date of acquisition.
The Merger was accounted for using the purchase method of accounting. The
purchase price of $20,408,000 was allocated based on estimated fair values at
the date of the Merger.
Pursuant to the Merger Agreement, as of January 31, 1997, a total of
646,187 shares of the Company's common stock remain deposited in escrow with an
independent escrow agent to provide security to the Company for the accuracy and
performance of the covenants and warranties made by the parties to the Merger
Agreement (other than the Company). All such shares are shown as outstanding and
issued as of the date of the Merger. The shares are to be released from escrow
on the second and third anniversary of the Merger, pending any claims filed.
33
34
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(2) Acquisitions--(Continued)
The integration costs accrued in connection with the acquisition
included costs for consolidating certain CBC facilities into Company facilities
and closing one CBC manufacturing facility. The remaining balance of $787,000 at
January 31, 1997 consists primarily of lease termination costs, employee
termination benefits, and asset relocation costs. These actions are expected to
be substantially completed during 1998.
(3) Investments in Foreign Affiliates
Primarily as a result of the Merger (see Note 2), the Company has
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 20-35 years. Accumulated amortization at January
31, 1997 was $130,000. 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) 35.375%
Christensen Commercial, S.A. (Peru) 50.00%
Geotec, S.A. (Peru) 35.375%
Boytec, S.A. (Panama) 49.99%
Technidrill, Ltd. (France) 49.00%
Christensen Boyles GmbH (Germany) 33.35%
Plantation International(Chile) 50.00%
Financial information from foreign affiliates is reported on a one
month lag. As the Company had no investments in foreign affiliates prior to
December 28, 1995, no equity in earnings was recorded for the period December
28, 1995 (the CBC acquisition date) to January 31, 1996. Such amount is not
considered significant. Summarized financial information of the Company's
foreign affiliates, as of January 31, 1997 and 1996 and for the year ended
January 31, 1997 were as follows (in thousands of dollars):
1997 1996
------- ------
Total assets $68,576 $52,237
Total liabilities 35,993 30,157
Revenues 94,182 -
Gross profit 69,577 -
Operating income 14,651 -
Net income 10,043 -
34
35
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(3) Investments in Foreign Affiliates--(Continued)
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, 1997 and 1996 and for the years then
ended (in thousands of dollars):
1997 1996
------- ------
Accounts receivable $1,480 $1,116
Revenues 5,924 322
Undistributed equity earnings of foreign affiliates totaled $1,905,000
as of January 31, 1997.
(4) Costs and Estimated Earnings on Uncompleted Contracts
1997 1996
-------- --------
(in thousands of dollars)
Costs incurred on uncompleted contracts $ 44,165 $ 30,672
Estimated earnings 19,453 14,764
-------- --------
63,618 45,436
Less: Billings to date 59,388 39,550
-------- --------
$ 4,230 $ 5,886
======== ========
Included in accompanying balance
sheets under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 10,284 $ 9,777
Billings in excess of costs and estimated
earnings on uncompleted contracts (6,054) (3,891)
-------- --------
$ 4,230 $ 5,886
======== ========
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.
35
36
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(5) Income Taxes
Income before income taxes is as follows (in thousands of dollars):
1997 1996 1995
------- -------- ------
Domestic $ 8,206 $ 8,551 $ 5,121
Foreign 4,724 (211) 361
------- ------- -------
$12,930 $ 8,340 $ 5,482
======= ======= =======
Components of the income tax expense are (in thousands of dollars):
1997 1996 1995
------- -------- ------
Currently due:
U.S. Federal and state $ 2,406 $ 3,851 $ 1,679
Foreign 893 (230) 183
------- ------- --------
3,299 3,621 1,862
------- ------- --------
Deferred:
U.S. Federal and state 1,157 (189) 660
Foreign 457 321 --
------- ------- -------
1,614 132 660
------- ------- --------
$ 4,913 $ 3,753 $ 2,522
======= ======= =======
Deferred income taxes result from temporary differences between the
financial statement and tax basis of the Company's assets and liabilities. The
sources of these differences and their cumulative tax effects are (in thousands
of dollars):
1997 1996
---------------------------------- -----------------------------------
Assets Liabilities Total Assets Liabilities Total
------ ----------- ----- ------ ----------- -----
Contract income $ 2,642 $ - $ 2,642 $ 1,271 $ - $ 1,271
Accrued insurance
expense 1,521 - 1,521 1,447 - 1,447
Employee compensation 801 - 801 688 - 688
Bad debts 338 - 338 370 - 370
Inventory reserves 607 - 607 1,229 - 1,229
Product guaranty 186 - 186 282 - 282
Accrued acquisition
integration costs 294 - 294 1,044 - 1,044
Other 531 (564) (33) 998 (247) 751
------- ------- ------- ------- -------- -------
Current 6,920 (564) 6,356 7,329 (247) 7,082
------- ------- ------- ------- -------- -------
Accelerated depreciation - (6,562) (6,562) - (6,225) (6,225)
Accrued insurance expense 2,154 - 2,154 2,394 - 2,394
Net operating loss
carryforward 694 - 694 1,178 - 1,178
Employee compensation - (205) (205) - (219) (219)
Other 626 (14) 612 613 (64) 549
------- ------- ------- ------- ------- -------
Noncurrent 3,474 (6,781) (3,307) 4,185 (6,508) (2,323)
------- ------- ------- ------- ------- -------
$10,394 $(7,345) $ 3,049 $11,514 $(6,755) $ 4,759
======= ======= ======= ======= ======= =======
36
37
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(5) Income Taxes--(Continued)
For the year ended January 31, 1997, deferred income tax assets, net
of deferred income tax liabilities, decreased by $1,710,000. Of this decrease,
$1,614,000 was recorded as deferred income tax expense in the income tax
provision and $96,000 was recorded in Stockholder's Equity pursuant to the
application of SFAS No. 87, "Employers Accounting for Pensions" (see Note 7).
Management has determined that no valuation allowance for the deferred tax
assets is necessary based on all available evidence.
For Federal income tax purposes, the Company has a tax net operating
loss carryforward of $1,862,000 relating to the company acquired in the Merger
(see Note 2) and therefore subject to certain restrictions, which expires during
the years ending 2008, 2009 and 2010.
At January 31, 1997, undistributed earnings of foreign subsidiaries and foreign
affiliates include $11,375,000 for which no U.S. Federal income and 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):
1997 1996 1995
----------------- ----------------- ----------------
Effective Effective Effective
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Income tax at statutory
rate $4,397 34.0% $2,836 34.0% $1,864 34.0%
State income tax, net of
federal income tax benefit 570 4.4 355 4.3 290 5.3
Difference in tax expense
resulting from:
Non-deductible expenses 692 5.4 618 7.4 322 5.9
Income of foreign affiliates (774) (6.0) - - - -
Other, net 28 .2 (56) (.7) 46 .8
------ ----- ------ ---- ------ ----
$4,913 38.0% $3,753 45.0% $2,522 46.0%
====== ====== ====== ==== ====== ====
(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, 1997 are as follows (in thousands of dollars):
1998 $ 4,178
1999 2,648
2000 1,645
2001 403
2002 16
37
38
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(6) Leases--(Continued)
Principal operating leases are for equipment, office and shop
facilities. Equipment leases are primarily for automobiles and small trucks,
which are leased from independent leasing companies under master lease
arrangements. Rent expense under operating leases (including minor amounts of
contingent rental payments) was $5,010,000, $3,298,000 and $2,749,000, in 1997,
1996 and 1995, respectively.
(7) Employee Benefits Plans
The Company sponsors pension plans 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
plans 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 plans consist
primarily of stocks, bonds and government securities.
The following table sets forth the plans' funded status as of December
31, 1996 and 1995 (the measurement dates) and the amounts recognized in the
Company's balance sheets at January 31, 1997 and 1996 (in thousands of dollars):
1997 1996
---- ----
Accumulated vested benefit obligations $ 4,832 $ 4,794
Accumulated non-vested benefit obligation 117 107
------- -------
Accumulated benefit obligations $ 4,949 $ 4,901
======= =======
Projected benefit obligations for service
rendered to date (4,949) (4,901)
Plan assets at fair value 4,398 4,049
------- -------
Projected benefit obligation in excess
of plan assets (551) (852)
Unrecognized net loss 1,365 1,672
Prior service cost not yet recognized in
net periodic pension cost 92 128
Unrecognized net obligation being recognized
over the average expected remaining life
of the participants (345) (407)
Adjustment required to recognize minimum
liability (1,109) (1,393)
------- -------
Pension liability recognized in the balance
sheets $ (548) $ (852)
======= =======
Net periodic pension cost for 1997, 1996 and 1995 includes the following
components (in thousands of dollars):
1997 1996 1995
------ ------ ------
Service cost $ 171 $ 140 $ 173
Interest cost 357 336 317
Actual return on assets (343) (602) 74
Net amortization 88 42 81
Deferred asset gain (loss) (29) 307 (345)
------ ----- ------
$ 244 $ 223 $ 300
====== ===== ======
38
39
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(7) Employee Benefits Plans--(Continued)
In accordance with SFAS No. 87, at January 31, 1997 and 1996 the
Company has recognized the full amount of its actuarially determined pension
liability and the related intangible asset of $92,000 and $128,000,
respectively. 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 1997, 1996 and 1995 was computed
using a discount rate of 7.50%, 7.25% and 8.25%, respectively, and an estimated
long-term rate of return on assets of 8.75%. Benefit level assumptions for 1997,
1996 and 1995 are based on fixed amounts per year of credited service.
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 $638,000, $517,000 and $474,000 in 1997,
1996 and 1995, 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 $1,264,000, $802,000
and $862,000 in 1997, 1996 and 1995, respectively. The Company reserves the
right to amend or terminate the plans, but the Company cannot recover
contributions already paid.
(8) Indebtedness
On March 15, 1996, the Company executed a credit agreement ("Credit
Agreement") with a bank group which replaced a previous credit agreement
("Previous Credit Agreement"). The Credit Agreement provides a revolving cash
borrowing facility of up to $30,000,000, less any outstanding letter of credit
commitments by the bank group. As of January 31, 1997, letters of credit in an
aggregate amount of $4,904,000 had been issued on behalf of the Company.
The Credit Agreement is unsecured, but is guaranteed by certain of the
Company's domestic subsidiaries. The Credit Agreement limits the amount
available for the payment of cash dividends to $1,000,000 plus 25% of cumulative
net income after January 31, 1995. At January 31, 1997, the Company's retained
earnings available for cash dividends was $4,151,000 based on this limitation.
The Credit Agreement also contains significant covenants including restrictions
on incurrence of additional indebtedness and liens, sale of assets or other
dispositions, transactions with affiliates and certain financial maintenance
covenants, including among others, minimum interest coverage, minimum net worth,
and maximum leverage ratios. In addition, the Credit Agreement contains a
provision providing for the accelerated maturities of all outstanding balances
if there is an unapproved change of control in the Company. The Credit Agreement
expires on March 15, 1999.
39
40
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(8) Indebtedness--(Continued)
The Credit Agreement provides for interest at variable rates equal to,
at the Company's option, the Bank of America Illinois ("BAI") interbank
eurodollar rate (which generally is approximately equal to LIBOR; 5.4375% at
January 31, 1997) plus .75% to 1.25% (depending on interest coverage and debt
ratios) or the BAI Alternate Reference Rate (as defined in the loan agreement;
8.25% at January 31, 1997). The variable interest rates on the outstanding
balances approximate the current market rates.
Maximum borrowings outstanding under the Company's then existing credit
agreements during 1997, 1996 and 1995 were $7,500,000, $18,000,000 and
$2,500,000, respectively, and the average outstanding borrowings were
$4,875,000, $6,042,000 and $675,000, respectively. The weighted average interest
rate was 7.5%, 7.9% and 8.5%, respectively.
On December 28, 1995, the Company executed an amendment to the Previous
Credit Agreement to provide a $25,000,000 term loan facility ("Term Loan") to
the Company to finance the Merger (see Note 2). The Term Loan provided for
interest at rates equal to the Credit Agreement except that the margin on
interbank eurodollar loans was 1.25%.
The Term Loan was replaced on March 15, 1996 with the private placement
of an unsecured note agreement for the issuance and sale of $25,000,000
aggregate principal amount of senior notes ("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, 1997 and
1996, such interest rate approximates market for similar securities. Financial
guarantees and covenants are similar to those in the Credit Agreement.
In connection with the Merger (see Note 2), the Company assumed a
mortgage loan with an insurance company which is secured by the Company's
manufacturing facility in Salt Lake City, Utah. The mortgage loan provides for
monthly installments of $19,000 through September 2000 with a final payment in
October, 2000 of $963,000. The interest rate is fixed during the term of the
Mortgage Loan at 8.64%. As of January 31, 1997 and 1996, such interest rate
approximates market for similar securities.
Loan costs incurred in securing long-term financing are amortized over
the term of the respective loan agreement. Amortization of these costs for 1997,
1996 and 1995 was $171,000, $34,000 and $92,000, 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):
1997 1996
---- ----
Senior Notes $25,000 -
Term loan - $23,500
Revolving debt 4,000 3,500
Mortgage loan 1,428 1,533
------- -------
30,428 28,533
Less current maturities 114 105
------- -------
Total long-term debt - net $30,314 $28,428
======= =======
40
41
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(8) Indebtedness--(Continued)
As of January 31, 1997, long-term debt matures as follows (in thousands
of dollars):
1998 $ 114
1999 124
2000 4,136
2001 4,624
2002 3,571
Thereafter 17,859
(9) Stock and Stock Option Plans
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 1997 and 1996, 31,622 and 32,649 shares,
respectively, were issued at $10.75 and $6.63 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 1,000,000 shares of Common
Stock at a price fixed by the Board of Directors or a committee.
Shares Under Option Shares Exercisable
------------------------- ---------------------------
Weighted Weighted
Number of Average Number of Average
Shares Price Shares Price
--------- -------- --------- --------
Stock Option Activity Summary:
Outstanding, January 31, 1994 486,232 $5.784 103,456 $2.733
Granted 39,000 6.375 -
Canceled (58,317) 7.000 (11,663)
Vested - - 71,152
-------- --------
Outstanding, January 31, 1995 466,915 5.681 162,945 4.106
Granted - - -
Canceled - - -
Vested - - 78,948
------- --------
Outstanding, January 31, 1996 466,915 5.681 241,893 4.907
Granted 191,500 10.748 -
Canceled (16,500) 10.500 -
Vested - - 110,651
-------- --------
Outstanding, January 31, 1997 641,915 7.069 352,544 5.779
======== ========
As of January 31, 1997, the range of exercise prices for outstanding
options was $.58 to $13.375, and the weighted average remaining contractual term
was 6.8 years. The options generally have a ten year term from date of grant and
vest ratably over five years.
41
42
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(10) Contingencies
The Company provides environmental drilling and consulting services
that are related to the cleanup of hazardous substances, toxic wastes and other
pollutants. Rendering these services exposes the Company to potential
significant liability for claims related to the costs of environmental
remediation and other damages. The Company has obtained a "claims made"
pollution liability policy limited to $20,000,000 for any individual claim and
$20,000,000 for all claims in the aggregate made under such policy during the
policy's three year term. While the Company believes this is a cost effective
level of environmental insurance coverage in light of the risks associated with
its business, no assurance can be given that the amount and scope of coverage
will be adequate.
The Company's former parent corporation, The Marley Company ("Marley"),
maintains insurance reserves for the Company on its financial statements to
cover expected losses under various casualty insurance policies for occurrences
prior to April 30, 1992. Those reserves were funded through intercompany charges
to the Company, which were calculated on the basis of the estimated insured
losses incurred by the Company. The Company has indemnified Marley for claims or
retroactive insurance premiums on those policies that exceed the amount of
reserves attributable to the Company's estimated losses through April 30, 1992.
The Company believes that the amount of such reserves will be sufficient to
cover its reasonably anticipated insured losses under past insurance policies.
Pursuant to an agreement with Marley, in July 1997, Marley will make payment to
the Company in the amount of the remaining reserves at that date, and the
Company will be responsible for any remaining incurred but unpaid claims or
losses.
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.
(11) Segment Information and Foreign Operations
The Company is a multi-national company operating predominantly in two
industry segments: as a drilling company with wholly-owned operations in the
United States, Mexico, Canada and Thailand, and as a manufacturer and supplier
of drilling equipment, parts and supplies. The manufacturing and supply
operations are primarily in the United States. Refer to Note 3 for information
on other foreign investments.
42
43
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(11) Segment Information and Foreign Operations--(Continued)
Revenues, operating income, identifiable assets, capital expenditures
and depreciation and amortization pertaining to the segments in which the
Company operates are presented below (in thousands of dollars). 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. Identifiable assets of foreign
subsidiaries are those assets related to the operations of those subsidiaries.
Corporate assets are all other 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).
Revenues 1997 1996 1995
---- ---- ----
Drilling
United States $171,704 $143,162 $150,036
Foreign 24,840 10,593 6,085
-------- -------- --------
Total Drilling 196,544 153,755 156,121
Manufacturing and Supply 41,572 23,232 17,935
Intersegment revenues (15,263) (9,716) (7,226)
-------- -------- --------
Total Manufacturing and Supply 26,309 13,516 10,709
-------- -------- --------
$222,853 $167,271 $166,830
======== -------- ========
Operating Income
Drilling
United States $ 13,844 $ 14,107 $ 15,073
Foreign 2,159 409 1,037
-------- -------- --------
Total Drilling 16,003 14,516 16,110
Manufacturing and Supply 1,390 1,625 536
Corporate (6,072) (7,441) (10,301)
-------- -------- --------
$ 11,321 $ 8,700 $ 6,345
======== ======== ========
Identifiable Assets
Drilling
United States $ 74,113 $ 70,866 $ 60,678
Foreign 16,484 15,616 6,206
-------- -------- --------
Total Drilling 90,597 86,482 66,884
Manufacturing and Supply 24,917 20,622 5,008
Corporate 28,136 27,073 9,165
-------- -------- --------
$143,650 $134,177 $ 81,057
======== ======== ========
Capital Expenditures
Drilling $ 18,071 $12,383 $8,723
Manufacturing and Supply 473 71 9
-------- ------- ------
$ 18,544 $12,454 $8,732
======== ======= ======
Depreciation and Amortization
Drilling $ 10,776 $ 8,375 $ 7,960
Manufacturing and Supply 485 17 18
-------- ------- -------
$ 11,261 $ 8,392 $ 7,978
======== ======= =======
Of the $26,309,000 Manufacturing and Supply sales to unaffiliated
customers in 1997, $10,023,000 were export sales, principally to Latin and South
America.
43
44
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1997, 1996 and 1995
(12) Investment in Domestic Affiliate
As a result of the Merger (see Note 2), the Company owned 50% of a
limited liability company, CBC Welnav L.C. ("Welnav"). Welnav engaged primarily
in surveying and directional drilling services, and the manufacturing and
selling of survey tools and hydraulic down hole motors for mineral and energy
exploration, mine development, and pre-construction testing. Welnav was
dissolved and terminated as of November 30, 1996. No loss was incurred by the
Company in connection with the dissolution.
The Company's investment in Welnav was carried at the Company's equity
in the underlying net assets plus advances to Welnav. Summarized financial
information as of January 31, 1996 and for the period then ended was
approximately (in thousands of dollars):
Total assets $3,443
Total liabilities 1,346
Net sales 305
Net income 39
The Company had $1,155,000 in advances to Welnav as of January 31,
1996. The Company had transactions with Welnav for the years ended January 31,
1997 and 1996, but such amounts were not significant.
(13) Quarterly Results (Unaudited)
Unaudited quarterly financial data is as follows (see Note 2 regarding
the merger with CBC) (thousands of dollars, except per share data):
First Second Third Fourth
------- ------- ------- --------
1997:
Revenues $53,773 $56,312 $60,212 $52,556
Gross profit 14,070 15,975 17,172 14,034
Net income 1,103 2,552 3,200 1,162
Per share earnings 0.12 0.28 0.35 0.13
First Second Third Fourth
------- ------- ------- --------
1996:
Revenues $37,559 $42,560 $44,368 $42,784
Gross profit 10,203 11,521 12,695 10,774
Net income 646 1,555 1,841 545
Per share earnings 0.09 0.21 0.25 0.07
44
45
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 22, 1997, (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 22, 1997, 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 Compensation Committee
and the Administrative Committees of the Stock Option and Incentive Compensation
Plans 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 22, 1997, 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 22, 1997, 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.
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:
45
46
The financial statements are listed in the index for Item 8 of this
Form 10-K.
2. Financial Statement Schedules:
None required.
3. Exhibits:
The exhibits filed with or incorporated by reference in this report are
listed below:
Exhibit No. Description
3(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)
3(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(1) - 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(2) - Credit Agreement, dated March 15, 1996, among the
Registrant, Various Financial Institutions, Bank of
America Illinois, as Letter of Credit Issuer, and
Bank of America National Trust and Savings
Association, as Agent (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(12) and incorporated herein by this reference)
4(3) - Note Agreement dated as of March 15, 1996, between the
Registrant 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 Registrant'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(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)
46
47
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(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 Registrant and
management of the Registrant (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 Registrant 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
Registrant 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 Registrant
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
Registrant(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 Registrant 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) - Credit Agreement, dated March 15, 1996, among the
Registrant, Various Financial Institutions, Bank of
America Illinois, as Letter of Credit Issuer, and
Bank of America
47
48
National Trust and Savings Association, as Agent (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(12) and incorporated herein
by this reference)
**10(13) - Letter Agreement between Andrew B. Schmitt and the
Registrant dated October 12, 1993 (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(13) and incorporated herein by
reference)
10(14) - Note Agreement dated as of March 15, 1996, between the
Registrant 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 Registrant'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) - Form of Incentive Stock Option Agreement between
the Registrant and management 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 10(15) and incorporated
herein by this reference)
**10(16) - Severance Agreement, dated July 3, 1995, between
Christensen Boyles Corporation, a wholly owned
subsidiary of the Registrant, and Eric R. Despain
(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(16) and incorporated
herein by this reference)
10(17) - Registration Rights Agreement, dated as of November 30,
1995, between the Registrant and Marley Holdings,
L.P. (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(17) and
incorporated herein by this reference)
10(18) - Stockholders Agreement, dated as of December 28, 1995,
among the Registrant, Marley Holdings, L.P., Greylock
Investments Limited Partnership and certain other
stockholders of the Registrant identified therein
(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(18) and incorporated
herein by this reference)
11(1) - Statement re: Computation of per share earnings
22(1) - List of Subsidiaries
23(1) - Consent of Deloitte & Touche LLP
- ---------------------------
** Management contracts or compensatory plans or arrangements required to be
identified by Item 14(a)(3).
48
49
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year ended January 31, 1997.
(c) Exhibits
The exhibits filed with this report on Form 10-K are identified above
under Item 14(a)(3).
(d) Financial Statement Schedules
None required.
49
50
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 22, 1997 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 22, 1997
- ------------------------------------------------------
Andrew B. Schmitt
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/Jerry W. Fanska April 22, 1997
- ------------------------------------------------------
Jerry W. Fanska
Vice President--Finance and Treasurer
(Principal Financial and Accounting Officer)
/s/Robert J. Dineen April 22, 1997
- ------------------------------------------------------
Robert J. Dineen
Director
/s/Edward A. Gilhuly April 22, 1997
- ------------------------------------------------------
Edward A. Gilhuly
Director
/s/Todd A. Fisher April 22, 1997
- ------------------------------------------------------
Todd A. Fisher
Director
/s/Donald K. Miller April 22, 1997
- ------------------------------------------------------
Donald K. Miller
Director Exhibit Index
50
51
Exhibit No. Description Page
3(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) *
3(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(1) 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(2) Credit Agreement, dated March 15, 1996, among the
Registrant, Various Financial Institutions, Bank of
America Illinois, as Letter of Credit Issuer, and Bank
of America National Trust and Savings Association, as
Agent (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(12) and incorporated
herein by this reference) *
4(3) Note Agreement dated as of March 15, 1996, between the
Registrant 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 Registrant'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(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(3) Form of The Layne Capital Accumulation Plan and Trust
Agreement (filed with the Registrant's Registration
51
52
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 Registrant
and management of the Registrant (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 Registrant 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
Registrant 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 Registrant
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
Registrant (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 Registrant
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) Credit Agreement, dated March 15, 1996, among the
Registrant, Various Financial Institutions, Bank of
America Illinois, as Letter of Credit Issuer, and
Bank of America National Trust and Savings Association,
as Agent (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(12) and incorporated
herein by this reference) *
52
53
10(13) Letter Agreement between Andrew B. Schmitt and the
Registrant dated October 12, 1993 (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(14) Note Agreement dated as of March 15, 1996, between the
Registrant 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 Registrant'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) Form of Incentive Stock Option Agreement between the
Registrant and management 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
10(15) and incorporated herein by this reference) *
10(16) Severance Agreement, dated July 3, 1995, between
Christensen Boyles Corporation, a wholly owned
subsidiary of the Registrant, and Eric R. Despain
(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(16) and incorporated herein
by this reference) *
10(17) Registration Rights Agreement, dated as of November 30,
1995, between the Registrant and Marley Holdings, L.P.
(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(17) and incorporated herein by
this reference) *
10(18) Stockholders Agreement, dated as of December 28, 1995,
among the Registrant, Marley Holdings, L.P., Greylock
Investments Limited Partnership and certain other
stockholders of the Registrant identified therein
(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(18) and
incorporated herein by this reference) *
11(1) Statement re: Computation of per share earnings 54
22(1) List of Subsidiaries 56
23(1) Consent of Deloitte & Touche LLP 58
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* Incorporated herein by reference.
53