FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 33-48432
Layne Christensen Company
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
48-0920712
(I.R.S. Employer Identification No.)
1900 Shawnee Mission Parkway, Mission Woods, Kansas 66205
(Address of principal executive offices) (Zip Code)
(913) 362-0510
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ____.
There were 8,871,467 shares of common stock, $.01 par value
per share, outstanding on August 31, 1996.
<PAGE>
PART I
ITEM 1. Financial Statements
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<CAPTION>
July 31, January 31,
1996 1996
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 289 $ 382
Customer receivables, less allowance
of $1,052 and $887, respectively 33,674 33,572
Costs and estimated earnings in excess of
billings on uncompleted contracts 13,282 9,777
Inventories 15,796 15,495
Deferred income taxes 6,290 7,082
Other 1,724 1,305
Total current assets 71,055 67,613
Property and equipment:
Land 4,787 4,469
Buildings 12,025 12,064
Machinery and equipment 97,436 93,497
114,248 110,030
Less - Accumulated depreciation (65,877) (62,141)
Net property and equipment 48,371 47,889
Other assets:
Investment in foreign affiliates 15,957 14,921
Investment in domestic affiliate 2,186 2,203
Intangible assets, at cost less accumulated
amortization 612 525
Property and equipment held for sale 272 198
Other 1,166 828
Total other assets 20,193 18,675
$ 139,619 $ 134,177
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(In Thousands of Dollars, except per share data)
<CAPTION>
July 31, January 31,
1996 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 13,579 $ 13,225
Current maturities of long-term debt 109 105
Accrued compensation 8,570 8,869
Accrued insurance expense 5,064 4,936
Accrued integration 1,593 2,703
Other accrued expenses 7,435 7,088
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,023 3,891
Total current liabilities 41,373 40,817
Noncurrent and deferred liabilities:
Long-term debt 29,372 28,428
Deferred income taxes 2,165 2,323
Accrued insurance expense 6,869 6,198
Other 1,705 2,439
Total noncurrent and deferred liabilities 40,111 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 19,825 16,170
Notes receivable from management stockholders (199) (313)
Unrecognized pension cost (736) (777)
Cumulative translation adjustment (137) (150)
Total stockholders' equity 58,135 53,972
$ 139,619 $ 134,177
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except per share data)
<CAPTION>
Three Months Six Months
Ended July 31, Ended July 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Net service revenues $ 50,538 $ 39,045 $ 97,794 $ 73,582
Net product sales 5,774 3,515 12,291 6,537
Total 56,312 42,560 110,085 80,119
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 36,250 27,812 71,226 52,967
Cost of product sales 4,087 3,227 8,814 5,428
Total 40,337 31,039 80,040 58,395
Gross profit 15,975 11,521 30,045 21,724
Selling, general and
administrative expenses 9,852 6,611 19,589 13,429
Depreciation 2,611 2,010 5,452 4,004
Operating income 3,512 2,900 5,004 4,291
Other income (expense):
Equity earnings of foreign
affiliates 726 - 1,828 -
Interest (609) (170) (1,288) (286)
Other, net 458 149 548 71
Income before income taxes 4,087 2,879 6,092 4,076
Income tax expense 1,535 1,324 2,437 1,875
Net income $ 2,552 $ 1,555 $ 3,655 $ 2,201
Net income per common and
dilutive equivalent share $ .28 $ .21 $ .40 $ .30
Weighted average number of
common and dilutive
equivalent shares outstanding:
Weighted average shares
outstanding 8,872,000 7,334,000 8,858,000 7,320,000
Dilutive stock options 279,000 64,000 258,000 64,000
9,151,000 7,398,000 9,116,000 7,384,000
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands of Dollars)
<CAPTION>
Six Months Ended July 31,
1996 1995
<S> <C> <C>
Cash flow from operating activities:
Net income $ 3,655 $ 2,201
Adjustments to reconcile net income to cash
from operations:
Depreciation and amortization 5,626 4,081
Deferred income taxes 634 (725)
Equity earnings in foreign affiliates (1,828) -
Dividends received from foreign affiliates 792 -
Gain from disposal of property and equipment (351) (49)
Changes in current assets and liabilities:
Increase in customer receivables (102) (3,716)
Increase in cost and estimated earnings in
excess of billings on uncompleted contracts (3,505) (488)
Increase in inventories (301) (633)
(Increase) decrease in other current assets (419) 376
Decrease in accounts payable and accrued expenses (580) (1,480)
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 1,132 1,064
Other, net (5) (145)
Cash from operating activities 4,748 486
Cash flow from investing activities:
Proceeds from disposal of property and equipment 796 90
Proceeds from sale of property held for disposal - 60
Investment in domestic affiliate 26 -
Additions to property and equipment (6,453) (6,019)
Cash from investing activities (5,631) (5,869)
Cash flow from financing activities:
Net borrowings under revolving facility 1,000 5,000
Repayments of long-term debt (52) -
Payments on notes receivable from management stockholders 114 22
Debt issuance costs (272) (15)
Cash from financing activities 790 5,007
Net decrease in cash and cash equivalents (93) (376)
Cash and cash equivalents at beginning of period 382 579
Cash and cash equivalents at end of period $ 289 $ 203
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LAYNE CHRISTENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts of the
Layne Christensen Company and its subsidiaries (together, the
Company), all of which are wholly-owned. All significant
intercompany transactions have been eliminated. Investments in
affiliates (33% to 50% owned) in which the Company exercises
influence over operating and financial policies are accounted for
on the equity method. The unaudited consolidated financial
statements should be read in conjunction with the consolidated
financial statements of the Company for the year ended January
31, 1996 as filed in its Annual Report on Form 10-K.
The accompanying unaudited consolidated financial statements
include all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for
a fair presentation of financial position, results of operations
and cash flows. Results of operations for interim periods are
not necessarily indicative of results to be expected for a full
year.
Net income per common and dilutive equivalent share was
calculated by dividing net income by the weighted average number
of common and dilutive equivalent shares outstanding. Options to
purchase common stock are included except when their effect is
antidilutive.
The amounts paid for income taxes and interest are as follows (in
thousands of dollars):
Six Months Ended July 31,
1996 1995
Income taxes $1,357 $1,246
Interest 640 235
During the first quarter of fiscal 1997, the Company issued
31,622 shares of common stock to employees related to fiscal 1996
compensation awards. Total value of this award was approximately
$340,000 which was accrued at January 31, 1996.
Certain amounts for the three and six month periods ended July
31, 1995 have been reclassified to conform with the three and six
month periods ended July 31, 1996.
<PAGE>
2. Inventories
The Company values inventories at the lower of cost (first-in,
first-out) or market (in thousands of dollars):
As of
July 31, January 31,
1996 1996
Raw materials $ 2,218 $ 2,070
Work in process 991 846
Finished products,
parts and supplies 12,587 12,579
Total $ 15,796 $ 15,495
3. 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 million for any individual claim
and $20 million for all claims in the aggregate made under such
policy in any given year. 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, 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.
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.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The following table presents, for the periods indicated, the
percentage relationship which certain items reflected in the
Company's consolidated statements of income bear to revenues and
the percentage increase or decrease in the dollar amount of such
items period to period.
Three Six Period
Months Months -to-
Ended Ended Period
July 31, July 31, Change
1996 1995 1996 1995 Three Six
Months Months
Revenues:
Water well drilling 28.2% 35.5% 28.1% 35.2% 4.9% 9.9%
Well and pump repair
and maintenance 23.0 27.6 22.2 27.2 10.5 12.3
Mineral exploration
drilling 21.8 10.8 22.8 9.9 167.0 215.4
Environmental drilling 10.9 14.2 10.8 15.7 1.4 (6.2)
Specialty contracting
and other services 5.8 3.6 4.9 3.8 113.3 78.2
Total service revenues 89.7 91.7 88.8 91.8 29.4 32.9
Product sales 10.3 8.3 11.2 8.2 64.3 88.0
Total revenues 100.0% 100.0% 100.0% 100.0% 32.3 37.4
Cost of revenues:
Cost of service revenues 71.7% 71.2% 72.8% 72.0% 30.3 34.5
Cost of product sales 70.8 91.8 71.7 83.0 26.7 62.4
Total cost of
revenues 71.6 72.9 72.7 72.9 30.0 37.1
Gross profit 28.4 27.1 27.3 27.1 38.7 38.3
Selling, general
and administrative
expenses 17.5 15.6 17.8 16.8 49.0 45.9
Depreciation 4.7 4.7 5.0 5.0 29.9 36.2
Operating income 6.2 6.8 4.5 5.3 21.1 16.6
Other income (expense):
Equity earnings of
foreign affiliates 1.3 - 1.7 - *<F1> *<F1>
Interest (1.1) (.4) (1.2) (.4) *<F1> *<F1>
Other, net .8 .4 .5 .1 *<F1> *<F1>
Income before income
taxes 7.2 6.8 5.5 5.0 42.0 49.5
Income tax expense 2.7 3.1 2.2 2.3 15.9 30.0
Net income 4.5% 3.7% 3.3% 2.7% 64.1 66.1
[FN]
<F1>
* Not meaningful.
Results of Operations
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.
Revenues for the three months ended July 31, 1996 increased
$13,752,000 or 32.3% to $56,312,000 while revenues for the six
months ended July 31, 1996 increased $29,966,000 or 37.4% to
$110,085,000 from the three and six months ended July 31, 1995,
respectively. Water well drilling revenues increased 4.9% to
$15,871,000 and 9.9% to $30,987,000 for the three and six months
ended July 31, 1996 compared to revenues of $15,123,000 and
$28,206,000 for the three and six months ended July 31, 1995,
respectively. The Company
<PAGE>
believes the increase in water well drilling revenues for the
three and six months is mainly the result of increased domestic
municipal spending in certain areas of the United States,
primarily in southern California. Well and pump repair and
maintenance revenues increased 10.5% to $12,965,000 and 12.3% to
$24,416,000 for the three and six months ended July 31, 1996 from
$11,728,000 and 21,745,000 for the three and six months ended
July 31, 1995, respectively. The Company experienced an increase
in activity in several markets for these services. Mineral
exploration drilling revenues increased 167.0% to $12,281,000 and
215.4% to $25,128,000 for the three and six months ended July 31,
1996 from $4,600,000 and $7,966,000 for the three and six month
periods ended July 31, 1995, respectively. The increase is the
result of the merger with Christensen Boyles Corporation in
December, 1995 (the "Merger") and continued strong mining demand
in Mexico. Environmental drilling revenues increased 1.4% to
$6,144,000 and decreased 6.2% to $11,832,000 for the three and
six months ended July 31, 1996 from $6,058,000 and $12,617,000
for the three and six months ended July 31, 1995, respectively.
The Company believes the decrease for the six month period is
mainly the result of a continuing soft market for the
environmental services offered by the Company. Product sales
increased 64.3% to $5,774,000 and 88.0% to $12,291,000 for the
three and six months ended July 31, 1996 from $3,515,000 and
$6,537,000 for the three and six month periods ended July 31,
1995, respectively, as a result of the Merger.
Gross profit was 28.4% and 27.3% for the three and six months
ended July 31, 1996 compared to 27.1% for each of the same
periods last year. The increase in gross profit as a percent of
revenues is primarily attributable to increased margins on mining
product sales from manufacturing operations acquired through the
Merger.
Selling, general and administrative expenses increased to
$9,852,000 and $19,589,000 for the three and six months ended
July 31, 1996 compared to $6,611,000 and $13,429,000 for the
three and six months ended July 31, 1995, respectively. The
increase in selling, general and administrative expenses is a
result of the Merger.
Depreciation increased to $2,611,000 and $5,452,000 for the three
and six months ended July 31, 1996 compared to $2,010,000 and
$4,004,000 for the same periods last year. The increase in
depreciation is primarily a result of the Merger.
Equity in earnings of foreign affiliates were $726,000 and
$1,828,000 for the three and six month periods ended July 31,
1996, respectively. These earnings are a result of the
investments in foreign affiliates acquired in connection with the
Merger.
Interest expense increased $439,000 and $1,002,000 for the three
and six months ended July 31, 1996 compared to the three and six
months ended July 31, 1995, respectively. The increase is
primarily a result of the increased borrowings necessitated by
the Merger.
Income taxes of $1,535,000 and $2,437,000 for the three and six
months ended July 31, 1996, respectively, increased from
$1,324,000 and $1,875,000 in the same periods last year as a
result of higher income before taxes compared to the prior year.
The effective tax rate for the three and six months ended July
31, 1996 was 37.6% and 40%, respectively, compared to 46% for the
same periods last year. This improvement in the Company's
effective tax rate is primarily a result of the tax treatment of
the foreign affiliates acquired through the Merger.
<PAGE>
At the time of the Merger, the Company accrued certain costs for
the integration of CBC operations. For the second quarter of
fiscal 1997, the Company's integration resulted in a net cash
outflow of $655,000. The Company is proceeding with the movement
of both employees and assets, and will incur additional cash
outflows later in fiscal 1997. The Company's liquidity and
capital resources will not be significantly affected by the
integration outflows.
Changes in Financial Condition
Cash from operations was $4,748,000 for the six months ended July
31, 1996 compared to $486,000 for the same period last year. The
change in cash from operations was primarily a result of more
profitable operations for the quarter compared to the same period
last year. Additions to property and equipment were $6,453,000
during the six month period ended July 31, 1996. The Company's
borrowings under its revolving credit facility at the end of the
period were $3,000,000.
The Company believes that borrowings from its available credit
agreement and cash from operations will be sufficient for the
Company's seasonal cash requirements and to fund its budgeted
capital expenditures for at least the balance of the fiscal year.
<PAGE>
PART II
ITEM 1 - Legal Proceedings
NONE
ITEM 2 - Changes in Securities
NOT APPLICABLE
ITEM 3 - Defaults Upon Senior Securities
NOT APPLICABLE
ITEM 4 - Submission of Matters to a Vote of Security Holders
An annual meeting of stockholders was held on May 23, 1996.
Set forth below is a brief description of each matter voted
upon at the meeting and the results of the balloting:
a) Election of Andrew B. Schmitt and Donald K. Miller as
Class I Directors to hold office for a term expiring at
the 1999 Annual Meeting of the Stockholders of the
Company and until their successors are duly elected and
qualified or until their earlier death, retirement,
resignation or removal:
For Against Withheld Authority
7,812,034 - 13,200
b) Ratification and approval of the selection of the
accounting firm of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year
ending January 31, 1997:
For Against Withheld Authority
7,822,728 500 2,006
ITEM 5 - Other Information
NONE
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8-K
There were no Reports on Form 8-K filed during the quarter.
The exhibits filed with or incorporated by reference in this
report are listed below:
Exhibit No. Description
27(1) Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Layne Christensen Company
(Registrant)
DATE: September 4, 1996 /s/ A.B. Schmitt
A.B. Schmitt, President
and Chief Executive
Officer
DATE: September 4, 1996 /s/ Jerry W. Fanska
Jerry W. Fanska, Vice
President - Finance
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 289
<SECURITIES> 0
<RECEIVABLES> 48,008
<ALLOWANCES> 1,052
<INVENTORY> 15,796
<CURRENT-ASSETS> 71,055
<PP&E> 114,248
<DEPRECIATION> 65,877
<TOTAL-ASSETS> 139,619
<CURRENT-LIABILITIES> 41,373
<BONDS> 29,481
0
0
<COMMON> 89
<OTHER-SE> 58,046
<TOTAL-LIABILITY-AND-EQUITY> 139,619
<SALES> 5,774
<TOTAL-REVENUES> 56,312
<CGS> 40,337
<TOTAL-COSTS> 42,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 609
<INCOME-PRETAX> 4,087
<INCOME-TAX> 1,535
<INCOME-CONTINUING> 2,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,552
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0
</TABLE>
