<PAGE> 1
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, 1998.
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 5,466,385 shares of Common Stock of
the Registrant held by non-affiliates of the Registrant on March 31, 1998,
computed by reference to the closing sale price of such stock as reported on the
NASDAQ National Market System, was $82,679,073. At March 31, 1998, there were
11,631,556 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 1998 Annual
Meeting of Stockholders to be filed with the Commission pursuant to Regulation
14A--Part III.
<PAGE> 2
PART I
Item 1. Business
General
Layne Christensen Company provides drilling services and related
products and services in four principal markets: water well drilling and
maintenance, mineral exploration drilling, geotechnical drilling and
environmental drilling. Layne Christensen's customers include municipalities,
industrial companies, mining companies and environmental consulting and
engineering firms located principally in the United States, Canada, Mexico,
Australia, Africa and South America.
The Company acquired Christensen Boyles Corporation ("CBC") in December
1995, which expanded the Company's mineral exploration drilling business
domestically and marked the Company's entry into Chile and Peru and other South
American countries through CBC's affiliated companies. The CBC acquisition also
gave the Company substantial capabilities in designing and manufacturing drill
rigs, diamond drill bits and related equipment used by the mineral exploration
industry.
On July 25, 1997, the Company, through its wholly owned subsidiary
Layne Christensen Australia Pty Limited, consummated a tender offer to the
security holders of Stanley Mining Services Limited ("Stanley"), a company
listed on the Australian Stock Exchange. Stanley is an Australian mineral
exploration company that provides services predominantly to gold mining
companies in Australia and Africa. In October 1996, Stanley acquired 51% of
Glindemann & Kitching Pty Ltd. ("G&K"), a drilling contractor based and
operating in Western Australia that specializes in diamond core exploration
drilling for gold projects. On September 5, 1997, G&K repurchased the remaining
49% of G&K's outstanding stock thereby making G&K a wholly owned subsidiary of
Stanley. The acquisition by the Company of all the outstanding capital stock of
Stanley and the repurchase by G&K of all of G&K's capital stock not previously
owned by Stanley are referred to as the "Stanley Acquisition."
On August 19, 1997, the Company completed a secondary stock offering of
5,750,000 shares of its common stock, par value $0.01 per share, 2,756,565 of
which were sold by the Company and the balance of which were sold by certain of
the Company's existing stockholders. The proceeds received by the Company from
the shares it sold were used to reduce the debt incurred in connection with the
Stanley Acquisition.
The Company maintains its executive offices at 1900 Shawnee Mission
Parkway, Mission Woods, Kansas 66205. The Company's telephone number is (913)
362-0510.
Market Overview
The principal markets in which the Company operates are: water well
drilling and maintenance, mineral exploration drilling, geotechnical drilling
and environmental drilling. In addition, the Company's mineral exploration
drilling includes drill and blast operations used in mine development. For
purposes of this Form 10-K, the phrase "mineral exploration drilling" includes
drill and blast operations, unless otherwise noted. The characteristics of each
of these
2
<PAGE> 3
markets vary, particularly with respect to the maturity and cyclicality of the
market in various geographic areas. In each of these markets, however, the
purchaser of drilling services and products generally demands technical
expertise, knowledge of local geological conditions, project management skills,
access to significant amounts of capital equipment and cost effective pricing.
Water Well Drilling and Maintenance
Demand for water well drilling services is driven by the need to access
groundwater, which is affected by many factors including population movements
and expansions, such as new housing developments, deteriorating water quality
and limited availability of surface water. Groundwater is a vital natural
resource that is pumped from the earth for drinking water, irrigation and
industrial use. In many parts of the United States and other parts of the world,
groundwater is the only reliable source of water. Groundwater is located in
saturated geological zones at varying depths beneath the surface and accumulates
in subsurface strata (aquifers). Surface water, the other major source of
potable water, comes principally from large lakes and rivers.
The water well drilling market is highly fragmented, consisting of
several thousand water well drilling contractors in the United States. However,
the Company believes that a substantial majority of these contractors are
regionally and locally based, and are primarily involved in drilling low volume
water wells for agricultural and residential customers, markets in which the
Company does not generally compete. The Company's target groundwater drilling
market consists of high volume water wells drilled principally for municipal and
industrial customers. These wells have more stringent design specifications and
are deeper and larger in diameter than low-volume residential and agricultural
wells. Drillers for high-volume wells must have strong technical expertise,
expert knowledge of local geology, large drilling equipment and the ability to
procure sizable performance bonds.
The demand for well and pump repair and maintenance depends upon the
age and use of the well and pump, the quality of material and workmanship
applied in the original well installation and changes in the depth and quality
of the aquifer. Repair and rehabilitation work is often required on an emergency
basis or within a relatively short period of time after a performance decline is
recognized and is often awarded to the firm that initially drilled the well.
Scheduling flexibility, together with appropriate expertise and equipment, are
critical for a repair and maintenance service provider. Like the water well
drilling market, the market for repair and maintenance is highly fragmented. It
consists of most well drilling companies as well as firms that provide solely
repair and maintenance services.
Mineral Exploration Drilling
Demand for mineral exploration drilling and products is driven by the
demand for identifying, defining and developing underground mineral deposits.
Factors influencing the demand for mineral-related drilling services include
growth in the economies of developing countries, international political
conditions, inflation and foreign exchange levels, commodity prices, the
economic feasibility of mineral exploration and production, the discovery rate
of new mineral reserves and the ability of mining companies to access capital
for their activities.
3
<PAGE> 4
In recent years, important changes in the international mining industry
have led to the development and growth of mineral exploration in developing
regions of the world, including West Africa, Asia and South America. Certain
countries, such as Chile and Peru, have liberalized their mining codes to permit
foreign investment, and investment conditions generally have improved in those
countries. At the same time, stricter environmental permitting rules in the
United States and Canada have delayed or blocked the development of certain
projects forcing mining companies to look overseas for growth. In addition,
technological advancements now allow development of mineral resources previously
regarded as uneconomical. The mining exploration industry has also increased its
focus on these areas due to their early stage of mining development, relative to
the more mature mining regions of the world such as the United States and South
Africa.
Mining companies hire exploration drillers to extract samples from
sites that the mining companies analyze for mineral content. Mineral exploration
drilling requires a high level of expertise and technical competence because the
samples extracted must be free of contamination and accurately reflect the
underlying mineral deposit. Familiarity with the local geology is critical to
acquiring this competence. Mineral exploration drilling consists of exploratory
drilling and definitional drilling. Exploratory drilling is conducted to
determine if there is a minable mineral deposit (an orebody) on the site.
Definitional drilling is typically conducted at a site to assess whether it
would be economical to mine. The demand for definitional drilling has increased
in recent years as new and less expensive mining techniques have made it
feasible to mine previously uneconomical orebodies.
In drill and blast operations conducted at open pit mines under
production, the driller drills holes for the placement of explosives; the
explosives are then detonated to loosen and dislodge earth, which is hauled away
by the mining company for processing. Drill and blast contracts typically have
lower margins than traditional mineral exploration drilling projects; however,
they provide more stable revenues because drill and blast contracts typically
have a duration of three to five years whereas traditional mineral exploration
projects typically have substantially shorter terms. To win drill and blast
contracts, a drilling company must be familiar with the mine site and its
geology, have proven drill and blast expertise and personnel and easily
transferable rigs and appropriate drilling equipment that can be dedicated to
the site.
Geotechnical Drilling Services
Geotechnical drilling services are used to modify weak and unstable
soils, decrease water flow in bedrock and provide support and groundwater
control for excavation. Methods used include cement and chemical grouting and
ground freezing, techniques for stabilizing soils; jet grouting, a high-pressure
method for providing subsurface support; and dewatering, a method for lowering
the water table. Geotechnical drilling services are important during the
construction of dams, tunnels, shafts, water lines, subways and other civil
construction projects. Demand for geotechnical drilling services is driven
primarily by the demand for these infrastructure improvements. The customers for
these services are primarily heavy civil construction contractors, governmental
agencies, mining companies and the industrial sector. The geotechnical drilling
services industry is highly fragmented.
4
<PAGE> 5
Environmental Drilling
Demand for environmental drilling services is driven by public concern
over groundwater contamination and resulting regulatory requirements to
investigate and remediate contaminated sites and aquifers. Numerous and complex
federal, state and local laws have been enacted for the purpose of investigating
and remediating pollution of underground aquifers as well as preventing or
controlling the potential environmental hazards caused by groundwater
contamination. Environmental drilling services are utilized to assess,
investigate, monitor and improve water quality and pumping capacity. Customers
are typically national and regional consulting firms engaged by federal and
state agencies as well as industrial companies that need to assess or clean up
groundwater contamination sources.
Business Strategy
The Company's growth strategy is to expand its current geographic
markets and enter into new business lines that build on the Company's core
competencies. Key elements of this strategy are as follows:
Expand Mineral Exploration Drilling Internationally
The Company believes that its best mineral exploration drilling
opportunities exist in Australasia, Africa and South America. To position itself
to take advantage of such opportunities, the Company intends to expand its
international mineral exploration business through internal expansion and
acquisitions. The Company believes that the foreign enterprises and their local
affiliates acquired through the acquisitions of CBC and Stanley create the
opportunity to expand their businesses by leveraging their local market
expertise and the Company's technical competence, access to transferable
drilling equipment and employee training and safety programs. The Stanley
Acquisition also will give the Company the opportunity to expand its existing
South American mineral exploration drilling activities into drill and blast
operations. With the additional resources and capabilities provided by its
acquisitions of CBC and Stanley, the Company believes it will be better
positioned to expand its operations in countries such as Argentina, Bolivia,
Brazil and Zambia, where it expects the mineral exploration industry to grow.
Acquire Water Well Drilling Businesses in the United States
Layne Christensen is currently the largest provider of water well
drilling services in the United States, operating in all regions of the country.
The Company intends to expand its water well drilling business in the United
States by making strategic acquisitions of selected regional privately-held
water well drilling firms. For example, in July 1997 the Company acquired
Stamm-Scheele Inc., a water well drilling company based near Baton Rouge,
Louisiana, and in March 1998, acquired certain assets of Hydro Group, Inc., a
water well drilling and environmental drilling company with operations in New
York, New Jersey, Ohio, Pennsylvania and Virginia. The Company believes that by
combining the Company's capabilities with regional firms, the Company will
improve such firms' efficiency, safety record, bonding capacity, profitability
and professionalism and enable these firms to win project bids that they would
not otherwise have won.
5
<PAGE> 6
Expand Water Well Drilling Internationally
The Company intends to build its groundwater business internationally
by leveraging the mineral exploration services that it currently provides to
mining customers. Mining companies frequently need to implement a dewatering
program that requires the installation of wells to remove groundwater from the
mine excavation or to construct a groundwater well to obtain process water for
use in connection with mining activities. For example, the Company is currently
undertaking a project through one of the Company's Chilean affiliates for the
completion of thirteen water production wells in the Collahuasi mine in Northern
Chile, with technical support provided through Layne Christensen. Many
developing countries also have significant and growing requirements to access
groundwater to satisfy their potable water needs. The Company intends to
position itself to be an industry leader in water well drilling in certain
foreign markets, such as Mexico and Thailand. In all of its regions, the Company
intends to concentrate on large scale industrial and government water well
drilling projects.
Expand Presence in Geotechnical Drilling Services
The Company's participation in the geotechnical drilling services
market is still in an early stage. The Company intends to leverage its drilling
capabilities, industry contacts, reputation, project management skills and
growing geographic presence to expand this business. In particular, the
Company's strategy is to focus on relatively larger, technically demanding
projects using its grouting and ground freezing capabilities. An example of the
implementation of this strategy is the Company's project in Timmons, Ontario,
Canada where the Company has been engaged by Echo Bay Mines Ltd. to construct a
subsurface frozen earth barrier around a 3.5 kilometer perimeter open pit gold
mine.
While the Company expects to continue conducting environmental drilling
business for the foreseeable future, and continues to consider such market as
one of its principal markets, the Company does not expect such business to
provide growth opportunities in the foreseeable future.
Services and Products
Layne Christensen's current business is divided into four primary
areas: water well drilling and maintenance services; mineral exploration
drilling services and products; geotechnical drilling services; and
environmental drilling services.
Overview of the Company's Drilling Techniques
The types of drilling techniques employed by the Company in its
drilling activities have different applications:
- Conventional and reverse circulation rotary rigs are used in water
well and mineral exploration drilling primarily for drilling large
diameter wells and employ air or drilling fluid circulation for
removal of cuttings and borehole stabilization.
- Dual tube drilling, an innovation advanced by the Company
primarily for mineral exploration and environmental drilling,
conveys the drill cuttings to the surface inside the drill pipe.
This drilling method is critical in mineral exploration drilling
and environmental sampling
6
<PAGE> 7
because it provides immediate representative samples and because
the drill cuttings do not contact the surrounding formation thus
avoiding contamination of the borehole while providing reliable,
uncontaminated samples. Because this method involves circulation
of the drilling fluid inside the casing, it is highly suitable for
penetration of underground voids or faults where traditional
drilling methods would result in the loss of circulation of the
drilling fluid, thereby preventing further penetration.
- Diamond core drilling is used in mineral exploration drilling to
core solid rock, thereby providing geologists and engineers with
solid rock samples for evaluation.
- Cable tool drilling, which requires no drilling fluid, is used
primarily in water well drilling for larger diameter wells. While
slower than other drilling methods, it is well suited for
penetrating boulders, cobble and rock.
- Auger drilling is used principally in water well and environmental
drilling for efficient completion of relatively small diameter,
shallow wells. Auger rigs are equipped with a variety of auger
sizes and soil sampling equipment.
Water Well Drilling and Maintenance
Drilling Services
The Company provides complete water well systems on a turnkey basis,
offering the comprehensive range of services required to provide professionally
designed, constructed and maintained municipal, industrial and, to a lesser
extent, agricultural water wells. Although it may not perform each of the
services it offers on every project, the Company has the capability to provide
every element of a water well system, including test hole drilling, well casing
and screen selection and installation, gravel packing, grout sealing, well
development and testing and pump selection, equipment sales and installation.
Layne Christensen provides water well drilling services in most regions of the
United States and in certain foreign countries.
Water well drilling requires the integration of hydrogeology and
engineering with the techniques of well drilling because the drilling methods
and size and type of equipment depend upon the depth of the wells and the
geological formations encountered at the project site. The Company has extensive
well archives and equipment in addition to technical personnel to determine
geological conditions and aquifer characteristics in most locations in the
United States, enabling it to locate suitable water-bearing formations to meet a
wide variety of customer requirements. The Company provides feasibility studies
using complex geophysical survey methods and has the expertise to analyze the
survey results and define the source, depth and magnitude of an aquifer. It can
then estimate recharge rates, specify required well design features, plan well
field design and develop water management plans. To conduct these services, the
Company maintains a staff of professional employees including civil and
geological engineers, geologists, hydrogeologists, geophysicists, and
microbiologists.
As part of its water well drilling and installation business, the
Company sells a wide variety of pumps manufactured by third parties, including
vertical
7
<PAGE> 8
turbine, submersible, shortcoupled and horizontal centrifugal pumps. The Company
also sells and installs certain third party water treatment equipment, which is
typically installed at or near the wellhead, including chlorinators, aerators,
filters and controls. In addition, the Company sells miscellaneous supplies
manufactured by the Company as well as third parties for use in the water well
drilling industry, including well casing, well screens, drill pipe and bits,
drilling fluids and well cleaning supplies.
Well and Pump Repair and Maintenance
Periodic repair and maintenance of well equipment is required during
the life of a well. In locations where the groundwater contains both bacteria
and iron, screen openings may become blocked with organic growth, reducing the
capacity and productivity of the well. Similarly, groundwater with high mineral
content may cause the buildup of scale on well screens, also reducing the
capacity and productivity of the well.
The Company offers complete repair and maintenance services for
existing wells, pumps and related equipment through a network of local offices
throughout its geographic markets in the United States. In addition to its well
service rigs, the Company has equipment capable of conducting downhole closed
circuit televideo inspections (one of the most effective methods for
investigating water well problems), enabling the Company to diagnose better and
respond more quickly to well and maintenance problems.
The Company's trained and experienced personnel can perform a variety
of well rehabilitation techniques, including chemical and mechanical methods,
and can perform bacteriological well evaluation and water chemistry analysis.
The Company also has the capability and inventory to repair, in its own machine
shops, most water well pumps, regardless of manufacturer, as well as to repair
well screens, casings and related equipment such as chlorinators, aerators and
filtration systems.
Mineral Exploration Drilling and Products
Drilling Services
The Company provides drilling services for geological assessment, in
situ mining and mineral exploration. These services are used primarily by major
gold and copper producers based in the United States and Canada, and to a lesser
extent, iron ore producers. In response to a shift in recent years by many of
these producers to foreign markets in search of economically minable orebodies,
the Company commenced mineral exploration drilling operations in Mexico in 1991.
With its acquisition of CBC in December 1995, the Company acquired foreign
affiliates operating in South America with facilities in Chile and Peru. These
affiliates have projects in Argentina, Bolivia, Brazil, Chile, Mexico and Peru,
among other locations. In addition, with the Stanley Acquisition, the Company
now has operations in Australia and Africa.
Products
With its acquisition of CBC, the Company expanded its operations to
include the manufacture and marketing of a wide range of standard equipment used
by the Company and third party drilling contractors involved in mineral
exploration and mine development in various parts of the world. The Company's
products include
8
<PAGE> 9
drill rigs, coring equipment and drill bits. The Company uses its experience
gained from completing a wide range of drilling projects to design products,
particularly drill bits, that are well suited to current drilling applications,
and from time to time, will design and manufacture products for custom
applications. The Company's products are designed and manufactured to meet its
own rigid standards of quality and utility as well as the standards of various
trade associations.
Layne Christensen manufactures a line of diamond core mineral
exploration drill rigs which are designed to meet the specialized work
requirements of mineral exploration sites and can also be used at environmental
sites. The Company's line of rig accessory equipment and tools includes subs,
bushings and adapters; water swivels; a variety of safety related equipment; and
hoisting, lowering and pulling equipment.
The Company manufactures conventional and wireline coring equipment for
recovery of core samples from the earth. The Company's 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. The Company also offers a full line of equipment for conventional
coring. The Company's conventional and wireline coring products include drill
rods manufactured by third parties to which the Company adds industry standard
threading suited to its products.
The diamond drill bit products manufactured by the Company include
products incorporating matrix powder technology coupled with both synthetic and
natural diamonds. The principal categories of drilling bits are surface set
diamond bits, impregnated synthetic diamond bits and polycrystalline synthetic
diamond bits. Each category of bit is specifically designed for maximum drilling
efficiency in different geological formations and drilling applications, and the
Company frequently updates and redesigns its bits for various formations and
applications. The Company's bit products also include reamers and stabilizers
for stabilizing and centering the drill bit. The Company distributes its
products to distributors, general contractors, mineral exploration companies and
equipment and parts suppliers.
The Company engages in on-going engineering, research and development
activities to improve its existing products and to design and develop new
products for both existing and new drilling applications. To further promote
efficiency, reduce development costs and enhance customer relationships, the
Company's research and engineering staff works closely with its customers to
design and develop custom-engineered drilling solutions.
Geotechnical Drilling Services
Geotechnical drilling services include those services provided by the
Company to the heavy civil construction market to provide ground modification
for construction work in unstable soils during the construction of dams,
tunnels, shafts and other civil construction projects. Services offered include
cement and chemical grouting, jet grouting, drain hole drilling, installation of
ground anchors, tie backs, rock bolts and instrumentation. The Company offers
expertise in selecting the appropriate support techniques to be applied in
various geological conditions. In addition, the Company has extensive experience
in the placement of measuring devices capable of monitoring water levels and
ground movement.
9
<PAGE> 10
The Company also offers artificial ground freezing capabilities,
typically utilized as an alternative method to dewatering large diameter
excavation and tunneling projects. The Company recently completed a project for
Echo Bay Mines Ltd. to construct a subsurface frozen earth barrier around an
open pit gold mine in Timmons, Ontario, Canada.
Environmental Drilling
The Company offers a wide range of environmental drilling services
including: investigative drilling, installation and testing of wells that
monitor the extent of groundwater contamination, installation of recovery wells
that extract contaminated groundwater for treatment (pump and treat remediation)
and specialized site safety programs associated with drilling at contaminated
sites. Monitoring wells are installed to determine the nature and extent of
known or suspected subsurface contamination as well as to monitor an area for
future contamination. In addition, monitoring wells are often installed
surrounding underground petroleum or chemical storage tanks to monitor for
possible future tank leaks or product spills. After monitoring and testing the
groundwater, recovery wells may be installed to extract contaminated water from
the aquifer for treatment or disposal.
In its environmental health services department, the Company employs a
full-time staff qualified to prepare site specific health and safety plans for
customers who have workers employed on hazardous waste cleanup sites as required
by Occupation and Safety Health Administration ("OSHA") and Mine Safety and
Health Administration of the Department of Labor ("MSHA").
Operations
The Company operates on a decentralized basis, with approximately 74
sales and operations offices located in most regions of the United States as
well as in Canada, Australia, Africa, Mexico and Thailand. In addition, the
Company, through its foreign affiliates, operates out of locations in Mexico,
South America and Europe.
The Company is primarily organized domestically 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 does not conduct significant marketing
activities. Instead, the Company's sales engineers cultivate and maintain
contacts with existing and potential customers. In this way, the Company learns
of and is in a position to compete for proposed drilling projects in the region.
In its foreign affiliates, where the Company does not have majority
ownership or operating control, day-to-day operating decisions are made by local
management. The Company's regional vice presidents oversee the Company's
interests in its foreign affiliates as well as the operations of its foreign
subsidiaries. In addition, the Company manages its interests in its foreign
affiliates through regular management meetings and analysis of comprehensive
operating and financial information. In its significant foreign affiliates, the
10
<PAGE> 11
Company has entered into shareholder agreements that give it limited board
representation rights and require super-majority votes in certain circumstances.
Customers and Contracts
Each of the Company's service and product lines has major customers;
however, no single customer accounted for 10% or more of the Company's revenues
in any of the past three fiscal years.
Generally, the Company negotiates its service contracts with industrial
and mining companies and other private entities, while its service contracts
with municipalities are generally awarded on a bid basis. The Company's
contracts vary in length depending upon the size and scope of the project. The
majority of such contracts are awarded on a fixed price basis, subject to change
of circumstance and force majeure adjustments, while a smaller portion are
awarded on a cost plus basis. Substantially all of the contracts are cancelable
for, among other reasons, the convenience of the customer.
In the water well drilling service line, the Company's customers are
typically municipalities and local operations of industrial businesses. Of the
Company's water well drilling revenues in fiscal 1998, approximately 66% were
derived from municipalities and approximately 19% were derived from industrial
businesses while the balance was derived from other customer groups. The term
"municipalities" is used to include local water districts, water utilities,
cities, counties and other local governmental entities and agencies that have
the responsibility to provide water supplies to residential and commercial
users. In the drilling of new water wells, the Company targets customers that
require compliance with detailed and demanding specifications and regulations
and that often require bonding and insurance, areas in which the Company
believes it has competitive advantages over its competitors due to its drilling
expertise and financial resources.
In the water well repair and maintenance service line, the Company's
customers also include municipalities and local operations of industrial
businesses. In fiscal 1998, approximately 51% of the Company's repair and
maintenance revenues were derived from municipalities, approximately 30% of such
revenues were derived from industrial businesses and the balance was derived
from other customer groups.
Customers for the Company's mineral exploration drilling services in
the United States, Mexico, Canada, Australia, Africa and South America are
primarily gold and copper producers. The Company's largest customers in its
mineral exploration drilling business are multi-national corporations
headquartered primarily in the United States and Canada. Customers for mineral
exploration products manufactured or sold by the Company include distributors,
general contractors, mineral exploration companies and equipment and parts
suppliers.
In its geotechnical drilling services product line, the Company's
customers are primarily heavy civil construction contractors, governmental
agencies, mining companies and industrial companies. The Company often acts as a
specialty subcontractor when it provides geotechnical drilling services.
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.
11
<PAGE> 12
Backlog
The Company's backlog consists of executed service and product purchase
contracts, or portions thereof, not yet performed by the Company. The Company
believes that its backlog does not have any significance other than as a
short-term business indicator because substantially all of the contracts
comprising the backlog are cancelable for, among other reasons, the convenience
of the customer. The Company's backlog was approximately $45,005,000 at January
31, 1998, compared to approximately $40,966,000 at January 31, 1997. The
Company's backlog as of year end is generally completed within the following
fiscal year.
Competition
The Company's competition in the water well drilling business consists
primarily of small, local water well drilling operations and some regional
competitors. Oil and natural gas well drillers generally do not compete in the
water well drilling business because the technology, expertise and equipment
utilized in these 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. However, there are no proprietary technologies or
other significant factors which prevent other firms from entering these local or
regional markets or from consolidating together into larger companies more
comparable in size to the Company. Water well drilling work is usually obtained
on a competitive bid basis for municipalities, while work for industrial
customers is obtained on a negotiated or informal bid basis.
As is the case in the water well drilling business, the well repair and
maintenance business is characterized by a large number of relatively small
competitors. The Company believes only a small percentage of the companies
performing these services have the technical expertise necessary to diagnose
complex problems, perform many of the sophisticated rehabilitation techniques
offered by the Company or repair a wide range of pumps in their own facilities.
In addition, many of these companies have only a small number of pump service
rigs. Repair and maintenance projects are typically negotiated at the time of
repair or contracted for in advance depending upon the lead time available for
the repair work. Since pump repair and rehabilitation work is typically
negotiated on an emergency basis or within a relatively short period of time,
those companies with available rigs and the requisite expertise have a
competitive advantage by being able to respond quickly to repair requests.
In its mineral exploration drilling business, the Company competes with
a number of drilling companies as well as vertically integrated mining companies
that conduct their own exploration drilling or drill and blast activities; some
of these competitors have greater capital and other resources than the Company.
In the mineral exploration drilling market, the Company competes based on price,
expertise and reputation. The Company believes it has a well-recognized
reputation for expertise and performance in this market, although the Company is
not the largest company providing these services on a national or international
basis. The Company believes that this market is becoming more competitive,
particularly in the United States. Mineral exploration drilling work is
typically
12
<PAGE> 13
performed on a negotiated basis. In the market for the Company's manufactured
mineral exploration drilling products, the Company's competitors consist of the
Boart Longyear Group, an indirect subsidiary of Anglo-American Industrial
Corporation, Ltd., and a small number of other manufacturers. The Company
competes in this market based on price, technical design and reputation.
The geotechnical drilling services market is highly fragmented as a
result of the large area served, the wide range of techniques offered and the
large number and variety of contractors. In this market, the Company competes
based upon a combination of reputation, innovation and price.
In the environmental drilling market, Layne Christensen competes with
different types of drillers depending on the services involved. Small site
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 with 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. The Company believes its risk assessment
process enables it 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.
Employees and Training
At January 31, 1998, the Company had 2,949 employees, 166 of whom were
hourly employees and members of collective bargaining units represented by
locals affiliated with major labor unions in the United States. The Company
believes that its relationship with its employees is satisfactory.
In all of the Company's service lines, an important competitive factor
is technical expertise. As a result, the Company emphasizes the training and
development of its personnel. Periodic technical training is provided for senior
field employees covering such areas as pump installation, drilling technology
and electrical troubleshooting. In addition, the Company emphasizes strict
adherence to all health and safety requirements and offers incentive pay based
upon achievement of specified safety goals. This emphasis encompasses developing
site-specific safety plans, ensuring regulatory compliance and training
employees in regulatory compliance and good safety practices. Training includes
an OSHA-mandated 40-hour hazardous waste and emergency response training course
as well as the required annual eight hour updates. The Company has an
environmental health sciences staff which allows it to offer such training
in-house. This staff also prepares health and safety plans for specific sites
and provides input and analysis for the health and safety plans prepared by
others.
On average, the Company's field supervisors and drillers have sixteen
and ten years, respectively, of experience with the Company. In addition, many
of the Company's professional employees have advanced academic backgrounds in
agricultural, chemical, civil, industrial and mechanical engineering, geology,
13
<PAGE> 14
microbiology and metallurgy. The Company believes that its size and reputation
allow it to compete effectively for highly qualified professionals.
Regulatory and Environmental Matters
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation, OSHA
and MSHA in the United States as well as their counterparts in foreign
countries. In addition, the Company's activities are subject to regulation under
various environmental laws regarding emissions to air, discharges to water and
management of wastes and hazardous substances. To the extent the Company fails
to comply with these various regulations, it could be subject to monetary fines,
suspension of operations and other penalties. In addition, these and other laws
and regulations affect the Company's mineral drilling services and product
customers and influence their determination whether to conduct mineral
exploration and development.
Many localities require well operating licenses which typically specify
that wells be constructed in accordance with applicable regulations. Various
state, local and foreign laws require that water wells and monitoring wells be
installed by licensed well drillers. The Company maintains well drilling and
contractor's licenses in those jurisdictions in which it operates and in which
such licenses are required. In addition, the Company employs licensed engineers,
geologists and other professionals necessary to the conduct of its business. In
those circumstances in which the Company does not have a required professional
license, it subcontracts that portion of the work to a firm employing the
necessary professionals.
Potential Liability and Insurance
The Company's drilling activities involve certain operating hazards
that can result in personal injury or loss of life, damage and destruction of
property and equipment, damage to the surrounding areas, release of hazardous
substances or wastes and other damage to the environment, interruption or
suspension of drill site operations and loss of revenues and future business.
The magnitude of these operating risks is amplified when the Company, as is
frequently the case, conducts a project on a fixed-price, "turnkey" basis where
the Company delegates certain functions to subcontractors but remains
responsible to the customer for the subcontracted work. In addition, the Company
is exposed to potential liability under foreign, federal, state and local laws
and regulations, contractual indemnification agreements or otherwise in
connection with its provision of services and products. For example, the Company
could be held responsible for contamination caused by an accident which occurs
as a result of the Company drilling through a contaminated water source and
creating a channel through which the contaminants migrate to an uncontaminated
water source. Litigation arising from any such occurrences may result in the
Company's being named as a defendant in lawsuits asserting large claims.
Although the Company maintains insurance protection that it considers
economically prudent, there can be no assurance that any such insurance will be
sufficient or effective under all circumstances or against all claims or hazards
to which the Company may be subject or that the Company will be able to continue
to obtain such insurance protection. A successful claim or damage resulting from
a hazard for which the Company is not fully insured could have a material
adverse effect on the Company.
14
<PAGE> 15
In addition, the Company does not maintain political risk insurance or business
interruption insurance with respect to its foreign operations.
Applicable Legislation
There are a number of complex foreign, federal, state and local
environmental laws which impact the demand for the Company's mining and
environmental drilling services. A change in these laws, or changes in
governmental policies regarding the funding, implementation or enforcement of
the laws, could have a material adverse effect on the Company.
Under Superfund and comparable state laws, the potential liability of
real property buyers and lenders secured by real property for the cost of
responding to past or present release of hazardous substances at or from that
property has prompted a widespread practice of phased environmental audits as a
condition to the sale and financing of real estate. These audits may include
soil and groundwater testing to determine the nature and extent of contamination
that may impact the value of the property or give rise to liability for the new
owner.
Item 2. Properties and Equipment
The Company's corporate headquarters are located in Mission Woods,
Kansas (a suburb of Kansas City, Missouri), in approximately 28,000 square feet
of office space leased by the Company pursuant to a written lease agreement
which expires February 28, 2000. The Company's manufacturing operations are
primarily conducted from an approximately 84,000 square foot plant located in
Salt Lake City, Utah and owned by the Company (the "Plant").
As of January 31, 1998, the Company (excluding foreign affiliates)
owned or leased approximately 615 drill and well service rigs throughout the
world, a substantial majority of which were located in the United States. This
includes rigs used primarily in each of its service lines as well as
multi-purpose rigs. In addition, as of January 31, 1998, the Company's foreign
affiliates owned or leased approximately 115 drill rigs.
Item 3. Legal Proceedings
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect on the Company's business or consolidated financial
position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders of the Company
during the last quarter of the fiscal year ended January 31, 1998.
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
15
<PAGE> 16
until their respective successors are selected and qualified or until their
respective earlier death, retirement, resignation or removal.
Set forth below are the name, age and position of each executive
officer of the Company.
Name Age Position
---- --- --------
Andrew B. Schmitt 49 President, Chief Executive Officer and
Director
H. Edward Coleman 60 Senior Vice President
Norman E. Mehlhorn 57 Senior Vice President
Eric R. Despain 49 Senior Vice President
Kent B. Magill 45 Vice President-General Counsel and
Secretary
Jerry W. Fanska 49 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 and is responsible for the Company's manufacturing facilities and
operations in Australasia and Africa. Prior to joining the Company in December
1995, Mr. Despain was President and a member of the Board of Directors of CBC
since 1986.
Kent B. Magill has served as the Company's Vice President-General
Counsel and Secretary since August 1992 and served as Vice President and
Associate General Counsel of The Marley Company since May 1989.
Jerry W. Fanska has served as the Company's Vice President--Finance and
Treasurer since April 1994 and as Controller since December 1993. Prior to
joining Layne Christensen, Mr. Fanska served as corporate controller of The
Marley Company since October 1992 and as its Internal Audit Manager since April
1984.
16
<PAGE> 17
There is no arrangement or understanding between any executive officer
and any other person pursuant to which such executive officer was selected as an
executive officer of the Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market
through the NASDAQ National Market System under the symbol LAYN. The stock has
been traded in this market since the Company became a publicly-held company on
August 20, 1992. The following table sets forth the range of high and low bid
prices of the Company's stock by quarter for fiscal 1998 and 1997, 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.
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
---------------- ---- ---
<S> <C> <C> <C>
First Quarter $18 $14 1/4
Second Quarter 22 1/2 15 3/4
Third Quarter 24 1/4 17
Fourth Quarter 21 12
<CAPTION>
Fiscal Year 1997 High Low
---------------- ---- ---
<S> <C> <C> <C>
First Quarter $12 $10 1/4
Second Quarter 13 1/8 11
Third Quarter 13 3/8 11
Fourth Quarter 15 1/2 12 3/8
</TABLE>
At March 16, 1998, there were approximately 179 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 ("New 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 New 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, 1998, 1997, 1996 and 1995, and historical for the twelve
months ended January 31, 1994, respectively, has been derived from the Company's
17
<PAGE> 18
consolidated financial statements. Financial information for fiscal years 1998,
1997, 1996, and 1995 has been derived from the Company's audited consolidated
financial statements. Financial information for the twelve months ended January
31, 1994, 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 years 1998 and 1996, the
Company completed the acquisitions of Stanley Mining Services, Limited
("Stanley") and Christensen Boyles Corporation ("CBC"), respectively, which have
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 Stanley and CBC from the date of
each 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.
<TABLE>
<CAPTION>
Twelve
Fiscal Years Ended Months Ended
January 31, January 31,
----------------------------------------------------- ------------
1998 1997 1996 1995 1994
------- ------ ------ ------- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data
(in thousands, except
per share amounts):
Revenues $294,600 $222,853 $167,271 $166,830 $169,766
Cost of revenues
(exclusive of
depreciation
shown below) 213,717 161,602 122,078 123,814 130,004
-------- -------- -------- -------- --------
Gross profit 80,883 61,251 45,193 43,016 39,762
Selling, general
and administrative
expenses 45,908 38,956 28,260 28,860 31,985
Depreciation and
amortization 15,681 10,974 8,233 7,811 8,737
Restructuring
charge - - - - 12,000
-------- -------- --------- ------- --------
Operating income
(loss) 19,294 11,321 8,700 6,345 (12,960)
Other income
(expense):
Equity in earnings
of foreign
affiliates 3,022 3,895 - - -
Interest (3,618) (2,447) (767) (779) (2,048)
Other, net (267) 161 407 (84) (198)
-------- -------- -------- ------- --------
Income (loss) before
income taxes 18,431 12,930 8,340 5,482 (15,206)
Income tax (benefit)
expense 7,004 4,913 3,753 2,522 (5,736)
-------- -------- -------- ------- --------
Net income (loss) $ 11,427 $ 8,017 $ 4,587 $ 2,960 $ (9,470)
======== ======== ======== ======= ========
Basic earnings (loss)
per share $ 1.13 $ 0.90 $ 0.62 $ 0.40 $ (1.31)
======== ======== ======== ======= ========
Diluted earnings
(loss) per share $ 1.09 $ 0.88 $ 0.61 $ 0.40 $ (1.31)
======== ======== ======== ======= ========
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
At January 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
(in thousands):
Working capital $ 39,661 $ 29,643 $ 26,796 $13,578 $29,545
Total assets 243,899 142,421 134,177 79,094 90,250
Long-term debt 57,500 30,314 28,428 -- 18,900
Total stockholders'
equity 114,259 62,664 53,972 40,273 37,348
</TABLE>
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.
Cautionary Language Regarding Forward-Looking Statements
This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
of 1934. Such statements are indicated by words or phrases such as "anticipate,"
"estimate," "project," "believe," "intend," "expect," "plan" and similar words
or phrases. Such statements are based on current expectations and are subject to
certain risks, uncertainties and assumptions, including but not limited to
prevailing prices for various metals, unanticipated slowdowns in the Company's
major markets, the impact of competition, the effectiveness of operational
changes expected to increase efficiency and productivity, worldwide economic and
political conditions and foreign currency fluctuations that may affect worldwide
results of operations. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially and adversely from those anticipated, estimated or
projected. These forward-looking statements are made as of the date of this
filing, and the Company assumes no obligation to update such forward-looking
statements or to update the reasons why actual results could differ materially
from those anticipated in such forward-looking statements.
Results of Operations
The Company substantially consummated the acquisition of Stanley at the
end of July, 1997 (the "Stanley Acquisition"). Stanley has been reflected in
Layne Christensen's results of operations beginning August 1, 1997. The Stanley
Acquisition has been accounted for using the purchase method of accounting, and
will have a significant effect on Layne Christensen's future operations and on
comparisons of income and expense items in future periods in relation to fiscal
1997 and the first six months of fiscal 1998. Among other things, the Company
has incurred a substantial increase in long-term debt and goodwill and will
incur a substantial increase in interest expense and goodwill amortization in
future periods.
With the recent Stanley Acquisition, the percentage of the Company's
revenues and operating income tied to the mining industry has increased
substantially. Demand for the Company's mineral exploration drilling services
19
<PAGE> 20
and products depends upon the level of mineral exploration and development
activities conducted by mining companies, particularly with respect to gold and
copper. Mineral exploration is highly speculative and is influenced by a variety
of factors, including the prevailing prices for various metals which often
fluctuate widely. In this connection, the recent movement in the prices of gold
and copper has adversely impacted the level of mineral exploration and
development activities conducted by mining companies which, in turn, has
adversely impacted the Company's results for the fourth quarter of fiscal 1998.
Should the current trend in the price of precious and other metals continue, it
could have a material adverse impact on the Company's operating results.
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.
<TABLE>
<CAPTION>
Period-to-Period
Change
Fiscal Years Ended ------
January 31, 1998 1997
---------------------------- vs. vs.
Revenues: 1998 1997 1996 | 1997 1996
---- ---- ---- | ---- ----
<S> <C> <C> <C> <C> <C>
Water well drilling and |
maintenance 39.8% 49.0% 60.1% | 7.4% 8.7%
Mineral exploration drilling 26.7 22.2 11.2 | 59.4 162.8
Environmental drilling 6.5 10.4 15.1 | (17.6) (8.0)
Geotechnical drilling and |
other services 16.7 6.6 5.5 | 238.5 60.0
----- ----- ----- |
Total service revenues 89.7 88.2 91.9 | 34.5 27.8
Product sales 10.3 11.8 8.1 | 15.0 94.7
----- ----- ----- |
Total revenues 100.0% 100.0% 100.0% | 32.2 33.2
===== ===== ===== |
Cost of revenues: |
Cost of service revenues 72.4% 72.5% 72.2% | 34.3 28.4
Cost of product sales 73.5 72.4 81.5 | 16.7 72.8
Total cost of revenues 72.5 72.5 73.0 | 32.2 32.4
----- ----- ----- |
Gross profit 27.5 27.5 27.0 | 32.1 35.5
Selling, general and |
administrative expenses 15.6 17.5 16.9 | 17.8 37.8
Depreciation and amortization 5.4 4.9 4.9 | 42.9 33.3
----- ----- ----- |
Operating income 6.5 5.1 5.2 | 70.4 30.1
Other income (expense): |
Equity in earnings of |
foreign affiliates 1.0 1.7 - | (22.4) *
Interest (1.1) (1.1) (0.5) | 47.9 *
Other, net (0.1) 0.1 0.2 | * (60.4)
----- ----- ----- |
Income before income taxes 6.3 5.8 4.9 | 42.5 55.0
Income tax expense 2.4 2.2 2.2 | 42.6 30.9
----- ----- ----- |
Net income 3.9 3.6 2.7 | 42.5 74.8
===== ===== =====
<FN>
* Not meaningful.
</TABLE>
20
<PAGE> 21
Comparison of Fiscal 1998 to Fiscal 1997
Results of Operations
Revenues for fiscal 1998 were $294,600,000, a 32.2% increase compared
to $222,853,000 for fiscal 1997. Water well drilling and maintenance revenues
increased 7.4% to $117,318,000 for fiscal 1998 from $109,280,000 for fiscal
1997. The increase was primarily a result of the acquisition of a Louisiana
drilling company and strong demand for these services in certain central and
southern areas of the United States. Mineral exploration drilling revenues
increased to $78,736,000 for fiscal 1998, compared to $49,395,000 for fiscal
1997. The increase was primarily a result of the Stanley Acquisition combined
with the Company's recent expansion into Africa. Geotechnical drilling revenues
increased to $44,975,000 for fiscal 1998, compared to $10,553,000 for fiscal
1997. The increase was primarily the result of the Company's previously
announced ground freeze project in Timmins, Ontario, Canada for Echo Bay Mines,
Ltd. (the "Timmins Project"). Excluding the Timmins Project, geotechnical
drilling revenues increased 83.9% for the year due to increased market
penetration of the geotechnical drilling market. Product sales increased 15.0%
for fiscal 1998 to $30,246,000 from $26,309,000 for fiscal 1997. The increase
was primarily the result of strong demand for the Company's mineral exploration
drill rigs and related products.
Gross profit as a percentage of revenues remained constant at 27.5% for
each of the years ended January 31, 1998 and 1997.
Selling, general and administrative expenses increased to $45,908,000
for fiscal 1998, compared to $38,956,000 for fiscal 1997. Depreciation and
amortization expense increased to $15,681,000 for fiscal 1998, compared to
$10,974,000 for fiscal 1997. The increases in these expenses were primarily a
result of the Stanley Acquisition.
Interest expense increased to $3,618,000 for fiscal 1998, compared to
$2,447,000 for fiscal 1997. The increase was primarily the result of additional
borrowings to finance the Stanley Acquisition. Equity in earnings of foreign
affiliates decreased to $3,022,000 for fiscal 1998, compared to $3,895,000 for
fiscal 1997. The decrease was primarily the result of difficult weather
conditions in Chile and Peru, as well as lower demand for drilling products and
services due to depressed minerals prices.
Income taxes increased to $7,004,000 for fiscal 1998, compared to
$4,913,000 for fiscal 1997, as a result of higher income before taxes. The
Company's effective tax rate was 38% for both years.
21
<PAGE> 22
Comparison of Fiscal 1997 to Fiscal 1996
Results of Operations
The Company's 1997 results include the effect of the December 1995
merger with CBC (the "Merger"), 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. 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 and maintenance revenues increased 8.7% to
$109,280,000 for fiscal 1997 compared to revenues of $100,551,000 for fiscal
1996. The Company believes the increase in water well drilling revenues for the
year was 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. Mineral exploration drilling revenues increased 162.8% to
$49,395,000 for fiscal 1997 from $18,794,000 for fiscal 1996. The increase was
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 was 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 was 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 had 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 was 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 was 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 was 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 were $3,895,000 for fiscal
1997. These earnings were 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
22
<PAGE> 23
3 of the Notes to Consolidated Financial Statements for additional information
on the affiliates.
Interest expense increased $1,680,000 for fiscal 1997 compared to
fiscal 1996. The increase was 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 was 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.
Fluctuation in Quarterly Results
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the award and completion of contracts, the
recording of related revenues and unanticipated additional costs incurred on
projects. The Company's revenues on large drilling contracts are recognized on a
percentage of completion basis for individual contracts based upon the ratio of
costs incurred to total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. A significant number of the
Company's contracts contain fixed prices and assign responsibility to the
Company for cost overruns for the subject projects; as a result, revenues and
gross margin may vary from those originally estimated and, depending upon the
size of the project, variations from estimated contract performance could affect
the Company's operating results for a particular quarter. Many of the Company's
contracts are also subject to cancellation by the customer upon short notice
with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to decrease
in the winter months when adverse weather conditions interfere with access to
drilling sites and the ability to drill; as a result, the Company's revenues and
earnings in its second and third quarters tend to be higher than revenues and
earnings in its first and fourth quarters. Accordingly, as a result of the
foregoing as well as other factors, quarterly results should not be considered
indicative of results to be expected for any other quarter or for any full
fiscal year. See the Company's Consolidated Financial Statements and Notes
thereto.
Inflation
Management believes that the Company's operations for the periods
discussed have not been adversely affected by inflation or changing prices.
23
<PAGE> 24
Liquidity and Capital Resources
The primary source of the Company's liquidity in fiscal 1998, 1997, and
1996 was its cash from operating activities of $14,270,000, $17,116,000 and
$7,268,000, respectively. The change in cash from operating activities from
fiscal 1997 to 1998 was primarily the result of improved net income offset by an
increase in accounts receivable and inventories.
Cash from operations, along with borrowings under the Company's
revolving credit agreement and a secondary offering, was primarily utilized for
additions to property and equipment of $22,425,000 and acquisitions, including
the Stanley Acquisition, totaling $53,942,000. Capital expenditures during
fiscal 1998 were primarily directed toward international expansion and upgrading
the Company's equipment and facilities. The Company expects to spend
approximately $10,000,000 in the next fiscal year for capital expenditures. The
Company anticipates fiscal 1999 capital expenditures will be used to continue to
upgrade the Company's equipment and capabilities. As of January 31, 1998, the
Company had no material commitments outstanding for capital assets.
During July 1997, the Company amended its existing credit agreement to
provide a reducing revolving cash borrowing facility of up to $100,000,000 (the
"New Credit Agreement"). Borrowings under the New Credit Agreement were used to
complete the Stanley Acquisition (see Note 2 to the Consolidated Financial
Statements) and refinance indebtedness under the Company's existing credit
agreement. The Company's borrowings and outstanding letter of credit commitments
under the New Credit Agreement were $32,500,000 and $5,605,000, respectively, at
January 31, 1998, leaving approximately $61,895,000 of unused availability. See
Note 8 of the Notes to Consolidated Financial Statements.
On August 19, 1997, the Company completed the sale of 2,756,565 shares
of Common Stock in a public offering. Net proceeds to the Company from the
offering of approximately $43,510,000 were used to reduce the outstanding debt
under the New Credit Agreement. See Note 2 of Notes to Consolidated Financial
Statements.
The Company's working capital as of January 31, 1998, 1997 and 1996 was
$39,661,000, $29,643,000 and $26,796,000, respectively. The increase in working
capital in fiscal 1998 over fiscal 1997 was primarily the result of the Stanley
Acquisition. 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 1999
year.
The Company has undergone an internal assessment of the impact of the
year 2000 issue and is in the process of modifying systems as necessary. Based
on this review, the Company presently believes the year 2000 issue will not pose
significant operational problems for its computer systems. However, the Company
intends to continue to use internal resources to test its systems for year 2000
compliance and believes the compliance process will be completed timely and
modification costs will be insignificant.
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
24
<PAGE> 25
companies. These costs are not expected to significantly impact liquidity in
future periods. See Note 10 of the Notes to Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are interest
rates on variable rate debt, equity risk on investments, and foreign exchanges
rates giving rise to translation and transaction gains and losses.
The Company centrally manages its debt and investment portfolios
considering overall financing strategies and tax consequences. The Company
generally does not use derivative financial instruments as part of its overall
strategies and has no such instruments outstanding at the present time. The
Company's variable rate debt is described in Note 8 to the Notes to Consolidated
Financial Statements appearing on page 46 of this Form 10-K which is
incorporated herein by this reference. Assuming January 31, 1998 debt levels, an
instantaneous change in interest rates of one percentage point would impact the
Company's interest expense by $325,000. The Company's investments are described
in Note 1 to the Notes to Consolidated Financial Statements appearing on page 35
of this Form 10-K which is incorporated herein by this reference. The
investments are carried at market value and are held for long-term investing
purposes rather than trading purposes.
Operating in international markets involves exposure to possible
volatile movements in currency exchange rates. Currently, the Company's primary
international operations are in Australia, Africa, Mexico, Canada, Indonesia and
Thailand. The operations are described in Notes 1 and 11 to the Notes to
Consolidated Financial Statements appearing on pages 35 and 49, respectively, of
this Form 10-K which are incorporated herein by this reference. The majority of
the Company's contracts in Africa and Mexico are U.S. dollar based, providing a
natural reduction in exposure to currency fluctuations.
As currency exchange rates change, translation of the income statements
of the Company's international operations into U.S. dollars may affect
year-to-year comparability of operating results. We estimate that a ten percent
change in foreign exchange rates would have impacted operating income for the
year ended January 31, 1998 by approximately $100,000. This represents
approximately ten percent of the international segment operating profit after
adjusting for primarily U.S. dollar based operations. This quantitative measure
has inherent limitations, as it does not take into account any governmental
actions, changes in customer purchasing patterns or changes in the Company's
financing and operating strategies.
Foreign exchange gains and losses in the Company's Statements of Income
reflect transaction gains and losses and translation gains and losses from the
Company's Mexican subsidiary, which uses the U.S. dollar as its functional
currency. Net foreign exchange gains and losses for 1998, 1997 and 1996 were not
significant.
25
<PAGE> 26
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 ....................................... 27
Financial Statements:
Consolidated Balance Sheets as of January 31, 1998 and 1997...... 28
Consolidated Statements of Income for the Years
Ended January 31, 1998, 1997 and 1996......................... 30
Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 1998, 1997 and 1996......................... 31
Consolidated Statements of Cash Flows for the Years Ended
January 31, 1998, 1997 and 1996 .............................. 32
Notes to Consolidated Financial Statements....................... 34
Financial Statement Schedule II.................................. 51
All other schedules have been omitted because they are not applicable
or not required as the required information is included in the Consolidated
Financial Statements of the Company or the Notes thereto.
26
<PAGE> 27
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,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 31, 1998
27
<PAGE> 28
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets
As of January 31, 1998 and 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,954 $ 1,697
Customer receivables, less allowance
of $2,583 and $1,002, respectively 49,595 32,031
Costs and estimated earnings in excess of
billings on uncompleted contracts 6,777 9,055
Inventories 27,812 17,739
Deferred income taxes 9,610 6,356
Other 2,346 1,675
--------- ---------
Total current assets 99,094 68,553
--------- ---------
Property and equipment:
Land 8,851 7,922
Buildings 14,678 13,555
Machinery and equipment 143,338 101,945
--------- ---------
166,867 123,422
Less--Accumulated depreciation (79,948) (69,015)
--------- ---------
Net property and equipment 86,919 54,407
--------- ---------
Other assets:
Investment in foreign affiliates 19,456 17,172
Intangible assets, at cost less accumulated
amortization of $1,335 and $709, respectively 32,836 521
Other 5,594 1,768
--------- ---------
Total other assets 57,886 19,461
--------- ---------
$ 243,899 $ 142,421
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 29
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets(Continued)
As of January 31, 1998 and 1997
(In Thousands of Dollars, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------------------------------ --------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable $ 20,365 $ 12,550
Current maturities of long-term debt -- 114
Accrued compensation 10,924 8,348
Accrued insurance expense 9,059 5,410
Other accrued expenses 9,626 6,434
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,459 6,054
--------- ---------
Total current liabilities 59,433 38,910
--------- ---------
Non-current and deferred liabilities:
Long-term debt 57,500 30,314
Deferred income taxes 5,228 3,307
Accrued insurance expense 6,019 5,775
Other 1,460 1,451
--------- ---------
Total non-current and deferred
liabilities 70,207 40,847
--------- ---------
Contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share,
5,000,000 shares authorized, none issued
and outstanding - -
Common stock, par value $.01 per share,
30,000,000 shares authorized, 11,631,556
and 8,871,467 shares issued and outstanding,
respectively 116 89
Capital in excess of par value 82,889 39,293
Retained earnings 35,614 24,187
Unrealized gain on investments 250 --
Notes receivable from management stockholders (175) (199)
Unrecognized pension cost (527) (624)
Cumulative translation adjustment (3,908) (82)
--------- ---------
Total stockholders' equity 114,259 62,664
--------- ---------
$ 243,899 $ 142,421
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 30
Layne Christensen Company and Subsidiaries
Consolidated Statements of Income
For the Years Ended January 31, 1998, 1997 and
1996 (In Thousands of Dollars, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Service revenues $ 264,354 $ 196,544 $ 153,755
Product sales 30,246 26,309 13,516
------------ ------------ ------------
Total revenues 294,600 222,853 167,271
------------ ------------ ------------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 191,497 142,562 111,061
Cost of product sales 22,220 19,040 11,017
------------ ------------ ------------
Total cost of revenues 213,717 161,602 122,078
------------ ------------ ------------
Gross profit 80,883 61,251 45,193
Selling, general and administrative
expenses 45,908 38,956 28,260
Depreciation and amortization 15,681 10,974 8,233
------------ ------------ ------------
Operating income 19,294 11,321 8,700
Other income (expense):
Equity earnings of foreign
affiliates 3,022 3,895 -
Interest (3,618) (2,447) (767)
Other, net (267) 161 407
------------ ------------ ------------
Income before income taxes 18,431 12,930 8,340
Income tax expense 7,004 4,913 3,753
------------ ------------ ------------
Net income $ 11,427 $ 8,017 $ 4,587
============ ============ ============
Basic earnings per share $ 1.13 $ 0.90 $ 0.62
============ ============ ============
Diluted earnings per share $ 1.09 $ 0.88 $ 0.61
============ ============ ============
Weighted average number of common
and dilutive equivalent shares
outstanding:
Weighted average shares
outstanding 10,128,000 8,865,000 7,451,000
Dilutive stock options 400,000 281,000 66,000
------------ ------------ ------------
10,528,000 9,146,000 7,517,000
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 31
Layne Christensen Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended January 31, 1998, 1997 and 1996
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Notes
Unrealized Receivable
Common Stock Capital in Gain from Unrecognized Cumulative
--------------------- Excess of Retained on Management Pension Translation
Shares Amount Par Value Earnings Investment Stockholders Cost Adjustment
------ ------ --------- -------- ---------- ------------ ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 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 - -
Change in 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 - -
Change in 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)
Issuance of stock for
incentive compensation
program 3,524 - 113 - - - - -
Issuance of stock,
net of expenses 2,756,565 27 43,483 - - - - -
Unrealized gain on
available for sale
investments,
net of taxes - - - - $ 250 - - -
Payments on notes
receivable - - - - - 24 - -
Change in unrecognized
pension liability - - - - - - 97 -
Net income 11,427
Cumulative translation
adjustment - - - - - - - (3,826)
---------- ------ ------- ------- -------- ------- --------- --------
Balance, January 31, 1998 11,631,556 $ 116 $82,889 $35,614 $ 250 $ (175) $ (527) $ (3,908)
========== ====== ======= ======= ======== ======= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 32
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended January 31, 1998 1997 and 1996
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 11,427 $ 8,017 $ 4,587
Adjustments to reconcile net income
to cash from operations:
Depreciation and amortization 15,681 10,974 8,233
Deferred income taxes (176) 1,710 (48)
Equity earnings of foreign affiliates (3,022) (3,895) -
Dividends received from foreign
affiliates 756 1,990 279
(Gain) loss from disposal of property
and equipment 99 110 (330)
Changes in current assets and liabilities,
(exclusive of effects of acquisitions):
(Increase) decrease in customer
receivables (7,994) 2,275 (1,490)
(Increase) decrease in costs and
estimated earnings in excess of
billings on uncompleted contracts (77) 722 (402)
Increase in inventories (5,438) (1,623) (345)
(Increase) decrease in other current
assets 524 (370) (185)
Decrease in accounts payable and
accrued expenses (679) (4,216) (5,374)
Increase in billings in excess of
costs and estimated earnings on
uncompleted contracts 3,570 2,163 1,304
Other, net (401) (741) 1,309
-------- -------- --------
Cash from operating activities 14,270 17,116 7,268
-------- -------- --------
Cash flow from investing activities:
Additions to property and equipment (22,425) (18,544) (12,454)
Proceeds from disposal of property and
equipment 1,239 1,070 798
Acquisition of businesses, net of cash
acquired (53,942) - (22,801)
Purchase of available for sale investments (3,111) - -
Investment in foreign affiliates (20) (346) (200)
Other, net - 282 368
-------- -------- --------
Cash used in investing activities (78,259) (17,538) (34,289)
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 33
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows - (Continued)
For the Years Ended January 31, 1998, 1997 and 1996
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flow from financing activities:
Proceeds from long-term debt - $ 25,000 $ 25,000
Net borrowings under revolving facility $ 28,500 500 3,500
Repayments of long-term debt (5,899) (23,605) (1,508)
Payments on notes receivable from
management stockholders 24 114 22
Issuance of common stock, net of expenses 43,510 - -
Debt issuance costs (725) (272) (190)
-------- -------- --------
Cash from financing activities 65,410 1,737 26,824
-------- -------- --------
Effects of exchange rate changes on cash (164) - --
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 1,257 1,315 (197)
Cash and cash equivalents at beginning
of year 1,697 382 579
-------- -------- --------
Cash and cash equivalents at end of year $ 2,954 $ 1,697 $ 382
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 34
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
(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, Australia, Africa, Mexico, Canada and Indonesia. 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. Financial
information for the Company's foreign affiliates is reported in the Company's
consolidated financial statements on a one month lag.
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.
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
34
<PAGE> 35
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
stockholders' equity. As a result of the acquisition of an Australian company
during 1998, (see Note 2), the Company has reflected a substantial change in the
cumulative translation account, net of taxes of $2,174,000, attributed to the
devaluation of the Australian dollar.
Net foreign currency transaction gains and losses for 1998, 1997 and
1996 are not significant.
Revenue Recognition - Revenue is recognized on large, long-term
contracts using the percentage of completion method based upon materials
installed and labor costs incurred. Changes in job performance, job conditions,
and estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Revenue is recognized on smaller, short-term contracts using the completed
contract method. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Inventories - The Company values inventories at the lower of cost
(first-in, first-out, including material, labor, and manufacturing overhead
costs) or market (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Raw materials $ 1,552 $ 1,790
Work in process 1,673 1,568
Finished products, parts and supplies 24,587 14,381
------- -------
Total $27,812 $17,739
======= =======
</TABLE>
Property and Equipment and Related Depreciation - Property and
equipment (including major renewals and improvements) are recorded at cost.
Depreciation is provided using the straight-line method. The lives used for the
more significant items within each property classification are as follows:
<TABLE>
<CAPTION>
Years
-------
<S> <C> <C>
Buildings 15 - 35
Machinery and equipment 3 - 10
</TABLE>
Intangible Assets - Intangible assets consist of goodwill related to
acquisitions, purchased technical manuals, well records and other assets which
are being amortized over their estimated economic lives which range from thirty
to thirty-five years. Amortization expense for intangible assets was $626,000,
$116,000 and $125,000 for 1998, 1997 and 1996, respectively. Accumulated
amortization of intangible assets at January 31, 1998 and 1997, was $1,335,000
and $709,000, respectively.
Investments - During 1998, the Company, through its wholly owned
subsidiary Layne Christensen Australia Pty Limited ("Layne Australia"),
purchased common stock of a publicly traded company on the Australian Stock
Exchange. The Company has classified this investment as available-for-sale. The
non-current investment
35
<PAGE> 36
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
has a cost basis of $3,111,000 and is reported at its fair value of
approximately $3,514,000 at January 31, 1998. The gross unrealized gain of
$403,000, net of deferred taxes of $153,000, has been recorded as a component of
stockholders' equity.
Impairment of Long-Lived Assets - At each balance sheet date, a
determination is made by management as to whether the value of long-lived
assets, including intangible assets and assets to be disposed of, has been
impaired. The determination is based on several criteria, including, but not
limited to, revenue trends, undiscounted operating cash flows and other
operating factors.
Accrued Insurance Expense - Costs estimated to be incurred in the
future for employee medical benefits and casualty insurance programs resulting
from claims which have been incurred are accrued currently. Under the terms of
the Company's agreement with the various insurance carriers administering these
claims, the Company is not required to remit the total premium until the claims
are actually paid by the insurance companies (see Note 10).
Fair Value of Financial Instruments - The carrying amounts of financial
instruments including cash and cash equivalents, customer receivables and
accounts payable approximate fair value at January 31, 1998 and 1997 because of
the relatively short maturity of those instruments. Investments in equity
securities are carried at quoted market values. See Note 8 for disclosure
regarding the fair value of indebtedness of the Company.
Consolidated Statements of Cash Flows - Highly liquid investments with
a remaining maturity of three months or less at the time of purchase are
considered cash equivalents. The 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):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Income taxes $ 8,454 $ 2,855 $ 3,743
Interest 3,345 1,750 631
</TABLE>
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):
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $ 49,674
Less: liabilities incurred or assumed 26,873
--------
Cash paid, net of cash acquired $ 22,801
========
</TABLE>
In 1998, the Company issued 3,524 shares of common stock and 15,727
stock options related to 1997 compensation awards. In 1997 and 1996, the Company
36
<PAGE> 37
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
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 $113,000, $340,000 and $216,000, respectively, which was accrued
at January 31, 1997, 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.
Earnings Per Share - Earnings per common share are based upon the
weighted average number of common and dilutive equivalent shares outstanding.
Options to purchase common stock are included based on the treasury stock method
for dilutive earnings per share except when their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," (SFAS No. 128). SFAS 128, which
simplifies the standards for computing and presenting earnings per share, became
effective for periods ending after December 15, 1997. Accordingly, earnings per
share as previously reported have been restated to conform to the new standard.
No adjustments have been made to the Company's net income used to compute basic
or diluted per share earnings for 1998, 1997 and 1996. The weighted average
share calculation with respect to diluted earnings for 1998, 1997 and 1996
includes the dilutive impact of options.
Stock-Based Compensation - Stock-based compensation may be accounted
for either based on the estimated fair value of the awards at the date they are
granted (the "SFAS 123 Method") or based on the difference, if any, between the
market price of the stock at the date of grant and the amount the employee must
pay to acquire the stock (the "APB 25 Method"). The Company uses the APB 25
Method to account for its stock-based compensation programs (see Note 9). Pro
forma net income for 1998 and 1997, determined as if the SFAS 123 Method had
been applied, would have been $11,204,000 and $7,842,000, respectively. Basic
and dilutive earnings per share would have been $1.11 and $1.06, respectively
for 1998, and $0.88 and $0.86, respectively for 1997. As there were no options
granted during 1996, there is no pro forma effect on 1996 results. Because the
SFAS 123 Method of accounting is not applicable to the Company's 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.
New Accounting Standards - In June 1997, the Financial Accounting
Standards Board issued Statement No. 130, "Reporting Comprehensive Income,"
(SFAS No. 130) and Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information," (SFAS No. 131). SFAS No. 130 and SFAS NO.
131 are effective for periods beginning after December 15, 1997. SFAS NO. 130
establishes standards for reporting and displaying comprehensive income and its
components. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in interim and annual
financial statements. The Company does not expect these statements to have a
material effect on its consolidated financial statements.
37
<PAGE> 38
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
Reclassifications - Certain 1997 and 1996 amounts have been
reclassified to conform with the 1998 presentation.
(2) Acquisitions
On May 20, 1997, the Company, through its wholly-owned subsidiary
Layne Christensen Australia Pty Limited ("Layne Australia"), made a tender offer
to the security holders of Stanley Mining Services Limited ("Stanley"), a
company listed on the Australian Stock Exchange (the "Stanley Acquisition").
Stanley is an Australian mineral exploration drilling company that provides
services predominantly to gold mining companies in Australia and Africa. As of
October 1, 1996, Stanley purchased 51% of Glindemann & Kitching Pty Ltd.
("G&K"), a drilling contractor based and operating in Western Australia that
specializes in diamond core exploration drilling for gold projects. The
remaining 49% of G&K was acquired by Stanley as of July 1, 1997 for a purchase
price of $7,814,000. The purchase price was paid on September 5, 1997.
The Stanley Acquisition was substantially consummated on July 25, 1997
for a purchase price of approximately $50,070,000 consisting of a cash purchase
price for the tender offer of $48,337,000 and $1,733,000 of transaction costs.
The Company also assumed approximately $12,523,000 of Stanley's existing
indebtedness. The Company has accounted for the acquisition using the purchase
method of accounting. Stanley has been reflected in the Company's results of
operations beginning August 1, 1997. The purchase price has been allocated based
on fair values of assets and liabilities as of July 31, 1997. On August 19,
1997, the Company completed the sale of 2,756,565 shares of Common Stock in a
public offering. Net proceeds to the Company from the offering of approximately
$43,510,000 were used to reduce the debt incurred under the New Credit Agreement
in connection with the Stanley Acquisition.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the acquisitions of
Stanley and G&K and the stock offering had occurred at the beginning of fiscal
year 1997, with pro forma adjustments to give effect to interest expense on
acquisition debt, amortization of goodwill and certain other adjustments,
together with related income tax effects:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1998 1997
------------------------------------- ---- ----
<S> <C> <C>
Revenues $323,565 $278,070
Net income 12,638 10,203
Basic earnings per share 1.09 .88
Diluted earnings per share 1.05 .86
</TABLE>
The pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the acquisition been
consummated
38
<PAGE> 39
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
as of February 1, 1997, nor are they necessarily indicative of future operating
results.
In July 1997, the Company also acquired the outstanding stock of
Stamm- Scheele, Inc., ("Stamm-Scheele") a water well drilling and maintenance
company in Louisiana, for approximately $2,574,000 in cash. The acquisition has
been accounted for using the purchase method of accounting. Had this acquisition
taken place as of February 1, 1997, pro forma operating results would not have
been significantly different from those reported.
In October 1997, the Company also acquired certain assets of Afridrill
Limited, a mineral exploration company located in East Africa, for approximately
$3,700,000 in cash and certain contingent future payments of approximately
$684,000. The acquisition has been accounted for using the purchase method of
accounting. Had this acquisition taken place as of February 1, 1997, pro forma
operating results would not have been significantly different from those
reported.
The above acquisitions had the following effect on the Company's
fiscal 1998 consolidated financial position (in thousands of dollars):
<TABLE>
<S> <C>
Property and equipment $27,662
Working capital (971)
Intangible and other assets 33,391
Non-current and deferred liabilities (6,140)
-------
Total purchase price, net of cash acquired $53,942
=======
</TABLE>
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
on December 28, 1995, the Company purchased 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, a total of 349,303 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
39
<PAGE> 40
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
of the Merger. The shares are to be released from escrow on the third
anniversary of the Merger, pending any claims filed.
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. These actions were substantially
completed during 1998.
(3) Investments in Foreign Affiliates
The Company's investments in foreign affiliates are carried at the
Company's equity in the underlying net assets plus an additional $4,753,000 as a
result of purchase accounting. This additional amount is being amortized over
the remaining useful lives of the applicable underlying assets ranging from 20
to 35 years. Accumulated amortization at January 31, 1998 and 1997, was $259,000
and $130,000, respectively. These affiliates, which generally are engaged in
mineral exploration drilling and the manufacture and supply of drilling
equipment, parts and supplies, are as follows:
<TABLE>
<CAPTION>
Percentage
Owned
----------
<S> <C>
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) 35.38%
Christensen Commercial, S.A. (Peru) 50.00%
Geotec, S.A. (Peru) 35.38%
Boytec, S.A. (Panama) 49.99%
Technidrill, Ltd. (France) 49.00%
Christensen Boyles GmbH (Germany) 33.35%
Plantel Industrial S.A. (Chile) 50.00%
</TABLE>
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, 1998 and 1997 and for the years ended
January 31, 1998 and 1997 were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Total assets $69,953 $68,576
Total liabilities 33,015 35,993
Revenues 87,996 94,182
Gross profit 18,526 24,605
Operating income 9,293 14,651
Net income 6,884 10,043
</TABLE>
40
<PAGE> 41
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
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, 1998 and 1997 and for the years ended
January 31, 1998, 1997 and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accounts receivable $2,736 $1,480
Revenues 7,574 5,924
</TABLE>
Undistributed equity earnings of foreign affiliates totaled $4,171,000
and $1,905,000 as of January 31, 1998 and 1997, respectively.
(4) Costs and Estimated Earnings on Uncompleted Contracts (in thousands of
dollars):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 76,901 $ 44,165
Estimated earnings 21,652 18,224
-------- --------
98,553 62,389
Less: Billings to date 101,235 59,388
-------- --------
$ (2,682) $ 3,001
======== ========
Included in accompanying balance
sheets under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 6,777 $ 9,055
Billings in excess of costs and estimated
earnings on uncompleted contracts (9,459) (6,054)
-------- --------
$ (2,682) $ 3,001
======== ========
</TABLE>
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.
(5) Income Taxes
Income before income taxes is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Domestic $11,916 $ 8,206 $ 8,551
Foreign 6,515 4,724 (211)
------- ------- -------
$18,431 $12,930 $ 8,340
======= ======= =======
</TABLE>
Components of the income tax expense are (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Currently due:
</TABLE>
41
<PAGE> 42
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. federal $ 5,012 $ 2,094 $ 3,245
State and local 1,272 312 606
Foreign 1,660 893 (230)
------- ------- -------
7,944 3,299 3,621
------- ------- -------
Deferred:
U.S. federal and state (1,185) 846 397
State and local (157) 311 (586)
Foreign 402 457 321
------- ------- -------
(940) 1,614 132
------- ------- -------
$ 7,004 $ 4,913 $ 3,753
======= ======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
1998 1997
--------------------------------- -----------------------------------
Assets Liabilities Total Assets Liabilities Total
------ ----------- ----- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Contract income $ 2,241 - $ 2,241 $ 2,642 - $ 2,642
Accrued insurance
expense 2,848 - 2,848 1,521 - 1,521
Employee compensation 954 - 954 801 - 801
Bad debts 968 - 968 338 - 338
Inventory 1,279 $ (1,919) (640) 607 - 607
Reserves 3,387 (563) 2,824 186 - 186
Loss carryforwards 415 - 415 - - -
Other - - - 1,011 $ (564) 447
-------- -------- -------- -------- -------- --------
Current 12,092 (2,482) 9,610 6,920 (564) 6,356
-------- -------- -------- -------- -------- --------
Accelerated depreciation 33 (10,129) (10,096) - (6,562) (6,562)
Cumulative translation
adjustment 2,174 - 2,174 - - -
Accrued insurance
expense 2,365 - 2,365 2,154 - 2,154
Loss carryforward 1,883 - 1,883 694 - 694
Employee compensation 552 (267) 285 - (205) (205)
Other 178 (2,017) (1,839) 626 (14) 612
-------- -------- -------- -------- -------- --------
Noncurrent 7,185 (12,413) (5,228) 3,474 (6,781) (3,307)
-------- -------- -------- -------- -------- --------
$ 19,277 $(14,895) $ 4,382 $ 10,394 $ (7,345) $ 3,049
======== ======== ======== ======== ======== ========
</TABLE>
For federal income tax purposes, the Company has a net operating loss
carryforward of $1,689,000 relating to the company acquired in the Merger (see
Note 2) and therefore is subject to certain restrictions, which expires during
the years ending 2008, 2009 and 2010.
For Australian tax purposes, the Company has a loss carryforward of
$1,700,000 at January 31, 1998 relating to a company acquired in the Stanley
Acquisition (see Note 2). Approximately $700,000 of the carryforward was
42
<PAGE> 43
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
generated prior to the acquisition. There are no restrictions on the utilization
of the loss and the carryforward period is indefinite.
One of the Company's African operations generated a $2,500,000 loss
carryforward as a result of tax rules which permitted accelerated deductions of
$3,000,000. Losses can be carried forward indefinitely.
At January 31, 1998, undistributed earnings of foreign subsidiaries
and foreign affiliates include $15,300,000 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):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- ------------------------
Effective Effective Effective
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
rate $ 6,451 35.0% $ 4,397 34.0% $ 2,836 34.0%
State income tax, net of
federal income tax benefit 654 3.5 570 4.4 355 4.3
Difference in tax expense
resulting from:
Non-deductible expenses 404 2.2 445 3.4 412 4.9
Unremitted income of
foreign affiliates (1,057) (5.7) (774) (6.0) - -
Taxes on foreign operations 797 4.3 582 4.5162 1.9
Other, net (245) (1.3) (307) (2.3) (12) (.1)
------- ------ ------- ------- -------- ------
$ 7,004 38.0% $ 4,913 38.0% $ 3,753 45.0%
======= ====== ======= ======= ======== ======
</TABLE>
(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, 1998 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
1999 $4,350
2000 2,882
2001 1,731
2002 1,363
2003 750
</TABLE>
Operating leases are primarily for automobiles, small trucks and office
and shop facilities. Rent expense under operating leases (including
insignificant
43
<PAGE> 44
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
amounts of contingent rental payments) was $4,605,000, $5,010,000 and
$3,298,000, in 1998, 1997 and 1996, 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, 1997 and 1996 (the measurement dates) and the amounts recognized in the
Company's balance sheets at January 31, 1998 and 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accumulated vested benefit obligation $ 4,864 $ 4,832
Accumulated non-vested benefit obligation 109 117
------- -------
Accumulated benefit obligation $ 4,973 $ 4,949
======= =======
Projected benefit obligation for service
rendered to date $(4,973) $(4,949)
Plan assets at fair value 4,554 4,398
------- -------
Projected benefit obligation in excess of
plan assets (419) (551)
Unrecognized net loss 1,134 1,365
Prior service cost not yet recognized in
net periodic pension cost 82 92
Unrecognized net obligation being recognized
over the average expected remaining life
of the participants (266) (345)
Adjustment required to recognize minimum liability (950) (1,109)
------- -------
Pension liability recognized in the balance sheets $ (419) $ (548)
======= =======
</TABLE>
Net periodic pension cost for 1998, 1997 and 1996 includes the following
components (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Service cost $ 137 $ 171 $ 140
Interest cost 343 357 336
Actual return on assets (530) (343) (602)
Net amortization 67 88 42
Deferred asset gain (loss) 229 (29) 307
----- ----- -----
$ 246 $ 244 $ 223
===== ===== =====
</TABLE>
44
<PAGE> 45
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
The Company has recognized the full amount of its actuarially
determined pension liability and the related intangible asset of $82,000 and
$92,000 at January 31, 1998 and 1997, 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 1998, 1997 and 1996 was computed
using a discount rate of 7.25%, 7.50% and 7.25%, respectively, and an estimated
long-term rate of return on assets of 8.75%. Benefit level assumptions for 1998,
1997 and 1996 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 $646,000, $638,000 and $517,000 in 1998,
1997 and 1996, 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 $1,349,000,
$1,264,000 and $802,000 in 1998, 1997 and 1996, respectively. The Company
reserves the right to amend or terminate the plans, but the Company cannot
recover contributions already paid.
(8) Indebtedness
During July 1997, contemporaneously with the consummation of the
Stanley Acquisition (see Note 2), the Company amended its existing credit
agreement to provide a $100,000,000 reducing revolving credit facility ("New
Credit Agreement"). The New Credit Agreement was used to finance the Stanley
Acquisition and refinance the Company's existing indebtedness under a
$30,000,000 credit facility, and is available for working capital and capital
expenditures and for other general corporate purposes. The New Credit Agreement
provides a reducing revolving cash borrowing facility of up to $100,000,000,
less any outstanding letter of credit commitments ($20,000,000 sublimit). As of
January 31, 1998, letters of credit in an aggregate amount of $5,605,000 had
been issued on behalf of the Company. The New Credit Agreement will terminate in
July 2002 and any borrowings thereunder will mature at that time. Layne
Australia is eligible to draw down up to $30,000,000 under the New Credit
Agreement. The New Credit Agreement provides for guarantees by certain of the
Company's domestic subsidiaries and contains certain covenants including
restrictions on the incurrence of additional indebtedness and liens, sale of
assets or other dispositions, transactions with affiliates, mandatory
prepayments based on the proceeds from the sale of assets and debt and equity
securities and certain financial maintenance covenants, including among others,
minimum interest coverage and maximum leverage ratios. The New Credit Agreement
provides for interest at variable rates equal to (i) for loans in Australian
dollars, an Australian Bill rate plus .50% to .875% (depending upon debt to
capitalization ratios) or (ii) for
45
<PAGE> 46
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
loans in United States dollars, at the Company's option, a Eurodollar rate plus
.50% to .875% (depending upon debt to capitalization ratios) or an alternate
reference rate as defined in the New Credit Agreement. As of January 31, 1998,
there was $32,500,000 of outstanding borrowings under the New Credit Agreement,
at an average interest rate of 6.253%. The variable interest rates on the
outstanding balance approximate the current market rates.
Maximum borrowings outstanding under the Company's then existing credit
agreements during 1998, 1997 and 1996 were $58,000,000, $7,500,000 and
$18,000,000, respectively, and the average outstanding borrowings were
$21,250,000, $4,875,000 and $6,042,000, respectively. The weighted average
interest rates were 7.3%, 7.5% and 7.9%, respectively.
During March, 1996, the Company completed the private placement of an
unsecured note agreement (subsequently amended) for $25,000,000 ("Senior Notes")
to replace a term loan the Company had previously obtained from one of its
lenders. 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, 1998 and 1997, such interest rate approximates market for
similar securities. Financial guarantees and covenants are similar to those in
the New Credit Agreement.
Loan costs incurred in securing long-term financing are amortized over
the term of the respective loan agreement. Amortization of these costs for 1998,
1997 and 1996 was $180,000, $171,000 and $34,000, 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):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Senior Notes $25,000 $25,000
Revolving debt 32,500 4,000
Mortgage loan - 1,428
------- -------
Total long-term debt - net 57,500 30,428
Less current maturities - 114
------- -------
$57,500 $30,314
======= =======
</TABLE>
As of January 31, 1998, long-term debt matures as follows (in thousands
of dollars):
<TABLE>
<S> <C> <C>
1999 $ -
2000 -
2001 3,571
2002 3,571
2003 36,071
Thereafter 14,287
-------
$57,500
=======
</TABLE>
(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
46
<PAGE> 47
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
on performance as determined annually by a committee appointed by the Company's
Board of Directors. During 1998, 1997 and 1996, 3,524, 31,622 and 32,649 shares,
respectively, were issued at $15.00, $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.
Significant option groups outstanding at January 31, 1998 and related
weighted average price and life information follows:
<TABLE>
<CAPTION>
Remaining
Options Options Exercise Life
Grant Date Outstanding Exercisable Price (Years)
- ---------- ----------- ----------- ----- -------
<S> <C> <C> <C> <C>
8/92 72,164 72,164 $ .882 4
8/92 97,434 97,434 7.000 4
12/93 258,317 246,797 6.420 6
5/94 39,000 23,400 6.375 6
2/96 158,500 63,400 10.500 8
11/96 16,500 3,300 13.375 9
4/97 15,727 - 11,400 9
</TABLE>
All options were granted at an exercise price equal to the fair market
value of the Company's common stock at the date of grant. The weighted average
fair value at the date of grant for options granted during fiscal year 1998 and
1997 were $8.02 and $6.98 per option, respectively. As there were no options
granted during 1996, no weighted average fair value of options is presented. The
options generally have a ten year term from the date of grant and vest ratably
over five years. The fair value of options at date of grant was estimated using
the Black- Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Expected life years 10 10
Interest rate 6.5% 6.5%
Volatility 50% 20%
Dividend yield 0% 0%
</TABLE>
<TABLE>
<CAPTION>
Shares Under Option Shares Exercisable
------------------------ ------------------------
Weighted Weighted
Number Average Number of Average
of Shares Price Shares Price
--------- ----- ------ -----
<S> <C> <C> <C> <C>
Stock Option Activity Summary:
Outstanding, February 1, 1995 466,915 $ 5.681 162,945 $4.106
Granted - - -
Canceled - - -
Vested - - 78,948
------- --------
Outstanding, January 31, 1996 466,915 5.6812 41,893 4.907
Granted 191,500 10.748-
Canceled (16,500) 10.500-
Vested - - 110,651
-------- --------
</TABLE>
47
<PAGE> 48
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Outstanding, January 31, 1997 641,915 7.069 352,544 5.779
Granted 15,727 11.400 -
Canceled - - -
Vested - - 153,951
-------- --------
Outstanding, January 31, 1998 657,642 $ 7.172 506,495 $6.283
======== ========
</TABLE>
(10) Contingencies
The Company's drilling activities involve certain operating hazards
that can result in personal injury or loss of life, damage and destruction of
property and equipment, damage to the surrounding areas, release of hazardous
substances or wastes and other damage to the environment, interruption or
suspension of drill site operations and loss of revenues and future business.
The magnitude of these operating risks is amplified when the Company, as is
frequently the case, conducts a project on a fixed-price, "turnkey" basis where
the Company delegates certain functions to subcontractors but remains
responsible to the customer for the subcontracted work. In addition, the Company
is exposed to potential liability under foreign, federal, state and local laws
and regulations, contractual indemnification agreements or otherwise in
connection with its provision of services and products. Litigation arising from
any such occurrences may result in the Company's being named as a defendant in
lawsuits asserting large claims. Although the Company maintains insurance
protection that it considers economically prudent, there can be no assurance
that any such insurance will be sufficient or effective under all circumstances
or against all claims or hazards to which the Company may be subject or that the
Company will be able to continue to obtain such insurance protection. A
successful claim or damage resulting from a hazard for which the Company is not
fully insured could have a material adverse effect on the Company. In addition,
the Company does not maintain political risk insurance or business interruption
insurance with respect to its foreign operations.
The Company's former parent corporation, The Marley Company ("Marley"),
maintained 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 had indemnified Marley for claims or
retroactive insurance premiums on those policies that exceeded the amount of
reserves attributable to the Company's estimated losses through April 30, 1992.
Pursuant to an agreement with Marley, in November 1997, the Company received
payment from Marley in the amount of the remaining unpaid reserves and will be
responsible for any remaining incurred but unpaid claims or losses under this
arrangement. As of the date of payment, the Company established reserves in its
consolidated balance sheet for these claims and losses. The Company believes
that the amount of such reserves will be sufficient to cover its reasonably
anticipated 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
48
<PAGE> 49
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect upon its business or consolidated financial position,
results of operations or cash flows.
(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, Australia, Africa, Mexico, Canada, Indonesia 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.
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,
including goodwill associated with the Stanley Acquisition. Corporate assets are
all assets of the Company not directly associated with an operating segment, and
consist primarily of cash, deferred income taxes and investments in foreign
affiliates (see Note 3).
<TABLE>
<CAPTION>
Revenues 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Drilling
United States $ 181,846 $ 171,704 $ 143,162
Canada 38,242 13,423 -
Australia 10,554 - -
Other Foreign 33,712 11,417 10,593
-------- -------- --------
Total Drilling 264,354 196,544 153,755
-------- -------- --------
Manufacturing and Supply 47,336 41,572 23,232
Intersegment revenues (17,090) (15,263) (9,716)
-------- -------- --------
Total Manufacturing and Supply 30,246 26,309 13,516
-------- -------- --------
$ 294,600 $ 222,853 $ 167,271
======== ======== --------
Operating Income
Drilling
United States $ 16,841 $ 13,844 $ 14,107
Canada 7,006 1,049 -
Australia 1,293 - -
Other Foreign 2,421 1,110 409
-------- -------- --------
Total Drilling 27,561 16,003 14,516
Manufacturing and Supply 1,278 1,390 1,625
Corporate (9,545) (6,072) (7,441)
-------- -------- --------
</TABLE>
49
<PAGE> 50
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
$ 19,294 $ 11,321 $ 8,700
======== ======== ========
<S> <C> <C> <C>
Identifiable Assets
Drilling
United States $ 80,305 $ 74,113 $ 70,866
Canada 10,416 6,021 4,459
Australia 64,024 - -
Other Foreign 35,173 10,463 11,157
------- -------- --------
Total Drilling 189,918 90,597 86,482
Manufacturing and Supply 28,584 24,917 20,622
Corporate 25,397 26,907 27,073
-------- -------- --------
$243,899 $142,421 $134,177
======== ======== ========
Capital Expenditures
Drilling $ 21,363 $ 18,071 $ 12,383
Manufacturing and Supply 882 473 71
-------- -------- -------
$ 22,425 $ 18,544 $ 12,454
======== ======== =======
Depreciation and Amortization
Drilling $ 15,030 $ 10,489 $ 8,216
Manufacturing and Supply 651 485 17
-------- -------- -------
$ 15,681 $ 10,974 $ 8,233
======== ======== =======
</TABLE>
Of the $30,246,000 Manufacturing and Supply sales to unaffiliated
customers in 1998, approximately $9,581,000 were export sales, principally to
Latin and South America.
(12) Quarterly Results (Unaudited)
Unaudited quarterly financial data is as follows (see Note 2 regarding
the Stanley acquisition) (thousands of dollars, except per share data):
First Second Third Fourth
------- ------- ------- -------
1998:
Revenues $57,750 $67,683 $90,335 $78,832
Gross profit 15,605 19,005 25,387 20,886
Net income 1,683 3,183 4,879 1,682
Basic earnings per share 0.19 0.36 0.44 0.14
Diluted earnings per share 0.18 0.34 0.42 0.14
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
Basic earnings per share 0.12 0.29 0.36 0.13
Diluted earnings per share 0.12 0.28 0.35 0.13
======================
50
<PAGE> 51
SCHEDULE II
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts Deductions Other End of Period
----------- ---------- ---------- ---------- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for customer
receivables
Fiscal year ended January 31,
1996........................ $ 347 731 187 (668) 290 (a) $ 887
======= ======
Fiscal year ended January 31,
1997........................ $ 887 902 695 (1,512) 30 (b) $1,002
=======
Fiscal year ended January 31,
1998........................ $1,002 1,168 671 (795) 537 (c) $2,583
======= ======
Reserves for Inventories
Fiscal year ended January 31,
1996........................ $1,015 34 (342) 2,384 (a) $3,091
======= ======
Fiscal year ended January 31,
1997........................ $3,091 939 (2,033) $1,997
=======
Fiscal year ended January 31,
1998........................ $1,997 145 (1,854) 3,478 (c) $3,766
======= ======
<FN>
(a) Represents reserves recorded in connection with CBC Merger in December
1995. See Note 2 to the Consolidated Financial Statements.
(b) Represents reserves recorded in connection with dissolution of investment
in domestic affiliate. See Note 12 to the Consolidated Financial
Statements.
(c) Represents reserves recorded in connection with the Stanley Acquisition and
the acquisition of Stamm- Scheele in July, 1997. See Note 2 to the
Consolidated Financial Statements.
</TABLE>
51
<PAGE> 52
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 21, 1998, (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 21, 1998, contains, under the
caption "Executive Compensation and Other Information," the information required
by Item 11 of Form 10-K and such information is incorporated herein by this
reference (except that the information set forth under the following subcaptions
is expressly excluded from such incorporation: "Report of Board of Directors and
Compensation Committee on Executive Compensation" and "Company Performance").
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 21, 1998, 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 21, 1998, 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.
52
<PAGE> 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits:
1. Financial Statements:
The financial statements are listed in the index for Item 8 of this
Form 10-K.
2. Financial Statement Schedules:
The financial statement schedules are listed in the index for Item 8
of this Form 10-K.
3. Exhibits:
The exhibits filed with or incorporated by reference in this report are
listed below:
Exhibit No. Description
4(1) - Restated Certificate of Incorporation of the
Registrant (filed with the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 3(1) and incorporated
herein by this reference)
4(2) - Bylaws of the Registrant (filed with Amendment No. 2 to
the Registrant's Registration Statement (File No.
33-48432) as Exhibit 3(2) and incorporated herein by
reference)
4(3) - Specimen Common Stock Certificate (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 4(1) and incorporated herein
by reference)
4(4) - Amended and Restated Credit Agreement, dated as of July
25, 1997, among the Company, Layne Christensen
Australia Pty Limited, National Trust and Savings
Association, various financial institutions, Bank of
America, as Letter of Credit Issuer, and Bank of
America National Trust and Savings Association, as
Agent (filed with Amendment No. 3 to the Company's Form
S-2 Registration Statement (File No. 333-29581) as
Exhibit 10(12) and incorporated herein by this
reference)
4(5) - Note Agreement dated as of March 15, 1996, between the
Company and Massachusetts Mutual Life Insurance Company
("Purchaser") for the issuance and sale to Purchaser of
$25,000,000 aggregate principal amount of 6.75% Senior
Notes due March 15, 2006 (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14)
and incorporated herein by this reference)
4(6) - Amendment to Note Agreement, dated as of July 25,
1997, between the Company and Massachusetts Mutual Life
Insurance Company
53
<PAGE> 54
(filed with Amendment No. 3 to the Company's Form S-2
Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference)
10(1) - Tax Liability Indemnification Agreement between the
Registrant and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(2) and incorporated herein
by reference)
10(2) - Lease Agreement between the Registrant and Parkway
Partners, L.L.C. dated December 21, 1994 (filed with
the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995 (File No. 0-20578)
as Exhibit 10(2) and incorporated herein by reference)
10(2.1) - First Modification & Ratification of Lease, dated as of
February 26, 1996, between Parkway Partners, L.L.C. and
the Registrant (filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended January
31, 1996 (File No. 0- 20578), as Exhibit 10(2.1) and
incorporated herein by this reference)
**10(3) - Form of The Layne Capital Accumulation Plan and Trust
Agreement (filed with the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference)
**10(4) - Layne, Inc. 1992 Stock Option Plan (filed with
Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(6) and
incorporated herein by reference)
**10(5) - Form of Stock Option Agreement between the Company and
management of the Company (filed with Amendment No. 3
to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 10(7) and incorporated herein by
reference)
**10(6) - Form of Non Qualified Stock Option Agreement (Spin-Off
Options) between the Company and Robert J. Dineen
(filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33- 48432)as Exhibit
10(9) and incorporated herein by reference)
10(7) - Insurance Liability Indemnity Agreement between the
Company and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(10) and incorporated herein
by reference)
**10(8) - Form of the Layne, Inc. Executive Incentive
Compensation Plan (filed with the Registrant's Form
10-Q for the quarterly period ended July 31, 1994 (File
No. 33-48432) as Exhibit 10(2) and incorporated herein
by reference)
10(9) - Agreement between The Marley Company and the Company
relating to tradename (filed with the Registrant's
Registration Statement (File No.33-48432) as Exhibit
10(10) and incorporated herein by reference)
54
<PAGE> 55
**10(10) - Form of Subscription Agreement for management of the
Company (filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit
10(16) and incorporated herein by reference)
**10(11) - Form of Subscription Agreement between the Company and
Robert J. Dineen (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(17)and incorporated herein by reference)
10(12) - Amended and Restated Credit Agreement, dated as of July
25, 1997, among the Company, Layne Christensen
Australia Pty Limited, National Trust and Savings
Association, various financial institutions, Bank of
America, as Letter of Credit Issuer, and Bank of
America National Trust and Savings Association, as
Agent (filed with Amendment No. 3 to the Company's Form
S-2 Registration Statement (File No. 333-29581) as
Exhibit 10(12) and incorporated herein by this
reference)
**10(13) - Letter Agreement between Andrew B. Schmitt and the
Company dated October 12, 1993 (filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1995 (File No. 0-20578) as
Exhibit 10(13) and incorporated herein by reference)
10(14) - Note Agreement dated as of March 15, 1996, between the
Company and Massachusetts Mutual Life Insurance Company
("Purchaser") for the issuance and sale to Purchaser of
$25,000,000 aggregate principal amount of 6.75% Senior
Notes due March 15, 2006 (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14)
and incorporated herein by this reference)
10(15) - Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life
Insurance Company (filed with Amendment No. 3 to the
Company's Form S-2 Registration Statement (File No.
333-29581) as Exhibit 10(14) and incorporated herein by
this reference)
**10(16) - Form of Incentive Stock Option Agreement between the
Company and management of the Company (filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996 (File No. 0-20578), as
Exhibit 10(15) and incorporated herein by this
reference)
10(17) - Registration Rights Agreement, dated as of November 30,
1995, between the Company and Marley Holdings, L.P.
(filed with the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 10(17) and incorporated herein by
this reference)
10(18) - Stockholders Agreement, dated as of December 28, 1995,
among the Company, Marley Holdings, L.P., Greylock
Investments Limited Partnership and certain other
stockholders of the Registrant identified therein
(filed with the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1996
55
<PAGE> 56
(File No. 0-20578), as Exhibit 10(18) and incorporated
herein by this reference)
11(1) - Statement regarding Computation of per share earnings
22(1) - List of Subsidiaries
23(1) - Consent of Deloitte & Touche LLP
27(1) - Financial Data Schedule
- ---------------------------
** Management contracts or compensatory plans or arrangements required to be
identified by Item 14(a)(3).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year ended January 31, 1998.
(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.
56
<PAGE> 57
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 30, 1998 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 30, 1998
- ---------------------------------------------------
Andrew B. Schmitt
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/Jerry W. Fanska April 30, 1998
- ---------------------------------------------------
Jerry W. Fanska
Vice President--Finance and Treasurer
(Principal Financial and Accounting Officer)
/s/Robert J. Dineen April 30, 1998
- ---------------------------------------------------
Robert J. Dineen
Director
/s/Edward A. Gilhuly April 30, 1998
- ---------------------------------------------------
Edward A. Gilhuly
Director
/s/Todd A. Fisher April 30, 1998
- ---------------------------------------------------
Todd A. Fisher
Director
/s/Donald K. Miller April 30, 1998
- ---------------------------------------------------
Donald K. Miller
Director
/Sheldon R. Erikson April 30, 1998
- ---------------------------------------------------
Sheldon R. Erikson
Director
57
<PAGE> 58
Exhibit Index
Exhibit No. Description Page
4(1) Restated Certificate of Incorporation of the Registrant (filed
with the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996 (File No. 0-20578), as
Exhibit 3(1) and incorporated herein by this
reference) *
4(2) Bylaws of the Registrant (filed with Amendment No. 2 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 3(2) and incorporated herein by reference) *
4(3) Specimen Common Stock Certificate (filed with Amendment No.
3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 4(1) and incorporated herein by
reference) *
4(4) Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent (filed with Amendment No. 3 to the
Company's Form S-2 Registration Statement (File No.
333-29581) as Exhibit 10(12) and incorporated herein by
this reference) *
4(5) Note Agreement dated as of March 15, 1996, between the Company
and Massachusetts Mutual Life Insurance Company ("Purchaser")
for the issuance and sale to Purchaser of $25,000,000
aggregate principal amount of 6.75% Senior Notes due March 15,
2006 filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as
Exhibit 10(14) and incorpo-
rated herein by this reference) *
4(6) Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life Insurance
Company filed with Amendment No. 3 to the Company's Form S-2
Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference) *
10(1) Tax Liability Indemnification Agreement between the
Registrant and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 10(2) and incorporated herein by
reference) *
10(2) Lease Agreement between the Registrant and Parkway Partners,
L.L.C. dated December 21, 1994 (filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended January
31, 1995 (File No. 0-20578) as Exhibit 10(2) and
incorporated herein by reference) *
58
<PAGE> 59
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 Company and
management of the Company (filed with Amendment No. 3 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(7) and incorporated herein by reference) *
10(6) Form of Non Qualified Stock Option Agreement (Spin-Off
Options) between the Company and Robert J. Dineen (filed
with Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432)as Exhibit 10(9) and
incorporated herein by reference) *
10(7) Insurance Liability Indemnity Agreement between the
Company and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(10) and incorporated herein
by reference) *
10(8) Form of the Layne, Inc. Executive Incentive Compensation Plan
(filed with the Registrant's Form 10-Q for the quarterly
period ended July 31, 1994 (File No. 33-48432)
as Exhibit 10(2) and incorporated herein by reference) *
10(9) Agreement between The Marley Company and the Company relating
to tradename (filed with the Registrant's Registration
Statement (File No.33-48432) as Exhibit
10(10) and incorporated herein by reference) *
10(10) Form of Subscription Agreement for management of the
Company(filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit
10(16) and incorporated herein by reference) *
10(11) Form of Subscription Agreement between the Company and
Robert J. Dineen (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(17)and incorporated herein by reference) *
10(12) Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen
59
<PAGE> 60
Australia Pty Limited, National Trust and Savings Association,
various financial institutions, Bank of America, as Letter of
Credit Issuer, and Bank of America National Trust and Savings
Association, as Agent (filed with Amendment No. 3 to the
Company's Form S-2 Registration Statement (File No. 333-29581)
as Exhibit 10(12) and incorporated herein by this
reference) *
10(13) Letter Agreement between Andrew B. Schmitt and the Company
dated October 12, 1993 (filed with the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1995 (File
No. 0-20578) as Exhibit 10(13) and
incorporated herein by reference) *
10(14) Note Agreement dated as of March 15, 1996, between the
Company and Massachusetts Mutual Life Insurance Company
("Purchaser") for the issuance and sale to Purchaser of
$25,000,000 aggregate principal amount of 6.75% Senior
Notes due March 15, 2006 (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January
31, 1996 (File No. 0-20578), as Exhibit 10(14) and
incorporated herein by this reference) *
10(15) Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life Insurance
Company (filed with Amendment No. 3 to the Company's Form S-2
Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference) *
10(16) Form of Incentive Stock Option Agreement between the Company
and management of the Company (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(15) and
incorporated herein by this reference) *
10(17) Registration Rights Agreement, dated as of November 30, 1995,
between the Company and Marley Holdings, L.P. (filed with the
Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(17)
and incorporated herein by this reference) *
10(18) Stockholders Agreement, dated as of December 28, 1995, among
the Company, Marley Holdings, L.P., Greylock Investments
Limited Partnership and certain other stockholders of the
Registrant identified therein (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(18) and
incorporated herein by this reference) *
11(1) Statement regarding Computation of per share earnings 62
22(1) List of Subsidiaries 64
23(1) Consent of Deloitte & Touche LLP 66
60
<PAGE> 61
27(1) Financial Data Schedule 68
- ---------------------------
* Incorporated herein by reference.
61
<PAGE> 1
EXHIBIT 11 (1)
Layne Christensen Company
Statement Regarding Computation of per Share Earnings
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
COMPUTATION OF PER SHARE EARNINGS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income $ 11,427 $ 8,017 $ 4,587
========== ========== ==========
Weighted average common shares
outstanding 10,128,000 8,865,000 7,451,000
Dilutive stock options 400,000 281,000 66,000
---------- ---------- ----------
10,528,000 9,146,000 7,517,000
========== ========== ==========
Per share:
Basic earnings per share $ 1.13 $ .90 $ .62
========== ========== ==========
Dilutive earnings per share $ 1.09 $ .88 $ .61
========== ========== ==========
</TABLE>
<PAGE> 2
[This Page Intentionally Left Blank]
63
<PAGE> 1
EXHIBIT 22(l)
64
<PAGE> 2
SUBSIDIARIES OF
LAYNE CHRISTENSEN COMPANY
================================================================================
NAME OF SUBSIDIARY JURISDICTION
OF INCORPORATION
================================================================================
Boyles Bros. Drilling Company Utah
- --------------------------------------------------------------------------------
Christensen Boyles Corporation Delaware
- --------------------------------------------------------------------------------
Christensen Boyles International Cayman Islands
- --------------------------------------------------------------------------------
Christensen Mining Products Export Company, Ltd. Barbados
- --------------------------------------------------------------------------------
Christensen Products (Thailand) Co., Ltd. Thailand
- --------------------------------------------------------------------------------
Elgin Exploration Company, Ltd. Calgary, Alberta, Canada
- --------------------------------------------------------------------------------
Glindemann & Kitching Pty Ltd Australia
- --------------------------------------------------------------------------------
HydroResources Co., Ltd. Thailand
- --------------------------------------------------------------------------------
International Mining Services Pty Ltd Australia
- --------------------------------------------------------------------------------
Layne Arkansas Company Arkansas
- --------------------------------------------------------------------------------
Layne Atlantic Company, Inc. Indiana
- --------------------------------------------------------------------------------
Layne de Bolivia S.R.L. Cochabamba, Bolivia
- --------------------------------------------------------------------------------
Layne de Mexico, S.A. de C.V. Hermosillo, Sonora, Mexico
- --------------------------------------------------------------------------------
Layne Central Company Tennessee
- --------------------------------------------------------------------------------
Layne Christensen Australia Pty Limited Australia
- --------------------------------------------------------------------------------
Layne GeoSciences, Inc. Delaware
- --------------------------------------------------------------------------------
Layne Louisiana Company Louisiana
- --------------------------------------------------------------------------------
Layne Northern Company, Inc. Indiana
- --------------------------------------------------------------------------------
Layne-Northwest Company, Inc. Wisconsin
- --------------------------------------------------------------------------------
Layne Ohio Company West Virginia
- --------------------------------------------------------------------------------
Layne Texas, Incorporated Delaware
- --------------------------------------------------------------------------------
Layne (Thailand) Limited Bangkok, Thailand
- --------------------------------------------------------------------------------
Mid-Continent Drilling Company Delaware
- --------------------------------------------------------------------------------
PT Layne Christensen Indonesia Indonesia
- --------------------------------------------------------------------------------
SMS Offshore Pty Ltd Australia
- --------------------------------------------------------------------------------
Stamm-Scheele Incorporated Louisiana
- --------------------------------------------------------------------------------
Stanley Exploration Mining Company Ltd Ghana
- --------------------------------------------------------------------------------
Stanley Mining Services Pty Limited Australia
- --------------------------------------------------------------------------------
Stanley Mining Services (Tanzania) Ltd Tanzania
- --------------------------------------------------------------------------------
Stanmines Ghana Ltd Ghana
- --------------------------------------------------------------------------------
Stanmines NL Australia
- --------------------------------------------------------------------------------
65
<PAGE> 1
EXHIBIT 23(l)
66
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-54064, 33-54066, 33-54096, 33-57746, 33-57748, 33-86654 and 33-20801 of Layne
Christensen Company on Form S-8 of our report dated March 31, 1998, appearing in
this Annual Report on Form 10-K of Layne Christensen Company for the year ended
January 31, 1998.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Layne Christensen Company
listed in Item 14(a). This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
April 28, 1998
67
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998 JAN-31-1998 JAN-31-1998
<PERIOD-END> JAN-31-1998 OCT-31-1997 JUL-31-1997 APR-30-1997
<CASH> 2,954 3,382 5,366 1,218
<SECURITIES> 0 0 0 0
<RECEIVABLES> 56,372 67,760 61,071 52,083
<ALLOWANCES> 2,583 2,772 2,717 1,349
<INVENTORY> 27,812 23,986 22,378 19,024
<CURRENT-ASSETS> 99,094 107,910 102,279 78,674
<PP&E> 166,867 165,622 156,698 125,674
<DEPRECIATION> 79,948 76,857 73,820 71,276
<TOTAL-ASSETS> 243,899 250,831 239,304 152,841
<CURRENT-LIABILITIES> 59,433 67,782 68,317 41,102
<BONDS> 57,500 55,267 88,962 35,783
0 0 0 0
0 0 0 0
<COMMON> 116 116 89 89
<OTHER-SE> 114,143 115,208 69,456 64,411
<TOTAL-LIABILITY-AND-EQUITY> 243,899 250,831 239,304 152,841
<SALES> 30,246 23,526 16,326 8,279
<TOTAL-REVENUES> 294,600 215,768 125,433 57,750
<CGS> 213,717 155,771 90,823 42,145
<TOTAL-COSTS> 228,840 166,190 96,524 44,977
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 3,618 2,564 1,346 614
<INCOME-PRETAX> 18,431 15,718 7,849 2,714
<INCOME-TAX> 7,004 5,973 2,983 1,031
<INCOME-CONTINUING> 11,427 9,745 4,866 1,683
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 11,427 9,745 4,866 1,683
<EPS-PRIMARY> 1.13 1.01 0.55 0.19
<EPS-DILUTED> 1.09 0.97 0.52 0.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1997 JAN-31-1997 JAN-31-1997
<PERIOD-END> JAN-31-1997 OCT-31-1996 JUL-31-1996 APR-30-1996
<CASH> 1,697 551 289 381
<SECURITIES> 0 0 0 0
<RECEIVABLES> 43,317 51,971 48,008 46,960
<ALLOWANCES> 1,002 1,349 1,052 939
<INVENTORY> 17,739 15,188 15,796 16,028
<CURRENT-ASSETS> 69,782 73,818 71,055 72,051
<PP&E> 123,422 116,452 114,248 112,231
<DEPRECIATION> 69,015 67,331 65,877 64,249
<TOTAL-ASSETS> 143,650 144,411 139,619 139,445
<CURRENT-LIABILITIES> 40,139 40,944 41,373 39,178
<BONDS> 30,314 32,343 29,481 33,900
0 0 0 0
0 0 0 0
<COMMON> 89 89 89 89
<OTHER-SE> 62,575 61,265 58,046 55,379
<TOTAL-LIABILITY-AND-EQUITY> 143,650 144,411 139,619 139,445
<SALES> 26,309 20,285 12,291 6,517
<TOTAL-REVENUES> 222,853 170,297 110,085 53,773
<CGS> 161,602 123,080 80,040 39,703
<TOTAL-COSTS> 172,576 131,284 85,492 42,544
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 2,447 1,847 1,288 679
<INCOME-PRETAX> 12,930 11,425 6,092 2,005
<INCOME-TAX> 4,913 4,570 2,437 902
<INCOME-CONTINUING> 8,017 6,855 3,655 1,103
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 8,017 6,855 3,655 1,103
<EPS-PRIMARY> 0.90 0.77 0.41 0.12
<EPS-DILUTED> 0.88 0.75 0.40 0.12
</TABLE>
