<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, 1999.
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 4,691,919 shares of Common Stock of
the Registrant held by non-affiliates of the Registrant on March 31, 1999,
computed by reference to the closing sale price of such stock as reported on the
NASDAQ National Market System, was $26,687,635. At March 31, 1999, there were
11,641,192 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.
1
<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. With the
additional resources and capabilities provided by its acquisitions of CBC and
Stanley, the Company believes it will be better positioned to expand its
operations in countries such as Argentina, Bolivia, Brazil, Tanzania and Zambia,
where it expects the mineral exploration industry to grow.
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, geotechnical 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 recently
completed a project through one of the Company's Chilean affiliates for the
completion of multiple water production wells in the Collahuasi mine in Northern
Chile, with technical support provided through Layne Christensen. Many
developing countries also have significant and growing requirements to access
groundwater to satisfy their potable water needs. In all of its regions, the
Company intends to concentrate on large scale industrial and government water
well drilling projects.
Expand Presence in Geotechnical 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, jet grouting, vibratory ground improvement and
ground freezing capabilities. An example of the implementation of this strategy
is the Company's recently completed project in Timmins, Ontario, Canada where
the Company was 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, 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
site mining and mineral exploration. These services are used primarily by major
gold and copper producers based in the United States and Canada, and to a lesser
extent, iron ore producers. In response to a shift in recent years by many of
these producers to foreign markets in search of economically minable orebodies,
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 Timmins, 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 by geographic regions,
with an eastern and western regional vice president, a vice president
responsible for geotechnical services and a vice president responsible for
products/international locations. District managers are in charge of individual
district office profit centers. The district managers report to their respective
regional vice president on a regular basis. Each district office employs a field
superintendent who is in charge of projects in the field and sales engineers who
are responsible for marketing the Company's services in their district as well
as for monitoring the progress of projects. The Company 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 vice presidents oversee the Company's interests in its
foreign affiliates as well as the operations of its foreign subsidiaries. In
addition, the Company manages its interests in its foreign affiliates through
regular management meetings and analysis of comprehensive operating and
financial information. In its significant foreign affiliates, the Company has
entered into
10
<PAGE> 11
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 1999, approximately 68% were
derived from municipalities and approximately 13% were derived from industrial
businesses while the balance was derived from other customer groups. The term
"municipalities" is used to include local water districts, water utilities,
cities, counties and other local governmental entities and agencies that have
the responsibility to provide water supplies to residential and commercial
users. In the drilling of new water wells, the Company targets customers that
require compliance with detailed and demanding specifications and regulations
and that often require bonding and insurance, areas in which the Company
believes it has competitive advantages over its competitors due to its drilling
expertise and financial resources.
In the water well repair and maintenance service line, the Company's
customers also include municipalities and local operations of industrial
businesses. In fiscal 1999, approximately 53% of the Company's repair and
maintenance revenues were derived from municipalities, approximately 27% 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 $68,787,000 at January
31, 1999, compared to approximately $45,005,000 at January 31, 1998. 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, 1999, the Company had 2,810 employees, 240 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 16 and 10
years, respectively, of experience with the Company. Many of the Company's
professional employees have advanced academic backgrounds in agricultural,
chemical, civil, industrial, geological and mechanical engineering, geology,
13
<PAGE> 14
geophysics and metallurgy. The Company believes that its size and reputation
allow it to compete effectively for highly qualified professionals.
Regulatory and Environmental Matters
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation, OSHA
and MSHA in the United States as well as their counterparts in foreign
countries. In addition, the Company's activities are subject to regulation under
various environmental laws regarding emissions to air, discharges to water and
management of wastes and hazardous substances. To the extent the Company fails
to comply with these various regulations, it could be subject to monetary fines,
suspension of operations and other penalties. In addition, these and other laws
and regulations affect the Company's mineral drilling services and product
customers and influence their determination whether to conduct mineral
exploration and development.
Many localities require well operating licenses which typically specify
that wells be constructed in accordance with applicable regulations. Various
state, local and foreign laws require that water wells and monitoring wells be
installed by licensed well drillers. The Company maintains well drilling and
contractor's licenses in those jurisdictions in which it operates and in which
such licenses are required. In addition, the Company employs licensed engineers,
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 30,000 square feet
of office space leased by the Company pursuant to a written lease agreement
which expires February 28, 2005. The Company's manufacturing operations are
primarily conducted from an approximately 84,000 square foot plant located in
Salt Lake City, Utah and owned by the Company (the "Plant").
As of January 31, 1999, the Company (excluding foreign affiliates)
owned or leased approximately 660 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, 1999, the Company's foreign
affiliates owned or leased approximately 118 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, 1999.
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.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Andrew B. Schmitt 50 President, Chief Executive Officer and
Director
Greg F. Aluce 43 Senior Vice President
H. Edward Coleman 61 Senior Vice President
Eric R. Despain 50 Senior Vice President
Norman E. Mehlhorn 58 Senior Vice President
Jerry W. Fanska 50 Vice President--Finance and Treasurer
Kent B. Magill 46 Vice President--General Counsel and
Secretary
</TABLE>
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.
Greg F. Aluce has served as the Company's Senior Vice President since
April 14, 1998 and is responsible for the Company's geotechnical construction
services. Mr. Aluce has over 19 years experience in various areas of the
Company's operations.
H. Edward Coleman has served as an officer of the Company since 1976
and as its Senior Vice President since 1985 and is responsible for most of the
Company's operations in the eastern half of the country. Mr. Coleman has over 35
years experience in various areas of the Company's operations.
Eric R. Despain has served as the Company's Senior Vice President since
February 1996 and is responsible for the Company's manufacturing facilities and
operations in Australasia and Africa. Prior to joining the Company in December
1995, Mr. Despain was President and a member of the Board of Directors of CBC
since 1986.
Norman E. Mehlhorn has served as the Company's Senior Vice President
since September 1992 and as Vice President from 1986 to September 1992 and is
responsible for most of the Company's operations in the western half of the
country. Mr. Mehlhorn has nearly 40 years experience in the drilling business,
with particular emphasis on dual tube drilling technology.
Jerry W. Fanska has served as the Company's Vice President--Finance and
Treasurer since April 1994 and as Controller since December 1993. Prior to
joining Layne Christensen, Mr. Fanska served as corporate controller of The
Marley Company since October 1992 and as its Internal Audit Manager since April
1984.
16
<PAGE> 17
Kent B. Magill has served as the Company's Vice President-General
Counsel and Secretary since August 1992 and served as Vice President and
Associate General Counsel of The Marley Company since May 1989.
There is no arrangement or understanding between any executive officer
and any other person pursuant to which such executive officer was selected as an
executive officer of the Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market
through the NASDAQ National Market System under the symbol LAYN. The stock has
been traded in this market since the Company became a publicly-held company on
August 20, 1992. The following table sets forth the range of high and low sales
prices of the Company's stock by quarter for fiscal 1999 and 1998, 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.
<TABLE>
<CAPTION>
Fiscal Year 1999 High Low
---------------- ------- -------
<S> <C> <C>
First Quarter $17 5/8 $13 1/4
Second Quarter 17 1/4 11
Third Quarter 13 9
Fourth Quarter 12 1/8 5 7/8
Fiscal Year 1998 High Low
---------------- ------- -------
First Quarter $18 $14 1/4
Second Quarter 22 1/2 15 3/4
Third Quarter 24 1/4 17
Fourth Quarter 21 12
</TABLE>
At March 23, 1999, there were approximately 176 owners of record of the
Company's common stock.
The Company has not paid any cash dividends on its common stock during
its two most recent fiscal years. Moreover, the Board of Directors of the
Company does not anticipate paying any cash dividends in the foreseeable future.
The Company's future dividend policy will depend on a number of factors
including future earnings, capital requirements, financial condition and
prospects of the Company and such other factors as the Board of Directors may
deem relevant, as well as restrictions under the Credit Agreement between the
Company, various financial institutions and Bank of America National Trust and
Savings Association as agent ("Credit Agreement"), the Note Agreement between
the Company and Massachusetts Mutual Life Insurance Company and other
restrictions which may exist under other credit arrangements existing from time
to time. The Credit Agreement limits the cash dividends payable by the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" under Item 7 and Note 8 of the Notes
to Consolidated Financial Statements.
17
<PAGE> 18
Item 6. Selected Financial Data
The following selected historical financial information as of and for
the fiscal years ended January 31, 1999, 1998, 1997, 1996 and 1995,
respectively, has been derived from the Company's audited consolidated financial
statements. During fiscal years 1999, 1998 and 1996, the Company completed
various acquisitions, which are more fully described in Note 2 of the Notes to
Consolidated Financial Statements. The acquisitions have been accounted for
under the purchase method of accounting and, accordingly, the Company's
consolidated results include the effects of the acquisitions from the date of
each acquisition. The information below should be read in conjunction with
"Managements' 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>
Fiscal Years Ended
January 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data
(in thousands, except
per share amounts):
Revenues $284,248 $294,600 $222,853 $167,271 $166,830
Cost of revenues
(exclusive of
depreciation
shown below) 204,953 213,717 161,602 122,078 123,814
-------- -------- -------- -------- --------
Gross profit 79,295 80,883 61,251 45,193 43,016
Selling, general
and administrative
expenses 49,938 45,908 38,956 28,260 28,860
Depreciation and
amortization 22,361 15,681 10,974 8,233 7,811
-------- -------- -------- -------- --------
Operating income 6,996 19,294 11,321 8,700 6,345
Other income
(expense):
Equity in earnings
of foreign
affiliates 1,128 3,022 3,895 - -
Interest (4,987) (3,618) (2,447) (767) (779)
Other, net 629 (267) 161 407 (84)
------- -------- -------- -------- -------
Income before income
taxes 3,766 18,431 12,930 8,340 5,482
Income tax expense 2,486 7,004 4,913 3,753 2,522
Minority interest,
net of taxes (79) - - - -
------- -------- -------- -------- ------
Net income $ 1,201 $ 11,427 $ 8,017 $ 4,587 $ 2,960
======= ======== ======== ======== =======
Basic earnings per
share $ 0.10 $ 1.13 $ 0.90 $ 0.62 $ 0.40
====== ======== ======== ======== =======
Diluted earnings
per share $ 0.10 $ 1.09 $ 0.88 $ 0.61 $ 0.40
====== ======== ======== ======== =======
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
At January 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
(in thousands):
Working capital $ 46,211 $ 39,661 $ 29,643 $ 26,796 $13,578
Total assets 251,503 242,852 142,421 134,177 79,094
Long-term debt 63,500 57,500 30,314 28,428 -
Total stockholders'
equity 113,270 114,259 62,664 53,972 40,273
</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 Mining
Services Pty., Limited ("Stanley") at the end of July, 1997 (the "Stanley
Acquisition"). Stanley has been reflected in Layne Christensen's results of
operations beginning August 1, 1997. The Stanley Acquisition has been accounted
for using the purchase method of accounting, and will have a significant effect
on Layne Christensen's future operations and on comparisons of income and
expense items between periods, after the date of acquisition and prior. 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 the current and future periods.
With the Stanley Acquisition and other smaller acquisitions thereafter,
the percentage of the Company's revenues and operating income tied to the mining
industry has increased substantially. Demand for the Company's mineral
19
<PAGE> 20
exploration drilling services and products depends upon the level of mineral
exploration and development activities conducted by mining companies,
particularly with respect to gold and copper. Mineral exploration is highly
speculative and is influenced by a variety of factors, including the prevailing
prices for various metals that often fluctuate widely. In this connection, the
decline in the prices of various metals has continued to adversely impact the
level of mineral exploration and development activities conducted by mining
companies and has had, and could continue to have, a material adverse effect on
the Company.
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. Certain 1998 and
1997 service revenues by product line have been reclassified to conform to 1999
presentation in the following table and comparisons thereafter.
<TABLE>
<CAPTION>
Period-to-Period
Change
Fiscal Years Ended ------
January 31, 1999 1998
------------------------------- vs. vs.
Revenues: 1999 1998 1997 | 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Water well drilling and |
maintenance 48.2% 40.8% 50.0% | 14.0% 7.9%
Mineral exploration drilling 27.6 27.1 23.0 | (1.8) 55.9
Environmental drilling 7.1 6.5 10.5 | 6.1 (18.1)
Geotechnical drilling 9.7 15.3 4.7 | (39.3) 328.9
----- ----- ----
Total service revenues 92.6 89.7 88.2 | (.5) 34.5
Product sales 7.4 10.3 11.8 | (30.2) 15.0
----- ----- -----
Total revenues 100.0% 100.0% 100.0% | (3.5) 32.2
===== ===== =====
Cost of revenues: |
Cost of service revenues 71.8% 72.4% 72.5% | (1.4) 34.3
Cost of product sales 76.4 73.5 72.4 | (27.4) 16.7
Total cost of revenues 72.1 72.5 72.5 | (4.1) 32.2
----- ----- -----
Gross profit 27.9 27.5 27.5 | (2.0) 32.1
Selling, general and |
administrative expenses 17.6 15.6 17.5 | 8.8 17.8
Depreciation and amortization 7.8 5.4 4.9 | 39.3 42.9
----- ----- -----
Operating income 2.5 6.5 5.1 | (63.7) 70.4
Other income (expense): |
Equity in earnings of |
foreign affiliates 0.4 1.0 1.7 | (62.7) (22.4)
Interest (1.8) (1.1) (1.1) | 37.8 47.9
Other, net 0.2 (0.1) 0.1 | * *
----- ----- -----
Income before income taxes 1.3 6.3 5.8 | (79.6) 42.5
Income tax expense 0.9 2.4 2.2 | (64.5) 42.6
Minority interest, net of taxes 0.0 - - | * *
----- ----- -----
Net income 0.4% 3.9% 3.6% | (89.5) 42.5
===== ===== =====
</TABLE>
* Not meaningful.
20
<PAGE> 21
Comparison of Fiscal 1999 to Fiscal 1998
Results of Operations
Revenues for fiscal 1999 decreased $10,352,000, or 3.5%, to $284,248,000
compared to $294,600,000 for fiscal 1998. Water well drilling and maintenance
revenues increased 14.0% to $137,094,000 for fiscal 1999 compared to revenues of
$120,280,000 for fiscal 1998. The increase in water well drilling and
maintenance revenues was primarily the result of the acquisition of certain
assets of Hydro Group, Inc., a New Jersey-based drilling contractor, in March
1998 (the "Hydro Acquisition"). Additionally, the Company experienced stronger
demand for services at various domestic locations. Mineral exploration drilling
revenues decreased 1.8% to $78,305,000 for fiscal 1999 from $79,726,000 for
fiscal 1998. The decrease was primarily a result of lower demand for the
Company's services as a result of the decrease in exploration and development
activities conducted by mining companies. The decrease was less than it
otherwise would have been as fiscal 1999 included a full year of revenues
following the Stanley Acquisition. Geotechnical drilling revenues decreased
39.3% to $27,409,000 for fiscal 1999 compared to revenues of $45,191,000 for
fiscal 1998. Exclusive of the Company's ground freeze project in Timmins,
Ontario, Canada for Echo Bay Mines, Ltd. (the "Timmins Project"), which was
completed in the first quarter of fiscal 1999, geotechnical drilling revenues
increased 24.0% in fiscal 1999. The increase in the base geotechnical business
revenues was primarily a result of increased activity in this market.
Environmental drilling revenue increased 6.1% to $20,316,000 for fiscal 1999
compared to revenues of $19,157,000 for fiscal 1998. The Company believes the
improvement was largely attributable to an increase in the number of larger and
more technically demanding projects, which were substantially completed during
the year. Product sales decreased 30.2% to $21,124,000 for fiscal 1999 from
$30,246,000 for fiscal 1998. The decrease was a result of the lower demand for
the Company's services in the mining industry as previously discussed.
Gross profit as a percentage of revenues was 27.9% for fiscal 1999 compared to
27.5% for the same period last year. The increase was primarily attributed to
the Company realizing better than previously expected gross profit margins on
certain complex international projects which were finalized during the year.
Selling, general and administrative expenses increased to $49,938,000 for fiscal
1999 compared to $45,908,000 for fiscal 1998. The increase was primarily a
result of the Hydro Acquisition and other smaller acquisitions.
Depreciation and amortization increased to $22,361,000 for fiscal 1999 compared
to $15,681,000 in fiscal 1998. The increase in depreciation and amortization was
primarily a result of the Hydro Acquisition and additions to property and
equipment since last year.
Equity in earnings of foreign affiliates was $1,128,000 for fiscal 1999 compared
to $3,022,000 in fiscal 1998. The decrease from the previous period was
primarily a result of lower exploration and development activities conducted by
mining companies in Latin America.
Income tax expense was $2,333,000 for fiscal 1999 compared to $7,004,000 in
fiscal 1998. The effective tax rate for the year ended January 31, 1999
increased to 66% compared to 38% for the year ended January 31, 1998. This was
primarily a result of a combination of a reduction in the amount of equity in
21
<PAGE> 22
earnings of foreign affiliates (on which income tax is normally not provided as
foreign tax credits are generally available to offset the tax liability) and the
increased impact of certain non-deductible expenses resulting from lower
earnings for the fiscal year.
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 7.9% to $120,280,000 for fiscal 1998 from $111,462,000 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 $79,726,000 for fiscal 1998, compared to $51,142,000 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 $45,191,000 for fiscal 1998, compared to $10,536,000 for fiscal
1997. The increase was primarily the result of the Timmins Project. Excluding
the Timmins Project, geotechnical drilling revenues increased 86.2% 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.
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
22
<PAGE> 23
proportionate to the percentage of completion are reflected in contract revenues
and gross profit in the reporting period when such estimates are revised.
Changes in job performance, job conditions and estimated profitability
(including those arising from contract penalty provisions) and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. A significant number of the
Company's contracts contain fixed prices and assign responsibility to the
Company for cost overruns for the subject projects; as a result, revenues and
gross margin may vary from those originally estimated and, depending upon the
size of the project, variations from estimated contract performance could affect
the Company's operating results for a particular quarter. Many of the Company's
contracts are also subject to cancellation by the customer upon short notice
with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to decrease
in the winter months when adverse weather conditions interfere with access to
drilling sites and the ability to drill; as a result, the Company's revenues and
earnings in its second and third quarters tend to be higher than revenues and
earnings in its first and fourth quarters. Accordingly, as a result of the
foregoing as well as other factors, quarterly results should not be considered
indicative of results to be expected for any other quarter or for any full
fiscal year. See the Company's Consolidated Financial Statements and Notes
thereto.
Inflation
Management believes that the Company's operations for the periods
discussed have not been adversely affected by inflation or changing prices.
Liquidity and Capital Resources
The primary source of the Company's liquidity in fiscal 1999, 1998, and
1997 was its cash from operating activities of $13,637,000, $14,270,000 and
$17,116,000, respectively. Cash from operations and borrowings under the
Company's revolving credit agreement were utilized primarily for additions to
property and equipment of $16,817,000 and various acquisitions. See Note 2 of
the Notes to Consolidated Financial Statements. Capital expenditures during
fiscal 1999 were directed primarily toward expansion and upgrading of the
Company's equipment and facilities. The Company expects to spend approximately
$10,000,000 in the next fiscal year for capital expenditures. The Company
anticipates fiscal 2000 capital expenditures will be used to maintain the
Company's equipment and capabilities and continue its international expansion.
As of January 31, 1999, 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
"Credit Agreement"). As of January 31, 1999, the borrowing facility under the
Credit Agreement was reduced to $93,000,000. Borrowings under the Credit
Agreement were used to complete various acquisitions. See Note 2 of the Notes to
the Consolidated Financial Statements. The Company's borrowings and outstanding
letter of credit commitments under the Credit Agreement were $38,500,000 and
$4,591,000, respectively, at January 31, 1999, leaving
23
<PAGE> 24
approximately $49,909,000 of unused availability. See Note 8 of the Notes to
Consolidated Financial Statements.
The Company's working capital as of January 31, 1999, 1998 and 1997 was
$46,211,000, $39,661,000 and $29,643,000, respectively. The increases in working
capital in fiscal 1999 and fiscal 1998 were primarily the result of the Hydro
and Stanley Acquisitions. 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 2000 year.
Costs estimated to be incurred in the future for employee medical
benefits and casualty insurance programs resulting from claims which have
occurred are accrued currently. Under the terms of the Company's agreement with
the various insurance carriers administering these claims, the Company is not
required to remit the total premium until the claims are actually paid by the
insurance companies. These costs are not expected to significantly impact
liquidity in future periods. See Note 10 of the Notes to Consolidated Financial
Statements.
Year 2000 Discussion
The Year 2000 ("Y2K") problem relates to the fact that many computer programs
use only two digits to refer to a year. As a result, many computer programs do
not properly recognize a year that begins with "20" instead of "19" (the "Y2K
Issue"). The Company believes that issues related to Y2K compliance of its
information technology ("IT") and non-information technology ("non-IT") systems
should not have a material adverse impact on its business operations or
financial results. Further, the Company believes that the estimated costs of Y2K
compliance will not be material. Other than the Company's financial reporting
systems, the nature of the Company's business is such that it is generally not
reliant upon date sensitive IT and non-IT systems.
Readiness
In the fall of 1995, the Company initiated efforts to become Y2K compliant.
These efforts included, in part, a review of six types of IT and non-IT systems
that the Company believed might be subject to the Y2K Issue. The identified
systems included personal computers, networks, mainframes, telecommunication
equipment, automated control/manufacturing equipment and facility
security/environmental control equipment. The review conducted by the Company
evaluated the operating systems, application software and IT and non-IT hardware
used in each of the six types of identified systems. The Company estimates that
approximately 75% of its Y2K testing and remediation plan has been completed.
The Company expects to complete the balance of its Y2K testing and remediation
plan by the end of the second quarter of 1999.
In conducting its business, the Company does not rely upon a limited number of
third party vendors or customers. No single vendor or customer accounts for more
than 10% of the Company's purchases or sales, respectively. In addition, there
are generally a number of alternative vendors from which the Company can obtain
its supplies and services. As a result, the Company does not believe that Y2K
problems experienced by third parties will have a material adverse impact on the
Company's business operations or financial results. Nevertheless, the Company is
in the process of conducting a review of the Y2K readiness of its major vendors
(both of products and services) and customers. The Company's belief that
24
<PAGE> 25
it will not be adversely impacted by the Y2K readiness of third parties with
which it conducts business is based not only upon the number and diversity of
its customer and vendor base but also upon the Y2K compliance that is
anticipated to be achieved by the majority of its customers and vendors. In
light of the fact that the Company's position is based, in part, upon
information supplied by third parties, there is of necessity an element of
uncertainty in the Company's assessment.
Costs
The Company is primarily relying upon internal resources to implement its Y2K
readiness plan and to upgrade and/or replace IT and non-IT systems that the
Company believes might be subject to the Y2K Issue. Accordingly, much of the
cost associated with its Y2K efforts have been incurred through the reallocation
of the Company's internal resources. Over approximately the past three fiscal
years through the end of its fiscal year ended January 31, 1999, the Company has
expended approximately $1.5 million in allocated internal resources and
incremental costs for routine IT and non-IT hardware and software replacements.
All of these hardware and software replacements have been Y2K compliant. The
Company will continue its routine upgrading of IT and non-IT hardware and
software during calendar 1999, all of which will also be Y2K compliant. The
estimated costs of allocated internal resources and routine systems upgrades
during the year ending January 31, 2000 will be approximately $500,000. The
Company believes that the prospective costs of Y2K compliance will not have a
material adverse impact on its financial position or results of operations. This
conclusion is based, in part, upon the Company's belief that it will not incur
significant Y2K related costs on behalf of third parties with which the Company
conducts business. The Company expects cash flows from operations to be
sufficient to fund the costs associated with Y2K compliance.
Risks
As the nature of the Company's business is such that it is not generally
dependent upon date sensitive data for the production of its goods and services,
the Company believes that any problems associated with the Y2K Issue will not
have a material adverse impact on the Company's business operations or financial
results. In spite of these presumptions, the inherent uncertainty associated
with the Y2K Issue makes it impossible for the Company to reach a definitive
conclusion as to the actual impact of the Y2K Issue on its business operations
and financial results. As a result, the Company will continue to review and
update, where necessary, its Y2K strategy and to develop Y2K contingency plans.
Further, the costs and timetables in which the Company plans to complete the Y2K
readiness activities, as well as potential outcomes of non-compliance, are based
on management's best estimates. These estimates were derived using numerous
assumptions as to the occurrence of future events, including actions by third
parties over which the Company has no control.
Contingency Plans
The Company's Y2K efforts are ongoing and its overall plan, as well as
consideration of contingency plans where applicable, will continue to evolve as
new information becomes available. Currently, the Company believes that internal
Y2K problems, should any occur, could be addressed through the use of
alternative resources and manual processes without a significant interruption in
the Company's business operations. Further, the Company believes that the nature
of
25
<PAGE> 26
its business does not make it exclusively reliant upon a limited number of third
party vendors or customers. In addition, the Company believes that third party
vendor Y2K problems, should any occur, could be mitigated by utilizing
alternative third party resources without adversely impacting the Company's
business operations or financial results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are interest
rates on variable rate debt, equity risk on investments, and foreign exchange
rates giving rise to translation and transaction gains and losses.
The Company centrally manages its debt and investment portfolios
considering overall financing strategies and tax consequences. The Company uses
derivative financial instruments as part of its overall strategies. A
description of these instruments, as well as 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. Assuming January 31, 1999 debt levels,
an instantaneous change in interest rates of one percentage point would impact
the Company's interest expense by $135,000, compared to $325,000 assuming
January 31, 1998 debt levels. 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. 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 50, respectively, of
this Form 10-K. The majority of the Company's contracts in Africa and Mexico are
U.S. dollar based, providing a natural reduction in exposure to currency
fluctuations.
As currency exchange rates change, translation of the income statements
of the Company's international operations into U.S. dollars may affect
year-to-year comparability of operating results. We estimate that a ten percent
change in foreign exchange rates would have impacted operating income for the
years ended January 31, 1999 and 1998 by approximately $222,000 and $100,000,
respectively. 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 Consolidated
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 1999, 1998
and 1997 were not significant.
26
<PAGE> 27
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
Independent Auditors' Report ............................................................................ 28
Financial Statements:
Consolidated Balance Sheets as of January 31, 1999 and 1998........................................... 29
Consolidated Statements of Income for the Years
Ended January 31, 1999, 1998 and 1997.............................................................. 31
Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 1999, 1998 and 1997.............................................................. 32
Consolidated Statements of Cash Flows for the Years Ended
January 31, 1999, 1998 and 1997 ................................................................... 33
Notes to Consolidated Financial Statements............................................................ 35
Financial Statement Schedule II....................................................................... 53
</TABLE>
All other schedules have been omitted because they are not applicable
or not required as the required information is included in the Consolidated
Financial Statements of the Company or the Notes thereto.
27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
Layne Christensen Company:
We have audited the accompanying consolidated balance sheets of Layne
Christensen Company and subsidiaries (together, the "Company") as of January 31,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1999. 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, 1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 19, 1999
28
<PAGE> 29
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets
As of January 31, 1999 and 1998
(In Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS 1999 1998
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,094 $ 2,954
Customer receivables, less allowance
of $3,064 and $2,583, respectively 42,057 48,548
Costs and estimated earnings in excess of
billings on uncompleted contracts 7,854 6,777
Inventories 31,286 27,812
Deferred income taxes 9,571 9,610
Other 8,991 2,346
--------- ---------
Total current assets 101,853 98,047
--------- ---------
Property and equipment:
Land 9,340 8,851
Buildings 16,490 14,678
Machinery and equipment 163,227 143,338
--------- ---------
189,057 166,867
Less--Accumulated depreciation (96,217) (79,948)
--------- ---------
Net property and equipment 92,840 86,919
--------- ---------
Other assets:
Investment in foreign affiliates 19,732 19,456
Intangible assets, at cost less accumulated
amortization of $2,393 and $1,335,
respectively 32,755 32,836
Other 4,323 5,594
--------- ---------
Total other assets 56,810 57,886
--------- ---------
$ 251,503 $ 242,852
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 30
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets(Continued)
As of January 31, 1999 and 1998
(In Thousands of Dollars, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------------------------------ ------------ --------
<S> <C> <C>
Current liabilities:
Accounts payable $ 17,202 $ 20,365
Accrued compensation 11,223 10,924
Accrued insurance expense 7,298 9,059
Other accrued expenses 11,519 9,626
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,400 8,412
----------- ----------
Total current liabilities 55,642 58,386
----------- ----------
Non-current and deferred liabilities:
Long-term debt 63,500 57,500
Deferred income taxes 2,283 5,228
Accrued insurance expense 5,454 6,019
Other 2,439 1,460
Minority interest 8,915 -
----------- ----------
Total non-current and deferred
liabilities 82,591 70,207
------------ ----------
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, 11,641,192
and 11,631,556 shares issued and outstanding,
respectively 116 116
Capital in excess of par value 83,095 82,889
Retained earnings 36,815 35,614
Accumulated other comprehensive income (loss) (6,604) (4,185)
Notes receivable from management stockholders (152) (175)
---------- ----------
Total stockholders' equity 113,270 114,259
---------- ----------
$ 251,503 $ 242,852
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 31
Layne Christensen Company and Subsidiaries
Consolidated Statements of Income
For the Years Ended January 31, 1999, 1998 and 1997
(In Thousands of Dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
Revenues:
<S> <C> <C> <C>
Service revenues $ 263,125 $ 264,354 $ 196,544
Product sales 21,123 30,246 26,309
------------ ------------ ------------
Total revenues 284,248 294,600 222,853
------------ ------------ ------------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 188,818 191,497 142,562
Cost of product sales 16,135 22,220 19,040
------------ ------------ ------------
Total cost of revenues 204,953 213,717 161,602
------------ ------------ ------------
Gross profit 79,295 80,883 61,251
Selling, general and administrative
expenses 49,938 45,908 38,956
Depreciation and amortization 22,361 15,681 10,974
------------ ------------ ------------
Operating income 6,996 19,294 11,321
Other income (expense):
Equity in earnings of foreign
affiliates 1,128 3,022 3,895
Interest (4,987) (3,618) (2,447)
Other, net 629 (267) 161
------------ ------------ ------------
Income before income taxes 3,766 18,431 12,930
Income tax expense 2,486 7,004 4,913
Minority interest, net of taxes (79) - -
------------ ------------ ------------
Net income $ 1,201 $ 11,427 $ 8,017
============ ============ ============
Basic earnings per share $ 0.10 $ 1.13 $ 0.90
============ ============ ============
Diluted earnings per share $ 0.10 $ 1.09 $ 0.88
============ ============ ============
Weighted average number of common
and dilutive equivalent shares
outstanding:
Weighted average shares
outstanding 11,639,000 10,128,000 8,865,000
Dilative stock options 268,000 400,000 281,000
------------ ------------ ------------
11,907,000 10,528,000 9,146,000
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 32
Layne Christensen Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended January 31, 1999, 1998 and 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Notes
Accumulated Receivable
Common Stock Capital in Other from
------------------- Excess of Retained Comprehensive Management
Shares Amount Par Value Earnings Income (loss) Stockholders Total
---------- -------- --------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1996 8,839,845 $ 88 $ 38,954 $ 16,170 $ (927) $ (313) $ 53,972
--------
Comprehensive income
Net income - - - 8,017 - - 8,017
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $59 - - - - 153 - 153
Foreign currency
translation adjustments - - - - 68 - 68
--------
Comprehensive income 8,238
--------
Issuance of stock for
incentive compensation
program 31,622 1 339 - - - 340
Payments on notes receivable - - - - - 114 114
--------- -------- -------- --------- ------------ ---------- --------
Balance, January 31, 1997 8,871,467 89 39,293 24,187 (706) (199) 62,664
--------
Comprehensive income
Net income - - - 11,427 - - 11,427
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $61 - - - - 97 - 97
Foreign currency
translation adjustments,
net of taxes of $2,174 - - - - (3,826) - (3,826)
Unrealized gain on
available for sale
investments, net of
taxes of $153 - - - - 250 - 250
--------
Comprehensive income 7,948
--------
Issuance of stock for
incentive compensation
program 3,524 - 113 - - - 113
Issuance of stock, net of
expenses 2,756,565 27 43,483 - - - 43,510
Payments on notes receivable - - - - - 24 24
---------- -------- -------- --------- ----------- --------- --------
Balance, January 31, 1998 11,631,556 116 82,889 35,614 (4,185) (175) 114,259
--------
Comprehensive income
Net income - - - 1,201 - - 1,201
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $34 - - - - (53) - (53)
Foreign currency
translation adjustments,
net of taxes of $962 - - - - (1,294) - (1,294)
Unrealized loss on
available for sale
investments, net of
taxes of $669 - - - - (1,072) - (1,072)
--------
Comprehensive income (1,218)
--------
Issuance of stock for
incentive compensation
program 9,636 - 206 - - - 206
Payments on notes receivable - - - - - 23 23
---------- -------- -------- --------- ----------- ---------- --------
Balance, January 31, 1999 11,641,192 $ 116 $ 83,095 $ 36,815 $ (6,604) $ (152) $113,270
========== ======== ======== ========= =========== ========== ========
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 33
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended January 31, 1999, 1998 and 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 1,201 $ 11,427 $ 8,017
Adjustments to reconcile net income
to cash from operations:
Depreciation and amortization 22,361 15,681 10,974
Deferred income taxes (1,741) (176) 1,710
Equity in earnings of foreign
affiliates (1,128) (3,022) (3,895)
Dividends received from foreign
affiliates 852 756 1,990
Minority interest 232 - -
(Gain) loss from disposal of property
and equipment (1,679) 99 110
Changes in current assets and liabilities,
(exclusive of effects of acquisitions):
(Increase) decrease in customer
receivables 11,364 (6,947) 2,275
(Increase) decrease in costs and
estimated earnings in excess of
billings on uncompleted contracts (1,070) (77) 722
(Increase) decrease in inventories 234 (5,438) (1,623)
(Increase) decrease in other current
assets (6,313) 524 (370)
Decrease in accounts payable and
accrued expenses (10,438) (679) (4,216)
Increase in billings in excess of
costs and estimated earnings on
uncompleted contracts 352 2,523 2,163
Other, net (590) (401) (741)
--------- -------- --------
Cash from operating activities 13,637 14,270 17,116
--------- -------- --------
Cash flow from investing activities:
Additions to property and equipment (16,817) (22,425) (18,544)
Proceeds from disposal of property and
equipment 3,963 1,239 1,070
Acquisition of businesses, net of cash
acquired (8,378) (53,942) -
Purchase of available for sale investments (427) (3,111) -
Investment by minority interest in
joint ventures 600 - -
Investment in foreign affiliates - (20) (346)
Other, net - - 282
--------- -------- --------
Cash used in investing activities (21,059) (78,259) (17,538)
--------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 34
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows - (Continued)
For the Years Ended January 31, 1999, 1998 and 1997
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flow from financing activities:
Proceeds from long-term debt - - $ 25,000
Net borrowings under revolving facility $ 6,000 $ 28,500 500
Repayments of long-term debt - (5,899) (23,605)
Payments on notes receivable from
management stockholders 23 24 114
Issuance of common stock, net of expenses - 43,510 -
Debt issuance costs - (725) (272)
-------- -------- --------
Cash from financing activities 6,023 65,410 1,737
-------- -------- --------
Effects of exchange rate changes on cash 539 (164) -
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (860) 1,257 1,315
Cash and cash equivalents at beginning
of year 2,954 1,697 382
-------- -------- --------
Cash and cash equivalents at end of year $ 2,094 $ 2,954 $ 1,697
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 35
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
Description of Business -- Layne Christensen Company and subsidiaries
(together, the "Company") provide comprehensive services for water well drilling
(including related equipment sales), well and pump repair and maintenance,
geotechnical construction services 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,
agribusinesses. In addition, the Company manufactures diamond core bits,
drilling rigs and other equipment utilized in the mineral exploration, mine
development and pre-construction analysis markets throughout the United States
and internationally.
Fiscal Year - References to years are to the fiscal years then ended.
Investment in Affiliated Companies - Investments in affiliates (33% to
50% owned) in which the Company exercises significant influence over operating
and financial policies are accounted for on the equity method. Financial
information for the Company's foreign affiliates is reported in the Company's
consolidated financial statements with a one month lag in reporting periods. The
effect of this one month lag on the Company's financial results is not
significant.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its 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
35
<PAGE> 36
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
year. Translation adjustments are reported as a separate component of
accumulated other comprehensive income (loss). As a result of the acquisition of
an Australian company during 1998, (see Note 2), the Company has reflected
substantial changes in the cumulative translation account during 1999 and 1998,
primarily attributed to the devaluation of the Australian dollar.
Net foreign currency transaction gains and losses for 1999, 1998 and
1997 were not significant.
Revenue Recognition - Revenue is recognized on large, long-term
contracts using the percentage of completion method based upon materials
installed and labor costs incurred. Changes in job performance, job conditions,
and estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Revenue is recognized on smaller, short-term contracts using the completed
contract method. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Inventories - The Company values inventories at the lower of cost
(first-in, first-out, including material, labor, and manufacturing overhead
costs) or market (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Raw materials $ 1,627 $ 1,552
Work in process 1,788 1,673
Finished products, parts and supplies 27,871 24,587
------- -------
Total $31,286 $27,812
======= =======
</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. Depreciation expense
was $21,454,000, $15,123,000 and $10,974,000 for fiscal 1999, 1998 and 1997,
respectively. 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 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 $1,058,000,
$626,000 and $116,000 for 1999, 1998 and 1997, respectively.
Investments - During 1999 and 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
36
<PAGE> 37
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
non-current investment has a cost basis of $3,538,000 and is reported at its
fair value of approximately $1,708,000 at January 31, 1999. The gross unrealized
loss of $1,830,000, net of taxes of $706,000 at January 31, 1999, has been
recorded as a component of accumulated other comprehensive income (loss).
Impairment of Long-Lived Assets - At each balance sheet date, a
determination is made by management as to whether the value of long-lived
assets, including intangible assets and assets to be disposed of, has been
impaired. The determination is based on several criteria, including, but not
limited to, revenue trends, undiscounted operating cash flows and other
operating factors.
Accrued Insurance Expense - Costs estimated to be incurred in the
future for employee medical benefits and casualty insurance programs resulting
from claims which have been incurred are accrued currently. Under the terms of
the Company's agreement with the various insurance carriers administering these
claims, the Company is not required to remit the total premium until the claims
are actually paid by the insurance companies (see Note 10).
Fair Value of Financial Instruments - The carrying amounts of financial
instruments including cash and cash equivalents, customer receivables and
accounts payable approximate fair value at January 31, 1999 and 1998 because of
the relatively short maturity of those instruments. Investments in equity
securities are carried at quoted market values. See Note 8 for disclosure
regarding the fair value of indebtedness of the Company.
Consolidated Statements of Cash Flows - Highly liquid investments with
a remaining maturity of three months or less at the time of purchase are
considered cash equivalents.
The amounts paid for income taxes and interest are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Income taxes $7,645 $ 8,454 $ 2,855
Interest 4,406 3,345 1,750
</TABLE>
Supplemental Noncash Transactions -- In 1999 and 1998, the Company
issued 9,636 and 3,524 shares of common stock, respectively, and 21,504 and
15,727 stock options, respectively, related to 1998 and 1997 compensation
awards. In 1997, the Company issued 31,622 shares of common stock to employees
related to 1996 compensation awards. Total value of these awards was
approximately $206,000, $113,000 and $339,000, respectively, which was accrued
at January 31, 1998, 1997, and 1996, 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.
37
<PAGE> 38
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
Earnings Per Share - Earnings per common share are based upon the
weighted average number of common and dilutive equivalent shares outstanding.
Options to purchase common stock are included based on the treasury stock method
for dilutive earnings per share except when their effect is antidilutive.
Stock-Based Compensation - Stock-based compensation may be accounted
for either based on the estimated fair value of the awards at the date they are
granted (the "SFAS 123 Method") or based on the difference, if any, between the
market price of the stock at the date of grant and the amount the employee must
pay to acquire the stock (the "APB 25 Method"). The Company uses the APB 25
Method to account for its stock-based compensation programs (see Note 9). Pro
forma net income for 1999, 1998 and 1997, determined as if the SFAS 123 Method
had been applied, would have been $936,000, $11,204,000 and $7,842,000,
respectively. Basic and diluted earnings per share would have been $0.08 for
1999, $1.11 and $1.06, respectively, for 1998 and $0.88 and $0.86, respectively,
for 1997.
Comprehensive Income - Accumulated balances of Other Comprehensive
Income are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Unrealized Accumulated
Cumulative Gain (Loss) Unrecognized Other
Translation On Pension Comprehensive
Adjustment Investments Liability Income (loss)
<S> <C> <C> <C> <C>
Balance, February 1, 1997 $ (82) - $ (624) $ (706)
Period change (3,826) $ 250 97 (3,479)
------- ------- ------- -------
Balance, January 31, 1998 (3,908) 250 (527) (4,185)
Period change (1,294) (1,072) (53) (2,419)
------- ------- ------- -------
Balance, January 31, 1999 $(5,202) $ (822) $ (580) $(6,604)
======= ======= ======= =======
</TABLE>
Reclassifications - Certain 1998 and 1997 amounts have been
reclassified to conform with the 1999 presentation.
(2) Acquisitions
On March 26, 1998, the Company completed a transaction to purchase
certain assets of Hydro Group, Inc., a New Jersey-based drilling contractor (the
"Hydro Acquisition") for approximately $6,293,000 in cash. The acquisition has
been accounted for using the purchase method of accounting and accordingly, the
operations of Hydro Group, Inc. have been included from the date of acquisition.
Had this acquisition taken place as of February 1, 1998, pro forma operating
results would not have been significantly different from those reported.
On December 31, 1998, the Company also acquired certain assets of Colog
Inc., a geophysical services company, based in Golden, Colorado, for
approximately $800,000 in cash. The acquisition has been accounted for using the
purchase method of accounting. Had this acquisition taken place as of February
1, 1998, pro forma operating results would not have been significantly different
from those reported.
38
<PAGE> 39
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
On January 20, 1999, the Company acquired the outstanding stock of
Tecniwell S.r.l., a manufacturer of pumps and accessories used in the
geotechnical construction industry, based in Podenzano, Italy, for approximately
$1,285,000 in cash and a contingent payment of $500,000. The contingent payment
will be held by the Company in escrow for a period of five years from the date
of the acquisition to provide security to the Company for the accuracy and
performance of certain covenants guaranteed by the acquired company. The payment
will be made at the end of the contingency period in common stock of the
Company. The contingent stock was valued at $9.85 per share, the average trading
price for the ten trading days immediately preceding the acquisition. The
acquisition has been accounted for using the purchase method of accounting. Had
this acquisition taken place as of February 1, 1998, pro forma operating results
would not have been significantly different from those reported.
The above fiscal 1999 acquisitions had the following effect on the
Company's 1999 consolidated financial position (in thousands of dollars):
<TABLE>
<S> <C>
Property and equipment $8,435
Working capital (1,046)
Intangible and other assets 1,608
Non-current and deferred liabilities (619)
------
Total purchase price, net of cash acquired $8,378
======
</TABLE>
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 accounted for the acquisition using the purchase
method of accounting. Stanley has been reflected in the Company's results of
operations beginning August 1, 1997. The purchase price has been allocated based
on fair values of assets and liabilities as of July 31, 1997. On August 19,
1997, the Company completed the sale of 2,756,565 shares of Common Stock in a
public offering. Net proceeds to the Company from the offering of approximately
$43,510,000 were used to reduce the debt incurred under the Credit Agreement in
connection with the Stanley Acquisition.
39
<PAGE> 40
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
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 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 fiscal 1998 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>
(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, 1999 and 1998, was $389,000
and $259,000, respectively. These affiliates, which generally are engaged in
40
<PAGE> 41
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
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 with a one
month lag in the reporting period. Summarized financial information of the
Company's foreign affiliates, as of January 31, 1999, 1998 and 1997 and for the
years then ended were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Total assets $65,303 $69,953 $68,576
Total liabilities 23,634 33,015 35,993
Revenues 75,088 87,996 94,182
Gross profit 13,406 18,526 24,605
Operating income 4,446 9,293 14,651
Net income 2,613 6,884 10,043
</TABLE>
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, 1999, 1998 and 1997 and for the years
then ended (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Accounts receivable $ 173 $2,736 $1,480
Notes receivable 2,568 - -
Revenues 3,045 7,574 5,924
</TABLE>
Undistributed equity in earnings of foreign affiliates totaled
$4,447,000, $4,171,000 and $1,905,000 as of January 31, 1999, 1998 and 1997,
respectively.
41
<PAGE> 42
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
(4) Costs and Estimated Earnings on Uncompleted Contracts (in thousands of
dollars):
<TABLE>
<CAPTION>
1999 1998
-------- ------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 65,031 $ 76,901
Estimated earnings 21,792 22,699
-------- --------
86,823 99,600
Less: Billings to date 87,368 101,235
-------- --------
$ (545) $ (1,635)
======== ========
Included in accompanying balance
sheets under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 7,854 $ 6,777
Billings in excess of costs and estimated
earnings on uncompleted contracts (8,399) (8,412)
-------- --------
$ (545) $ (1,635)
======== ========
</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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic $ 6,758 $11,916 $ 8,206
Foreign (2,992) 6,515 4,724
------- ------- -------
$ 3,766 $18,431 $12,930
======= ======= =======
</TABLE>
Components of the income tax expense are (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Currently due:
U.S. federal $ 366 $ 5,012 $ 2,094
State and local 537 1,272 312
Foreign 2,726 1,660 893
------- ------- -------
3,629 7,944 3,299
------- ------- -------
Deferred:
U.S. federal (355) (1,185) 846
State and local (11) (157) 311
Foreign (777) 402 457
------- ------- -------
(1,143) (940) 1,614
------- ------- -------
$ 2,486 $ 7,004 $ 4,913
======= ======= =======
</TABLE>
Deferred income taxes result from temporary differences between the
financial statement and tax bases of the Company's assets and liabilities. The
sources of these differences and their cumulative tax effects are (in thousands
of dollars):
42
<PAGE> 43
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- -----------------------------------------
Assets Liabilities Total Assets Liabilities Total
------ ----------- ----- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Contract income $ 2,627 - $ 2,627 $ 2,241 - $ 2,241
Accrued insurance
expense 2,247 - 2,247 2,848 - 2,848
Employee compensation 891 - 891 954 - 954
Bad debts 1,011 $ (111) 900 968 - 968
Inventory 1,317 (2,848) (1,531) 1,279 $ (1,919) (640)
Reserves 4,568 (395) 4,173 3,387 (563) 2,824
Loss carryforwards 264 - 264 415 - 415
-------- -------- -------- -------- -------- --------
Current 12,925 (3,354) 9,571 12,092 (2,482) 9,610
-------- -------- -------- -------- -------- --------
Accelerated depreciation 20 (8,430) (8,410) 33 (10,129) (10,096)
Cumulative translation
adjustment 3,136 - 3,136 2,174 - 2,174
Accrued insurance
expense 2,107 - 2,107 2,365 - 2,365
Loss carryforwards 2,099 - 2,099 1,883 - 1,883
Unrealized (gain)/loss 751 (235) 516 - (153) (153)
Employee compensation 621 (196) 425 552 (267) 285
Other 198 (2,354) (2,156) 178 (1,864) (1,686)
-------- -------- -------- -------- -------- --------
Noncurrent 8,932 (11,215) (2,283) 7,185 (12,413) (5,228)
-------- -------- -------- -------- -------- --------
$ 21,857 $(14,569) $ 7,288 $ 19,277 $(14,895) $ 4,382
======== ======== ======== ======== ======== ========
</TABLE>
For federal income tax purposes, the Company has a net operating loss
carryforward of $837,000 relating to a company acquired in fiscal 1996 which is
subject to certain restrictions, and expires in fiscal 2010.
The Company has several Australian subsidiaries which have tax loss
carryforwards totaling $5,000,000 at January 31, 1999. There are no restrictions
on the utilization of the loss and the carryforward period is indefinite. The
Company's subsidiary in Mexico has a $200,000 loss carryforward. These losses
can be carried forward for five years.
At January 31, 1999, undistributed earnings of foreign subsidiaries
and foreign affiliates included $14,900,000 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):
43
<PAGE> 44
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ -------------------------
Effective Effective Effective
Amount Rate Amount Rate Amount Rate
------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
rate $ 1,280 34.0% $ 6,451 35.0% $ 4,397 34.0%
State income tax, net of
federal income tax
benefit 342 9.1 654 3.5 570 4.4
Difference in tax expense
resulting from:
Non-deductible expenses 394 10.4 404 2.2 445 3.4
Unremitted income of
foreign affiliates (189) (5.0) (1,057) (5.7) (774) (6.0)
Taxes on foreign
operations 793 21.1 797 4.3 582 4.5
Other, net (134) (3.6) (245) (1.3) (307) (2.3)
------- ------- ------- ------- ------- -------
$ 2,486 66.0% $ 7,004 38.0% $ 4,913 38.0%
======= ======= ======= ======= ======= =======
</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, 1999 are as follows (in thousands of dollars):
<TABLE>
<S> <C>
2000 $3,793
2001 2,749
2002 1,874
2003 1,046
2004 574
</TABLE>
Operating leases are primarily for automobiles, small trucks and office
and shop facilities. Rent expense under operating leases (including
insignificant amounts of contingent rental payments) was $5,742,000, $4,605,000
and $5,010,000, in 1999, 1998 and 1997, respectively.
(7) Employee Benefit Plans
The Company sponsors a pension plan covering certain hourly employees
not covered by union-sponsored, multi-employer plans. Benefits are computed
based mainly on years of service. The Company makes annual contributions to the
plan substantially equal to the amounts required to maintain the qualified
status of the plans. Contributions are intended to provide for benefits related
to past and current service with the Company. Assets of the plan consist
primarily of stocks, bonds and government securities.
The following table sets forth the plan's funded status as of December
31, 1998 and 1997 (the measurement dates) and the amounts recognized in the
Company's balance sheets at January 31, 1999 and 1998 (in thousands of dollars):
44
<PAGE> 45
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Benefit obligation at beginning of year $ 4,973 $ 4,949
Service cost 152 137
Interest cost 362 343
Actuarial gain 440 246
Benefits paid (303) (702)
------- -------
Benefit obligation at end of year 5,624 4,973
------- -------
Fair value of plan assets at beginning of year 4,554 4,398
Actual return on plan assets 613 576
Employer contribution 146 282
Benefits paid (303) (702)
------- -------
Fair value of plan assets at end of year 5,010 4,554
------- -------
Funded status (614) (419)
Unrecognized actuarial loss 945 868
Unrecognized prior services cost 71 82
------- -------
Net amount recognized $ 402 $ 531
======= =======
</TABLE>
Amounts recognized in the Company's balance sheets at January 31, 1999 and 1998
(in thousands of dollars) consist of:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Prepaid benefit cost $ 402 $ 531
Accrued benefit liability (1,016) (950)
Intangible asset 71 82
Accumulated other comprehensive income 945 868
------ ------
Net amount recognized $ 402 $ 531
====== ======
</TABLE>
Net periodic pension cost for 1999, 1998 and 1997 includes the following
components (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost $ 152 $ 137 $ 171
Interest cost 362 343 357
Expected return on assets (317) (301) (372)
Net amortization 77 67 88
------ ------ ------
$ 274 $ 246 $ 244
====== ====== ======
</TABLE>
The Company has recognized the full amount of its actuarially
determined pension liability and the related intangible asset. The unrecognized
pension cost has been recorded as a charge to stockholders' equity after giving
effect to the related future tax benefit.
The projected benefit obligation for 1999, 1998 and 1997 was computed
using a discount rate of 6.75%, 7.25% and 7.50%, respectively, and an estimated
long-term rate of return on assets of 8.75%. Benefit level assumptions for 1999,
1998 and 1997 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
45
<PAGE> 46
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
to the amounts accrued for pension expense. Total union pension expense for
these plans was $683,000, $646,000 and $638,000 in 1999, 1998 and 1997,
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 $808,000, $1,349,000
and $1,264,000 in 1999, 1998 and 1997, 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 ("Credit
Agreement"), less any outstanding letter of credit commitments ($20,000,000
sublimit). As of January 31, 1999, the commitment under the Credit Agreement had
been reduced to $93,000,000. The Credit Agreement was used to finance the
Stanley Acquisition and refinance the Company's existing indebtedness under a
$30,000,000 credit facility, and is available for working capital and capital
expenditures and for other general corporate purposes. During May, 1998, the
Company entered into an interest rate swap agreement (the "Swap Agreement") with
Bank of America National Trust and Savings Association. The Swap Agreement,
which effectively fixes the interest rate at 5.965%, plus the margin (currently
.5%) as defined in the Company's credit agreement, on $25,000,000 of the
Company's outstanding indebtedness under its credit agreement, calls for
quarterly interest payments which commenced on August 15, 1998. The Swap
Agreement will terminate in May, 2002. As of January 31, 1999, letters of credit
in an aggregate amount of $4,591,000 had been issued on behalf of the Company.
The Credit Agreement will terminate in July 2002 and any borrowings thereunder
will mature at that time. Layne Australia is eligible to draw down up to
$30,000,000 under the Credit Agreement. The Credit Agreement provides for
guarantees by certain of the Company's domestic subsidiaries and contains
certain covenants including restrictions on the incurrence of additional
indebtedness and liens, sale of assets or other dispositions, transactions with
affiliates, mandatory prepayments based on the proceeds from the sale of assets
and debt and equity securities and certain financial maintenance covenants,
including among others, minimum interest coverage and maximum leverage ratios.
The Credit Agreement provides for interest at variable rates equal to (I) for
loans in Australian dollars, an Australian Bill rate plus .50% to .875%
(depending upon debt to capitalization ratios) or (ii) for loans in United
States dollars, at the Company's option, a Eurodollar rate plus .50% to .875%
(depending upon debt to capitalization ratios) or an alternate reference rate as
defined in the Credit Agreement. As of January 31, 1999, outstanding borrowings
under the Credit Agreement were $38,500,000, at an average interest rate of
6.135%. The variable interest rates on the outstanding balance approximate the
current market rates.
46
<PAGE> 47
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
Maximum borrowings outstanding under the Company's then existing credit
agreements during 1999, 1998 and 1997 were $49,000,000, $58,000,000 and
$7,500,000, respectively, and the average outstanding borrowings were
$42,458,000, $21,250,000 and $4,875,000, respectively. The weighted average
interest rates were 7.0%, 7.3% and 7.5%, respectively.
During March, 1996, the Company completed the private placement of an
unsecured note agreement (subsequently amended) for $25,000,000 ("Senior
Notes"). The Senior Notes bear a fixed interest rate of 6.75% and will be due
March 15, 2006 with annual installments of $3,571,000 beginning March 15, 2000.
As of January 31, 1999 and 1998, such interest rate approximates market for
similar securities. Financial guarantees and covenants are similar to those in
the Credit Agreement.
Loan costs incurred in securing long-term financing are amortized over
the term of the respective loan agreement. Amortization of these costs for 1999,
1998 and 1997 was $252,000, $180,000 and $171,000, 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>
1999 1998
------- ------
<S> <C> <C>
Senior Notes $25,000 $25,000
Revolving credit facility 38,500 32,500
------- -------
Total long-term debt - net 63,500 57,500
Less current maturities - -
------- -------
$63,500 $57,500
======= =======
</TABLE>
As of January 31, 1999, long-term debt will mature as follows (in
thousands of dollars):
<TABLE>
<S> <C>
2000 $ -
2001 3,571
2002 3,571
2003 42,071
2004 3,571
Thereafter 10,716
</TABLE>
(9) Stock and Stock Option Plans
In October 1998, the Company adopted a Rights Agreement whereby the
Company has authorized and declared a dividend of one preferred share purchase
right ("Right") for each outstanding common share of the Company. Subject to
limited exceptions, the Rights are exercisable if a person or group acquires or
announces a tender offer for 25% or more of the Company's common stock. Each
right will entitle shareholders to buy one one-hundredth of a share of a newly
created Series A Junior Participating Preferred Stock of the Company at an
exercise price of $45.00. The Company is entitled to redeem the Right at $.01
per Right at any time before a person has acquired 25% or more of the Company's
outstanding common stock. The Rights expire 10 years from the date of grant.
47
<PAGE> 48
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
The Company has reserved 500,000 shares of common stock for issuance
under Employee Incentive Compensation Plans. Issuance of shares under the Plans
is based on performance as determined annually by a committee appointed by the
Company's Board of Directors. During 1999, 1998 and 1997, 9,636, 3,524 and
31,622 shares, respectively, were issued at $13.72, $15.20 and $10.75 per share,
respectively.
The Company also has two stock option plans which provide for the
granting of options to purchase up to an aggregate of 2,000,000 shares of Common
Stock at a price fixed by the Board of Directors or a committee.
Significant option groups outstanding at January 31, 1999 and related
weighted average price and life information follows:
<TABLE>
<CAPTION>
Average Remaining
Options Options Exercise Life
Grant Date Outstanding Exercisable Price (Years)
- ---------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
8/92 72,164 72,164 $ .882 3
8/92 97,434 97,434 7.000 3
12/93 258,317 258,317 6.420 5
5/94 39,000 31,200 6.375 5
2/96 158,500 95,100 10.500 7
11/96 16,500 6,600 13.375 8
4/97 15,727 3,145 11.400 8
2/98 312,500 62,500 14.000 9
4/98 21,504 - 10.290 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 1999,
1998 and 1997 were $5.43, $8.02 and $6.98 per option, respectively. 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life years 10 10 10
Interest rate 6.5% 6.5% 6.5%
Volatility 47% 50% 20%
Dividend yield 0% 0% 0%
</TABLE>
48
<PAGE> 49
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
<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, 1996 466,915 $ 5.681 241,893 $4.907
Granted 191,500 10.748 -
Canceled (16,500) 10.500 -
Vested - - 110,651
-------- --------
Outstanding, January 31, 1997 641,915 7.069 352,544 5.779
Granted 15,727 11.400 -
Canceled - - -
Vested - - 153,951
-------- --------
Outstanding, January 31, 1998 657,642 7.172 506,495 6.283
Granted 334,004 13.761 -
Canceled - - -
Vested - - 57,465
-------- --------
Outstanding, January 31, 1999 991,646 9.391 563,960 6.606
======== ========
</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 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
49
<PAGE> 50
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
material adverse effect upon its business or consolidated financial position,
results of operations or cash flows.
(11) Operating Segments and Foreign Operations
The Company is a multi-national company operating predominantly in two
operating segments. The first operating segment includes the Company's drilling
operations with wholly owned operations in the United States, Australia, East
Africa, Mexico, Canada, Indonesia and Thailand, as well as a 50% owned joint
venture in West Africa, which are consolidated into the Company's January 31,
1999 financial statements. The drilling operation segment derives its revenues
from water well drilling and maintenance, mineral exploration drilling,
geotechnical drilling and environmental drilling and services. The second
operating segment includes the manufacturing and supply 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, total assets, capital expenditures and
depreciation and amortization pertaining to the Company's operating segments are
presented below (in thousands of dollars). Total revenues of foreign
subsidiaries are those revenues related to the operations of those subsidiaries.
Intersegment sales are accounted for based on the estimated fair market value of
the products sold. In computing operating income for foreign subsidiaries, no
allocations of general corporate expenses have been made. Total assets of
foreign subsidiaries are those assets related to the operations of those
subsidiaries, including goodwill 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).
50
<PAGE> 51
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Revenues 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Drilling
United States $ 193,702 $ 181,846 $ 171,704
--------- --------- ---------
Foreign:
Canada 11,387 38,242 13,423
Australia 11,889 10,554 -
Africa 35,311 17,948 -
Other Foreign 10,836 15,764 11,417
--------- --------- ---------
Total Foreign 69,423 82,508 24,840
--------- --------- ---------
Total Drilling 263,125 264,354 196,544
--------- --------- ---------
Manufacturing and Supply 33,526 47,336 41,572
Intersegment revenues (12,403) (17,090) (15,263)
--------- --------- ---------
Total Manufacturing and Supply 21,123 30,246 26,309
--------- --------- ---------
$ 284,248 $ 294,600 $ 222,853
========= ========= =========
Operating Income
Drilling
United States $ 12,036 $ 16,841 $ 13,844
--------- --------- ---------
Foreign:
Canada 1,292 7,006 1,049
Australia (154) 1,293 -
Africa (140) (299) -
Other Foreign 340 2,720 1,110
--------- --------- ---------
Total Foreign 1,338 10,720 2,159
--------- --------- ---------
Total Drilling 13,374 27,561 16,003
Manufacturing and supply (647) 1,278 1,390
Corporate (5,731) (9,545) (6,072)
--------- --------- ---------
$ 6,996 $ 19,294 $ 11,321
========= ========= =========
Total Assets
Drilling
United States $ 92,846 $ 79,258 $ 74,113
--------- --------- ---------
Foreign:
Canada 5,667 10,416 6,021
Australia 53,828 64,024 -
Africa 32,577 21,241 -
Other Foreign 14,915 13,932 10,463
--------- --------- ---------
Total Foreign 106,987 109,613 16,484
--------- --------- ---------
Total Drilling 199,833 188,871 90,597
Manufacturing and Supply 23,114 28,584 24,917
Corporate 28,556 25,397 26,907
--------- --------- ---------
$ 251,503 $ 242,852 $ 142,421
========= ========= =========
Capital Expenditures
Drilling $ 16,472 $ 21,363 $ 18,071
Manufacturing and Supply 345 882 473
--------- --------- ---------
$ 16,817 $ 22,425 $ 18,544
========= ========= =========
Depreciation and Amortization
Drilling $ 21,566 $ 15,030 $ 10,489
Manufacturing and Supply 795 651 485
--------- --------- ---------
$ 22,361 $ 15,681 $ 10,974
========= ========= =========
</TABLE>
51
<PAGE> 52
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 1999, 1998 and 1997
Of the Manufacturing and Supply sales to unaffiliated customers,
approximately $3,909,000, $9,581,000 and 10,023,000 in 1999, 1998 and 1997,
respectively, were export sales, principally to Latin and South America.
(12) Quarterly Results (Unaudited)
Unaudited quarterly financial data is as follows (see Note 2 regarding
the Stanley acquisition) (thousands of dollars, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1999:
Revenues $68,341 $78,686 $74,451 $62,770
Gross profit 18,583 23,486 20,920 16,306
Net income (loss) 1,026 2,985 1,137 (3,947)
Basic earnings (loss)
per share 0.09 0.26 0.10 (0.34)
Diluted earnings (loss)
per share 0.09 0.25 0.10 (0.34)
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
</TABLE>
==============================
52
<PAGE> 53
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,
1997 $ 887 902 695 (1,512) 30 (a) $1,002
====== ======
Fiscal year ended January 31,
1998 $1,002 1,168 671 (795) 537 (b) $2,583
====== ======
Fiscal year ended January 31,
1999 $2,583 975 480 (2,450) 1,476 (b) $3,064
====== ======
Reserves for Inventories:
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 (b) $3,766
====== ======
Fiscal year ended January 31,
1999 $3,766 1,000 (1,003) 395 (b) $4,158
====== ======
</TABLE>
(a) Represents reserves recorded in connection with dissolution of an
investment in a domestic affiliate. See Note 12 to the Consolidated
Financial Statements.
(b) Represents reserves recorded in connection with various acquisitions. See
Note 2 to the Consolidated Financial Statements.
53
<PAGE> 54
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 27, 1999, (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 27, 1999, 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 27, 1999, 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 27, 1999, 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.
54
<PAGE> 55
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits:
1. Financial Statements:
The financial statements are listed in the index for Item 8 of this
Form 10-K.
2. Financial Statement Schedules:
The financial statement schedules are listed in the index for Item 8
of this Form 10-K.
3. Exhibits:
The exhibits filed with or incorporated by reference in this report are
listed below:
Exhibit No. Description
4(1) - Restated Certificate of Incorporation of the
Registrant (filed with the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 3(1) and incorporated
herein by this reference)
4(2) - Bylaws of the Registrant (filed with Amendment No. 2 to
the Registrant's Registration Statement (File No.
33-48432) as Exhibit 3(2) and incorporated herein by
reference)
4(3) - Specimen Common Stock Certificate (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 4(1) and incorporated herein
by reference)
4(4) - Amended and Restated Credit Agreement, dated as of
July 25, 1997, among the Company, Layne Christensen
Australia Pty Limited, National Trust and Savings
Association, various financial institutions, Bank of
America, as Letter of Credit Issuer, and Bank of
America National Trust and Savings Association, as
Agent ("Credit Agreement") (filed with Amendment No. 3
to the Company's Form S-2 Registration Statement (File
No. 333-29581) as Exhibit 10(12) and incorporated
herein by this reference)
4(4.1) - First Amendment to the Credit Agreement dated
December 5, 1997
4(4.2) - Second Amendment to the Credit Agreement dated
February 23, 1998
4(4.3) - Third Amendment to the Credit Agreement dated
October 16, 1998
55
<PAGE> 56
4(5) - Note Agreement dated as of March 15, 1996, between the
Company and Massachusetts Mutual Life Insurance Company
("Purchaser") for the issuance and sale to Purchaser of
$25,000,000 aggregate principal amount of 6.75% Senior
Notes due March 15, 2006 (filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(14)
and incorporated herein by this reference)
4(6) - Amendment to Note Agreement, dated as of July 25,
1997, between the Company and Massachusetts Mutual Life
Insurance Company (filed with Amendment No. 3 to the
Company's Form S-2 Registration Statement (File No.
333-29581) as Exhibit 10(14) and incorporated herein by
this reference)
4(7) - Rights Agreement, dated October 12, 1998, between Layne
Christensen Company and National City Bank, which
includes the Form of Certificate of Designations of
Series A Junior Participating Preferred Stock of Layne
Christensen Company as Exhibit A, the Form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C. (Filed with the
Company's Form 8-K dated October 12, 1998 (File No.
0-20578) as Exhibit 4(1) and incorporated herein by
reference.
10(1) - Tax Liability Indemnification Agreement between the
Registrant and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(2) and incorporated herein
by reference)
10(2) - Lease Agreement between the Registrant and Parkway
Partners, L.L.C. dated December 21, 1994 (filed with
the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995 (File No. 0-20578)
as Exhibit 10(2) and incorporated herein by reference)
10(2.1) - First Modification & Ratification of Lease, dated as of
February 26, 1996, between Parkway Partners, L.L.C. and
the Registrant (filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended January
31, 1996 (File No. 0-20578), as Exhibit 10(2.1) and
incorporated herein by this reference)
10(2.2) - Second Modification and Ratification of Lease Agreement
between Parkway Partners, L.L.C. and Layne Christensen
Company dated April 28, 1997
10(2.3) - Third Modification and Extension Agreement between
Parkway Partners, L.L.C. and Layne Christensen Company
dated November 3, 1998 (filed with the Company's 10-Q
for the quarter ended October 31, 1998 (File No.
0-20578) as Exhibit 10(1) and incorporated herein by
reference)
**10(3) - Form of The Layne Capital Accumulation Plan and Trust
Agreement (filed with the Registrant's Registration
Statement (File No.
56
<PAGE> 57
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
Australia Pty Limited, National Trust and Savings
Association, various financial institutions, Bank of
America, as Letter of Credit Issuer, and Bank of
America National Trust and Savings Association, as
Agent ("Credit Agreement") (filed with Amendment No. 3
to the Company's Form S-2 Registration Statement (File
No. 333-29581) as Exhibit 10(12) and incorporated
herein by this reference)
10(12.1) - First Amendment to the Credit Agreement dated
December 5, 1997
57
<PAGE> 58
10(12.2) - Second Amendment to the Credit Agreement dated
February 23, 1998
10(12.3) - Third Amendment to the Credit Agreement dated
October 16, 1998
**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)
**10(19) - Form of Stock Option Agreement between the Company
and Management of the Company effective February 1,
1998 (filed with the Company's Form 10-Q for the
quarter ended April 30, 1998 (File No. 0-20578) as
Exhibit 10(1) and incorporated herein by reference)
10(20) - Letter agreement between the Company and Bank of
America National Trust and Savings Association dated
May 8, 1998, confirming the terms and conditions of an
interest rate swap agreement (filed with the Company's
Form 10-Q for the quarter
58
<PAGE> 59
ended July 31, 1998 (File No. 0-20578) as Exhibit 10(1)
and incorporated herein by reference)
11(1) - Statement regarding Computation of per share earnings
22(1) - List of Subsidiaries
23(1) - Consent of Deloitte & Touche LLP
27(1) - Financial Data Schedule
- ---------------------------
** Management contracts or compensatory plans or arrangements required to be
identified by Item 14(a)(3).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year ended January 31, 1999.
(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.
59
<PAGE> 60
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 23, 1999 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:
<TABLE>
<CAPTION>
Signature and Title Date
<S> <C>
/s/Andrew B. Schmitt April 23, 1999
- ------------------------------------------------------
Andrew B. Schmitt
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/Jerry W. Fanska April 23, 1999
- ------------------------------------------------------
Jerry W. Fanska
Vice President--Finance and Treasurer
(Principal Financial and Accounting Officer)
/s/Robert J. Dineen April 23, 1999
- ------------------------------------------------------
Robert J. Dineen
Director
/s/Edward A. Gilhuly April 23, 1999
- ------------------------------------------------------
Edward A. Gilhuly
Director
/s/Todd A. Fisher April 23, 1999
- ------------------------------------------------------
Todd A. Fisher
Director
/s/Donald K. Miller April 23, 1999
- ------------------------------------------------------
Donald K. Miller
Director
/s/Sheldon R. Erikson April 23, 1999
- ------------------------------------------------------
Sheldon R. Erikson
Director
</TABLE>
60
<PAGE> 61
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C> <C>
4(1) Restated Certificate of Incorporation of the Registrant (filed
with the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996 (File No. 0-20578), as
Exhibit 3(1) and incorporated herein by this
reference) *
4(2) Bylaws of the Registrant (filed with Amendment No. 2 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 3(2) and incorporated herein by reference) *
4(3) Specimen Common Stock Certificate (filed with Amendment No.
3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 4(1) and incorporated herein by
reference) *
4(4) Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement")(filed with
Amendment No. 3 to the Company's Form S-2 Registration
Statement (File No. 333-29581) as Exhibit 10(12) and
incorporated herein by this reference) *
4(4.1) First Amendment to the Credit Agreement dated
December 5, 1997 65
4(4.2) Second Amendment to the Credit Agreement dated
February 23, 1998 73
4(4.3) Third Amendment to the Credit Agreement dated
October 16, 1998 78
4(5) Note Agreement dated as of March 15, 1996, between the Company
and Massachusetts Mutual Life Insurance Company ("Purchaser")
for the issuance and sale to Purchaser of $25,000,000
aggregate principal amount of 6.75% Senior Notes due March 15,
2006 filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as
Exhibit 10(14) and incorporated herein by this reference) *
4(6) Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life Insurance
Company filed with Amendment No. 3 to the Company's Form S-2
Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference) *
10(1) Tax Liability Indemnification Agreement between the
Registrant and The Marley Company (filed with Amendment
</TABLE>
61
<PAGE> 62
<TABLE>
<S> <C> <C>
No. 3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 10(2) and incorporated herein by
reference) *
10(2) Lease Agreement between the Registrant and Parkway Partners,
L.L.C. dated December 21, 1994 (filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended January
31, 1995 (File No. 0-20578) as Exhibit 10(2) and
incorporated herein by reference) *
10(2.1) First Modification & Ratification of Lease, dated as of
February 26, 1996, between Parkway Partners, L.L.C. and the
Registrant (filed with the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 10(2.1) and incorporated
herein by this reference) *
10(2.2) Second Modification and Ratification of Lease Agreement
between Parkway Partners, L.L.C. and Layne Christensen
Company dated April 28, 1997 82
10(2.3) Third Modification and Extension Agreement between Parkway
Partners, L.L.C. and Layne Christensen Company dated
November 3, 1998 (filed with the Company's 10-Q for the
quarter ended October 31, 1998 (File No. 0-20578) as
Exhibit 10(1) and incorporated herein by reference) *
10(3) Form of The Layne Capital Accumulation Plan and Trust
Agreement (filed with the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference) *
10(4) Layne, Inc. 1992 Stock Option Plan (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(6) and incorporated herein
by reference) *
10(5) Form of Stock Option Agreement between the Company and
management of the Company (filed with Amendment No. 3 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(7) and incorporated herein by reference) *
10(6) Form of Non Qualified Stock Option Agreement (Spin-Off
Options) between the Company and Robert J. Dineen (filed
with Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432)as Exhibit 10(9) and
incorporated herein by reference) *
10(7) Insurance Liability Indemnity Agreement between the
Company and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(10) and incorporated herein
by reference) *
10(8) Form of the Layne, Inc. Executive Incentive Compensation
</TABLE>
62
<PAGE> 63
<TABLE>
<S> <C> <C>
Plan (filed with the Registrant's Form 10-Q for the
quarterly period ended July 31, 1994 (File No. 33-48432)
as Exhibit 10(2) and incorporated herein by reference) *
10(9) Agreement between The Marley Company and the Company relating
to tradename (filed with the Registrant's Registration
Statement (File No.33-48432) as Exhibit
10(10) and incorporated herein by reference) *
10(10) Form of Subscription Agreement for management of the
Company(filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit
10(16) and incorporated herein by reference) *
10(11) Form of Subscription Agreement between the Company and
Robert J. Dineen (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(17)and incorporated herein by reference) *
10(12) Amended and Restated Credit Agreement, dated as of
July 25, 1997, among the Company, Layne Christensen
Australia Pty Limited, National Trust and Savings
Association, various financial institutions, Bank of
America, as Letter of Credit Issuer, and Bank of
America National Trust and Savings Association, as
Agent ("Credit Agreement") (filed with Amendment
No. 3 to the Company's Form S-2 Registration Statement
(File No. 333-29581) as Exhibit 10(12) and incorporated
herein by this reference) *
10(12.1) First Amendment to the Credit Agreement dated
December 5, 1997 88
10(12.2) Second Amendment to the Credit Agreement dated
February 23, 1998 96
10(12.3) Third Amendment to the Credit Agreement dated
October 16, 1998 101
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,
</TABLE>
63
<PAGE> 64
<TABLE>
<S> <C> <C>
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) *
10(19) Form of Stock Option Agreement between the Company and
Management of the Company effective February 1, 1998 (filed
with the Company's Form 10-Q for the quarter ended April 30,
1998 (File No. 0-20578) as Exhibit 10(1) and
incorporated herein by reference) *
10(20) Letter Agreement between the Company and Bank of America
National Trust and Savings Association dated May 8, 1998,
confirming the terms and conditions of an interest rate swap
agreement (filed with the Company's Form 10-Q for the quarter
ended July 31, 1998 (File No. 0-20578) as
Exhibit 10(1) and incorporated herein by reference) *
11(1) Statement regarding Computation of per share earnings 105
22(1) List of Subsidiaries 107
23(1) Consent of Deloitte & Touche LLP 109
27(1) Financial Data Schedule
</TABLE>
- ---------------------------
* Incorporated herein by reference.
64
<PAGE> 1
EXHIBIT 4(4.1)
65
<PAGE> 2
EXHIBIT 4(4.1)
FIRST AMENDMENT
THIS FIRST AMENDMENT (this "First Amendment") dated as of December 5,
1997 is to the Amended and Restated Credit Agreement (the "Credit Agreement")
dated as of July 25, 1997 among LAYNE CHRISTENSEN COMPANY (the "Company"), LAYNE
CHRISTENSEN AUSTRALIA PTY LIMITED ("Layne Australia"), various financial
institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
Agent (in such capacity, the "Agent"). Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as defined therein.
WHEREAS, the parties hereto have entered into the Credit Agreement
which provides for (i) the Banks to make U.S. Loans to the Company from time to
time, (ii) the Australian Banks to make Australian Loans to Layne Australia from
time to time, and (iii) the Issuer to issue Letters of Credit for the account of
the Company (or jointly for the account of the Company and any Subsidiary) from
time to time and for the Banks to purchase participations therein; and
WHEREAS, the parties hereto desire to amend the Credit Agreement to add
two additional financial institutions as Australian Banks;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. NEW AUSTRALIAN BANKS. Effective on and as of the First
Amendment Effective Date (as defined below), each of Bank of New Zealand
Australia, A Division of National Australia Bank Limited ACN 004 044 937 and
Societe Generale Australia Limited ACN 002 093 021 shall be added as a party to
the Credit Agreement as an Australian Bank with an Australian Percentage as set
forth on Schedule 1.1(a) to the Credit Agreement, as amended hereby, and shall
have all of the rights and obligations of an Australian Bank under the Credit
Agreement, as amended hereby. The address for each new Australian Bank is set
forth below its signature hereto.
SECTION 2. AMENDMENT. Effective on (and subject to the occurrence of)
the First Amendment Effective Date, the Credit Agreement shall be amended as set
forth in SECTIONS 2.1 and 2.2 below.
66
<PAGE> 3
SECTION 2.1 SECTION 1. The definition of "Note" in Section 1 of the
Credit Agreement is hereby amended by deleting the language "Section 3.1"
therein and substituting therefor the language "Section 3.2".
SECTION 2.2 SECTION 3. Section 3 of the Credit Agreement is hereby
amended in its entirety to read as follows:
SECTION 3 NOTES AND LOAN ACCOUNTS.
3.1 LOAN ACCOUNT. The Loans made by each Bank shall be
evidenced by one or more accounts or records maintained by such Bank in
the ordinary course of business. The accounts or records maintained by
the Agent and each Bank shall be rebuttable presumptive evidence of the
amount of the Loans made by the Banks to the Borrowers, and the
interest and payments thereon. Any failure so to record or any error in
so recording shall not, however, limit or otherwise affect the
obligation of the applicable Borrower hereunder to pay any amount owing
with respect to any Loan.
3.2 NOTES. Upon the request of any Bank made through the
Agent (and in the case of Australian Loans, so long as the issuance of
such Note shall not result in the imposition of any stamp, withholding
or other tax), the Loans made by such Bank to either Borrower may be
evidenced by a promissory note (as amended, supplemented, replaced or
otherwise modified from time to time, individually each a "Note" and
collectively for all Banks the "Notes") substantially in the form of
EXHIBIT A, instead of loan accounts. Each such Bank shall endorse on
the schedules annexed to the applicable Note the date, amount and
maturity of each applicable Loan made by it and the amount of each
payment of principal made by such Borrower with respect thereto. Each
such Bank is irrevocably authorized by such Borrower to endorse the
applicable Note and each such Bank's record shall be conclusive absent
demonstrable error; PROVIDED, HOWEVER, that the failure of a Bank to
make, or an error in making, a notation on any Note with respect to any
Loan shall not limit or otherwise affect the obligations of the such
Borrower hereunder or under such Note to such Bank.
SECTION 2.3 SCHEDULE 1.1(a). Schedule 1.1(a) to the Credit Agreement is
amended in its entirety to read in the form of Schedule 1.1(a) hereto.
SECTION 3. EFFECTIVENESS. The provisions set forth in SECTIONS 1 and 2
above shall become effective, as of the day and year first above written, on
such date (the "First Amendment Effective Date") that the Agent shall have
received counterparts of this First Amendment executed by the parties hereto.
-2-
67
<PAGE> 4
SECTION 4. MISCELLANEOUS.
SECTION 4.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects.
SECTION 4.2 COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart be deemed to be an original but all such counterparts
shall together constitute one and the same First Amendment.
SECTION 4.3 GOVERNING LAW. This First Amendment shall be a contract
made under and governed by the internal laws of the State of Illinois.
SECTION 4.4 SUCCESSORS AND ASSIGNS. This First Amendment shall be
binding upon the Company, Layne Australia, the Banks and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, Layne Australia, the Banks and the Agent and the successors and assigns
of the Banks and the Agent.
-3-
68
<PAGE> 5
Delivered at Chicago, Illinois, as of the day and year first above
written.
LAYNE CHRISTENSEN COMPANY
By: /s/ Jerry W. Fanska
-----------------------------------
Title: Vice President-Finance
---------------------------------
LAYNE CHRISTENSEN AUSTRALIA PTY
LIMITED ACN 078 167 610
By: /s/ A. B. Schmitt
-----------------------------------
Title: Director
---------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Agent
By: /s/ R. G. Stapleton
-----------------------------------
Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ R. G. Stapleton
-----------------------------------
Managing Director
BA AUSTRALIA LIMITED ACN 004 617 841
By: /s/ R. G. Stapleton
-----------------------------------
Attorney in Fact
-4-
69
<PAGE> 6
MERCANTILE BANK, as Co-Agent and
as a Bank
By: /s/ Brian Hoban
-----------------------------------
Title: Corporate Banking Officer
--------------------------------
MICHIGAN NATIONAL BANK, as Co-Agent
and as a Bank
By: /s/ Christopher J. Mayone
-----------------------------------
Title: Commercial Relationship Manager
--------------------------------
BANK OF NEW ZEALAND AUSTRALIA, A
DIVISION OF NATIONAL AUSTRALIA BANK
LIMITED ACN 004 044 937
By: /s/ Mark Yarwood
-----------------------------------
Title: Head of Business Banking
-------------------------------
Level 6, 395 Collins Street
Melbourne, Victoria
Australia
Attention: Janine Anderiesz
Facsimile: (61) (03) 9641-4600
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
-----------------------------------
Title: Senior Manager Loan Operations
--------------------------------
SOCIETE GENERALE - CHICAGO BRANCH
By: /s/ Robert W. Bolt
-----------------------------------
Title: Vice President
--------------------------------
-5-
70
<PAGE> 7
SOCIETE GENERALE AUSTRALIA LIMITED
ACN 002 093 021
By: /s/ Yannick Chagnon
-----------------------------------
Title: Managing Director
--------------------------------
350 George Street
Sydney NSW
Australia
Attention: Michel Vimal du Monteil
Facsimile: 612 9235 3941
-6-
71
<PAGE> 8
SCHEDULE 1.1(A)
COMMITMENT LIMITS AND PERCENTAGES
<TABLE>
<CAPTION>
Amount of Australian
Name of Bank Commitment Percentage Percentage
- ------------ ---------- ---------- ----------
<S> <C> <C> <C>
Bank of America National U.S.$25,000,000 25.0% N/A
Trust and Savings Association
BA Australia Limited* N/A N/A 40%
Mercantile Bank U.S.$20,000,000 20.0% N/A
Michigan National Bank U.S.$20,000,000 20.0% N/A
Bank of New Zealand Australia, N/A N/A 32%
A Division of National
Australia Bank Limited*
The Bank of Nova Scotia U.S.$17,500,000 17.5% N/A
Societe Generale-Chicago U.S.$17,500,000 17.5% N/A
Branch
Societe Generale Australia N/A N/A 28%
Limited*
--------------- ------ -----
TOTALS U.S.$100,000,000 100% 100%
* Designated as an Australian Bank by the Bank listed immediately above such
Australian Bank.
</TABLE>
72
<PAGE> 1
EXHIBIT 4(4.2)
73
<PAGE> 2
EXHIBIT 4(4.2)
SECOND AMENDMENT
THIS SECOND AMENDMENT (this "Second Amendment") dated as of February
23, 1998 is to the Amended and Restated Credit Agreement (the "Credit
Agreement") dated as of July 25, 1997 among LAYNE CHRISTENSEN COMPANY (the
"Company"), LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED ("Layne Australia"), various
financial institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent (in such capacity, the "Agent"). Unless otherwise defined
herein, terms defined in the Credit Agreement are used herein as defined
therein.
WHEREAS, the parties hereto have entered into the Credit Agreement
which provides for (i) the Banks to make U.S. Loans to the Company from time to
time, (ii) the Australian Banks to make Australian Loans to Layne Australia from
time to time, and (iii) the Issuer to issue Letters of Credit for the account of
the Company (or jointly for the account of the Company and any Subsidiary) from
time to time and for the Banks to purchase participations therein; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as more fully set forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. AMENDMENTS. Effective on (and subject to the occurrence of)
the Second Amendment Effective Date, the Credit Agreement shall be amended as
set forth in Section 1.1 and 1.2 below.
Section 1.1 SUBSECTION 10.11(h). Subsection 10.11(h) shall be amended
by deleting the amount "$5,000,000" therein and substituting "$10,000,000"
therefor.
Section 1.2 SUBSECTION 10.11(j). Subsection 10.11(j) shall be amended
by deleting the amount "$10,000,000" therein and substituting "$15,000,000"
therefor.
SECTION 2. EFFECTIVENESS. The amendments set forth in SECTION 1 above
shall become effective, as of the day and year first above written, on such date
(the "Second Amendment Effective Date") that the Agent shall have received
counterparts of this Second Amendment executed by the Company and the Required
Banks.
74
<PAGE> 3
SECTION 3. MISCELLANEOUS.
SECTION 3.1 CONTINUING EFFECTIVENESS. ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects.
SECTION 3.2 COUNTERPARTS. This Second Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same Second Amendment.
SECTION 3.3 GOVERNING LAW. This Second Amendment shall be a contract
made under and governed by the internal laws of the State of Illinois.
SECTION 3.4 SUCCESSORS AND ASSIGNS. This Second Amendment shall be
binding upon the Company, Layne Australia, the Banks and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, Layne Australia, the Banks and the Agent and the successors and assigns
of the Banks and the Agent.
-2-
75
<PAGE> 4
Delivered at Chicago, Illinois, as of the day and year first above
written.
LAYNE CHRISTENSEN COMPANY
By: /s/ Jerry W. Fanska
----------------------------------------
Title: Vice President-Finance
------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Agent
By: /s/ R. G. Stapleton
---------------------------------------
Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ R. G. Stapleton
---------------------------------------
Managing Director
MERCANTILE BANK, as Co-Agent and
as a Bank
By: /s/ Brian Hoban
---------------------------------------
Title: Corporate Banking Officer
------------------------------------
-3-
76
<PAGE> 5
MICHIGAN NATIONAL BANK, as Co-Agent
and as a Bank
By: /s/ Christopher J. Mayone
---------------------------------------
Title: Commercial Relationship Manager
-------------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
--------------------------------------
Title: Senior Manager Loan Operations
------------------------------------
SOCIETE GENERALE - CHICAGO BRANCH
By: /s/ Robert W. Bolt
--------------------------------------
Title: Vice President
-----------------------------------
-4-
77
<PAGE> 1
EXHIBIT 4(4.3)
78
<PAGE> 2
EXHIBIT 4(4.3)
THIRD AMENDMENT
THIS THIRD AMENDMENT (this "Third Amendment") dated as of October 16,
1998 is to the Amended and Restated Credit Agreement (as previously amended, the
"Credit Agreement") dated as of July 25, 1997 among LAYNE CHRISTENSEN COMPANY
(the "Company"), LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED ("Layne Australia"),
various financial institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent (in such capacity, the "Agent"). Unless otherwise defined
herein, terms defined in the Credit Agreement are used herein as defined
therein.
WHEREAS, the parties hereto have entered into the Credit Agreement
which provides for (i) the Banks to make U.S. Loans to the Company from time to
time, (ii) the Australian Banks to make Australian Loans to Layne Australia from
time to time, and (iii) the Issuer to issue Letters of Credit for the account of
the Company (or jointly for the account of the Company and any Subsidiary) from
time to time and for the Banks to purchase participations therein; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as more fully set forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. AMENDMENT. Effective on (and subject to the occurrence of)
the Third Amendment Effective Date (as defined below), subsection 10.11(i) shall
be amended by deleting the percentage "10%" therein and substituting "15%"
therefor.
SECTION 2. EFFECTIVENESS. The amendment set forth in SECTION 1 above
shall become effective, as of the day and year first above written, on the date
(the "Third Amendment Effective Date") that the Agent shall have received
counterparts of this Third Amendment executed by the Company and the Required
Banks.
SECTION 3. MISCELLANEOUS.
SECTION 3.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects.
SECTION 3.2 COUNTERPARTS. This Third Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall
79
<PAGE> 3
be deemed to be an original but all such counterparts shall together constitute
one and the same Third Amendment.
SECTION 3.3 GOVERNING LAW. This Third Amendment shall be a contract
made under and governed by the internal laws of the State of Illinois.
SECTION 3.4 SUCCESSORS AND ASSIGNS. This Third Amendment shall be
binding upon the Company, Layne Australia, the Banks and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, Layne Australia, the Banks and the Agent and the successors and assigns
of the Banks and the Agent.
Delivered at Chicago, Illinois, as of the day and year first above
written.
LAYNE CHRISTENSEN COMPANY
By: /s/ Jerry W. Fanska
-------------------------------------------
Title: Vice President
---------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION,
as Agent
By: /s/ R. G. Stapleton
-------------------------------------------
Managing Director
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Bank
By: /s/ R. G. Stapleton
-------------------------------------------
Managing Director
-2-
80
<PAGE> 4
MERCANTILE BANK, as Co-Agent and
as a Bank
By: /s/ Roger A. Lumley
------------------------------------------
Title: Senior Vice President
----------------------------------------
MICHIGAN NATIONAL BANK, as Co-Agent and as a
Bank
By: /s/ Christopher J. Mayone
------------------------------------------
Title: Commercial Relationship Manager
---------------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
-----------------------------------------
Title: Senior Manager Loan Operations
---------------------------------------
SOCIETE GENERALE - CHICAGO BRANCH
By: /s/ Robert W. Bolt
-----------------------------------------
Title: Director
---------------------------------------
-3-
81
<PAGE> 1
EXHIBIT 10(2.2)
82
<PAGE> 2
EXHIBIT 10(2.2)
SECOND MODIFICATION AND RATIFICATION
OF LEASE AGREEMENT
This Modification and Ratification of Lease Agreement is made and
entered into as of April 28, 1997, between Parkway Partners, L.L.C., a Missouri
Limited Liability Company ("Landlord") and Layne Christensen Company ("Tenant")
for and in consideration of Ten Dollars ($10.00) and other good and valuable
consideration, receipt of which is hereby acknowledged.
WITNESSETH:
Landlord and Tenant hereby confirm and ratify, except as modified
below, all of the terms, conditions and covenants in that certain written
Commercial Building Lease dated December 21, 1994, as modified by the First
Modification and Ratification of Lease dated February 26, 1996, by and between
Landlord and Tenant. Further:
1. LEASED PREMISES. The Leased Premises shall be increased to include
additional space, measuring an additional 2,374 rentable square feet ("Second
Expansion Space") on the Garden Level Leased Premises as set forth in Exhibit
"A", attached hereto and incorporated herein by reference.
2. TERM.
a. COMMENCEMENT DATE. The term for the Second Expansion Space
shall begin (hereafter, the "Commencement Date") upon
substantial completion (as defined in subsection b) below) of
the Second Expansion Space. If the Commencement Date would be
a Saturday, Sunday, or holiday, the Commencement Date shall be
the first business day following that Saturday, Sunday, or
holiday.
The Lease term shall end five (5) years from the Commencement
Date, unless terminated earlier pursuant to the terms and
conditions hereof. Within thirty (30) days after the
Commencement Date the parties shall confirm in writing the
calendar date of the Commencement Date.
b. SUBSTANTIAL COMPLETION. Landlord shall use its best efforts to
substantially complete the Second Expansion Space by no later
than forty-eight (48) days following the Plan Selection Date
(defined in Section 6 hereof) (the "Target Date").
Substantially complete means:
(i) completing the Leasehold Improvements referred to in
section 6 hereof so that (a) Tenant can use the
Second Expansion Space for its intended purpose
without material interference and (b) the only
83
<PAGE> 3
incomplete items are minor or insubstantial details
of construction, mechanical adjustments, or finishing
touches such as touch-up plastering or painting;
(ii) securing an appropriate certificate of occupancy, if
any, from the local municipality or other
governmental agency;
(iii) Tenant, its employees, agents, and invitees, have
ready access to the Second Expansion Space;
(iv) the decoration, fixtures, and equipment to be
installed by Landlord are installed and in good
operating order;
(v) the Second Expansion Space is ready for the
installation of any equipment, furniture, fixtures,
or decoration that Tenant will install;
(vi) the following items are installed and in good
operating order: (a) walls, flooring, ceiling,
lighting, etc., (b) heating, ventilating and
air-conditioning, utilities, and plumbing services
serving the leased premises, and (c) the doors and
hardware; and
(vii) the Second Expansion Space is broom clean.
c. NOTICE. Landlord shall give Tenant at least fifteen (15) days
advance notice of the estimated substantial completion date if
different from the Target Date.
d. INSPECTION AND PUNCHLIST. Before the Commencement Date, the
parties shall inspect the Second Expansion Space, have all
systems demonstrated, and prepare a punchlist. The punchlist
shall list incomplete, minor, or insubstantial details of
construction; necessary mechanical adjustments; and needed
finishing touches. Landlord will complete the punchlist items
within fifteen (15) days after the Commencement Date. Landlord
will promptly correct any latent defects as they become known,
if Tenant notifies Landlord of the defect within thirty (30)
days after Tenant first learns of the defect.
e. DELAYED POSSESSION. Tenant may cancel this Lease if Landlord
cannot deliver actual possession of the substantially complete
leased premises by thirty (30) days after the Target Date.
3. BASE RENT. The Base Rent for the Second Expansion Space shall
be as follows:
Years 1 - 2 $26,114.00 Annually; $2,176.17 Monthly
2
84
<PAGE> 4
Years 3 - 5 $28,488.00 Annually; $2,374.00 Monthly
Rent shall be prorated for any fractional month.
4. PRO-RATA SHARE OF OPERATING EXPENSE. Tenant's Pro-Rata Share of
Operating Expenses, as referenced on Page 2 of the Commercial Building Lease,
shall increase to 71.13%.
5. LEASEHOLD IMPROVEMENT ALLOWANCE. Upon the full execution of this
Second Modification and Ratification of Lease, Landlord shall make available a
leasehold improvement allowance ("Leasehold Improvement Allowance") in the
amount of Twenty Four Thousand and No/l00 Dollars ($24,000.00) to pay for costs
of the Leasehold Improvements, as referenced in Section 6 hereof. In the event
the actual costs of the Leasehold Improvements are less than $24,000, the
monthly rental for the Second Expansion Space shall be reduced by an amount
equal to the quotient obtained by dividing the difference between $24,000 and
such actual costs by 60.
6. APPROVAL OF LEASEHOLD IMPROVEMENT DESIGN. Within five (5) days of
the date hereof Landlord shall provide Tenant with a floor plan layout and
specifications regarding the construction of Tenant's improvements (the
"Leasehold Improvements") for the Second Expansion Space. Upon receipt of the
floor plan layout and specifications, the parties shall have ten (10) business
days to reach agreement in writing (with the date of such written agreement to
be referred to as the "Plan Selection Date") as to such plans and specifications
and the cost chargeable to Tenant (the "Estimated Improvement Costs") for the
Leasehold Improvements. Absent such written agreement among the parties within
such time frame, either party hereto may terminate this Agreement and neither
party shall have any liability to the other hereunder. If the Estimated
Improvement Costs exceed $24,000, the monthly rental for the Second Expansion
Space shall be increased by an amount equal to the quotient obtained by dividing
the difference between $24,000 and the Estimated Improvement Costs by 60, plus
interest at the rate of 8% per annum on the unamortized balance of such
difference; provided, however, if the actual costs of the Leasehold Improvements
are less than the Estimated Improvement Costs, but more than $24,000, the
monthly rental for the Second Expansion Space shall increase by an amount equal
to the quotient obtained by dividing the difference between $24,000 and such
actual costs by 60, plus interest at the rate of 8% per annum on the unamortized
balance of such difference. With respect to actual Leasehold Improvement Costs
in excess of $24,000, Tenant may, at its option, either pay such costs in cash
as of the Commencement Date, or finance such costs as provided above. In any
case, if the actual costs of the Leasehold Improvements exceed the Estimated
Improvement Costs, Landlord shall be responsible for such excess costs, except
to the extent such excess costs are attributable to changes in the plans and
specifications requested by Tenant in writing. Upon Tenant's approval in writing
of the floor plan layout and specifications, Landlord shall commence
construction of the Leasehold Improvements and deliver the same to Tenant as
provided in Section two hereof.
7. BUY-OUT OPTION. Tenant shall have an option (the "Buy-Out Option")
to terminate this Second Modification and Ratification of Lease Agreement upon
payment to
3
85
<PAGE> 5
Landlord of the unamortized portion (the "Buy-Out Option Amount") of the actual
Leasehold Improvement costs including related architectural fees and design
fees. Landlord and Tenant hereby agree that the Buy-Out Option is granted to
Tenant effective February 28, 2000. In the event Tenant elects to exercise this
Buy-Out Option, Tenant must provide written notice of same no later than
December 31, 1999. Based on the $24,000.00 Leasehold Improvement Allowance and a
Commencement Date of June 1, 1997, the parties agree that the Buy-Out Option
Amount as of February 28, 2000, is $12,238.70. In the event the actual costs of
the Leasehold Improvements differ from $24,000 and the Commencement Date is
other than June 1, 1997, the Buy-Out Option Amount shall be increased or
decreased, as the case may be, in accordance with such difference. The parties
hereto shall confirm in writing the actual Buy-Out Option Amount within thirty
(30) days following the Commencement Date.
8. SIGNAGE. Upon the execution of this Agreement, Landlord shall remove
all exterior signage relating to the leasing of Second Expansion Space.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
LANDLORD:
PARKWAY PARTNERS, L.L.C.
Dated: April 28, 1997 By: /s/ Melanie Mann
-------------------- ------------------
Melanie Mann, Vice President
TENANT:
LAYNE CHRISTENSEN COMPANY
Dated: April 28, 1997 By: /s/ Jerry W. Fanska
-------------------- ---------------------
Jerry W. Fanska, VP Finance & Treasurer
4
86
<PAGE> 6
Exhibit "A"
Floor Plan of Leased Premises
87
<PAGE> 1
EXHIBIT 10(12.1)
88
<PAGE> 2
EXHIBIT 10(12.1)
FIRST AMENDMENT
THIS FIRST AMENDMENT (this "First Amendment") dated as of December 5,
1997 is to the Amended and Restated Credit Agreement (the "Credit Agreement")
dated as of July 25, 1997 among LAYNE CHRISTENSEN COMPANY (the "Company"), LAYNE
CHRISTENSEN AUSTRALIA PTY LIMITED ("Layne Australia"), various financial
institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
Agent (in such capacity, the "Agent"). Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as defined therein.
WHEREAS, the parties hereto have entered into the Credit Agreement
which provides for (i) the Banks to make U.S. Loans to the Company from time to
time, (ii) the Australian Banks to make Australian Loans to Layne Australia from
time to time, and (iii) the Issuer to issue Letters of Credit for the account of
the Company (or jointly for the account of the Company and any Subsidiary) from
time to time and for the Banks to purchase participations therein; and
WHEREAS, the parties hereto desire to amend the Credit Agreement to add
two additional financial institutions as Australian Banks;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. NEW AUSTRALIAN BANKS. Effective on and as of the First
Amendment Effective Date (as defined below), each of Bank of New Zealand
Australia, A Division of National Australia Bank Limited ACN 004 044 937 and
Societe Generale Australia Limited ACN 002 093 021 shall be added as a party to
the Credit Agreement as an Australian Bank with an Australian Percentage as set
forth on Schedule 1.1(a) to the Credit Agreement, as amended hereby, and shall
have all of the rights and obligations of an Australian Bank under the Credit
Agreement, as amended hereby. The address for each new Australian Bank is set
forth below its signature hereto.
SECTION 2. AMENDMENT. Effective on (and subject to the occurrence of)
the First Amendment Effective Date, the Credit Agreement shall be amended as set
forth in SECTIONS 2.1 AND 2.2 below.
89
<PAGE> 3
SECTION 2.1 SECTION 1. The definition of "Note" in Section 1 of the
Credit Agreement is hereby amended by deleting the language "Section 3.1"
therein and substituting therefor the language "Section 3.2".
SECTION 2.2 SECTION 3. Section 3 of the Credit Agreement is hereby
amended in its entirety to read as follows:
SECTION 3 NOTES AND LOAN ACCOUNTS.
3.1 LOAN ACCOUNT. The Loans made by each Bank shall be
evidenced by one or more accounts or records maintained by such Bank in
the ordinary course of business. The accounts or records maintained by
the Agent and each Bank shall be rebuttable presumptive evidence of the
amount of the Loans made by the Banks to the Borrowers, and the
interest and payments thereon. Any failure so to record or any error in
so recording shall not, however, limit or otherwise affect the
obligation of the applicable Borrower hereunder to pay any amount owing
with respect to any Loan.
3.2 NOTES. Upon the request of any Bank made through the
Agent (and in the case of Australian Loans, so long as the issuance of
such Note shall not result in the imposition of any stamp, withholding
or other tax), the Loans made by such Bank to either Borrower may be
evidenced by a promissory note (as amended, supplemented, replaced or
otherwise modified from time to time, individually each a "Note" and
collectively for all Banks the "Notes") substantially in the form of
EXHIBIT A, instead of loan accounts. Each such Bank shall endorse on
the schedules annexed to the applicable Note the date, amount and
maturity of each applicable Loan made by it and the amount of each
payment of principal made by such Borrower with respect thereto. Each
such Bank is irrevocably authorized by such Borrower to endorse the
applicable Note and each such Bank's record shall be conclusive absent
demonstrable error; PROVIDED, HOWEVER, that the failure of a Bank to
make, or an error in making, a notation on any Note with respect to any
Loan shall not limit or otherwise affect the obligations of the such
Borrower hereunder or under such Note to such Bank.
SECTION 2.3 Schedule 1.1(a). Schedule 1.1(a) to the Credit Agreement is
amended in its entirety to read in the form of SCHEDULE 1.1(a) hereto.
SECTION 3. EFFECTIVENESS. The provisions set forth in SECTIONS 1 and 2
above shall become effective, as of the day and year first above written, on
such date (the "First Amendment Effective Date") that the Agent shall have
received counterparts of this First Amendment executed by the parties hereto.
-2-
90
<PAGE> 4
SECTION 4. MISCELLANEOUS.
SECTION 4.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects.
SECTION 4.2 COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart be deemed to be an original but all such counterparts
shall together constitute one and the same First Amendment.
SECTION 4.3 GOVERNING LAW. This First Amendment shall be a contract
made under and governed by the internal laws of the State of Illinois.
SECTION 4.4 SUCCESSORS AND ASSIGNS. This First Amendment shall be
binding upon the Company, Layne Australia, the Banks and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, Layne Australia, the Banks and the Agent and the successors and assigns
of the Banks and the Agent.
-3-
91
<PAGE> 5
Delivered at Chicago, Illinois, as of the day and year first above
written.
LAYNE CHRISTENSEN COMPANY
By: /s/ Jerry W. Fanska
---------------------------------------------
Title: Vice President-Finance
------------------------------------------
LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED
ACN 078 167 610
By: /s/ A. B. Schmitt
---------------------------------------------
Title: Director
------------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION,
as Agent
By: /s/ R. G. Stapleton
---------------------------------------------
Managing Director
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Bank
By: /s/ R. G. Stapleton
---------------------------------------------
Managing Director
BA AUSTRALIA LIMITED ACN 004 617 841
By: /s/ R. G. Stapleton
---------------------------------------------
Attorney in Fact
-4-
92
<PAGE> 6
MERCANTILE BANK, as Co-Agent and
as a Bank
By: /s/ Brian Hoban
---------------------------------------------
Title: Corporate Banking Officer
------------------------------------------
MICHIGAN NATIONAL BANK, as Co-Agent and as a Bank
By: /s/ Christopher J. Mayone
---------------------------------------------
Title: Commercial Relationship Manager
------------------------------------------
BANK OF NEW ZEALAND AUSTRALIA, A
DIVISION OF NATIONAL AUSTRALIA BANK
LIMITED ACN 004 044 937
By: /s/ Mark Yarwood
---------------------------------------------
Title: Head of Business Banking
-----------------------------------------
Level 6, 395 Collins Street
Melbourne, Victoria
Australia
Attention: Janine Anderiesz
Facsimile: (61) (03) 9641-4600
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
---------------------------------------------
Title: Senior Manager Loan Operations
-----------------------------------------
SOCIETE GENERALE - CHICAGO BRANCH
By: /s/ Robert W. Bolt
---------------------------------------------
Title: Vice President
------------------------------------------
-5-
93
<PAGE> 7
SOCIETE GENERALE AUSTRALIA LIMITED
ACN 002 093 021
By: /s/ Yannick Chagnon
---------------------------------------------
Title: Managing Director
--------------------------------------
350 George Street
Sydney NSW
Australia
Attention: Michel Vimal du Monteil
Facsimile: 612 9235 3941
-6-
94
<PAGE> 8
SCHEDULE 1.1(A)
COMMITMENT LIMITS AND PERCENTAGES
<TABLE>
<CAPTION>
Amount of Australian
Name of Bank Commitment Percentage Percentage
- ------------ ---------- ---------- ----------
<S> <C> <C> <C>
Bank of America National U.S.$25,000,000 25.0% N/A
Trust and Savings Association
BA Australia Limited* N/A N/A 40%
Mercantile Bank U.S.$20,000,000 20.0% N/A
Michigan National Bank U.S.$20,000,000 20.0% N/A
Bank of New Zealand Australia, N/A N/A 32%
A Division of National
Australia Bank Limited*
The Bank of Nova Scotia U.S.$17,500,000 17.5% N/A
Societe Generale-Chicago U.S.$17,500,000 17.5% N/A
Branch
Societe Generale Australia N/A N/A 28%
Limited*
---------------- ------ -----
TOTALS U.S.$100,000,000 100% 100%
* Designated as an Australian Bank by the Bank listed immediately above such
Australian Bank.
</TABLE>
95
<PAGE> 1
EXHIBIT 10(12.2)
96
<PAGE> 2
EXHIBIT 10(12.2)
SECOND AMENDMENT
THIS SECOND AMENDMENT (this "Second Amendment") dated as of February
23, 1998 is to the Amended and Restated Credit Agreement (the "Credit
Agreement") dated as of July 25, 1997 among LAYNE CHRISTENSEN COMPANY (the
"Company"), LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED ("Layne Australia"), various
financial institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent (in such capacity, the "Agent"). Unless otherwise defined
herein, terms defined in the Credit Agreement are used herein as defined
therein.
WHEREAS, the parties hereto have entered into the Credit Agreement
which provides for (i) the Banks to make U.S. Loans to the Company from time to
time, (ii) the Australian Banks to make Australian Loans to Layne Australia from
time to time, and (iii) the Issuer to issue Letters of Credit for the account of
the Company (or jointly for the account of the Company and any Subsidiary) from
time to time and for the Banks to purchase participations therein; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as more fully set forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. AMENDMENTS. Effective on (and subject to the occurrence of)
the Second Amendment Effective Date, the Credit Agreement shall be amended as
set forth in SECTION 1.1 and 1.2 below.
Section 1.1 SUBSECTION 10.11(H). Subsection 10.11(h) hall be amended by
deleting the amount "$5,000,000" therein and substituting "$10,000,000"
therefor.
Section 1.2 SUBSECTION 10.11(J). Subsection 10.11(j) hall be amended by
deleting the amount "$10,000,000" therein and substituting "$15,000,000"
therefor.
SECTION 2. EFFECTIVENESS. The amendments set forth in SECTION 1 above
shall become effective, as of the day and year first above written, on such date
(the "Second Amendment Effective Date") that the Agent shall have received
counterparts of this Second Amendment executed by the Company and the Required
Banks.
97
<PAGE> 3
SECTION 3. MISCELLANEOUS.
SECTION 3.1 CONTINUING EFFECTIVENESS. ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects.
SECTION 3.2 COUNTERPARTS. This Second Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same Second Amendment.
SECTION 3.3 GOVERNING LAW. This Second Amendment shall be a contract
made under and governed by the internal laws of the State of Illinois.
SECTION 3.4 SUCCESSORS AND ASSIGNS. This Second Amendment shall be
binding upon the Company, Layne Australia, the Banks and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, Layne Australia, the Banks and the Agent and the successors and assigns
of the Banks and the Agent.
-2-
98
<PAGE> 4
Delivered at Chicago, Illinois, as of the day and year first above
written.
LAYNE CHRISTENSEN COMPANY
By: /s/ Jerry W. Fanska
------------------------------------------
Title: Vice President-Finance
---------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION,
as Agent
By: /s/ R. G. Stapleton
------------------------------------------
Managing Director
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Bank
By: /s/ R. G. Stapleton
------------------------------------------
Managing Director
MERCANTILE BANK, as Co-Agent and
as a Bank
By: /s/ Brian Hoban
------------------------------------------
Title: Corporate Banking Officer
---------------------------------------
-3-
99
<PAGE> 5
MICHIGAN NATIONAL BANK, as Co-Agent and as a Bank
By: /s/ Christopher J. Mayone
------------------------------------------
Title: Commercial Relationship Manager
---------------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
------------------------------------------
Title: Senior Manager Loan Operations
---------------------------------------
SOCIETE GENERALE - CHICAGO BRANCH
By: /s Robert W. Bolt
------------------------------------------
Title: Vice President
---------------------------------------
-4-
100
<PAGE> 1
EXHIBIT 10(12.3)
101
<PAGE> 2
EXHIBIT 10(12.3)
THIRD AMENDMENT
THIS THIRD AMENDMENT (this "Third Amendment") dated as of October 16,
1998 is to the Amended and Restated Credit Agreement (as previously amended, the
"Credit Agreement") dated as of July 25, 1997 among LAYNE CHRISTENSEN COMPANY
(the "Company"), LAYNE CHRISTENSEN AUSTRALIA PTY LIMITED ("Layne Australia"),
various financial institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent (in such capacity, the "Agent"). Unless otherwise defined
herein, terms defined in the Credit Agreement are used herein as defined
therein.
WHEREAS, the parties hereto have entered into the Credit Agreement
which provides for (i) the Banks to make U.S. Loans to the Company from time to
time, (ii) the Australian Banks to make Australian Loans to Layne Australia from
time to time, and (iii) the Issuer to issue Letters of Credit for the account of
the Company (or jointly for the account of the Company and any Subsidiary) from
time to time and for the Banks to purchase participations therein; and
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as more fully set forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1. AMENDMENT. Effective on (and subject to the occurrence of)
the Third Amendment Effective Date (as defined below), subsection 10.11(i) shall
be amended by deleting the percentage "10%" therein and substituting "15%"
therefor.
SECTION 2. EFFECTIVENESS. The amendment set forth in Section 1 above
shall become effective, as of the day and year first above written, on the date
(the "Third Amendment Effective Date") that the Agent shall have received
counterparts of this Third Amendment executed by the Company and the Required
Banks.
SECTION 3. MISCELLANEOUS.
SECTION 3.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects.
SECTION 3.2 COUNTERPARTS. This Third Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall
102
<PAGE> 3
be deemed to be an original but all such counterparts shall together constitute
one and the same Third Amendment.
SECTION 3.3 GOVERNING LAW. This Third Amendment shall be a contract
made under and governed by the internal laws of the State of Illinois.
SECTION 3.4 SUCCESSORS AND ASSIGNS. This Third Amendment shall be
binding upon the Company, Layne Australia, the Banks and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, Layne Australia, the Banks and the Agent and the successors and assigns
of the Banks and the Agent.
Delivered at Chicago, Illinois, as of the day and year first above
written.
LAYNE CHRISTENSEN COMPANY
By: /s/ Jerry W. Fanska
-----------------------------------------
Title: Vice President
--------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION,
as Agent
By: /s/ R. G. Stapleton
-----------------------------------------
Managing Director
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Bank
By: /s/ R. G. Stapleton
-----------------------------------------
Managing Director
-2-
103
<PAGE> 4
MERCANTILE BANK, as Co-Agent and
as a Bank
By: /s/ Roger A. Lumley
-----------------------------------------
Title: Senior Vice President
---------------------------------------
MICHIGAN NATIONAL BANK, as Co-Agent and as a Bank
By: /s/ Christopher J. Mayone
-----------------------------------------
Title: Commercial Relationship Manager
--------------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
-----------------------------------------
Title: Senior Manager Loan Operations
--------------------------------------
SOCIETE GENERALE - CHICAGO BRANCH
By: /s/ Robert W. Bolt
-----------------------------------------
Title: Director
--------------------------------------
-3-
104
<PAGE> 1
EXHIBIT 11 (1)
105
<PAGE> 2
EXHIBIT 11 (1)
Layne Christensen Company
Statement Regarding Computation of per Share Earnings
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
COMPUTATION OF PER SHARE EARNINGS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income $ 1,201 $ 11,427 $ 8,017
=========== =========== ===========
Weighted average common shares
outstanding 11,639,000 10,128,000 8,865,000
Dilutive stock options 268,000 400,000 281,000
----------- ----------- -----------
11,907,000 10,528,000 9,146,000
=========== =========== ===========
Per share:
Basic earnings per share $ 0.10 $ 1.13 $ .90
=========== =========== ===========
Dilutive earnings per share $ 0.10 $ 1.09 $ .88
=========== =========== ===========
</TABLE>
106
<PAGE> 1
EXHIBIT 22(1)
107
<PAGE> 2
<TABLE>
<CAPTION>
EXHIBIT 22(1)
SUBSIDIARIES OF
LAYNE CHRISTENSEN COMPANY
------------------------------------------------------------------------------ --------------------------------
NAME OF SUBSIDIARY JURISDICTION
OF INCORPORATION
------------------------------------------------------------------------------ --------------------------------
<S> <C>
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
------------------------------------------------------------------------------ --------------------------------
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 Christensen Canada Limited (f/k/a Elgin Exploration Company, Ltd.) Calgary, Alberta, Canada
------------------------------------------------------------------------------ --------------------------------
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
------------------------------------------------------------------------------ --------------------------------
Tecniwell S.r.l. Italy
------------------------------------------------------------------------------ --------------------------------
WorldCover, Inc. Delaware
------------------------------------------------------------------------------ --------------------------------
</TABLE>
108
<PAGE> 1
EXHIBIT 23 (1)
109
<PAGE> 2
EXHIBIT 23 (1)
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statement Nos.
33-54064, 33-54066, 33-54096, 33-57746, 33-57748, 33-86654, 33-20801, 333-53485
and 333-53487 of Layne Christensen Company on Form S-8 of our report dated March
19, 1999, appearing in this Annual Report on Form 10-K of Layne Christensen
Company for the year ended January 31, 1999.
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
DELOITTE & TOUCHE LLP
Kansas City, Missouri
April 20, 1999
110
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 2,094
<SECURITIES> 0
<RECEIVABLES> 52,975
<ALLOWANCES> 3,064
<INVENTORY> 31,286
<CURRENT-ASSETS> 101,853
<PP&E> 189,057
<DEPRECIATION> 96,217
<TOTAL-ASSETS> 251,503
<CURRENT-LIABILITIES> 55,642
<BONDS> 63,500
0
0
<COMMON> 116
<OTHER-SE> 113,154
<TOTAL-LIABILITY-AND-EQUITY> 251,503
<SALES> 21,123
<TOTAL-REVENUES> 284,248
<CGS> 204,953
<TOTAL-COSTS> 227,314
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,486
<INCOME-PRETAX> 3,766
<INCOME-TAX> 2,486
<INCOME-CONTINUING> 1,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,201
<EPS-PRIMARY> 0.1
<EPS-DILUTED> 0.1
</TABLE>
