FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 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 33-48432
LAYNE CHRISTENSEN COMPANY
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 48-0920712
- ------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Shawnee Mission Parkway, Mission Woods, Kansas 66205
- ---------------------------------------------------- ----------
Address of principal executive offices) (Zip Code)
913) 362-0510
(Registrant's telephone number, including area code)
NOT APPLICABLE
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
-----------------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
There were 11,691,128 shares of common stock, $.01 par value
per share, outstanding on December 9, 1999.
<PAGE>
PART I
ITEM 1. Financial Statements
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
October 31, January 31,
1999 1999
---------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,700 $ 2,094
Customer receivables, less allowance
of $3,505 and $3,064, respectively 47,384 42,057
Costs and estimated earnings in excess of
billings on uncompleted contracts 9,633 7,854
Inventories 31,287 31,286
Deferred income taxes 9,900 9,571
Other 8,696 8,991
--------- ---------
Total current assets 110,600 101,853
--------- ---------
Property and equipment:
Land 9,229 9,340
Buildings 16,459 16,490
Machinery and equipment 167,388 163,227
--------- ---------
193,076 189,057
Less - Accumulated depreciation (108,768) (96,217)
--------- ---------
Net property and equipment 84,308 92,840
--------- ---------
Other assets:
Investment in foreign affiliates 19,423 19,732
Goodwill and other intangible assets,
at cost less accumulated amortization 33,603 32,755
Other 4,424 4,323
--------- ---------
Total other assets 57,450 56,810
--------- ---------
$ 252,358 $ 251,503
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)
<CAPTION>
October 31, January 31,
1999 1999
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 16,852 $ 17,202
Current maturities of long-term debt 3,571 -
Accrued compensation 13,094 11,223
Accrued insurance expense 7,696 7,298
Other accrued expenses 9,943 11,519
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,480 8,400
---------- ---------
Total current liabilities 60,636 55,642
---------- ---------
Noncurrent and deferred liabilities:
Long-term debt 60,429 63,500
Deferred income taxes 2,617 2,283
Accrued insurance expense 5,474 5,454
Other 2,426 2,439
Minority interest 10,370 8,915
--------- ---------
Total noncurrent and deferred liabilities 81,316 82,591
--------- ---------
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, 11,691,128 and 11,641,192
shares issued and outstanding, respectively 117 116
Capital in excess of par value 83,464 83,095
Retained earnings 33,071 36,815
Accumulated other comprehensive loss (6,094) (6,604)
Notes receivable from management stockholders (152) (152)
--------- ---------
Total stockholders' equity 110,406 113,270
--------- ---------
$ 252,358 $ 251,503
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<CAPTION> Three Months Nine Months
Ended October 31, Ended October 31,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net service revenues $ 66,825 $ 69,235 $ 202,395 $ 203,769
Net product sales 4,146 5,216 11,847 17,709
-------- -------- --------- ---------
Total 70,971 74,451 214,242 221,478
-------- -------- --------- ---------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 48,774 49,440 147,051 144,816
Cost of product sales 3,281 4,091 9,256 13,673
-------- -------- --------- ---------
Total 52,055 53,531 156,307 158,489
-------- -------- --------- ---------
Gross profit 18,916 20,920 57,935 62,989
Selling, general and
administrative expenses 13,327 11,938 40,265 35,877
Depreciation and amortization 5,861 5,627 17,494 16,381
-------- -------- --------- ---------
Operating income (loss) (272) 3,355 176 10,731
Other income (expense):
Equity in earnings (losses) of
foreign affiliates (35) (985) (90) 799
Interest (1,190) (1,257) (3,558) (3,760)
Other, net 150 1,078 627 1,105
-------- -------- --------- ---------
Income (loss) before income taxes (1,347) 2,191 (2,845) 8,875
Income tax expense 128 1,054 640 3,727
Minority interest, net of income
taxes 121 - (259) -
Net income (loss) $ (1,354) $ 1,137 $ (3,744) $ 5,148
======== ======== ========= =========
Basic earnings (loss) per share $ (.12) $ .10 $ (.32) $ .44
======== ======== ========= =========
Diluted earnings (loss) per share $ (.12) $ .10 $ (.32) $ .43
======== ======== ========= =========
Weighted average number of
common and dilutive equivalent
shares outstanding:
Weighted average shares
outstanding 11,691,000 11,641,000 11,667,000 11,638,000
Dilutive stock options - 127,000 - 272,000
---------- ---------- ---------- ----------
11,691,000 11,768,000 11,667,000 11,910,000
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
<CAPTION>
Nine Months
Ended October 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (3,744) $ 5,148
Adjustments to reconcile net income (loss) to
cash from operations:
Depreciation and amortization 17,494 16,381
Deferred income taxes (71) (1,893)
Equity in (earnings) losses of foreign affiliates 90 (799)
Dividends received from foreign affiliates 271 652
Minority interest 399 -
Gain from disposal of property and equipment (638) (1,282)
Changes in current assets and liabilities
(exclusive of effects of acquisitions):
(Increase) decrease in customer receivables (5,132) 455
(Increase) decrease in cost and estimated
earnings in excess of billings on
uncompleted contracts (1,760) 808
(Increase) decrease in inventories 30 (290)
(Increase) decrease in other current assets 297 (4,822)
Decrease in accounts payable and
accrued expenses (272) (10,709)
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 923 1,383
Other, net 209 663
-------- --------
Cash from operating activities 8,096 5,695
-------- --------
Cash flow from investing activities:
Additions to property and equipment (7,296) (13,097)
Proceeds from disposal of property and equipment 1,563 3,833
Acquisitions of businesses, net of cash acquired (889) (6,293)
Purchase of available for sale investments - (324)
Investment in joint venture (293) -
-------- --------
Cash used in investing activities (6,915) (15,881)
-------- --------
Cash flow from financing activities:
Net borrowings under revolving facility 500 9,500
Payments on notes receivable from management
stockholders - 23
-------- --------
Cash from financing activities 500 9,523
-------- --------
Effects of exchange rate changes on cash (75) 789
-------- --------
Net increase in cash and cash equivalents 1,606 126
Cash and cash equivalents at beginning of period 2,094 2,954
-------- --------
Cash and cash equivalents at end of period $ 3,700 $ 3,080
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LAYNE CHRISTENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies and Basis of Presentation
The consolidated financial statements include the accounts of
Layne Christensen Company and its subsidiaries (together the
"Company"). All significant intercompany transactions have been
eliminated. Investments in affiliates (33% to 50% owned) in
which the Company exercises influence over operating and
financial policies are accounted for on the equity method. The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements of the
Company for the year ended January 31, 1999 as filed in its
Annual Report on Form 10-K.
The accompanying unaudited consolidated financial statements
include all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for
a fair presentation of financial position, results of operations
and cash flows. Results of operations for interim periods are
not necessarily indicative of results to be expected for a full
year.
Earnings per share are based upon the weighted average number of
common and dilutive equivalent shares outstanding. Options to
purchase common stock are included based on the treasury stock
method for dilutive earnings per share, except when their effect
is antidilutive.
The net amounts paid for income taxes and interest are as follows
(in thousands):
Nine Months Ended October 31,
-----------------------------
1999 1998
------ ------
Income taxes $ - $5,800
Interest 4,147 3,686
During the first quarter of fiscal 2000, the Company issued 5,845
shares of common stock and 39,812 stock options to employees
related to fiscal 1999 compensation awards. The total value of
these awards was approximately $87,000, which was accrued at
January 31, 1999.
2. Inventories
The Company values inventories at the lower of cost (first-in,
first-out) or market (in thousands):
As of
--------------------------
October 31, January 31,
1999 1999
----------- -----------
Raw materials $ 1,477 $ 1,627
Work in process 412 1,788
Finished products, parts and supplies 29,398 27,871
---------- ----------
Total $ 31,287 $ 31,286
========== ==========
<PAGE>
3. Comprehensive Income
Components of comprehensive income (loss) are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended October 31, Ended October 31,
----------------- -----------------
1999 1998 1999 1998
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $(1,354) $ 1,137 $(3,744) $ 5,148
Other comprehensive income (loss),
net of taxes:
Foreign currency translation
adjustments (136) (172) 646 (2,213)
Unrealized loss on available
for sale investments 131 (603) (209) (1,067)
Change in unrecognized pension
liability 24 24 73 73
------- ------- ------- -------
Comprehensive income (loss) $(1,335) $ 386 $(3,234) $ 1,941
======= ======== ======= =======
</TABLE>
The components of accumulated other comprehensive loss
for the nine months ended October 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Accumulated
Cumulative Unrealized Unrecognized Other
Translation Loss On Pension Comprehensive
Adjustment Investments Liability Income (Loss)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, February 1, 1999 $ (5,202) $ (822) $ (580) $ (6,604)
Period Change 646 (209) 73 510
---------- ---------- ---------- -----------
Balance, October 31, 1999 $ (4,556) $ (1,031) $ (507) $ (6,094)
========== ========== ========== ===========
</TABLE>
4. Operating Segments
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,
Italy, Indonesia and Thailand, as well as a 50%-owned joint
venture in West Africa, which are consolidated into the
Company's October 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.
Revenues and operating income pertaining to the Company's
operating segments are presented below. 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
<PAGE>
computing operating income for foreign operations, no allocations
of general corporate expenses have been made. Operating segment
revenues and operating income are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Drilling
United States $ 163,170 $ 147,895
Foreign:
Canada 3,814 9,574
Australia 7,257 9,771
Africa 21,090 28,655
Other foreign 7,064 7,874
--------- ---------
Total Foreign 39,225 55,874
--------- ---------
Total Drilling 202,395 203,769
--------- ---------
Manufacturing and Supply 19,674 27,739
Intersegment revenues (7,827) (10,030)
--------- ---------
Total Manufacturing and Supply 11,847 17,709
--------- ---------
Total Revenues $ 214,242 $ 221,478
========= =========
OPERATING INCOME
Drilling
United States $ 12,282 $ 10,928
Foreign:
Canada (107) 1,674
Australia (1,103) (392)
Africa (2,750) 513
Other foreign (1,185) (319)
--------- ---------
Total Foreign (5,145) 1,476
--------- ---------
Total Drilling 7,137 12,404
--------- ---------
Manufacturing and Supply (1,972) 1,660
Corporate (4,989) (3,333)
--------- ---------
Total Operating Income $ 176 $ 10,731
========= =========
</TABLE>
5. 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
<PAGE>
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 for damage
resulting from a hazard for which the Company is not fully
insured could have a material adverse effect on the Company. In
addition, the Company does not maintain political risk insurance
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 material adverse effect upon its business or consolidated
financial position, results of operations or cash flows.
6. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This statement, as amended by SFAS No. 137, requires companies to
record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains and losses resulting
from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether
it qualifies for hedge accounting. This statement, effective for
all fiscal quarters of fiscal years beginning after June 15,
2000, is not expected to have a material impact on the Company's
consolidated financial statements.
7. Other Items
In May, 1998, the Company entered into an interest rate Swap
Agreement (the "Swap Agreement") with Bank of America National
Trust and Savings Association ("BofA"). The Swap Agreement
effectively fixed the interest rate on $25,000,000 of the
Company's outstanding indebtedness under its credit agreement.
Effective as of August 16, 1999, the Swap Agreement was
terminated. The effect of this termination on the Company's
consolidated results of operations was not material.
======================================================
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial ConditionCautionary Language Regarding
Forward-Looking StatementsThis Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act of 1934. Such
statements are indicated by words or phrases such as
"anticipate," "estimate," "project," "believe," "intend,"
"expect," "plan" and similar words or phrases. Such statements
are based on current expectations and are subject to certain
risks, uncertainties and assumptions, including but not limited
to prevailing prices for various metals, unanticipated slowdowns
in the Company's major markets, the impact of competition, the
effectiveness of operational changes expected to increase
efficiency and productivity, worldwide economic and political
conditions and foreign currency fluctuations that may affect
worldwide results of operations. Should one or more of these
risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
and adversely from those anticipated, estimated or projected.
These forward-looking statements are made as of the date of this
filing, and the Company assumes no obligation to update such
forward-looking statements or to update the reasons why actual
results could differ materially from those anticipated in such
forward-looking statements.
Demand for the Company's mineral exploration drilling services
and products depends upon the level of mineral exploration and
development activities conducted by mining companies,
particularly with respect to gold and copper. Mineral
exploration is highly speculative and is influenced by a variety
of factors, including the prevailing prices for various metals
that often fluctuate widely. In this connection, the 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.
Results of Operations
The following table presents, for the periods indicated, the
percentage relationship which certain items reflected in the
Company's consolidated statements of income bear to revenues and
the percentage increase or decrease in the dollar amount of such
items period to period.
<PAGE>
<TABLE>
<CAPTION>
Period-to-
Three Months Nine Months Period
Ended October 31, Ended October 31, Change
1999 1998 1999 1998 Three Nine
------ ------ ------ ------ Months Months
------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Water well drilling and
maintenance 52.3% 49.6% 52.8% 47.4% 0.3 7.9
Mineral exploration drilling 22.4 26.3 22.2 28.4 (18.9) 24.4)
Geotechnical construction 12.0 9.3 12.2 8.9 23.2 31.1
Environmental drilling 7.4 7.8 7.2 7.3 (8.9) (4.0)
Other services 0.1 - 0.1 - * *
----- ----- ----- -----
Total service revenues 94.2 93.0 94.5 92.0 (3.5) (0.7)
Product sales 5.8 7.0 5.5 8.0 (20.5) (33.1)
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0% (4.7) (3.3)
===== ===== ===== =====
Cost of revenues:
Cost of service revenues 73.0% 71.4% 72.7% 71.1% (1.3) 1.5
Cost of product sales 79.1 78.4 78.1 77.2 (19.8) (32.3)
----- ----- ----- -----
Total cost of revenues 73.3 71.9 73.0 71.6 (2.8) (1.4)
----- ----- ----- -----
Gross profit 26.7 28.1 27.0 28.4 (9.6) (8.0)
Selling, general and
administrative expenses 18.8 16.0 18.8 16.2 11.6 12.2
Depreciation and
amortization 8.3 7.6 8.1 7.4 71.9 38.4
----- ----- ----- -----
Operating income (loss) (0.4) 4.5 0.1 4.8 (108.1) (98.4)
Other income (expense):
Equity in earnings (losses)
of foreign affiliates - (1.3) - 0.4 (96.4) (111.3)
Interest (1.7) (1.7) (1.7) (1.7) (5.3) (5.4)
Other, net 0.2 1.4 0.3 0.5 * *
----- ----- ----- -----
Income (loss) before
income taxes (1.9) 2.9 (1.3) 4.0 (161.5) (132.1)
Income tax expense 0.2 1.4 0.3 1.7 (87.9) (82.8)
Minority interest
(net of tax) 0.2 - (0.1) - * *
Net income (loss) (1.9) 1.5% (1.7)% 2.3% (219.1) (172.7)
__________________
* Not meaningful.
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Revenues for the three months ended October 31, 1999
decreased $3,480,000, or 4.7%, to $70,971,000 while revenues
for the nine months ended October 31, 1999 decreased
$7,236,000, or 3.3%, to $214,242,000 from the three and nine
months, respectively, ended October 31, 1998.
Water well drilling and maintenance revenues increased 0.3%, to
$37,083,000, and 7.9%, to $113,161,000, for the three and nine
months, respectively, ended October 31, 1999 compared to revenues
of $36,964,000 and $104,912,000 for the three and nine months,
respectively, ended October 31, 1998. The increase in revenues
for the nine months ended October 31, 1999 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") and various other smaller
<PAGE>
acquisitions made since the fourth quarter of last year.
Mineral exploration drilling revenues decreased 18.9%, to
$15,865,000, and 24.4%, to $47,536,000, for the three and
nine months, respectively, ended October 31, 1999, from
$19,570,000 and $62,912,000 for the three and nine months,
respectively, ended October 31, 1998. The decrease was
primarily a result of the continued lower demand for the
Company's services as a result of lower exploration and
development activities conducted by mining companies.
Geotechnical construction revenues increased 23.2%, to
$8,517,000, and 31.1%, to $25,989,000, for the three and nine
months, respectively, ended October 31,1999 compared to revenues
of $6,912,000 and $19,829,000 for the three and nine months,
respectively, ended October 31, 1998. The increase in
geotechnical revenues was primarily a result of the Company's
continued development of recently purchased technologies to serve
this market.
Environmental drilling revenues decreased 8.9%, to $5,273,000,
and 4.0%, to $15,466,000, for the three and nine months,
respectively, ended October 31, 1999 from $5,789,000 and
$16,116,000 for the three and nine months, respectively, ended
October 31, 1998. The decrease was largely attributable to a
number of larger and more technically demanding projects that
were completed in the prior year.
Product sales decreased 20.5%, to $4,146,000, and 33.1%, to
$11,847,000, for the three and nine months, respectively, ended
October 31, 1999 from $5,216,000 and $17,709,000 for the three
and nine months, respectively, ended October 31, 1998. The
decrease was attributed to decreased activity in the mining
industry as previously discussed.
Gross profit was 26.7% and 27.0% of revenues for the three and
nine months, respectively, ended October 31, 1999 compared to
28.1% and 28.4% for the same periods last year. The decrease in
gross profit was primarily attributed to reduced profits at the
Company's manufacturing facility and at the Company's mineral
exploration locations in Australasia and Africa. Additionally,
excluding certain large international projects which were
completed during the second quarter of last year, gross profit as
a percentage of revenues would have been 27.6% for the nine
months ended October 31, 1998.
Selling, general and administrative expenses increased to
$13,327,000 and $40,265,000 (or 18.8% and 18.8%, of revenues) for
the three and nine months, respectively, ended October 31, 1999
compared to $11,938,000 and $35,877,000 (or 16.0% and 16.2% of
revenues) for the three and nine months, respectively, ended
October 31, 1998. The period-to-period dollar increases were
primarily a result of increased expenses arising from various
small acquisitions made during the year. The increases as a
percentage of revenue were primarily due to relatively higher
levels of fixed and semi-variable costs related to the Company's
products' business and certain international mineral exploration
operations.
<PAGE>
Depreciation and amortization increased to $5,861,000 and
$17,494,000 for the three and nine months, respectively, ended
October 31, 1999 compared to $5,627,000 and $16,381,000 for the
same periods last year. The increase in depreciation was
primarily a result of additions to property and equipment and
assets acquired in various small acquisitions.
Equity in earnings (losses) of foreign affiliates was $(35,000)
and $(90,000) for the three and nine months, respectively, ended
October 31, 1999, compared to $(985,000) and $799,000 for the
same periods last year. The decrease in losses for the three
months ended October 31, 1999 was primarily due to cost cutting
efforts undertaken by the Company's affiliates in response to the
depressed minerals market mentioned above. The decrease in
earnings for the nine months ended October 31, 1999 was primarily
a result of lower exploration and development activities
conducted by mining companies in Latin America.
Interest expense decreased $67,000 and $202,000 for the three and
nine months, respectively, ended October 31, 1999 as compared to
the same periods in the prior year. The decrease was primarily a
result of a reduction in the Company's average borrowings during
the periods.
Income tax expense was $195,000 and $500,000 for the three and
nine months, respectively, ended October 31, 1999, compared to
$1,054,000 and $3,727,000 for the same periods last year. The
unusual effective rates for the three and nine month periods were
primarily a result of the increased impact of certain non-
deductible expenses in light of lower taxable earnings in the
respective periods, combined with a reduction in the amount of
earnings from certain foreign affiliates and subsidiaries
relative to the Company's overall earnings.
CHANGES IN FINANCIAL CONDITION
Cash from operations was $8,096,000 for the nine months ended
October 31, 1999 compared to $5,695,000 for the same period last
year. The prior year reflects payments made on current
liabilities related to certain acquisitions made during fiscal
1999. Additions to property and equipment were $7,296,000 for
the nine-month period ended October 31, 1999.
The Company believes that borrowings from its available credit
agreement and cash from operations will be sufficient for the
Company's seasonal cash requirements and to fund its budgeted
capital expenditures for at least the balance of the fiscal year.
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
<PAGE>
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 believes it is substantially
complete with its Y2K testing and remediation plan.
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 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 and through the end of the third quarter of calendar
1999, the Company estimates that it 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
<PAGE>
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 remainder of the year ending January 31, 2000 will be less
than $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. This
is particularly true with respect to the Company's foreign
operations, such as in Africa and South America, where the state
of overall Y2K readiness throughout such countries is unclear.
Any significant problems associated with the Y2K Issue in one or
more of those countries in critical services or industries, such
as financial services or utilities and petroleum industries,
could have a material adverse impact on the Company's operations
in those countries and on its overall 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 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.
<PAGE>
PART II
ITEM 1 - Legal Proceedings
NONE
ITEM 2 - Changes in Securities
NOT APPLICABLE
ITEM 3 - Defaults Upon Senior Securities
NOT APPLICABLE
ITEM 4 - Submission of Matters to a Vote of Security Holders
NONE
ITEM 5 - Other Information
NONE
ITEM 6 - Exhibits and Reports on Form 8-K
The exhibits filed with or incorporated by reference in this
report are listed below:
Exhibit No. Description
----------- ------------
27(1) Financial Data Schedule
<PAGE>
* * * * * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LAYNE CHRISTENSEN COMPANY
------------------------------
(Registrant)
DATE: December 13, 1999 /s/ A. B. Schmitt,
-------------------------------
A.B. Schmitt, President
and Chief Executive Officer
DATE: December 13, 1999 /s/ Jerry W. Fanska
-------------------------------
Jerry W. Fanska, Vice President
Finance and Treasurer
<PAGE>
Exhibit No. Description
----------- ------------
27(1) Financial Data Schedule
<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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 3,700
<SECURITIES> 0
<RECEIVABLES> 60,522
<ALLOWANCES> 3,505
<INVENTORY> 31,287
<CURRENT-ASSETS> 110,600
<PP&E> 193,076
<DEPRECIATION> 108,768
<TOTAL-ASSETS> 252,358
<CURRENT-LIABILITIES> 60,636
<BONDS> 60,429
0
0
<COMMON> 117
<OTHER-SE> 110,289
<TOTAL-LIABILITY-AND-EQUITY> 252,358
<SALES> 11,847
<TOTAL-REVENUES> 214,242
<CGS> 156,307
<TOTAL-COSTS> 173,801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,558
<INCOME-PRETAX> (2,845)
<INCOME-TAX> 640
<INCOME-CONTINUING> (3,744)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,744)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
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