FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 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 September 1, 1999.
<PAGE>
PART I
ITEM 1. Financial Statements
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
July 31, January 31,
1999 1999
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,406 $ 2,094
Customer receivables, less allowance
of $3,572 and $3,064, respectively 47,249 42,057
Costs and estimated earnings in excess of
billings on uncompleted contracts 8,779 7,854
Inventories 31,250 31,286
Deferred income taxes 9,983 9,571
Other 8,566 8,991
--------- ---------
Total current assets 108,233 101,853
--------- ---------
Property and equipment:
Land 9,222 9,340
Buildings 16,551 16,490
Machinery and equipment 165,416 163,227
--------- ---------
191,189 189,057
Less - Accumulated depreciation (104,785) (96,217)
--------- ---------
Net property and equipment 86,404 92,840
--------- ---------
Other assets:
Investment in foreign affiliates 19,624 19,732
Goodwill and other intangible assets,
at cost less accumulated amortization 33,066 32,755
Other 4,310 4,323
--------- ---------
Total other assets 57,000 56,810
--------- ---------
$ 251,637 $ 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>
July 31, January 31,
1999 1999
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 15,659 $ 17,202
Current maturities of long-term debt 3,571 -
Accrued compensation 11,903 11,223
Accrued insurance expense 7,215 7,298
Other accrued expenses 10,050 11,519
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,825 8,400
--------- ---------
Total current liabilities 57,223 55,642
--------- ---------
Noncurrent and deferred liabilities:
Long-term debt 62,429 63,500
Deferred income taxes 2,549 2,283
Accrued insurance expense 5,474 5,454
Other 2,471 2,439
Minority interest 9,750 8,915
--------- ---------
Total noncurrent and deferred liabilities 82,673 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, 11,691,129 and 11,641,192
shares issued and outstanding, respectively 117 116
Capital in excess of par value 83,464 83,095
Retained earnings 34,425 36,815
Accumulated other comprehensive loss (6,113) (6,604)
Notes receivable from management stockholders (152) (152)
--------- ---------
Total stockholders' equity 111,741 113,270
--------- ---------
$ 251,637 $ 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 Six Months
Ended July 31, Ended July 31,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Net service revenues $ 69,377 $ 72,042 $ 135,570 $ 134,534
Net product sales 3,861 6,644 7,701 12,493
---------- ---------- ---------- ----------
Total 73,238 78,686 143,271 147,027
---------- ---------- ---------- ----------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 49,666 50,120 98,277 95,376
Cost of product sales 3,061 5,080 5,975 9,582
---------- ---------- ---------- ----------
Total 52,727 55,200 104,252 104,958
---------- ---------- ---------- ----------
Gross profit 20,511 23,486 39,019 42,069
Selling, general and
administrative expenses 13,317 12,135 26,938 23,939
Depreciation and amortization 5,794 5,674 11,633 10,754
---------- ---------- ---------- ----------
Operating income 1,400 5,677 448 7,376
Other income (expense):
Equity in earnings (losses)
of foreign affiliates (156) 482 (55) 1,784
Interest (1,198) (1,306) (2,368) (2,503)
Other, net 280 121 477 27
---------- ---------- ---------- ----------
Income (loss) before income
taxes and minority interest 326 4,974 (1,498) 6,684
Income tax expense 1,351 1,989 512 2,673
Minority interest,net of
income taxes (151) - (380) -
---------- ---------- ---------- ----------
Net income (loss) $ (1,176) $ 2,985 $ (2,390) $ 4,011
========== ========== ========== ==========
Basic earnings (loss)
per share $ (.10) $ .26 $ (.20) $ .34
Diluted earnings (loss) ========== ========== ========== ==========
per share $ (.10) $ .25 $ (.20) $ .34
Weighted average number of ========== ========== ========== ==========
common and dilutive
equivalent shares
outstanding:
Weighted average shares
outstanding 11,676,000 11,641,000 11,660,000 11,637,000
Dilutive stock options - 291,000 - 327,000
---------- ---------- ---------- ----------
11,676,000 11,932,000 11,660,000 11,964,000
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
<CAPTION>
Six Months
Ended July 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (2,390) $ 4,011
Adjustments to reconcile net income (loss) to
cash from operations:
Depreciation and amortization 11,633 10,754
Deferred income taxes (172) (1,862)
Equity in (earnings) losses of foreign affiliates 55 (1,784)
Dividends received from foreign affiliates 106 487
Minority interest 587 -
Gain from disposal of property and equipment (532) (244)
Changes in current assets and liabilities
(exclusive of effects of acquisitions):
(Increase) decrease in customer receivables (5,010) 3,021
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts (1,006) (855)
Decrease in inventories 53 147
(Increase)decrease in other current assets 446 (1,162)
Decrease in accounts payable and accrued
expenses (2,024) (9,477)
Increase in billings in excess of
costs and estimated earnings on uncompleted
contracts 263 434
Other, net (27) 61
------- ------
Cash from operating activities 1,982 3,531
------- ------
Cash flow from investing activities:
Additions to property and equipment (4,470) (8,210)
Proceeds from disposal of property and equipment 1,166 1,454
Acquisitions of businesses, net of cash acquired (422) (6,293)
Purchase of available for sale investments - (324)
------- -------
Cash from investing activities (3,726) (13,373)
------- ------
Cash flow from financing activities:
Net borrowings under revolving facility 2,500 10,000
Payments on notes receivable from management
stockholders - 23
------- -------
Cash from financing activities 2,500 10,023
------- -------
Effects of exchange rate changes on cash (444) 326
------- -------
Net increase in cash and cash equivalents 312 507
Cash and cash equivalents at beginning of period 2,094 2,954
------- -------
Cash and cash equivalents at end of period $ 2,406 $ 3,461
======= =======
</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 amounts paid for income taxes and interest are as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended July 31,
------------------------
1999 1998
------ ------
<S> <C> <C>
Income taxes $ 660 $4,025
Interest 2,265 2,048
</TABLE>
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):
<TABLE>
<CAPTION>
As of
-----------------------------
July 31, January 31,
1999 1999
------------ ------------
<S> <C> <C>
Raw materials $ 1,488 $ 1,627
Work in process 718 1,788
Finished products, parts and supplies 29,044 27,871
Total $ 31,250 $ 31,286
=========== ============
</TABLE>
<PAGE>
3. Comprehensive Income
Components of comprehensive income (loss) are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended July 31, Ended July 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(1,176) $ 2,985 $(2,390) $ 4,011
Other comprehensive income (loss),
net of taxes:
Foreign currency translation
adjustments (92) (1,996) 782 (1,224)
Unrealized loss on available
for sale investments (359) 40 (340) (278)
Change in unrecognized pension
liability 25 5 49 29
------- ------- ------- -------
Comprehensive income (loss) $(1,602) $ 1,034 $(1,899) $ 2,538
======= ======= ======= =======
</TABLE>
The components of accumulated other comprehensive loss for the
six months ended July 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 782 (340) 49 491
---------- ---------- ----------- ------------
Balance, July 31, 1999 $ (4,420) $ (1,162) $ (531) $ (6,113)
========== ========== =========== ============
</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,
Indonesia and Thailand, as well as a 50%-owned joint venture in
West Africa, which are consolidated into the Company's July 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 computing operating income for foreign operations, no
allocations of general
<PAGE>
corporate expenses have been made. Operating segment revenues
and operating income are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
July 31,
-------------------------
1999 1998
--------- ---------
REVENUES
<S> <C> <C>
Drilling
United States $109,172 $ 94,578
-------- --------
Foreign:
Canada 2,553 8,380
Australia 5,605 7,071
Africa 13,326 19,573
Other foreign 4,914 4,932
-------- --------
Total Foreign 26,398 39,956
-------- --------
Total Drilling 135,570 134,534
-------- --------
Manufacturing and Supply 11,926 20,245
Intersegment revenues (4,225) (7,752)
-------- --------
Total Manufacturing and Supply 7,701 12,493
-------- --------
Total Revenues $143,271 $147,027
======== ========
OPERATING INCOME
Drilling
United States $ 8,982 $ 6,937
-------- --------
Foreign:
Canada (75) 1,729
Australia (525) (125)
Africa (2,204) 440
Other foreign (805) (243)
-------- --------
Total Foreign (3,609) 1,801
-------- --------
Total Drilling 5,373 8,738
-------- --------
Manufacturing and Supply (1,405) 1,491
Corporate (3,520) (2,853)
-------- --------
Total Operating Income $ 448 $ 7,376
======== ========
</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 provision of
services and products. Litigation arising from any such
occurrences
<PAGE>
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 No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This
statement 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 fiscal years beginning after June 15,
1999, is not expected to have a material impact on the Company's
consolidated financial statements.
7. Subsequent Event - Debt
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 is not expected to be
material.
============================================================
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Cautionary Language Regarding Forward-Looking Statements
This 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 Six Months Period
Ended July 31, Ended July 31, Change
-------------- -------------- ---------------
1999 1998 1999 1998 Three Six
---- ---- ---- ---- Months Months
---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Water well drilling and
maintenance 53.4% 48.0% 53.1% 46.2% 3.5% 12.0%
Mineral exploration drilling 23.4 27.2 22.1 29.5 (19.7) (26.9)
Geotechnical construction 9.9 8.5 12.2 8.8 8.9 35.3
Environmental drilling 7.8 7.9 7.1 7.0 (8.5) (1.3)
Other services .2 - .1 - * *
----- ----- ----- -----
Total service revenues 94.7 91.6 94.6 91.5 (3.7) .8
Product sales 5.3 8.4 5.4 8.5 (41.9) (38.4)
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0% (6.9) (2.6)
===== ===== ===== =====
Cost of revenues:
Cost of service revenues 71.6% 69.6% 72.5% 70.9% (.9) 3.0
Cost of product sales 79.3 76.5 77.6 76.7 (39.7) (37.6)
----- ----- ----- -----
Total cost of revenues 72.0 70.2 72.8 71.4 (4.5) (.7)
----- ----- ----- -----
Gross profit 28.0 29.8 27.2 28.6 (12.7) (7.2)
Selling, general and
administrative expenses 18.2 15.4 18.8 16.3 9.7 12.5
Depreciation and amortization 7.9 7.2 8.1 7.3 1.9 8.2
----- ----- ----- -----
Operating income 1.9 7.2 .3 5.0 (75.3) (93.9)
Other income (expense):
Equity in earnings (losses)
of foreign affiliates (.2) .6 - 1.2 (132.4) (103.1)
Interest (1.6) (1.7) (1.7) (1.6 (8.3) (5.4)
Other, net .3 .2 .4 (.1) * *
----- ----- ----- -----
Income (loss) before income
taxes and minority interest .4 6.3 (1.0) 4.5 (93.4) (122.4)
Income tax expense 1.1 2.5 - 1.8 (59.7) (101.4)
Minority interest (net of taxes) (.2) - (.3) - * *
----- ----- ----- -----
Net income (loss) (.9)% 3.8% (1.3)% 2.7% (121.0) (145.9)
===== ===== ===== =====
___________________
* Not meaningful.
</TABLE>
RESULTS OF OPERATIONS
Revenues for the three months ended July 31, 1999 decreased
$5,448,000, or 6.9%, to $73,238,000 while revenues for the six
months ended July 31, 1999 decreased $3,756,000, or 2.6%, to
$143,271,000 from the three and six months, respectively, ended
July 31, 1998.
Water well drilling and maintenance revenues increased 3.5%, to
$39,124,000, and 12.0%, to $76,078,000, for the three and six
months, respectively, ended July 31, 1999 compared to revenues of
$37,793,000 and $67,948,000 for the three and six months,
respectively, ended July 31, 1998. The increase in revenues for
the
<PAGE>
three months ended July 31, 1999 was primarily the result of an
increase in demand in several markets for the Company's water-
related services. The acquisition of certain assets of Hydro
Group, Inc., a New Jersey-based drilling contractor, in March
1998 (the "Hydro Acquisition"), contributed to the six month
increase in revenues.
Mineral exploration drilling revenues decreased 19.7%, to
$17,156,000, and 26.9%, to $31,671,000, for the three and six
months, respectively, ended July 31, 1999, from $21,375,000 and
$43,342,000 for the three and six months, respectively, ended
July 31, 1998. The decrease was primarily a result of lower
demand for the Company's services as a result of lower
exploration and development activities conducted by mining
companies.
Geotechnical construction revenues increased 8.9%, to $7,263,000,
and 35.3%, to $17,472,000, for the three and six months,
respectively, ended July 31,1999 compared to revenues of
$6,667,000 and $12,917,000 for the three and six months,
respectively, ended July 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 8.5%, to $5,678,000,
and 1.3%, to $10,193,000, for the three and six months,
respectively, ended July 31, 1999 from $6,207,000 and $10,327,000
for the three and six months, respectively, ended July 31, 1998.
The decrease was primarily the result of reduced demand in most
regions of the United States, partially offset by increased
demand from certain regulatory-driven projects in the West.
Product sales decreased 41.9%, to $3,861,000, and 38.4%, to
$7,701,000, for the three and six months, respectively, ended
July 31, 1999 from $6,644,000 and $12,493,000 for the three and
six months, respectively, ended July 31, 1998. The decrease was
attributed to decreased activity in the mining industry as
previously discussed.
Gross profit was 28.0% and 27.2% of revenues for the three and
six months, respectively, ended July 31, 1999 compared to 29.8%
and 28.6% for the same periods last year. 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 28.2% and 27.3% for the three and six months,
respectively, ended July 31, 1998.
Selling, general and administrative expenses increased to
$13,317,000 and $26,938,000 (or 18.2% and 18.8%, of revenues) for
the three and six months, respectively, ended July 31, 1999
compared to $12,135,000 and $23,939,000 (or 15.4% and 16.3% of
revenues) for the three and six months, respectively, ended July
31, 1998. The period-to-period dollar increases were primarily a
result of increased selling expenses arising from the Hydro
Acquisition and various other small acquisitions. 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 remote international mineral
exploration operations.
<PAGE>
Depreciation and amortization increased to $5,794,000 and
$11,633,000 for the three and six months, respectively, ended
July 31, 1999 compared to $5,674,000 and $10,754,000 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 $(156,000)
and $(55,000) for the three and six months, respectively, ended
July 31, 1999, compared to $482,000 and $1,784,000 for the same
periods last year. The decrease was primarily a result of lower
exploration and development activities conducted by mining
companies in Latin America.
Interest expense decreased $108,000 and $135,000 for the three
and six months, respectively, ended July 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 $1,339,000 and $205,000 for the three and
six months, respectively, ended July 31, 1999, compared to
$1,989,000 and $2,673,000 for the same periods last year. The
unusual effective rates for the three and six month periods were
primarily a result of the increased impact of certain non-
deductible expenses resulting from lower earnings in the
respective periods, combined with the impact of a reduction in
the amount of earnings from certain foreign subsidiaries and the
reduced equity in earnings of foreign affiliates.
CHANGES IN FINANCIAL CONDITION
Cash from operations was $1,982,000 for the six months ended July
31, 1999 compared to $3,531,000 for the same period last year.
The change in cash from operations was primarily a result of
decreased operating profit for the period compared to the same
period last year. Additions to property and equipment were
$4,470,000 for the six-month period ended July 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
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
<PAGE>
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
95% of its Y2K testing and remediation plan has been completed.
The Company expects to substantially complete its Y2K testing and
remediation plan by the end of October 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 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 second 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 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
<PAGE>
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
An annual meeting of stockholders was held on May 27, 1999.
Set forth below is a brief description of each matter voted upon
at the meeting and the results of the balloting:
a) Election of Donald K. Miller as a Class I Director to
hold office for a term expiring at the 2002 Annual
Meeting of the Stockholders of the Company and until his
successor is duly elected and qualified or until his
earlier death, retirement, resignation or removal:
For Against Withheld Authority
---------- ------- ------------------
10,312,348 -0- 40,772
b) Election of Andrew B. Schmitt as a Class I Director to
hold office for a term expiring at the 2002 Annual
Meeting of the Stockholders of the Company and until
his successor is duly elected and qualified or until
his earlier death, retirement, resignation or removal:
For Against Withheld Authority
---------- ------- ------------------
10,291,878 -0- 61,242
c) Ratification and approval of the selection of the
accounting firm of Deloitte and Touche LLP as the
independent auditors of the Company for the fiscal year
ended January 31, 2000:
For Against Withheld Authority
---------- ------- ------------------
10,300,120 14,858 38,142
<PAGE>
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: September 13, 1999 /s/ A. B. Schmitt
------------------------------
A.B. Schmitt, President
and Chief Executive Officer
DATE: September 13, 1999 /s/ Jerry W. Fanska
-------------------------------
Jerry W. Fanska, Vice President
Finance and Treasurer
<PAGE>
EXHIBIT INDEX
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> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JUL-31-1999
<CASH> 2,406
<SECURITIES> 0
<RECEIVABLES> 59,600
<ALLOWANCES> 3,572
<INVENTORY> 31,250
<CURRENT-ASSETS> 108,233
<PP&E> 191,189
<DEPRECIATION> 104,785
<TOTAL-ASSETS> 251,637
<CURRENT-LIABILITIES> 57,223
<BONDS> 62,429
0
0
<COMMON> 117
<OTHER-SE> 111,624
<TOTAL-LIABILITY-AND-EQUITY> 251,637
<SALES> 7,701
<TOTAL-REVENUES> 143,271
<CGS> 104,252
<TOTAL-COSTS> 115,885
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,368
<INCOME-PRETAX> (1,498)
<INCOME-TAX> 512
<INCOME-CONTINUING> (2,390)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,390)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
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