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 April 30, 1997.
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 (I.R.S. Employer
of 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 8,874,991 shares of common stock, $.01 par value
per share, outstanding on June 10, 1997.
PART I
ITEM 1. Financial Statements
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
April 30, January 31,
1997 1997
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,218 $ 1,697
Customer receivables, less allowance
of $1,349 and $1,002, respectively 38,608 32,031
Costs and estimated earnings in excess
of billings on uncompleted contracts 12,126 10,284
Inventories 19,024 17,739
Deferred income taxes 6,275 6,356
Other 1,423 1,675
--------- ---------
Total current assets 78,674 69,782
--------- ---------
Property and equipment:
Land 7,922 7,922
Buildings 13,793 13,555
Machinery and equipment 103,959 101,945
--------- ---------
125,674 123,422
Less - Accumulated depreciation (71,276) (69,015)
--------- ---------
Net property and equipment 54,398 54,407
--------- ---------
Other assets:
Investment in foreign affiliates 17,660 17,172
Intangible assets, at cost less
accumulated amortization 553 521
Property and equipment held for sale 536 713
Other 1,020 1,055
--------- ---------
Total other assets 19,769 19,461
--------- ---------
$ 152,841 $ 143,650
========= =========
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(In Thousands of Dollars, except per share data)
April 30, January 31,
1997 1997
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,614 $ 12,550
Current maturities of long-term debt 117 114
Accrued compensation 6,513 8,348
Accrued insurance expense 5,060 5,410
Other accrued expenses 8,586 7,663
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,212 6,054
--------- ---------
Total current liabilities 41,102 40,139
--------- ---------
Noncurrent and deferred liabilities:
Long-term debt 35,783 30,314
Deferred income taxes 3,347 3,307
Accrued insurance expense 6,174 5,775
Other 1,935 1,451
--------- ---------
Total noncurrent and
deferred liabilities 47,239 40,847
--------- ---------
Contingencies
Stockholders' equity:
Preferred stock, par value $.01 per
share, 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, par value $.01 per
share, 30,000,000 shares authorized,
8,874,991 and 8,871,467 shares issued
and outstanding, respectively 89 89
Capital in excess of par value 39,407 39,293
Retained earnings 25,870 24,187
Notes receivable from management
stockholders (175) (199)
Unrecognized pension cost (604) (624)
Cumulative translation adjustment (87) (82)
--------- ---------
Total stockholders' equity 64,500 62,664
--------- ---------
$ 152,841 $ 143,650
========= =========
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except per share data)
Three Months
Ended April 30,
---------------------
1997 1996
--------- ---------
Revenues:
Service revenues $ 49,471 $ 47,256
Product sales 8,279 6,517
--------- ---------
Total 57,750 53,773
--------- ---------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 36,202 34,976
Cost of product sales 5,943 4,727
--------- ---------
Total 42,145 39,703
--------- ---------
Gross profit 15,605 14,070
Selling, general and administrative
expenses 10,327 9,737
Depreciation 2,832 2,841
--------- ---------
Operating income 2,446 1,492
Other income (expense):
Equity earnings of foreign
affiliates 820 1,102
Interest (614) (679)
Other, net 62 90
--------- ---------
Income before income taxes 2,714 2,005
Income tax expense 1,031 902
--------- ---------
Net income $ 1,683 $ 1,103
========= =========
Net income per common and
dilutive equivalent share $ 0.18 $ 0.12
========= =========
Weighted average number of common
and dilutive equivalent shares
outstanding:
Weighted average shares outstanding 8,872,000 8,845,000
Dilutive stock options 362,000 67,000
--------- ---------
9,234,000 8,912,000
========= =========
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands of Dollars)
Three Months
Ended April 30,
---------------------
1997 1996
-------- --------
Cash flow from operating activities:
Net income $ 1,683 $ 1,103
Adjustments to reconcile net income
to cash from operations:
Depreciation and amortization 2,877 2,872
Deferred income taxes 511 313
Equity earnings in foreign affiliates (820) (1,102)
Dividends received from foreign
affiliates 351 482
Gain from disposal of property and
equipment (22) (19)
Changes in current assets and
liabilities:
Increase in customer receivables (6,577) (1,120)
Increase in cost and estimated
earnings in excess of billings
on uncompleted contracts (1,842) (2,491)
Increase in inventories (1,285) (533)
(Increase) decrease in other
current assets 252 (656)
Decrease in accounts payable
and accrued expenses (1,588) (2,050)
Increase in billings in excess
of costs and estimated earnings
on uncompleted contracts 2,158 409
Other, net 1,012 296
-------- --------
Cash from operating activities (3,290) (2,496)
-------- --------
Cash flow from investing activities:
Additions to property and equipment (2,873) (3,168)
Investment in foreign affiliates (19) -
Proceeds from disposal of property
and equipment 207 179
Investment in domestic affiliate - 180
-------- --------
Cash from investing activities (2,685) (2,809)
-------- --------
Cash flow from financing activities:
Proceeds from long-term debt - 25,000
Net borrowings under revolving facility 5,500 4,000
Repayments of long-term debt (28) (23,526)
Payments on notes receivable from
management stockholders 24 21
Debt issuance costs (191)
-------- --------
Cash from financing activities 5,496 5,304
-------- --------
Net increase (decrease) in cash and
cash equivalents (479) (1)
Cash and cash equivalents at
beginning of period 1,697 382
-------- --------
Cash and cash equivalents at end of period $ 1,218 $ 381
======== ========
See 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 of which are wholly owned. All significant
intercompany transactions have been eliminated. Investments in
affiliates (33% to 50% owned) in which the Company exercises
influence over operating and financial policies are accounted for
on the equity method. The unaudited consolidated financial
statements should be read in conjunction with the consolidated
financial statements of the Company for the year ended January
31, 1997 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.
During the first quarter of fiscal 1998, the Company ceased
reporting operations of its Canadian subsidiary on a one-month
lag. The effect of the change was not material.
Net income per common and dilutive equivalent share was
calculated by dividing net income by the weighted average number
of common and dilutive equivalent shares outstanding. Options to
purchase common stock are included except when their effect is
antidilutive.
The amounts paid for income taxes and interest are as follows (in
thousands of dollars):
Three Months Ended April 30,
----------------------------
1997 1996
---------- ----------
Income taxes $ 386 $ 171
Interest 1,012 464
During the first quarter of fiscal 1998, the Company issued 3,524
shares of common stock and 15,727 stock options to employees
related to fiscal 1997 compensation awards. The total value of
these awards were approximately $114,000, which was accrued at
January 31, 1997.
Effective for the Company's financial statements as of January
31, 1998, Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share," specifies the computation,
presentation, and disclosure requirements for earnings per share.
At the effective date, all prior-period earnings per share data
presented will be restated to conform with the provisions of the
Statement.
Certain amounts for the prior period have been reclassified to
conform with the three months ended April 30, 1997.
2. Inventories
The Company values inventories at the lower of cost (first-in,
first-out) or market (in thousands of dollars):
As of
------------------------------
April 30, January 31,
1997 1997
----------- -----------
Raw materials $ 1,879 $ 1,790
Work in process 1,755 1,568
Finished products,
parts and supplies 15,390 14,381
----------- -----------
Total $ 19,024 $ 17,739
=========== ===========
3. Contingencies
The Company's drilling activities involve certain operating
hazards that can result in personal injury or loss of life,
damage and destruction of property and equipment, damage to the
surrounding areas, release of hazardous substances or wastes and
other damage to the environment, interruption or suspension of
drill site operations and loss of revenues and future business.
The magnitude of these operating risks is amplified when the
Company, as is frequently the case, conducts a project on a
fixed-price, "turnkey" basis where the Company delegates certain
functions to subcontractors but remains responsible to the
customer for the subcontracted work. In addition, the Company is
exposed to potential liability under foreign, federal, state and
local laws and regulations, contractual indemnification
agreements or otherwise in connection with its provision of
services and products. Litigation arising from any such
occurrences may result in the Company's being named as a
defendant in lawsuits asserting large claims. Although the
Company maintains insurance protection that it considers
economically prudent, there can be no assurance that any such
insurance will be sufficient or effective under all circumstances
or against all claims or hazards to which the Company may be
subject or that the Company will be able to continue to obtain
such insurance protection. A successful claim or damage
resulting from a hazard for which the Company is not fully
insured could have a material adverse effect on the Company. In
addition, the Company does not maintain political risk insurance
or business interruption insurance with respect to its foreign
operations.
The Company's former parent corporation, The Marley Company
("Marley"), maintains insurance reserves for the Company on its
financial statements to cover expected losses under various
casualty insurance policies for occurrences prior to April 30,
1992. Those reserves were funded through intercompany charges to
the Company, which were calculated on the basis of the estimated
insured losses incurred by the Company. The Company has
indemnified Marley for claims or retroactive insurance premiums
on those policies that exceed the amount of reserves attributable
to the Company's estimated losses through April 30, 1992. The
Company believes that the amount of such reserves will be
sufficient to cover its reasonably anticipated insured losses
under past insurance policies. Pursuant to an agreement with
Marley, in July 1997, Marley will make payment to the Company in
the amount of the remaining reserves at that date, and the
Company will be responsible for any remaining incurred but unpaid
claims or losses.
The Company is involved in various matters of litigation, claims
and disputes which have arisen in the ordinary course of the
Company's business. While the resolution of any of these matters
may have an impact on the financial 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.
=================================
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The following table, which is derived from the Company's
Financial Statements, 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.
Period
-to-
Three Months Period
Ended April 30, Change
---------------- ------------
1997 1996
------ ------
Revenues:
Water well drilling 26.6% 28.1% 1.6
Well and pump repair and
maintenance 19.6 21.3 (1.1)
Mineral exploration drilling 26.7 23.9 20.1
Environmental drilling 6.1 10.6 (37.7)
Geotechnical construction and
other services 6.7 4.0 77.1
----- -----
Total service revenues 85.7 87.9 4.7
Product sales 14.3 12.1 27.0
----- -----
Total revenues 100.0% 100.0% 7.4
===== =====
Cost of revenues:
Cost of service revenues 73.2% 74.0% 3.5
Cost of product sales 71.8 72.5 25.7
----- -----
Total cost of revenues 73.0 73.8 6.2
----- -----
Gross profit 27.0 26.2 10.9
Selling, general and
administrative expenses 17.9 18.1 6.1
Depreciation 4.9 5.3 (.3)
----- -----
Operating income 4.2 2.8 63.9
Other income (expense):
Equity earnings of foreign
affiliates 1.4 2.0 (25.6)
Interest (1.0) (1.3) (9.6)
Other, net .1 .2 *
----- -----
Income before income taxes 4.7 3.7 35.4
Income tax expense 1.8 1.7 14.3
----- -----
Net income 2.9% 2.0% 52.6
===== =====
* Not meaningful.
RESULTS OF OPERATIONS
Revenues for the three months ended April 30, 1997 increased
$3,977,000 or 7.4% to $57,750,000 compared to $53,773,000 for the
three months ended April 30, 1996. Mineral exploration drilling
revenues increased 20.1% to $15,435,000 for the three months
ended April 30, 1997 from $12,847,000 for the three months ended
April 30, 1996. The increase was primarily the result of strong
mining demand in Mexico and the southwest region of the United
States. Water well drilling revenues increased 1.6% to
$15,358,000 for the three months ended April 30, 1997 compared
to revenues of $15,115,000 for the three months ended April 30,
1996. Well and pump repair and maintenance revenues decreased
1.1% to $11,320,000 for the three months ended April 30, 1997
from $11,451,000 for the three months ended April 30, 1996. The
water well
and pump repair and maintenance businesses, in total, have
remained relatively constant in all regions served by the
Company. Environmental drilling revenues decreased 37.7% to
$3,542,000 for the three months ended April 30, 1997 from
$5,688,000 for the three months ended April 30, 1996. The
Company believes the market for environmental services offered by
the Company, primarily in the southwest region of the United
States, continues to be soft. Product sales increased 27.0% to
$8,279,000 for the three months ended April 30, 1997 from
$6,517,000 for the three months ended April 30, 1996, as a result
of strong sales to the mining services industry. In April 1997,
the Company entered into a contract to install a frozen earth
barrier around an open pit mine in Canada. It is anticipated
that the contract will be completed within one year and will
generate geotechnical construction revenues of approximately
$27,000,000. In light of the size of this contract, there can be
no assurance that this level of revenues will be sustained in the
geotechnical construction product line.
Gross profit was 27.0% for the three months ended April 30, 1997
compared to 26.2% for the same period last year. The increase in
gross profit as a percent of revenues was primarily attributable
to increased margins on the Company's mineral exploration
operations and manufacturing efficiencies.
Selling, general and administrative expenses increased to
$10,327,000 for the three months ended April 30, 1997 compared to
$9,737,000 for the three months ended April 30, 1996. Although
down slightly as a percentage of revenue, the dollar increase in
selling, general and administrative expenses was a result of
higher salary and incentive related expenses during the first
quarter.
Equity in earnings of foreign affiliates was $820,000 for the
three months ended April 30, 1997 compared to $1,102,000 for the
three months ended April 30, 1996. The decrease was primarily a
result of project delays in Peru caused by heavy rains and
flooding early in fiscal 1998.
Income taxes of $1,031,000 for the three months ended April 30,
1997 increased from $902,000 in the same period last year as a
result of higher income before taxes compared to the prior year.
The effective tax rate for the three months ended April 30, 1997
was 38.0% compared to 45.0% for the same period last year. This
improvement in the Company's effective tax rate was primarily a
result of a higher estimate of tax on earnings from foreign
affiliates for the first quarter of fiscal 1997.
CHANGES IN FINANCIAL CONDITION
Cash used in operations was $3,290,000 for the three months ended
April 30, 1997 compared to cash used of $2,496,000 for the same
period last year. The change in cash from operations was
primarily a result of increased net customer receivables and
inventory compared to the same period last year. During the
quarter ended April 30, 1997, and as a result of a profitable
fiscal 1997, the Company had substantial cash requirements in the
form of incentive related expenses and profit sharing
contributions that will not apply during the remainder of the
fiscal year. In the quarter ended April 30, 1997, the Company's
net customer receivables increased to $38,608,000 from
$32,031,000 at January 31, 1997, primarily as a result of an
increase in revenues. Additions to property and equipment were
$2,873,000 during the three
month period ended April 30, 1997. The Company's borrowings and
outstanding letter of credit commitments under its revolving
credit facility as of April 30, 1997, were $9,500,000 and
$5,000,000, respectively, leaving approximately $15,500,000 of
unused availability.
On May 20, 1997, the Company, through its wholly owned
subsidiary, Layne Christensen Australia Pty Limited ("Layne
Australia"), made a cash tender offer valued at approximately
$53,919,000 for all of the outstanding capital stock of Stanley
Mining Services Limited ("Stanley"), a company listed on the
Australian stock exchange (the "Stanley Acquisition"). Stanley
is a leading Australian mineral exploration drilling company that
provides services predominantly to gold mining companies in
Australia and Africa, principally Ghana. The Stanley Acquisition
is expected to be consummated in August 1997, subject to the
tender of at least 90% of the Stanley shares outstanding and
certain other conditions, any or all of which may be waived by
the Company. In December 1996, Stanley purchased 51% of the outstanding
capital stock of Glindemann & Kitching Pty Ltd. ("G&K"), a leading
diamond core exploration drilling company in West Australia. In
connection with the Stanley Acquisition, the Company will also assume
an estimated liability of approximately $6,500,000 relating to G&K's
obligation to repurchase by September 30, 1997 the remaining 49% of the
outstanding capital stock of G&K not held by Stanley (the "G&K
Acquisition"). Consummation of the G&K Acquisition will make G&K
a wholly owned subsidiary of Stanley. Together, the cost to the
Company of the Stanley Acquisition and the G&K Acquisition are
estimated to be approximately $60,500,000. The Stanley
Acquisition will have a significant effect on Layne Christensen's
future operations and on comparisons of income, expense and
balance sheet items in future periods in comparison to fiscal
1997 and the first six months of fiscal 1998. Layne Christensen
intends to account for the Stanley Acquisition using the purchase
method of accounting. As a result of the Stanley Acquisition,
among other things, the Company will incur a substantial increase
in long-term debt and related interest expense and in goodwill
and related goodwill amortization.
On April 7, 1997, the Company obtained a commitment from Bank of
America National Trust and Savings Association ("Bank of
America"), as agent, subsequently amended, to provide a $100,000,000
senior secured credit facility ("New Credit Agreement"). The New
Credit Agreement is expected to close contemporaneously with the
consummation of the Stanley Acquisition and will be used to
finance the Stanley Acquisition, the G&K Acquisition, refinance
the Company's existing indebtedness under the existing
$30,000,000 credit facility, for working capital and capital
expenditures and for other general corporate purposes. The New
Credit Agreement is expected to provide a reducing revolving cash
borrowing facility of up to $100,000,000, less any outstanding letter
of credit commitments ($20,000,000 sublimit). The New Credit Agreement
is expected to mature on the fifth anniversary of the closing.
Layne Australia, the subsidiary of the Company that has made the tender
offer to purchase the shares of Stanley, will be eligible to draw down
$30,000,000 under the New Credit Agreement. The New Credit Agreement is
expected to provide for guarantees by certain of the Company's domestic
subsidiaries and is expected to be secured by such domestic subsidiaries
and 65% of the outstanding stock of certain of its foreign subsidiaries.
The New Credit Agreement will contain certain covenants including
restrictions on the incurrence of additional indebtedness and liens, sale
of assets or other dispositions, limits on annual capital expenditures,
transactions with affiliates, mandatory
prepayments based on the proceeds from the sale of assets and debt and
equity securities and certain financial maintenance covenants, including
among others, minimum interest coverage and maximum leverage ratios. The
New Credit Agreement will provide for interest at variable rates equal to,
at the Company's option, the Bank of America Illinois interbank
Eurodollar rate plus .75% to 1.25% (depending upon debt to
capitalization ratios) or an alternate reference rate to be
defined in the New Credit Agreement. The definitive agreement
governing the New Credit Facility has not yet been executed;
therefore, the terms of the arrangements are subject to change,
and there can be no assurance that the final agreement will
reflect the foregoing terms.
The Company believes that borrowings from its New Credit
Agreement and cash from operations will be sufficient for the
Company's and Stanley's seasonal cash requirements and to fund
their budgeted capital expenditures for at least the balance of
the fiscal 1998 year.
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
On April 8, 1997, the Company filed a Form 8-K announcing
that the Company had made a tender offer for all of the
outstanding capital stock of Stanley Mining Services Limited, a
publicly traded Australian company.
The exhibits filed with or incorporated by reference in this
report are listed below:
EXHIBIT NO. Description
27(1) Financial Data Schedule
* * * * * * * * * *
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: June 13, 1997 /s/A.B. Schmitt
-------------------------------
A.B. Schmitt, President
and Chief Executive Officer
DATE: June 13, 1997 /s/Jerry W. Fanska
-------------------------------
Jerry W. Fanska, Vice President
Finance and Treasurer