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, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 11,631,556 shares of common stock,
$.01 par value per share, outstanding on December 5,
1997.
PART I
ITEM 1. Financial Statements
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
October 31, January 31,
1997 1997
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,382 $ 1,697
Customer receivables, less allowance
of $2,772 and $1,002, respectively 55,344 32,031
Costs and estimated earnings in excess of
billings on uncompleted contracts 12,416 10,284
Inventories 23,986 17,739
Deferred income taxes 10,179 6,356
Other 2,603 1,675
--------- ---------
Total current assets 107,910 69,782
--------- ---------
Property and equipment:
Land 8,912 7,922
Buildings 14,245 13,555
Machinery and equipment 142,465 101,945
--------- ---------
165,622 123,422
Less - Accumulated depreciation (76,857) (69,015)
--------- ---------
Net property and equipment 88,765 54,407
--------- ---------
Other assets:
Investment in foreign affiliates 18,818 17,172
Goodwill and other intangible assets,
at cost less accumulated amortization 33,077 521
Property and equipment held for sale 224 713
Other 2,037 1,055
--------- ---------
Total other assets 54,156 19,461
--------- ---------
$ 250,831 $ 143,650
========= =========
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)
October 31, January 31,
1997 1997
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,193 $ 12,550
Current maturities of long-term debt - 114
Accrued compensation 11,673 8,348
Accrued insurance expense 7,465 5,410
Other accrued expenses 13,135 7,663
Billings in excess of costs and estimated
earnings on uncompleted contracts 12,316 6,054
--------- ---------
Total current liabilities 67,782 40,139
--------- ---------
Noncurrent and deferred liabilities:
Long-term debt 55,267 30,314
Deferred income taxes 5,379 3,307
Accrued insurance expense 5,606 5,775
Other 1,473 1,451
--------- ---------
Total noncurrent and deferred liabilities 67,725 40,847
--------- ---------
Contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share,
5,000,000 shares authorized, none issued and
outstanding - -
Common stock, par value $.01 per share,
30,000,000 shares authorized, 11,631,556 and
8,871,467 shares issued and outstanding,
respectively 116 89
Capital in excess of par value 82,889 39,293
Retained earnings 33,932 24,187
Notes receivable from management stockholders (175) (199)
Unrecognized pension cost (551) (624)
Cumulative translation adjustment (887) (82)
--------- ---------
Total stockholders' equity 115,324 62,664
--------- ---------
$ 250,831 $ 143,650
========= =========
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
Three Months Nine Months
Ended October 31, Ended October 31,
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues:
Net service revenues $ 83,135 $ 52,218 $ 192,242 $ 150,012
Net product sales 7,200 7,994 23,526 20,285
--------- --------- --------- ---------
Total 90,335 60,212 215,768 170,297
--------- --------- --------- ---------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 59,662 37,132 138,677 108,358
Cost of product sales 5,286 5,908 17,094 14,722
--------- --------- --------- ---------
Total 64,948 43,040 155,771 123,080
--------- --------- --------- ---------
Gross profit 25,387 17,172 59,997 47,217
Selling, general and
administrative expenses 12,152 9,849 33,599 29,438
Depreciation and amortization 4,718 2,752 10,419 8,204
--------- --------- --------- ---------
Operating income 8,517 4,571 15,979 9,575
Other income (expense):
Equity earnings of foreign
affiliates 585 1,290 2,383 3,118
Interest (1,218) (559) (2,564) (1,847)
Other, net (15) 31 (80) 579
--------- --------- --------- ---------
Income before income taxes 7,869 5,333 15,718 11,425
Income tax expense 2,990 2,133 5,973 4,570
--------- --------- --------- ---------
Net income $ 4,879 $ 3,200 $ 9,745 $ 6,855
========= ========= ========= =========
Net income per common and
dilutive equivalent share $ .42 $ .35 $ .97 $ .75
========= ========= ========= =========
Weighted average number of
common and dilutive
equivalent shares outstanding:
Weighted average
shares outstanding 11,092,000 8,871,000 9,622,000 8,863,000
Dilutive stock options 448,000 279,000 414,000 265,000
---------- --------- ---------- ---------
11,540,000 9,150,000 10,036,000 9,128,000
========== ========= ========== =========
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Nine Months
Ended October 31,
----------------------
1997 1996
--------- ---------
Cash flow from operating activities:
Net income $ 9,745 $ 6,855
Adjustments to reconcile net income to cash
from operations:
Depreciation and amortization 10,419 8,204
Deferred income taxes 1,093 1,180
Equity earnings in foreign affiliates (2,383) (3,118)
Dividends received from foreign affiliates 756 1,086
Loss (gain) from disposal of property and
equipment 97 (328)
Changes in current assets and liabilities
(exclusive of effects of acquisitions):
Increase in customer receivables (12,952) (3,527)
Increase in cost and estimated earnings in
excess of billings on uncompleted contracts (2,590) (3,746)
(Increase) decrease in inventories (1,420) 307
(Increase) decrease in other current assets 166 (555)
Decrease in accounts payable and accrued
expenses (625) (2,336)
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 6,262 2,456
Other, net (709) (724)
-------- -------
Cash from operating activities 7,859 5,754
-------- -------
Cash flow from investing activities:
Additions to property and equipment (15,890) (10,219)
Proceeds from disposal of property and equipment 304 903
Proceeds from sale of property held for disposal 434 -
Acquisitions of businesses, net of cash acquired (53,942) -
Investment in foreign affiliates (19) (328)
Investment in domestic affiliate - 295
-------- --------
Cash from investing activities (69,113) (9,349)
-------- --------
Cash flow from financing activities:
Net borrowings under revolving facility 26,000 4,000
Repayments of long-term debt (5,870) (78)
Payments on notes receivable from management
stockholders 24 114
Issuances of common stock, net of expenses 43,510 -
Debt issuance costs (725) (272)
-------- --------
Cash from financing activities 62,939 3,764
-------- --------
Net increase in cash and cash equivalents 1,685 169
Cash and cash equivalents at beginning of period 1,697 382
-------- --------
Cash and cash equivalents at end of period $ 3,382 $ 551
======== ========
See Notes to Consolidated Financial Statements.
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 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.
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.
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.
The amounts paid for income taxes and interest are as
follows (in thousands):
Nine Months Ended October 31,
----------------------------
1997 1996
------ ------
Income taxes $4,405 $2,530
Interest 2,730 1,601
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.
Certain amounts for prior periods have been
reclassified to conform with the current
presentation.
2. Acquisitions
On May 20, 1997, the Company, through its wholly-
owned subsidiary Layne Christensen Australia Pty
Limited ("Layne Australia"), made a tender offer to
the security holders of Stanley Mining Services
Limited ("Stanley"), a company listed on the
Australian Stock Exchange (the "Stanley
Acquisition"). Stanley is an Australian mineral
exploration drilling company that provides services
predominantly to gold mining companies in Australia
and West Africa, principally Ghana. As of October 1,
1996, Stanley purchased 51% of Glindemann & Kitching
Pty Ltd. ("G&K"), a drilling contractor based and
operating in Western Australia that specializes in
diamond core exploration drilling for gold projects.
The remaining 49% of G&K was acquired by Stanley as
of July 1, 1997 for a purchase price of $7,814,000.
The purchase price was paid on September 5, 1997.
The Stanley Acquisition was substantially consummated
on July 25, 1997 for a purchase price of
approximately $50,070,000 consisting of a cash
purchase price for the tender offer of $48,337,000
and $1,733,000 of transaction costs. The Company
also assumed approximately $12,523,000 of Stanley's
existing indebtedness.
The Company has accounted for the acquisition using
the purchase method of accounting. Stanley has been
reflected in Layne's results of operations beginning
August 1, 1997. The purchase price has been
allocated based on estimated fair values of assets
and liabilities as of July 31, 1997. This allocation
was based on preliminary estimates and may be revised
at a later date. On August 19, 1997, the Company
completed the sale of 2,756,565 shares of Common
Stock in a public offering. Net proceeds to the
Company from the offering of approximately
$43,500,000 were used to reduce the debt incurred
under the New Credit Agreement in connection with the
Stanley Acquisition.
The following unaudited pro forma information
presents a summary of consolidated results of
operations of the Company as if the acquisitions of
Stanley and G&K and the stock offering had occurred
at the beginning of fiscal year 1997, with proforma
adjustments to give effect to interest expense on
acquisition debt, amortization of goodwill and
certain other adjustments, together with related
income tax effects:
Nine Months Ended October 31,
-----------------------------
(in thousands,
except per share data) 1997 1996
---------------------- ---- ----
Revenues $ 244,733 $ 211,314
Net income 10,948 8,911
Net income per share .91 .75
The pro forma financial information is not
necessarily indicative of the operating results that
would have occurred had the acquisition been
consummated as of February 1, 1997, nor are they
necessarily indicative of future operating results.
In July 1997, the Company also acquired all of the
outstanding stock of Stamm-Scheele, Inc., ("Stamm-
Scheele") a water well drilling and maintenance
company in Louisiana, for approximately $2,574,000 in
cash. The acquisition has been accounted for using
the purchase method of accounting. Had this
acquisition
taken place as of February 1, 1997, pro forma
operating results would not have been significantly
different from those reported.
In October 1997, the Company also acquired certain
assets of Afridrill (Tanzania) Limited, a mineral
exploration company located in East Africa for
approximately $3,700,000 in cash and certain
contingent future payments of approximately $684,000.
The acquisition has been accounted for using the
purchase method of accounting. Had this acquisition
taken place as of February 1, 1997, pro forma
operating results would not have been significantly
different from those reported.
The above acquisitions, accounted for using the
purchase method, had the following effect on the
Company's fiscal 1998 consolidated financial
position (in thousands of dollars):
Property and equipment $ 28,952
Working capital (1,230)
Other assets 33,089
Non-current and deferred liabilities (6,869)
--------
Total purchase price,
net of cash acquired $ 53,942
========
3. Inventories
The Company values inventories at the lower of cost
(first-in, first-out) or market (in thousands):
As of
------------------------
October 31, January 31,
1997 1997
----------- -----------
Raw materials $ 1,714 $ 1,790
Work in process 1,829 1,568
Finished products,
parts and supplies 20,443 14,381
----------- -----------
Total $ 23,986 $ 17,739
=========== ===========
4. Indebtedness
During July 1997, contemporaneously with the
consummation of the Stanley Acquisition (see Note 2),
the Company amended its existing credit agreement to
provide a $100,000,000 reducing revolving credit
facility ("New Credit Agreement"). The New Credit
Agreement was used to finance the Stanley Acquisition
and refinance the Company's existing indebtedness
under a $30,000,000 credit facility, and is available
for working capital and capital expenditures and for
other general corporate purposes. The New Credit
Agreement provides a reducing revolving cash borrowing
facility of up to $100,000,000, less any outstanding
letter of credit commitments ($20,000,000 sublimit).
The New Credit Agreement will terminate in July 2002
and any borrowings thereunder will mature at that
time. Layne Australia will be eligible to draw down
$30,000,000 under the New Credit Agreement. The New
Credit Agreement provides for guarantees by
certain of the Company's domestic subsidiaries. The
New Credit Agreement contains certain covenants
including restrictions on the incurrence of additional
indebtedness and liens, sale of assets or other
dispositions, transactions with affiliates, mandatory
prepayments based on the proceeds from the sale of
assets and debt and equity securities and certain
financial maintenance covenants, including among
others, minimum interest coverage and maximum leverage
ratios. The New Credit Agreement provides for
interest at variable rates equal to (i) for loans in
Australian dollars, an Australian Bill rate plus .50%
to .875% (depending upon debt to capitalization
ratios) or (ii) for loans in United States dollars, at
the Company's option, a Eurodollar rate plus .50% to
.875% (depending upon debt to capitalization ratios)
or an alternate reference rate as defined in the New
Credit Agreement. As of October 31, 1997, there was
$30,000,000 of outstanding borrowings under the New
Credit Agreement, at an interest rate of 6.325%.
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 fixedprice, "turnkey"
basis where the Company delegates certain functions to
subcontractors but remains responsible to the customer
for the subcontracted work. In addition, the Company is
exposed to potential liability under foreign, federal,
state and local laws and regulations, contractual
indemnification agreements or otherwise in connection
with its provision of services and products. Litigation
arising from any such occurrences may result in the
Company's being named as a defendant in lawsuits
asserting large claims. Although the Company
maintains insurance protection that it considers
economically prudent, there can be no assurance that
any such insurance will be sufficient or effective
under all circumstances or against all claims or
hazards to which the Company may be subject or that
the Company will be able to continue to obtain such
insurance protection. A successful claim or damage
resulting from a hazard for which the Company is not
fully insured could have a material adverse effect on
the Company. In addition, the Company does not
maintain political risk insurance or business
interruption insurance with respect to its foreign
operations.
The Company's former parent corporation, The Marley
Company ("Marley"), maintained insurance reserves for
the Company on its financial statements to cover
expected losses under various casualty insurance
policies for occurrences prior to April 30, 1992.
Those reserves were funded through intercompany
charges to the Company, which were calculated on the
basis of the estimated insured losses incurred by the
Company. The Company had indemnified Marley for
claims or retroactive insurance premiums
on those policies that exceeded the amount of
reserves attributable to the Company's estimated
losses through April 30, 1992. Pursuant to an
agreement with Marley, in November 1997, the Company
received payment from Marley in the amount of the
remaining reserves and will be
responsible for any remaining incurred but unpaid
claims or losses. The Company has established
reserves in its consolidated balance sheet at the
date of payment for these claims and losses. The
Company believes that the amount of such reserves
will be sufficient to cover its reasonably
anticipated insured losses under past insurance
policies.
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
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.
RESULTS OF OPERATIONS
The Company substantially consummated the Stanley
Acquisition at the end of July, 1997. Stanley has
been reflected in Layne's results of operations
beginning in the third quarter ending October 31,
1997. The Stanley Acquisition has been accounted for
using the purchase method of accounting, and will
have a significant effect on Layne Christensen's
future operations and on comparisons of income and
expense items in future periods in relation to fiscal
1997 and the first six months of fiscal 1998. Among
other things, the Company has incurred a substantial
increase in long-term debt and goodwill and will
incur a substantial increase in interest expense and
goodwill amortization in future periods.
With the recent Stanley Acquisition, the percentage
of the Company's revenues and operating income tied
to the mining industry has increased substantially.
Demand for the Company's mineral exploration drilling
services and products depends upon the level of
mineral exploration and development activities
conducted by mining companies, particularly with
respect to gold and copper. Mineral exploration is
highly speculative and is influenced by a variety of
factors, including the prevailing prices for various
metals which often fluctuate widely. In this
connection, the recent decline in the price of gold
has adversely impacted the level of mineral
exploration and development activities conducted by
mining companies. Any significant decline in the
price of precious and other metals, including the
recent decline in the price of gold, could have a
material adverse effect on the Company.
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.
Period
Three Months Nine Months -to-Period
Ended October 31, Ended October 31, Change
1997 1996 1997 1996 Three Nine
---- ---- ---- ---- Months Months
------ ------
Water well drilling
and maintenance 35.4% 48.9% 42.0% 49.8% 8.4% 6.8%
Mineral exploration
drilling 29.0 21.5 24.7 22.4 103.0 39.4
Geotechnical drilling 20.5 5.1 14.5 4.3 508.9 328.2
Environmental drilling 6.3 9.2 6.4 10.2 2.8 (20.0)
Other services 0.8 2.0 1.5 1.4 (42.1) 38.3
----- ----- ----- -----
Total service revenues 92.0 86.7 89.1 88.1 59.2 28.2
Product sales 8.0 13.3 10.9 11.9 (9.9) 16.0
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0% 50.0 26.7
===== ===== ===== =====
Cost of revenues:
Cost of service
revenues 71.8% 71.7% 72.1% 72.2% 60.7 28.0
Cost of product sales 73.4 73.9 72.7 72.6 (10.5) 16.1
Total cost of revenues 71.9 71.5 72.2 72.3 50.9 26.6
----- ----- ----- -----
Gross profit 28.1 28.5 27.8 27.7 47.8 27.1
Selling, general and
administrative expenses 13.5 16.4 15.6 17.3 23.4 14.1
Depreciation and
amortization 5.2 4.5 4.8 4.8 71.4 27.0
----- ----- ----- -----
Operating income 9.4 7.6 7.4 5.6 86.3 66.9
Other income (expense):
Equity earnings of
foreign affiliates 0.6 2.1 1.1 1.9 (54.7) (23.6)
Interest (1.3) (0.9) (1.2) (1.1) 117.9 38.8
Other, net 0.0 0.1 0.0 0.3 * *
----- ----- ----- -----
Income before
income taxes 8.7 8.9 7.3 6.7 47.6 37.6
Income tax expense 3.3 3.6 2.8 2.7 40.2 30.7
----- ----- ----- -----
Net income 5.4% 5.3% 4.5% 4.0% 52.5 42.2
===== ===== ===== =====
________________
* Not meaningful.
Revenues for the three months ended October 31, 1997
increased $30,123,000, or 50.0%, to $90,335,000 while
revenues for the nine months ended October 31, 1997
increased $45,471,000, or 26.7%, to $215,768,000 from
the three and nine months ended October 31, 1996,
respectively.
Water well drilling and maintenance revenues
increased 8.4%, to $31,951,000, and 6.8%, to
$90,629,000, for the three and nine months ended
October 31, 1997, respectively, compared to revenues
of $29,472,000 and $84,875,000 for the three and nine
months ended October 31, 1996, respectively. The
increases in water well drilling and maintenance
revenues for the periods were primarily the result
of the recent acquisition of Stamm-Scheele, combined
with a large international water project commenced
during the second quarter and strong demand in
certain central and southern areas of the United
States. The increase in the third quarter was
partially offset by a decrease in dewatering projects
performed for the mining industry in the southwest
United States.
Mineral exploration drilling revenues increased
103.0%, to $26,321,000, and 39.4%, to $53,119,000,
for the three and nine months ended October 31, 1997,
respectively, from $12,964,000 and $38,092,000 for
the three and nine months ended October 31, 1996,
respectively. The increase was primarily a result of
the Stanley Acquisition, partially offset by the
temporary reallocation of resources from mineral
exploration services to geotechnical drilling
services in connection with the Company's previously
announced ground freeze project in Timmins, Ontario,
Canada for Echo Bay Mines, Ltd. (the "Timmins
Project").
Geotechnical drilling revenues increased 508.9%, to
$18,475,000, and 328.2%, to $31,333,000, for the
three and nine months ended October 31, 1997,
respectively, compared to revenues of $3,034,000 and
$7,318,000 for the three and nine months ended
October 31, 1996, respectively. This increase was
primarily a result of the Timmins Project, which
began in April 1997, combined with certain other
large geotechnical drilling contracts being performed
during the period. Excluding the Timmins Project,
geotechnical drilling increased 102.1% and 80.8% for
the three and nine months ended October 31, 1997,
respectively, over the prior periods. It is
anticipated that the Timmins Project will be
substantially completed within one year of inception
and will generate geotechnical drilling revenues of
approximately $27,000,000. In light of the size of
the Timmins Project, there
can be no assurance that this level of revenues will
be sustained in the future in the geotechnical
drilling product line.
Environmental drilling revenues increased 2.8%, to
$5,682,000, and decreased 20.0%, to $13,888,000, for
the three and nine months ended October 31, 1997,
respectively, from $5,528,000 and $17,360,000 for the
three and nine months ended October 31, 1996,
respectively. The Company believes the year to date
decrease in revenue in this market is primarily the
result of decreased demand in the southwest region of
the United States combined with revenue declines
attributed to district offices closed in the prior
period.
Product sales decreased 9.9%, to $7,200,000 and
increased 16.0%, to $23,526,000, for the three and
nine months ended October 31, 1997, respectively,
from $7,994,000 and $20,285,000 for the three and
nine months ended October 31, 1996, respectively.
The decrease in product sales for the quarter was
primarily the result of an increase in intercompany
mineral exploration products sales. Sales for the
nine months increased from the prior period as a
result of continued strong sales to the mining
industry.
Gross profit as a percentage of revenues remained
relatively constant at 28.1% and 27.8% for the three
and nine months ended October 31, 1997, respectively,
compared to 28.5% and 27.7% for the same periods last
year.
Selling, general and administrative expenses
increased to $12,152,000 and $33,599,000 (or 13.5%
and 15.6% of revenues, respectively) for the three
and nine months ended October 31, 1997 compared to
$9,849,000 and $29,438,000 (or 16.4% and 17.3% of
revenues, respectively) for the three and nine months
ended October 31, 1996. The period-to-period dollar
increase is primarily a result of the Stanley
Acquisition.
Depreciation and amortization increased to $4,718,000
and $10,419,000 for the three and nine months ended
October 31, 1997, respectively, compared to
$2,752,000 and $8,204,000, respectively, for the same
periods last year. The increase in depreciation and
amortization was primarily a result of the Stanley
Acquisition and increased capital expenditures during
the year.
Equity in earnings of foreign affiliates was $585,000
and $2,383,000 for the three and nine months ended
October 31, 1997, respectively, compared to
$1,290,000 and $3,118,000, respectively, for the same
periods last year. The decreases from the previous
periods were primarily a result of decreased drilling
activities in Bolivia and difficult weather
conditions in the higher altitudes in other South
American countries.
Interest expense increased $659,000 and $717,000 for
the three and nine months ended October 31, 1997,
respectively, as compared to the three and nine
months ended October 31, 1996. The increase was a
result of additional borrowings made in July 1997 to
finance the Stanley Acquisition.
Income taxes of $2,990,000 and $5,973,000 for the
three and nine months ended October 31, 1997,
respectively, increased from $2,133,000 and
$4,570,000, respectively, in the same periods last
year as a result of higher income before taxes
compared to the prior year. The effective tax rate
for the three and nine months ended October 31, 1997
was 38% compared to 40% for the same periods last year.
The effective tax rate was reduced to 38% in the
fourth quarter of fiscal 1997 primarily as a result
of the tax treatment of the Company's foreign
affiliates.
CHANGES IN FINANCIAL CONDITION
Cash from operations was $7,859,000 for the nine
months ended October 31, 1997 compared to $5,754,000
for the same period last year. The change in cash
from operations was primarily a result of more
profitable operations for the period compared to the
same period last year. Cash from operations and
borrowings under the Company's available credit
agreement was primarily used for additions to
property and equipment of $15,890,000 during the nine
months ended October 31, 1997, and the acquisitions
of Stanley, Afridrill and Stamm-Scheele totaling
$53,942,000.
During July 1997, the Company amended its existing
credit agreement to provide a reducing revolving cash
borrowing facility of up to $100,000,000 (the "New
Credit Agreement"). Borrowings under the New Credit
Agreement were used to complete the Stanley
Acquisition (see Note 2 to the Consolidated Financial
Statements) and refinance indebtedness under the
Company's existing credit
agreement. The Company's borrowings and outstanding
letter of credit commitments under the New Credit
Agreement were $30,000,000 and $5,074,000,
respectively, at October 31, 1997, leaving
approximately $64,926,000 of unused availability.
On August 19, 1997, the Company completed the sale of
2,756,565 shares of Common Stock in a public
offering. Net proceeds to the Company from the
offering of approximately $43,500,000 were used to
reduce the debt incurred under the New Credit
Agreement in connection with the Stanley Acquisition.
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.
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 August 6, 1997, the Company filed a Form 8-K
relating to its acquisition of all of the outstanding
capital stock of Stanley Mining Services Limited
("Stanley"), a publicly traded Australian company.
The report included the consolidated financial
statements of Stanley as of June 30, 1996 and 1995,
as of March 31, 1997 and 1996, for the years ended
June 30, 1996 and 1995 and for the nine months ended
March 31, 1997 and 1996, as well as the financial
statements of Glindemann & Kitching Pty Ltd. as of
June 30, 1996, as of March 31, 1997 and 1996, for the
year ended June 30, 1996 and for the nine months
ended March 31, 1997 and 1996.
On August 12, 1997, the Company filed a Form 8-K/A
which amended the Company's Form 8-K filed April 9,
1997 which announced the tender offer for Stanley.
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: December 9, 1997 /s/A.B. Schmitt
-------------------------------
A.B. Schmitt, President
and Chief Executive Officer
DATE: December 9, 1997 /s/Jerry W. Fanska
-------------------------------
Jerry W. Fanska, Vice President
Finance and Treasurer