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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, 2001
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
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(Exact name of registrant as specified in its charter)
Delaware 48-0920712
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1900 Shawnee Mission Parkway, Mission Woods, Kansas 66205
- --------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (913) 362-0510
Not Applicable
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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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 11,707,694 shares of common stock, $.01 par value per share,
outstanding on August 24, 2001.
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PART I
ITEM 1. Financial Statements
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
July 31, January 31,
2001 2001
--------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,783 $ 3,421
Customer receivables, less allowance
of $3,300 and $3,510, respectively 48,949 51,498
Costs and estimated earnings in excess of
billings on uncompleted contracts 9,784 10,371
Inventories 29,540 30,762
Deferred income taxes 11,927 12,342
Other 3,546 2,781
--------- ---------
Total current assets 109,529 111,175
--------- ---------
Property and equipment:
Land 8,036 8,926
Buildings 18,161 18,369
Machinery and equipment 162,718 163,488
--------- ---------
188,915 190,783
Less - Accumulated depreciation (123,129) (118,070)
--------- ---------
Net property and equipment 65,786 72,713
--------- ---------
Other assets:
Investment in foreign affiliates 19,432 19,306
Goodwill and other intangible assets,
at cost less accumulated amortization 23,921 26,058
Deferred income taxes 3,240 2,623
Other 1,743 1,993
--------- ---------
Total other assets 48,336 49,980
--------- ---------
$ 223,651 $ 233,868
========= =========
See Notes to Consolidated Financial Statements.
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LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)
July 31, January 31,
2001 2001
-------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,273 $ 18,684
Current maturities of long-term debt 41,571 3,571
Accrued compensation 13,549 15,726
Accrued insurance expense 5,914 6,425
Other accrued expenses 10,535 9,019
Billings in excess of costs and estimated
earnings on uncompleted contracts 11,076 10,790
--------- ---------
Total current liabilities 99,918 64,215
--------- ---------
Noncurrent and deferred liabilities:
Long-term debt 14,286 58,357
Accrued insurance expense 5,788 5,557
Other 2,516 2,526
Minority interest 7,539 9,288
--------- ---------
Total noncurrent and deferred liabilities 30,129 75,728
--------- ---------
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, 11,707,694 and 11,707,694
shares issued and outstanding, respectively 117 117
Capital in excess of par value 83,606 83,613
Retained earnings 24,025 23,224
Accumulated other comprehensive loss (14,039) (12,913)
Notes receivable from management stockholders (105) (116)
--------- ---------
Total stockholders' equity 93,604 93,925
--------- ---------
$ 223,651 $ 233,868
========= =========
See Notes to Consolidated Financial Statements.
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LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
Three Months Six Months
Ended July 31, Ended July 31,
(unaudited) (unaudited)
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Net service revenues $ 75,017 $ 72,436 $ 149,745 $ 143,311
Net product sales 5,097 4,364 10,201 9,035
------------ ------------ ------------ ------------
Total 80,114 76,800 159,946 152,346
------------ ------------ ------------ ------------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 54,050 53,754 109,038 107,478
Cost of product sales 4,421 3,386 8,369 7,116
------------ ------------ ------------ ------------
Total 58,471 57,140 117,407 114,594
------------ ------------ ------------ ------------
Gross profit 21,643 19,660 42,539 37,752
Selling, general and
administrative expenses 15,123 15,072 29,184 29,503
Depreciation and amortization 4,726 5,413 9,611 10,951
------------ ------------ ------------ ------------
Operating income (loss) 1,794 (825) 3,744 (2,702)
Other income (expense):
Equity in earnings of
foreign affiliates 813 325 514 438
Interest (1,143) (1,609) (2,418) (3,044)
Other, net 440 574 876 836
------------ ------------ ------------ ------------
Income (loss) before income
taxes and minority interest 1,904 (1,535) 2,716 (4,472)
Income tax expense 1,196 -- 1,765 --
Minority interest, net of
income taxes (69) 27 (150) 22
------------ ------------ ------------ ------------
Net income (loss) $ 639 $ (1,508) $ 801 $ (4,450)
============ ============ ============ ============
Basic and diluted income
(loss) per share $ .05 $ (.13) $ .07 $ (.38)
============ ============ ============ ============
Weighted average shares
outstanding 11,758,000 11,758,000 11,758,000 11,758,000
Dilutive stock options 337,000 -- 224,000 --
------------ ------------ ------------ ------------
12,095,000 11,758,000 11,982,000 11,758,000
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
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LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Six Months
Ended July 31,
---------------------
2001 2000
-------- --------
Cash flow from operating activities:
Net income (loss) $ 801 $ (4,450)
Adjustments to reconcile net income (loss) to cash
from operations:
Depreciation and amortization 9,611 10,951
Deferred income taxes 23 (67)
Equity in earnings of foreign affiliates (514) (438)
Dividends received from foreign affiliates 327 668
Minority interest 230 (34)
Gain from disposal of property and equipment (149) (423)
Changes in current assets and liabilities:
(Increase) decrease in customer receivables 2,468 (7,977)
(Increase) decrease in costs and estimated
earnings in excess of billings on uncompleted
contracts 719 (416)
(Increase) decrease in inventories 1,150 (468)
Increase in other current assets (843) (1,604)
Increase (decrease) in accounts payable and
accrued expenses (1,995) 6,048
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 283 308
Other, net (1,936) (622)
-------- --------
Cash from operating activities 10,175 1,476
-------- --------
Cash flow from investing activities:
Additions to property and equipment (4,456) (8,066)
Proceeds from disposal of property and equipment 2,074 1,165
-------- --------
Cash used in investing activities (2,382) (6,901)
-------- --------
Cash flow from financing activities:
Net borrowings (repayments) under revolving facility (2,500) 9,000
Repayment of long-term debt (3,571) (3,572)
Payments on notes receivable from management
stockholders 11 --
-------- --------
Cash from (used in) financing activities (6,060) 5,428
-------- --------
Effects of exchange rate changes on cash 629 86
-------- --------
Net increase in cash and cash equivalents 2,362 89
Cash and cash equivalents at beginning of period 3,421 3,751
-------- --------
Cash and cash equivalents at end of period $ 5,783 $ 3,840
======== ========
See Notes to Consolidated Financial Statements.
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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,
2001 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.
Revenue is recognized on large, long-term contracts using the percentage of
completion method based upon materials installed and labor costs incurred.
Changes in job performance, job conditions, and estimated profitability,
including those arising from contract penalty provisions, and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. Revenue is recognized on
smaller, short-term contracts using the completed contract method. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
Income taxes are provided using the asset/liability method, in which deferred
taxes are recognized for the tax consequences of temporary differences between
the financial statement carrying amounts and tax bases of existing assets and
liabilities. The effective tax rate in excess of the statutory federal rate for
the three and six months ended July 31, 2001 was a result of the impact of
non-deductible expenses and the tax treatment of certain foreign operations.
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 Company adopted Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities, effective
February 1, 2001. The adoption of SFAS 133 did not have any impact on the
financial position, results of operations, or cash flow of the Company.
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The amounts paid for income taxes and interest are as follows (in thousands):
Six Months Ended July 31,
-------------------------
2001 2000
------ ------
Income taxes $2,475 $ 469
Interest 2,695 2,601
Reclassifications - Certain 2000 amounts have been reclassified to conform with
the 2001 presentation.
2. Inventories
The Company values inventories at the lower of cost (first-in, first-out) or
market (in thousands):
As of
-------------------------
July 31, January 31,
2001 2001
------- -----------
Raw materials $ 802 $ 1,101
Work in process 789 1,639
Finished products, parts and supplies 27,949 28,022
------- -------
Total $29,540 $30,762
======= =======
3. Indebtedness
During July 1997, the Company amended its existing credit agreement to provide a
reducing revolving credit facility ("Credit Agreement"). As of July 31, 2001,
the commitment had been reduced to $64,000,000, less any outstanding letter of
credit commitments ($20,000,000 sublimit). The Company's Credit Agreement will
terminate in July 2002 and any borrowings thereunder will mature at that time.
During March 1996, the Company completed the private placement of an unsecured
note agreement for $25,000,000 ("Senior Notes"). The Senior Notes bear a fixed
interest rate of 6.75% and will be due in annual installments of $3,571,000,
which began on March 15, 2000.
In July 2001, outstanding borrowings under the Credit Agreement were
reclassified as current liabilities as the agreement will expire within twelve
months. The Company intends to extend the Credit Agreement or negotiate a new
credit agreement prior to that time. Debt outstanding as of July 31 and January
31, 2001 was as follows (in thousands):
July 31, January 31,
2001 2001
-------- -----------
Current maturities of long-term debt:
Senior notes $ 3,571 $ 3,571
Revolving credit facility 38,000 --
------- -------
Total current maturities of long-term debt 41,571 3,571
------- -------
Long-term debt:
Senior notes 14,286 17,857
Revolving credit facility -- 40,500
------- -------
Total long-term debt 14,286 58,357
------- -------
Total debt $55,857 $61,928
======= =======
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4. Other Comprehensive Income (Loss)
Components of other comprehensive income (loss) are summarized as follows (in
thousands):
<Table>
<Caption>
Three Months Six Months
Ended July 31, Ended July 31,
------------------------- -------------------------
2001 2000 2001 2000
------- ------- ------- -------
Net income (loss) $ 639 $(1,508) $ 801 $(4,450)
Other comprehensive income (loss),
net of taxes:
Foreign currency translation
adjustments 53 (504) (843) (3,167)
Unrealized gain (loss) on
available for sale investments (12) (17) (284) 55
Change in unrecognized pension
liability -- -- 1 --
------- ------- ------- -------
Comprehensive income (loss) $ 680 $(2,029) $ (325) $(7,562)
======= ======= ======= =======
The components of accumulated other comprehensive loss for the six months ended
July 31, 2001 are as follows (in thousands):
Accumulated
Cumulative Unrealized Unrecognized Other
Translation Loss On Pension Comprehensive
Adjustment Investments Liability Loss
----------- ----------- ------------ --------------
Balance, February 1, 2001 $ (10,615) $ (1,925) $ (373) $ (12,913)
Period changes (843) (284) 1 (1,126)
---------- ---------- ----------- -----------
Balance, July 31, 2001 $ (11,458) $ (2,209) $ (372) $ (14,039)
========== ========== =========== ===========
5. Operating Segments
The Company is a multi-national company operating predominantly in two operating
segments. The first operating segment includes the Company"s service operations
with wholly owned operations in the United States, Australia, East Africa,
Mexico, Canada, Italy and Thailand, as well as a 50%-owned joint venture in West
Africa, which is consolidated into the Company"s financial statements. The
service segment primarily derives its revenues from the following service lines:
water-related products and services, mineral exploration drilling services,
geotechnical construction services and oil and gas services and exploration. The
second operating segment, products, includes the manufacturing and supply of
drilling equipment, parts and supplies. The products 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
corporate expenses have been made. Operating segment revenues and operating
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income are summarized as follows (in thousands):
Six Months
Ended July 31,
-------------------------------------
2001 2000
--------- ---------
REVENUES
Services
United States $ 112,319 $ 114,077
--------- ---------
Foreign:
Canada 11,251 5,480
Australia 1,550 4,299
Africa 20,391 14,018
Other foreign 4,234 5,437
--------- ---------
Total foreign 37,426 29,234
--------- ---------
Total services 149,745 143,311
--------- ---------
Products 15,930 13,342
Intersegment revenues (5,729) (4,307)
--------- ---------
Total products 10,201 9,035
--------- ---------
Total revenues $ 159,946 $ 152,346
========= =========
OPERATING INCOME (LOSS)
Services
United States $ 11,840 $ 7,998
--------- ---------
Foreign:
Canada 915 3
Australia (300) (662)
Africa (1,061)
Other foreign (382) (339)
--------- ---------
Total foreign (828) (5,198)
--------- ---------
Total services 11,012 2,800
--------- ---------
Products (112) (266)
Corporate (7,156) (5,236)
--------- ---------
Total operating income (loss) $ 3,744 $ (2,702)
========= =========
Products segment revenues for the six months ended July 31, 2001 and 2000,
respectively, include $8,110,000 and $5,801,000 of revenue from Christensen
Products. Intersegment revenues for six months ended July 31, 2001 and 2000,
respectively, include $3,979,000 and $2,610,000 from Christensen Products.
Products segment operating income (loss) for the six months ended July 31, 2001
and 2000, respectively, includes ($248,000) and ($464,000) from Christensen
Products. See Note 8 for discussion regarding the subsequent disposition of
Christensen Products.
6. 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,
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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 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.
7. New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
all business combinations be accounted for under the purchase method only and
that certain acquired intangible assets in a business combination be recognized
as assets apart from goodwill. SFAS No. 141 is effective for all business
combinations after July 1, 2001. SFAS No. 142 requires that ratable amortization
of goodwill be replaced with periodic tests of the goodwill's impairment and
that intangible assets other than goodwill should be amortized over their useful
lives. SFAS No. 142 is effective for the Company's fiscal year beginning
February 1, 2002. Management is currently assessing the impact SFAS No. 142 will
have on the Company's results of operations.
8. Subsequent Events
On August 6, 2001, the Company announced it will acquire the remaining 50%
ownership in West African Drilling Services ("WADS") from its joint venture
partner, Ausdrill Limited ("Ausdrill"), subject to approval by Ausdrill's
shareholders. In exchange for Ausdrill's ownership shares in WADS, the Company
will enter into a $2.5 million note agreement and surrender, by way of an
Ausdrill share repurchase agreement, 6,014,615 shares of Ausdrill that the
Company currently owns. The transaction is expected to close in the third
quarter.
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On August 8, 2001, the Company signed a definitive agreement to sell its
Christensen Products business to a subsidiary of Atlas Copco. The transaction is
expected to be substantially consummated in the third quarter. The net result of
these subsequent transitions is not expected to have a material impact on the
Company's results of operation.
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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.
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Three Months Six Months Period-to-Period
Ended July 31, Ended July 31, Change
-------------------- --------------------- ----------------------
2001 2000 2001 2000 Three Six
---- ---- ---- ---- Months Months
------ ------
Revenues:
Water-related products and
services 58.8% 59.8% 55.5% 56.3% 2.7% 3.4%
Mineral exploration drilling 23.3 21.1 25.9 23.4 15.0 16.1
Geotechnical construction 7.1 11.9 8.7 13.1 (37.8) (30.1)
Oil and gas services 2.9 1.4 2.4 1.1 * *
Other services 1.5 .1 1.1 .1 * *
----- ----- ----- -----
Total net service revenues 93.6 94.3 93.6 94.1 3.6 4.5
Product sales 6.4 5.7 6.4 5.9 16.8 12.9
----- ----- ----- -----
Total net revenues 100.0% 100.0% 100.0% 100.0% 4.3 5.0
===== ===== ===== =====
Cost of revenues:
Cost of service revenues 72.1% 74.2% 72.8 75.0% .6 1.5
Cost of product sales 86.7 77.6 82.0 78.8 30.6 17.6
----- ----- ----- -----
Total cost of revenues 73.0 74.4 73.4 75.2 2.3 2.5
----- ----- ----- -----
Gross profit 27.0 25.6 26.6 24.8 10.1 12.7
Selling, general and
administrative expenses 18.9 19.6 18.2 19.4 .3 (1.1)
Depreciation and amortization 5.8 7.0 6.0 7.2 (11.2) (14.6)
----- ----- ----- -----
Operating income (loss) 2.3 (1.0) 2.4 (1.8) * *
Other income (expense):
Equity in earnings of
foreign affiliates 1.0 .4 .3 .3 * *
Interest (1.4) (2.1) (1.5) (2.0) (29.0) (20.6)
Other, net .5 .7 .5 .6 (23.3) 4.8
----- ----- ----- -----
Income (loss) before income
taxes and minority interest 2.4 (2.0) 1.7 (2.9) * *
Income tax expense 1.5 -- 1.1 -- * *
Minority interest (net of taxes) (.1) -- (.1) -- * *
----- ----- ----- -----
Net income (loss) .8% (2.0)% .5% (2.9)% * *
===== ===== ===== =====
- ------------------
* Not meaningful.
Results of Operations
- ---------------------
Revenues for the three months ended July 31, 2001 increased $3,314,000, or 4.3%,
to $80,114,000 while revenues for the six months ended July 31, 2000 increased
$7,600,000, or 5.0%, to $159,946,000 from the same periods for the prior year.
Water-related products and service revenues increased 2.7%, to $47,104,000, and
increased 3.4%, to $88,804,000, for the three and six months ended July 31,
2001, from $45,849,000 and $85,859,000 for the three and six months ended July
31, 2000. The increases in revenues were primarily the result of the Company's
Integrated Groundwater Services project for the City of Azusa, California,
combined with increased demand for the Company's water-related services in
certain other areas of the United States.
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Mineral exploration drilling revenues increased 15.0%, to $18,643,000, and
increased 16.1%, to $41,429,000, for the three and six months ended July 31,
2001, from $16,205,000 and $35,687,000 for the three and six months ended July
31, 2000. The increases in revenues were primarily a result of increased
activity in certain international locations partially offset by reduced activity
in the United States and Australia.
Geotechnical construction revenues decreased 37.8%, to $5,701,000, and 30.1%, to
$13,929,000, for the three and six months ended July 31, 2001 compared to
revenues of $9,166,000 and $19,936,000 for the three and six months ended July
31, 2000. The decreases in geotechnical construction revenues were a result of
slowing construction activity in certain areas of the United States combined
with competitive pricing pressures in certain markets served by the Company.
Oil and gas service revenues were $2,333,000 and $3,817,000 for the three and
six months ended July 31, 2001 compared to revenues of $1,108,000 and $1,631,000
in the three and six months ended July 31, 2000. The increases were the result
of a large offshore project completed in the second quarter by the Company's
Vibration Technology operation and continued growth in its other oil field
services businesses.
Other service revenues were $1,236,000 and $1,766,000 for the three and six
months ended July 31, 2001 compared to revenues of $108,000 and $198,000 for the
three and six months ended July 31, 2000. The increases were primarily the
result of two large projects substantially completed by the Company's specialty
construction group.
Product sales increased 16.8%, to $5,097,000, and 12.9%, to $10,201,000, for the
three and six months ended July 31, 2001 from $4,364,000 and $9,035,000 for the
three and six months ended July 31, 2000. The increases were primarily the
result of increased demand for drill rigs in the mineral exploration market.
Gross profit was 27.0% and 26.6% of revenues for the three and six months ended
July 31, 2001 compared to 25.6% and 24.8% for the same periods last year. The
increase in gross profit as a percentage of revenues for the three months ended
July 31, 2001 was attributable to increased margins at the Company's mineral
exploration and domestic water supply locations. For the six months ended July
31, 2001, the increase was also attributable to reduced expenditures associated
with the Company's oil and gas exploration activities.
Selling, general and administrative expenses were essentially flat at
$15,123,000 and $29,184,000 (or 18.9% and 18.2%, respectively, of revenues) for
the three and six months ended July 31, 2001 compared to $15,072,000 and
$29,503,000 (or 19.6% and 19.4%, respectively, of revenues) for the three and
six months ended July 31, 2000.
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Depreciation and amortization decreased to $4,726,000 and $9,611,000 for the
three and six months ended July 31, 2001 compared to $5,413,000 and $10,951,000
for the same periods last year. The decreases in depreciation were primarily
attributable to the disposal of assets in certain international locations and
other mineral exploration assets becoming fully depreciated during the last
year.
Equity in earnings of foreign affiliates was $813,000 and $514,000 for the three
and six months ended July 31, 2001, compared to $325,000 and $438,000 for the
same periods last year. The increases in earnings were attributable to an
increase in exploration activity in South America.
Interest expense decreased $466,000 and $626,000 for the three and six months
ended July 31, 2001 as compared to the same periods in the prior year. The
decreases were primarily a result of decreases in the Company's average
borrowings and in interest rates during the periods.
Income tax expense of $1,196,000 and $1,765,000 was recorded for the three and
six months ended July 31, 2001, compared to recording no benefit for losses for
the same periods last year. The effective rate in excess of the statutory
federal rate for the three and six months ended July 31, 2001 was a result of
the impact of non-deductible expenses and the tax treatment of certain foreign
operations.
Changes in Financial Condition
- ------------------------------
Cash from operations was $10,175,000 for the six months ended July 31, 2001
compared to $1,476,000 for the same period last year. The increase in cash from
operations is primarily attributable to improved margins at the Company's
domestic service operations and exploration locations in Africa and lower
expenditures related to its domestic oil and gas exploration activities. Cash
from operations was primarily used for additions to property and equipment of
$4,456,000 and net repayments of debt of $6,071,000 for the six-month period
ended July 31, 2001.
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.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are interest rates on
variable rate debt, equity risk on investments, and foreign exchange rates
giving rise to translation and transaction gains and losses.
The Company centrally manages its debt and investment portfolios considering
overall financing strategies and tax consequences. A description of the
Company's variable rate debt is in Note 8 to the Notes to Consolidated Financial
Statements appearing in the Company's January 31, 2001 Form 10-K. Assuming then
existing debt levels, an instantaneous change in interest rates of one
percentage point would impact the Company's annual interest expense by $380,000
and $405,000 at July 31, 2001 and January 31, 2001, respectively. The Company's
investments are described in Note 1 to the Consolidated Financial Statements
appearing in the Company's January 31, 2001 Form 10-K. The investments are
carried at market value and are held for long-term investing purposes rather
than trading purposes.
Operating in international markets involves exposure to possible volatile
movements in currency exchange rates. Currently, the Company's primary
international operations are in Australia, Africa, Mexico, Canada, Italy and
Thailand. The operations are described in Note 1 to the Consolidated Financial
Statements appearing in the Company's January 31, 2001 Form 10-K and Note 5 of
this Form 10-Q. The majority of the Company's contracts in Africa and Mexico are
U.S. dollar based, providing a natural reduction in exposure to currency
fluctuations.
As currency exchange rates change, translation of the income statements of the
Company's international operations into U.S. dollars may affect year-to-year
comparability of operating results. We estimate that a ten percent change in
foreign exchange rates would have impacted operating income for the three months
ended July 31, 2001 and 2000 by approximately $55,000 and $150,000,
respectively. This represents approximately ten percent of the international
segment operating income after adjusting for primarily U.S. dollar-based
operations. This quantitative measure has inherent limitations, as it does not
take into account any governmental actions, changes in customer purchasing
patterns or changes in the Company's financing and operating strategies.
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17
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 31, 2001. Set forth
below is a brief description of each matter voted upon at the meeting and the
results of the balloting:
a) Election of Todd A. Fisher as a Class III Director to hold
office for a term expiring at the 2004 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
----------- ------- ------------------
11,037,591 -0- 13,437
b) Election of Edward A. Gilhuly as a Class III Director to hold
office for a term expiring at the 2004 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
----------- ------- ------------------
11,037,791 -0- 13,237
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, 2002:
For Against Withheld Authority
----------- ------- ------------------
11,046,323 1,605 3,100
17
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ITEM 5 - Other Information
NONE
ITEM 6 - Exhibits and Reports on Form 8-K
a) Exhibits
NONE
b) Reports on Form 8-K
NONE
18
19
* * * * * * * * * *
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: August 24, 2001 /s/ A.B. Schmitt
-------------------------------
A.B. Schmitt, President
and Chief Executive Officer
DATE: August 24, 2001 /s/ Jerry W. Fanska
-------------------------------
Jerry W. Fanska, Vice President
Finance and Treasurer
19