FORM 10-Q
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2009
OR
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o |
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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: 001-34195
Layne Christensen Company
(Exact name of registrant as specified in its charter)
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Delaware
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48-0920712 |
(State or other jurisdiction of |
|
(I.R.S. Employer Identification No.) |
incorporation or organization) |
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1900 Shawnee Mission Parkway, Mission Woods, Kansas |
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66205 |
(Address of principal executive offices) |
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(Zip Code) |
(Registrants telephone number, including area code) (913) 362-0510
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 þ No o
Indicate by check mark
whether the registrant has
submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to
be submitted and
posted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding
12 months (or for
such shorter period that the registrant was required to
submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
There were 19,463,071 shares of common stock, $.01 par value per share, outstanding on
September 1, 2009.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
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July 31, |
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January 31, |
|
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|
2009 |
|
|
2009 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
64,839 |
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$ |
67,165 |
|
Customer receivables, less allowance of
$7,216 and $7,878, respectively |
|
|
114,863 |
|
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|
116,234 |
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Costs and estimated earnings in excess of billings on
uncompleted contracts |
|
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65,092 |
|
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63,638 |
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Inventories |
|
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29,312 |
|
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31,329 |
|
Deferred income taxes |
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16,617 |
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16,561 |
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Income taxes receivable |
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4,468 |
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|
6,806 |
|
Restricted deposits-current |
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|
563 |
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|
774 |
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Other |
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3,686 |
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|
10,063 |
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Total current assets |
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299,440 |
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312,570 |
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|
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|
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Property and equipment: |
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Land |
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11,099 |
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8,586 |
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Buildings |
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32,597 |
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27,209 |
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Machinery and equipment |
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351,041 |
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336,166 |
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Gas transportation facilities and equipment |
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40,608 |
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39,825 |
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Oil and gas properties |
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94,872 |
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92,497 |
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Mineral interests in oil and gas properties |
|
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21,649 |
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21,248 |
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|
|
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551,866 |
|
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525,531 |
|
Less - Accumulated depreciation and depletion |
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(326,236 |
) |
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(278,786 |
) |
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Net property and equipment |
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225,630 |
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246,745 |
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Other assets: |
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Investment in affiliates |
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43,703 |
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40,973 |
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Goodwill |
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91,674 |
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90,029 |
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Other intangible assets, net |
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20,257 |
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21,002 |
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Restricted deposits-long term |
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851 |
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1,155 |
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Other |
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8,056 |
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6,883 |
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Total other assets |
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164,541 |
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160,042 |
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|
|
|
|
|
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|
|
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$ |
689,611 |
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$ |
719,357 |
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See Notes to Consolidated Financial Statements.
- Continued -
2
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except per share data)
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July 31, |
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January 31, |
|
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2009 |
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2009 |
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|
(unaudited) |
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|
(unaudited) |
|
LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
56,582 |
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$ |
62,575 |
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Current maturities of long term debt |
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20,000 |
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20,000 |
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Accrued compensation |
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25,209 |
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36,252 |
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Accrued insurance expense |
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9,595 |
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9,173 |
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Other accrued expenses |
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17,603 |
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17,626 |
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Acquisition escrow obligation-current |
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563 |
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|
824 |
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Income taxes payable |
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1,476 |
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3,254 |
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Billings in excess of costs and estimated
earnings on uncompleted contracts |
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46,400 |
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34,256 |
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Total current liabilities |
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177,428 |
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183,960 |
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Noncurrent and deferred liabilities: |
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Long-term debt |
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13,333 |
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26,667 |
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Accrued insurance expense |
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11,046 |
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9,947 |
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Deferred income taxes |
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18,889 |
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29,063 |
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Acquisition escrow obligation-long term |
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851 |
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1,155 |
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Other |
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13,402 |
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12,468 |
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Total noncurrent and deferred liabilities |
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57,521 |
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79,300 |
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Common
stock, par value $.01 per share, 30,000
shares authorized, 19,411 and 19,383
shares issued and outstanding, respectively |
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194 |
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194 |
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Capital in excess of par value |
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341,353 |
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337,528 |
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Retained earnings |
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120,709 |
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128,353 |
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Accumulated other comprehensive loss |
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(7,669 |
) |
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(10,053 |
) |
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Total Layne Christensen Company stockholders equity |
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454,587 |
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456,022 |
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Noncontrolling interest |
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75 |
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75 |
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Total stockholders equity |
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454,662 |
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|
456,097 |
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$ |
689,611 |
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$ |
719,357 |
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|
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See Notes to Consolidated Financial Statements.
3
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
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Three Months |
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Six Months |
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Ended July 31, |
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Ended July 31, |
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(unaudited) |
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(unaudited) |
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2009 |
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2008 |
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2009 |
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|
2008 |
|
Revenues |
|
$ |
217,227 |
|
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$ |
269,638 |
|
|
$ |
421,419 |
|
|
$ |
514,182 |
|
Cost of revenues (exclusive of depreciation, depletion
and amortization shown below) |
|
|
(165,549 |
) |
|
|
(198,795 |
) |
|
|
(325,453 |
) |
|
|
(380,835 |
) |
Selling, general and administrative expenses |
|
|
(30,304 |
) |
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|
(36,529 |
) |
|
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(62,004 |
) |
|
|
(69,573 |
) |
Depreciation, depletion and amortization |
|
|
(14,278 |
) |
|
|
(12,955 |
) |
|
|
(28,611 |
) |
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|
(25,396 |
) |
Impairment of oil and gas properties |
|
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(21,642 |
) |
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(21,642 |
) |
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Litigation settlement gains |
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|
3,161 |
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Equity in earnings of affiliates |
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|
2,351 |
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3,812 |
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|
|
4,286 |
|
|
|
6,309 |
|
Interest expense |
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|
(812 |
) |
|
|
(1,019 |
) |
|
|
(1,622 |
) |
|
|
(1,960 |
) |
Other income (expense), net |
|
|
(13 |
) |
|
|
693 |
|
|
|
(638 |
) |
|
|
647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(13,020 |
) |
|
|
24,845 |
|
|
|
(11,104 |
) |
|
|
43,374 |
|
Income tax benefit (expense) |
|
|
4,380 |
|
|
|
(9,749 |
) |
|
|
3,460 |
|
|
|
(17,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
Net income (loss) attributable to Layne Christensen
Company |
|
$ |
(8,640 |
) |
|
$ |
15,096 |
|
|
$ |
(7,644 |
) |
|
$ |
25,658 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
Basic income (loss) per share |
|
$ |
(0.45 |
) |
|
$ |
0.79 |
|
|
$ |
(0.40 |
) |
|
$ |
1.34 |
|
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|
|
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|
|
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Diluted income (loss) per share |
|
$ |
(0.45 |
) |
|
$ |
0.78 |
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|
$ |
(0.40 |
) |
|
$ |
1.32 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
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|
|
|
|
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|
Weighted average shares outstanding-basic |
|
|
19,316 |
|
|
|
19,132 |
|
|
|
19,307 |
|
|
|
19,111 |
|
Dilutive stock options |
|
|
|
|
|
|
306 |
|
|
|
|
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-diluted |
|
|
19,316 |
|
|
|
19,438 |
|
|
|
19,307 |
|
|
|
19,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
4
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(in thousands, except share data)
|
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|
|
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|
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|
|
|
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|
|
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|
|
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|
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|
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|
|
|
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|
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|
Total Layne |
|
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|
|
|
|
|
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|
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Accumulated |
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Christensen |
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Capital In |
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Other |
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|
Company |
|
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|
|
|
|
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|
|
Common Stock |
|
|
Excess of |
|
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Retained |
|
|
Comprehensive |
|
|
Stockholders |
|
|
Noncontrolling |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Par Value |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity |
|
|
Interest |
|
|
Total |
|
|
Balance, January 31, 2008 |
|
|
19,160,716 |
|
|
$ |
192 |
|
|
$ |
328,301 |
|
|
$ |
101,866 |
|
|
$ |
(6,987 |
) |
|
$ |
423,372 |
|
|
$ |
398 |
|
|
$ |
423,770 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,658 |
|
|
|
|
|
|
|
25,658 |
|
|
|
|
|
|
|
25,658 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments,
net of income tax expense of $143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439 |
|
|
|
439 |
|
|
|
|
|
|
|
439 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,097 |
|
|
|
|
|
|
|
26,097 |
|
|
Issuance of unvested shares |
|
|
38,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adoption of SFAS 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
(44 |
) |
Issuance of stock upon exercise of options |
|
|
60,524 |
|
|
|
1 |
|
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
613 |
|
Income tax benefit on exercise of options |
|
|
|
|
|
|
|
|
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
688 |
|
|
|
|
|
|
|
688 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
2,084 |
|
|
|
|
|
|
|
|
|
|
|
2,084 |
|
|
|
|
|
|
|
2,084 |
|
|
Balance, July 31, 2008 |
|
|
19,259,824 |
|
|
$ |
193 |
|
|
$ |
331,685 |
|
|
$ |
127,480 |
|
|
$ |
(6,548 |
) |
|
$ |
452,810 |
|
|
$ |
398 |
|
|
$ |
453,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2009 |
|
|
19,382,976 |
|
|
$ |
194 |
|
|
$ |
337,528 |
|
|
$ |
128,353 |
|
|
$ |
(10,053 |
) |
|
$ |
456,022 |
|
|
$ |
75 |
|
|
$ |
456,097 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,644 |
) |
|
|
|
|
|
|
(7,644 |
) |
|
|
|
|
|
|
(7,644 |
) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments,
net of income tax expense of $680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,803 |
|
|
|
1,803 |
|
|
|
|
|
|
|
1,803 |
|
Change in unrealized loss on foreign
exchange contracts, net of income tax
expense of $372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
581 |
|
|
|
|
|
|
|
581 |
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,260 |
) |
|
|
|
|
|
|
(5,260 |
) |
|
Issuance of unvested shares |
|
|
12,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased and subsequently cancelled |
|
|
(5,217 |
) |
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
(109 |
) |
Issuance of stock upon exercise of options |
|
|
7,741 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
Income tax benefit on exercise of options |
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
46 |
|
Income tax deficiency upon vesting of restricted shares |
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
|
|
|
|
|
(177 |
) |
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
3,753 |
|
|
|
|
|
|
|
|
|
|
|
3,753 |
|
|
|
|
|
|
|
3,753 |
|
Issuance of stock upon acquisition of business |
|
|
12,677 |
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
280 |
|
|
Balance, July 31, 2009 |
|
|
19,410,948 |
|
|
$ |
194 |
|
|
$ |
341,353 |
|
|
$ |
120,709 |
|
|
$ |
(7,669 |
) |
|
$ |
454,587 |
|
|
$ |
75 |
|
|
$ |
454,662 |
|
|
See Notes to Consolidated Financial Statements.
5
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended July 31, |
|
|
|
(unaudited) |
|
|
|
2009 |
|
|
2008 |
|
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) attributable to Layne Christensen Company |
|
$ |
(7,644 |
) |
|
$ |
25,658 |
|
Adjustments to reconcile net income (loss) to cash from operations: |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
28,611 |
|
|
|
25,396 |
|
Deferred income taxes |
|
|
(10,156 |
) |
|
|
6,431 |
|
Share-based compensation |
|
|
3,753 |
|
|
|
2,084 |
|
Share-based compensation excess tax benefit |
|
|
(46 |
) |
|
|
(634 |
) |
Equity in earnings of affiliates |
|
|
(4,286 |
) |
|
|
(6,309 |
) |
Dividends received from affiliates |
|
|
1,556 |
|
|
|
1,360 |
|
(Gain) loss from disposal of property and equipment |
|
|
(7 |
) |
|
|
624 |
|
Impairment of oil and gas properties |
|
|
21,642 |
|
|
|
|
|
Non-cash litigation settlement gain |
|
|
(2,868 |
) |
|
|
|
|
Changes in current assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
(Increase) decrease in customer receivables |
|
|
3,176 |
|
|
|
(22,281 |
) |
Increase in costs and estimated earnings in excess
of billings on uncompleted contracts |
|
|
(1,450 |
) |
|
|
(14,939 |
) |
(Increase) decrease in inventories |
|
|
2,148 |
|
|
|
(12,426 |
) |
(Increase) decrease in other current assets |
|
|
6,364 |
|
|
|
(2,132 |
) |
Decrease in accounts payable and accrued expenses |
|
|
(16,776 |
) |
|
|
(8,030 |
) |
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts |
|
|
12,144 |
|
|
|
7,591 |
|
Other, net |
|
|
(386 |
) |
|
|
(2,545 |
) |
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
|
35,775 |
|
|
|
(152 |
) |
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(19,188 |
) |
|
|
(24,955 |
) |
Additions to gas transportation
facilities and equipment |
|
|
(783 |
) |
|
|
(2,870 |
) |
Additions to oil and gas properties |
|
|
(2,375 |
) |
|
|
(8,523 |
) |
Additions to mineral interests in oil and gas properties |
|
|
(401 |
) |
|
|
(2,156 |
) |
Acquisition of business, net of cash acquired |
|
|
(600 |
) |
|
|
(2,518 |
) |
Payment of cash purchase price adjustments on prior year acquisitions |
|
|
(1,349 |
) |
|
|
(33 |
) |
Proceeds from disposal of property and equipment |
|
|
277 |
|
|
|
511 |
|
Deposit of cash into restricted accounts |
|
|
|
|
|
|
(6,788 |
) |
Release of cash from restricted accounts |
|
|
515 |
|
|
|
|
|
Distribution of restricted cash for prior year acquisitions |
|
|
(515 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(24,419 |
) |
|
|
(47,332 |
) |
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
Repayments of long term debt |
|
|
(13,333 |
) |
|
|
(13,333 |
) |
Issuance of common stock upon exercise of stock options |
|
|
32 |
|
|
|
1,246 |
|
Excess tax benefit on exercise of share-based instruments |
|
|
46 |
|
|
|
634 |
|
Purchases and retirement of treasury stock |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities |
|
|
(13,364 |
) |
|
|
(11,453 |
) |
|
|
|
|
|
|
|
Effects of exchange rate changes on cash |
|
|
(318 |
) |
|
|
37 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(2,326 |
) |
|
|
(58,900 |
) |
Cash and cash equivalents at beginning of period |
|
|
67,165 |
|
|
|
73,068 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
64,839 |
|
|
$ |
14,168 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
6
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Accounting Policies and Basis of Presentation
Principles of Consolidation -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 (20% to 50% owned) in
which the Company exercises influence over operating and financial policies are accounted for by
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, 2009, 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.
Use of
Estimates in Preparing Financial Statements - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition -Revenues are recognized on large, long-term construction contracts meeting
the criteria of Statement of Position 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts (SOP 81-1), using the percentage-of-completion method based
upon the ratio of costs incurred to total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments proportionate to the
percentage of completion are reflected in contract revenues in the reporting period when such
estimates are revised. Changes in job performance, job conditions and estimated profitability,
including those arising from contract penalty provisions, change orders and final contract
settlements may result in revisions to costs and income and are recognized in the period in which
the revisions are determined. As allowed by SOP 81-1, revenue is recognized on smaller, short-term
construction contracts using the completed contract method. Contracts for the Companys mineral
exploration drilling services are billable based on the quantity of drilling performed. Thus,
revenues for these drilling contracts are recognized on the basis of actual footage or meterage
drilled. Provisions for estimated losses on uncompleted construction contracts are made in the
period in which such losses are determined.
Revenues for direct sales of equipment and other ancillary products not provided in conjunction
with the performance of construction contracts are recognized at the date of delivery to, and
acceptance by, the customer. Provisions for estimated warranty obligations are made in the period
in which the sales occur.
Revenues for the sale of oil and gas by the Companys energy division are recognized on the basis
of volumes sold at the time of delivery to an end user or an interstate pipeline, net of amounts
attributable to royalty or working interest holders.
The Companys revenues are presented net of taxes imposed on revenue-producing transactions with
its customers, such as, but not limited to, sales, use, value-added, and some excise taxes.
Oil and Gas Properties and Mineral Interests -The Company follows the full-cost method of
accounting for oil and gas properties. Under this method, all productive and nonproductive costs
incurred in connection with the exploration for and development of oil and gas reserves are
capitalized. Such capitalized costs include lease acquisition, geological and geophysical work,
delay rentals, drilling, completing and equipping oil and gas wells, and salaries, benefits and
other internal salary-related costs directly attributable to these activities. Costs associated
with production and general corporate activities are expensed in the period incurred. Normal
dispositions of oil and gas properties are accounted for as adjustments of capitalized costs, with
no gain or loss recognized. Separate full-cost pools are established for each country in which the
Company has exploration activities. Depletion expense was $7,148,000 and $5,754,000 for the six
months ended July 31, 2009 and 2008, respectively.
7
The Company is required to review the carrying value of its oil and gas properties under the full
cost accounting rules of the SEC (the Ceiling Test). The ceiling limitation is the estimated
after-tax future net revenues from proved oil and gas properties discounted at 10%, plus the cost
of properties not subject to amortization. If the net book value of our oil and gas properties,
less related deferred income taxes, is in excess of the calculated ceiling, the excess must be
written off as an expense. Beginning at our fiscal 2010 year end, application of the Ceiling Test
requires pricing future revenues at the 12-month average price, calculated as the unweighted
arithmetic average of the first-day-of-the-month price for each month within the 12-month period
prior to the end of reporting period, unless prices are defined by contractual arrangements such as
the Companys fixed-price physical delivery forward sales contracts. Interim considerations of the
Ceiling Test prior to the fiscal 2010 year end use the period end price; an average price will be
used in the Ceiling Test calculation for annual and interim periods beginning with the Companys
annual period ending January 31, 2010. Unproved oil and gas properties are not amortized, but are
assessed for impairment either individually or on an aggregated basis using a comparison of the
carrying values of the unproved properties to net future cash flows. See Note 3 for a discussion
of the impairment recorded in fiscal year 2010.
Reserve Estimates - The Companys estimates of natural gas reserves, by necessity, are projections
based on geologic and engineering data, and there are uncertainties inherent in the interpretation
of such data as well as the projection of future rates of production and the timing of development
expenditures. Reserve engineering is a subjective process of estimating underground accumulations
of gas that are difficult to measure. The accuracy of any reserve estimate is a function of the
quality of available data, engineering and geological interpretation and judgment. Estimates of
economically recoverable gas reserves and future net cash flows depend upon a number of variable
factors and assumptions, such as historical production from the area compared with production from
other producing areas, the assumed effects of regulations by governmental agencies and assumptions
governing natural gas prices, future operating costs, severance, ad valorem and excise taxes,
development costs and workover and remedial costs, all of which may in fact vary considerably from
actual results. For these reasons, estimates of the economically recoverable quantities of gas
attributable to any particular group of properties, classifications of such reserves based on risk
of recovery, and estimates of the future net cash flows expected there from may vary substantially.
Any significant variance in the assumptions could materially affect the estimated quantity and
value of the reserves, which could affect the carrying value of the Companys oil and gas
properties and the rate of depletion of the oil and gas properties. Actual production, revenues
and expenditures with respect to the Companys reserves will likely vary from estimates, and such
variances may be material.
Goodwill and Other Intangibles - Goodwill and other intangible assets with indefinite useful lives
are not amortized, and instead are periodically tested for impairment. The Company performs its
annual impairment test as of December 31 each year, or more frequently if events or changes in
circumstances indicate that an asset might be impaired. The process of evaluating goodwill for
impairment involves the determination of the fair value of the Companys reporting units. Inherent
in such fair value determinations are certain judgments and estimates, including the interpretation
of current economic indicators and market valuations, and assumptions about the Companys strategic
plans with regard to its operations. The Company believes at this time that the carrying value of
the remaining goodwill is appropriate, although to the extent additional information arises or the
Companys strategies change, it is possible that the Companys conclusions regarding impairment of
the remaining goodwill could change and result in a material effect on its financial position or
results of operations.
Other Long-lived Assets - In the event of an indication of possible impairment, the Company
evaluates the fair value and future benefits of long-lived assets, including the Companys gas
transportation facilities and equipment, by performing an analysis of the anticipated future net
cash flows of the related long-lived assets and reducing their carrying value by the excess, if
any, of the result of such calculation. The Company believes at this time that the carrying values
and useful lives of its long-lived assets continue to be appropriate.
Cash and Cash Equivalents - The Company considers investments with an original maturity of three
months or less when purchased to be cash equivalents. The Companys cash equivalents are subject to
potential credit risk. The Companys cash management and investment policies restrict investments
to investment grade, highly liquid securities. The carrying value of cash and cash equivalents
approximates fair value.
Restricted Deposits - Included in restricted deposits are escrow funds associated with various
acquisitions as described in Note 2 of the Notes to Consolidated Financial Statements.
Accrued Insurance Expense -The Company maintains insurance programs where it is responsible for a
certain amount of each claim up to a self-insured limit. Estimates are recorded for health and
welfare, property and casualty insurance costs that are associated with these programs. These
costs are estimated based on actuarially determined projections of future payments under these
programs. Should a greater amount of claims occur compared to what was estimated or costs of the
8
medical profession increase beyond what was anticipated, reserves recorded may not be sufficient
and additional costs may be incurred.
Costs estimated to be incurred in the future for employee medical benefits, property, workers
compensation and casualty insurance programs resulting from claims which have occurred are accrued
currently. Under the terms of the Companys agreement with the various insurance carriers
administering these claims, the Company is not required to remit the total premium until the claims
are actually paid by the insurance companies. These costs are not expected to significantly impact
liquidity in future periods.
Income Taxes - 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. Deferred tax assets are
reviewed for recoverability and valuation allowances are provided as necessary. Provision for U.S.
income taxes on undistributed earnings of foreign subsidiaries and affiliates is made only on those
amounts in excess of funds considered to be invested indefinitely. In general, the Company records
income tax expense during interim periods based on its best estimate of the full years effective
tax rate. However, income tax expense relating to adjustments to the Companys liabilities for FIN
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109
(FIN48), is accounted for discretely in the interim period in which it occurs.
As of
July 31, 2009 and January 31, 2009, the total amount of unrecognized tax benefits recorded under
FIN 48 was $8,292,000 and $7,612,000, respectively, of which substantially all would affect the
effective tax rate if recognized. The Company does not expect the unrecognized tax benefits to
change materially within the next 12 months. The Company classifies uncertain tax positions as
non-current income tax liabilities unless expected to be paid in one year. The Company reports
income tax-related interest and penalties as a component of income
tax expense. As of July 31, 2009 and
January 31, 2009, the total amount of accrued income tax-related interest and penalties included in
the balance sheet was $3,320,000 and $2,872,000, respectively.
Litigation and Other Contingencies - The Company is involved in litigation incidental to its
business, the disposition of which is not expected to have a material effect on the Companys
business, financial position, results of operations or cash flows. It is possible, however, that
future results of operations for any particular quarterly or annual period could be materially
affected by changes in the Companys assumptions related to these proceedings. The Company accrues
its best estimate of the probable cost for the resolution of legal claims. Such estimates are
developed in consultation with outside counsel handling these matters and are based upon a
combination of litigation and settlement strategies. To the extent additional information arises or
the Companys strategies change, it is possible that the Companys estimate of its probable
liability in these matters may change.
Derivatives -The Company follows SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), as amended, which requires derivative financial instruments to be
recorded on the balance sheet at fair value and establishes criteria for designation and
effectiveness of hedging relationships. Under SFAS 133, the Company accounts for its unrealized
hedges of forecasted costs as cash flow hedges, such that changes in fair value for the effective
portion of hedge contracts, are recorded in accumulated other comprehensive income in stockholders
equity. Changes in the fair value of the effective portion of hedge contracts are recognized in
accumulated other comprehensive income until the hedged item is recognized in operations. The
ineffective portion of the derivatives change in fair value, if any, is immediately recognized in
operations. In addition, the Company has entered into fixed-price natural gas contracts to manage
fluctuations in the price of natural gas. These contracts result in the Company physically
delivering gas, and as a result, are exempt from the requirements of SFAS 133 under the normal
purchases and sales exception. Accordingly, the contracts are not reflected in the balance sheet at
fair value and revenues from the contracts are recognized as the natural gas is delivered under the
terms of the contracts (see Note 6 for disclosure regarding the fair value of derivative
instruments). The Company does not enter into derivative financial instruments for speculative or
trading purposes.
Earnings per share - Earnings per share (EPS) are based upon the weighted average number of
common and dilutive equivalent shares outstanding. Options to purchase common stock and unvested
restricted shares are included based on the treasury stock method for dilutive earnings per share,
except when their effect is antidilutive.
Share-based Compensation - The Company adopted SFAS No. 123R (revised December 2004), Share-Based
Compensation effective February 1, 2006, which requires the recognition of all share-based
instruments in the financial statements and establishes a fair-value measurement of the associated
costs. The Company elected to adopt the standard using the Modified Prospective Method which
requires recognition of all unvested share-based instruments as of the effective date over the
remaining term of the instrument. As of July 31, 2009, the Company had unrecognized compensation
expense
9
of $5,643,000 to be recognized over a weighted average period of 1.82 years. The Company
determines the fair value of stock-based compensation granted in the form of stock options using
the Black-Scholes model.
Supplemental Cash Flow Information - The amounts paid for income taxes and interest are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Ended July 31, |
|
|
2009 |
|
2008 |
Income taxes |
|
$ |
6,075 |
|
|
$ |
15,209 |
|
Interest |
|
|
1,948 |
|
|
|
1,912 |
|
The Company had earnings on restricted deposits of $1,000 and $19,000 for the six months ended July
31, 2009 and 2008, respectively, which were treated as non-cash items as the earnings were
restricted for the account of the escrow beneficiaries. Also for the six months ended July 31,
2009, the Company received land and buildings valued at $2,828,000 in a non-cash settlement of a
legal dispute in Australia, and made a non-cash distribution of $280,000 of common stock for a
prior year acquisition. See Note 2 for a discussion of acquisition activity.
During fiscal year 2009, the Company entered into financing obligations for software licenses
amounting to $1,298,000, payable over three years. The associated assets are recorded as Other
Intangible Assets in the balance sheet.
New Accounting Pronouncements - In February 2008, the Financial Accounting Standards Board (the
FASB) issued Staff Position 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which
delayed the effective date of SFAS 157, Fair Value Measurements (SFAS 157), for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually), until fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years. These
nonfinancial items include assets and liabilities such as reporting units measured at fair value in
a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business
combination. On February 1, 2009, the Company adopted SFAS 157 for those nonfinancial assets within
the scope of FSP 157-2. Adoption of SFAS 157 for those nonfinancial assets did not have a material
impact on the Companys financial position, results of operations or liquidity.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. The Company adopted this standard as of February 1, 2009. The adoption of
SFAS 141R did not have a significant effect on the Companys financial position, results of
operations or liquidity.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements - an amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 requires
us to classify noncontrolling interests (previously referred to as minority interest) as part of
consolidated net earnings and to include the accumulated amount of noncontrolling interests,
previously classified as minority interest outside of equity, as part of stockholders equity.
Since there was no income attributable to noncontrolling interests during the periods presented
herein, net income and earnings per share continue to reflect amounts attributable only to the
Company. In our presentation of stockholders equity we distinguish between equity amounts
attributable to Layne Christensen Company stockholders and amounts attributable to the
noncontrolling interests. In addition to these financial reporting changes, SFAS 160 provides for
significant changes in accounting related to noncontrolling interests; specifically, increases and
decreases in our controlling financial interests in consolidated subsidiaries will be reported in
equity similar to treasury stock transactions. If a change in ownership of a consolidated
subsidiary results in loss of control and deconsolidation, any retained ownership interests are
remeasured with the gain or loss reported in net earnings. The Company adopted this standard,
which is applied retrospectively, as of February 1, 2009, and reclassified minority interest in the
amounts of $75,000 as of February 1, 2009 and $398,000 as of February 1, 2008, as a component of
stockholders equity.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets, which expands the disclosures requirement by SFAS No. 132(R)
Employers Disclosures about Pensions and Other Postretirement Benefits, to discuss the
assumptions and risks used to compute fair value of each category of plan assets. Staff Position
132(R)-1 is effective for fiscal years ending after December 15, 2009, and will be adopted by the
Company as of the year end measurement date of January 31, 2010. The Company does not expect the
adoption of Staff Position 132(R)-1 to have a material impact on its financial position, results of
operations, or cash flows.
10
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. The Company adopted this standard
as of February 1, 2009. The adoption of SFAS 161 did not have a material impact on the Companys
financial position, results of operations or liquidity.
In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities, (FSP EITF 03-6-1). Under this
FSP, unvested share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents, whether they are paid or unpaid, are considered participating securities and
should be included in the computation of earnings per share pursuant to the two-class method. The
Company adopted FSP EITF 03-6-1 as of February 1, 2009, and concluded that it has no such
participating securities to consider for purposes of its shares outstanding and EPS calculations.
In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly, which provides additional guidance in accordance with SFAS No. 157. If an
entity determines that either the volume or level of activity for an asset or liability has
significantly decreased from normal conditions, or that price quotations or observable inputs are
not associated with orderly transactions, increased analysis and management judgment will be
required to estimate fair value. The objective in fair value measurement remains unchanged from
what is prescribed in SFAS No. 157 and should be reflective of the current exit price. FSP No. FAS
157-4 is effective for interim and annual reporting periods ending after June 15, 2009. The Company
does not currently have any assets or liabilities impacted by the guidance in FSP No. FAS 157-4 and
the adoption did not have a material impact on its financial position, results of operations or
cash flows.
In April 2009, the FASB issued FSP No. FAS 107-1 and Accounting Principles Bulletin (APB) No. 28-1,
Interim Disclosures about Fair Value of Financial Instruments, to require disclosures about fair
value of financial instruments for publicly traded companies for both interim and annual periods.
Historically, these disclosures were only required annually. The interim disclosures are intended
to provide financial statement users with more timely and transparent information about the effects
of current market conditions on an entitys financial instruments that are not otherwise reported
at fair value. FSP No. FAS 107-1 is effective for interim reporting periods ending after June 15,
2009. Comparative disclosures are only required for periods ending after the initial adoption. The
adoption of FSP No. FAS 107-1 did not have a material impact on our financial position, results of
operations or cash flows.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165) which establishes
accounting and disclosure requirements for subsequent events. SFAS 165 details the period after the
balance sheet date during which the Company should evaluate events or transactions that occur for
potential recognition or disclosure in the financial statements, the circumstances under which the
Company should recognize events or transactions occurring after the balance sheet date in its
financial statements and the required disclosures for such events. The Company adopted this
statement for the period ending July 31, 2009 and has evaluated subsequent events through September
4, 2009, the filing date of this report.
In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167),
which amends the consolidation guidance applicable to variable interest entities. The amendments
will significantly affect the overall consolidation analysis under FIN 46(R). SFAS 167 will be
effective as of the beginning of the Companys fiscal year ending January 31, 2011. The Company
does not expect the adoption of SFAS 167 to have a material impact on its financial position,
results of operations or cash flows.
In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 will become the
single source of authoritative nongovernmental U.S. generally accepted accounting principles
(GAAP), superseding existing FASB, American Institute of Certified Public Accountants, Emerging
Issues Task Force, and related accounting literature. SFAS 168 reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a consistent structure.
Also included is relevant Securities and Exchange Commission guidance organized using the same
topical structure in separate sections. SFAS 168 will be effective for financial statements issued
for reporting periods that end after September 15, 2009. The adoption of SFAS 168 will not impact
the Companys financial position, results of operations or liquidity.
11
2. Acquisitions
Fiscal Year 2010
On May 1, 2009 the Company acquired certain equipment and other assets of Meadow Equipment Sales &
Service, Inc. (Meadow), a construction company operating primarily in the Midwestern United
States. The aggregate purchase price was $600,000 and was paid in cash.
The purchase price for the acquisition has been allocated based on the fair value of the assets
acquired, determined based on the Companys internal operational assessments and other analyses.
Based on the Companys allocation of the purchase price, the acquisition had the following effect
on the Companys consolidated financial position as of the Meadow closing date:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Property and equipment |
|
$ |
575 |
|
Other intangible assets |
|
|
25 |
|
|
|
Total purchase price |
|
$ |
600 |
|
|
|
The identifiable intangible assets associated with Meadow consist of non-compete agreements valued
at $25,000 and have a weighted-average life of three years.
The results of operations of Meadow have been included in the Companys consolidated statements of
income commencing with the closing date. Pro forma amounts for prior periods have not been
presented since the acquisition would not have had a significant effect on the Companys
consolidated revenues or net income.
On June 16, 2006 the Company acquired 100% of the outstanding stock Collector Wells International,
Inc. (CWI), a privately held specialty water services company that designs and constructs water
supply systems. Under the terms of the purchase, there was contingent consideration up to a
maximum of $1,400,000 (the Earnout Amount), which was based on a percentage of the amount by
which CWIs earnings before interest, taxes, depreciation and amortization exceeded a threshold
amount during the 36 months following the acquisition. During June 2009, the Company determined
that the maximum consideration was achieved and settled the Earnout Amount, consisting of
$1,120,000 in cash and $280,000 of Layne common stock, valued based on the average closing price of
the five trading days ending June 9, 2009. The Company paid the cash portion of the settlement on
July 10, 2009 and issued 12,677 shares of Layne common stock in payment of the stock portion. The
Earnout Amount has been accounted for as additional purchase consideration, and accordingly the
Company recorded $1,400,000 of additional goodwill in July 2009.
On November 30, 2007, the Company acquired certain assets and liabilities of SolmeteX Inc. (SolmeteX), a water
and wastewater research and development business and supplier of wastewater filtration products to
the dental market. In addition to the initial purchase price, there is contingent consideration up
to a maximum of $1,000,000 (the SolmeteX Earnout Amount), which is based on a percentage of the
amount of SolmeteXs revenues during the 36 months following the acquisition. Any portion of the
SolmeteX Earnout Amount that is ultimately paid will be accounted for as additional purchase
consideration. Through July 31, 2009, the contingent earnout consideration earned by SolmeteX was
$262,000, of which $33,000 was paid in March 2008 and $229,000 was paid in April 2009.
Fiscal Year 2009
The Company completed three acquisitions during the fiscal 2009 year as described below:
|
|
On October 24, 2008, the Company acquired 100% of the stock of Meadors Construction Co.,
Inc. (Meadors), a construction company operating primarily in Florida. The operation was
combined with similar service lines and serves to foster our further expansion into
Florida and the southeast. |
|
|
|
On August 7, 2008, the Company acquired certain assets and liabilities of Moore & Tabor, a
geotechnical construction firm operating in California. |
|
|
|
On May 5, 2008, the Company acquired certain assets and liabilities of Wittman Hydro
Planning Associates (WHPA), a water consulting firm specializing in hydrologic systems
modeling and analysis. |
12
The aggregate purchase price of $8,925,000, comprised of cash of $8,815,000 ($1,150,000 of
which was placed in escrow to secure certain representations, warranties and idemnifications under
the purchase agreements) and expenses of $110,000, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moore |
|
|
|
|
|
|
Meadors |
|
& Tabor |
|
WHPA |
|
Total |
|
Cash |
|
$ |
4,536 |
|
|
$ |
1,785 |
|
|
$ |
2,494 |
|
|
$ |
8,815 |
|
Expenses |
|
|
53 |
|
|
|
33 |
|
|
|
24 |
|
|
|
110 |
|
|
Total purchase price |
|
$ |
4,589 |
|
|
$ |
1,818 |
|
|
$ |
2,518 |
|
|
$ |
8,925 |
|
|
Escrow deposits |
|
$ |
700 |
|
|
$ |
150 |
|
|
$ |
300 |
|
|
$ |
1,150 |
|
|
The purchase price for each acquisition has been allocated based on the fair value of the
assets and liabilities acquired, determined based on the Companys internal operational assessments
and other analyses. Based on the Companys allocations of the purchase price, the acquisitions had
the following effect on the Companys consolidated financial position as of their respective
closing dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moore |
|
|
|
|
|
|
Meadors |
|
& Tabor |
|
WHPA |
|
Total |
|
Working capital |
|
$ |
2,072 |
|
|
$ |
427 |
|
|
$ |
394 |
|
|
$ |
2,893 |
|
Property and equipment |
|
|
592 |
|
|
|
798 |
|
|
|
40 |
|
|
|
1,430 |
|
Goodwill |
|
|
1,865 |
|
|
|
593 |
|
|
|
1,832 |
|
|
|
4,290 |
|
Deferred income taxes |
|
|
60 |
|
|
|
|
|
|
|
250 |
|
|
|
310 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
Total purchase price |
|
$ |
4,589 |
|
|
$ |
1,818 |
|
|
$ |
2,518 |
|
|
$ |
8,925 |
|
|
The identifiable intangible assets associated with Meadors consist of non-compete agreements
valued at $60,000 and have a weighted-average life of two years. The identifiable intangible
assets associated with WHPA consist of patents valued at $250,000, and have a weighted-average life
of 15 years. The $4,290,000 of aggregate goodwill was assigned to the water infrastructure segment
and is expected to be deductible for tax purposes.
The results of operations of the acquired entities have been included in the Companys consolidated
statements of income commencing with the respective closing dates. Pro forma amounts for prior
periods have not been presented as the acquisitions would not have had a significant effect on the
Companys consolidated revenues or net income.
In addition to the initial purchase price, there is contingent consideration up to a maximum of
$2,500,000 (the WHPA Earnout Amount), which is based on a percentage of the amount by which
WHPAs earnings before interest, taxes, depreciation and amortization exceed a threshold amount
during the 36 months following the acquisition. If earned, up to 80% of the WHPA Earnout Amount may
be paid with Layne common stock, at the Companys discretion. Any portion of the WHPA Earnout
Amount which is ultimately paid will be accounted for as additional purchase consideration.
3. Impairment of Oil and Gas Properties
As of July 31, 2009, the Company completed its determination of oil and gas reserves for its
energy division. This determination was made according to SEC guidelines and used gas prices at
July 31, 2009, of $2.89 per Mcf, compared to a price of $3.29 per Mcf on January 31, 2009.
Primarily as a result of the lower price, the expected future cash flows and gas reserve volumes
were significantly reduced. Accordingly, for the three months ended July 31, 2009, the Company
recorded a non-cash impairment charge of $21,642,000, or $13,039,000 after income tax, for the
carrying value of the assets in excess of the limitation computed by the Ceiling Test. The Company
did not have Ceiling Test impairments during the six months ending July 31, 2008. The Company also
recorded a Ceiling Test impairment of $26,690,000 or $16,081,000 after income tax for the three
months ended January 31, 2009.
13
4. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2009 |
|
|
January 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Gross |
|
|
|
|
|
|
Amortization |
|
|
Gross |
|
|
|
|
|
|
Amortization |
|
|
|
Carrying |
|
|
Accumulated |
|
|
Period in |
|
|
Carrying |
|
|
Accumulated |
|
|
Period in |
|
|
|
Amount |
|
|
Amortization |
|
|
years |
|
|
Amount |
|
|
Amortization |
|
|
years |
|
Goodwill |
|
$ |
91,674 |
|
|
$ |
|
|
|
|
|
|
|
$ |
90,029 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames |
|
$ |
18,962 |
|
|
$ |
(2,680 |
) |
|
|
29 |
|
|
$ |
18,962 |
|
|
$ |
(2,275 |
) |
|
|
29 |
|
Customer-related |
|
|
332 |
|
|
|
(332 |
) |
|
|
2 |
|
|
|
332 |
|
|
|
(332 |
) |
|
|
2 |
|
Patents |
|
|
3,152 |
|
|
|
(662 |
) |
|
|
14 |
|
|
|
3,152 |
|
|
|
(569 |
) |
|
|
14 |
|
Non-competition agreements |
|
|
464 |
|
|
|
(404 |
) |
|
|
5 |
|
|
|
439 |
|
|
|
(387 |
) |
|
|
5 |
|
Other |
|
|
2,590 |
|
|
|
(1,165 |
) |
|
|
12 |
|
|
|
2,590 |
|
|
|
(910 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets |
|
$ |
25,500 |
|
|
$ |
(5,243 |
) |
|
|
|
|
|
$ |
25,475 |
|
|
$ |
(4,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets are being amortized over their estimated lives of two to 40
years with a weighted average amortization period of 26 years. Total amortization expense for
other intangible assets was $386,000 and $311,000 for the three months ended July 31, 2009 and
2008, respectively, and $770,000 and $614,000 for the six months ended July 31, 2009 and 2008,
respectively.
The carrying amount of goodwill attributed to each operating segment was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water |
|
|
|
|
|
|
Energy |
|
|
Infrastructure |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Balance February 1, 2009 |
|
$ |
950 |
|
|
$ |
89,079 |
|
|
$ |
90,029 |
|
Additions |
|
|
|
|
|
|
1,645 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2009 |
|
$ |
950 |
|
|
$ |
90,724 |
|
|
$ |
91,674 |
|
|
|
|
|
|
|
|
|
|
|
5. Indebtedness
The Company maintains an agreement (Master Shelf Agreement) whereby it can issue an
additional $45,000,000 in unsecured notes before September 15, 2009. On July 31, 2003, the Company
issued $40,000,000 of notes (Series A Senior Notes) under the Master Shelf Agreement. The Series
A Senior Notes bear a fixed interest rate of 6.05% and are due on July 31, 2010, with annual
principal payments of $13,333,000 that began on July 31, 2008. The Company also issued
$20,000,000 of notes under the Master Shelf Agreement in October 2004 (Series B Senior Notes).
The Series B Senior Notes bear a fixed interest rate of 5.40% and are due on September 29, 2011,
with annual principal payments of $6,667,000 beginning September 29, 2009.
The Company also maintains a revolving credit facility under an Amended and Restated Loan Agreement
(the Credit Agreement) with Bank of America, N.A., as Administrative Agent and as Lender (the
Administrative Agent), and the other Lenders listed therein (the Lenders), which contains a
revolving loan commitment of $200,000,000, less any outstanding letter of credit commitments (which
are subject to a $30,000,000 sublimit).
The Credit Agreement provides for interest at variable rates equal to, at the Companys option, a
LIBOR rate plus 0.75% to 2.00%, or a base rate, as defined in the Credit Agreement, plus up to
0.50%, depending upon the Companys leverage ratio. The Credit Agreement is unsecured and is due
and payable November 15, 2011. On July 31, 2009, there were letters of credit of $15,499,000 and
no borrowings outstanding on the Credit Agreement resulting in available capacity of $184,501,000.
The Master Shelf Agreement and the Credit Agreement contain certain covenants including
restrictions on the incurrence of additional indebtedness and liens, investments, acquisitions,
transfer or sale of assets, transactions with affiliates, payment of dividends and certain
financial maintenance covenants, including among others, fixed charge coverage, leverage and
minimum tangible net worth. The Company was in compliance with its covenants as of July 31, 2009.
14
Debt outstanding as of July 31, 2009 and January 31, 2009, whose carrying value approximates fair
value, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
January 31, |
|
|
|
2009 |
|
|
2009 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
Credit Agreement |
|
$ |
|
|
|
$ |
|
|
Senior Notes |
|
|
33,333 |
|
|
|
46,667 |
|
|
|
|
|
|
|
|
Total debt |
|
|
33,333 |
|
|
|
46,667 |
|
|
|
|
|
|
|
|
Less current maturities |
|
|
(20,000 |
) |
|
|
(20,000 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
13,333 |
|
|
$ |
26,667 |
|
|
|
|
|
|
|
|
6. Derivatives
The Companys energy division is exposed to fluctuations in the price of natural gas and has
entered into fixed-price physical delivery forward sales contracts to manage natural gas price risk for its
production. As of July 31, 2009, the Company had committed to deliver 3,645,000 million British
Thermal Units (MMBtu) of natural gas through March 2010 at prices ranging from $7.48 to $10.54
per MMBtu.
The fixed-price physical delivery forward sales contracts will result in the physical delivery of natural gas,
and as a result, are exempt from the requirements of SFAS 133 under the normal purchases and sales
exception. Accordingly, the contracts are not reflected in the balance sheet at fair value and
revenues from the contracts are recognized as the natural gas is delivered under the terms of the
contracts. The estimated fair value of such contracts at July 31, 2009, was $15,164,000 which is
determined by comparing the anticipated future cash flows using both the current natural gas spot
price and the price of the Companys fixed-price physical delivery forward sales contracts.
Additionally, the Company has foreign operations that have significant costs denominated in foreign
currencies, and thus is exposed to risks associated with changes in foreign currency exchange
rates. At any point in time, the Company might use various hedge instruments, primarily foreign
currency option contracts, to manage the exposures associated with forecasted expatriate labor
costs and purchases of operating supplies. As of July 31, 2009, the Company held option contracts
with an aggregate U.S. dollar notional value of $4,900,000 which are intended to hedge exposure to
Australian dollar fluctuations over a period to January 31, 2010. As of July 31, 2009 and January
31, 2009, respectively, the fair value of outstanding derivatives was a gain of $795,000, recorded
in other current assets, and a loss of $158,000, recorded in other accrued expenses on the
consolidated balance sheet. The fair value of foreign currency contracts is estimated based on
comparable quotes from brokers. The Company does not enter into foreign currency derivative
financial instruments for speculative or trading purposes.
7. Other
Comprehensive Income
Components of other comprehensive (loss) income are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income |
|
$ |
(8,640 |
) |
|
$ |
15,096 |
|
|
$ |
(7,644 |
) |
|
$ |
25,658 |
|
Other comprehensive (loss) income, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
1,518 |
|
|
|
(22 |
) |
|
|
1,803 |
|
|
|
439 |
|
Change in unrealized loss of foreign exchange contracts |
|
|
699 |
|
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
$ |
(6,423 |
) |
|
$ |
15,074 |
|
|
$ |
(5,260 |
) |
|
$ |
26,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The components of accumulated other comprehensive loss for the six months ended July 31, 2009 and
2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Accumulated |
|
|
|
Cumulative |
|
|
Unrecognized |
|
|
Gain (Loss) |
|
|
Other |
|
|
|
Translation |
|
|
Pension |
|
|
on Exchange |
|
|
Comprehensive |
|
|
|
Adjustment |
|
|
Liability |
|
|
Contracts |
|
|
Loss |
|
Balance, February 1, 2009 |
|
$ |
(8,940 |
) |
|
$ |
(1,017 |
) |
|
$ |
(96 |
) |
|
$ |
(10,053 |
) |
Period change |
|
|
1,803 |
|
|
|
|
|
|
|
581 |
|
|
|
2,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2009 |
|
$ |
(7,137 |
) |
|
$ |
(1,017 |
) |
|
$ |
485 |
|
|
$ |
(7,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Accumulated |
|
|
|
Cumulative |
|
|
Unrecognized |
|
|
Gain (Loss) |
|
|
Other |
|
|
|
Translation |
|
|
Pension |
|
|
on Exchange |
|
|
Comprehensive |
|
|
|
Adjustment |
|
|
Liability |
|
|
Contracts |
|
|
Loss |
|
Balance, February 1, 2008 |
|
$ |
(6,391 |
) |
|
$ |
(596 |
) |
|
$ |
|
|
|
$ |
(6,987 |
) |
Period change |
|
|
439 |
|
|
|
|
|
|
|
|
|
|
|
439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2008 |
|
$ |
(5,952 |
) |
|
$ |
(596 |
) |
|
$ |
|
|
|
$ |
(6,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Litigation Settlement Gains
In fiscal 2000, the Company initiated litigation against a former owner of a subsidiary and
associated partners. The action stemmed from alleged competition in violation of non-competition
agreements, and sought damages for lost profits and recovery of legal expenses. During the first
quarter of fiscal 2010, the Company entered into an agreement whereby it received certain land and
buildings in settlement of these claims. The settlement was valued at $2,828,000, based on
managements estimate of the fair market value of the land and buildings received considering
current market conditions and information provided by a third party appraisal.
In fiscal 2008, the Company initiated litigation against former officers of a subsidiary and
associated energy production companies. During September 2008, the Company entered into a
settlement agreement whereby it will receive certain payments over a period through September 2009.
Payments of $333,000 were received during the first quarter of fiscal 2010, net of contingent
attorney fees.
9. Other Income (Expense)
Other income (expense) consisted of the following for the three and six months ended July 31, 2009
and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Gain (loss) from disposal of property and equipment |
|
$ |
(39 |
) |
|
$ |
(388 |
) |
|
$ |
7 |
|
|
$ |
(624 |
) |
Interest income |
|
|
165 |
|
|
|
372 |
|
|
|
221 |
|
|
|
826 |
|
Currency exchange (loss) gain |
|
|
(64 |
) |
|
|
(56 |
) |
|
|
(569 |
) |
|
|
24 |
|
Other |
|
|
(75 |
) |
|
|
765 |
|
|
|
(297 |
) |
|
|
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(13 |
) |
|
$ |
693 |
|
|
$ |
(638 |
) |
|
$ |
647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Employee Benefit Plans
The Company sponsors a pension plan covering certain hourly employees not covered by
union-sponsored, multi-employer plans. Benefits are computed based mainly on years of service.
The Company makes annual contributions to the plan substantially equal to the amounts required to
maintain the qualified status of the plans. Contributions are intended to provide for benefits
related to past and current service with the Company. Effective December 31, 2003, the Company
froze the pension plan. Benefits will no longer be accrued after December 31, 2003, and no further
employees will be added to the Plan. Depending on market conditions, the Company expects to use
assets of the plan to settle its benefit obligations during 2010. Assets of the plan consist
primarily of bonds and government securities.
16
Net periodic pension cost for the three and six months ended July 31, 2009 and 2008 includes the
following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
22 |
|
|
$ |
29 |
|
|
$ |
44 |
|
|
$ |
53 |
|
Interest cost |
|
|
119 |
|
|
|
136 |
|
|
|
238 |
|
|
|
249 |
|
Expected return on assets |
|
|
(67 |
) |
|
|
(161 |
) |
|
|
(134 |
) |
|
|
(295 |
) |
Net amortization |
|
|
26 |
|
|
|
13 |
|
|
|
52 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
100 |
|
|
$ |
17 |
|
|
$ |
200 |
|
|
$ |
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also provides supplemental retirement benefits to its chief executive officer.
Benefits are computed based on the compensation earned during the highest five consecutive years of
employment reduced for a portion of Social Security benefits and an annuity equivalent of the chief
executives defined contribution plan balance. The Company does not contribute to the plan or
maintain any investment assets related to the expected benefit obligation. The Company has
recognized the full amount of its actuarially determined pension liability. Net periodic pension
cost of the supplemental retirement benefits for the three and six months ended July 31, 2009 and
2008 include the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
73 |
|
|
$ |
80 |
|
|
$ |
146 |
|
|
$ |
124 |
|
Interest cost |
|
|
44 |
|
|
|
40 |
|
|
|
88 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
117 |
|
|
$ |
120 |
|
|
$ |
234 |
|
|
$ |
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Fair Value Measurements
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value,
establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price
assets or liabilities, and expands disclosures about fair value measurements. The hierarchy
requires the Company to maximize the use of observable inputs and minimize the use of unobservable
inputs. The three levels of inputs used to measure fair value are listed below:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than those included in Level 1, such as quoted market
prices for similar assets and liabilities in active markets or quoted prices for identical
assets in inactive markets.
Level 3 Unobservable inputs reflecting our own assumptions and best estimate of what
inputs market participants would use in pricing an asset or liability.
The Companys assessment of the significance of a particular input to the fair value in its
entirety requires judgment and considers factors specific to the asset or liability. The Companys
financial instruments held at fair value, which include short term cash equivalents, restricted
deposits held in acquisition escrow accounts, and foreign exchange forward contracts, are presented
below as of July 31, 2009 and January 31, 2009 (in thousands):
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Fair Value Measurements |
|
|
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
July 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents held at fair value |
|
$ |
20,136 |
|
|
$ |
20,136 |
|
|
$ |
|
|
|
$ |
|
|
Restricted deposits held at fair value |
|
|
1,414 |
|
|
|
1,414 |
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
|
795 |
|
|
|
|
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22,345 |
|
|
$ |
21,550 |
|
|
$ |
795 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted deposits held at fair value |
|
$ |
1,929 |
|
|
$ |
1,929 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
$ |
(158 |
) |
|
$ |
|
|
|
$ |
(158 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no Level 3 fair value measurements during the six months ended July 31, 2009, or
for the year ended January 31, 2009.
12. Stock and Stock Option Plans
In October 2008, the Company amended the Rights Agreement signed October 1998 whereby the Company
has authorized and declared a dividend of one preferred share purchase right (Right) for each
outstanding common share of the Company. Subject to limited exceptions, the Rights are exercisable
if a person or group acquires or announces a tender offer for 20% or more of the Companys common
stock. Each Right will entitle shareholders to buy one one-hundredth of a share of a newly created
Series A Junior Participating Preferred Stock of the Company at an exercise price of $75.00. The
Company is entitled to redeem the Right at $0.01 per Right at any time before a person has acquired
20% or more of the Companys outstanding common stock. The Rights expire three years from the date
of grant.
The Company has stock option and employee incentive plans that provide for the granting of options
to purchase or the issuance of shares of common stock at a price fixed by the Board of Directors or
a committee. As of July 31, 2009, there were an aggregate of 2,850,000 shares registered under the
plans, 1,537,000 of which remain available to be granted under the plans. Of this amount, 250,000
shares may only be granted as stock in payment of bonuses, and 1,287,000 may be issued as stock or
options. The Company has the ability to issue shares under the plans either from new issuances or
from treasury, although it has previously always issued new shares and expects to continue to issue
new shares in the future. For the six months ended July 31, 2009, the Company granted approximately
13,000 restricted shares which generally ratably vest over periods of one to four years from the
grant date.
The Company recognized $3,753,000 and $2,084,000 of compensation cost for these share-based plans
during the six months ended July 31, 2009 and 2008, respectively. Of these amounts, $739,000 and
$645,000, respectively, related to nonvested stock. The total income tax benefit recognized for
share-based compensation arrangements was $1,464,000 and $805,000 for the six months ended July 31,
2009 and 2008, respectively.
18
A summary of nonvested share activity for the six months ended July 31, 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Intrinsic |
|
|
Number of |
|
Grant Date |
|
Value (in |
|
|
Shares |
|
Fair Value |
|
thousands) |
|
Nonvested stock at
January 31, 2009 |
|
|
89,809 |
|
|
$ |
40.48 |
|
|
|
|
|
|
Granted |
|
|
12,771 |
|
|
|
17.79 |
|
|
|
|
|
Vested |
|
|
(22,744 |
) |
|
|
42.22 |
|
|
|
|
|
|
Nonvested stock at
July 31, 2009 |
|
|
79,836 |
|
|
$ |
36.35 |
|
|
$ |
1,895 |
|
|
Significant option groups outstanding at July 31, 2009, related exercise price and remaining
contractual term follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
Grant |
|
Options |
|
Options |
|
Exercise |
|
Term |
Date |
|
Outstanding |
|
Exercisable |
|
Price |
|
(Months) |
|
2/00
|
|
|
1,900 |
|
|
|
1,900 |
|
|
$ |
5.500 |
|
|
|
7 |
|
4/00
|
|
|
13,794 |
|
|
|
13,794 |
|
|
|
3.495 |
|
|
|
9 |
|
6/04
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
16.600 |
|
|
|
59 |
|
6/04
|
|
|
77,376 |
|
|
|
77,376 |
|
|
|
16.650 |
|
|
|
59 |
|
6/05
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
17.540 |
|
|
|
71 |
|
9/05
|
|
|
157,000 |
|
|
|
94,500 |
|
|
|
23.050 |
|
|
|
74 |
|
1/06
|
|
|
191,481 |
|
|
|
138,923 |
|
|
|
27.870 |
|
|
|
78 |
|
6/06
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
29.290 |
|
|
|
83 |
|
6/06
|
|
|
70,000 |
|
|
|
52,500 |
|
|
|
29.290 |
|
|
|
83 |
|
6/07
|
|
|
65,625 |
|
|
|
30,625 |
|
|
|
42.260 |
|
|
|
95 |
|
7/07
|
|
|
33,000 |
|
|
|
16,500 |
|
|
|
42.760 |
|
|
|
96 |
|
9/07
|
|
|
3,000 |
|
|
|
750 |
|
|
|
55.480 |
|
|
|
98 |
|
2/08
|
|
|
74,524 |
|
|
|
24,835 |
|
|
|
35.710 |
|
|
|
102 |
|
1/09
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
24.010 |
|
|
|
113 |
|
2/09
|
|
|
201,311 |
|
|
|
|
|
|
|
15.780 |
|
|
|
114 |
|
2/09
|
|
|
4,580 |
|
|
|
4,580 |
|
|
|
15.780 |
|
|
|
114 |
|
6/09
|
|
|
108,582 |
|
|
|
|
|
|
|
21.990 |
|
|
|
118 |
|
6/09
|
|
|
2,472 |
|
|
|
2,472 |
|
|
|
21.990 |
|
|
|
118 |
|
|
|
|
|
1,050,645 |
|
|
|
504,755 |
|
|
|
|
|
|
|
|
|
|
19
All options were granted at an exercise price equal to the fair market value of the Companys
common stock at the date of grant. The weighted average fair value at the date of grant for the
options granted was $9.92 and $16.54 for the six months ended July 31, 2009 and 2008, respectively.
The options have terms of ten years from the date of grant and generally vest ratably over periods
of one month to five years. Transactions for stock options for the six months ended July 31, 2009,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted |
|
Remaining |
|
Intrinsic |
|
|
Number of |
|
Average |
|
Contractual Term |
|
Value |
|
|
Shares |
|
Exercise Price |
|
(years) |
|
(in thousands) |
|
|
|
Stock Option Activity Summary: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 1, 2009 |
|
|
741,441 |
|
|
$ |
27.435 |
|
|
|
6.99 |
|
|
$ |
279 |
|
Granted |
|
|
316,945 |
|
|
|
17.956 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(7,741 |
) |
|
|
4.125 |
|
|
|
|
|
|
|
129 |
|
Canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2009 |
|
|
1,050,645 |
|
|
|
24.747 |
|
|
|
7.47 |
|
|
|
3,003 |
|
|
|
|
Shares Exercisable |
|
|
504,755 |
|
|
|
25.624 |
|
|
|
6.28 |
|
|
|
1,171 |
|
|
|
|
The aggregate intrinsic value was calculated using the difference between the current market price
and the exercise price for only those options that have an exercise price less than the current
market price.
13. Operating Segments
The Company is a multinational company that provides sophisticated services and related
products to a variety of markets, as well as being a producer of unconventional natural gas for the
energy market. Management defines the Companys operational organizational structure into discrete
divisions based on its primary product lines. Each division comprises a combination of individual
district offices, which primarily offer similar types of services and serve similar types of
markets. The Companys reportable segments are defined as follows:
Water Infrastructure Division
This division provides a full line of water-related services and products including
hydrological studies, site selection, well design, drilling and development, pump installation, and
well rehabilitation. The divisions offerings also include the design and construction of water
and wastewater treatment facilities, the provision of filter media and membranes to treat volatile
organics and other contaminants such as nitrates, iron, manganese, arsenic, radium and radon in
groundwater, Ranney collector wells, sewer rehabilitation and water and wastewater transmission
lines. The division also offers environmental services to assess and monitor groundwater
contaminants.
Mineral Exploration Division
This division provides a complete range of drilling services for the mineral exploration
industry. Its aboveground and underground drilling activities include all phases of core drilling,
diamond, reverse circulation, dual tube, hammer and rotary air-blast methods.
Energy Division
This division focuses on exploration and production of unconventional gas properties,
primarily concentrating on projects in the mid-continent region of the United States.
Other
Other includes two small specialty energy service companies and any other specialty operations
not included in one of the other divisions.
Financial information (in thousands) for the Companys operating segments are presented below.
Unallocated corporate expenses primarily consist of general and administrative functions performed
on a company-wide basis and benefiting all operating segments. These costs include accounting,
financial reporting, internal audit, safety, treasury, corporate and securities law, tax
compliance, certain executive management (chief executive officer, chief financial officer and
general counsel) and board of directors.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water infrastructure |
|
$ |
174,141 |
|
|
$ |
196,005 |
|
|
$ |
342,228 |
|
|
$ |
376,578 |
|
Mineral exploration |
|
|
30,257 |
|
|
|
59,575 |
|
|
|
55,051 |
|
|
|
110,669 |
|
Energy |
|
|
11,988 |
|
|
|
12,086 |
|
|
|
22,309 |
|
|
|
23,965 |
|
Other |
|
|
841 |
|
|
|
1,972 |
|
|
|
1,831 |
|
|
|
2,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
217,227 |
|
|
$ |
269,638 |
|
|
$ |
421,419 |
|
|
$ |
514,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral exploration |
|
$ |
2,351 |
|
|
$ |
3,812 |
|
|
$ |
4,286 |
|
|
$ |
6,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water infrastructure |
|
$ |
8,253 |
|
|
$ |
13,150 |
|
|
$ |
12,780 |
|
|
$ |
22,339 |
|
Mineral exploration |
|
|
3,543 |
|
|
|
15,279 |
|
|
|
5,310 |
|
|
|
26,915 |
|
Energy |
|
|
(17,473 |
) |
|
|
3,566 |
|
|
|
(14,885 |
) |
|
|
8,042 |
|
Other |
|
|
(11 |
) |
|
|
839 |
|
|
|
137 |
|
|
|
859 |
|
Unallocated corporate expenses |
|
|
(6,520 |
) |
|
|
(6,970 |
) |
|
|
(12,824 |
) |
|
|
(12,821 |
) |
Interest expense |
|
|
(812 |
) |
|
|
(1,019 |
) |
|
|
(1,622 |
) |
|
|
(1,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes |
|
$ |
(13,020 |
) |
|
$ |
24,845 |
|
|
$ |
(11,104 |
) |
|
$ |
43,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
190,863 |
|
|
$ |
219,942 |
|
|
$ |
373,269 |
|
|
$ |
420,382 |
|
Africa/Australia |
|
|
14,141 |
|
|
|
28,163 |
|
|
|
24,516 |
|
|
|
54,837 |
|
Mexico |
|
|
5,988 |
|
|
|
12,942 |
|
|
|
10,996 |
|
|
|
23,742 |
|
Other foreign |
|
|
6,235 |
|
|
|
8,591 |
|
|
|
12,638 |
|
|
|
15,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
217,227 |
|
|
$ |
269,638 |
|
|
$ |
421,419 |
|
|
$ |
514,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Contingencies
The Companys 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, bundled 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 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 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 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 Companys business. The Company believes that the ultimate disposition
of these matters will not, individually and in the aggregate, have a material adverse effect upon
its business or consolidated financial position, results of operations or cash flows.
On April 30, 2008, Levelland/Hockley County Ethanol, LLC (Levelland) filed a Complaint against
the Company in the District Court for Hockley County, Texas. On May 28, 2008, the Company removed
the case to the United States District Court for the Northern District of Texas, Lubbock Division.
On June 2, 2008, Levelland filed a First Amended Complaint against the Company in the Federal
District Court for the Northern District of Texas, Lubbock Division. Levelland owns an ethanol
plant located in Levelland, Texas. In July 2007, Levelland entered into a lease agreement with the
Company for certain water treatment equipment for the ethanol plant. Levelland alleged that the
equipment leased from the Company failed to treat the water coming into the ethanol plant to
required levels. The First Amended Complaint sought damages for breach of contract, breach of
warranty, violation of the Texas Deceptive Trade Practices Act, negligence, negligent
misrepresentation and fraud in
21
connection with the design and construction of the water treatment facility. Subsequent to
July 31, 2009, the Company and Levelland reached agreement on a settlement of the matter. No
additional expense was necessary as a result of the settlement.
There have been no significant changes to the risk factors disclosed under Item 1A in our
Annual Report on form 10-K for the year ended January 31, 2009.
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Results of Operations and Financial Condition |
Cautionary Language Regarding Forward-Looking Statements
This Form 10-Q may contain 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 may include,
but are not limited to, statements of plans and objectives, statements of future economic
performance and statements of assumptions underlying such statements, and statements of
managements intentions, hopes, beliefs, expectations or predictions of the future. Forward-looking
statements can often be identified by the use of forward-looking terminology, such as should,
intended, continue, believe, may, hope, anticipate, goal, forecast, plan,
estimate 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 commodities, unanticipated slowdowns in the Companys major markets, the
availability of credit, the risks and uncertainties normally incident to the construction industry
and exploration for and development and production of oil and gas, 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 following table presents, for the periods indicated, the percentage relationship which
certain items reflected in the Companys 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-Period |
|
|
|
Three Months |
|
|
Six Months |
|
|
Change |
|
|
|
Ended July 31, |
|
|
Ended July 31, |
|
|
Three |
|
|
Six |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Months |
|
|
Months |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water infrastructure |
|
|
80.2 |
% |
|
|
72.7 |
% |
|
|
81.2 |
% |
|
|
73.2 |
% |
|
|
(11.2 |
)% |
|
|
(9.1 |
)% |
Mineral exploration |
|
|
13.9 |
|
|
|
22.1 |
|
|
|
13.1 |
|
|
|
21.5 |
|
|
|
(49.2 |
) |
|
|
(50.3 |
) |
Energy |
|
|
5.5 |
|
|
|
4.5 |
|
|
|
5.3 |
|
|
|
4.7 |
|
|
|
(0.8 |
) |
|
|
(6.9 |
) |
Other |
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
(57.4 |
) |
|
|
(38.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
(19.4 |
) |
|
|
(18.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(76.2 |
)% |
|
|
(73.7 |
)% |
|
|
(77.2 |
)% |
|
|
(74.1 |
)% |
|
|
(16.7 |
) |
|
|
(14.5 |
) |
Selling, general and administrative expenses |
|
|
(13.9 |
) |
|
|
(13.5 |
) |
|
|
(14.7 |
) |
|
|
(13.5 |
) |
|
|
(17.0 |
) |
|
|
(10.9 |
) |
Depreciation, depletion and amortization |
|
|
(6.6 |
) |
|
|
(4.8 |
) |
|
|
(6.8 |
) |
|
|
(4.9 |
) |
|
|
10.2 |
|
|
|
12.7 |
|
Impairment of oil and gas properties |
|
|
(10.0 |
) |
|
|
|
|
|
|
(5.1 |
) |
|
|
|
|
|
|
* |
|
|
|
* |
|
Litigation settlement gains |
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Equity in earnings of affiliates |
|
|
1.1 |
|
|
|
1.4 |
|
|
|
1.0 |
|
|
|
1.2 |
|
|
|
(38.3 |
) |
|
|
(32.1 |
) |
Interest expense |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(20.3 |
) |
|
|
(17.2 |
) |
Other, net |
|
|
|
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
0.1 |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(6.0 |
) |
|
|
9.2 |
|
|
|
(2.6 |
) |
|
|
8.4 |
|
|
|
(152.4 |
) |
|
|
(125.6 |
) |
Income tax benefit (expense) |
|
|
2.0 |
|
|
|
(3.6 |
) |
|
|
0.8 |
|
|
|
(3.4 |
) |
|
|
(144.9 |
) |
|
|
(119.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(4.0 |
) |
|
|
5.6 |
% |
|
|
(1.8 |
)% |
|
|
5.0 |
% |
|
|
(157.2 |
) |
|
|
(129.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Revenues, equity in earnings of affiliates and income (loss) before income taxes pertaining to the
Companys operating segments are presented below. Unallocated corporate expenses primarily consist
of general and administrative functions performed on a company-wide basis and benefiting all
operating segments. These costs include accounting, financial reporting, internal audit, safety,
treasury, corporate and securities law, tax compliance, certain executive management (chief
executive officer, chief financial officer and general counsel), and board of directors. Operating
segment revenues and income (loss) before income taxes are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water infrastructure |
|
$ |
174,141 |
|
|
$ |
196,005 |
|
|
$ |
342,228 |
|
|
$ |
376,578 |
|
Mineral exploration |
|
|
30,257 |
|
|
|
59,575 |
|
|
|
55,051 |
|
|
|
110,669 |
|
Energy |
|
|
11,988 |
|
|
|
12,086 |
|
|
|
22,309 |
|
|
|
23,965 |
|
Other |
|
|
841 |
|
|
|
1,972 |
|
|
|
1,831 |
|
|
|
2,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
217,227 |
|
|
$ |
269,638 |
|
|
$ |
421,419 |
|
|
$ |
514,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral exploration |
|
$ |
2,351 |
|
|
$ |
3,812 |
|
|
$ |
4,286 |
|
|
$ |
6,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water infrastructure |
|
$ |
8,253 |
|
|
$ |
13,150 |
|
|
$ |
12,780 |
|
|
$ |
22,339 |
|
Mineral exploration |
|
|
3,543 |
|
|
|
15,279 |
|
|
|
5,310 |
|
|
|
26,915 |
|
Energy |
|
|
(17,473 |
) |
|
|
3,566 |
|
|
|
(14,885 |
) |
|
|
8,042 |
|
Other |
|
|
(11 |
) |
|
|
839 |
|
|
|
137 |
|
|
|
859 |
|
Unallocated corporate expenses |
|
|
(6,520 |
) |
|
|
(6,970 |
) |
|
|
(12,824 |
) |
|
|
(12,821 |
) |
Interest expense |
|
|
(812 |
) |
|
|
(1,019 |
) |
|
|
(1,622 |
) |
|
|
(1,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes |
|
$ |
(13,020 |
) |
|
$ |
24,845 |
|
|
$ |
(11,104 |
) |
|
$ |
43,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues decreased $52,411,000, or 19.4% to $217,227,000, for the three months ended July 31, 2009,
and $92,763,000, or 18.0%, to $421,419,000 for the six months ended July 31, 2009, as compared to
the same periods last year. A further discussion of results of operations by division is presented
below.
Cost of revenues decreased $33,246,000 to $165,549,000, or 76.2% of revenues and $55,382,000 to
$325,453,000 or 77.2% of revenues for the three and six months ended July 31, 2009, compared to
$198,795,000, or 73.7% of revenues and $380,835,000, or 74.1% of revenues, for the same periods
last year. The increases as a percentage of revenues were primarily focused in the water
infrastructure division as the result of a shift in revenue mix to a higher concentration of heavy
construction, which typically carries a lower margin, difficulties on several projects and pricing
pressures from increased competition. Also contributing was reduced volume and pricing in the
mineral exploration division.
Selling, general and administrative expenses were $30,304,000 and $62,004,000 for the three and six
months ended July 31, 2009, compared to $36,529,000 and $69,573,000 for the same periods last year.
The decreases were primarily the result of decreased compensation related expenses, offset for the
six months by increased non-income tax expenses of $2,244,000. Compensation expenses declined for
the periods based on lower accruals for incentive compensation given the Companys reduced
earnings, as well as headcount reductions. The increased non-income tax expenses for the six
months were primarily due to a reassessment in the first quarter of the recoverability of value
added tax balances and additional accruals for other non-income tax expenses in certain foreign
jurisdictions given recent declines in those economies.
Depreciation, depletion and amortization were $14,278,000 and $28,611,000 for the three and six
months ended July 31, 2009, compared to $12,955,000 and $25,396,000 for the same periods last year.
The increases were primarily due to higher depletion in the energy division as a result of reduced
estimated proven oil and gas reserves. The reserves have been reduced primarily due to lower spot
gas prices at period end, which are used in estimating future economic production. Higher depletion
charges are expected to continue unless gas pricing improves and reserve levels are reassessed.
The Company recorded a non-cash Ceiling Test impairment of oil and gas properties of $21,642,000
for the three months ended July 31, 2009, primarily as a result of a significant continued decline
in natural gas prices and the expiration of higher priced forward sales contracts. There were no
impairments recorded for the six months ending July 31, 2008.
During the first quarter of fiscal 2010, the Company received litigation settlements valued at
$3,161,000. The settlements included receipt of land and buildings valued at $2,828,000, and cash
receipts of $333,000, net of contingent attorney fees.
23
Equity in earnings of affiliates were $2,351,000 and $4,286,000 for the three and six months ended
July 31, 2009, compared to $3,812,000 and $6,309,000 for the same periods last year. The decreases
reflect the impact of a softening minerals exploration market in Latin America, primarily for gold
and copper. We expect our equity in earnings of affiliates to remain positive, but reduced from
prior year levels through the balance of the fiscal year.
Interest expense decreased to $812,000 and $1,622,000 for the three and six months ended July 31,
2009, compared to $1,019,000 and $1,960,000 for the same periods last year. The decreases were a
result of scheduled debt reductions.
Income tax benefits of $4,380,000 (an effective rate of 33.6%) and $3,460,000 (an effective rate of
31.2%) were recorded for the three and six months ended July 31, 2009, including an $8,603,000
benefit related to the non-cash impairment charge of proved oil and gas properties recorded as a
discrete item in the three months ended July 31, 2009. Excluding the impairment and related tax
benefit, the Company would have recorded income tax expense of $4,223,000 (an effective rate of
49.0%) and $5,143,000 (an effective rate of 48.8%) for the three and six months ended July 31,
2009, compared to income tax expense of $9,749,000 (an effective rate of 39.2%) and $17,716,000 (an
effective rate of 40.8%) for the same periods last year. The increases in these effective rates
were primarily attributable to the impact of nondeductible expenses as pretax income declined. The
effective rate in excess of the statutory federal rate for the periods was due primarily to the
impact of nondeductible expenses and the tax treatment of certain foreign operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
Water Infrastructure Division |
|
July 31, |
|
|
July 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
174,141 |
|
|
$ |
196,005 |
|
|
$ |
342,228 |
|
|
$ |
376,578 |
|
Income before income taxes |
|
|
8,253 |
|
|
|
13,150 |
|
|
|
12,780 |
|
|
|
22,339 |
|
Water infrastructure revenues decreased 11.2% to $174,141,000 and 9.1% to $342,228,000 for the
three and six months ended July 31, 2009, respectively, compared to $196,005,000 and $376,578,000
for the same periods last year. The decreases occurred across all major product lines, except
pipeline construction which has increased due primarily to expanded projects in Colorado. Although
revenues were down across the country, the most affected locations were in the Western U.S., where
a decrease in housing construction and the economic effects of budget constraints on municipal
government spending has significantly impacted our markets. Bidding activity, particularly in the
heavy construction markets, remains relatively strong albeit with more competitors.
Income before income taxes for the water infrastructure division decreased 37.2% to $8,253,000 and
42.8% to $12,780,000 for the three and six months ended July 31, 2009, respectively, compared to
$13,150,000 and $22,339,000 for the same periods last year. Reduced revenue levels and margin
pressures from increased competition, as well as difficulties on several projects, contributed to
the declines. Factors also contributing were worse than expected workers compensation and
healthcare insurance experience. Cost control measures including headcount reductions continue as
we seek to match expenses to lower activity levels in most of our product lines.
The backlog in the water infrastructure division was $453,384,000 as of July 31, 2009, compared to
$481,615,000 as of April 30, 2009, and $477,675,000 as of July 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
Mineral Exploration Division |
|
July 31, |
|
|
July 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
30,257 |
|
|
$ |
59,575 |
|
|
$ |
55,051 |
|
|
$ |
110,669 |
|
Income before income taxes |
|
|
3,543 |
|
|
|
15,279 |
|
|
|
5,310 |
|
|
|
26,915 |
|
Mineral exploration revenues decreased 49.2% to $30,257,000 and 50.3% to $55,051,000 for the three
and six months ended July 31, 2009, respectively, compared to $59,575,000 and $110,669,000 for the
same periods last year. The decreased activity levels which began in the fourth quarter of last
year continued, with revenue declines in virtually all of the divisions markets driven by
tightening credit and economic uncertainty. We anticipate declines against last years levels for
the balance of the fiscal year.
24
Income before income taxes for the mineral exploration division was down 76.8% to $3,543,000 and
80.3% to $5,310,000 for the three and six months ended July 31, 2009, respectively, compared to
$15,279,000 and $26,915,000 for the same periods last year. During the six month period in the
current year, we had two unusual items, receipt of a litigation settlement in Australia of
$2,828,000 and increased non-income tax expense of $2,244,000 due to a reassessment of the
recoverability of value added taxes and accruals for certain other non-income tax expenses in
certain foreign jurisdictions. Operations in North America were profitable, offset by losses in
Africa and Australia. The equity in earnings of affiliates declined at a slower rate than the
remainder of the division, reflecting higher stability from certain longer term contracts. We have
aggressively reduced staffing levels and other costs in dealing with the reduced market activity
and continue to explore opportunities to reduce costs further.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
Energy Division |
|
July 31, |
|
|
July 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
$ |
11,988 |
|
|
$ |
12,086 |
|
|
$ |
22,309 |
|
|
$ |
23,965 |
|
Income (loss) before income taxes |
|
|
(17,473 |
) |
|
|
3,566 |
|
|
|
(14,885 |
) |
|
|
8,042 |
|
Energy revenues decreased 0.8% to $11,988,000 and 6.9% to $22,309,000 for the three and six months
ended July 31, 2009, respectively, compared to revenues of $12,086,000 and $23,965,000 for the same
periods last year. The decrease in revenues for the three months was attributable to the Companys
decision to reduce production until gas prices improve, partially offset by higher prices on the
forward sales contracts in place during the three months this year as compared to last year. The
additional decrease in revenues for the six months was attributable to lower gas prices in the
Companys market for the portion of the Companys production which was not forward sold. We
anticipate holding production for the near term to levels sufficient to satisfy our forward sales
commitments.
As of July 31, 2009, the Company completed its determination of oil and gas reserves for its Energy
division. This determination was made according to SEC guidelines and used gas prices at July 31,
2009, of $2.89 per Mcf, compared to a price of $3.29 per Mcf on January 31, 2009. Primarily as a
result of the lower prices, the expected future cash flows and gas reserve volumes were
significantly reduced. Accordingly, for the three months ended July 31, 2009, the Company recorded
a non-cash Ceiling Test impairment charge of $21,642,000, or $13,039,000 after income tax, for the
carrying value of the assets in excess of future net cash flows. If gas pricing remains low or the
Company is not able to replace expiring forward sales contracts at attractive prices, additional
impairments could occur during the course of the year. As of July 31, 2009, the remaining net book
value of assets subject to Ceiling Test impairment was $32,873,000.
Excluding the non-cash impairment charge, income before income taxes for the energy division
increased 16.9% to $4,169,000 and decreased 16.0% to $6,757,000 for the three and six months ended
July 31, 2009, respectively, compared to $3,566,000 and $8,042,000 for the same periods last year.
The increase in income before income taxes for the three months was primarily due to higher prices
than last year from forward sales contracts in place and steps taken to reduce operating costs and
increase efficiency in our field operations, partially offset by higher depletion based on
decreased proved oil and gas reserves. The decrease in income before income taxes for the six
months was due to the impact on revenues from lower spot gas prices, as well as higher depletion.
Unallocated Corporate Expenses
Corporate expenses not allocated to individual divisions, primarily included in selling,
general and administrative expenses, were $6,520,000 and $12,824,000 for the three and six months
ended July 31, 2009, compared to $6,970,000 and $12,821,000 for the same periods last year. The
decreases were primarily a result of decreased expenses for legal and professional fees.
Liquidity and Capital Resources
Management exercises discretion regarding the liquidity and capital resource needs of its
business segments. This includes the ability to prioritize the use of capital and debt capacity, to
determine cash management policies and to make decisions regarding capital expenditures. The
Companys primary sources of liquidity have historically been cash from operations, supplemented by
borrowings under its credit facilities.
The Company maintains an agreement (the Master Shelf Agreement) under which it may issue
unsecured notes. Under the Master Shelf Agreement, the Company has an additional $45,000,000 of
unsecured notes available to be issued before September 15, 2009. At July 31, 2009, the Company had
$33,333,000 in notes outstanding under the Master Shelf Agreement.
25
The Company intends to extend the issuance period for additional unsecured notes beyond
September 15, 2009, and has begun discussions with the lender to do so. The Company also maintains
an unsecured $200,000,000 revolving credit facility (the Credit Agreement) which extends to
November 15, 2011. At July 31, 2009, the Company had letters of credit of $15,499,000 and no
borrowings outstanding under the Credit Agreement resulting in available capacity of $184,501,000.
The Companys Master Shelf Agreement and Credit Agreement each contain certain covenants including
restrictions on the incurrence of additional indebtedness and liens, investments, acquisitions,
transfer or sale of assets, transactions with affiliates and payment of dividends. These
provisions generally allow such activity to occur, subject to specific limitations and continued
compliance with financial maintenance covenants. Significant financial maintenance covenants are
fixed charge coverage ratio, maximum leverage ratio and minimum tangible net worth. Covenant levels
and definitions are consistent between the two agreements. The Company was in compliance with its
covenants as of July 31, 2009, and expects to be in compliance in fiscal 2010.
Compliance with the financial covenants is required on a quarterly basis, using the most recent
four fiscal quarters. The Companys fixed charge coverage ratio and leverage ratio covenants are
based on ratios utilizing adjusted EBITDA and adjusted EBITDAR, as defined in the agreements.
Adjusted EBITDA is generally defined as consolidated net income excluding net interest expense,
provision for income taxes, gains or losses from extraordinary items, gains or losses from the sale
of capital assets, non-cash items including depreciation and amortization, and share-based
compensation. Equity in earnings of affiliates is included only to the extent of dividends or
distributions received. Adjusted EBITDAR is defined as adjusted EBITDA, plus rent expense. The
Companys tangible net worth covenant is based on stockholders equity less intangible assets. All
of these measures are considered non-GAAP financial measures and are not intended to be in
accordance with accounting principles generally accepted in the United States.
The Companys minimum fixed charge coverage ratio covenant is the ratio of adjusted EBITDAR to the
sum of fixed charges. Fixed charges consist of rent expense, interest expense, and principal
payments of long-term debt. The Companys leverage ratio covenant is the ratio of total funded
indebtedness to adjusted EBITDA. Total funded indebtedness generally consists of outstanding debt,
capital leases, unfunded pension liabilities, asset retirement obligations and escrow liabilities.
The Companys tangible net worth covenant is measured based on stockholders equity, less
intangible assets, as compared to a threshold amount defined in the agreements. The threshold is
adjusted over time based on a percentage of net income and the proceeds from the issuance of equity
securities.
The Company is in compliance with its covenant and expects to remain so over the next year. As of
July 31, 2009 and 2008, the Companys actual and required covenant levels were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
Required |
|
|
Actual |
|
|
Required |
|
(dollars in thousands) |
|
July 31, 2009 |
|
|
July 31, 2009 |
|
|
July 31, 2008 |
|
|
July 31, 2008 |
|
|
Minimum fixed charge coverage ratio |
|
|
2.57 |
|
|
|
1.50 |
|
|
|
4.12 |
|
|
|
1.50 |
|
Maximum leverage ratio |
|
|
0.42 |
|
|
|
3.00 |
|
|
|
0.44 |
|
|
|
3.00 |
|
Minimum tangible net worth |
|
$ |
337,303 |
|
|
$ |
291,269 |
|
|
$ |
339,319 |
|
|
$ |
288,722 |
|
The Companys working capital as of July 31, 2009 and July 31, 2008 was $122,012,000 and
$127,125,000, respectively. Working capital levels have been reduced with the reduced level of
business activity, and the Company expects working capital to remain at reduced levels over the
course of the year. The Company believes it will have sufficient cash from operations and access
to credit facilities to meet the Companys operating cash requirements and to fund its budgeted
capital expenditures for fiscal 2010.
Operating
Activities
Cash provided by operating activities was $35,775,000 for the six months ended July 31, 2009
as compared to cash used in operating activities of $152,000 for the same period last year.
Although operating earnings have declined from last year, the Company has been able to bring down
working capital and defer its normal increase in the first six months of the fiscal year.
Investing
Activities
The Companys capital expenditures, net of disposals, of $22,470,000 for the six months ended
July 31, 2009, were split between $18,911,000 to maintain and upgrade its equipment and facilities
and $3,559,000 toward the Companys operation in unconventional gas exploration and production,
including the construction of gas pipeline infrastructure near the Companys development projects.
This compares to equipment spending of $24,444,000 and gas exploration and production spending of
$13,549,000 in the same period last year. Over the course of fiscal 2010, we expect equipment and
facilities and gas exploration and production spending to be below last year.
26
Financing Activities
For the six months ended July 31, 2009, the Company had no incremental borrowings under its
credit facilities. The Company made a principal payment on the Senior Notes of $13,333,000 in July
2009, and will make a scheduled principal payment of $6,667,000 in September 2009.
The Companys contractual obligations and commercial commitments as of July 31, 2009, are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments/Expiration by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
4-5 years |
|
|
5 years |
|
Contractual obligations and other
commercial commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
$ |
33,333 |
|
|
$ |
20,000 |
|
|
$ |
13,333 |
|
|
$ |
|
|
|
$ |
|
|
Credit Agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments |
|
|
4,761 |
|
|
|
3,500 |
|
|
|
1,261 |
|
|
|
|
|
|
|
|
|
Software financing obligations |
|
|
874 |
|
|
|
482 |
|
|
|
392 |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
35,921 |
|
|
|
12,816 |
|
|
|
14,100 |
|
|
|
7,983 |
|
|
|
1,022 |
|
Mineral interest obligations |
|
|
753 |
|
|
|
128 |
|
|
|
412 |
|
|
|
185 |
|
|
|
28 |
|
Income tax uncertainties |
|
|
201 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
75,843 |
|
|
|
37,127 |
|
|
|
29,498 |
|
|
|
8,168 |
|
|
|
1,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
15,499 |
|
|
|
15,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations |
|
|
1,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
and commercial commitments |
|
$ |
92,686 |
|
|
$ |
52,626 |
|
|
$ |
29,498 |
|
|
$ |
8,168 |
|
|
$ |
2,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to meet its contractual cash obligations in the ordinary course of operations,
and that the standby letters of credit will be renewed in connection with its annual insurance
renewal process. Interest is payable on the Senior Notes at fixed interest rates of 6.05% and
5.40%. Interest is payable on the Credit Agreement at variable interest rates equal to, at the
Companys option, a LIBOR rate plus 0.75% to 2.00%, or a base rate, as defined in the Credit
Agreement plus up to 0.50%, depending on the Companys leverage ratio (See Note 5 of the Notes to
Consolidated Financial Statements). Interest payments have been included in the table above based
only on outstanding balances and interest rates as of July 31, 2009.
The Company has income tax uncertainties of $8,686,000 at July 31, 2009, that are classified as
non-current on the Companys balance sheet as resolution of these matters is expected to take more
than a year. The ultimate timing of resolutions of these items is uncertain, and accordingly the
amounts have not been included in the table above.
The Company incurs additional obligations in the ordinary course of operations. These obligations,
including but not limited to, income tax payments and pension fundings are expected to be met in
the normal course of operations.
Critical Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations discuss
the Companys consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting
period. On an on-going basis, management evaluates its estimates and judgments, which are based on
historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Our accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial
Statements, located in Item 1 of this Form 10-Q. We believe that the following represent our more
critical estimates and assumptions used in the preparation of our consolidated financial
statements, although not all inclusive.
27
Revenue
Recognition Revenues are recognized on large, long-term construction
contracts meeting the criteria of Statement of Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts (SOP 81-1), using the
percentage-of-completion method based upon the ratio of costs incurred to total estimated costs at
completion. Contract price and cost estimates are reviewed periodically as work progresses and
adjustments proportionate to the percentage of completion are reflected in contract revenues in the
reporting period when such estimates are revised. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty provisions, change orders
and final contract settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. As allowed by SOP 81-1, revenue is recognized on
smaller, short-term construction contracts using the completed contract method. Contracts for the
Companys mineral exploration drilling services are billable based on the quantity of drilling
performed. Thus, revenues for these drilling contracts are recognized on the basis of actual
footage or meterage drilled. Provisions for estimated losses on uncompleted construction contracts
are made in the period in which such losses are determined.
Revenues for direct sales of equipment and other ancillary products not provided in conjunction
with the performance of construction contracts are recognized at the date of delivery to, and
acceptance by, the customer. Provisions for estimated warranty obligations are made in the period
in which the sales occur.
Revenues for the sale of oil and gas by the Companys energy division are recognized on the basis
of volumes sold at the time of delivery to an end user or an interstate pipeline, net of amounts
attributable to royalty or working interest holders.
The Companys revenues are presented net of taxes imposed on revenue-producing transactions with
its customers, such as, but not limited to, sales, use, value-added, and some excise taxes.
Oil and
Gas Properties and Mineral Interests The Company follows the full-cost method
of accounting for oil and gas properties. Under this method, all productive and nonproductive
costs incurred in connection with the exploration for and development of oil and gas reserves are
capitalized. Such capitalized costs include lease acquisition, geological and geophysical work,
delay rentals, drilling, completing and equipping oil and gas wells, and salaries, benefits and
other internal salary-related costs directly attributable to these activities. Costs associated
with production and general corporate activities are expensed in the period incurred. Normal
dispositions of oil and gas properties are accounted for as adjustments of capitalized costs, with
no gain or loss recognized. Separate full-cost pools are established for each country in which the
Company has exploration activities.
The Company is required to review the carrying value of its oil and gas properties under the full
cost accounting rules of the SEC (the Ceiling Test). The ceiling limitation is the estimated
after-tax future net revenues from proved oil and gas properties discounted at 10%, plus the cost
of properties not subject to amortization. If the net book value of our oil and gas properties,
less related deferred income taxes, is in excess of the calculated ceiling, the excess must be
written off as an expense. Beginning at our fiscal 2010 year end, application of the Ceiling Test
requires pricing future revenues at the 12-month average price, calculated as the unweighted
arithmetic average of the first-day-of-the-month price for each month within the 12-month period
prior to the end of reporting period, unless prices are defined by contractual arrangements such as
the Companys fixed-price physical delivery forward sales contracts. Considerations of the Ceiling
Test prior to the fiscal 2010 year end use the period end price rather than the new average price.
Unproved oil and gas properties are not amortized, but are assessed for impairment either
individually or on an aggregated basis using a comparison of the carrying values of the unproved
properties to net future cash flows.
We recorded a Ceiling Test impairment in the second quarter of fiscal 2010 and in the fourth
quarter of fiscal 2009. The most significant variables which would impact future ceiling tests are
gas pricing and the extent to which forward sales contracts are in place. Should gas pricing
remain low, or we are not able to replace our current forward sales contracts at attractive prices,
we could face additional impairments during the course of the year. As of July 31, 2009, the net
book value of assets subject to the Ceiling Test limitation, after considering the second quarter
impairment, was $32,873,000.While additional impairments would materially affect our earnings, we
would not expect them to significantly impact our liquidity or compliance with debt covenants.
Reserve
Estimates The Companys estimates of natural gas reserves, by necessity, are
projections based on geologic and engineering data, and there are uncertainties inherent in the
interpretation of such data as well as the projection of future rates of production and the timing
of development expenditures. Reserve engineering is a subjective process of estimating underground
accumulations of gas that are difficult to measure. The accuracy of any reserve estimate is a
function of the quality of available data, engineering and geological interpretation and judgment.
Estimates of economically recoverable gas reserves and future net cash flows necessarily depend
upon a number of variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of regulations by
governmental agencies and assumptions governing natural gas prices, future operating costs,
severance, ad valorem and excise taxes, development costs and
28
workover and remedial costs, all of which may in fact vary considerably from actual results. For
these reasons, estimates of the economically recoverable quantities of gas attributable to any
particular group of properties, classifications of such reserves based on risk of recovery, and
estimates of the future net cash flows expected there from may vary substantially. Any significant
variance in the assumptions could materially affect the estimated quantity and value of the
reserves, which could affect the carrying value of the Companys oil and gas properties and the
rate of depletion of the oil and gas properties. Actual production, revenues and expenditures with
respect to the Companys reserves will likely vary from estimates, and such variances may be
material.
Goodwill
and Other Intangibles The Company accounts for goodwill and other intangible
assets in accordance with the Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets. Other intangible assets primarily consist of trademarks, customer-related
intangible assets and patents obtained through business acquisitions. Amortizable intangible
assets are being amortized over their estimated useful lives, which range from two to 40 years.
The impairment evaluation for goodwill is conducted annually, or more frequently, if events or
changes in circumstances indicate that an asset might be impaired. The evaluation is performed by
using a two-step process. In the first step, the fair value of each reporting unit is compared with
the carrying amount of the reporting unit, including goodwill. The estimated fair value of the
reporting unit is generally determined on the basis of discounted future cash flows. If the
estimated fair value of the reporting unit is less than the carrying amount of the reporting unit,
then a second step must be completed in order to determine the amount of the goodwill impairment
that should be recorded. In the second step, the implied fair value of the reporting units
goodwill is determined by allocating the reporting units fair value to all of its assets and
liabilities other than goodwill (including any unrecognized intangible assets) in a manner similar
to a purchase price allocation. The resulting implied fair value of the goodwill that results from
the application of this second step is then compared to the carrying amount of the goodwill and an
impairment charge is recorded for the difference.
The impairment evaluation of the carrying amount of intangible assets with indefinite lives is
conducted annually or more frequently if events or changes in circumstances indicate that an asset
might be impaired. The evaluation is performed by comparing the carrying amount of these assets to
their estimated fair value. If the estimated fair value is less than the carrying amount of the
intangible assets with indefinite lives, then an impairment charge is recorded to reduce the asset
to its estimated fair value. The estimated fair value is generally determined on the basis of
discounted future cash flows.
The assumptions used in the estimate of fair value are generally consistent with the past
performance of each reporting unit and are also consistent with the projections and assumptions
that are used in current operating plans. Such assumptions are subject to change as a result of
changing economic and competitive conditions.
Other
Long-lived Assets In the event of an indication of possible impairment, the
Company evaluates the fair value and future benefits of long-lived assets, including the Companys
gas transportation facilities and equipment, by performing an analysis of the anticipated future
net cash flows of the related long-lived assets and reducing their carrying value by the excess, if
any, of the result of such calculation. The Company believes at this time that the carrying values
and useful lives of its long-lived assets continue to be appropriate.
Accrued
Insurance Expense The Company maintains insurance programs where it is
responsible for a certain amount of each claim up to a self-insured limit. Estimates are recorded
for health and welfare, property and casualty insurance costs that are associated with these
programs. These costs are estimated based on actuarially determined projections of future payments
under these programs. Should a greater amount of claims occur compared to what was estimated or
medical costs increase beyond what was anticipated, reserves recorded may not be sufficient and
additional costs to the consolidated financial statements could be required.
Costs estimated to be incurred in the future for employee medical benefits, property, workers
compensation and casualty insurance programs resulting from claims which have occurred are accrued
currently. Under the terms of the Companys agreement with the various insurance carriers
administering these claims, the Company is not required to remit the total premium until the claims
are actually paid by the insurance companies. These costs are not expected to significantly impact
liquidity in future periods.
Income
Taxes 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. Deferred
tax assets are reviewed for recoverability and valuation allowances are provided as necessary.
Provision for U.S. income taxes on undistributed earnings of foreign subsidiaries and affiliates is
made only on those amounts in excess of funds considered to be invested indefinitely. In general,
the Company records income tax expense during interim periods based on its best estimate of the
full years effective tax rate. However, income tax expense relating to adjustments to the
Companys liabilities for FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of
FASB statement 109 (FIN48), is accounted for discretely in the interim period in which it
occurs.
29
Litigation
and Other Contingencies The Company is involved in litigation incidental to
its business, the disposition of which is not expected to have a material effect on the Companys
financial position or results of operations. It is possible, however, that future results of
operations for any particular quarterly or annual period could be materially affected by changes in
the Companys assumptions related to these proceedings. The Company accrues its best estimate of
the probable cost for the resolution of legal claims. Such estimates are developed in consultation
with outside counsel handling these matters and are based upon a combination of litigation and
settlement strategies. To the extent additional information arises or the Companys strategies
change, it is possible that the Companys estimate of its probable liability in these matters may
change.
New
Accounting Pronouncements See Note 1 of the Notes to Consolidated Financial
Statements for a discussion of new accounting pronouncements and their impact on the Company.
|
|
|
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, foreign exchange rates giving rise to translation and transaction gains and losses and
fluctuations in the price of natural gas.
The Company centrally manages its debt portfolio considering overall financing strategies and tax
consequences. A description of the Companys debt is in Note 11 of the Notes to Consolidated
Financial Statements appearing in the Companys January 31, 2009 Form 10-K and Note 5 of this Form
10-Q. As of July 31, 2009, an instantaneous change in interest rates of one percentage point would
not change the Companys annual interest expense, as we have no variable rate debt outstanding.
Operating in international markets involves exposure to possible volatile movements in currency
exchange rates. Currently, the Companys primary international operations are in Australia, Africa,
Mexico and Italy. The Companys affiliates also operate in South America and Mexico. The operations
are described in Notes l and 3 of the Notes to Consolidated Financial Statements appearing in the
Companys January 31, 2009, Form 10-K and Note 13 of this Form 10-Q. The majority of the Companys
contracts in Africa and Mexico are U.S. dollar based, providing a natural reduction in exposure to
currency fluctuations. The Company also may utilize various hedge instruments, primarily foreign
currency option contracts, to manage the exposures associated with fluctuating currency exchange
rates. As of July 31, 2009, the Company held option contracts with an aggregate U.S. dollar
notional value of $4,900,000 which are intended to hedge exposure to Australian dollar fluctuations
over a period to January 31, 2010.
As currency exchange rates change, translation of the income statements of the Companys
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 not have
significantly impacted income before income taxes for the three or six months ended July 31, 2009.
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 Companys financing
and operating strategies.
The Company is also exposed to fluctuations in the price of natural gas, which result from the sale
of the energy divisions unconventional gas production. The price of natural gas is volatile and
the Company has entered into fixed-price physical delivery forward
sales contracts covering a portion of its production to
manage price fluctuations and to achieve a more predictable cash flow. As of July 31, 2009, the
Company held contracts for physical delivery of 3,645,000 million British Thermal Units (MMBtu)
of natural gas through March 2010 at prices ranging from $7.48 to $10.54 per MMBtu. The estimated
fair value of such contracts at July 31, 2009, was $15,164,000. The Company generally maintains
contracts in place to cover 50% to 75% of its production, although in response to low gas prices,
the Company expects to cover 100% of production in fiscal 2010. We estimate that a ten percent
change in the price of natural gas would have impacted income before income taxes by approximately
$150,000 for the six months ended July 31, 2009. This does not include any potential impact on the
Companys ceiling limitation used in assessing the carrying value of its oil and gas properties.
|
|
|
ITEM 4. |
|
Controls and Procedures |
Based on an evaluation of disclosure controls and procedures for the period ended July 31,
2009, conducted under the supervision and with the participation of the Companys management,
including the Principal Executive Officer and the Principal Financial Officer, the Company
concluded that its disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits under the Securities
Exchange Act of 1934 is accumulated and communicated to the Companys management (including the
Principal Executive Officer and the Principal Financial Officer) to allow timely decisions
regarding required disclosure, and is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
30
Based on an evaluation of internal controls over financial reporting conducted under the
supervision and the participation of the Companys management, including the Principal Executive
Officer and the Principal Financial Officer, for the period ended July 31, 2009, the Company
concluded that its internal control over financial reporting is effective as of July 31, 2009. The Company has not made any significant changes in internal controls or in other factors
that could significantly affect internal controls since such evaluation.
PART II
|
|
|
ITEM 1 |
|
- Legal Proceedings |
On April 30, 2008, Levelland/Hockley County Ethanol, LLC (Levelland) filed a Complaint against
the Company in the District Court for Hockley County, Texas. On May 28, 2008, the Company removed
the case to the United States District Court for the Northern District of Texas, Lubbock Division.
On June 2, 2008, Levelland filed a First Amended Complaint against the Company in the Federal
District Court for the Northern District of Texas, Lubbock Division. Levelland owns an ethanol
plant located in Levelland, Texas. In July 2007, Levelland entered into a lease agreement with the
Company for certain water treatment equipment for the ethanol plant. Levelland alleged that the
equipment leased from the Company failed to treat the water coming into the ethanol plant to
required levels. The First Amended Complaint sought damages for breach of contract, breach of
warranty, violation of the Texas Deceptive Trade Practices Act, negligence, negligent
misrepresentation and fraud in connection with the design and construction of the water treatment
facility. Subsequent to July 31, 2009, the Company and Levelland reached agreement on a settlement
of the matter. No additional expense was necessary as a result of the settlement.
|
|
|
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 June 3, 2009. Set forth below is a brief
description of each matter voted upon at the meeting and the results of the balloting: |
|
|
a) |
|
Election of David A. B. Brown as a Director to hold office for a term expiring
at the 2010 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 |
|
|
|
|
|
13,554,469
|
|
0
|
|
3,598,676 |
|
b) |
|
Election of J. Samuel Butler as a Director to hold office for a term expiring
at the 2010 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 |
|
|
|
|
|
16,820,277
|
|
0
|
|
332,868 |
|
c) |
|
Election of Anthony B. Helfet as a Director to hold office for a term expiring
at the 2010 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 |
|
|
|
|
|
13,551,756
|
|
0
|
|
3,601,389 |
31
|
d) |
|
Election of Nelson Obus as a Director to hold office for a term expiring at the
2010 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 |
|
|
|
|
|
5,944,679
|
|
0
|
|
11,208,466 |
|
e) |
|
Election of Andrew B. Schmitt as a Director to hold office for a term expiring
at the 2010 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 |
|
|
|
|
|
16,827,921
|
|
0
|
|
325,224 |
|
f) |
|
Election of Jeffrey J. Reynolds as a Director to hold office for a term
expiring at the 2010 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 |
|
|
|
|
|
16,828,099
|
|
0
|
|
325,046 |
|
g) |
|
Election of Robert R. Gilmore as a Director to hold office for a term expiring
at the 2010 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 |
|
|
|
|
|
16,819,571
|
|
0
|
|
333,574 |
|
h) |
|
Election of Rene J. Robichaud as a Director to hold office for a term expiring
at the 2010 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 |
|
|
|
|
|
13,556,019
|
|
0
|
|
3,597,126 |
|
i) |
|
Approval to ratify the Companys Amended and Restated Rights Agreement: |
|
|
|
|
|
For
|
|
Against
|
|
Withheld Authority |
|
|
|
|
|
9,126,164
|
|
6,077,705
|
|
5,185 |
|
j) |
|
Ratification to amend the Companys 2006 Equity Incentive Plan to increase the
number of shares available for issuance under the 2006 Equity Plan from 600,000 to
2,000,000: |
|
|
|
|
|
For
|
|
Against
|
|
Withheld Authority |
|
|
|
|
|
11,577,551
|
|
3,626,511
|
|
4,992 |
|
k) |
|
Ratification and approval of the selection of the accounting firm of Deloitte
and Touche LLP as the independent public accountants of the Company for the fiscal year
ended January 31, 2010: |
|
|
|
|
|
For
|
|
Against
|
|
Withheld Authority |
|
|
|
|
|
17,049,007
|
|
97,952
|
|
6,189 |
The Company understands that the reason Mr. Obus received less than a majority of the votes
cast for the election of directors is due to a withhold vote recommendation by certain proxy
advisory services based on their policy to do so with respect to directors who attend less than 75%
of the board and committee meetings during the preceding
32
fiscal year. The Company concurs with the principle implicit in those policies of expecting
directors to demonstrate their commitment to the Company by regularly attending board and committee
meetings and otherwise contributing to its effective governance. However, this particular vote
also demonstrates the danger posed by absolute policies that fail to take a nuanced view of the
facts and circumstances surrounding the directors inability to attend at least 75% of such
meetings. As noted in the Companys proxy statement for the 2009 Annual Meeting of Stockholders,
Mr. Obus attended 74% of all of the meetings of the board and the committees on which he served
during the 2008 fiscal year. He attended all of the regularly scheduled meetings of the board and
the committees on which he served during fiscal 2008, but was unable to attend 4 of the 7 special
meetings of the board due to preexisting business commitments. Those special meetings were called
on short notice to address matters that are not expected to recur. Nevertheless, Mr. Obus has
pledged to the board to make greater effort to attend all future meetings of the board and
committees of which he is a member, including rearranging his schedule wherever possible. The
board appreciates his commitment and recognizes his contributions beyond attendance at board and
committee meetings, including his input through periodic meetings and calls with senior management,
visits to various Company offices and attendance at investor conferences at which the Company is
presenting. Based on his various contributions to the Company and his renewed commitment, the
board continues to view him as a valued director and believes that it is in the best interests of
the Company and its stockholders for him to remain as a director.
|
|
|
ITEM 5 |
- |
Other Information |
NONE
|
|
|
ITEM 6 |
- |
Exhibits and Reports on Form 8-K |
|
|
|
31(1) - Section 302 Certification of Chief Executive Officer of the Company. |
|
|
|
|
31(2) - Section 302 Certification of Chief Financial Officer of the Company. |
|
|
|
|
32(1) - Section 906 Certification of Chief Executive Officer of the Company. |
|
|
|
|
32(2) - Section 906 Certification of Chief Financial Officer of the Company. |
Form 8-K filed on June 2, 2009, related to the Companys earnings press release for the three
months ended April 30, 2009.
Form 8-K filed on June 5, 2009, related to stockholder approval of an amendment to the
Layne Christensen Company 2006 Equity Incentive Plan increasing the number of shares of
common stock available for issuance.
Form
8-K filed on September 3, 2009, related to the Companys
earnings press release for the six months ended July 31, 2009.
33
* * * * * * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
Layne Christensen Company
|
|
|
|
(Registrant) |
|
|
DATE: September 4, 2009 |
|
/s/ A.B. Schmitt
|
|
|
|
A.B. Schmitt, President |
|
|
|
and Chief Executive Officer |
|
|
|
|
DATE: September 4, 2009 |
|
/s/ Jerry W. Fanska
|
|
|
|
Jerry W. Fanska, Sr. Vice President |
|
|
|
Finance and Treasurer |
|
|
34