FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34195

Layne Christensen Company

(Exact name of registrant as specified in its charter)

Delaware		48-0920712
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
1900 Shawnee Mission Parkway, Mission Woods, Kansas		66205
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) (913) 362-0510

Not Applicable

     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      Noo

     Indicated 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 (Section 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):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 19,433,309 shares of common stock, $.01 par value per share, outstanding on December 4, 2009.

 

 

PART I

Item 1. Financial Statements

LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

		October 31,				January 31,
		2009				2009
		(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	77,450			$	67,165
Customer receivables, less allowance of $6,759 and $7,878, respectively			118,871				116,234
Costs and estimated earnings in excess of billings on uncompleted contracts			68,383				63,638
Inventories			28,461				31,329
Deferred income taxes			16,470				16,561
Income taxes receivable			3,649				6,806
Restricted deposits-current			1,415				774
Other			5,942				10,063
Total current assets			320,641				312,570
Property and equipment:
Land			11,478				8,586
Buildings			35,207				27,209
Machinery and equipment			364,586				336,166
Gas transportation facilities and equipment			40,709				39,825
Oil and gas properties			95,049				92,497
Mineral interests in oil and gas properties			21,892				21,248
			568,921				525,531
Less — Accumulated depreciation and depletion			(339,404	)			(278,786	)
Net property and equipment			229,517				246,745
Other assets:
Investment in affiliates			42,458				40,973
Goodwill			92,547				90,029
Other intangible assets, net			19,871				21,002
Restricted deposits-long term			3,000				1,155
Other			8,922				6,883
Total other assets			166,798				160,042
		$	716,956			$	719,357

See Notes to Consolidated Financial Statements.

- Continued -

LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except per share data)

		October 31				January 31,
		2009				2009
		(unaudited)				(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	63,385			$	62,575
Current maturities of long term debt			20,000				20,000
Accrued compensation			28,862				36,252
Accrued insurance expense			10,167				9,173
Other accrued expenses			23,269				17,626
Acquisition escrow obligation-current			1,415				824
Income taxes payable			1,706				3,254
Billings in excess of costs and estimated earnings on uncompleted contracts			50,862				34,256
Total current liabilities			199,666				183,960
Noncurrent and deferred liabilities:
Long-term debt			6,667				26,667
Accrued insurance expense			11,539				9,947
Deferred income taxes			19,001				29,063
Acquisition escrow obligation-long term			3,000				1,155
Other			13,364				12,468
Total noncurrent and deferred liabilities			53,571				79,300
Common stock, par value $.01 per share, 30,000 shares authorized, 19,433 and 19,383 shares issued and outstanding, respectively			194				194
Capital in excess of par value			342,846				337,528
Retained earnings			127,330				128,353
Accumulated other comprehensive loss			(6,726	)			(10,053	)
Total Layne Christensen Company stockholders’ equity			463,644				456,022
Noncontrolling interest			75				75
Total equity			463,719				456,097
		$	716,956			$	719,357

See Notes to Consolidated Financial Statements.

LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

		Three Months								Nine Months
		Ended October 31,								Ended October 31,
		(unaudited)								(unaudited)
		2009				2008				2009				2008
Revenues		$	217,800			$	264,483			$	639,219			$	778,665
Cost of revenues (exclusive of depreciation, depletion and amortization shown below)			(161,781	)			(199,232	)			(487,234	)			(580,067	)
Selling, general and administrative expenses			(31,504	)			(35,684	)			(93,508	)			(105,257	)
Depreciation, depletion and amortization			(14,233	)			(13,573	)			(42,844	)			(38,969	)
Impairment of oil and gas properties			—				(2,014	)			(21,642	)			(2,014	)
Litigation settlement gains			334				2,173				3,495				2,173
Equity in earnings of affiliates			1,239				4,803				5,525				11,112
Interest expense			(584	)			(838	)			(2,206	)			(2,798	)
Other income (expense), net			290				308				(348	)			955
Income before income taxes			11,561				20,426				457				63,800
Income tax expense			(4,940	)			(8,561	)			(1,480	)			(26,277	)
Net income (loss)			6,621				11,865				(1,023	)			37,523
Net loss attributable to noncontrolling interest			—				362				—				362
Net income (loss) attributable to Layne Christensen Company		$	6,621			$	12,227			$	(1,023	)		$	37,885
Basic income (loss) per share		$	0.34			$	0.64			$	(0.05	)		$	1.98
Diluted income (loss) per share		$	0.34			$	0.63			$	(0.05	)		$	1.94
Weighted average shares outstanding:
Basic			19,342				19,246				19,319				19,157
Diluted			19,513				19,448				19,319				19,493

See Notes to Consolidated Financial Statements.

LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)

																						Total Layne
																		Accumulated				Christensen
										Capital In								Other				Company
		Common Stock								Excess of				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 (loss)			—				—				—				37,885				—				37,885				(362	)			37,523
Other comprehensive income:
Foreign currency translation adjustments, net of income tax benefit of $744			—				—				—				—				(2,350	)			(2,350	)			—				(2,350	)
Comprehensive income																							35,535				(362	)			35,173
Issuance of unvested shares			38,584				—				—				—				—				—				—				—
Cumulative effect of adoption of new pension guidance			—				—				—				(44	)			—				(44	)			—				(44	)
Issuance of stock upon exercise of options			189,033				2				3,168				—				—				3,170				—				3,170
Income tax benefit on exercise of options			—				—				1,954				—				—				1,954				—				1,954
Share-based compensation			—				—				3,063				—				—				3,063				—				3,063
Contribution of noncontrolling interest			—								—				—				—				—				39				39
Balance, October 31, 2008			19,388,333			$	194			$	336,486			$	139,707			$	(9,337	)		$	467,050			$	75			$	467,125
Balance, January 31, 2009			19,382,976			$	194			$	337,528			$	128,353			$	(10,053	)		$	456,022			$	75			$	456,097
Comprehensive income:
Net loss			—				—				—				(1,023	)			—				(1,023	)			—				(1,023	)
Comprehensive income:
Foreign currency translation adjustments, net of income tax expense of $1,213			—				—				—				—				2,852				2,852				—				2,852
Change in unrealized loss on foreign exchange contracts, net of income tax expense of $304			—				—				—				—				475				475				—				475
Comprehensive income																							2,304								2,304
Issuance of unvested shares			12,771				—				—				—				—				—				—				—
Treasury stock purchased and subsequently cancelled			(5,374	)			—				(113	)			—				—				(113	)			—				(113	)
Issuance of stock upon exercise of options			30,259				—				513				—				—				513				—				513
Income tax benefit on exercise of options			—				—				67				—				—				67				—				67
Income tax deficiency upon vesting of restricted shares			—				—				(190	)			—				—				(190	)			—				(190	)
Share-based compensation			—				—				4,761				—				—				4,761				—				4,761
Issuance of stock for purchase price adjustments			12,677								280												280								280
Balance, October 31, 2009			19,433,309			$	194			$	342,846			$	127,330			$	(6,726	)		$	463,644			$	75			$	463,719

See Notes to Consolidated Financial Statements.

LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)

		Nine Months
		Ended October 31,
		(unaudited)
		2009				2008
Cash flow from operating activities:
Net income (loss) attributable to Layne Christensen Company		$	(1,023	)		$	37,885
Adjustments to reconcile net income (loss) to cash from operations:
Depreciation, depletion and amortization			42,844				38,969
Deferred income taxes			(9,887	)			10,256
Share-based compensation			4,762				3,063
Share-based compensation excess tax benefit			(67	)			(1,798	)
Equity in earnings of affiliates			(5,525	)			(11,112	)
Dividends received from affiliates			4,040				2,076
Loss attributable to noncontrolling interest			—				(362	)
Loss from disposal of property and equipment			20				42
Impairment of oil and gas properties			21,642				2,014
Non-cash litigation settlement gain			(2,868	)			—
Changes in current assets and liabilities, net of effects of acquisitions:
(Increase) decrease in customer receivables			11,525				(15,038	)
Increase in costs and estimated earnings in excess of billings on uncompleted contracts			(4,608	)			(11,177	)
(Increase) decrease in inventories			3,423				(14,319	)
(Increase) decrease in other current assets			3,822				(2,702	)
Increase (decrease) in accounts payable and accrued expenses			(9,416	)			12,142
Increase in billings in excess of costs and estimated earnings on uncompleted contracts			12,318				5,913
Other, net			(1,207	)			(4,588	)
Cash provided by operating activities			69,795				51,264
Cash flow from investing activities:
Additions to property and equipment			(25,803	)			(39,398	)
Additions to gas transportation facilities and equipment			(883	)			(5,149	)
Additions to oil and gas properties			(2,552	)			(14,817	)
Additions to mineral interests in oil and gas properties			(644	)			(2,792	)
Acquisition of business, net of cash acquired			(9,819	)			(8,895	)
Payment of cash purchase price adjustments on prior year acquisitions			(1,349	)			(33	)
Proceeds from disposal of property and equipment			338				867
Deposit of cash into restricted accounts			—				(15,200	)
Release of cash from restricted accounts			515				15,200
Distribution of restricted cash for prior year acquisitions			(515	)			—
Cash used in investing activities			(40,712	)			(70,217	)
Cash flow from financing activities:
Repayments of long term debt			(20,000	)			(13,333	)
Issuance of common stock upon exercise of stock options			513				3,170
Excess tax benefit on exercise of share-based instruments			67				1,798
Purchases and retirement of treasury stock			(113	)			—
Contribution from noncontrolling interest			—				39
Cash used in financing activities			(19,533	)			(8,326	)
Effects of exchange rate changes on cash			735				(2,801	)
Net increase (decrease) in cash and cash equivalents			10,285				(30,080	)
Cash and cash equivalents at beginning of period			67,165				73.068
Cash and cash equivalents at end of period		$	77,450			$	42,988

See Notes to Consolidated Financial Statements.

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 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 Accounting Standards Codification (“ASC”) Topic 605-35 “Construction-Type and Production-Type Contracts” (“ASC Topic 605-35”), 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 ASC Topic 605-35, revenue is recognized on smaller, short-term construction contracts using the completed contract method. Contracts for the Company’s 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 Company’s 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 Company’s 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 $10,494,000 and $8,584,000 for the nine months ended October 31, 2009 and 2008, respectively.

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 Company’s 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 Company’s 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 impairments recorded.

Reserve Estimates — The Company’s 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 Company’s oil and gas properties and the rate of depletion of the oil and gas properties. Actual production, revenues and expenditures with respect to the Company’s 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 Company’s 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 Company’s 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 Company’s strategies change, it is possible that the Company’s 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 — The Company evaluates long-lived assets, including its gas transportation facilities and equipment, for impairment whenever events or changes in circumstances indicate that the related carrying value of an asset may not be recoverable. This evaluation includes performing a comparison of the anticipated future net cash flows of the related long-lived assets to their carrying value to determine if a potential impairment exists. If an impairment is identified, the Company reduces the carrying amount of the related long-lived asset to its estimated fair value based on discounted cash flow estimates, quoted market prices when available, or independent appraisals as appropriate. The Company believes that the carrying values and useful lives of its long-lived assets are appropriate at October 31, 2009.

Cash and Cash Equivalents — The Company considers investments with an original maturity of three months or less when purchased to be cash equivalents. The Company’s cash equivalents are subject to potential credit risk. The Company’s 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 healthcare 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 Company’s 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 year’s effective tax rate. However, income tax expense relating to adjustments to the Company’s liabilities for uncertainty in income tax positions under ASC Topic 740, “Income Taxes,” is accounted for discretely in the interim period in which it occurs.

As of October 31, 2009 and January 31, 2009, the total amount of unrecognized tax benefits recorded for uncertainty in income tax positions was $8,417,000 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 October 31, 2009 and January 31, 2009, the total amount of accrued income tax-related interest and penalties included in the balance sheet was $3,341,000 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 Company’s 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 Company’s 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 Company’s strategies change, it is possible that the Company’s estimate of its probable liability in these matters may change.

Derivatives — The Company follows guidance within ASC Topic 815, “Derivatives and Hedging” (“ACS Topic 815”), 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. 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 ASC Topic 815 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 guidance now codified within ASC Topic 718, “Compensation-Stock 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 October 31, 2009, the Company had unrecognized compensation

expense of $4,634,000 to be recognized over a weighted average period of 1.66 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):

		Nine Months
		Ended October 31,
		2009				2008
Income taxes		$	9,629			$	17,767
Interest			2,526				2,687

The Company had earnings on restricted deposits of $1,000 and $28,000 for the nine months ended October 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 nine months ended October 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 June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance now codified within FASB Accounting Standards Codification (“ASC”) Topic 105, “Generally Accepted Accounted Principles,” establishing the ASC as 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. The ASC 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. This guidance was effective for financial statements issued for reporting periods that ended after September 15, 2009. The adoption did not impact the Company’s financial position, results of operations or liquidity.

In September 2006, the FASB issued guidance now codified within FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB released additional guidance now codified within FASB ASC Topic 820, which delayed the effective date of the original guidance, 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 this guidance for those nonfinancial assets within the scope of the guidance. Adoption for those nonfinancial assets did not have a material impact on the Company’s financial position, results of operations or liquidity.

In December 2007, the FASB issued guidance now codified within FASB ASC Topic 805, “Business Combinations.” This guidance 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. This guidance 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 did not have a material impact on the Company’s financial position, results of operations or liquidity.

In December 2007, the FASB issued guidance now codified within FASB ASC Topic 810, “Consolidation”. This guidance 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. In our presentation of consolidated income and stockholders’ equity we distinguish between amounts attributable to Layne Christensen Company and amounts attributable to the noncontrolling interests. In addition to these financial reporting changes, this guidance 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 guidance now codified within FASB ASC Topic 715, “Compensation–Retirement Benefits” which expands disclosure requirements to discuss the assumptions and risks used to compute fair value of each category of plan assets. This guidance 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 to have a material impact on its financial position, results of operations, or cash flows.

In March 2008, the FASB issued guidance now codified within FASB ASC Topic 815, “Derivatives and Hedging.” This guidance 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 did not have a material impact on the Company’s financial position, results of operations or liquidity.

In June 2008, the FASB issued guidance now codified within FASB ASC Topic 260, “Earnings Per Share.” Under this guidance, 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 this guidance 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 guidance now codified within FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” 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 the standard and should be reflective of the current exit price. This guidance 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 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 guidance now codified within FASB ASC Topic 825, “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 entity’s financial instruments that are not otherwise reported at fair value. This guidance 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 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2009, the FASB issued guidance now codified within FASB ASC Topic 855, “Subsequent Events” which establishes accounting and disclosure requirements for subsequent events. This guidance 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 has evaluated subsequent events through December 7th.

In June 2009, the FASB issued guidance which has not yet been codified in the ASC. This guidance amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under FASB ASC Topic 810, “Consolidation.” This guidance will be effective as of the beginning of the Company’s fiscal year ending January 31, 2011. The Company does not expect the adoption to have a material impact on its financial position, results of operations or cash flows.

2. Acquisitions

Fiscal Year 2010

The Company completed two acquisitions during the fiscal 2010 year as described below:

•

On October 30, 2009, the Company acquired 100% of the stock of W.L. Hailey & Company, Inc. (“Hailey”), a water and wastewater solutions firm in Tennessee. The operation was combined with similar service lines and serves to foster the Company’s further expansion of these product lines into the southeast.

•

On May 1, 2009, the Company acquired 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 of $15,643,000, comprised of cash ($3,000,000 which was placed in escrow to secure certain representations, warranties and idemnifications under the purchase agreements related to the Hailey acquisition), was as follows:

(in thousands)
		Hailey				Meadow				Total
Cash purchase price		$	15,043			$	600			$	15,643
Escrow deposits		$	3,000			$	—			$	3,000

The purchase price for each acquisition has been allocated based on a preliminary assessment of the fair value of the assets and liabilities acquired, determined based on the Company’s internal operational assessments and other analyses. Such amounts may be subject to revision as the acquired entities are integrated into the Company and the revisions may be significant and will be recorded by the Company as further adjustments to the purchase price allocation. Based on the Company’s preliminary allocations of the purchase price, the acquisitions had the following effect on the Company’s consolidated financial position as of their respective closing dates:

(in thousands)
		Hailey				Meadow				Total
Working capital		$	5,043			$	—			$	5,043
Property and equipment			9,277				575				9,852
Goodwill			873				—				873
Other intangible assets			—				25				25
Other liabilities			(150	)			—				(150	)
Total purchase price		$	15,043			$	600			$	15,643

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 $873,000 of aggregate goodwill was assigned to the water infrastructure segment and is expected to be deductible for tax purposes.

The results of operations of Hailey and Meadow have been included in the Company’s consolidated statements of income commencing with the respective closing dates. Pro forma amounts related to Meadow for prior periods have not been presented since the acquisition would not have had a significant effect on the Company’s consolidated revenues or net income. Assuming Hailey had been acquired as of the beginning of each period, the unaudited pro forma consolidated revenues, net income and net income per share would be as follows:

		Three Months Ended								Nine Months Ended
		October 31,								October 31,
(in thousands, except per share data)		2009				2008				2009				2008
Revenues		$	237,600			$	281,670			$	705,175			$	832,369
Net Income			7,345				12,564				1,057				38,827
Basic earnings per share		$	0.38			$	0.65			$	0.05			$	2.03
Diluted earnings per share		$	0.38			$	0.65			$	0.05			$	1.99

The pro forma information provided above is not necessarily indicative of the results of operations that would actually have resulted if the acquisition was made as of those dates or of results that may occur in the future.

On June 16, 2006 the Company acquired 100% of the outstanding stock of 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 CWI’s 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 SolmeteX’s 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 October 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.

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)
		Meadors				Moore & 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 Company’s internal operational assessments and other analyses. Based on the Company’s allocations of the purchase prices, the acquisitions had the following effect on the Company’s 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
Other intangible assets			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 Company’s 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 Company’s 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 WHPA’s 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 Company’s 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 October 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 October 31, 2009 of $4.01 per Mcf, compared to $2.89 per Mcf at July 31, 2009 and $3.29 per Mcf at January 31, 2009. Based on the reserve determinations, no Ceiling Test impairment was required as of October 31, 2009. As of 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 nine months ending October 31, 2008, however did record a Ceiling Test impairment of $26,690,000 or $16,081,000 after income tax, as of January 31, 2009.

The impairment of oil and gas properties of $2,014,000 recorded in the nine months ended October 31, 2008 relates to the Company’s exploration project in Chile, begun in 2008. Following initial core testing and further evaluation of infrastructure requirements, it was determined that recovery of the Company’s investment was not likely and the costs were written off.

4. Goodwill and Other Intangible Assets

Goodwill and other intangible assets consist of the following (in thousands):

		October 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		$	92,547			$	—							$	90,029			$	—
Amortizable intangible assets:
Tradenames		$	18,962			$	(2,883	)			29			$	18,962			$	(2,275	)			29
Customer-related			332				(332	)			2				332				(332	)			2
Patents			3,152				(709	)			14				3,152				(569	)			14
Non-competition agreements			464				(413	)			5				439				(387	)			5
Other			2,590				(1,292	)			12				2,590				(910	)			12
Total amortizable intangible assets		$	25,500			$	(5,629	)						$	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 $471,000 for the three months ended October 31, 2009 and 2008, respectively, and $1,156,000 and $1,085,000 for the nine months ended October 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			—				2,518				2,518
Balance, October 31, 2009		$	950			$	91,597			$	92,547

5. Indebtedness

The Company maintains an agreement (“Master Shelf Agreement”) whereby it can issue an additional $50,000,000 in unsecured notes before September 15, 2012. 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 Company’s 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 Company’s leverage ratio. The Credit Agreement is unsecured and is due and payable November 15, 2011. On October 31, 2009, there were letters of credit of $20,049,000 and no borrowings outstanding on the Credit Agreement resulting in available capacity of $179,951,000.

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 October 31, 2009.

Debt outstanding as of October 31, 2009 and January 31, 2009, whose carrying value approximates fair value, was as follows (in thousands):

		October 31,				January 31,
		2009				2009
Long-term debt:
Credit Agreement		$	—			$	—
Senior Notes			26,667				46,667
Total debt			26,667				46,667
Less current maturities			(20,000	)			(20,000	)
Total long-term debt		$	6,667			$	26,667

6. Derivatives

The Company’s 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 October 31, 2009, the Company had committed to deliver 2,265,000 million British Thermal Units (“MMBtu”) of natural gas through March 2010 at prices ranging from $7.66 to $10.65 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 ASC Topic 815 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 October 31, 2009, was $7,893,000 which is determined by comparing the anticipated future cash flows using both the current natural gas spot price and the price of the Company’s 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 October 31, 2009, the Company held option contracts with an aggregate U.S. dollar notional value of $2,500,000 which are intended to hedge exposure to Australian dollar fluctuations over a period to January 31, 2010. As of October 31, 2009 and January 31, 2009, respectively, the fair value of outstanding derivatives was a gain of $621,000, 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								Nine Months Ended
		October 31,								October 31,
		2009				2008				2009				2008
Net income (loss)		$	6,621			$	11,865			$	(1,023	)		$	37,523
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments			1,049				(2,789	)			2,852				(2,350	)
Change in unrealized loss of foreign exchange contracts			(106	)			—				475				—
Comprehensive income			7,564				9,076				2,304				35,173
Comprehensive loss attributable to the noncontrolling interest			—				362				—				362
Comprehensive income attributable to Layne
Christensen Company		$	7,564			$	9,438			$	2,304			$	35,535

The components of accumulated other comprehensive loss for the nine months ended October 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			2,852				—				475				3,327
Balance, October 31, 2009		$	(6,088	)		$	(1,017	)		$	379			$	(6,726	)

										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			(2,350	)			—				—				(2,350	)
Balance, October 31, 2008		$	(8,741	)		$	(596	)		$	—			$	(9,337	)

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 management’s 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 received certain payments over a period through September 2009. Payments of $667,000 and $2,173,000 were received during nine months ended October 31, 2009 and 2008, respectively, net of contingent attorney fees.

9. Other Income (Expense)

Other income (expense) consisted of the following for the three and nine months ended October 31, 2009 and 2008 (in thousands):

		Three Months Ended								Nine Months Ended
		October 31,								October 31,
		2009				2008				2009				2008
Gain (loss) from disposal of property and equipment		$	(27	)		$	77			$	(20	)		$	(42	)
Interest income			110				123				330				949
Currency exchange (loss) gain			(83	)			(22	)			(652	)			1
Other			290				130				(6	)			47
Total		$	290			$	308			$	(348	)		$	955

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 plan. 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. The Company expects to use assets of the plan to settle its benefit obligations by January 31, 2010.

Net periodic pension cost for the three and nine months ended October 31, 2009 and 2008 includes the following components (in thousands):

		Three Months Ended								Nine Months Ended
		October 31,								October 31,
		2009				2008				2009				2008
Service cost		$	22			$	26			$	66			$	79
Interest cost			119				125				357				374
Expected return on assets			(67	)			(148	)			(201	)			(443	)
Net amortization			26				31				78				98
Net periodic pension cost		$	100			$	34			$	300			$	108

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 executive’s 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 nine months ended October 31, 2009 and 2008 include the following components (in thousands):

		Three Months Ended								Nine Months Ended
		October 31,								October 31,
		2009				2008				2009				2008
Service cost		$	73			$	62			$	219			$	186
Interest cost			44				32				132				98
Net periodic pension cost		$	117			$	94			$	351			$	284

11. Fair Value Measurements

In September 2006, the FASB issued guidance now codified within ASC Topic 820, “Fair Value Measurements and Disclosures,” 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 Company’s 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 Company’s 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 October 31, 2009 and January 31, 2009 (in thousands):

		Carrying				Fair Value Measurements
		Value				Level 1				Level 2				Level 3
October 31, 2009
Financial Assets:
Cash equivalents held at fair value		$	30,229			$	30,229			$	—			$	—
Restricted deposits held at fair value			4,415				4,415				—				—
Foreign currency contracts			621				—				621				—
Total		$	35,265			$	34,644			$	621			$	—
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 nine months ended October 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 Company’s 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 Company’s 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 October 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 nine months ended October 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 $4,762,000 and $3,063,000 of compensation cost for these share-based plans during the nine months ended October 31, 2009 and 2008, respectively. Of these amounts, $1,074,000 and $1,026,000, respectively, related to nonvested stock. The total income tax benefit recognized for share-based compensation arrangements was $1,857,000 and $1,184,000 for the nine months ended October 31, 2009 and 2008, respectively.

A summary of nonvested share activity for the nine months ended October 31, 2009, is as follows:

						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			(23,244	)			42.51
Nonvested stock at October 31,2009			79,336			$	36.23			$	2,055

Significant option groups outstanding at October 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				4
4/00			13,794				13,794				3.495				6
6/04			20,000				20,000				16.600				56
6/04			71,526				71,526				16.650				56
6/05			10,000				10,000				17.540				68
9/05			140,332				140,332				23.050				71
1/06			191,481				138,923				27.870				75
6/06			10,000				10,000				29.290				80
6/06			70,000				52,500				29.290				80
6/07			65,625				30,625				42.260				92
7/07			33,000				16,500				42.760				93
9/07			3,000				1,500				55.480				95
2/08			74,524				24,835				35.710				99
1/09			6,000				6,000				24.010				110
2/09			201,311				—				15.780				111
2/09			4,580				4,580				15.780				111
6/09			108,582				—				21.990				115
6/09			2,472				2,472				21.990				115
			1,028,127				545,487

All options were granted at an exercise price equal to the fair market value of the Company’s 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 nine months ended October 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 nine months ended October 31, 2009, were as follows:

						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			(30,259	)			16.971				—				343
Canceled			—								—				—
Forfeited			—								—				—
Expired			—								—				—
Outstanding at October 31, 2009			1,028,127				24.820				7.25				4,208
Shares Exercisable			545,487				25.545				6.04				1,746

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 Company’s 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 Company’s 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 division’s 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 Company’s 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.

		Three Months Ended								Nine Months Ended
		October 31,								October 31,
		2009				2008				2009				2008
Revenues
Water infrastructure		$	174,345			$	198,613			$	516,573			$	575,191
Mineral exploration			30,713				53,154				85,764				163,823
Energy			11,743				10,859				34,052				34,824
Other			999				1,857				2,830				4,827
Total revenues		$	217,800			$	264,483			$	639,219			$	778,665
Equity in earnings of affiliates Mineral exploration		$	1,239			$	4,803			$	5,525			$	11,112
Income before income taxes
Water infrastructure		$	11,675			$	13,131			$	24,455			$	35,470
Mineral exploration			1,984				11,908				7,294				38,823
Energy			4,659				2,631				(10,226	)			10,673
Other			112				344				249				1,203
Unallocated corporate expenses			(6,285	)			(6,750	)			(19,109	)			(19,571	)
Interest expense			(584	)			(838	)			(2,206	)			(2,798	)
Total income before income taxes		$	11,561			$	20,426			$	457			$	63,800
Geographic Information
Revenues
United States		$	190,234			$	222,799			$	563,503			$	643,181
Africa/Australia			11,631				23,222				36,147				78,059
Mexico			6,881				10,333				17,877				34,075
Other foreign			9,054				8,129				21,692				23,350
Total revenues		$	217,800			$	264,483			$	639,219			$	778,665