United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended January 31, 2002
[ ] 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: 0-20578
Layne Christensen Company
(Exact name of registrant as specified in its charter)
Delaware 48-0920712
----------------- --------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the 4,147,512 shares of Common Stock of
the Registrant held by non-affiliates of the Registrant on March 22, 2002
computed by reference to the closing sale price of such stock as reported on the
NASDAQ National Market System, was $37,534,984. At March 22, 2002, there were
11,707,694 shares of the Registrant's Common Stock outstanding.
Documents Incorporated by Reference
1. Portions of the following document are incorporated by reference into the
indicated parts of this report: Definitive Proxy Statement for the 2002
Annual Meeting of Stockholders to be filed with the Commission pursuant to
Regulation 14ACPart III.
1
PART I
Item 1. Business
General
Layne Christensen Company provides drilling services and related
products and services in four principal markets: water resources, mineral
exploration, geoconstruction services and energy services and production. Layne
Christensen's customers include municipalities, industrial companies, mining
companies, oil and gas companies and consulting and engineering firms located
principally in the United States, Canada, Mexico, Australia, Africa and South
America.
The Company acquired Christensen Boyles Corporation ("CBC") in December
1995, which expanded the Company's mineral exploration drilling business
domestically and marked the Company's entry into Chile and Peru and other South
American countries through CBC's affiliated companies. As a result of this
acquisition, the Company acquired CBC's drill rig and diamond drill bit design
and manufacturing business. On August 8, 2001, the Company sold its design and
manufacturing business to a subsidiary of Atlas Copco (see Note 11 of the Notes
to Consolidated Financial Statements).
On July 25, 1997, the Company, through its wholly owned subsidiary
Layne Christensen Australia Pty Limited, consummated a tender offer to the
security holders of Stanley Mining Services Limited ("Stanley"), a company
listed on the Australian Stock Exchange. Stanley is an Australian mineral
exploration company that provides services predominantly to gold mining
companies in Australia and Africa. In October 1996, Stanley acquired 51% of
Glindemann & Kitching Pty Ltd. ("G&K"), a drilling contractor based and
operating in Western Australia that specializes in diamond core exploration
drilling for gold projects. On September 5, 1997, G&K repurchased the remaining
49% of G&K's outstanding stock thereby making G&K a wholly owned subsidiary of
Stanley. The acquisition by the Company of all the outstanding capital stock of
Stanley and the repurchase by G&K of all of G&K's capital stock not previously
owned by Stanley are referred to as the "Stanley Acquisition."
On August 19, 1997, the Company completed a secondary stock offering of
5,750,000 shares of its common stock, par value $0.01 per share, 2,756,565 of
which were sold by the Company and the balance of which were sold by certain of
the Company's existing stockholders. The proceeds received by the Company from
the shares it sold were used to reduce the debt incurred in connection with the
Stanley Acquisition.
The Company maintains its executive offices at 1900 Shawnee Mission
Parkway, Mission Woods, Kansas 66205. The Company's telephone number is (913)
362-0510. The Company's web site address is www.laynechristensen.com.
Market Overview
The principal markets in which the Company operates are: water
resources, mineral exploration, geoconstruction services, and energy services
and production. The characteristics of each of these markets vary, particularly
with respect to the maturity and cyclicality of the market in various geographic
areas. In each of these markets, however, the purchaser of drilling services
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and products generally demands technical expertise, knowledge of local
geological conditions, project management skills, access to significant amounts
of capital equipment and cost effective pricing. See Note 11 to the Consolidated
Financial Statements for certain financial information about the Company's
operating segments and its foreign operations.
Water Resources
Through its water resources division, the Company provides a full line
of water-related services and products, including hydrological studies and
related engineering services, water well design, water well drilling and
development, pump sales, installation and service, and repair and maintenance.
The Company has expanded this market to include large diameter Ranney(R)
collector wells, design and construction of water treatment facilities and the
manufacture and sale of water treatment products. These services are marketed on
a turn-key basis as Integrated Groundwater Services ("IGS"). In addition, the
Company's environmental services related to the assessment and monitoring of
groundwater contaminants are included within this market as are the services
provided by Layne Water & Development Storage, LLC ("LWDS"), a limited liability
company formed between the Company and Western Development & Storage, LLC on
September 25, 2001. LWDS intends to pursue opportunities in the areas of risk
management and financial services for water resources, water rights, resource
acquisition, development and management.
Demand for the design and construction of water treatment facilities is
driven by the economies and efficiencies gained through the bundling of design,
build and operate services traditionally performed by independent service
providers. The Company is targeting the same customer base it has serviced in
its traditional water service businesses. The Company competes with engineering
and consulting firms in this market.
Demand for water well drilling services is driven by the need to access
groundwater, which is affected by many factors including population movements
and expansions, such as new housing developments, deteriorating water quality
and limited availability of surface water. Groundwater is a vital natural
resource that is pumped from the earth for drinking water, irrigation and
industrial use. In many parts of the United States and other parts of the world,
groundwater is the only reliable source of water. Groundwater is located in
saturated geological zones at varying depths beneath the surface and accumulates
in subsurface strata (aquifers). Surface water, the other major source of
potable water, comes principally from large lakes and rivers.
The water well drilling market is highly fragmented, consisting of
several thousand water well drilling contractors in the United States. However,
the Company believes that a substantial majority of these contractors are
regionally and locally based, and are primarily involved in drilling low volume
water wells for agricultural and residential customers, markets in which the
Company does not generally compete. The Company's target groundwater drilling
market consists of high volume water wells drilled principally for municipal and
industrial customers. These wells have more stringent design specifications and
are deeper and larger in diameter than low-volume residential and agricultural
wells. Drillers for high-volume wells must have strong technical expertise,
expert knowledge of local geology, large drilling equipment and the ability to
procure sizable performance bonds.
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The demand for well and pump repair and maintenance depends upon the
age and use of the well and pump, the quality of material and workmanship
applied in the original well installation and changes in the depth and quality
of the aquifer. Repair and rehabilitation work is often required on an emergency
basis or within a relatively short period of time after a performance decline is
recognized and is often awarded to the firm that initially drilled the well.
Scheduling flexibility, together with appropriate expertise and equipment, are
critical for a repair and maintenance service provider. Like the water well
drilling market, the market for repair and maintenance is highly fragmented. It
consists of most well drilling companies as well as firms that provide solely
repair and maintenance services.
Demand for the Company's environmental products and environmental
drilling services is driven by public concern over groundwater contamination and
resulting regulatory requirements to investigate and remediate contaminated
sites and aquifers. Environmental drilling services are utilized to assess,
investigate, monitor and improve water quality and pumping capacity. Customers
are typically national and regional consulting firms engaged by federal and
state agencies as well as industrial companies that need to assess or clean up
groundwater contamination sources.
Mineral Exploration
Demand for mineral exploration drilling is driven by the need for
identifying, defining and developing underground mineral deposits. Factors
influencing the demand for mineral-related drilling services include growth in
the economies of developing countries, international political conditions,
inflation and foreign exchange levels, commodity prices, the economic
feasibility of mineral exploration and production, the discovery rate of new
mineral reserves and the ability of mining companies to access capital for their
activities.
Important changes in the international mining industry have led to the
development and growth of mineral exploration in developing regions of the
world, including Africa, Asia and South America. At the same time, stricter
environmental permitting rules in the United States and Canada have delayed or
blocked the development of certain projects forcing mining companies to look
overseas for growth. In addition, technological advancements now allow
development of mineral resources previously regarded as uneconomical. The mining
industry has also increased its focus on these areas due to their early stage of
mining development, relative to the more mature mining regions of the world such
as the United States and South Africa.
Mining companies hire exploration drillers to extract samples from
sites that the mining companies analyze for mineral content. Mineral exploration
drilling requires a high level of expertise and technical competence because the
samples extracted must be free of contamination and accurately reflect the
underlying mineral deposit. Familiarity with the local geology is critical to
acquiring this competence. Mineral exploration drilling consists of exploratory
drilling and definitional drilling. Exploratory drilling is conducted to
determine if there is a minable mineral deposit (an orebody) on the site.
Definitional drilling is typically conducted at a site to assess whether it
would be economical to mine. The demand for definitional drilling has increased
in recent years as new and less expensive mining techniques have made it
feasible to mine previously uneconomical orebodies.
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Geoconstruction Services
Geoconstruction services are used to modify weak and unstable soils,
decrease water flow in bedrock and provide support and groundwater control for
excavation. Methods used include cement and chemical grouting, vibratory ground
improvement and ground freezing, techniques for stabilizing soils; jet grouting,
a high-pressure method for providing subsurface support; and dewatering, a
method for lowering the water table. Geoconstruction services are important
during the construction of dams, tunnels, shafts, water lines, subways and other
civil construction projects. Demand for geoconstruction services is driven
primarily by the demand for these infrastructure improvements. The customers for
these services are primarily heavy civil construction contractors, governmental
agencies, mining companies and the industrial sector. The geoconstruction
services industry is highly fragmented.
Energy Services and Production
The Company's energy operations offer drilling services to the shallow,
unconventional oil and gas market, conventional oil field fishing services, coil
tubing fishing services, resonance technology solutions for stuck tubulars and
oil and gas well workover related activities. The Company's services in these
operations are offered to oil and gas companies. The market for these services
includes both land and offshore open-hole and cased-hole activities. In
addition, these operations include land-based oil and gas exploration activities
in the Gulf of Mexico and Midwest regions.
Demand for oil and gas services is driven by the demand for
identifying, defining and developing underground oil and gas reserves. Factors
influencing the demand for oil and gas services include consumption levels for
these commodities, growth in the economies of developing countries,
international political conditions, commodity prices, the economic feasibility
of oil and gas exploration and production, the discovery rate of new oil and gas
reserves and the ability of oil and gas companies to access capital for their
activities.
Business Strategy
The Company's growth strategy is to expand its current geographic
markets and enter into new business lines that build on the Company's core
competencies. Key elements of this strategy are as follows:
Expand Traditional Water Services to include Design, Build, Own and Operate
Services as well as Water Resource Development and Management Services
Layne Christensen is currently the largest provider of water well
drilling services in the United States, operating in all regions of the country.
In addition, the Company offers many services related to water well drilling
including hydrological studies, site selection, well design, design and
construction of water treatment facilities and large diameter Ranney(R)
collector wells and water treatment products. The Company's growth strategy is
to bundle its traditional products and service offerings and market the
combination downstream to the design, build, own and operate market for water
treatment and distribution facilities. The Company believes that by combining
these services into one turnkey project, the customer can expedite the typical
design, build project and achieve economies and efficiencies over traditional
unbundled services. Through its joint venture with LWDS, the Company intends to
expand
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growth in the water services market through the pursuit of opportunities related
to the acquisition, development and management of water resources.
Position Mineral Exploration for Future Growth
The Company believes that its best mineral exploration drilling
opportunities exist in Africa and South America. The Company believes that the
foreign enterprises and their local affiliates acquired through the acquisitions
of CBC and Stanley create the opportunity to expand their businesses by
leveraging their local market expertise and the Company's technical competence,
combined with access to transferable drilling equipment and employee training
and safety programs. With the additional resources and capabilities provided by
its acquisitions, the Company believes it is positioned to expand its operations
in South America and Africa once growth returns to these markets.
Expand Presence in Geoconstruction Services
In the geoconstruction services market, the Company intends to leverage
its drilling capabilities, industry contacts, reputation, project management
skills and growing geographic presence to expand this business. In particular,
the Company's strategy is to focus on relatively larger, technically demanding
projects using its grouting, jet grouting, vibratory ground improvement and
ground-freezing capabilities.
Expand Presence in Domestic Energy Markets
The Company expects to continue to invest in new business opportunities
within the domestic oil and gas industry including opportunities in the
exploration and production of unconventional natural gas deposits such as
coalbed methane gas. Although the size and scope of companies acquired to-date
have been relatively small and the Company continues to look for suitable
coalbed methane gas exploration prospects, the Company believes its energy
division has potential for future growth.
Services and Products
Layne Christensen's current business is divided into four primary
areas: water resources; mineral exploration; geoconstruction services; and
energy services and production.
Overview of the Company's Drilling Techniques
The types of drilling techniques employed by the Company in its
drilling activities have different applications:
- Conventional and reverse circulation rotary rigs are used in
water well and mineral exploration drilling primarily for
drilling large diameter wells and employ air or drilling fluid
circulation for removal of cuttings and borehole stabilization.
- Dual tube drilling, an innovation advanced by the Company
primarily for mineral exploration and environmental drilling,
conveys the drill cuttings to the surface inside the drill pipe.
This drilling method is critical in mineral exploration drilling
and environmental sampling because it provides immediate
representative samples and because the
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drill cuttings do not contact the surrounding formation thus
avoiding contamination of the borehole while providing reliable,
uncontaminated samples. Because this method involves circulation
of the drilling fluid inside the casing, it is highly suitable
for penetration of underground voids or faults where traditional
drilling methods would result in the loss of circulation of the
drilling fluid, thereby preventing further penetration.
- Diamond core drilling is used in mineral exploration drilling to
core solid rock, thereby providing geologists and engineers with
solid rock samples for evaluation.
- Cable tool drilling, which requires no drilling fluid, is used
primarily in water well drilling for larger diameter wells. While
slower than other drilling methods, it is well suited for
penetrating boulders, cobble and rock.
- Auger drilling is used principally in water well and
environmental drilling for efficient completion of relatively
small diameter, shallow wells. Auger rigs are equipped with a
variety of auger sizes and soil sampling equipment.
Water Resources
The Company provides a full range of services for the design and
construction of water treatment facilities, including hydrological studies, site
selection, well field design and facilities construction and operation. In
addition to water treatment plants, these services are provided in connection
with the Company's large diameter Ranney(R) collector wells, surface water
intakes, pumping stations and well houses. The Company has the capability to
design, build, own and operate the complete water supply system. In addition,
the Company offers nonrecourse financing options for these services to its
traditional municipal and industrial customers.
Drilling Services
The Company provides complete water well systems on a turnkey basis,
offering the comprehensive range of services required to provide professionally
designed, constructed and maintained municipal, industrial and, to a lesser
extent, agricultural water wells. Although it may not perform each of the
services it offers on every project, the Company has the capability to provide
every element of a water well system, including test hole drilling, well casing
and screen selection and installation, gravel packing, grout sealing, well
development and testing and pump selection, equipment sales and installation.
Layne Christensen provides water well drilling services in most regions of the
United States and in certain foreign countries.
Water well drilling requires the integration of hydrogeology and
engineering with the techniques of well drilling because the drilling methods
and size and type of equipment depend upon the depth of the wells and the
geological formations encountered at the project site. The Company has extensive
well archives and equipment in addition to technical personnel to determine
geological conditions and aquifer characteristics in most locations in the
United States, enabling it to locate suitable water-bearing formations to meet a
wide variety of customer requirements. The Company provides feasibility
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studies using complex geophysical survey methods and has the expertise to
analyze the survey results and define the source, depth and magnitude of an
aquifer. It can then estimate recharge rates, specify required well design
features, plan well field design and develop water management plans. To conduct
these services, the Company maintains a staff of professional employees
including geological engineers, geologists, hydrogeologists and geophysicists.
As part of its water well drilling and installation business, the
Company sells a wide variety of pumps manufactured by third parties, including
vertical turbine, submersible, shortcoupled and horizontal centrifugal pumps.
The Company also sells and installs water treatment equipment, which is
typically installed at or near the wellhead, including chlorinators, aerators,
filters and controls. In addition, the Company sells miscellaneous supplies
manufactured by third parties for use in the water well drilling industry,
including well casing, well screens, drill pipe and bits, drilling fluids and
well cleaning supplies.
Well and Pump Repair and Maintenance
Periodic repair and maintenance of well equipment is required during
the life of a well. In locations where the groundwater contains both bacteria
and iron, screen openings may become blocked with organic growth, reducing the
capacity and productivity of the well. Similarly, groundwater with high mineral
content may cause the buildup of scale on well screens, also reducing the
capacity and productivity of the well.
The Company offers complete repair and maintenance services for
existing wells, pumps and related equipment through a network of local offices
throughout its geographic markets in the United States. In addition to its well
service rigs, the Company has equipment capable of conducting downhole closed
circuit televideo inspections (one of the most effective methods for
investigating water well problems), enabling the Company to diagnose better and
respond more quickly to well and maintenance problems.
The Company's trained and experienced personnel can perform a variety
of well rehabilitation techniques, including chemical and mechanical methods,
and can perform bacteriological well evaluation and water chemistry analysis.
The Company also has the capability and inventory to repair, in its own machine
shops, most water well pumps, regardless of manufacturer, as well as to repair
well screens, casings and related equipment such as chlorinators, aerators and
filtration systems.
Environmental Drilling
The Company offers a wide range of environmental drilling services
including: investigative drilling, installation and testing of wells that
monitor the extent of groundwater contamination, installation of recovery wells
that extract contaminated groundwater for treatment (pump and treat remediation)
and specialized site safety programs associated with drilling at contaminated
sites. Monitoring wells are installed to determine the nature and extent of
known or suspected subsurface contamination as well as to monitor an area for
future contamination. In addition, monitoring wells are often installed
surrounding underground petroleum or chemical storage tanks to monitor for
possible future tank leaks or product spills. After monitoring and testing the
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groundwater, recovery wells may be installed to extract contaminated water from
the aquifer for treatment or disposal.
In its environmental health services department, the Company employs a
full-time staff qualified to prepare site specific health and safety plans for
customers who have workers employed on hazardous waste cleanup sites as required
by the Occupation and Safety Health Administration ("OSHA") and the Mine Safety
and Health Administration of the Department of Labor ("MSHA").
Mineral Exploration
The Company provides drilling services for geological assessment, in
situ mining and mineral exploration. These services are used primarily by major
gold and copper producers based in the United States and Canada, and to a lesser
extent, iron ore producers. In response to a shift in recent years by many of
these producers to foreign markets in search of economically minable orebodies,
the Company commenced mineral exploration drilling operations in Mexico in 1991.
With its acquisition of CBC in December 1995, the Company acquired foreign
affiliates operating in South America with facilities in Chile and Peru. These
affiliates have projects in Argentina, Bolivia, Chile, Mexico and Peru, among
other locations. In addition, with the Stanley Acquisition, the Company now has
operations in Australia and Africa.
Geoconstruction Services
Geoconstruction services include those services provided by the Company
to the heavy civil construction market to provide ground modification for
construction work in unstable soils during the construction of dams, tunnels,
shafts and other civil construction projects. Services offered include cement
and chemical grouting, jet grouting, drain hole drilling, installation of ground
anchors, tie backs, rock bolts and instrumentation. The Company offers expertise
in selecting the appropriate support techniques to be applied in various
geological conditions. In addition, the Company has extensive experience in the
placement of measuring devices capable of monitoring water levels and ground
movement.
The Company also offers artificial ground-freezing capabilities,
typically utilized as an alternative method to dewatering large diameter
excavation and tunneling projects. As an example of an application for this
technology, the Company completed a project for Echo Bay Mines Ltd. to construct
a subsurface frozen earth barrier around a future open pit gold mine in Timmins,
Ontario, Canada.
Energy Services and Production
The Company provides a variety of specialized services to the oil and
gas industry through its energy services and production division. Such services
include shallow gas and tar sands exploration drilling, conventional oil field
fishing services, coil tubing fishing services, resonance technology solutions
for stuck tubulars and land-based oil and gas search and development.
Operations
The Company operates on a decentralized basis, with approximately 70
sales and operations offices located in most regions of the United States as
well as
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in Canada, Australia, Africa, Mexico and Italy. In addition, the Company,
through its foreign affiliates, operates out of locations in Mexico, South
America and Europe.
The Company is primarily organized around division presidents
responsible for water resources, mineral exploration, geoconstruction services,
and energy services and production. Division vice presidents are responsible for
geographic regions within each division and district managers are in charge of
individual district office profit centers. The district managers report to their
respective divisional vice president on a regular basis. Each district office
employs a field superintendent who is in charge of projects in the field and
sales engineers who are responsible for marketing the Company's services in
their district as well as for monitoring the progress of projects. The Company
has formed and staffed a business development team for its integrated
groundwater services initiatives. The Company does not conduct significant
marketing activities for its traditional water well and mineral exploration
drilling services. Instead, the Company's sales engineers cultivate and maintain
contacts with existing and potential customers. In this way, the Company learns
of and is in a position to compete for proposed drilling projects in the region.
In its foreign affiliates, where the Company does not have majority
ownership or operating control, day-to-day operating decisions are made by local
management. The Company's interests in its foreign affiliates are overseen by an
executive vice president. The Company manages its interests in its foreign
affiliates through regular management meetings and analysis of comprehensive
operating and financial information. For its significant foreign affiliates, the
Company has entered into shareholder agreements that give it limited board
representation rights and require super-majority votes in certain circumstances.
Customers and Contracts
Each of the Company's service and product lines has major customers;
however, no single customer accounted for 10% or more of the Company's revenues
in any of the past three fiscal years.
Generally, the Company negotiates its service contracts with industrial
and mining companies and other private entities, while its service contracts
with municipalities are generally awarded on a bid basis. The Company's
contracts vary in length depending upon the size and scope of the project. The
majority of such contracts are awarded on a fixed price basis, subject to change
of circumstance and force majeure adjustments, while a smaller portion are
awarded on a cost plus basis. Substantially all of the contracts are cancelable
for, among other reasons, the convenience of the customer.
In the water resources product line, the Company's customers are
typically municipalities and local operations of industrial businesses. Of the
Company's water resources revenues in fiscal 2002, approximately 61% were
derived from municipalities and approximately 14% were derived from industrial
businesses while the balance was derived from other customer groups. The term
"municipalities" includes local water districts, water utilities, cities,
counties and other local governmental entities and agencies that have the
responsibility to provide water supplies to residential and commercial users. In
the drilling of new water wells, the Company targets customers that require
compliance with detailed and demanding specifications and regulations and that
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often require bonding and insurance, areas in which the Company believes it has
competitive advantages due to its drilling expertise and financial resources.
Customers for the Company's mineral exploration services in the United
States, Mexico, Canada, Australia, Africa and South America are primarily gold
and copper producers. The Company's largest customers in its mineral exploration
drilling business are multi-national corporations headquartered primarily in the
United States and Canada.
In its geoconstruction services product line, the Company's customers
are primarily heavy civil construction contractors, governmental agencies,
mining companies and industrial companies. The Company often acts as a specialty
subcontractor when it provides geoconstruction services.
In its energy services line, the Company's customers are primarily oil
and gas companies that conduct exploration and production activities in Canada
and the Gulf of Mexico region.
Backlog
The Company's backlog consists of executed service and product purchase
contracts, or portions thereof, not yet performed by the Company. The Company
believes that its backlog does not have any significance other than as a
short-term business indicator because substantially all of the contracts
comprising the backlog are cancelable for, among other reasons, the convenience
of the customer. The Company's backlog was approximately $61,465,000 at January
31, 2002, compared to approximately $78,624,000 at January 31, 2001. The
Company's backlog as of year-end is generally completed within the following
fiscal year.
Competition
The Company's competition for its water resource division's design and
build services are primarily local and national engineering and consulting firms
which have traditionally performed engineering services and, in some cases,
construction oversight for these activities.
The Company's competition in the water well drilling business consists
primarily of small, local water well drilling operations and some regional
competitors. Oil and natural gas well drillers generally do not compete in the
water well drilling business because the typical well depths are greater for oil
and gas and, to a lesser extent, the technology and equipment utilized in these
businesses are different. Only a small percentage of all companies that perform
water well drilling services have the technical competence and drilling
expertise to compete effectively for high-volume municipal and industrial
projects, which typically are more demanding than projects in the agricultural
or residential well markets. In addition, smaller companies often do not have
the financial resources or bonding capacity to compete for large projects.
However, there are no proprietary technologies or other significant factors
which prevent other firms from entering these local or regional markets or from
consolidating together into larger companies more comparable in size to the
Company. Water well drilling work is usually obtained on a competitive bid basis
for municipalities, while work for industrial customers is obtained on a
negotiated or informal bid basis.
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As is the case in the water well drilling business, the well repair and
maintenance business is characterized by a large number of relatively small
competitors. The Company believes only a small percentage of the companies
performing these services have the technical expertise necessary to diagnose
complex problems, perform many of the sophisticated rehabilitation techniques
offered by the Company or repair a wide range of pumps in their own facilities.
In addition, many of these companies have only a small number of pump service
rigs. Repair and maintenance projects are typically negotiated at the time of
repair or contracted for in advance depending upon the lead time available for
the repair work. Since pump repair and rehabilitation work is typically
negotiated on an emergency basis or within a relatively short period of time,
those companies with available rigs and the requisite expertise have a
competitive advantage by being able to respond quickly to repair requests.
In its mineral exploration division, the Company competes with a number
of drilling companies as well as vertically integrated mining companies that
conduct their own exploration drilling activities; some of these competitors
have greater capital and other resources than the Company. In the mineral
exploration drilling market, the Company competes based on price, technical
expertise and reputation. The Company believes it has a well-recognized
reputation for expertise and performance in this market. Mineral exploration
drilling work is typically performed on a negotiated basis.
The geoconstruction services market is highly fragmented as a result of
the large area served, the wide range of techniques offered and the large number
and variety of contractors. In this market, the Company competes based upon a
combination of reputation, innovation and price.
In the energy services market, Layne Christensen competes with a number
of oil and gas service companies, many of which have greater capital and other
resources than the Company. The Company competes in this market based on quality
of service, technology, responsiveness and, to a lesser extent, price. The
Company's primary competitors in this market are Baker Hughes, Inc., Weatherford
International and Smith International, Inc.
Employees and Training
At January 31, 2002, the Company had 2,734 employees, 155 of whom were
members of collective bargaining units represented by locals affiliated with
major labor unions in the United States. The Company believes that its
relationship with its employees is satisfactory.
In all of the Company's service lines, an important competitive factor
is technical expertise. As a result, the Company emphasizes the training and
development of its personnel. Periodic technical training is provided for senior
field employees covering such areas as pump installation, drilling technology
and electrical troubleshooting. In addition, the Company emphasizes strict
adherence to all health and safety requirements and offers incentive pay based
upon achievement of specified safety goals. This emphasis encompasses developing
site-specific safety plans, ensuring regulatory compliance and training
employees in regulatory compliance and good safety practices. Training includes
an OSHA-mandated 40-hour hazardous waste and emergency response training course
as well as the required annual eight-hour updates. The Company has an
environmental health sciences staff which allows it to offer such training
in-house. This staff also prepares health and safety plans for
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specific sites and provides input and analysis for the health and safety plans
prepared by others.
On average, the Company's field supervisors and drillers have 19 and 13
years, respectively, of experience with the Company. Many of the Company's
professional employees have advanced academic backgrounds in agricultural,
chemical, civil, industrial, geological and mechanical engineering, geology,
geophysics and metallurgy. The Company believes that its size and reputation
allow it to compete effectively for highly qualified professionals.
Regulatory and Environmental Matters
The services provided by the Company are subject to various licensing,
permitting, approval and reporting requirements imposed by federal, state, local
and foreign laws. Its operations are subject to inspection and regulation by
various governmental agencies, including the Department of Transportation, OSHA
and MSHA in the United States as well as their counterparts in foreign
countries. In addition, the Company's activities are subject to regulation under
various environmental laws regarding emissions to air, discharges to water and
management of wastes and hazardous substances. To the extent the Company fails
to comply with these various regulations, it could be subject to monetary fines,
suspension of operations and other penalties. In addition, these and other laws
and regulations affect the Company's mineral drilling services and product
customers and influence their determination whether to conduct mineral
exploration and development.
Many localities require well operating licenses which typically specify
that wells be constructed in accordance with applicable regulations. Various
state, local and foreign laws require that water wells and monitoring wells be
installed by licensed well drillers. The Company maintains well drilling and
contractor's licenses in those jurisdictions in which it operates and in which
such licenses are required. In addition, the Company employs licensed engineers,
geologists and other professionals necessary to the conduct of its business. In
those circumstances in which the Company does not have a required professional
license, it subcontracts that portion of the work to a firm employing the
necessary professionals.
Potential Liability and Insurance
The Company's drilling activities involve certain operating hazards
that can result in personal injury or loss of life, damage and destruction of
property and equipment, damage to the surrounding areas, release of hazardous
substances or wastes and other damage to the environment, interruption or
suspension of drill site operations and loss of revenues and future business.
The magnitude of these operating risks is amplified when the Company, as is
frequently the case, conducts a project on a fixed-price, "turnkey" basis where
the Company delegates certain functions to subcontractors but remains
responsible to the customer for the subcontracted work. In addition, the Company
is exposed to potential liability under foreign, federal, state and local laws
and regulations, contractual indemnification agreements or otherwise in
connection with its provision of services and products. For example, the Company
could be held responsible for contamination caused by an accident which occurs
as a result of the Company drilling through a contaminated water source and
creating a channel through which the contaminants migrate to an uncontaminated
water source. Litigation arising from any such occurrences may
13
result in the Company's being named as a defendant in lawsuits asserting large
claims. Although the Company maintains insurance protection that it considers
economically prudent, there can be no assurance that any such insurance will be
sufficient or effective under all circumstances or against all claims or hazards
to which the Company may be subject or that the Company will be able to continue
to obtain such insurance protection. A successful claim or damage resulting from
a hazard for which the Company is not fully insured could have a material
adverse effect on the Company. In addition, the Company does not maintain
political risk insurance or business interruption insurance with respect to its
foreign operations.
Applicable Legislation
There are a number of complex foreign, federal, state and local
environmental laws which impact the demand for the Company's mining and
environmental drilling services. For example, under Environmental Protection
Agency regulations and comparable state laws, the potential liability of real
property buyers and lenders secured by real property for the cost of responding
to past or present release of hazardous substances at or from that property has
prompted a widespread practice of phased environmental audits as a condition to
the sale and financing of real estate. These audits may include soil and
groundwater testing to determine the nature and extent of contamination that may
impact the value of the property or give rise to liability for the new owner. A
change in these laws, or changes in governmental policies regarding the funding,
implementation or enforcement of the laws, could have a material adverse effect
on the Company.
Item 2. Properties and Equipment
The Company's corporate headquarters are located in Mission Woods,
Kansas (a suburb of Kansas City, Missouri), in approximately 33,000 square feet
of office space leased by the Company pursuant to a written lease agreement
which expires February 28, 2005.
As of January 31, 2002, the Company (excluding foreign affiliates)
owned or leased approximately 600 drill and well service rigs throughout the
world, a substantial majority of which were located in the United States. This
includes rigs used primarily in each of its service lines as well as
multi-purpose rigs. In addition, as of January 31, 2002, the Company's foreign
affiliates owned or leased approximately 100 drill rigs.
Item 3. Legal Proceedings
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect on the Company's business or consolidated financial
position, results of operations or cash flows.
14
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders of the Company
during the last quarter of the fiscal year ended January 31, 2002.
Item 4A. Executive Officers of the Registrant
Executive officers of the Company are appointed by the Board of
Directors for such terms as shall be determined from time to time by the Board,
and serve until their respective successors are selected and qualified or until
their respective earlier death, retirement, resignation or removal.
Set forth below are the name, age and position of each executive
officer of the Company.
Name Age Position
---- --- --------
Andrew B. Schmitt 53 President, Chief Executive
Officer and Director
H. Edward Coleman 64 Executive Vice President
Norman E. Mehlhorn 61 Executive Vice President
Gregory F. Aluce 46 Senior Vice President
Eric R. Despain 53 Senior Vice President
Steven F. Crooke 45 Vice President, Secretary and
General Counsel
Jerry W. Fanska 53 Vice President--Finance and
Treasurer
The business experience of each of the executive officers of the
Company is as follows:
Andrew B. Schmitt has served as President and Chief Executive Officer
since October 1993. For approximately two years prior to joining the Company,
Mr. Schmitt managed two privately-owned hydrostatic pump and motor manufacturing
companies and an oil and gas service company. He served as President of the
Tri-State Oil Tools Division of Baker Hughes Incorporated from February 1988 to
October 1991.
H. Edward Coleman has served as an officer of the Company since 1976
and as Executive Vice President since September 1, 2001, Mr. Coleman has over 40
years experience in various areas of the Company's operations.
Norman E. Mehlhorn has served as Executive Vice President since
September 1, 2001, and as Senior Vice President from 1992 to September 2001. Mr.
Mehlhorn has over 40 years experience in the drilling business, with particular
emphasis on dual tube drilling technology.
Gregory F. Aluce has served as Senior Vice President since April 14,
1998. As of September 1, 2001, Mr. Aluce has also served as President of the
Company's water resource division. Mr. Aluce is responsible for the Company's
water-related services and products. Mr. Aluce has over 21 years experience in
various areas of the Company's operations.
Eric R. Despain has served as Senior Vice President since February
1996. As of September 1, 2001, Mr. Despain has also served as President of the
Company's mineral exploration division and is responsible for the Company's
mineral exploration operations. Prior to joining the Company in December 1995,
Mr. Despain was President and a member of the Board of Directors of CBC since
1986.
15
Steven F. Crooke has served as Vice President, Secretary and General
Counsel since May 2001. For the period of June 2000 through April 2001, Mr.
Crooke served as Corporate Legal Affairs Manager of Huhtamaki Van Leer. Prior to
that, he served as Assistant General Counsel of the Company from 1995 to May
2000.
Jerry W. Fanska has served as Vice President-Finance and Treasurer
since April 1994 and as Controller since December 1993. Prior to joining Layne
Christensen, Mr. Fanska served as corporate controller of The Marley Company
since October 1992 and as its Internal Audit Manager since April 1984.
There is no arrangement or understanding between any executive officer
and any other person pursuant to which such executive officer was selected as an
executive officer of the Company.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market
through the NASDAQ National Market System under the symbol LAYN. The stock has
been traded in this market since the Company became a publicly-held company on
August 20, 1992. The following table sets forth the range of high and low sales
prices of the Company's stock by quarter for fiscal 2002 and 2001, as reported
by the NASDAQ National Market System. These quotations represent prices between
dealers and do not include retail mark-up, mark-down or commissions.
Fiscal Year 2002 High Low
---------------- ---- ---
First Quarter $ 7.50 $ 4.00
Second Quarter 8.88 6.15
Third Quarter 8.60 7.10
Fourth Quarter 8.30 7.35
Fiscal Year 2001 High Low
---------------- -------- --------
First Quarter $ 6.13 $ 3.88
Second Quarter 5.63 3.56
Third Quarter 5.63 3.69
Fourth Quarter 4.88 3.00
At March 22, 2002, there were 134 owners of record of the Company's
common stock.
The Company has not paid any cash dividends on its common stock.
Moreover, the Board of Directors of the Company does not anticipate paying any
cash dividends in the foreseeable future. The Company's future dividend policy
will depend on a number of factors including future earnings, capital
requirements, financial condition and prospects of the Company and such other
factors as the Board of Directors may deem relevant, as well as restrictions
under the Credit Agreement between the Company, various financial institutions
and Bank of America National Trust and Savings Association as agent ("Credit
Agreement"), the Note Agreement between the Company and Massachusetts Mutual
Life Insurance Company and other restrictions which may exist under other credit
arrangements existing from time to time. The Credit Agreement limits the cash
dividends payable by the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources"
under Item 7 and Note 8 of the Notes to Consolidated Financial Statements.
Item 6. Selected Financial Data
The following selected historical financial information as of and for
each of the five fiscal years ended January 31, 2002, has been derived from the
Company's audited Consolidated Financial Statements. During fiscal years 2002,
2000, 1999 and 1998, the Company completed various acquisitions, which are more
fully described in Note 2 of the Notes to Consolidated Financial Statements or
in previously filed Forms 10-K. The acquisitions have been accounted for under
the purchase method of accounting and, accordingly, the Company's consolidated
results include the effects of the acquisitions from the date of each
acquisition. The information below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
17
Operations" under Item 7 and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K.
Fiscal Years Ended
January 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Income Statement Data
(in thousands, except
per share data):
Revenues $ 308,388 $ 313,993 $ 281,445 $ 284,248 $ 294,600
Cost of revenues
(exclusive of
depreciation
shown below) 224,451 235,278 207,105 204,953 213,717
--------- --------- --------- --------- ---------
Gross profit 83,937 78,715 74,340 79,295 80,883
Selling, general and
administrative expenses 59,677 58,757 53,781 49,938 45,908
Depreciation and
amortization 18,160 21,337 23,016 22,361 15,681
--------- --------- --------- --------- ---------
Operating income (loss) 6,100 (1,379) (2,457) 6,996 19,294
Other income (expense):
Equity in earnings
(losses) of foreign
affiliates 925 894 (27) 1,128 3,022
Interest (3,934) (6,205) (4,818) (4,987) (3,618)
Other, net 189 1,028 (108) 629 (267)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes 3,280 (5,662) (7,410) 3,766 18,431
Income tax expense 2,132 382 -- 2,486 7,004
Minority interest,
net of taxes (70) 118 (255) (79) --
--------- --------- --------- --------- ---------
Net income (loss) $ 1,078 $ (5,926) $ (7,665) $ 1,201 $ 11,427
========= ========= ========= ========= =========
Basic earnings (loss)
per share $ 0.09 $ (0.50) $ (0.66) $ 0.10 $ 1.13
========= ========= ========= ========= =========
Diluted earnings (loss)
per share $ 0.09 $ (0.50) $ (0.66) $ 0.10 $ 1.09
========= ========= ========= ========= =========
At January 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Balance Sheet Data
(in thousands):
Working capital,
excluding debt $ 35,584 $ 50,531 $ 48,816 $ 46,211 $ 39,661
Total assets 202,342 233,868 245,335 251,503 242,852
Total debt 34,357 61,928 63,500 63,500 57,500
Total stockholders'
equity 95,892 93,925 106,840 113,270 114,259
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto under Item 8.
18
Cautionary Language Regarding Forward-Looking Statements
This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
of 1934. Such statements are indicated by words or phrases such as "anticipate,"
"estimate," "project," "believe," "intend," "expect," "plan" and similar words
or phrases. Such statements are based on current expectations and are subject to
certain risks, uncertainties and assumptions, including but not limited to
prevailing prices for various metals, unanticipated slowdowns in the Company's
major markets, the impact of competition, the effectiveness of operational
changes expected to increase efficiency and productivity, worldwide economic and
political conditions and foreign currency fluctuations that may affect worldwide
results of operations. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially and adversely from those anticipated, estimated or
projected. These forward-looking statements are made as of the date of this
filing, and the Company assumes no obligation to update such forward-looking
statements or to update the reasons why actual results could differ materially
from those anticipated in such forward-looking statements.
Results of Operations
Demand for the Company's mineral exploration drilling services depends
upon the level of mineral exploration and development activities conducted by
mining companies, particularly with respect to gold and copper. Mineral
exploration is highly speculative and is influenced by a variety of factors,
including the prevailing prices for various metals that often fluctuate widely.
In this connection, the decline in the prices of various metals has continued to
adversely impact the level of mineral exploration and development activities
conducted by mining companies and has had, and could continue to have, a
material adverse effect on the Company.
At the end of each fiscal year, potential impairment with respect to
the Company's long-lived assets is reviewed by comparing the sum of undiscounted
projected future cash flows attributable to each business unit to the carrying
value of the assets of that business unit, including goodwill. Projected future
cash flows for each business unit are estimated for a period approximating the
remaining lives of that unit's long-lived assets, based on earnings history,
market conditions and assumptions reflected in internal operating plans and
strategies. Under this analysis, the Company has determined that the cash flows
from the mineral exploration division would be sufficient to recover the
carrying value of its long-lived assets and, therefore, that the value of such
assets is not impaired. The projected future cash flows represent management's
best estimates. Because these estimates are based on subjective assumptions, an
impairment write-down may be required in the future if the projected future cash
flows decline. See Note 12 to the Notes to Consolidated Financial Statements for
new accounting pronouncements related to impairment. These pronouncements will
be effective for the Company's fiscal year 2003.
Overview of Reportable Operating Segments
The Company is a multinational company which provides sophisticated
services and related products to a variety of markets. During fiscal 2002,
management redefined the Company's operational organization structure into
discrete divisions based on its primary product lines. Each division comprises
19
a combination of individual district offices, which primarily offer similar
types of services and serve similar types of markets. Although individual
offices within a division may periodically perform services normally provided by
another division, the results of those services are recorded in the offices' own
division. For example, if a water resources division office performed
geoconstruction services, the revenues would be recorded in the water resources
division rather than the geoconstruction services division. Should an office's
primary responsibility move from one division president to another, that
office's results going forward would be reclassified between divisions at that
time. The Company's reportable segments under the new operational structure are
defined as follows:
Water Resources Division
This division provides a full line of water-related services and
products including hydrological studies, site selection, well design, drilling
and well development, pump installation, and repair and maintenance. The
division's offerings include large diameter Ranney(R) collector wells, design
and construction of water treatment facilities, and the manufacture and sale of
products to treat volatile inorganics in groundwater. 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.
Geoconstruction Services Division
This division focuses on services that improve soil stability,
primarily jet grouting, grouting, vibratory ground improvement and
ground-freezing services. The division also manufactures a line of high-pressure
pumping equipment used in grouting operations and geotechnical drilling rigs
used for directional drilling.
Energy Services and Production Division
This division offers a variety of specialized services including
shallow gas and tar sands exploration drilling, conventional oilfield fishing
services, coil tubing fishing services, resonance technology solutions for stuck
tubulars and land-based oil and gas search and development.
Products and Other
This grouping includes the Company's supply operation which distributes
drilling equipment, parts and supplies and other miscellaneous operations which
do not fall into the above divisions. Historically, it has also included a
manufacturing operation producing diamond drilling rigs, diamond bits, core
barrels and drill rods ("Christensen Products"). On August 8, 2001, the Company
sold its Christensen Products business to a subsidiary of Atlas Copco (see Note
11 of the Notes to Consolidated Financial Statements).
20
The following table, which is derived from the Company's Consolidated
Financial Statements as discussed in Item 6, presents, for the periods
indicated, the percentage relationship which certain items reflected in the
Company's statements of income bear to revenues and the percentage increase or
decrease in the dollar amount of such items period-to-period. The categorization
of revenues for each of the three fiscal years has been made consistent with the
operational structure described above. The financial comparison and discussion
of fiscal 2002 versus fiscal 2001 which follows the table is presented in
conformity with the new operational structure.
Period-to-Period
Change
Fiscal Years Ended --------
January 31, 2002 2001
------------------------------- vs. vs.
Revenues: 2002 2001 2000 | 2001 2000
---- ---- ---- ---- ----
Water resources 56.9% 54.2% 57.2% | 3.1% 5.7%
Mineral exploration 18.8 21.1 23.0 | (12.4) 2.2
Geoconstruction services 8.8 12.1 11.8 | (29.0) 14.8
Energy services and production 8.8 6.8 3.1 | 27.2 *
Products and other 6.7 5.8 4.9 | 13.8 33.7
----- ----- -----
Total revenues 100.0% 100.0% 100.0% | (1.8) 11.6
===== ===== =====
Cost of revenues 72.8% 74.9% 73.6% | (4.6) 13.6
----- ----- -----
Gross profit 27.2 25.1 26.4 | 6.6 5.9
Selling, general and |
administrative expenses 19.4 18.7 19.1 | 1.6 9.3
Depreciation and amortization 5.8 6.8 8.2 | (14.9) (7.3)
---- ----- -----
Operating income (loss) 2.0 (0.4) (0.9) | * 43.9
Other income (expense): |
Equity in earnings of |
foreign affiliates 0.3 0.3 0.0 | 3.5 *
Interest (1.3) (2.0) (1.7) | (36.6) 28.8
Other, net 0.0 0.3 0.0 | * *
---- ----- -----
Income (loss) before income taxes 1.0 (1.8) (2.6) | * 23.6
Income tax expense 0.7 0.1 0.0 | * *
Minority interest, net of taxes 0.0 0.0 (0.1) | * *
---- ----- -----
Net income (loss) 0.3% (1.9)% (2.7)% | * 22.7%
==== ===== =====
* Not meaningful.
Comparison of Fiscal 2002 to Fiscal 2001
Revenues for fiscal 2002 decreased $5,605,000 or 1.8% to $308,388,000
compared to $313,993,000 for fiscal 2001. The decrease was primarily the result
of decreases in the Company's mineral exploration and geoconstruction services
divisions, partially offset by increased revenues in the water resources and
energy services and production divisions.
Gross profit as a percentage of revenues was 27.2% for fiscal 2002
compared to 25.1% for fiscal 2001. The increase in gross profit was primarily
attributable to improved margins at the Company's domestic water locations and
certain international mineral exploration locations, combined with reduced
expenses associated with the Company's domestic oil and gas exploration
activities. The increases above were partially offset by reduced margins at the
Company's products locations in the United States.
21
Selling, general and administrative expenses increased to $59,677,000
for fiscal 2002 compared to $58,757,000 for fiscal 2001. The increase was
primarily a result of increased employee benefit, insurance premium and legal
costs for the year.
Depreciation and amortization decreased to $18,160,000 for fiscal 2002
compared to $21,337,000 for fiscal 2001. The decrease in depreciation and
amortization was attributable to the disposal of assets in certain international
locations and the application of purchase accounting resulting in negative
goodwill reducing assets associated with the purchase of the remaining 50% of
WADS from Ausdrill (see Note 2 to the Notes to Consolidated Financial
Statements).
Interest expense decreased to $3,934,000 for fiscal 2002 compared to
$6,205,000 for fiscal 2001. The decrease was primarily a result of decreases in
the Company's average borrowings and in interest rates during the year.
Income tax expense of $2,132,000 was recorded for the year ended
January 31, 2002, compared to $382,000 for the same period last year. The
effective rate in excess of the statutory federal rate for the year ended
January 31, 2002, was a result of the impact of nondeductible expenses and the
tax treatment of certain foreign operations.
Water Resources Division
(in thousands)
Year Ended January 31,
----------------------
2002 2001
---- ----
Revenues $175,492 $170,204
Operating income 23,675 15,857
Water resources revenue increased 3.1% to $175,492,000 from
$170,204,000 for the years ended January 31, 2002 and 2001. The increase in
revenue was primarily the result of the Company's IGS project for the City of
Azusa, California, combined with increased demand for the Company's
water-related services, partially due to drought conditions in certain areas of
the United States.
Operating income for the water resources division increased 49.3% to
$23,675,000 for the year ended January 31, 2002, compared to $15,857,000 for
last year. The increase in operating income was primarily attributable to
improved pricing and margins at the Company's domestic water supply locations.
Mineral Exploration Division
(in thousands)
Year Ended January 31,
----------------------
2002 2001
---- ----
Revenues $57,945 $66,153
Operating loss (5,653) (9,149)
Mineral exploration revenues decreased 12.4% to $57,945,000, from
$66,153,000 for the years ended January 31, 2002 and 2001. The decrease in
revenue was primarily a result of continued softness in the exploration market
in the United States, Australia and Mexico, partially offset by increased
activity in certain areas of Africa.
22
The operating loss for the mineral exploration division was $5,653,000
for the year ended January 31, 2002, compared to an operating loss of $9,149,000
for the year ended January 31, 2001. The reduced losses in the division were
primarily the result of improved margins at certain of the Company's
international locations and cost reductions in Australia.
Geoconstruction Services Division
(in thousands)
Year Ended January 31,
----------------------
2002 2001
---- ----
Revenues $27,006 $38,010
Operating income 1,047 5,932
Geoconstruction services revenues decreased 29.0%, to $27,006,000 for
the year ended January 31, 2002, compared to $38,010,000 for last year. The
decrease in revenues was a result of slowing construction activity in certain
areas of the United States combined with competitive pricing pressures in
certain markets served by the Company.
The geoconstruction services division had operating income of
$1,047,000 for the year ended January 31, 2002, compared to $5,932,000 for the
year ended January 31, 2001. The reduced profits were primarily attributable to
lower revenues and to costs associated with complications on certain of the
Company's ground-freezing projects.
Energy Services and Production Division
(in thousands)
Year Ended January 31,
----------------------
2002 2001
---- ----
Revenues $27,011 $21,232
Operating income (loss) 1,013 (2,288)
Energy services revenues increased 27.2% to $27,011,000 for the year
ended January 31, 2002, compared to revenues of $21,232,000 for the year ended
January 31, 2001. The increase was primarily the result of increased oil and gas
exploration activity in Canada and increased capacity in the Company's service
operations in the Gulf of Mexico region of the United States.
Operating income for the energy services and production division was
$1,013,000 for the year ended January 31, 2002, compared to an operating loss of
$2,288,000 for the year ended January 31, 2001. The improved profits were the
result of lower expenditures attributable to the Company's oil and gas
exploration activities and improved results from the Company's oil and gas
service businesses in the United States, combined with increased levels of
activity in Canada.
Products and Other
(in thousands)
Year Ended January 31,
----------------------
2002 2001
---- ----
Revenues $20,934 $18,394
Operating loss (1,908) (679)
23
Products and other sales increased 13.8% to $20,934,000 for the year
ended January 31, 2002, compared to $18,394,000 for the year ended January 31,
2001. The increase in sales was primarily the result of increased demand for
drill rigs manufactured by the Company for the mineral exploration market and
two significant projects completed by the Company's specialty products group.
Operating losses for products and other were $1,908,000 for the year
ended January 31, 2002, compared to $679,000 for the year ended January 31,
2001. The increase in operating losses was the result of certain costs incurred
in connection with the sale of the Company's Christensen Products business to
Atlas Copco.
Corporate expenses not allocated to individual divisions were
$12,074,000 and $11,052,000 for the years ended January 31, 2002 and 2001,
respectively. The increase in unallocated corporate expenses was primarily the
result of increased employee benefit and insurance premium costs.
Comparison of Fiscal 2001 to Fiscal 2000
The financial comparison and discussion of fiscal 2001 versus fiscal
2000 has not been reclassified to conform with the new operational structure
defined above.
Results of Operations
Revenues for fiscal 2001 increased $32,548,000 or 11.6% to $313,993,000
compared to $281,445,000 for fiscal 2000. Water-related services and products
revenues increased 4.7% to $173,290,000 for fiscal 2001 compared to revenues of
$165,525,000 for fiscal 2000. The year-to-year increase in water-related
services and products revenues was primarily the result of an increase in demand
for the Company's water-related services in the central United States, southern
California and Florida. Mineral exploration drilling revenues increased 15.3% to
$76,318,000 for fiscal 2001 from $66,189,000 for fiscal 2000. The increase for
the year was primarily a result of increased demand in Canada and East Africa,
offset by the decision to discontinue drill-and-blast operations in West Africa
and Australia combined with reduced demand for the Company's services in the
United States. Geotechnical construction revenues increased 19.5% to $40,572,000
for fiscal 2001 compared to revenues of $33,938,000 for fiscal 2000. The
increase in geotechnical revenues was a result of two large projects in the
northeast United States and the Company's ground-freezing project for Noranda,
Inc. in Quebec, Canada, combined with increased market penetration in certain
areas of the United States. Oil and gas service revenues were $4,751,000 for
fiscal 2001 compared to $584,000 for fiscal 2000. The increase in revenue was a
result of increased capacity due to the Company's continued investment in this
market. Product sales increased 25.3% to $19,062,000 for fiscal 2001 from
$15,209,000 for fiscal 2000. The increase was a result of increased activity in
the mineral exploration market combined with increased demand for drilling
products within the water market.
Gross profit as a percentage of revenues was 25.1% for fiscal 2001
compared to 26.4% for fiscal 2000. The decrease in gross profit was primarily
attributable to expenses associated with the Company's domestic oil and gas
exploration activities and pricing pressures in the African minerals market,
partially offset by increased margins in the geotechnical construction business.
24
Selling, general and administrative expenses increased to $58,757,000
for fiscal 2001 compared to $53,781,000 for fiscal 2000. The increase for the
year was primarily a result of increased incentive-related accruals in the
Company's domestic businesses combined with expenses related to the continued
expansion of the Company's oil and gas services division and Integrated
Groundwater Services initiative.
Depreciation and amortization decreased to $21,337,000 for fiscal 2001
compared to $23,016,000 for fiscal 2000. The decrease in depreciation and
amortization for the year was attributable to certain mineral exploration assets
becoming fully depreciated in the fourth quarter of last year combined with the
disposal of the drill-and-blast divisions in Australia and West Africa.
Equity in earnings (losses) of foreign affiliates was $894,000 for
fiscal 2001 compared to ($27,000) for the last year. The increase in earnings
for the year is a result of increased exploration and development activities
conducted by mining companies in Latin America.
Interest expense increased to $6,205,000 for fiscal 2001 compared to
$4,818,000 for fiscal 2000. The increase for the year was attributable to higher
average borrowings combined with higher interest rates for the period.
Income taxes were an expense of $382,000 for fiscal 2001 compared to
zero for the last year. The unusual effective rate for the year was primarily a
result of the increased impact of certain nondeductible expenses in light of
lower taxable earnings in the respective periods, combined with a reduction in
the amount of earnings from certain foreign affiliates and subsidiaries relative
to the Company's overall earnings.
Fluctuation in Quarterly Results
The Company historically has experienced fluctuations in its quarterly
results arising from the timing of the award and completion of contracts, the
recording of related revenues and unanticipated additional costs incurred on
projects. The Company's revenues on large, long-term drilling contracts are
recognized on a percentage of completion basis for individual contracts 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 and gross profit 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) and
final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. A significant
number of the Company's contracts contain fixed prices and assign responsibility
to the Company for cost overruns for the subject projects; as a result, revenues
and gross margin may vary from those originally estimated and, depending upon
the size of the project, variations from estimated contract performance could
affect the Company's operating results for a particular quarter. Many of the
Company's contracts are also subject to cancellation by the customer upon short
notice with limited damages payable to the Company. In addition, adverse weather
conditions, natural disasters, force majeure and other similar events can
curtail Company operations in various regions of the world throughout the year,
resulting in performance delays and increased costs. Moreover, the Company's
domestic drilling activities and related revenues and earnings tend to
25
decrease in the winter months when adverse weather conditions interfere with
access to drilling sites and the ability to drill; as a result, the Company's
revenues and earnings in its second and third quarters tend to be higher than
revenues and earnings in its first and fourth quarters. Accordingly, as a result
of the foregoing as well as other factors, quarterly results should not be
considered indicative of results to be expected for any other quarter or for any
full fiscal year. See the Company's Consolidated Financial Statements and Notes
thereto.
Inflation
Management believes that the Company's operations for the periods
discussed have not been adversely affected by inflation or changing prices.
Liquidity and Capital Resources
The primary source of the Company's liquidity in fiscal 2002, 2001 and
2000 was its cash from operating activities of $25,509,000, $12,952,000 and
$13,162,000, respectively. The increase in cash from operations was primarily
attributable to improved margins at the Company's domestic water supply
locations and certain international mineral exploration locations and lower
expenditures related to its domestic oil and gas exploration activities. In
fiscal 2002, cash from operations was primarily used for net repayments of debt
of $27,571,000 and additions to property and equipment of $11,205,000. Capital
expenditures during the fiscal years were directed primarily toward expansion
and upgrading of the Company's equipment and facilities. The Company anticipates
fiscal 2003 capital expenditures will be used to maintain the Company's
equipment and capabilities and to accelerate its expansion into oil and gas
services and exploration, including production of coalbed methane gas. The
Company expects to spend approximately $16,000,000 in the next fiscal year for
capital expenditures. As of January 31, 2002, the Company had no material
commitments outstanding for capital assets.
The Company maintains a reducing revolving cash borrowing facility (the
"Credit Agreement"). At January 31, 2002, the aggregate lender commitment under
this facility was $57,000,000. Borrowings under the Credit Agreement have been
used to complete various acquisitions (see Note 2 to the Consolidated Financial
Statements). The Company's borrowings and outstanding letter of credit
commitments under the Credit Agreement were $16,500,000 and $4,780,000,
respectively, at January 31, 2002 (see Note 8 to the Consolidated Financial
Statements).
The Company's working capital as of January 31, 2002, 2001 and 2000,
was $15,513,000, $46,960,000 and $45,245,000, respectively. The reduction in
working capital at January 31, 2002 was due to the reclassification of
borrowings under the Credit Agreement from long term to current, the sale of
Christensen Products and other measures taken to contain working capital needs.
The Credit Agreement was reclassified to current based on its scheduled
expiration in July 2002. The Company is currently negotiating with several
lenders to provide new borrowing facilities and expects to have a new agreement
in place early in the second quarter. The Company believes it will have
sufficient cash from operations and access to credit facilities to meet the
Company's operating cash requirements and to fund its budgeted capital
expenditures for fiscal 2003.
26
The Company's contractual obligations and commercial commitments are
summarized as follows:
Payments/Expiration by Period
Less than
Total 1 year 1-3 years 4-5 years
------ ------- --------- ---------
Contractual Obligations and Other
Commercial Commitments
Debt $34,357 $20,071 $10,713 $3,573
Operating leases 15,046 5,431 8,614 1,001
Ausdrill promissory note 2,100 1,200 900 -
Repurchase obligation 1,600 1,600 - _-
------- ------- ------- -------
Total contractual cash
obligations 53,103 28,302 20,227 4,574
------- ------- ------- ------
Standby letters of credit 4,780 4,780 - _-
------- ------- ------- ------
Total contractual obligations
and commercial commitments $57,883 $33,082 $20,227 $4,574
======= ======= ======= ======
Costs estimated to be incurred in the future for employee medical
benefits 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 (see Note 10 to the Consolidated Financial
Statements).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are interest
rate risk on variable rate debt, equity risk on marketable investments, and
foreign exchange rate risk that could give rise to translation and transaction
gains and losses.
The Company centrally manages its debt and investment portfolios
considering overall financing strategies and tax consequences. A description of
the Company's variable rate debt is in Note 8 to the Notes to Consolidated
Financial Statements of this Form 10-K. Assuming then existing debt levels, an
instantaneous change in interest rates of one percentage point would impact the
Company's annual interest expense by $165,000 and $405,000 at January 31, 2002
and 2001, respectively. The Company's investments are described in Note 1 to the
Consolidated Financial Statements. Marketable investments are carried at market
value and are held for long-term investing purposes rather than trading
purposes.
Operating in international markets involves exposure to possible
volatile movements in currency exchange rates. Currently, the Company's primary
international operations are in Australia, Africa, Mexico, Canada and Italy. The
operations are described in Notes 1 and 11 to the Consolidated Financial
Statements. The majority of the Company's contracts in Africa and Mexico are
U.S. dollar-based, providing a natural reduction in exposure to currency
fluctuations.
As currency exchange rates change, translation of the income statements
of the Company's international operations into U.S. dollars may affect
year-to-year comparability of operating results. We estimate that a 10% change
in foreign
27
exchange rates would have impacted operating income for the years ended January
31, 2002 and 2001, by approximately $146,000 and $244,000, respectively. This
represents approximately 10% of the operating income of international locations
after adjusting for primarily U.S. dollar-based operations. This quantitative
measure has inherent limitations, as it does not take into account any
governmental actions, changes in customer purchasing patterns or changes in the
Company's financing and operating strategies.
Foreign exchange gains and losses in the Company's Consolidated
Statements of Income reflect transaction gains and losses and translation gains
and losses from the Company's Mexican and African operations which use the U.S.
dollar as their functional currency. Net foreign exchange gains and losses for
2002, 2001 and 2000 were not significant.
28
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
Independent Auditors' Report ....................................... 30
Financial Statements:
Consolidated Balance Sheets as of January 31, 2002 and 2001...... 31
Consolidated Statements of Income for the Years
Ended January 31, 2002, 2001 and 2000......................... 33
Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 2002, 2001 and 2000......................... 34
Consolidated Statements of Cash Flows for the Years Ended
January 31, 2002, 2001 and 2000 .............................. 35
Notes to Consolidated Financial Statements....................... 37
Financial Statement Schedule II.................................. 53
All other schedules have been omitted because they are not applicable
or not required as the required information is included in the Consolidated
Financial Statements of the Company or the Notes thereto.
29
INDEPENDENT AUDITORS' REPORT
Layne Christensen Company:
We have audited the accompanying consolidated balance sheets of Layne
Christensen Company and subsidiaries as of January 31, 2002 and 2001, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended January 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Companies as of January
31, 2002 and 2001, and the results of their operations and their cash flows for
each of the three years in the period ended January 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 22, 2002
30
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets
As of January 31, 2002 and 2001
(in thousands)
ASSETS 2002 2001
------ --------- ---------
Current assets:
Cash and cash equivalents $ 2,983 $ 3,421
Customer receivables, less allowance
of $3,596 and $3,510, respectively 43,603 51,498
Costs and estimated earnings in excess of
billings on uncompleted contracts 11,912 10,371
Inventories 21,885 30,762
Deferred income taxes 10,181 12,342
Income taxes receivable 3,074 --
Other 2,738 2,781
--------- ---------
Total current assets 96,376 111,175
--------- ---------
Property and equipment:
Land 8,163 8,926
Buildings 16,112 18,369
Machinery and equipment 162,967 163,488
--------- ---------
187,242 190,783
Less--Accumulated depreciation (128,460) (118,070)
--------- ---------
Net property and equipment 58,782 72,713
--------- ---------
Other assets:
Investment in foreign affiliates 19,504 19,306
Intangible assets, at cost less accumulated
amortization of $6,029 and $4,904,
respectively 22,284 26,058
Deferred income taxes 4,270 2,623
Other 1,126 1,993
--------- ---------
Total other assets 47,184 49,980
--------- ---------
$ 202,342 $ 233,868
========= =========
See Notes to Consolidated Financial Statements.
- Continued -
31
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets(Continued)
As of January 31, 2002 and 2001
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
------------------------------------ ---------- -----------
Current liabilities:
Accounts payable $ 16,762 $ 18,684
Current maturities of long-term debt 20,071 3,571
Accrued compensation 14,785 15,726
Accrued insurance expense 5,794 6,425
Other accrued expenses 10,983 8,096
Income taxes payable 4,049 923
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,419 10,790
--------- ---------
Total current liabilities 80,863 64,215
--------- ---------
Noncurrent and deferred liabilities:
Long-term debt 14,286 58,357
Accrued insurance expense 6,358 5,557
Other 4,287 2,526
Minority interest 656 9,288
--------- ---------
Total noncurrent and deferred
liabilities 25,587 75,728
--------- ---------
Contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share,
5,000,000 shares authorized, none issued
and outstanding - -
Common stock, par value $.01 per share,
30,000,000 shares authorized, 11,707,694
shares issued and outstanding 117 117
Capital in excess of par value 83,605 83,613
Retained earnings 24,302 23,224
Accumulated other comprehensive loss (12,027) (12,913)
Notes receivable from management stockholders (105) (116)
--------- ---------
Total stockholders' equity 95,892 93,925
--------- ---------
$ 202,342 $ 233,868
========= =========
See Notes to Consolidated Financial Statements.
- Concluded -
32
Layne Christensen Company and Subsidiaries
Consolidated Statements of Income
For the Years Ended January 31, 2002, 2001 and 2000
(in thousands, except per share data)
2002 2001 2000
--------- --------- ---------
Revenues $ 308,388 $ 313,993 $ 281,445
Cost of revenues (exclusive of
depreciation shown below) 224,451 235,278 207,105
--------- --------- ---------
Gross profit 83,937 78,715 74,340
Selling, general and administrative
expenses 59,677 58,757 53,781
Depreciation and amortization 18,160 21,337 23,016
--------- --------- ---------
Operating income (loss) 6,100 (1,379) (2,457)
Other income (expense):
Equity in earnings (losses)
of foreign affiliates 925 894 (27)
Interest (3,934) (6,205) (4,818)
Other, net 189 1,028 (108)
--------- --------- ---------
Income (loss) before income taxes 3,280 (5,662) (7,410)
Income tax expense 2,132 382 --
Minority interest, net of taxes (70) 118 (255)
--------- --------- ---------
Net income (loss) $ 1,078 $ (5,926) $ (7,665)
========= ========= =========
Basic earnings (loss) per share $ 0.09 $ (0.50) $ (0.66)
========= ========= =========
Diluted earnings (loss) per share $ 0.09 $ (0.50) $ (0.66)
========= ========= =========
Weighted average number of common
and dilutive equivalent shares
outstanding:
Weighted average shares
outstanding - basic 11,758 11,758 11,675
Dilutive stock options 277 -- --
--------- --------- ---------
Weighted average shares
outstanding - diluted 2,035 11,758 1,675
========= ========= =========
See Notes to Consolidated Financial Statements.
33
Layne Christensen Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended January 31, 2002, 2001 and 2000
(in thousands, except share data)
Notes
Accumulated Receivable
Capital in Other from
Common Stock Excess of Retained Comprehensive Management
Shares Amount Par Value Earnings Loss Stockholders Total
---------- ----------- ----------- ----------- ----------- --------- --------
Balance, February 1, 1999 11,641,192 $ 116 $ 83,095 $ 36,815 $ (6,604) $ (152) $ 113,270
Comprehensive loss:
Net loss -- -- -- (7,665) -- -- (7,665)
Other comprehensive income
(loss):
Change in unrecognized
pension liability,
net of taxes of $365 -- -- -- -- 580 -- 580
Foreign currency
translation adjustments,
net of taxes of $460 -- -- -- -- 641 -- 641
Change in unrealized loss
on available for sale
investments, net of
taxes of $264 -- -- -- -- (355) -- (355)
----------
Comprehensive loss (6,799)
----------
Issuance of stock for
incentive compensation program 5,845 -- 82 -- -- -- 82
Issuance of stock, net of
expenses 44,092 1 286 -- -- -- 287
---------- --------- --------- -------- ------- ------- ----------
Balance, January 31, 2000 11,691,129 117 83,463 29,150 (5,738) (152) 106,840
Comprehensive loss:
Net loss -- -- -- (5,926) -- -- (5,926)
Other comprehensive income
(loss):
Change in unrecognized
pension liability,
net of taxes of $234 -- -- -- -- (373) -- (373)
Foreign currency
translation adjustments,
net of taxes of $3,979 -- -- -- -- (6,054) -- (6,054)
Change in unrealized loss
on available for sale
investments, net of
taxes of $504 -- -- -- -- (748) -- (748)
----------
Comprehensive loss (13,101)
----------
Issuance of stock for
incentive compensation program 1,181 -- 50 -- -- -- 50
Issuance of stock, net of
expenses 15,384 -- 100 -- -- -- 100
Payments on notes receivable -- -- -- -- -- 36 36
---------- --------- --------- -------- ------- ------- ----------
Balance, January 31, 2001 11,707,694 117 83,613 23,224 (12,913) (116) 93,925
Comprehensive income:
Net income -- -- -- 1,078 -- -- 1,078
Other comprehensive income
(loss):
Change in unrecognized
pension liability,
net of taxes of $389 -- -- -- -- (617) -- (617)
Foreign currency
translation adjustments,
net of taxes of $291 -- -- -- -- (377) -- (377)
Change in unrealized loss
on available for sale
investments, net of
taxes of $1,248 -- -- -- -- 1,880 -- 1,880
----------
Comprehensive income 1,964
----------
Issuance of stock, net of
expenses -- -- (8) -- -- -- (8)
Payments on notes receivable -- -- -- -- -- 11 11
---------- --------- --------- -------- ------- ------ ----------
Balance, January 31, 2002 11,707,694 $ 117 $ 83,605 $ 24,302 (12,027) $ (105) $ 95,892
========== ========= ========= ======== ======= ====== ==========
See Notes to Consolidated Financial Statements
34
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
-------- -------- --------
Cash flow from operating activities:
Net income (loss) $ 1,078 $ (5,926) $ (7,665)
Adjustments to reconcile net income
(loss) to cash from operations:
Depreciation and amortization 18,160 21,337 23,016
Deferred income taxes 826 (4,712) (2,060)
Equity in (earnings) losses of
foreign affiliates (925) (894) 27
Dividends received from foreign
affiliates 904 1,033 377
Minority interest 107 (182) 392
(Gain) loss from disposal of property
and equipment (325) (37) 50
Gain on sale of business (3,991) -- --
Loss on sale of investment 3,329 -- --
Changes in current assets and liabilities,
(exclusive of effects of acquisitions):
(Increase) decrease in customer
receivables 7,711 (6,954) (2,466)
(Increase) decrease in costs and
estimated earnings in excess of
billing on uncompleted contracts 624 1,034 (3,164)
(Increase) decrease in inventories 4,474 (941) 1,346
(Increase) decrease in other current
assets (117) 2,380 3,685
Increase (decrease) in accounts payable
and accrued expenses (2,473) 4,186 (1,617)
Increase (decrease) in billings in
excess of costs and estimated
earnings on uncompleted contracts (2,360) 694 1,546
Other, net (1,513) 1,934 (305)
-------- -------- --------
Cash from operating activities 25,509 12,952 13,162
-------- -------- --------
Cash flow from investing activities:
Additions to property and equipment (11,205) (14,302) (12,816)
Proceeds from disposal of property and
equipment 4,083 2,256 2,476
Proceeds from sale of business 8,165 -- --
Acquisition of businesses, net of cash
acquired -- -- (891)
Investment in foreign affiliates and
joint ventures -- -- (293)
-------- -------- --------
Cash from (used in) investing
activities 1,043 (12,046) (11,524)
-------- -------- --------
See Notes to Consolidated Financial Statements.
- Continued -
35
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows - (Continued)
For the Years Ended January 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
-------- -------- --------
Cash flow from financing activities:
Net (repayments) borrowings under
revolving facility $(24,000) $ 2,000 $ --
Repayments of long-term debt (3,571) (3,572) --
Payments on notes receivable from
management stockholders 11 36 --
-------- -------- --------
Cash used in financing activities (27,560) (1,536) --
-------- -------- --------
Effects of exchange rate changes on cash 570 300 19
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (438) (330) 1,657
Cash and cash equivalents at beginning
of year 3,421 3,751 2,094
-------- -------- --------
Cash and cash equivalents at end of year $ 2,983 $ 3,421 $ 3,751
======== ======== ========
See Notes to Consolidated Financial Statements.
- Concluded -
36
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
(1) Summary of Significant Accounting Policies
Description of Business - Layne Christensen Company and subsidiaries
(together, the "Company") provide comprehensive services and products to the
water resources, mineral exploration, geoconstruction and energy markets through
its four primary operating divisions (see Note 11). The Company operates
throughout North America as well as in Africa, Australia and Europe. Its
customers include municipalities, industrial companies, mining companies,
environmental consulting and engineering firms, heavy civil construction
contractors and, to a lesser extent, agribusiness.
Fiscal Year - References to years are to the fiscal years then ended.
Investment in Affiliated Companies - Investments in affiliates (29% to
50% owned) in which the Company exercises significant influence over operating
and financial policies are accounted for on the equity method.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions have been eliminated. Financial information for the
Company's foreign affiliates and certain foreign subsidiaries is reported in the
Company's consolidated financial statements with a one-month lag in reporting
periods. The effect of this one-month lag on the Company's financial results is
not significant.
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.
Foreign Currency Transactions and Translation - The cash flows and
financing activities of the Company's Mexican and African operations are
primarily denominated in the U.S. dollar. Accordingly, these operations use the
U.S. dollar as their functional currency and translate monetary assets and
liabilities at year-end exchange rates while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year, except for depreciation, certain cost of
revenues and selling expenses which are translated at historical rates. Gains or
losses from changes in exchange rates are recognized in consolidated income in
the year of occurrence.
Other foreign subsidiaries and affiliates use local currencies as their
functional currency. Assets and liabilities have been translated to U.S. dollars
at year-end exchange rates. Income and expense items have been translated at
exchange rates which approximate the weighted average of the rates prevailing
during each year. Translation adjustments are reported as a separate component
of accumulated other comprehensive loss. As a result of the acquisition of an
Australian company during 1998, the Company has reflected substantial changes in
the cumulative translation account during 2001, primarily attributed to the
devaluation of the Australian dollar.
37
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
Net foreign currency transaction gains and losses for 2002, 2001 and
2000 were not significant.
Revenue Recognition - Revenue is recognized on large, long-term
contracts using the percentage of completion method based upon materials
installed and labor costs incurred. Changes in job performance, job conditions
and estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Revenue is recognized on smaller, short-term contracts using the completed
contract method. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Inventories - The Company values inventories at the lower of cost
(first-in, first-out, including material, labor and manufacturing overhead
costs) or market (in thousands):
2002 2001
------- ---------
Raw materials $ 275 $ 1,101
Work in process 541 1,639
Finished products, parts and supplies 21,069 28,022
------- -------
Total $21,885 $30,762
======= =======
Property and Equipment and Related Depreciation - Property and
equipment (including major renewals and improvements) are recorded at cost.
Depreciation is provided using the straight-line method. Depreciation expense
was $17,035,000, $20,121,000 and $21,721,000 in fiscal 2002, 2001 and 2000,
respectively. The lives used for the more significant items within each property
classification are as follows:
Years
-----
Buildings 15 - 35
Machinery and equipment 3 - 10
Intangible Assets - Intangible assets consist of goodwill related to
acquisitions, purchased technical manuals and other assets which are being
amortized over their estimated economic lives which range from 10 to 35 years.
Amortization expense for intangible assets was $1,125,000, $1,216,000 and
$1,295,000 for 2002, 2001 and 2000, respectively.
Investments - During 2002, 2001 and 2000, the Company, through its
wholly owned subsidiary Layne Christensen Australia Pty Limited ("Layne
Australia"), owned certain common stock of publicly traded companies on the
Australian Stock Exchange. The Company classified these investments as
available-for-sale. The noncurrent investments have a cost basis of $188,000 and
$3,723,000 and are reported at their fair values of approximately $107,000 and
$514,000 at January 31, 2002 and 2001, respectively. The gross unrealized losses
of $81,000 and $3,209,000, net of taxes of $36,000 and $1,284,000 at January 31,
2002 and 2001, respectively, have been recorded as a component of accumulated
other comprehensive loss.
38
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
In 2002, the Company, through its wholly owned subsidiary Layne
Australia, sold its investment in Ausdrill Limited, a publicly traded company on
the Australian Stock Exchange. The investment was classified as
available-for-sale and had a cost basis of $3,535,000. The Company recorded a
loss on the sale of approximately $3,329,000 in Other, net in the 2002
Consolidated Statements of Income and removed the related net of tax loss of
$1,880,000 from accumulated other comprehensive loss in the Consolidated
Statements of Stockholders' Equity.
Impairment of Long-Lived Assets - At each balance sheet date, a
determination is made by management as to whether the value of long-lived
assets, including intangible assets and assets to be disposed of, has been
impaired. The determination is based on several criteria, including, but not
limited to, revenue trends, undiscounted operating cash flows and other
operating factors.
Accrued Insurance Expense - Costs estimated to be incurred in the
future for employee medical benefits and casualty insurance programs resulting
from claims which have been incurred 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 (see Note 10).
Fair Value of Financial Instruments - The carrying amounts of financial
instruments including cash and cash equivalents, customer receivables and
accounts payable approximate fair value at January 31, 2002 and 2001, because of
the relatively short maturity of those instruments. Investments in equity
securities are carried at quoted market values. See Note 8 for disclosure
regarding the fair value of indebtedness of the Company.
Consolidated Statements of Cash Flows - Highly liquid investments with
a remaining maturity of three months or less at the time of purchase are
considered cash equivalents.
The amounts paid for income taxes and interest are as follows (in
thousands):
2002 2001 2000
------- ------- -------
Income taxes $3,471 $ 582 -
Interest 4,092 5,632 $4,892
Supplemental Noncash Transactions -- In 2001 and 2000, the Company
issued 1,181 and 5,845 shares of common stock, respectively, and 42,532 and
39,812 stock options, respectively, related to 2000 and 1999 compensation
awards. In 2002, the Company did not issue shares of common stock or stock
options related to compensation awards.
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 (see Note 5).
39
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
Earnings Per Share - Earnings per common share are based upon the
weighted average number of common and dilutive equivalent shares outstanding.
Options to purchase common stock are included based on the treasury stock method
for dilutive earnings per share except when their effect is antidilutive.
Stock-Based Compensation - Stock-based compensation may be accounted
for either based on the estimated fair value of the awards at the date they are
granted (the "SFAS 123 Method") or based on the difference, if any, between the
market price of the stock at the date of grant and the amount the employee must
pay to acquire the stock (the "APB 25 Method"). The Company uses the APB 25
Method to account for its stock-based compensation programs (see Note 9). Pro
forma net income (loss) for 2002, 2001 and 2000, determined as if the SFAS 123
Method had been applied, would have been $155,000, ($6,687,000) and
($8,582,000), respectively. Basic and diluted earnings (loss) per share would
have been $.01 for 2002, ($0.57) for 2001 and ($0.74) for 2000.
Other Comprehensive Loss - Accumulated balances of Other Comprehensive
Loss are as follows (in thousands):
Accumulated
Cumulative Unrealized Unrecognized Other
Translation Loss On Pension Comprehensive
Adjustment Investments Liability Loss
----------- ----------- ------------ -------------
Balance, February 1, 2000 $ (4,561) $ (1,177) $ - $ (5,738)
Period change (6,054) (748) (373) (7,175)
---------- ---------- ----------- ------------
Balance, January 31, 2001 (10,615) (1,925) (373) (12,913)
Period change (377) 1,880 (617) 886
---------- ---------- ----------- ------------
Balance, January 31, 2002 $ (10,992) $ (45) $ (990) $ (12,027)
========== ========== =========== ============
Reclassifications - Certain 2001 and 2000 amounts have been
reclassified to conform with the 2002 presentation.
(2) Acquisitions
On September 25, 2001, the Company acquired the remaining 50% ownership
in West African Drilling Services ("WADS") from its joint venture partner,
Ausdrill Limited ("Ausdrill"), effective June 30, 2001. The Company issued a
twenty-five month, non-interest-bearing promissory note for $2,500,000 and
surrendered, by way of an Ausdrill share repurchase agreement, the 6,014,615
shares of Ausdrill that the Company owned. The promissory note is included in
other accrued expenses and other long-term liabilities in the Consolidated
Balance Sheets. The shares had a fair value of approximately $206,000. The
acquisition has been accounted for using the purchase method of accounting. Had
this acquisition taken place as of February 1, 2001, pro forma operating results
would not have been significantly different from those reported.
On June 1, 1999, the Company acquired the outstanding stock of Toledo
Oil and Gas Service, Inc., an oil and gas services company based in Broussard,
Louisiana, for $169,000 cash and $387,000 in common stock. The acquisition has
been accounted for using the purchase method of accounting and the operations of
Toledo Oil and Gas Service, Inc. have been included from the date of
acquisition.
40
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
On June 4, 1999, the Company purchased certain assets of Vibration
Technology, an oil and gas services company based in Shreveport, Louisiana, for
$253,000 in cash. The acquisition has been accounted for using the purchase
method of accounting.
On August 26, 1999, the Company, through its wholly owned subsidiary
Layne Christensen Canada Limited ("Layne Canada"), purchased substantially all
of the assets of Basal Drilling, Inc., based in Alberta, Canada, for $469,000 in
cash and issuance of a one-year promissory note for $270,000. Basal Drilling is
a multi-services drilling company. The acquisition has been accounted for using
the purchase method of accounting.
Had the acquisitions in fiscal 2000 taken place as of February 1, 1999,
pro forma operating results would not have been significantly different from
those reported.
The above acquisitions had the following effect on the Company's
consolidated financial position (in thousands):
2002 2001
------- -------
Property and equipment $(3,906) $ 1,328
Working capital (1,389) (396)
Intangible and other assets (548) 420
Noncurrent and deferred
liabilities 5,843 (461)
------- -------
Total purchase price,
net of cash acquired $ - $ 891
======= =======
(3) Investments in Foreign Affiliates
The Company's investments in foreign affiliates are carried at the
Company's equity in the underlying net assets plus an additional $4,753,000 as a
result of purchase accounting. This additional amount is being amortized over
the remaining useful lives of the applicable underlying assets ranging from 20
to 35 years. Accumulated amortization at January 31, 2002 and 2001, was $779,000
and $649,000, respectively. These affiliates, which generally are engaged in
mineral exploration drilling and the manufacture and supply of drilling
equipment, parts and supplies, are as follows:
Percentage
Owned
------------
Christensen Chile, S.A. (Chile) 49.99%
Christensen Commercial, S.A. (Chile) 50.00%
Geotec Boyles Bros., S.A. (Chile) 49.75%
Boyles Bros. Diamantina, S.A. (Peru) 29.49%
Christensen Commercial, S.A. (Peru) 50.00%
Geotec, S.A. (Peru) 35.38%
Boytec, S.A. (Panama) 49.99%
Technidrill, Ltd. (France) 49.00%
Christensen Boyles GmbH (Germany) 33.35%
Plantel Industrial S.A. (Chile) 50.00%
Boytec Sondajes de Mexico, S.A. de C.V. (Mexico) 49.99%
Geoductos Chile, S.A. (Chile) 50.00%
41
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
Financial information from foreign affiliates is reported with a
one-month lag in the reporting period. Summarized financial information of the
Company's foreign affiliates, as of January 31, 2002, 2001 and 2000, and for the
years then ended, was as follows (in thousands):
2002 2001 2000
------- ------- --------
Total assets $51,146 $60,526 $57,645
Total liabilities 13,442 21,741 17,932
Revenues 61,720 66,217 51,552
Gross profit 8,401 10,423 6,094
Operating income 3,905 5,393 1,282
Net income 1,988 2,392 152
The Company has transactions and balances with foreign affiliates
which resulted in the following amounts being included in the Consolidated
Financial Statements as of January 31, 2002, 2001 and 2000, and for the years
then ended (in thousands):
2002 2001 2000
------- ------- ------
Accounts receivable $ 282 $1,563 $ 566
Notes receivable - 149 1,333
Revenues2,691 3,231 1,374
Undistributed equity in earnings of foreign affiliates totaled
$3,925,000, $3,904,000 and $4,043,000 as of January 31, 2002, 2001 and 2000,
respectively.
(4) Costs and Estimated Earnings on Uncompleted Contracts (in thousands):
2002 2001
-------- --------
Costs incurred on uncompleted contracts $ 81,057 $ 99,810
Estimated earnings 36,178 40,972
-------- --------
117,235 140,782
Less: Billings to date 113,742 141,201
-------- --------
$ 3,493 $ (419)
======== ========
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 11,912 $ 10,371
Billings in excess of costs and estimated
earnings on uncompleted contracts (8,419) (10,790)
-------- --------
$ 3,493 $ (419)
======== ========
The Company generally does not bill contract retainage amounts until the
contract is completed. The Company bills its customers based on specific
contract terms. Substantially all billed amounts are collectible within one
year.
42
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
(5) Income Taxes
Income (loss) before income taxes is as follows (in thousands):
2002 2001 2000
-------- -------- --------
Domestic $ 14,303 $ 5,570 $ 4,825
Foreign (11,023) (11,232) (12,235)
-------- -------- --------
$ 3,280 $ (5,662) $ (7,410)
======== ======== ========
Components of income tax expense are (in thousands):
2002 2001 2000
------- ------- -------
Currently due:
U.S. federal $ 462 $ 192 $ (118)
State and local 263 236 (188)
Foreign 1,644 1,344 1,017
------- ------- -------
2,369 1,772 711
------- ------- -------
Deferred:
U.S. federal (896) 2,531 672
State and local (230) (193) 79
Foreign 889 (3,728) (1,462)
------- ------- -------
(237) (1,390) (711)
------- ------- -------
$ 2,132 $ 382 $ --
======= ======= =======
Deferred income taxes result from temporary differences between the
financial statement and tax bases of the Company's assets and liabilities. The
sources of these differences and their cumulative tax effects are (in
thousands):
2002 2001
--------------------------------- -----------------------------------
Assets Liabilities Total Assets Liabilities Total
------- ----------- ------ ------- ----------- -------
Contract income $ 2,846 - $2,846 $ 3,415 - $ 3,415
Accrued insurance
expense 1,271 - 1,271 1,605 - 1,605
Employee compensation 1,125 - 1,125 1,266 - 1,266
Bad debts 1,215 - 1,215 1,323 - 1,323
Inventory 1,825 $ (1,293) 532 1,332 $(1,401) (69)
Other accrued expenses 3,865 (673) 3,192 5,262 (460) 4,802
------- -------- ------- ------- -------- -------
Current 12,147 (1,966) 10,181 14,203 (1,861) 12,342
------- -------- ------- ------- -------- -------
Accelerated depreciation 281 (5,445) (5,164) 173 (6,524) (6,351)
Cumulative translation
adjustment 6,939 - 6,939 6,648 - 6,648
Accrued insurance
expense 2,620 - 2,620 2,322 - 2,322
Unrealized loss on
investments 36 - 36 1,284 - 1,284
Employee compensation 1,041 (618) 423 732 (130) 602
Other 1,783 (2,367) (584) 1,609 (3,491) (1,882)
------- -------- ------- ------- ------- -------
Noncurrent 12,700 (8,430) 4,270 12,768 (10,145) 2,623
------- -------- ------- ------- -------- -------
$24,847 $(10,396) $14,451 $26,971 $(12,006) $14,965
======= ======== ======= ======= ======== =======
The Company has several Australian and African subsidiaries which
have generated tax losses. The majority of these losses have been utilized to
reduce the Company's U.S. federal and state income tax expense.
43
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
At January 31, 2002, undistributed earnings of foreign subsidiaries
and foreign affiliates included $13,331,000 for which no U.S. federal income or
foreign withholding taxes have been provided. These earnings, which are
considered to be invested indefinitely, would become subject to income tax if
they were remitted as dividends or if the Company were to sell its stock in the
affiliates or subsidiaries. It is not practicable to determine the amount of
income or withholding tax that would be payable upon remittance of these
earnings.
A reconciliation of the total income tax expense to the statutory
federal rate is as follows (in thousands):
2002 2001 2000
--------------------- ----------------------- ----------------------
Effective Effective Effective
Amount Rate Amount Rate Amount Rate
------ --------- ------ --------- ------ --------
Income tax at statutory
rate $1,115 34.0% $(1,925) 34.0% $(2,519) 34.0%
State income tax, net of
federal income tax
benefit 22 0.7 28 (0.5) (71) 1.0
Difference in tax expense
resulting from:
Nondeductible expenses 420 12.8 465 (8.2) 448 (6.0)
Unremitted income of
foreign affiliates (53) (1.6) 3 (0.0) 9 (0.1)
Taxes on foreign
operations 484 14.7 1,752 (30.9) 1,825 (24.6)
Other, net 144 4.4 59 (1.1) 308 (4.3)
------ ---- ------- ----- ------- --------
$2,132 65.0% $ 382 (6.7)% $ - -
====== ===== ======= ===== ======= =======
6) Leases
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year from
January 31, 2002 are as follows (in thousands):
2003 $5,431
2004 4,423
2005 2,552
2006 1,639
2007 1,001
Operating leases are primarily for automobiles, light trucks, and
office and shop facilities. Rent expense under operating leases (including
insignificant amounts of contingent rental payments) was $6,475,000, $5,972,000
and $5,163,000 in 2002, 2001 and 2000, respectively.
44
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
(7) 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. Assets of the plan consist
primarily of stocks, bonds and government securities.
The following table sets forth the plan's funded status as of December
31, 2001 and 2000 (the measurement dates) and the amounts recognized in the
Company's Consolidated Balance Sheets at January 31, 2002 and 2001 (in
thousands):
2002 2001
-------- ---------
Benefit obligation at beginning of year $ 5,411 $ 5,036
Service cost 163 141
Interest cost 391 404
Actuarial loss 295 247
Benefits paid (339) (417)
------- -------
Benefit obligation at end of year 5,921 5,411
------- -------
Fair value of plan assets at beginning of year 5,037 5,293
Actual return on plan assets (297) (12)
Employer contribution 448 173
Benefits paid (339) (417)
------- -------
Fair value of plan assets at end of year 4,849 5,037
------- -------
Funded status (1,072) (374)
Unrecognized actuarial loss 1,614 607
Unrecognized prior services cost 40 51
------- -------
Net amount recognized $ 582 $ 284
======= =======
Amounts recognized in the Company's Consolidated Balance Sheets at January 31,
2002 and 2001 (in thousands) consist of:
2002 2001
------- ------
Prepaid benefit cost $ 582 $ 284
Accrued benefit liability (1,654) (658)
Intangible asset 40 51
Accumulated other comprehensive loss 1,614 607
------- ------
Net amount recognized $ 582 $ 284
======= ======
Net periodic pension cost for 2002, 2001 and 2000 includes the following
components (in thousands):
2002 2001 2000
------- ------ ------
Service cost $ 163 $ 141 $ 181
Interest cost 391 404 388
Expected return on assets (398) (371) (346)
Net amortization (7) 3 96
------ ------ ------
Net periodic pension cost $ 149 $ 177 $ 319
====== ====== ======
The Company has recognized the full amount of its actuarially determined
pension liability and the related intangible asset. The unrecognized pension
cost
45
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
has been recorded as a charge to consolidated stockholders' equity after
giving effect to the related future tax benefit.
The projected benefit obligation for 2002, 2001 and 2000 was computed
using a discount rate of 7.25%, 7.75% and 8.0%, respectively, and an estimated
long-term rate of return on assets of 8.75%. Benefit level assumptions for 2002,
2001 and 2000 are based on fixed amounts per year of credited service.
The Company also participates in a number of defined benefit,
multi-employer plans. These plans are union-sponsored, and the Company makes
contributions equal to the amounts accrued for pension expense. Total union
pension expense for these plans was $1,285,000, $1,236,000 and $992,000 in 2002,
2001 and 2000, respectively. Information regarding assets and accumulated
benefits of these plans has not been made available to the Company.
The Company's salaried and certain hourly employees participate in
Company-sponsored, defined contribution plans. Company contributions are
determined annually at the discretion of the Board of Directors of the Company.
Total expense for the Company's portion of these plans was $1,205,000,
$1,178,000 and $791,000 in 2002, 2001 and 2000, respectively. Effective January
1, 2000, the Company increased its matching contribution to certain plans to
100% of the employees' deferral contributions that do not exceed 3% of
compensation and 50% of the employees' deferral contributions that exceed 3% but
do not exceed 5% of compensation (for a maximum matching contribution of 4%).
Previously, the maximum matching contribution allowed under the plans was 3%.
The Company reserves the right to amend or terminate the plans, but the Company
cannot recover contributions already paid.
(8) Indebtedness
During July 1997, contemporaneously with the acquisition of Stanley
Mining Services ("Stanley Acquisition"), an Australian- and African-based
drilling contractor, the Company amended its existing credit agreement to
provide a reducing revolving credit facility ("Credit Agreement"). As of January
31, 2002, the commitment under the Credit Agreement had been reduced to
$57,000,000, less any outstanding letter of credit commitments ($20,000,000
sublimit). The Credit Agreement was used to finance the Stanley Acquisition and
refinance the Company's existing indebtedness under a $30,000,000 credit
facility, and is available for working capital and capital expenditures and for
other general corporate purposes. As of January 31, 2002, letters of credit in
an aggregate amount of $4,780,000 had been issued on behalf of the Company. The
Credit Agreement will terminate in July 2002 and any borrowings thereunder will
mature at that time. Layne Australia is eligible to draw down up to $15,000,000
under the Credit Agreement. The Credit Agreement provides for guarantees by
certain of the Company's domestic subsidiaries and contains certain covenants
including restrictions on the incurrence of additional indebtedness and liens,
payment of dividends, sale of assets or other dispositions, transactions with
affiliates, mandatory prepayments based on the proceeds from the sale of assets
and debt and equity securities and certain financial maintenance covenants,
including among others, minimum interest coverage and maximum leverage ratios.
The Credit Agreement provides for interest at variable rates equal to (i) for
loans in Australian dollars, an Australian Bill rate plus 1.00% to 1.75%
(depending upon debt to capitalization ratios), or (ii) for loans in U.S.
dollars, at the Company's option, a Eurodollar rate plus 1.00% to
46
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
1.75% (depending upon debt to capitalization ratios), or an alternate reference
rate as defined in the Credit Agreement. As of January 31, 2002, outstanding
borrowings under the Credit Agreement were $16,500,000, at an average interest
rate of 3.381%. The variable interest rates on the outstanding balance
approximate the current market rates.
Maximum borrowings outstanding under the Company's then-existing credit
agreements during 2002, 2001 and 2000 were $47,000,000, $53,000,000 and
$44,000,000, respectively, and the average outstanding borrowings were
$33,292,000, $47,708,000 and $40,583,000, respectively. The weighted average
interest rates were 7.0%, 9.0% and 7.0%, respectively.
During March 1996, the Company completed the private placement of an
unsecured note agreement (subsequently amended) for $25,000,000 ("Senior
Notes"). The Senior Notes bear a fixed interest rate of 6.75% and will be due
March 15, 2006, with annual installments of $3,571,000 which began March 15,
2000. As of January 31, 2002 and 2001, such interest rate approximates market
for similar securities. Financial guarantees and covenants are similar to those
in the Credit Agreement.
Loan costs incurred for securing long-term financing are amortized over
the term of the respective loan agreement. Amortization of these costs for 2002,
2001 and 2000 was $312,000, $351,000 and $221,000, respectively. Amortization of
loan costs is included in interest expense in the Consolidated Statements of
Income.
In July 2001, outstanding borrowings under the Credit Agreement were
reclassified as current liabilities as the agreement will expire within twelve
months. The Company intends to negotiate a new credit agreement prior to that
time. Debt outstanding as of January 31, 2002 and 2001 was as follows (in
thousands):
2002 2001
------- --------
Current maturities of long-term debt:
Senior notes $ 3,571 $ 3,571
Revolving credit facility 16,500 -
------- -----
Total current maturities of long-term debt 20,071 3,571
------- ------
Long-term debt:
Senior notes 14,286 17,857
Revolving credit facility - 40,500
------- -------
Total long-term debt 14,286 58,357
------- -------
Total debt $34,357 $61,928
======= =======
As of January 31, 2002, debt outstanding will mature as follows (in
thousands):
2003 $20,071
2004 3,571
2005 3,571
2006 3,571
2007 3,573
Thereafter -
47
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
(9) Stock and Stock Option Plans
In October 1998, the Company adopted a Rights Agreement 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 25% 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 $45.00. The Company is entitled to redeem the Right at $.01
per Right at any time before a person has acquired 25% or more of the Company's
outstanding common stock. The Rights expire 10 years from the date of grant.
The Company has reserved 500,000 shares of common stock for issuance
under Employee Incentive Compensation Plans. Issuance of shares under the Plans
is based on performance as determined annually by a committee appointed by the
Company's Board of Directors. During 2001 and 2000, 1,181 and 5,845 shares,
respectively, were issued at $4.66 and $5.50 per share, respectively.
The Company also has two stock option plans which provide for the
granting of options to purchase up to an aggregate of 1,900,000 shares of common
stock at a price fixed by the Board of Directors or a committee.
Significant option groups outstanding at January 31, 2002 and related
weighted average price and life information follows:
Average Remaining
Options Options Exercise Life
Grant Date Outstanding Exercisable Price (Years)
---------- ----------- ----------- --------- ---------
8/92 72,164 72,164 $ .882 -
8/92 58,317 58,317 7.000 -
12/93 258,317 258,317 6.420 2
5/94 39,000 39,000 6.375 2
2/96 135,500 135,500 10.500 4
4/97 10,998 8,798 11.400 5
2/98 227,500 182,000 14.000 6
4/98 18,226 10,936 10.290 6
4/99 342,039 167,279 5.140 7
7/99 5,000 2,500 6.063 7
2/00 35,000 17,500 5.500 8
4/00 38,107 7,621 3.495 8
8/00 10,000 2,500 5.125 8
9/00 75,000 18,750 4.000 3
5/01 55,000 - 7.105 10
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 options have terms
of five to ten years from the date of grant and vest ratably over periods of
four to five years. For purposes of pro forma disclosure, the weighted average
fair value at the date of grant for options granted during 2002, 2001 and 2000
were $4.16, $2.21 and $3.95 per option, respectively. The fair value of options
at date of grant was estimated using the Black-Scholes model. The fair values
are based on an
48
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
expected life in years equal to the full option term, no
dividend yield and the following weighted average assumptions:
2002 2001 2000
---- ---- ----
Interest rate 4.9% 5.0% 6.5%
Volatility 38% 39% 59%
Shares Under Option Shares Exercisable
------------------------- ----------------------------
Weighted Weighted
Number Average Number of Average
of Shares Price Shares Price
--------- ----- ------ -----
Stock Option Activity Summary:
Outstanding, February 1, 1999 991,646 $ 9.391 626,460 $7.344
Granted 454,187 5.111 -
Canceled (112,235) 10.395 (16,335)
Vested - - 99,300
--------- --------
Outstanding, January 31, 2000 1,333,598 7.862 709,425 7.858
Granted 167,532 4.286 -
Canceled (158,401) 7.157 (73,033)
Vested - - 175,834
--------- --------
Outstanding, January 31, 2001 1,342,729 7.352 812,226 7.862
Granted 55,000 7.105 -
Canceled (17,561) 6.069 (3,027)
Vested - - 171,983
--------- --------
Outstanding, January 31, 2002 1,380,168 $ 7.358 981,182 $7.780
========= ========
(10) Contingencies
The Company's drilling activities involve certain operating hazards
that can result in personal injury or loss of life, damage and destruction of
property and equipment, damage to the surrounding areas, release of hazardous
substances or wastes and other damage to the environment, interruption or
suspension of drill site operations and loss of revenues and future business.
The magnitude of these operating risks is amplified when the Company, as is
frequently the case, conducts a project on a fixed-price, "turnkey" basis where
the Company delegates certain functions to subcontractors but remains
responsible to the customer for the subcontracted work. In addition, the Company
is exposed to potential liability under foreign, federal, state and local laws
and regulations, contractual indemnification agreements or otherwise in
connection with its provision of services and products. Litigation arising from
any such occurrences may result in the Company being named as a defendant in
lawsuits asserting large claims. Although the Company maintains insurance
protection that it considers economically prudent, there can be no assurance
that any such insurance will be sufficient or effective under all circumstances
or against all claims or hazards to which the Company may be subject or that the
Company will be able to continue to obtain such insurance protection. A
successful claim or damage resulting from a hazard for which the Company is not
fully insured could have a material adverse effect on the Company. In addition,
the Company does not maintain political risk insurance or business interruption
insurance with respect to its foreign operations.
49
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
The Company is involved in various matters of litigation, claims and
disputes which have arisen in the ordinary course of the Company's business.
While the resolution of any of these matters may have an impact on the financial
results for the period in which the matter is resolved, the Company believes
that the ultimate disposition of these matters will not, in the aggregate, have
a material adverse effect upon its business or consolidated financial position,
results of operations or cash flows.
(11) Operating Segments and Foreign Operations
Financial information for the Company's operating segments is presented
below (in thousands). Intersegment revenues are accounted for based on the fair
market value of the products sold or services provided. The Corporate operating
loss consists of unallocated corporate expenses, primarily general and
administrative functions and incentive compensation. Corporate assets are all
assets of the Company not directly associated with an operating segment, and
consist primarily of cash, deferred income taxes and investments in foreign
affiliates (see Note 3).
2002 2001 2000
-------- --------- --------
Revenues
Water resources $ 175,492 $ 170,204 $ 160,956
Mineral exploration 57,945 66,153 64,744
Geoconstruction services 27,006 38,010 33,103
Energy services and production 27,011 21,232 8,889
Products and other 29,823 28,164 23,511
Intersegment products
and supply revenues (8,889) (9,770) (9,758)
--------- --------- ---------
Total revenues $ 308,388 $ 313,993 $ 281,445
========= ========= =========
Operating income(loss)
Water resources $ 23,675 $ 15,857 $ 10,984
Mineral exploration (5,653) (9,149) (5,479)
Geoconstruction services 1,047 5,932 1,333
Energy services and production 1,013 (2,288) (1,326)
Products and other (1,908) (679) (2,879)
Corporate (12,074) (11,052) (5,090)
--------- --------- ---------
Total operating income(loss) $ 6,100 $ (1,379) $ (2,457)
========= ========= =========
Total Assets
Water resources $ 60,802 $ 63,888 $ 69,336
Mineral exploration 76,020 83,368 101,337
Geoconstruction services 18,274 23,008 18,631
Energy services and production 11,352 13,083 9,875
Products and other 14,165 22,686 20,170
Corporate 21,729 27,835 25,986
--------- --------- ---------
Total assets $ 202,342 $ 233,868 $ 245,335
========= ========= =========
50
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
2002 2001 2000
-------- -------- --------
Capital Expenditures
Water resources $ 2,967 $ 4,245 $ 3,922
Mineral exploration 5,263 5,144 5,907
Geoconstruction services 986 2,275 1,297
Energy services and production 1,611 2,373 1,440
Products and other 29 99 105
Corporate 349 166 145
--------- --------- ---------
Total $ 11,205 $ 14,302 $ 12,816
========= ========= =========
Depreciation and Amortization
Water resources $ 5,260 $ 5,882 $ 6,836
Mineral exploration 8,731 11,273 12,711
Geoconstruction services 2,127 2,015 1,659
Energy services and production 1,665 1,437 934
Products and other 240 563 732
Corporate 137 167 144
--------- --------- ---------
Total $ 18,160 $ 21,337 $ 23,016
========= ========= =========
Geographic Information:
Revenues
North America $ 262,485 $ 269,468 $ 239,419
Africa/Australia 41,390 38,583 37,193
Other foreign 4,513 5,942 4,833
--------- --------- ---------
Total revenues $ 308,388 $ 313,993 $ 281,445
========= ========= =========
Of the Products and other sales to unaffiliated customers,
approximately $640,000, $1,884,000 and $2,117,000 in 2002, 2001 and 2000,
respectively, were export sales, principally to Latin America.
On August 8, 2001, the Company signed a definitive agreement to sell
its Christensen Products business to a subsidiary of Atlas Copco. The Company
received $8,165,000 in the third quarter and recorded a gain on the sale of
$3,991,000. The gain is recorded in Other, net in the Company's Consolidated
Statements of Income. As part of the definitive agreement, the Company agreed to
repurchase certain inventory items that remain unsold by Atlas Copco as of
August 8, 2002. The repurchase obligation of approximately $1,600,000 was
recorded in connection with the sale. Approximately $1,800,000 in additional
cash was received on February 1, 2002 upon the sale of certain assets and
inventory at book value. After the Christensen Products plant is closed during
the first quarter of fiscal 2003, the Company intends to sell the land and
building which has a net book value of $3,378,000 at January 31, 2002.
Products and other segment revenues for the years ended January 31,
2002, 2001 and 2000, respectively, include $13,531,000, $12,280,000 and
$9,672,000 of revenue from Christensen Products. Intersegment revenues for the
year ended January 31, 2002, 2001 and 2000, respectively, include $5,282,000,
$5,912,000 and $5,341,000 from Christensen Products. Products and other segment
operating loss for the year ended January 31, 2002, 2001 and 2000, respectively,
includes ($1,745,000), ($723,000) and ($1,979,000) from Christensen Products.
51
Layne Christensen Company and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
Operating income for 2002, 2001 and 2000, respectively, includes
$53,000, $2,313,000 and $177,000 of expenses related to the Company's oil and
gas exploration activities in the Gulf of Mexico region of the United States.
(12) New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations;" SFAS
No. 142, "Goodwill and Other Intangible Assets;" SFAS No. 143, "Accounting for
Asset Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 141 requires that all business
combinations be accounted for under the purchase method and that certain
acquired intangible assets in a business combination be recognized as assets
apart from goodwill. SFAS No. 141 is effective for all business combinations
after July 1, 2001, and was applied to the Company's acquisition of the
remaining 50% of WADS (see Note 2). SFAS No. 142 requires that ratable
amortization of goodwill be replaced with periodic tests of the goodwill's
impairment and that intangible assets other than goodwill should be amortized
over their useful lives. SFAS No. 142 is effective for the Company's fiscal year
beginning February 1, 2002. SFAS No. 143 establishes accounting standards for
recognition and measurement of a liability for an asset retirement obligation
and the associated asset retirement cost. SFAS No. 143 is effective for the
Company's fiscal year beginning February 1, 2003. SFAS No. 144 supercedes SFAS
No. 121 and establishes accounting standards for long-lived assets to be
disposed of. SFAS No. 144 is effective for the Company's fiscal year beginning
February 1, 2002. Management is currently assessing the impact SFAS Nos. 143 and
144 will have on the Company's results of operations, but does not expect a
material effect. The adoption of SFAS No. 142 will result in the Company ceasing
to amortize goodwill, the expense of which totaled $1,125,000 in 2002.
Management is currently assessing the additional impact of adoption of SFAS No.
142.
(13) Quarterly Results (Unaudited)
Unaudited quarterly financial data are as follows (thousands of
dollars, except per share data):
2002: First Second Third Fourth
--------- -------- ------- --------
Revenues $79,832 $80,114 $76,217 $72,225
Gross profit 20,896 21,643 21,537 19,861
Net income (loss) 162 639 698 (421)
Basic and diluted income
(loss) per share 0.01 0.05 0.06 (0.04)
First Second Third Fourth
--------- -------- -------- --------
2001:
Revenues $75,546 $76,800 $82,475 $79,172
Gross profit 18,092 19,660 20,803 20,160
Net income (loss) (2,942) (1,508) 156 (1,632)
Basic and diluted income (loss)
per share (0.25) (0.13) 0.01 (0.14)
52
SCHEDULE II
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Addition
-----------------------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts Deductions Other End of Period
----------- --------- -------- -------- ---------- ----- -------------
Allowance for customer receivables
Fiscal year ended January 31, 2000 $3,064 $ 952 $661 $(1,240) - $3,437
Fiscal year ended January 31, 2001 3,437 1,098 730 (1,755) - 3,510
Fiscal year ended January 31, 2002 3,510 1,932 726 (2,572) 3,596
Reserves for Inventories:
Fiscal year ended January 31, 2000 4,158 (677) - 3,481
Fiscal year ended January 31, 2001 3,481 250 (58) - 3,673
Fiscal year ended January 31, 2002 3,673 3,210 (1,686) 5,197
53
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 30, 2002, (i) contains, under
the caption "Election of Directors," certain information required by Item 10 of
Form 10-K and such information is incorporated herein by this reference (except
that the information set forth under the following subcaptions thereunder is
expressly excluded from such incorporation: "Compensation of Directors" and
"Meetings of the Board and Committees"), and (ii) contains, under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance," certain information
required by Item 10 of Form 10-K and such information is incorporated herein by
this reference. The information required by Item 10 of Form 10-K as to executive
officers is set forth in Item 4A of Part I hereof.
Item 11. Executive Compensation
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held May 30, 2002, contains, under the
caption "Executive Compensation and Other Information," the information required
by Item 11 of Form 10-K and such information is incorporated herein by this
reference (except that the information set forth under the following subcaptions
is expressly excluded from such incorporation: "Report of Board of Directors and
Compensation Committee on Executive Compensation" and "Company Performance").
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 30, 2002, contains, under the
caption "Ownership of Layne Christensen Common Stock," the information required
by Item 12 of Form 10-K and such information is incorporated herein by this
reference.
Item 13. Certain Relationships and Related Transactions
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 30, 2002, contains, under the
captions "Executive Compensation and Other Information-Certain Change-In-Control
Agreements," and "Certain Transactions - Transactions with Management," the
information required by Item 13 of Form 10-K and such information is
incorporated herein by this reference.
54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits:
1. Financial Statements:
The financial statements are listed in the index for Item 8 of this
Form 10-K.
2. Financial Statement Schedules:
The financial statement schedules are listed in the index for Item 8
of this Form 10-K.
3. Exhibits:
The exhibits filed with or incorporated by reference in this report are
listed below:
Exhibit No. Description
----------- -----------
4(1) - Restated Certificate of Incorporation of the Registrant (filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996 (File No. 0-20578), as Exhibit 3(1)
and incorporated herein by this reference)
4(2) - Bylaws of the Registrant (filed with Amendment No. 2 to the
Registrant's Registration Statement (File No. 33-48432) as
Exhibit 3(2) and incorporated herein by reference)
4(3) - Specimen Common Stock Certificate (filed with Amendment No. 3 to
the Registrant's Registration Statement (File No. 33-48432) as
Exhibit 4(1) and incorporated herein by reference)
4(4) - Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement") (filed with Amendment
No. 3 to the Company's Form S-2 Registration Statement (File No.
333-29581) as Exhibit 10(12) and incorporated herein by this
reference)
4(4.1) - First Amendment to the Credit Agreement dated December 5, 1997 (filed
with the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1999 (File No. 0-20578), as Exhibit 4(4.1) and
incorporated herein by this reference)
4(4.2) - Second Amendment to the Credit Agreement dated February 23, 1998
(filed with the Registrant's Annual Report on Form 10-K
55
for the fiscal year ended January 31, 1999 (File No. 0-20578),
as Exhibit 4(4.2)and incorporated herein by this reference)
4(4.3) - Third Amendment to the Credit Agreement dated October 16, 1998
(filed with the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.3) and incorporated herein by this reference)
4(4.4) - Fourth Amendment to the Credit Agreement dated as of April 20, 1999
(filed with the Company's Form 10-Q for the quarter ended April 30, 1999
(File No. 0-20578) as Exhibit 4(1) and incorporated herein by reference)
4(4.5) - Fifth Amendment to the Credit Agreement dated as of February 14,
2000 (filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 2000 (File No. 0-20578), as
Exhibit 4(4.5) and incorporated herein by this reference)
4(5) - Note Agreement dated as of March 15, 1996, between the Company
and Massachusetts Mutual Life Insurance Company ("Purchaser")
for the issuance and sale to Purchaser of $25,000,000 aggregate
principal amount of 6.75% Senior Notes due March 15, 2006 (filed
with the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996 (File No. 0-20578), as Exhibit
10(14) and incorporated herein by this reference)
4(6) - Amendment to Note Agreement, dated as of July 25, 1997, between
the Company and Massachusetts Mutual Life Insurance Company
(filed with Amendment No. 3 to the Company's Form S-2
Registration Statement (File No. 333-29581) as Exhibit 10(14)
and incorporated herein by this reference)
4(7) - Rights Agreement, dated October 12, 1998, between Layne
Christensen Company and National City Bank, which includes the
Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Layne Christensen Company as
Exhibit A, the Form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit C
(filed with the Company's Form 8-K dated October 12, 1998 (File
No. 0-20578) as Exhibit 4(1) and incorporated herein by
reference)
10(1) - Tax Liability Indemnification Agreement between the Registrant and The
Marley Company (filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit 10(2) and
incorporated herein by reference)
10(2) - Lease Agreement between the Registrant and Parkway Partners, L.L.C. dated
December 21, 1994 (filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1995 (File No. 0-20578) as Exhibit
10(2) and incorporated herein by reference)
56
10(2.1) - First Modification & Ratification of Lease, dated as of February 26,
1996, between Parkway Partners, L.L.C. and the Registrant (filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended January
31, 1996 (File No. 0-20578), as Exhibit 10(2.1) and incorporated herein
by this reference)
10(2.2) - Second Modification and Ratification of Lease Agreement between
Parkway Partners, L.L.C. and Layne Christensen Company dated
April 28, 1997 (filed with the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1999 (File No.
0-20578), as Exhibit 10(2.2) and incorporated herein by this
reference)
10(2.3) - Third Modification and Extension Agreement between Parkway
Partners, L.L.C. and Layne Christensen Company dated November 3,
1998 (filed with the Company's 10-Q for the quarter ended
October 31, 1998 (File No. 0-20578) as Exhibit 10(1) and
incorporated herein by reference)
10(2.4) - Fourth modification and Extension Agreement between Parkway
Partners, L.L.C. and Layne Christensen Company executed May 17,
2000, effective as of December 29, 1998 (filed with the
Company's 10-Q for the quarter ended July 31, 2000 (File No.
0-20578) as Exhibit 10.1 and incorporated herein by reference)
**10(3) - Form of The Layne Capital Accumulation Plan and Trust Agreement
(filed with the Registrant's Registration Statement (File No.
33-48432) as Exhibit 10(5) and incorporated herein by reference)
**10(4) - Layne, Inc. 1992 Stock Option Plan (filed with Amendment No. 3
to the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(6) and incorporated herein by reference)
**10(5) - Form of Stock Option Agreement between the Company and
management of the Company (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-48432) as
Exhibit 10(7) and incorporated herein by reference)
**10(6) - Form of Non Qualified Stock Option Agreement (Spin-Off Options)
between the Company and Robert J. Dineen (filed with Amendment
No. 3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 10(9) and incorporated herein by reference)
10(7) - Insurance Liability Indemnity Agreement between the Company and
The Marley Company (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-48432) as
Exhibit 10(10) and incorporated herein by reference)
**10(8) - Form of the Layne, Inc. Executive Incentive Compensation Plan
(filed with the Registrant's Form 10-Q for the quarterly
57
period ended July 31, 1994 (File No. 33-48432) as Exhibit 10(2)
and incorporated herein by reference)
10(9) - Agreement between The Marley Company and the Company relating to
tradename (filed with the Registrant's Registration Statement (File
No.33-48432) as Exhibit 10(10) and incorporated herein by reference)
**10(10) - Form of Subscription Agreement for management of the Company
(filed with Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(16) and incorporated
herein by reference)
**10(11) - Form of Subscription Agreement between the Company and Robert J.
Dineen (filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit 10(17)and
incorporated herein by reference)
10(12) - Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement") (filed with Amendment
No. 3 to the Company's Form S-2 Registration Statement (File No.
333-29581) as Exhibit 10(12) and incorporated herein by this
reference)
10(12.1) - First Amendment to the Credit Agreement dated December 5, 1997
(filed with the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.1) and incorporated herein by this reference)
10(12.2) - Second Amendment to the Credit Agreement dated February 23, 1998
(filed with the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.2)and incorporated herein by this reference)
10(12.3) - Third Amendment to the Credit Agreement dated October 16, 1998
(filed with the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.3) and incorporated herein by this reference)
10(12.4) - Fourth Amendment to the Credit Agreement dated as of April 20,
1999 (filed with the Company's Form 10-Q for the quarter ended
April 30, 1999 (File No. 0-20578) as Exhibit 4(1) and
incorporated herein by reference)
10(12.5) - Fifth Amendment to the Credit Agreement dated as of February 14,
2000 (filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 2000 (File No. 0-20578), as
Exhibit 4(4.5) and incorporated herein by this reference)
58
**10(13) - Letter Agreement between Andrew B. Schmitt and the Company dated
October 12, 1993 (filed with the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1995 (File No.
0-20578) as Exhibit 10(13) and incorporated herein by reference)
10(14) - Note Agreement dated as of March 15, 1996, between the Company
and Massachusetts Mutual Life Insurance Company ("Purchaser")
for the issuance and sale to Purchaser of $25,000,000 aggregate
principal amount of 6.75% Senior Notes due March 15, 2006 (filed
with the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996 (File No. 0-20578), as Exhibit
10(14) and incorporated herein by this reference)
10(15) - Amendment to Note Agreement, dated as of July 25, 1997, between
the Company and Massachusetts Mutual Life Insurance Company
(filed with Amendment No. 3 to the Company's Form S-2
Registration Statement (File No. 333-29581) as Exhibit 10(14)
and incorporated herein by this reference)
**10(16) - Form of Incentive Stock Option Agreement between the Company and
management of the Company (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(15) and incorporated herein by
this reference)
10(17) - Registration Rights Agreement, dated as of November 30, 1995,
between the Company and Marley Holdings, L.P. (filed with the
Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996 (File No. 0-20578), as Exhibit 10(17) and
incorporated herein by this reference)
10(18) - Stockholders Agreement, dated as of December 28, 1995, among the
Company, Marley Holdings, L.P., Greylock Investments Limited
Partnership and certain other stockholders of the Registrant
identified therein (filed with the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 10(18) and incorporated herein by this
reference)
**10(19) - Form of Stock Option Agreement between the Company and
Management of the Company effective February 1, 1998 (filed with
the Company's Form 10-Q for the quarter ended April 30, 1998
(File No. 0-20578) as Exhibit 10(1) and incorporated herein by
reference)
**10(20) - Form of Incentive Stock Option Agreement between the Company and
Management of the Company effective April 20, 1999 (filed with
the Company's Form 10-Q for the quarter ended April 30, 1999
(File No. 0-20578) as Exhibit 10(2) and incorporated herein by
reference)
**10(21) - Form of Non Qualified Stock Option Agreement between the Company
and Management of the Company effective as of April
59
20, 1999 (filed with the Company's Form 10-Q for the quarter
ended April 30, 1999 (File No. 0-20578) as Exhibit 10(3) and
incorporated herein by reference)
11(1) - Statement regarding Computation of per share earnings
22(1) - List of Subsidiaries
23(1) - Consent of Deloitte & Touche LLP
---------------------------
** Management contracts or compensatory plans or arrangements required to be
identified by Item 14(a)(3).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year ended January 31, 2001.
(c) Exhibits
The exhibits filed with this report on Form 10-K are identified above
under Item 14(a)(3).
(d) Financial Statement Schedules
The financial statement schedules filed with this report on
Form 10-K are identified above under Item 14(a)(2).
60
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Andrew B. Schmitt
-----------------------------------
Andrew B. Schmitt
President and
Dated: April 4, 2002 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature and Title Date
/s/ Andrew B. Schmitt April 4, 2002
--------------------------------------------------------
Andrew B. Schmitt
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Jerry W. Fanska April 4, 2002
--------------------------------------------------------
Jerry W. Fanska
Vice President--Finance and Treasurer
(Principal Financial and Accounting Officer)
/s/ Robert J. Dineen April 4, 2002
--------------------------------------------------------
Robert J. Dineen
Director
/s/ Edward A. Gilhuly April 4, 2002
--------------------------------------------------------
Edward A. Gilhuly
Director
/s/ Todd A. Fisher April 4, 2002
--------------------------------------------------------
Todd A. Fisher
Director
/s/ Donald K. Miller April 4, 2002
--------------------------------------------------------
Donald K. Miller
Director
/s/ Sheldon R. Erikson April 4, 2002
--------------------------------------------------------
Sheldon R. Erikson
Director
61
Exhibit Index
Exhibit No. Description Page
4(1) Restated Certificate of Incorporation of the Registrant
(filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 3(1) and incorporated herein by this
reference) *
4(2) Bylaws of the Registrant (filed with Amendment No. 2 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 3(2) and incorporated herein by reference) *
4(3) Specimen Common Stock Certificate (filed with Amendment No.
3 to the Registrant's Registration Statement (File No.
33-48432) as Exhibit 4(1) and incorporated herein by
reference) *
4(4) Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement")(filed with
Amendment No. 3 to the Company's Form S-2 Registration
Statement (File No. 333-29581) as Exhibit 10(12) and
incorporated herein by this reference) *
4(4.1) First Amendment to the Credit Agreement dated December 5, 1997
(filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.1) and incorporated herein by this reference) *
4(4.2) Second Amendment to the Credit Agreement dated February 23,
1998 (filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1999 (File No. 0-20578),
as Exhibit 4(4.2) and incorporated herein by this reference) *
4(4.3) Third Amendment to the Credit Agreement dated October 16, 1998
(filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.3) and incorporated herein by this reference) *
4(4.4) Fourth Amendment to the Credit Agreement dated as of April 20,
1999 (filed with the Company's Form 10-Q for the quarter ended
April 30, 1999 (File No. 0-20578) as Exhibit 4(1) and
incorporated herein by reference) *
4(4.5) Fifth Amendment to the Credit Agreement dated as of February
14, 2000 (Filed with the Registrant's Annual
62
Report on Form 10-K for the fiscal year ended January 31, 2000
(File No. 0-20578), as Exhibit 4(4.5) and incorporated
herein by this reference) *
4(5) Note Agreement dated as of March 15, 1996, between
the Company and Massachusetts Mutual Life Insurance Company
("Purchaser") for the issuance and sale to Purchaser of
$25,000,000 aggregate principal amount of 6.75% Senior Notes
due March 15, 2006 (filed with the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996 (File No.
0-20578), as Exhibit 10(14) and incorporated herein by this
reference *
4(6) Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life Insurance
Company filed with Amendment No. 3 to the Company's Form
S-2 Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference) *
4(7) Rights Agreement, dated October 12, 1998, between Layne *
Christensen Company and National City Bank, which includes the
Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Layne Christensen Company as
Exhibit A, the Form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit C
(filed with the Company's Form 8-K dated October 12, 1998
(File No.0-20578)as Exhibit 4(1) and incorporated herein by
reference)
10(1) Tax Liability Indemnification Agreement between the Registrant
and The Marley Company (filed with Amendment No. 3 to the
Registrant's Registration Statement (File No. 33-48432) as
Exhibit 10(2) and incorporated herein by reference) *
10(2) Lease Agreement between the Registrant and Parkway Partners,
L.L.C. dated December 21, 1994 (filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1995 (File No. 0-20578) as Exhibit 10(2) and
incorporated herein by reference) *
10(2.1) First Modification & Ratification of Lease, dated as of
February 26, 1996, between Parkway Partners, L.L.C. and
the Registrant (filed with the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(2.1) and incorporated
herein by this reference) *
10(2.2) Second Modification and Ratification of Lease Agreement
between Parkway Partners, L.L.C. and Layne Christensen
Company dated April 28, 1997 (filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1999 (File No. 0-20578), as Exhibit 10(2.2)
and incorporated herein by this reference) *
63
10(2.3) Third Modification and Extension Agreement between Parkway
Partners, L.L.C. and Layne Christensen Company dated
November 3, 1998 (filed with the Company's 10-Q for the
quarter ended October 31, 1998 (File No. 0-20578) as
Exhibit 10(1) and incorporated herein by reference) *
10(3) Form of The Layne Capital Accumulation Plan and Trust
Agreement (filed with the Registrant's Registration
Statement (File No. 33-48432) as Exhibit 10(5) and
incorporated herein by reference) *
10(4) Layne, Inc. 1992 Stock Option Plan (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(6) and incorporated herein
by reference) *
10(5) Form of Stock Option Agreement between the Company and
management of the Company (filed with Amendment No. 3 to
the Registrant's Registration Statement (File No. 33-48432)
as Exhibit 10(7) and incorporated herein by reference) *
10(6) Form of Non Qualified Stock Option Agreement (Spin-Off
Options) between the Company and Robert J. Dineen (filed
with Amendment No. 3 to the Registrant's Registration
Statement (File No. 33-48432)as Exhibit 10(9) and
incorporated herein by reference) *
10(7) Insurance Liability Indemnity Agreement between the
Company and The Marley Company (filed with Amendment
No. 3 to the Registrant's Registration Statement (File
No. 33-48432) as Exhibit 10(10) and incorporated herein
by reference) *
10(8) Form of the Layne, Inc. Executive Incentive Compensation Plan
(filed with the Registrant's Form 10-Q for the quarterly
period ended July 31, 1994 (File No. 33-48432)
as Exhibit 10(2) and incorporated herein by reference) *
10(9) Agreement between The Marley Company and the Company relating
to tradename (filed with the Registrant's Registration
Statement (File No.33-48432) as Exhibit
10(10) and incorporated herein by reference) *
10(10) Form of Subscription Agreement for management of the
Company(filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit
10(16) and incorporated herein by reference) *
10(11) Form of Subscription Agreement between the Company and Robert
J. Dineen (filed with Amendment No. 3 to the Registrant's
Registration Statement (File No. 33-48432) as Exhibit
10(17)and incorporated herein by reference) *
64
10(12) Amended and Restated Credit Agreement, dated as of July 25,
1997, among the Company, Layne Christensen Australia Pty
Limited, National Trust and Savings Association, various
financial institutions, Bank of America, as Letter of Credit
Issuer, and Bank of America National Trust and Savings
Association, as Agent ("Credit Agreement") (filed with
Amendment No. 3 to the Company's Form S-2 Registration
Statement (File No. 333-29581) as Exhibit 10(12) and
incorporated herein by this reference) *
10(12.1) First Amendment to the Credit Agreement dated December 5, 1997
(filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.1) and incorporated herein by this reference) *
10(12.2) Second Amendment to the Credit Agreement dated February 23,
1998 (filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1999 (File No. 0-20578),
as Exhibit 4(4.2) and incorporated herein by this reference) *
10(12.3) Third Amendment to the Credit Agreement dated October 16, 1998
(filed with the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 31, 1999 (File No. 0-20578), as
Exhibit 4(4.3) and incorporated herein by this reference) *
10(12.4) Fourth Amendment to the Credit Agreement dated as of April 20,
1999 (filed with the Company's Form 10-Q for the quarter ended
April 30, 1999 (File No. 0-20578) as Exhibit 4(1) and
incorporated herein by reference) *
10(12.5) Fifth Amendment to the Credit Agreement dated as of February
14, 2000 (Filed with the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 2000 (File No.
0-20578), as Exhibit 4(4.5) and incorpo- rated herein by this
reference) *
10(13) Letter Agreement between Andrew B. Schmitt and the Company
dated October 12, 1993 (filed with the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1995 (File
No. 0-20578) as Exhibit 10(13) and incorporated herein by
reference) *
10(14) Note Agreement dated as of March 15, 1996, between the Company
and Massachusetts Mutual Life Insurance Company ("Purchaser")
for the issuance and sale to Purchaser of $25,000,000
aggregate principal amount of 6.75% Senior Notes due March 15,
2006 (filed with the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996 (File No. 0-20578), as
Exhibit 10(14) and
65
incorporated herein by this reference) *
10(15) Amendment to Note Agreement, dated as of July 25, 1997,
between the Company and Massachusetts Mutual Life Insurance
Company (filed with Amendment No. 3 to the Company's Form
S-2 Registration Statement (File No. 333-29581) as Exhibit
10(14) and incorporated herein by this reference) *
10(16) Form of Incentive Stock Option Agreement between the Company
and management of the Company (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(15) and incorporated herein
by this reference) *
10(17) Registration Rights Agreement, dated as of November 30, 1995,
between the Company and Marley Holdings, L.P. (filed with
the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996 (File No. 0-20578), as Exhibit 10(17)
and incorporated herein by this reference) *
10(18) Stockholders Agreement, dated as of December 28, 1995, among
the Company, Marley Holdings, L.P., Greylock Investments
Limited Partnership and certain other stockholders of the
Registrant identified therein (filed with the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996
(File No. 0-20578), as Exhibit 10(18) and incorporated herein
by this reference) *
10(19) Form of Stock Option Agreement between the Company and
Management of the Company effective February 1, 1998 (filed
with the Company's Form 10-Q for the quarter ended April 30,
1998 (File No. 0-20578) as Exhibit 10(1) and
incorporated herein by reference) *
10(20) Form of Incentive Stock Option Agreement between the Company
and Management of the Company effective April 20, 1999 (filed
with the Company's Form 10-Q for the quarter ended April 30,
1999 (File No. 0-20578) as Exhibit 10(2) and incorporated
herein by reference) *
10(21) Form of Non Qualified Stock Option Agreement between the
Company and Management of the Company effective as of April
20, 1999 (filed with the Company's Form 10-Q for the quarter
ended April 30, 1999 (File No. 0-20578) as Exhibit 10(3) and
incorporated herein by reference) *
11(1) Statement regarding Computation of per share earnings 67
22(1) List of Subsidiaries 68
23(1) Consent of Deloitte & Touche LLP 69
---------------------------
* Incorporated herein by reference.
66