Back to GetFilings.com
1
================================================================================
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, 1999.
Or
[ ] 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. [ ]
The aggregate market value of the 4,691,919 shares of Common Stock of
the Registrant held by non-affiliates of the Registrant on March 31, 1999,
computed by reference to the closing sale price of such stock as reported on the
NASDAQ National Market System, was $26,687,635. At March 31, 1999, there were
11,641,192 shares of the Registrant's Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following document are incorporated by reference into the
indicated parts of this report: definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be filed with the Commission pursuant to Regulation
14A--Part III.
1
2
PART I
Item 1. Business
General
Layne Christensen Company provides drilling services and related
products and services in four principal markets: water well drilling and
maintenance, mineral exploration drilling, geotechnical drilling and
environmental drilling. Layne Christensen's customers include municipalities,
industrial companies, mining companies and environmental 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. The CBC acquisition also
gave the Company substantial capabilities in designing and manufacturing drill
rigs, diamond drill bits and related equipment used by the mineral exploration
industry.
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.
Market Overview
The principal markets in which the Company operates are: water well
drilling and maintenance, mineral exploration drilling, geotechnical drilling
and environmental drilling. In addition, the Company's mineral exploration
drilling includes drill and blast operations used in mine development. For
purposes of this Form 10-K, the phrase "mineral exploration drilling" includes
drill and blast operations, unless otherwise noted. The characteristics of each
of these
2
3
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 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.
Water Well Drilling and Maintenance
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.
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.
Mineral Exploration Drilling
Demand for mineral exploration drilling and products is driven by the
demand 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.
3
4
In recent years, important changes in the international mining industry
have led to the development and growth of mineral exploration in developing
regions of the world, including West Africa, Asia and South America. Certain
countries, such as Chile and Peru, have liberalized their mining codes to permit
foreign investment, and investment conditions generally have improved in those
countries. 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 exploration 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.
In drill and blast operations conducted at open pit mines under
production, the driller drills holes for the placement of explosives; the
explosives are then detonated to loosen and dislodge earth, which is hauled away
by the mining company for processing. Drill and blast contracts typically have
lower margins than traditional mineral exploration drilling projects; however,
they provide more stable revenues because drill and blast contracts typically
have a duration of three to five years whereas traditional mineral exploration
projects typically have substantially shorter terms. To win drill and blast
contracts, a drilling company must be familiar with the mine site and its
geology, have proven drill and blast expertise and personnel and easily
transferable rigs and appropriate drilling equipment that can be dedicated to
the site.
Geotechnical Drilling Services
Geotechnical drilling 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 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. Geotechnical drilling services are important during the
construction of dams, tunnels, shafts, water lines, subways and other civil
construction projects. Demand for geotechnical drilling 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 geotechnical drilling
services industry is highly fragmented.
4
5
Environmental Drilling
Demand for environmental drilling services is driven by public concern
over groundwater contamination and resulting regulatory requirements to
investigate and remediate contaminated sites and aquifers. Numerous and complex
federal, state and local laws have been enacted for the purpose of investigating
and remediating pollution of underground aquifers as well as preventing or
controlling the potential environmental hazards caused by groundwater
contamination. 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.
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 Mineral Exploration Drilling Internationally
The Company believes that its best mineral exploration drilling
opportunities exist in Australasia, Africa and South America. To position itself
to take advantage of such opportunities, the Company intends to expand its
international mineral exploration business through internal expansion and
acquisitions. 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, access to transferable
drilling equipment and employee training and safety programs. With the
additional resources and capabilities provided by its acquisitions of CBC and
Stanley, the Company believes it will be better positioned to expand its
operations in countries such as Argentina, Bolivia, Brazil, Tanzania and Zambia,
where it expects the mineral exploration industry to grow.
Acquire Water Well Drilling Businesses in the United States
Layne Christensen is currently the largest provider of water well
drilling services in the United States, operating in all regions of the country.
The Company intends to expand its water well drilling business in the United
States by making strategic acquisitions of selected regional privately-held
water well drilling firms. For example, in July 1997 the Company acquired
Stamm-Scheele Inc., a water well drilling company based near Baton Rouge,
Louisiana, and in March 1998, acquired certain assets of Hydro Group, Inc., a
water well, geotechnical and environmental drilling company with operations in
New York, New Jersey, Ohio, Pennsylvania and Virginia. The Company believes that
by combining the Company's capabilities with regional firms, the Company will
improve such firms' efficiency, safety record, bonding capacity, profitability
and professionalism and enable these firms to win project bids that they would
not otherwise have won.
5
6
Expand Water Well Drilling Internationally
The Company intends to build its groundwater business internationally
by leveraging the mineral exploration services that it currently provides to
mining customers. Mining companies frequently need to implement a dewatering
program that requires the installation of wells to remove groundwater from the
mine excavation or to construct a groundwater well to obtain process water for
use in connection with mining activities. For example, the Company recently
completed a project through one of the Company's Chilean affiliates for the
completion of multiple water production wells in the Collahuasi mine in Northern
Chile, with technical support provided through Layne Christensen. Many
developing countries also have significant and growing requirements to access
groundwater to satisfy their potable water needs. In all of its regions, the
Company intends to concentrate on large scale industrial and government water
well drilling projects.
Expand Presence in Geotechnical Drilling Services
The Company's participation in the geotechnical drilling services
market is still in an early stage. 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. An example of the implementation of this strategy
is the Company's recently completed project in Timmins, Ontario, Canada where
the Company was engaged by Echo Bay Mines Ltd. to construct a subsurface frozen
earth barrier around a 3.5 kilometer perimeter open pit gold mine.
While the Company expects to continue conducting environmental drilling
business, and continues to consider such market as one of its principal markets,
the Company does not expect such business to provide growth opportunities in the
foreseeable future.
Services and Products
Layne Christensen's current business is divided into four primary
areas: water well drilling and maintenance services; mineral exploration
drilling services and products; geotechnical drilling services; and
environmental drilling services.
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
6
7
because it provides immediate representative samples and because
the 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 Well Drilling and Maintenance
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 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 civil and
geological engineers, geologists, hydrogeologists, geophysicists, and
microbiologists.
As part of its water well drilling and installation business, the
Company sells a wide variety of pumps manufactured by third parties, including
vertical
7
8
turbine, submersible, shortcoupled and horizontal centrifugal pumps. The Company
also sells and installs certain third party 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 the Company as well as 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.
Mineral Exploration Drilling and Products
Drilling Services
The Company provides drilling services for geological assessment, in
site 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, Brazil, Chile, Mexico and Peru,
among other locations. In addition, with the Stanley Acquisition, the Company
now has operations in Australia and Africa.
Products
With its acquisition of CBC, the Company expanded its operations to
include the manufacture and marketing of a wide range of standard equipment used
by the Company and third party drilling contractors involved in mineral
exploration and mine development in various parts of the world. The Company's
products include
8
9
drill rigs, coring equipment and drill bits. The Company uses its experience
gained from completing a wide range of drilling projects to design products,
particularly drill bits, that are well suited to current drilling applications,
and from time to time, will design and manufacture products for custom
applications. The Company's products are designed and manufactured to meet its
own rigid standards of quality and utility as well as the standards of various
trade associations.
Layne Christensen manufactures a line of diamond core mineral
exploration drill rigs which are designed to meet the specialized work
requirements of mineral exploration sites and can also be used at environmental
sites. The Company's line of rig accessory equipment and tools includes subs,
bushings and adapters; water swivels; a variety of safety related equipment; and
hoisting, lowering and pulling equipment.
The Company manufactures conventional and wireline coring equipment for
recovery of core samples from the earth. The Company's wireline core barrels are
core recovery tools designed for operation at the bottom of the drill string
where a core bit cuts the core that is collected and retained inside the core
barrel. The Company also offers a full line of equipment for conventional
coring. The Company's conventional and wireline coring products include drill
rods manufactured by third parties to which the Company adds industry standard
threading suited to its products.
The diamond drill bit products manufactured by the Company include
products incorporating matrix powder technology coupled with both synthetic and
natural diamonds. The principal categories of drilling bits are surface set
diamond bits, impregnated synthetic diamond bits and polycrystalline synthetic
diamond bits. Each category of bit is specifically designed for maximum drilling
efficiency in different geological formations and drilling applications, and the
Company frequently updates and redesigns its bits for various formations and
applications. The Company's bit products also include reamers and stabilizers
for stabilizing and centering the drill bit. The Company distributes its
products to distributors, general contractors, mineral exploration companies and
equipment and parts suppliers.
The Company engages in on-going engineering, research and development
activities to improve its existing products and to design and develop new
products for both existing and new drilling applications. To further promote
efficiency, reduce development costs and enhance customer relationships, the
Company's research and engineering staff works closely with its customers to
design and develop custom-engineered drilling solutions.
Geotechnical Drilling Services
Geotechnical drilling 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.
9
10
The Company also offers artificial ground freezing capabilities,
typically utilized as an alternative method to dewatering large diameter
excavation and tunneling projects. The Company recently completed a project for
Echo Bay Mines Ltd. to construct a subsurface frozen earth barrier around an
open pit gold mine in Timmins, Ontario, Canada.
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
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 Occupation and Safety Health Administration ("OSHA") and Mine Safety and
Health Administration of the Department of Labor ("MSHA").
Operations
The Company operates on a decentralized basis, with approximately 74
sales and operations offices located in most regions of the United States as
well as in Canada, Australia, Africa, Mexico and Thailand. In addition, the
Company, through its foreign affiliates, operates out of locations in Mexico,
South America and Europe.
The Company is primarily organized domestically by geographic regions,
with an eastern and western regional vice president, a vice president
responsible for geotechnical services and a vice president responsible for
products/international locations. District managers are in charge of individual
district office profit centers. The district managers report to their respective
regional 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 does not conduct
significant marketing activities. 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 vice presidents oversee the Company's interests in its
foreign affiliates as well as the operations of its foreign subsidiaries. In
addition, the Company manages its interests in its foreign affiliates through
regular management meetings and analysis of comprehensive operating and
financial information. In its significant foreign affiliates, the Company has
entered into
10
11
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 well drilling service line, the Company's customers are
typically municipalities and local operations of industrial businesses. Of the
Company's water well drilling revenues in fiscal 1999, approximately 68% were
derived from municipalities and approximately 13% were derived from industrial
businesses while the balance was derived from other customer groups. The term
"municipalities" is used to include 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 often require bonding and insurance, areas in which the Company
believes it has competitive advantages over its competitors due to its drilling
expertise and financial resources.
In the water well repair and maintenance service line, the Company's
customers also include municipalities and local operations of industrial
businesses. In fiscal 1999, approximately 53% of the Company's repair and
maintenance revenues were derived from municipalities, approximately 27% of
such` revenues were derived from industrial businesses and the balance was
derived from other customer groups.
Customers for the Company's mineral exploration drilling 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. Customers for mineral
exploration products manufactured or sold by the Company include distributors,
general contractors, mineral exploration companies and equipment and parts
suppliers.
In its geotechnical drilling 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 geotechnical drilling services.
The Company's primary environmental drilling customers are regional or
national consulting firms retained by federal or state agencies or by industrial
companies to assist in the assessment and cleanup of groundwater contamination.
11
12
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 $68,787,000 at January
31, 1999, compared to approximately $45,005,000 at January 31, 1998. The
Company's backlog as of year end is generally completed within the following
fiscal year.
Competition
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 technology, expertise and equipment
utilized in these businesses differ significantly. 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.
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 drilling business, the Company competes with
a number of drilling companies as well as vertically integrated mining companies
that conduct their own exploration drilling or drill and blast 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,
expertise and reputation. The Company believes it has a well-recognized
reputation for expertise and performance in this market, although the Company is
not the largest company providing these services on a national or international
basis. The Company believes that this market is becoming more competitive,
particularly in the United States. Mineral exploration drilling work is
typically
12
13
performed on a negotiated basis. In the market for the Company's manufactured
mineral exploration drilling products, the Company's competitors consist of the
Boart Longyear Group, an indirect subsidiary of Anglo-American Industrial
Corporation, Ltd., and a small number of other manufacturers. The Company
competes in this market based on price, technical design and reputation.
The geotechnical drilling 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 environmental drilling market, Layne Christensen competes with
different types of drillers depending on the services involved. Small site
assessments and routine underground storage tank assessment and remediation
projects are highly competitive and attract a large number of local drilling
competitors. More sophisticated and demanding projects generally require the
expertise and resources of larger drilling operators with access to multiple
rigs and alternative drilling techniques. The larger drilling companies
generally also have the requisite expertise and safety training to assess the
risks associated with drilling on sites having higher contamination levels and
larger amounts of hazardous wastes. The Company believes its risk assessment
process enables it to select projects prudently and to better manage risks
associated with those projects. The Company focuses on the more technically
demanding projects in this area and avoids the smaller and highly competitive
site assessment and remediation projects. Environmental drilling contracts are
usually bid or negotiated at the initial stage but major contract extensions are
often negotiated.
Employees and Training
At January 31, 1999, the Company had 2,810 employees, 240 of whom were
hourly employees and 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 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 16 and 10
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,
13
14
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 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.
14
15
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. 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.
Under Superfund 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.
Item 2. Properties and Equipment
The Company's corporate headquarters are located in Mission Woods,
Kansas (a suburb of Kansas City, Missouri), in approximately 30,000 square feet
of office space leased by the Company pursuant to a written lease agreement
which expires February 28, 2005. The Company's manufacturing operations are
primarily conducted from an approximately 84,000 square foot plant located in
Salt Lake City, Utah and owned by the Company (the "Plant").
As of January 31, 1999, the Company (excluding foreign affiliates)
owned or leased approximately 660 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, 1999, the Company's foreign
affiliates owned or leased approximately 118 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.
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, 1999.
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
15
16
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 50 President, Chief Executive Officer and
Director
Greg F. Aluce 43 Senior Vice President
H. Edward Coleman 61 Senior Vice President
Eric R. Despain 50 Senior Vice President
Norman E. Mehlhorn 58 Senior Vice President
Jerry W. Fanska 50 Vice President--Finance and Treasurer
Kent B. Magill 46 Vice President--General Counsel and
Secretary
The business experience of each of the executive officers of the
Company during the last five fiscal years is as follows:
Andrew B. Schmitt has served as President and Chief Executive Officer
of the Company 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.
Greg F. Aluce has served as the Company's Senior Vice President since
April 14, 1998 and is responsible for the Company's geotechnical construction
services. Mr. Aluce has over 19 years experience in various areas of the
Company's operations.
H. Edward Coleman has served as an officer of the Company since 1976
and as its Senior Vice President since 1985 and is responsible for most of the
Company's operations in the eastern half of the country. Mr. Coleman has over 35
years experience in various areas of the Company's operations.
Eric R. Despain has served as the Company's Senior Vice President since
February 1996 and is responsible for the Company's manufacturing facilities and
operations in Australasia and Africa. Prior to joining the Company in December
1995, Mr. Despain was President and a member of the Board of Directors of CBC
since 1986.
Norman E. Mehlhorn has served as the Company's Senior Vice President
since September 1992 and as Vice President from 1986 to September 1992 and is
responsible for most of the Company's operations in the western half of the
country. Mr. Mehlhorn has nearly 40 years experience in the drilling business,
with particular emphasis on dual tube drilling technology.
Jerry W. Fanska has served as the Company's 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.
16
17
Kent B. Magill has served as the Company's Vice President-General
Counsel and Secretary since August 1992 and served as Vice President and
Associate General Counsel of The Marley Company since May 1989.
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.
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 1999 and 1998, 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 1999 High Low
---------------- ------- -------
First Quarter $17 5/8 $13 1/4
Second Quarter 17 1/4 11
Third Quarter 13 9
Fourth Quarter 12 1/8 5 7/8
Fiscal Year 1998 High Low
---------------- ------- -------
First Quarter $18 $14 1/4
Second Quarter 22 1/2 15 3/4
Third Quarter 24 1/4 17
Fourth Quarter 21 12
At March 23, 1999, there were approximately 176 owners of record of the
Company's common stock.
The Company has not paid any cash dividends on its common stock during
its two most recent fiscal years. 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.
17
18
Item 6. Selected Financial Data
The following selected historical financial information as of and for
the fiscal years ended January 31, 1999, 1998, 1997, 1996 and 1995,
respectively, has been derived from the Company's audited consolidated financial
statements. During fiscal years 1999, 1998 and 1996, the Company completed
various acquisitions, which are more fully described in Note 2 of the Notes to
Consolidated Financial Statements. 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
"Managements' Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K.
Fiscal Years Ended
January 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Income Statement Data
(in thousands, except
per share amounts):
Revenues $284,248 $294,600 $222,853 $167,271 $166,830
Cost of revenues
(exclusive of
depreciation
shown below) 204,953 213,717 161,602 122,078 123,814
-------- -------- -------- -------- --------
Gross profit 79,295 80,883 61,251 45,193 43,016
Selling, general
and administrative
expenses 49,938 45,908 38,956 28,260 28,860
Depreciation and
amortization 22,361 15,681 10,974 8,233 7,811
-------- -------- -------- -------- --------
Operating income 6,996 19,294 11,321 8,700 6,345
Other income
(expense):
Equity in earnings
of foreign
affiliates 1,128 3,022 3,895 - -
Interest (4,987) (3,618) (2,447) (767) (779)
Other, net 629 (267) 161 407 (84)
------- -------- -------- -------- -------
Income before income
taxes 3,766 18,431 12,930 8,340 5,482
Income tax expense 2,486 7,004 4,913 3,753 2,522
Minority interest,
net of taxes (79) - - - -
------- -------- -------- -------- ------
Net income $ 1,201 $ 11,427 $ 8,017 $ 4,587 $ 2,960
======= ======== ======== ======== =======
Basic earnings per
share $ 0.10 $ 1.13 $ 0.90 $ 0.62 $ 0.40
====== ======== ======== ======== =======
Diluted earnings
per share $ 0.10 $ 1.09 $ 0.88 $ 0.61 $ 0.40
====== ======== ======== ======== =======
18
19
At January 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data
(in thousands):
Working capital $ 46,211 $ 39,661 $ 29,643 $ 26,796 $13,578
Total assets 251,503 242,852 142,421 134,177 79,094
Long-term debt 63,500 57,500 30,314 28,428 -
Total stockholders'
equity 113,270 114,259 62,664 53,972 40,273
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.
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
The Company substantially consummated the acquisition of Stanley Mining
Services Pty., Limited ("Stanley") at the end of July, 1997 (the "Stanley
Acquisition"). Stanley has been reflected in Layne Christensen's results of
operations beginning August 1, 1997. The Stanley Acquisition has been accounted
for using the purchase method of accounting, and will have a significant effect
on Layne Christensen's future operations and on comparisons of income and
expense items between periods, after the date of acquisition and prior. Among
other things, the Company has incurred a substantial increase in long-term debt
and goodwill and will incur a substantial increase in interest expense and
goodwill amortization in the current and future periods.
With the Stanley Acquisition and other smaller acquisitions thereafter,
the percentage of the Company's revenues and operating income tied to the mining
industry has increased substantially. Demand for the Company's mineral
19
20
exploration drilling services and products depends upon the level of mineral
exploration and development activities conducted by mining companies,
particularly with respect to gold and copper. Mineral exploration is highly
speculative and is influenced by a variety of factors, including the prevailing
prices for various metals that often fluctuate widely. In this connection, the
decline in the prices of various metals has continued to adversely impact the
level of mineral exploration and development activities conducted by mining
companies and has had, and could continue to have, a material adverse effect on
the Company.
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. Certain 1998 and
1997 service revenues by product line have been reclassified to conform to 1999
presentation in the following table and comparisons thereafter.
Period-to-Period
Change
Fiscal Years Ended ------
January 31, 1999 1998
------------------------------- vs. vs.
Revenues: 1999 1998 1997 | 1998 1997
---- ---- ---- ---- ----
Water well drilling and |
maintenance 48.2% 40.8% 50.0% | 14.0% 7.9%
Mineral exploration drilling 27.6 27.1 23.0 | (1.8) 55.9
Environmental drilling 7.1 6.5 10.5 | 6.1 (18.1)
Geotechnical drilling 9.7 15.3 4.7 | (39.3) 328.9
----- ----- ----
Total service revenues 92.6 89.7 88.2 | (.5) 34.5
Product sales 7.4 10.3 11.8 | (30.2) 15.0
----- ----- -----
Total revenues 100.0% 100.0% 100.0% | (3.5) 32.2
===== ===== =====
Cost of revenues: |
Cost of service revenues 71.8% 72.4% 72.5% | (1.4) 34.3
Cost of product sales 76.4 73.5 72.4 | (27.4) 16.7
Total cost of revenues 72.1 72.5 72.5 | (4.1) 32.2
----- ----- -----
Gross profit 27.9 27.5 27.5 | (2.0) 32.1
Selling, general and |
administrative expenses 17.6 15.6 17.5 | 8.8 17.8
Depreciation and amortization 7.8 5.4 4.9 | 39.3 42.9
----- ----- -----
Operating income 2.5 6.5 5.1 | (63.7) 70.4
Other income (expense): |
Equity in earnings of |
foreign affiliates 0.4 1.0 1.7 | (62.7) (22.4)
Interest (1.8) (1.1) (1.1) | 37.8 47.9
Other, net 0.2 (0.1) 0.1 | * *
----- ----- -----
Income before income taxes 1.3 6.3 5.8 | (79.6) 42.5
Income tax expense 0.9 2.4 2.2 | (64.5) 42.6
Minority interest, net of taxes 0.0 - - | * *
----- ----- -----
Net income 0.4% 3.9% 3.6% | (89.5) 42.5
===== ===== =====
* Not meaningful.
20
21
Comparison of Fiscal 1999 to Fiscal 1998
Results of Operations
Revenues for fiscal 1999 decreased $10,352,000, or 3.5%, to $284,248,000
compared to $294,600,000 for fiscal 1998. Water well drilling and maintenance
revenues increased 14.0% to $137,094,000 for fiscal 1999 compared to revenues of
$120,280,000 for fiscal 1998. The increase in water well drilling and
maintenance revenues was primarily the result of the acquisition of certain
assets of Hydro Group, Inc., a New Jersey-based drilling contractor, in March
1998 (the "Hydro Acquisition"). Additionally, the Company experienced stronger
demand for services at various domestic locations. Mineral exploration drilling
revenues decreased 1.8% to $78,305,000 for fiscal 1999 from $79,726,000 for
fiscal 1998. The decrease was primarily a result of lower demand for the
Company's services as a result of the decrease in exploration and development
activities conducted by mining companies. The decrease was less than it
otherwise would have been as fiscal 1999 included a full year of revenues
following the Stanley Acquisition. Geotechnical drilling revenues decreased
39.3% to $27,409,000 for fiscal 1999 compared to revenues of $45,191,000 for
fiscal 1998. Exclusive of the Company's ground freeze project in Timmins,
Ontario, Canada for Echo Bay Mines, Ltd. (the "Timmins Project"), which was
completed in the first quarter of fiscal 1999, geotechnical drilling revenues
increased 24.0% in fiscal 1999. The increase in the base geotechnical business
revenues was primarily a result of increased activity in this market.
Environmental drilling revenue increased 6.1% to $20,316,000 for fiscal 1999
compared to revenues of $19,157,000 for fiscal 1998. The Company believes the
improvement was largely attributable to an increase in the number of larger and
more technically demanding projects, which were substantially completed during
the year. Product sales decreased 30.2% to $21,124,000 for fiscal 1999 from
$30,246,000 for fiscal 1998. The decrease was a result of the lower demand for
the Company's services in the mining industry as previously discussed.
Gross profit as a percentage of revenues was 27.9% for fiscal 1999 compared to
27.5% for the same period last year. The increase was primarily attributed to
the Company realizing better than previously expected gross profit margins on
certain complex international projects which were finalized during the year.
Selling, general and administrative expenses increased to $49,938,000 for fiscal
1999 compared to $45,908,000 for fiscal 1998. The increase was primarily a
result of the Hydro Acquisition and other smaller acquisitions.
Depreciation and amortization increased to $22,361,000 for fiscal 1999 compared
to $15,681,000 in fiscal 1998. The increase in depreciation and amortization was
primarily a result of the Hydro Acquisition and additions to property and
equipment since last year.
Equity in earnings of foreign affiliates was $1,128,000 for fiscal 1999 compared
to $3,022,000 in fiscal 1998. The decrease from the previous period was
primarily a result of lower exploration and development activities conducted by
mining companies in Latin America.
Income tax expense was $2,333,000 for fiscal 1999 compared to $7,004,000 in
fiscal 1998. The effective tax rate for the year ended January 31, 1999
increased to 66% compared to 38% for the year ended January 31, 1998. This was
primarily a result of a combination of a reduction in the amount of equity in
21
22
earnings of foreign affiliates (on which income tax is normally not provided as
foreign tax credits are generally available to offset the tax liability) and the
increased impact of certain non-deductible expenses resulting from lower
earnings for the fiscal year.
Comparison of Fiscal 1998 to Fiscal 1997
Results of Operations
Revenues for fiscal 1998 were $294,600,000, a 32.2% increase compared
to $222,853,000 for fiscal 1997. Water well drilling and maintenance revenues
increased 7.9% to $120,280,000 for fiscal 1998 from $111,462,000 for fiscal
1997. The increase was primarily a result of the acquisition of a Louisiana
drilling company and strong demand for these services in certain central and
southern areas of the United States. Mineral exploration drilling revenues
increased to $79,726,000 for fiscal 1998, compared to $51,142,000 for fiscal
1997. The increase was primarily a result of the Stanley Acquisition combined
with the Company's recent expansion into Africa. Geotechnical drilling revenues
increased to $45,191,000 for fiscal 1998, compared to $10,536,000 for fiscal
1997. The increase was primarily the result of the Timmins Project. Excluding
the Timmins Project, geotechnical drilling revenues increased 86.2% for the year
due to increased market penetration of the geotechnical drilling market. Product
sales increased 15.0% for fiscal 1998 to $30,246,000 from $26,309,000 for fiscal
1997. The increase was primarily the result of strong demand for the Company's
mineral exploration drill rigs and related products.
Gross profit as a percentage of revenues remained constant at 27.5% for
each of the years ended January 31, 1998 and 1997.
Selling, general and administrative expenses increased to $45,908,000
for fiscal 1998, compared to $38,956,000 for fiscal 1997. Depreciation and
amortization expense increased to $15,681,000 for fiscal 1998, compared to
$10,974,000 for fiscal 1997. The increases in these expenses were primarily a
result of the Stanley Acquisition.
Interest expense increased to $3,618,000 for fiscal 1998, compared to
$2,447,000 for fiscal 1997. The increase was primarily the result of additional
borrowings to finance the Stanley Acquisition. Equity in earnings of foreign
affiliates decreased to $3,022,000 for fiscal 1998, compared to $3,895,000 for
fiscal 1997. The decrease was primarily the result of difficult weather
conditions in Chile and Peru, as well as lower demand for drilling products and
services due to depressed minerals prices.
Income taxes increased to $7,004,000 for fiscal 1998, compared to
$4,913,000 for fiscal 1997, as a result of higher income before taxes. The
Company's effective tax rate was 38% for both years.
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 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
22
23
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 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 1999, 1998, and
1997 was its cash from operating activities of $13,637,000, $14,270,000 and
$17,116,000, respectively. Cash from operations and borrowings under the
Company's revolving credit agreement were utilized primarily for additions to
property and equipment of $16,817,000 and various acquisitions. See Note 2 of
the Notes to Consolidated Financial Statements. Capital expenditures during
fiscal 1999 were directed primarily toward expansion and upgrading of the
Company's equipment and facilities. The Company expects to spend approximately
$10,000,000 in the next fiscal year for capital expenditures. The Company
anticipates fiscal 2000 capital expenditures will be used to maintain the
Company's equipment and capabilities and continue its international expansion.
As of January 31, 1999, the Company had no material commitments outstanding for
capital assets.
During July 1997, the Company amended its existing credit agreement to
provide a reducing revolving cash borrowing facility of up to $100,000,000 (the
"Credit Agreement"). As of January 31, 1999, the borrowing facility under the
Credit Agreement was reduced to $93,000,000. Borrowings under the Credit
Agreement were used to complete various acquisitions. See Note 2 of the Notes to
the Consolidated Financial Statements. The Company's borrowings and outstanding
letter of credit commitments under the Credit Agreement were $38,500,000 and
$4,591,000, respectively, at January 31, 1999, leaving
23
24
approximately $49,909,000 of unused availability. See Note 8 of the Notes to
Consolidated Financial Statements.
The Company's working capital as of January 31, 1999, 1998 and 1997 was
$46,211,000, $39,661,000 and $29,643,000, respectively. The increases in working
capital in fiscal 1999 and fiscal 1998 were primarily the result of the Hydro
and Stanley Acquisitions. The Company believes borrowings from its available
Credit Agreement and cash from operations will be sufficient to meet the
Company's seasonal cash requirements and to fund its budgeted capital
expenditures for the fiscal 2000 year.
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 of the Notes to Consolidated Financial
Statements.
Year 2000 Discussion
The Year 2000 ("Y2K") problem relates to the fact that many computer programs
use only two digits to refer to a year. As a result, many computer programs do
not properly recognize a year that begins with "20" instead of "19" (the "Y2K
Issue"). The Company believes that issues related to Y2K compliance of its
information technology ("IT") and non-information technology ("non-IT") systems
should not have a material adverse impact on its business operations or
financial results. Further, the Company believes that the estimated costs of Y2K
compliance will not be material. Other than the Company's financial reporting
systems, the nature of the Company's business is such that it is generally not
reliant upon date sensitive IT and non-IT systems.
Readiness
In the fall of 1995, the Company initiated efforts to become Y2K compliant.
These efforts included, in part, a review of six types of IT and non-IT systems
that the Company believed might be subject to the Y2K Issue. The identified
systems included personal computers, networks, mainframes, telecommunication
equipment, automated control/manufacturing equipment and facility
security/environmental control equipment. The review conducted by the Company
evaluated the operating systems, application software and IT and non-IT hardware
used in each of the six types of identified systems. The Company estimates that
approximately 75% of its Y2K testing and remediation plan has been completed.
The Company expects to complete the balance of its Y2K testing and remediation
plan by the end of the second quarter of 1999.
In conducting its business, the Company does not rely upon a limited number of
third party vendors or customers. No single vendor or customer accounts for more
than 10% of the Company's purchases or sales, respectively. In addition, there
are generally a number of alternative vendors from which the Company can obtain
its supplies and services. As a result, the Company does not believe that Y2K
problems experienced by third parties will have a material adverse impact on the
Company's business operations or financial results. Nevertheless, the Company is
in the process of conducting a review of the Y2K readiness of its major vendors
(both of products and services) and customers. The Company's belief that
24
25
it will not be adversely impacted by the Y2K readiness of third parties with
which it conducts business is based not only upon the number and diversity of
its customer and vendor base but also upon the Y2K compliance that is
anticipated to be achieved by the majority of its customers and vendors. In
light of the fact that the Company's position is based, in part, upon
information supplied by third parties, there is of necessity an element of
uncertainty in the Company's assessment.
Costs
The Company is primarily relying upon internal resources to implement its Y2K
readiness plan and to upgrade and/or replace IT and non-IT systems that the
Company believes might be subject to the Y2K Issue. Accordingly, much of the
cost associated with its Y2K efforts have been incurred through the reallocation
of the Company's internal resources. Over approximately the past three fiscal
years through the end of its fiscal year ended January 31, 1999, the Company has
expended approximately $1.5 million in allocated internal resources and
incremental costs for routine IT and non-IT hardware and software replacements.
All of these hardware and software replacements have been Y2K compliant. The
Company will continue its routine upgrading of IT and non-IT hardware and
software during calendar 1999, all of which will also be Y2K compliant. The
estimated costs of allocated internal resources and routine systems upgrades
during the year ending January 31, 2000 will be approximately $500,000. The
Company believes that the prospective costs of Y2K compliance will not have a
material adverse impact on its financial position or results of operations. This
conclusion is based, in part, upon the Company's belief that it will not incur
significant Y2K related costs on behalf of third parties with which the Company
conducts business. The Company expects cash flows from operations to be
sufficient to fund the costs associated with Y2K compliance.
Risks
As the nature of the Company's business is such that it is not generally
dependent upon date sensitive data for the production of its goods and services,
the Company believes that any problems associated with the Y2K Issue will not
have a material adverse impact on the Company's business operations or financial
results. In spite of these presumptions, the inherent uncertainty associated
with the Y2K Issue makes it impossible for the Company to reach a definitive
conclusion as to the actual impact of the Y2K Issue on its business operations
and financial results. As a result, the Company will continue to review and
update, where necessary, its Y2K strategy and to develop Y2K contingency plans.
Further, the costs and timetables in which the Company plans to complete the Y2K
readiness activities, as well as potential outcomes of non-compliance, are based
on management's best estimates. These estimates were derived using numerous
assumptions as to the occurrence of future events, including actions by third
parties over which the Company has no control.
Contingency Plans
The Company's Y2K efforts are ongoing and its overall plan, as well as
consideration of contingency plans where applicable, will continue to evolve as
new information becomes available. Currently, the Company believes that internal
Y2K problems, should any occur, could be addressed through the use of
alternative resources and manual processes without a significant interruption in
the Company's business operations. Further, the Company believes that the nature
of
25
26
its business does not make it exclusively reliant upon a limited number of third
party vendors or customers. In addition, the Company believes that third party
vendor Y2K problems, should any occur, could be mitigated by utilizing
alternative third party resources without adversely impacting the Company's
business operations or financial results.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are interest
rates on variable rate debt, equity risk on investments, and foreign exchange
rates giving rise to translation and transaction gains and losses.
The Company centrally manages its debt and investment portfolios
considering overall financing strategies and tax consequences. The Company uses
derivative financial instruments as part of its overall strategies. A
description of these instruments, as well as the Company's variable rate debt,
is described in Note 8 to the Notes to Consolidated Financial Statements
appearing on page 46 of this Form 10-K. Assuming January 31, 1999 debt levels,
an instantaneous change in interest rates of one percentage point would impact
the Company's interest expense by $135,000, compared to $325,000 assuming
January 31, 1998 debt levels. The Company's investments are described in Note 1
to the Notes to Consolidated Financial Statements appearing on page 35 of this
Form 10- K. The investments are carried at market value and are held for
long-term investing purposes rather than trading purposes.
Operating in international markets involves exposure to possible
volatile movements in currency exchange rates. Currently, the Company's primary
international operations are in Australia, Africa, Mexico, Canada, Indonesia and
Thailand. The operations are described in Notes 1 and 11 to the Notes to
Consolidated Financial Statements appearing on pages 35 and 50, respectively, of
this Form 10-K. The majority of the Company's contracts in Africa and Mexico are
U.S. dollar based, providing a natural reduction in exposure to currency
fluctuations.
As currency exchange rates change, translation of the income statements
of the Company's international operations into U.S. dollars may affect
year-to-year comparability of operating results. We estimate that a ten percent
change in foreign exchange rates would have impacted operating income for the
years ended January 31, 1999 and 1998 by approximately $222,000 and $100,000,
respectively. This represents approximately ten percent of the international
segment operating profit 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 subsidiary, which uses the U.S. dollar as
its functional currency. Net foreign exchange gains and losses for 1999, 1998
and 1997 were not significant.
26
27
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 ............................................................................ 28
Financial Statements:
Consolidated Balance Sheets as of January 31, 1999 and 1998........................................... 29
Consolidated Statements of Income for the Years
Ended January 31, 1999, 1998 and 1997.............................................................. 31
Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 1999, 1998 and 1997.............................................................. 32
Consolidated Statements of Cash Flows for the Years Ended
January 31, 1999, 1998 and 1997 ................................................................... 33
Notes to Consolidated Financial Statements............................................................ 35
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.
27
28
INDEPENDENT AUDITORS' REPORT
Layne Christensen Company:
We have audited the accompanying consolidated balance sheets of Layne
Christensen Company and subsidiaries (together, the "Company") as of January 31,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1999. 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 generally accepted auditing
standards. 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 Company as of January
31, 1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 19, 1999
28
29
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets
As of January 31, 1999 and 1998
(In Thousands of Dollars)
ASSETS 1999 1998
---------- ---------
Current assets:
Cash and cash equivalents $ 2,094 $ 2,954
Customer receivables, less allowance
of $3,064 and $2,583, respectively 42,057 48,548
Costs and estimated earnings in excess of
billings on uncompleted contracts 7,854 6,777
Inventories 31,286 27,812
Deferred income taxes 9,571 9,610
Other 8,991 2,346
--------- ---------
Total current assets 101,853 98,047
--------- ---------
Property and equipment:
Land 9,340 8,851
Buildings 16,490 14,678
Machinery and equipment 163,227 143,338
--------- ---------
189,057 166,867
Less--Accumulated depreciation (96,217) (79,948)
--------- ---------
Net property and equipment 92,840 86,919
--------- ---------
Other assets:
Investment in foreign affiliates 19,732 19,456
Intangible assets, at cost less accumulated
amortization of $2,393 and $1,335,
respectively 32,755 32,836
Other 4,323 5,594
--------- ---------
Total other assets 56,810 57,886
--------- ---------
$ 251,503 $ 242,852
========= =========
See Notes to Consolidated Financial Statements.
29
30
Layne Christensen Company and Subsidiaries
Consolidated Balance Sheets(Continued)
As of January 31, 1999 and 1998
(In Thousands of Dollars, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------------------------------ ------------ --------
Current liabilities:
Accounts payable $ 17,202 $ 20,365
Accrued compensation 11,223 10,924
Accrued insurance expense 7,298 9,059
Other accrued expenses 11,519 9,626
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,400 8,412
----------- ----------
Total current liabilities 55,642 58,386
----------- ----------
Non-current and deferred liabilities:
Long-term debt 63,500 57,500
Deferred income taxes 2,283 5,228
Accrued insurance expense 5,454 6,019
Other 2,439 1,460
Minority interest 8,915 -
----------- ----------
Total non-current and deferred
liabilities 82,591 70,207
------------ ----------
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, 11,641,192
and 11,631,556 shares issued and outstanding,
respectively 116 116
Capital in excess of par value 83,095 82,889
Retained earnings 36,815 35,614
Accumulated other comprehensive income (loss) (6,604) (4,185)
Notes receivable from management stockholders (152) (175)
---------- ----------
Total stockholders' equity 113,270 114,259
---------- ----------
$ 251,503 $ 242,852
========== ==========
See Notes to Consolidated Financial Statements.
30
31
Layne Christensen Company and Subsidiaries
Consolidated Statements of Income
For the Years Ended January 31, 1999, 1998 and 1997
(In Thousands of Dollars, except per share data)
1999 1998 1997
------------ ------------ ------------
Revenues:
Service revenues $ 263,125 $ 264,354 $ 196,544
Product sales 21,123 30,246 26,309
------------ ------------ ------------
Total revenues 284,248 294,600 222,853
------------ ------------ ------------
Cost of revenues (exclusive of
depreciation shown below):
Cost of service revenues 188,818 191,497 142,562
Cost of product sales 16,135 22,220 19,040
------------ ------------ ------------
Total cost of revenues 204,953 213,717 161,602
------------ ------------ ------------
Gross profit 79,295 80,883 61,251
Selling, general and administrative
expenses 49,938 45,908 38,956
Depreciation and amortization 22,361 15,681 10,974
------------ ------------ ------------
Operating income 6,996 19,294 11,321
Other income (expense):
Equity in earnings of foreign
affiliates 1,128 3,022 3,895
Interest (4,987) (3,618) (2,447)
Other, net 629 (267) 161
------------ ------------ ------------
Income before income taxes 3,766 18,431 12,930
Income tax expense 2,486 7,004 4,913
Minority interest, net of taxes (79) - -
------------ ------------ ------------
Net income $ 1,201 $ 11,427 $ 8,017
============ ============ ============
Basic earnings per share $ 0.10 $ 1.13 $ 0.90
============ ============ ============
Diluted earnings per share $ 0.10 $ 1.09 $ 0.88
============ ============ ============
Weighted average number of common
and dilutive equivalent shares
outstanding:
Weighted average shares
outstanding 11,639,000 10,128,000 8,865,000
Dilative stock options 268,000 400,000 281,000
------------ ------------ ------------
11,907,000 10,528,000 9,146,000
============ ============ ============
See Notes to Consolidated Financial Statements.
31
32
Layne Christensen Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended January 31, 1999, 1998 and 1997
(In Thousands of Dollars)
Notes
Accumulated Receivable
Common Stock Capital in Other from
------------------- Excess of Retained Comprehensive Management
Shares Amount Par Value Earnings Income (loss) Stockholders Total
---------- -------- --------- -------- ----------- ------------ --------
Balance, February 1, 1996 8,839,845 $ 88 $ 38,954 $ 16,170 $ (927) $ (313) $ 53,972
--------
Comprehensive income
Net income - - - 8,017 - - 8,017
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $59 - - - - 153 - 153
Foreign currency
translation adjustments - - - - 68 - 68
--------
Comprehensive income 8,238
--------
Issuance of stock for
incentive compensation
program 31,622 1 339 - - - 340
Payments on notes receivable - - - - - 114 114
--------- -------- -------- --------- ------------ ---------- --------
Balance, January 31, 1997 8,871,467 89 39,293 24,187 (706) (199) 62,664
--------
Comprehensive income
Net income - - - 11,427 - - 11,427
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $61 - - - - 97 - 97
Foreign currency
translation adjustments,
net of taxes of $2,174 - - - - (3,826) - (3,826)
Unrealized gain on
available for sale
investments, net of
taxes of $153 - - - - 250 - 250
--------
Comprehensive income 7,948
--------
Issuance of stock for
incentive compensation
program 3,524 - 113 - - - 113
Issuance of stock, net of
expenses 2,756,565 27 43,483 - - - 43,510
Payments on notes receivable - - - - - 24 24
---------- -------- -------- --------- ----------- --------- --------
Balance, January 31, 1998 11,631,556 116 82,889 35,614 (4,185) (175) 114,259
--------
Comprehensive income
Net income - - - 1,201 - - 1,201
Other comprehensive income:
Change in unrecognized
pension liability,
net of taxes of $34 - - - - (53) - (53)
Foreign currency
translation adjustments,
net of taxes of $962 - - - - (1,294) - (1,294)
Unrealized loss on
available for sale
investments, net of
taxes of $669 - - - - (1,072) - (1,072)
--------
Comprehensive income (1,218)
--------
Issuance of stock for
incentive compensation
program 9,636 - 206 - - - 206
Payments on notes receivable - - - - - 23 23
---------- -------- -------- --------- ----------- ---------- --------
Balance, January 31, 1999 11,641,192 $ 116 $ 83,095 $ 36,815 $ (6,604) $ (152) $113,270
========== ======== ======== ========= =========== ========== ========
See Notes to Consolidated Financial Statements.
32
33
Layne Christensen Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended January 31, 1999, 1998 and 1997
(In Thousands of Dollars)
1999 1998 1997
--------- -------- --------
Cash flow from operating activities:
Net income $ 1,201 $ 11,427 $ 8,017
Adjustments to reconcile net income
to cash from operations:
Depreciation and amortization 22,361 15,681 10,974
Deferred income taxes (1,741) (176) 1,710
Equity in earnings of foreign
affiliates (1,128) (3,022) (3,895)
Dividends received from foreign
affiliates 852 756 1,990
Minority interest 232 - -
(Gain) loss from disposal of property
and equipment (1,679) 99 110
Changes in current assets and liabilities,
(exclusive of effects of acquisitions):
(Increase) decrease in customer
receivables 11,364 (6,947) 2,275
(Increase) decrease in costs and
estimated earnings in excess of
billings on uncompleted contracts (1,070) (77) 722
(Increase) decrease in inventories 234 (5,438) (1,623)
(Increase) decrease in other current
assets (6,313) 524 (370)
Decrease in accounts payable and
accrued expenses (10,438) (679) (4,216)
Increase in billings in excess of
costs and estimated earnings on
uncompleted contracts 352 2,523 2,163
Other, net (590) (401) (741)
--------- -------- --------
Cash from operating activities 13,637 14,270 17,116
--------- -------- --------
Cash flow from investing activities:
Additions to property and equipment (16,817) (22,425) (18,544)
Proceeds from disposal of property and
equipment 3,963 1,239 1,070
Acquisition of businesses, net of cash
acquired (8,378) (53,942) -
Purchase of available for sale investments (427) (3,111) -
Investment by minority interest in
joint ventures 600 - -
Investment in foreign affiliates - (20) (346)
Other, net - - 282
--------- -------- --------
Cash used in investing activities (21,059) (78,259) (17,538)
--------- -------- --------
See Notes to Consolidated Financi