333+
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Fiscal Year Ended January 31, 20152017
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: 001-34195
Layne Christensen Company
(Exact name of registrant as specified in its charter)
Delaware |
| 48-0920712 |
(State or other jurisdiction |
| (I.R.S. Employer |
of incorporation or organization) |
| Identification No.) |
1800 Hughes Landing Boulevard Ste 700800 The Woodlands, TX 77380
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (281) 475-2600
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class |
| Name of each exchange on which registered |
Common stock, $.01 par value |
| NASDAQ Global Select Market |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No x☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x☒
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§29.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer |
|
|
| Accelerated filer |
|
|
|
|
|
| |||
Non-accelerated filer |
|
|
| Smaller reporting company |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
The aggregate market value of the 19,684,42919,649,694 shares of Common Stock of the registrant held by non-affiliates of the registrant on July 31, 2014,2016, the last business day of the registrant’s second fiscal quarter, computed by reference to the closing sale price of such stock on the NASDAQ Global Select Market on that date was $213,576,055.$157,197,552.
At April 6, 2015,March 31, 2017, there were 19,643,55119,804,526 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 20152017 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A.
Form 10-K
|
| |
| 1 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
|
Item 7A. Quantitative and Qualitative Disclosures About Market Risk |
|
|
|
| |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
|
|
|
| |
|
| |
|
| |
Item 10. Directors, Executive Officers and Corporate Governance |
|
|
|
| |
|
| |
Item 13. Certain Relationships, Related Transactions and Director Independence |
|
|
|
| |
|
| |
|
| |
| 99 |
General
Layne Christensen Company (“Layne”, “our”, “we” or “us”) is a leading global water management construction and drilling company. Layne provides responsible solutions for water, mineral and energy. This integrated approach allows Layne to offerservices company, with more than individual services, it ensures streamlined communications, expedited timelines, and a constant focus on its overriding values130 years of safety, sustainability, integrity and excellence. Layne’sindustry experience, providing responsible, sustainable, integrated solutions enhance the lives of people by providing and protectingto address the world’s water, minerals and infrastructure challenges. Protecting our essential resources. Layne’sresources is a continuing focus within Layne. Our customers include government agencies, investor-owned utilities, industrial companies, global mining companies, consulting engineering firms, heavy civil construction contractors, oil and gas companies, power companies and agribusiness.
We operate on a geographically dispersed basis, with approximately 8572 sales and operations offices located throughout North America, Africa, Australia, South America, and through our affiliates in Latin America countries.America. Layne maintains its executive offices at 1800 Hughes Landing Boulevard, Suite 700,800, The Woodlands, Texas 77380. The telephone number is (281) 475-2600 and the website address is www.layne.com which is where you can find periodic and current reports, free of charge, as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission.Commission (“SEC”).
Our teams are responsibleWe manage for effectively managingour customers, water throughout its lifecycle, including supply, treatment, delivery, maintenance and maintenance.rehabilitation. Throughout each phase, we work to ensure compliance with complex state and federal regulations, and to meet increasingly high demand for quality, reliability and efficiency. We engage in the development and deployment of new and innovative water technologies to meet these higher standards and to continue improving on the safety and sustainability of our work.
Layne provides specialized construction solutions for the responsible management of water in many industries and environments. With extensive heavy civil expertise and a proven reputation for safety, we design and construct comprehensive, end-to-end water management systems, as well as individual intakes, reservoirs, pump stations, pipelines and plants. Our geotechnical capabilities allow us to improve soil conditions and support subterranean structures in underground construction projects where effective water management is critical, such as dams and levees, tunnels, water lines, subways, highways and marine facilities.
Layne provides comprehensive turnkey drilling solutions for water management, mineral services and specialty drilling needs. We employ a team of specialists to help us understand specific site characteristics and proactively overcome and plan for any challenges. Our experts are able to define the source, depth, magnitude and overall feasibility of water aquifers, and drill high-volume wells suitable for supplying water to governmental, industrial and agricultural customers. We also drill deep injection wells to facilitate the disposal of treated wastewater. Our mineral services teams extract contaminant-freerepresentative samples that accurately reflect the underlying mineral deposits for our global mining customers.
Business Segments
Layne’sWe operate our business segments arein four segments: Water Resources, Inliner, Heavy Civil Geoconstruction,and Mineral Services and Energy Services. Each of our segments has major customers; however, no single customer accounted for 10% or more of revenues in any of the past three fiscal years. See Note 1617 to the consolidated financial statementsConsolidated Financial Statements for financial information pertaining to the operations and geographic spread of the segments and foreign operations.
As disclosed in Note 21 to the Consolidated Financial Statements, on February 8, 2017, we entered into an Asset Purchase Agreement to sell substantially all of the assets of our Heavy Civil business to a newly-formed entity owned by private investors, including members of the current Heavy Civil senior management team. The transaction, subject to certain terms and closing conditions, is expected to close within 90 days from the date of the Asset Purchase Agreement.
Water Resources
Operations
Throughout the U.S., Water Resources provides our customers with sustainable solutions for every aspect of water supply system development and technology. We provide a full suite of water-related products and services throughout the U.S., including hydrologic design, and construction, source of supply exploration, well and intake construction, including radial collector wells (Ranney® Collector Wells), and well and pump rehabilitation. Water Resources also brings new technologies to the watermaintenance and wastewater markets, whether through internal development, acquisition or strategic alliance.rehabilitation. We also offer water treatment equipment and engineering services, providing systems for the treatment of regulated and “nuisance”nuisance contaminants, specifically iron, manganese, hydrogen sulfide, arsenic, radium, nitrate, perchlorate and volatile organic compounds.
Our target groundwater drilling market consists of high-volume water wells drilled principally for municipal and industrial customers. These high-volume wells, by necessity, have more stringent design specifications than residential or agricultural wells and are typically deeper and larger in diameter. We have strong technical expertise, an in-depth knowledge of U.S. geology and hydrology, a well-maintained fleet of appropriately sized, modern drilling equipment and a demonstrated ability to procure the sizable performance bonds often required for water related projects.
Water supply solutions for government agencies, industry and agriculture require the integration of hydrogeology and engineering with proven knowledge and application of drilling techniques. We expect demand for water treatment will be strongest in the industrial sector where the water quality challenges are more significant. The drilling methods, size and type of equipment required depend upon the depth of the wells and the geological formations encountered at the project site. We have extensive well archives in addition to technical personnel who can determine geological conditions and aquifer characteristics. We provide feasibility studies, using complex geophysical survey methods and have the expertise to analyze the survey results and define the source, depth and magnitude of an aquifer. We can estimate recharge rates, recommend well design features, plan well field design and develop water management plans. To conduct these services, we maintain a staff of professional employees including geological engineers, geologists hydrogeologists and geophysicists. These attributes enable us to locate suitable water-bearing formations to meet a wide varietyhydrogeologists.
The radial collector well group specializes in the design and turnkey construction of customer requirements.
Our expertise includes all sources ofhigh capacity water supply systems including groundwater andradial collector wells, surface sources. We design and construct bank intake structures, submergedwater intakes, infiltration galleries, riverbank filtration and horizontal collector wells. We also designsea water systems. Collector wells typically combine high yields with cost-effective operating and constructmaintaining costs. In most cases, they are less intrusive on the pipelines and pump stations necessary to convey water from its source to the users.environment.
Our involvement in the initial drilling of wells positions us to win follow-up maintenance and rehabilitation business, which is generally a higher margin business than well drilling.business. Such rehabilitation is periodically required during the life of a well, as groundwater may contain bacteria, iron, high mineral content, or other contaminants and screen openings may become blocked, reducing the capacity and productivity of the well.
We offer complete diagnostic and rehabilitation services for existing wells, pumps and related equipment with athrough our network of local offices throughout our geographic markets in the U.S.regional offices. In addition to our well service rigs, we have equipment capable of conducting downhole closed circuit televideo inspections, one of the most effective methods for investigating water well problems, enabling us to effectively diagnose and respond quickly to well and pump performance problems. Our trained and experienced personnel can perform a variety of well rehabilitation techniques, using both chemical and mechanical methods. To complement this effort, we perform bacteriological well evaluation and water chemistry analyses. We also have the capability and inventory to repair, in our 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.
Water Resources also offers investigative services to assist in assessing, monitoring and characterizing water quality and aquifer parameters. The customers are typically national
Water Resources provides water management solutions to the oil and regional consulting firms engaged by federalnatural gas industry’s exploration and state agencies, as well as industrial companies that need to assess, define or clean up groundwater contamination sources. We assist the customerproduction water related challenges. Our water management services specialize in determining the extent of groundwater contamination, installation of recovery wells that extract contaminated groundwater for treatment, which is known as pumphydrogeological assessments and treat remediation,sourcing, transfer, storage, and specialized site safety programs associated with drilling at contaminated sites. In our Safety & Health department, we employ full-time staff qualified to prepare site-specific health and safety plans for hazardous waste cleanup sites as required by the Occupational Safety and Health Administration (“OSHA”) and the Mine Safety and Health Administration (“MSHA”).treatment.
Customers & Markets
In Water Resources, our customers are typically government agencies, national and regional consulting firms engaged by federal and state agencies, and local operations of agricultural, industrial and industrialenergy businesses. The term “government agencies” includes federal, state and local entities.
In the drillingDemand for water solutions are expected to grow as government agencies, industrial, agricultural and energy companies compete for increasingly limited water resources. The combination of new water wells, we target customers that require compliance with detailed and demanding specifications andtightening regulations and that often require bondingwater scarcity has resulted in increasingly sophisticated water consumers, and insurance, areasthis in which we believe we oftenturn has created opportunities for the introduction of long-term sustainable methods and technologies such as aquifer recharge, water re-use, injection wells and zero-liquid discharge treatment systems. Injection wells place fluid deep underground into porous rock formations, and have competitive advantages.
Water infrastructureseen market demand is driven by new regulations and the need to provide and protect oneeconomically dispose of earth’s most essential resources, water, which is drawn from the earth for drinking, irrigationwaste associated with municipal and industrial use. water treatment.
Main drivers for water supply and treatment include shifting demographics and urban sprawl, deteriorating water quality and infrastructure that supplies our water, increasing water demand from industrial expansion, increasing amounts of water used in oil and gas production, stricter regulation and new technology that allows us to achieve new standards of quality. Well and pump rehabilitation demand depends on the age and application of the equipment, the quality of material and workmanship applied in the original well construction and changes in depth and quality of the groundwater. Rehabilitation work is often required on an emergency basis or within a relatively short period of time after a performance decline is recognized. Scheduling flexibility and a broad national footprint combined with technical expertise and equipment are critical for a repair and maintenance service provider. Like the water well drilling market, the market for rehabilitation is highly fragmented. The demand for well and pump rehabilitation in the public market is highly influenced by municipal budgets.
Injection well, a device that places fluid deep underground into porous rock formations, has seen its market demand driven by new regulations and the need to economically dispose of waste associated with municipal and industrial water treatment.
Demand for water solutions will grow as government agencies, industry and agriculture compete for increasingly limited water resources. The combination of tightening regulations and water scarcity has resulted in increasingly sophisticated water consumers, and this in turn has created opportunities for the introduction of long-term sustainable methods and technologies such as aquifer recharge, water re-use, injection wells and zero-liquid discharge treatment systems.
As demographic shifts occur to more water-challenged areas and the number and allowable level of regulated contaminants and impurities becomes stricter, the demand for water recycling (re-use) and conservation services, as well as new specialized treatment media and filtration methods, is expected to remain strong.
Competition
The U.S. water well drilling industry isand rehabilitation markets are highly fragmented;fragmented, consisting of several thousand regionallyregional and locally basedlocal contractors. Water well drilling work is usually obtained on a competitive bid basis for government agencies, while work for industrial customers is obtained both on a competitive bid and negotiated basis. The majority of these water well drilling contractors are primarily involved in drilling low-volume water wells for agricultural and residential customers, markets in which we do not generally participate.
Competition for Water Resources’ services are primarily local and regional specialty general contractors, while our competition in the water well drilling business consistsenergy market is primarily offrom local small local water well drilling operations and some larger regional competitors. Oil and conventional natural gas well drillers generally do not compete in the water well drilling business because the typical well depths are greater for oil and conventional natural gas and, to a lesser extent, the technology and equipment utilized in these businesses are different. Only a small percentage of all companies that perform water well drilling services have the technical competence and drilling expertise to compete effectively for high-volume municipal and industrial projects, which typically are more demanding than projects in the agricultural or residential well markets. In addition, smaller companies often do not have the financial resources or bonding capacity to compete for large projects. However, theremid-sized contractors.
There are no proprietary technologies or other significant factors that prevent other firms from entering these local or regional markets or from consolidating into larger companies more comparable in size to us. Water well drilling work is usually obtained on a competitive bid basis for government agencies, 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 and pump rehabilitation business is characterized by a large number of relatively small competitors. We believe 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 we offer 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. Rehabilitation 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 wellWell and pump rehabilitation work is typically negotiated on an emergency basis or within a relatively short period of time, thosetime. Those companies with available rigs and the requisite expertise have a competitive advantage by being able to respond quickly to repair requests.
Operations
Inliner is a full service rehabilitation company offering a wide range of solutions for wastewater, storm water and process sewer pipeline networks. The foundation of our services is our proprietary Inliner® and Inliner STX® cured-in-place pipe (“CIPP”). products. The product allowsproducts allow us to rehabilitate aging and deteriorated infrastructure andto provide structural rebuilding as well as infiltration and inflow reduction. ItsTheir trenchless nature reduces rehabilitation costs, minimizes environmental impact and reduces or eliminates surface and social disruption.
Layne Inliner, LLC began as the first U.S. licensee of the Inliner® technology in 1991. WeFrom that beginning, we have expanded and have come to own and operate Inliner Technologies and Liner Products, the technology company and lining tube manufacturer, respectively. This vertical integration gives us control of the Inliner® product from raw material purchases to product installation. SinceIn our start25-year history, we have successfully installed more than 19.026 million feet of 4 to 96-inch CIPP throughout the U.S. Pipe diameters have ranged from 4-inches to 90-inches in traditional round as well as non-circular pipe geometries. Inliner’s saturation facilities installation techniques and lining tube manufacturing facilityfacilities, saturation facilities (both felt and UV), and installation techniques are ISO 9001:2008 certified, bringing an added element of quality control to product design, tube construction, product designsaturation and field installation.
Inliner has the ability to supply both traditional felt basedfelt-based or composite CIPP lining tubes cured with water or steam, as well as fiberglass basedand fiberglass-based lining tubes cured with ultraviolet light. Layne installs bothOur liner production facility was expanded during the felt based and fiberglass/UVfiscal year ended January 31, 2017 in order to allow us to increase that product with internal crews as well as offersavailability. We continue to offer outside sales of dry as well as install-ready, resin-saturated felt liners and saturatedinstall-ready, resin-saturated fiberglass/UV liners to other marketplace installers.
While Inliner focuses on CIPP, it is committed towe also provide full system renewal.renewal and construction management. Inliner also provides a wide variety of other rehabilitative methods including Janssen structural renewal for service lateral connections and mainlines, slip lining, traditional excavation and replacement and manhole renewal with cementitious and epoxy products.renewal. Inliner’s expertise, experience and customer-oriented contracting combined with itsan ability to provide a diverse line of products and services differentiates itus from other rehabilitation contractors and allows Inliner to provide clients with single source accountability when it comes tofor rehabilitative services.
Customers & Markets
Inliner customers are typically municipalities and local operations of industrial businesses.
The geographic reach of the Inliner installation group stretches from the east coast westward generally to the Rocky Mountains. Felt based sales through Liner Products continued to beare predominantly U.S. based. Fiberglass/UV based sales wereare all U.S. generated.
Many of the drivers for wastewater, storm water and process sewer rehabilitation demand are largely a function of deteriorating urban infrastructure compounded by population growth as well asand deteriorating water qualityquality. U.S. Environmental Protection Agency (EPA) mandated consent decrees continue to drive the larger rehabilitation programs and infrastructure that supplies our water. Additionally, federal and state agencies are forcing municipalities and industryforce those entities to address infiltration and inflow of groundwater into damaged or leaking sewer lines, enforcingwithin defined timelines. These factors and enforcement of stricter regulation drive the rehabilitation market to continue to deploy technologies like CIPP and combine them with new technology that motivates ustechnologies all while continuing to achieve new standardsfocus on the achievement of quality.lasting solutions and high quality standards.
Competition
The CIPP industry has a smalllimited number of contractors with nationwide coverage, the largest being Insituform, a subsidiary of Aegion Corporation, and severalcoverage. Numerous more regionalized competitors.competitors are found throughout the U.S. Municipal work is typically obtained on a competitive bid basis with raresome exceptions of qualification-based or design build proposals being used predominantly in larger, longer-term and more complex projects. Multi-year contracts, although typically gained at least initially through a structure that involves a competitive pricing element, continue to exist and remain a focal point for contractor selection.Layne. Industrial or private work can be either competitive bid or negotiated.
Larger competitors share the same vertical integration (tube- tube manufacturing/assembly, wetoutresin-saturation (wetout) and installation)installation - as Inliner, while most smaller competitors rely on third party tube supply and wetout. This saturated tube supply and the lack of having to construct wetout facilities allows smaller competitors to initially enter and continue to remain in the CIPP business. In addition, theThe entrance of fiberglass products cured with ultraviolet light has openedcontinues to open up further competition even further. in the UV market segment especially with more regional, localized installation contractors that often perform CIPP as a side product to complement the other tasks they perform.
Despite widespread competition, Inliner remains one of the most diversified providers in the industry by offering moreancillary products and construction services, subcontracting partnerships and construction management all designed to provide broader solutions than just CIPP.CIPP installation.
Heavy Civil
Operations
Heavy Civil delivers sustainable solutions to government agenciespublic and industrial clientsprivate customers by overseeing theproviding design and construction ofservices for water and wastewater treatment plants and pipeline installation. In addition, Heavy Civil builds radial collector wells (Ranney Method),constructs surface water intakes, pumping stations, hard rock tunnels, and performs marine construction services – all in support of the world’s water infrastructure. Beyond water solutions,construction. Heavy Civil also designsprovides design and constructsconstruction services for biogas facilities (anaerobic digesters) for the purpose of generating and capturing methane gas, an emerging renewable energy resource.
The Ranney® method specializes in the design and turnkey construction of high capacity water supply systems including radial collector wells, surface water intakes, infiltration galleries, riverbank filtration and sea water systems. Collector wells typically combine high yields with lower operating and maintaining costs. In most cases, they are less intrusive on the environment. Complete hydrogeological services for optimum siting are also available.
Heavy Civil a water treatment plant contractor,group specializes in new facility construction, expansionsexpansion and modifications.modifications of water and wastewater treatment infrastructure. Heavy Civil is experienced in the construction of municipal and industrial plants using the latest process technologies including reverse osmosis membrane, nanofiltration, ultra-violet and ozone disinfection, regeneration services, complex chemical feed systems, and air stripper repacking, to provide fully automated and sustainable systems. Recent projects have included complex chemical feed systems and fully automated control systems.
Layne isOur pipeline groups are experienced in installing all types of pipe materials and systems that deliver water from the source to the plant and to the end user. In addition to the clean water side of the business, Heavy Civil constructs pipeline systems that handle the discharge end of the product. Interceptorproduct, including collection systems, interceptor sewers and sanitary pipelines play a key role in the full water cycle by enabling the used water to be transported to facilities for required treatment prior to being discharged, utilized by others or otherwise disposed.force mains. Heavy Civil can also developdeliver special piping needssystems for process piping and cooling systems.water needs. Heavy Civil has the capability to install deep, large diameter piping in rock or other difficult soil conditions. It has the capability to design and install support systems and provide tunnelingconditions, including applications involving tunnels and marine installation.construction.
AnaerobicOur biogas services include Engineer Procure Construct (EPC) delivery of anaerobic digestion facilities, which is a series of biological processes in which microorganisms break down biodegradable material in the absence of oxygen. One of the end products is biogas, which is combusted to generate electricity and heat, or it can be processed into renewable natural gas and transportation fuels. Heavy Civil’s anaerobic digestion technologies convert various organic waste streams such as food solids, livestock manure, and municipal wastewater into biogas.
Customers & Markets
In
Heavy Civil, customers areCivil’s customer base typically includes government agencies, private customers and local operations of industrial businesses. Continued population growth in water-challenged regions, and more stringent regulatory requirements, as well as deteriorating infrastructure all lead to an increased need to conserve water resources and control contaminants and impurities. The combination of tightening regulations and water scarcity has resulted in increasingly sophisticated water consumers, and this in turn has created opportunities for the introduction of long-term sustainable methods and technology, such as zero-liquid discharge treatment systems construction implementation. Heavy Civil operates in most areas ofoffers services through either traditional hard bid or by various Alternative Project Delivery methods. Heavy Civil offers the U.S.following Alternative Project Delivery methods: Design-Build (DB); Design-Build-Operate (DBO); Design-Build-Operate Finance (DBOF); Construction Management at Risk (CMAR); and Engineer, Procure, Construct (EPC).
Competition
Management believes that many of
Heavy Civil routinely competes with local and national construction firms across the competitors in this industry do not possess the capabilities for end-to-end water management systemsU.S. We believe our extensive knowledge in the same manner as Heavy Civil, due toinfrastructure industry, along with our ability to drawmany years of experience using innovative techniques sets us apart from Water Resources for expertise and resources. This differentiates Heavy Civil from its competitors. Treatment plant and pipeline competitors consist mostly of a few national and many regional companies. The majority of the municipal market is contracted through a public bidding process.
Geoconstruction
Operations
Geoconstruction provides specialized geotechnical foundation construction services to the heavy civil, industrial, commercial and private construction markets. It has the expertise and equipment to provide the most appropriate deep foundation system, ground improvement and earth support solution to be applied given highly variable geological and site conditions. In addition, Geoconstruction has experience in completing complex and schedule-driven major underground construction projects. It provides services that are focused primarily on the foundation systems for dams/levees, tunnel shafts, utility systems, subways or transportation systems, commercial building and port facilities. Services offered include jet grouting, structural diaphragm and slurry cutoff walls, cement and chemical grouting, drilled piles, ground improvement and earth retention systems. Highly specialized equipment and technology is used such as hydromills and bentonite slurry technology to execute its jobs.
Geoconstruction acquired an initial 50% interest in Costa Fortuna which operated in Brazil and Uruguay in July 2010. The acquisition of the remaining 50% interest in Diberil Sociedad Anonima (“Costa Fortuna”) was completed during FY2013. On July 31, 2014, Layne sold Costa Fortuna, and it is reflected as a discontinued operation in the consolidated financial statements.
On October 31, 2014, Layne sold Tecniwell, a wholly-owned subsidiary in Italy which manufactured equipment for the international ground stabilization industry, particularly the jet-grouting field, with related ancillary tooling. Tecniwell had achieved presence in Europe, Asia and North and South America. Tecniwell is reflected as a discontinued operation in the consolidated financial statements.
Customers & Markets
Geoconstruction customers are typically government agencies, local operations of industrial businesses and heavy civil general contractors. Contracts are awarded following a competitive bidding process. Contracts have involved large projects which at times can be delayed by the project owner or the general contractor due to various factors, including funding and the local political environment.
Competition
In the specialized foundation construction arena, management believes there are few competitors. Customers are targeted that require compliance with detailed and demanding specifications and regulations and that often require bonding and insurance, areas in which management believes Geoconstruction has competitive advantages due to its extensive expertise. Geoconstruction owns and operates what management believes to be one of the largest fleet of hydromills and related equipment in North America. In addition, Geoconstruction has implemented a sophisticated quality control system that allows it to follow each phase of work in real-time.our competition.
Operations
GlobalBefore investing heavily in development to extract minerals, global mining and junior mining companies hire companies such as Mineral Services to extract rock and soil samples from their sites that they analyze for analyses of mineral content and grade before investing heavily in development to extract these minerals. Mineral Services drilling services require a high level of expertise and technical competence because the samples extracted must be free of contamination and accurately reflect the location and orientation of underlying mineral deposits.
grade. Mineral Services conducts primarily above ground drilling activities, including all phases of core drilling, reverse circulation, dual tube, hammer and rotary air-blast methods. Its service offerings include both exploratory (‘greenfield’)Samples extracted must be free of contamination and accurately reflect the location and orientation of underlying mineral deposits. We also drill to support the definition (‘brownfield’) drilling. Greenfield drilling is conductedof ore bodies to determine if there is a minable mineral deposit, which is known as an orebody, onmaximize the site. Brownfield drilling is typically conducted at a site to assess whether it would be economical to mine and to assist in mapping the mine layout. Mineral Services provides information to its clients that assist them in determining if a minable mineral deposit exists on a site, the economic viabilityefficiency of mining the site, the geological properties of the ground and mine planning.mining.
Mineral Services also has country managers who are responsible for operations throughout Africa, Northownership interests in foreign affiliates operating in Latin America that form our primary presence in Chile and Australia. These managers are responsible for maintaining contact and relationships with large mining operations that perform work on a global basis, as well as junior mining companies that operate more regionally.
In the case ofPeru. Mineral Services’Services manages interests in our foreign affiliates, where it doeswe do not have majority ownership or operating control, day-to-day operating decisions are made by local management. Mineral Services manages interests in the foreign affiliates through regular management meetings and analysis of comprehensivekey operating and financial information. The foreign affiliates are engaged in similar operations to Mineral Services, in addition toand also the manufacture and supply of drilling equipment, parts and supplies. The affiliates operate primarily in Latin America.
Mineral Services has experienced the effects of the global decline in demand for mineral exploration and the overall soft market for base and precious metals during FY2015, FY2014 and FY2013. In response to this,our last four fiscal years. Mineral Services has continually adjusted itsour operations to reactin response to market conditions experienced byin the industry. This hasAs discussed in Note 18 to the Consolidated Financial Statements, during the fiscal year ended January 31, 2016, we implemented a plan to exit our operations in Africa and Australia that included reducing operating expenses, and shifting assets to the Americas where exploration has been slightly less affected than in Africa and Australia, and exiting certain countries in Africa.Americas. The minerals exploration business is cyclical in nature. The longer term miningnature and we believe the industry fundamentals remain positive. Layne’swill recover as metals prices improve. Our safety record and ability to re-deploy assets quickly when called upon makes Mineral Services well positioned for opportunities as they present themselves.opportunities.
Customers and Markets
Mineral Services customers are major gold and copper producers and to a lesser extent, other base metal producers.producers including iron ore. Mineral Services’ largest customers are multi-national corporations headquartered in the U.S., Australia, Brazil, Europe and Canada. Work for gold mining customers generates approximately half of the business in Mineral Services. The success of Mineral Services is closely tied to global commodity prices and demand for our global mining customers’ products. OperatingOur primary markets are in the western U.S., Mexico Australia, Brazil and Africa. Layne also has ownership interests in foreign affiliates operating in Latin America that form Layne’s presence in this market.Brazil. See Item 1A, Risk Factors for a discussion of the risks associated with operating in these foreign countries.
Demand for mineral exploration drilling is driven by the need to identify, define and develop underground base and precious mineral deposits. Factors influencing the demand for mineral-related drilling services include the absolute price level and volatility in commodity prices, growth in the economies of developing countries, international economic and political conditions, inflation, foreign exchange levels, 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.
Global consumption of raw materials The downward trend in commodity prices in recent years has been driven by the rapid industrialization and urbanization of countries such as China, India, Brazil and Russia. Development in these countries had generated significantsignificantly reduced demand as their populations consume increased amounts of base and precious metals for housing, automobiles, electronics and other durable and consumer items. The recent economic slowdowns have impacted this demand.mineral-related drilling services.
The mineral exploration market is dependent on financial and credit markets being readily available to fund drilling and mining programs. In addition, mining companies’ ability to seek cash for their operations through other avenues, which traditionally have been available to them, is dependent on market pricing trends for base and precious metals.
Mining companies are focusing efforts on expanding existing products and lowering the cost of production. Mining service companies with global operating expertise and scale should be well positioned once demand increases. Technological advancements in drilling and processing allow development of mineral resources previously regarded as uneconomical and should benefit the largest drilling services companies that are leading technical innovation in the mineral exploration marketplace.
Competition
Mineral Services competes with a number of drilling companies, the largest being Boart Longyear, Major Drilling Group International Inc., and Foraco International S.A., as well as vertically integrated mining companies that conduct their own exploration drilling activities, and someactivities. Many of these competitors have greater capital and other resources than we have. In the mineral exploration drilling market, Mineral Services competes based on price, technical expertise and reputation. Management believes Layne has a well-recognized reputation for expertise and performance in this market. Mineral Services work is typically performed on a negotiated basis.
Energy Services
Operations
Energy Services focuses on bringing responsible water management solutions to the exploration and production (E&P) industry’s growing water related challenges. In FY2015, Energy Services increased its efforts to address the unique and substantial water demands of the energy industry in a responsible and sustainable fashion. Energy Services will provide solutions to manage every phase of the water cycle as it relates to its use in the oil and gas industry (conventional and unconventional). In FY2015, Energy Services introduced its cradle-to-cradle solutions, trademarked ALLclear™, to its clients. The segment specializes in hydrogeological assessments and sourcing, transfer and storage, treatment and vibration technology.
The hydrogeological assessments evaluate feasibility; determining potential capacity, leading to the appropriate well designs for developing local groundwater supplies. Energy Services highly skilled technical staff has extensive experience with aquifer testing. Over the years, it has developed groundwater flow models for hydrologic systems across the U.S. It can provide geophysical surveys, exploratory test drilling, aquifer test pumping and well testing evaluations.
The transfer services include various no-leak solutions for surface and subsurface transfer, pit-to-pit transfers, surface transfers, fluids infrastructure design and construction and other high-volume fluids handling capabilities. Energy Services can also provide expert construction services for applications in the energy sector through construction of retaining ponds for frac water, flowback fluids and produced water.
Energy Services’ pipe vibration services has numerous applications in stuck pipe recovery from freeing stuck coil tubing without cutting or damaging the coil to recovering stuck pipe, casing, pumps, screens, screen packers, liners and other tubulars. Sanded or mud-stuck tubing can be recovered without the need for washover or jarring. Stuck rod strings and pumps can be recovered as well as stuck washover pipe and jars normally used in conventional fishing operations. It offers the potential to solve these problems from the surface without downhold intervention in a minimum amount of time. Energy Services has developed proprietary equipment and procedures that are highly effective in the recovery of stuck pipe from wells.
Customers and Markets
Energy Service’s current customers are mainly located with the oil and gas companies in the Permian Basin of Texas. Energy Services executes master service agreements with customers. This industry is a cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and gas prices.
Competition
Competition in this area is primarily from local small and mid-sized contractors offering one part sourcing, transfer or treatment of the water management cycle, but not the complete end-to-end solution offered by Energy Services. For many E & P companies, price is a driving factor. As Energy Services continues to penetrate the marketplace, the focus is to assist these companies in understanding the value of having an end-to-end solution rather than engaging many contractors to perform similar services.
Other
Operations
Other operations consist of small purchasing and specialty operations. The majority of the revenues are eliminated between segments. A small portion of the revenue is through third party sales, which can produce positive earnings. The focus is primarily to act as a purchasing agent for all businesses within Layne.
Contracts
Layne identifiesWe identify potential projects from a variety of sources. After determining which projects are available, Layne makeswe make a decision on which projects to pursue based on factors such as project size, duration, availability of personnel, current backlog, profitability expectations, risk profile, type of contract, prior experience, source of project funding and geographic location.
Contracts are usually awarded through a competitive bid process. Layne executes itsWe execute our contracts through a variety of methods, including cost-plus, fixed-price, time and material, day rate, unit price or some combination of these methods. Customers may consider price, technical capabilities of equipment and personnel, safety record and reputation.reputation, among other factors.
Fixed-price contracts are generallyhave historically been used in competitively bid public civil and specialty contracts. These contracts commit the contractor to provide all of the resources required to complete a project for a fixed sum. Usually, fixed-price contracts transfer more risk to the contractor.
Most of Layne’sour contract revenues and costs are recognized using the percentage of completion method. For each contract, Laynewe regularly reviewsreview contract price and cost estimates as the work progresses and reflect adjustments in profit proportionate to the percentage of completion of the related project in the period when we revise those estimates. To the extent that these adjustments result in a reduction or elimination of previously reported profits with respect to a project, Layne wouldwe recognize a charge against current earnings which could be material.
Backlog Analysis
Backlog represents the dollar amount of revenues Layne expectswe expect to recognize in the future from contracts that have been awarded as well as those that are currently in progress. Layne includesawarded. We include a project in backlog at such time as a contract is executed.contracts are executed or notices to proceed are obtained, depending on terms of the contract. Backlog amounts include anticipated revenues associated with the original contract amounts, executed change orders, and any claims that may be outstanding with customers. It does not include contracts that are in the bidding stage or have not been awarded. As a result Layne believes thecustomers for which recovery is considered probable. The backlog figures are firm, subject only to modifications, alterations or cancellation provisions contained in the various contracts. Historically, those provisions have not had a material effect on the consolidated financial statements.
Backlog may not be indicative of future operating results. There have been no changes in the methodology used to determine backlog during FY2015the fiscal years ended January 31, 2017 and FY2014.2016. Backlog is not a measure defined by U.S. GAAPgenerally accepted accounting principles in the United States (“GAAP”) and is not a measure of profitability. Layne’sOur method for calculating backlog may not be comparable to methodologies used by other companies.
Layne’s backlog of uncompleted contracts at January 31, 2015,2017, was approximately $570.8$360.0 million as compared to $460.5$346.3 million at January 31, 2014.2016. The following table provides an analysis of backlog by segment for FY2015.the fiscal year ended January 31, 2017.
|
| Backlog at |
|
| New Business |
|
| Revenues Recognized |
|
| Backlog at |
|
| Months to |
| Backlog at |
|
| New Business |
|
| Revenues Recognized |
|
| Backlog at |
| ||||||||
(in millions) |
| January 31, 2014 |
|
| Awarded (1) |
|
| FY 2015 |
|
| January 31, 2015 |
|
| Completion (2) |
| January 31, 2016 |
|
| Awarded (1) |
|
| FY 2017 |
|
| January 31, 2017 |
| ||||||||
Water Resources |
| $ | 59.8 |
|
| $ | 215.7 |
|
| $ | 196.2 |
|
| $ | 79.3 |
|
| 6-12 |
| $ | 97.6 |
|
| $ | 156.2 |
|
| $ | 204.6 |
|
| $ | 49.2 |
|
Inliner |
|
| 61.1 |
|
|
| 240.7 |
|
|
| 175.0 |
|
|
| 126.8 |
|
| 6-12 |
|
| 113.6 |
|
|
| 200.6 |
|
|
| 196.8 |
|
|
| 117.4 |
|
Heavy Civil |
|
| 257.6 |
|
|
| 134.0 |
|
|
| 207.0 |
|
|
| 184.6 |
|
| 12-24 |
|
| 135.1 |
|
|
| 195.5 |
|
|
| 137.2 |
|
|
| 193.4 |
|
Geoconstruction |
|
| 79.3 |
|
|
| 172.9 |
|
|
| 77.0 |
|
|
| 175.2 |
|
| 12-36 | ||||||||||||||||
Mineral Services |
|
| 2.7 |
|
|
| 118.5 |
|
|
| 120.2 |
|
|
| 1.0 |
|
| 6-12 | ||||||||||||||||
Energy Services |
|
| — |
|
|
| 24.1 |
|
|
| 20.2 |
|
|
| 3.9 |
|
| 6-12 | ||||||||||||||||
Total |
| $ | 460.5 |
|
| $ | 905.9 |
|
| $ | 795.6 |
|
| $ | 570.8 |
|
|
|
| $ | 346.3 |
|
| $ | 552.3 |
|
| $ | 538.6 |
|
| $ | 360.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | New business awarded consists of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts. |
(2) | The decline in backlog for Water Resources is primarily due to reduced activity in the western U.S., as a result of significant precipitation. |
(3) | As of January 31, |
Of Layne’s total backlog of $570.8$360.0 million as of January 31, 2015,2017, approximately $32.2$11.0 million relates to active contracts that are in a loss position. The remaining contracts in backlog have future revenues which are expected to equal or exceed costs when recognized. LayneWe can provide no assurance as to the profitability of the contracts reflected in backlog. It is possible that the estimates of profitability could increase or decrease based on changes in productivity, actual downtime and the resolution of change orders and any claims with customers. As of January 31, 2015,2017, there were no significant contracts in backlog not moving forward as originally scheduled.
During FY2015the fiscal years ended January 31, 2017 and FY2014,2016, there were no significant cancellations of amounts previously included in backlog and no significant changes in anticipated gross margin trends based on current backlog.
Business Strategy
Layne strives to be a sustainable solutions provider to the world of essential natural resources – water, mineral and energy. Our purpose is to enhance the lives of people by providing and protecting these resources. We are experts in water management, drilling and construction. Our growth strategy is to solve our clients’ most complex natural resource problems by coordinating our diverse product and service offerings into solutions that provide the greatest value.
Layne’s water management and construction expertise has historically been focused on the fixed bid U.S. municipal marketplace. We are focused on taking our expertise further into the agricultural and industrial marketplace including clients in the power generation, food and beverage and other industries.
Our mining clients are mainly large and intermediate global companies that engage Layne principally for exploration drilling services targeting copper, gold, and selected other minerals. This is a deeply cyclical business. We aim to mitigate revenue downturns in this sector by cross selling our water management capabilities. Virtually every mine in the world has a significant water problem, either too much or too little. Layne is marketing our dewatering capabilities and our water sourcing, treatment and pipeline expertise as a way to generate additional revenues from current clients. The mineral drilling services market continues in its downturn, but we are hopeful that we are nearing the trough of the current cycle.
Layne’s recent entry into the energy services industry is based on our water management capabilities. We have developed a business in the Permian basin that includes water sourcing, transfer, storage and treatment using safe, modern equipment and sustainable business practices. We offer these services as a cradle to cradle solution for oil & gas companies that want to demonstrate their commitment to the environment by recycling their water economically. Layne remains committed to growing this segment, however we are carefully analyzing the planned future growth of this segment as the industry is cyclical, as is currently experiencing volatility in commodity prices.
We are continuing to manage our costs to align with lower earnings. Layne continues to explore opportunities within each segment to develop sustainable, profitable operations within the organization.
The domestic drilling and construction activities and related revenues and earnings tend to decrease in the winter months when adverse weather conditions interfere with access to project sites. Additionally, Mineral Services customers tend to slow drilling activities surrounding thetypically slow down during Thanksgiving, Christmas and New Year holidays. As a result, revenues and earnings in theour first and fourth fiscal quarters tend to be less than revenues and earnings in the second and third fiscal quarters.
Regulation
General
As ana corporation with international corporation operating multiple businesses in many parts of the world,operations, we are subject to a number of complex federal, state, local and foreign laws. Each of our segments is subject to various laws and regulations relating to the protection of the environment and worker health and safety. In addition, each segment is subject to its own unique set of laws and regulations imposed by federal, state, local and foreign laws relating to licensing, permitting, approval, reporting, bonding and insurance requirements.
Management believes that itsour operations comply in all material respects with applicable laws and regulations and that the existence and enforcement of such laws and regulations have no more restrictive effect on the method of operations than on other similar companies in the industries in which it operates.we operate. Layne has internal procedures and policies that management believes help to ensure that itsour operations are conducted in compliance with current regulations.
Layne isWe are subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended (“the Exchange Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the listing requirements of NASDAQ and other applicable securities rules and regulations. On August 22, 2012,
We cannot determine the Securities and Exchange Commission (“SEC”) adopted rules mandated by the Dodd-Frank Act that require “resource extraction issuers”extent to disclose annually on Form SD certain payments made to the U.S. government and foreign governmentswhich new legislation, new regulations or changes in connection with the commercial development of oil, natural gas or minerals. Information must be provided about the type and total amount of payments made for each project related to the commercial development of oil, natural gas or minerals, which includes mineral exploration, and the type and total amount of payments made to each government. The SEC also adopted rules mandated by the Dodd-Frank Act that require public companies that manufacture products that contain certain minerals and their derivatives, known as “conflict minerals”, to disclose information annually on whether or not such minerals originated from the Democratic Republic of Congo (the “DRC”) or an adjoining country and helped to finance the armed conflict in the DRC, and in some cases, to perform extensive due diligence on their supply chains for such minerals.
Theseexisting laws are under constant review for amendment or expansion. Moreover, there is a possibility that new legislation or regulations may be adopted. Amended, expanded or new laws and regulations increasing the regulatory burden affecting the industries in which we operate can have a significant impact on our operations and may require us and/or our customers to change our operations significantly or incur substantial costs. Additional proposals and proceedings that might affect the industries in which we operate are pending before Congress, various federal and state regulatory agencies and commissions and the courts. We cannot predict when or whether any such proposals may become effective. In the past, many of the industries in which we operate have been heavily regulated. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations. See Part I, Item 1A—Risk Factors. The cost of complying with complex governmental regulations applicable to Layne’s business, sanctions resulting from non-compliance or reduced demand resulting from increased regulations could increase its operating costs and reduce profit.
Environmental
Layne’sOur operations are subject to stringent and complex federal, state, local and foreign environmental laws and regulations. These include, for example, (1) the federal Clean Air Act and comparable state and foreign laws and regulations that impose obligations related to air emissions, (2) the federal Resource Conservation and Recovery Act and comparable state and foreign laws that regulate the management of waste from our facilities, (3) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) and comparable state and foreign laws that regulate the cleanup of hazardous substances that may have been released at properties owned or operated by Layne, itsus, our predecessors or locations where Laynewe or itsour predecessors sent waste for disposal, and (4) the federal Clean Water Act and the Safe Drinking Water Act and analogous state and foreign laws and regulations that impose detailed permit requirements and strict controls regarding water quality and the discharge of pollutants into waters of the U.S. and state and foreign waters.
Such regulations impose permit requirements, effluent standards, waste handling and disposal restrictions and other design and operational requirements, as well as record keeping and reporting requirements, upon various aspects of Layne’s businesses. Some environmental laws impose liability and cleanup responsibility for the release of hazardous substances regardless of fault, legality of original disposal or ownership of a disposal site. Any changes in the laws and regulations governing environmental protection, land use and species protection may subject us to more stringent environmental control and mitigation standards. In addition, these and other laws and regulations may affect many of Layne’sour customers and influence their determination whether to engage in projects which utilize itsour products and services.
As part of Layne’s adherence to environmental laws and regulations,regulation, we focus on sustainability. Our employees contribute to the economic and environmental sustainability of the communities in which we operate in.operate.
We have made and will continue to make expenditures in our efforts to comply with these requirements. Management does not believe that, to date, we have expended material amounts in connection with such activities or that compliance with these requirements will have a material adverse effect on Layne’sour capital expenditures, earnings or competitive position. Although such requirements do have a substantial impact on the industries in which we operate, to date, management does not believe the requirements have affected it to any greater or lesser extent than other companies in these industries. Due to the size of our operations, significant new environmental regulation could have a disproportionate adverse effect on Layne’s operations. Failure to comply with these laws and regulations or newly adopted laws or regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders limiting or enjoining future operations or imposing additional compliance requirements or operational limitation on such operations. See Part I, Item 1A—Risk Factors—Risks Relating to Our Business and Industry.
Safety and Health
Our operations are also subject to various federal, state, local and foreign laws and regulations relating to worker health and safety as well as their counterparts in foreign countries.safety. In many cases, a solid safety record is a requirement of doing business with our customers.
OSHA
The Occupational Safety and Health Administration ("OSHA”) establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by OSHA and various recordkeeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards and safety in excavation and demolition work may apply to Layne’sour operations.
The operations of Mineral Services are also subject to the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). In addition to federal regulatory programs, all of the states and foreign governments in which Mineral Services operates have programs for mine safety and health regulation and enforcement. Collectively, federal and state safety and health regulation in the mining industry is among the most comprehensive systems for protection of employee health and safety affecting any segment of U.S. industry. The Mine Act requires mandatory inspections of surface and underground mines and requires the issuance of citations or orders, foras well as the violationimposition of a mandatory health and safety standard. A civil penalty must be assessedpenalties or criminal liability for each citation or order issued. Serious violations of mandatory health and safety standards may result in the issuance of an order requiring the immediate withdrawal of miners from the mine or any piece of mine equipment. The Mine Act also imposes criminal liability for corporate operators who knowingly or willfully violate a mandatory health and safety standard or order and provides that civil and criminal penalties may be assessed against individual agents, officers and directors who knowingly or willfully violate a mandatory health and safety standard or order. In addition, criminal liability may be imposed against any person for knowingly falsifying records required to be kept under the Mine Act and standards.record keeping requirements.
The operation and registration of our motor vehicles are subject to various regulations, including those promulgated by the U.S. Department of Transportation (“DOT”), including rules on commercial driver licensing, controlled substance testing, medical and other qualifications for drivers, equipment maintenance, and drivers’ hours of service.
Permits and Licenses
Many states require regulatory mandated construction permits which typically specify that wells, water and sewer pipelines and other infrastructure projects be constructed in accordance with applicable statutes. Our water treatment business is also subject to legislation and municipal requirements that set forth discharge parameters, constrain water source availability and set quality and treatment standards. Various state, local and foreign laws require that water wells and monitoring wells be installed by licensed well drillers. Many of the jurisdictions in which we operate require construction contractors to be licensed. Layne maintainsWe maintain well drilling and contractor’s licenses in those jurisdictions in which it operateswe operate and in which such licenses are required. In addition, Layne employswe employ licensed engineers, geologists and other professionals necessary to the conduct of itsour business. In those circumstances in which Layne doeswe do not have a required professional license, it subcontractswe subcontract that portion of the work to a firm employing the necessary licensed professionals. Layne’sOur operations are also subject to various permitting and inspection requirements and building and electrical codes. In Mineral Services, drilling also frequently requires environmental permits, which are usually obtained by itsour customers.
Anti-corruption and Bribery
Layne isWe are subject to the Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. and other business entities from making improper payments to foreign government officials, political parties or political party officials. It isWe are also subject to the applicable anti-corruption laws in the jurisdictions in which Layne operates,we operate, thus potentially exposing itus to liability and potential penalties in multiple jurisdictions. The anti-corruption provisions of the FCPA are enforced by the Department of Justice (“DOJ”). In addition, the SEC requires strict compliance with certain accounting and internal control standards set forth under the FCPA. Failure to comply with the FCPA and other laws can expose Layneus and/or individual employees to potentially severe criminal and civil penalties. Such penalties may have a material adverse effect on our business, financial condition and results of operations.
Layne devotes significantOn October 27, 2014, we entered into a settlement with the SEC to resolve allegations concerning potential violations of the Foreign Corrupt Practices Act that took place in Africa within our Mineral Services business segment prior to October 2010. Under the terms of the settlement, among other things, we agreed to undertake certain compliance, reporting and cooperation obligations to the SEC for two years following the settlement date. On November 9, 2016, we made our final report to the SEC and have no further reporting obligations to the SEC under the settlement.
We devote resources to the development, maintenance, communication and enforcement of our Business Code of Conduct, our anti-bribery compliance policies, our internal control processes and compliance related policies. We strive to conduct timely internal investigations of these potential violations and take appropriate action depending upon the outcome of the investigation. We anticipate that the devotion of significant resources to compliance-related issues, including the necessity for investigations, will continue to be an aspect of doing business.
Insurance and Bonding
Layne’sOur property and equipment is covered in part by insurance and we believe the amount and scope of such insurance is adequate for the risks we face. In addition, we maintain general liability, excess liability and worker’s compensation insurance in amounts that we believe are consistent with our risk of loss and industry practice.
As is common practice in the construction business, Layne iswe are required at times to provide surety bonds as an additional level of security of our performance. We have surety arrangements with more than one surety. We have also purchased contract default insurance on certain construction projects to insure against the risk of subcontractor default as opposed to having subcontractors provide traditional payment and performance bonds.
At January 31, 2015, Layne has2017, we had approximately 3,3802,491 employees, approximately 180137 of whom were members of collective bargaining units represented by locals affiliated with major labor unions in the U.S. Management believes that its relationship with employees is satisfactory. In all of Layne’s operations, an important competitive factor is technical expertise. As a result, Layne emphasizes the traininggrowth 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, Layne emphasizes strict adherence to all health and safety requirementspolicies and offer incentive pay based upon achievement of specified safety goals.procedures. This emphasis encompasses developing site-specific safety plans, ensuring regulatory compliance and training employees in regulatory compliance and sound safety practices. Training consists of an OSHA-mandated 40-hour hazardous wasteOSHA and/or Mine Safety and emergency responseHealth Administration (“MSHA”) training course as wellrequired and as the required annual eight-hour updates. In addition to the OSHA-mandatedapplicable. Layne provides this training all employees working on mine sites are required to attend a 24 hour MSHA new miners training and an eight hour annual refresher. Layne has a safety team staffed withthrough certified professional trainers which allows it to offer such training in-house.and/or qualified trainers. In addition to the training, the safety team is also responsible for preparing health and safety site specific plans and provides guidance and site analysis for the health and safety plans prepared by others.
On average, the field supervisors and drillersMany of our employees have over eight years ofextensive experience with Layne.Layne and our industries. Many of itsour professional employees have advanced academic backgrounds in agricultural, chemical, civil, industrial, geological and mechanical engineering, geology, geophysics and metallurgy. Management believes that Layne’sour size and reputation allow itus to compete effectively for highly qualified professionals.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information contained or incorporated by reference in this annual report before deciding to invest in our common stock. Many of these risks are beyond our control and are driven by factors that often cannot be predicted. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In this event, the market price of our common stock could decline, and you could lose part or all of your investment.
Risks Relating to Our Business and Industry
Demand for our services is vulnerablesubject to economic downturns and reductions in private industry and municipal and other governmental spending. If general economic conditions continue or weaken, and current constraints on the availability of capital continue, then our revenues, profits and our financial condition may be materially adversely affected.
Our customers are vulnerable to general downturns in the domestic and international economies. Consequently, our results of operations will fluctuate depending on the demand for our services.
Due to the currentDuring times of uncertain or weakened economic conditions, volatile credit and commodity markets many of our customers willmay face considerable budget shortfalls and may reduce or are delayingdefer capital spending that willcould decrease the overall demand for our services. In addition, our customers may find it more difficult to raise capital in the future due to substantial limitations on the availability of credit and other uncertainties in the municipal and general credit markets.
Levels of municipal spending particularly impact Water Resources, Inliner and Heavy Civil and Geoconstruction.Civil. Reduced tax revenue in certain regions, or inability to access traditional sources of credit, may limit spending and new development by municipalities or local municipalities,governmental agencies, which in turn may adversely affect the demand for our services in these regions. Reductions in spending by municipalities or local governmental agencies could reduce demand for our services and reduce our revenue.
The current economic conditions are negatively affecting the pricing for our services and we expect these conditions to continue for the foreseeable future. Many of our customers, especially federal, state and local governmental agencies competitively bid for their contracts. Since the recessionary economic environment of 2008, governmental agencies have reduced the number of new projects that they have started and the bidding for those projects has become increasingly competitive. In addition, pricesthe competition for projects with negotiated contracts haveis also been negatively impacted.highly competitive. Our customers may also demand lower pricing as a condition of continuing our services. We expect to see an increase in the number of competitors as other companies that do not normally operate in our markets enter seeking contracts to keep their resources employed. In addition, certain of our customers may be unable to pay us if they are unable to raise capital to fund their business operations, which would have an adverse effect on our revenue and cash flows.
Volatility within the global commodity markets areis negatively impacting Mineral Services and Energy Services. Mineral exploration is highly speculative and is influenced by a variety of factors, including the prevailing prices for various metals, which often fluctuate widely in response to global supply and demand, international economic trends, currency exchange fluctuations and political events. The currentextended decline in oil and gas prices has depressed the explorationenergy market, negatively impacting Energy Services.Water Resources.
As a result of the above conditions, our revenues, net income and overall financial condition were negatively affected during recent fiscal years and may continue to be adversely affected if the current economic conditions do not improve.
The cyclical downturns in the minerals market and oil and gas industries have resulted in a reduction in demand for our Mineral Services and Energy Services which has reduced our revenue.revenue and profitability.
The mining industry is highly cyclical and oil and gas industries are highly cyclical. Thecommodity prices of commodities can be extremely volatile. Demand for the type of services provided by Mineral Services and Energy Services depends in significant part upon the level of exploration and development activities, particularly with respect to gold copper and oil and gas.copper. The price of gold isand other minerals can be affected by numerous factors, including international economic trends, currency exchange fluctuations, expectations for inflation, speculative activities, consumption patterns, purchases and sales of gold bullion holdings by central banks and others, world production levels and political events. In addition to prevailing prices for commodities, exploration activity is influenced by the following factors:
|
|
global and domestic economic considerations;
|
|
the economic feasibility of minerals exploration and development;
|
|
the discovery rate of new reserves;
|
|
national and international political conditions;
|
|
decisions made by mining companies with regards to location and timing of their exploration budgets; and
|
|
the ability of mining companies to access or generate sufficient funds to finance capital expenditures for their activities.
|
|
political instability;
|
|
adverse weather conditions; and
mergers, consolidations and downsizing among our clients. |
|
|
|
During FY2015,the fiscal year ended January 31, 2017, Mineral Services continued to experience a reduction in its revenue as it did during FY2014 and FY2013.each of the three prior fiscal years. This decrease was due, in part, to lower mining exploration budgets of our customers as well as less demand in the marketplace. The price of gold and other minerals have fluctuated during the last several years, with the price of gold rebounding slightly during the fiscal year ended January 31, 2017 after falling to its lowest level in the past six years during the fiscal year ended January 31, 2016. A material decrease in the rate of mineral exploration and development reduces the revenue generated by Mineral Services and adversely affects our results of operations and cash flows. FY2016 will likely see this trend continue until such time as the market becomes stabilized, if at all.
Energy Services has seen a slowdown in the number of contracts that have become available. The volatility of oil and gas prices and the resulting effects are difficult to predict, which reduces our ability to anticipate and respond effectively to changing conditions.
Because our operations are impacted by certain seasonality, our results can fluctuate significantly, which could make it difficult to evaluate our business and could cause instability in the market price of our common stock.
We periodically have experienced fluctuations in our quarterly results arising from a number of factors, including the following:
|
|
|
|
|
|
In addition, adverseAdverse weather conditions, natural disasters, disease, force majeure and other similar events can curtail our operations in various regions of the world throughout the year,in which we operate, resulting in performance delays and increased costs.
Moreover, our domestic activities and related revenue and earnings tend to decrease in the winter months due to holidays and when adverse weather conditions interfere with access to drilling or other construction sites. As a result, our revenue and earnings in the second and third quarters tend to be higher than revenue and earnings in the first and fourth quarters. Accordingly, as a result of the foregoing as well as other factors, our quarterly results should not be considered indicative of results to be expected for any other quarter or for any full fiscal year.
Our use of the percentage-of-completion method of accounting involves significant estimates and management judgment, changes of which could result in volatility in our results of operations.
Our revenue on larger construction contracts is recognized on a percentage-of-completion basis for individual contracts based upon the ratio of costs incurred to total estimated costs at completion. Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the percentage of completion are reflected in contract revenue, costs and profits in the reporting period when such estimates are revised. Total estimates may be affected by:
|
|
|
|
|
|
The above items can change the estimates on a contract, including those arising from contract penalty provisions, and final contract settlements, and can result in revisions to costs and income. Revisions in estimates are recognized in the period in which they are determined. This could result in the reduction or reversal of previously recorded profits. Change orders often change the scope and cost of a contract. Change orders can also have the short-term effect of reducing the percentage of completion on a contract and the revenues and profits that otherwise would be recognized. We also factor in all other information that we possess with respect to the change order to determine whether the change order should be recognized at all and, if recognition is appropriate, what dollar amount of the change order should be recognized. Due to factors that we may not anticipate at the time of recognition, however, revenues ultimately received on these change orders could be less than revenues that we recognized in a prior reporting period or periods, which could require us in subsequent reporting periods to reduce or reverse revenues and profit previously recognized. Our Inliner, Heavy Civil and Geoconstruction segments primarily use the percentage-of-completion method for their contracts.
We may experience cost overruns on our fixed-price contracts, which could reduce our profitability, and we may suffer additional losses.
A significant number of our contracts contain fixed prices and generally assign responsibility to us for cost overruns for the subject projects.overruns. Under such contracts, prices are established in part on cost and scheduling estimates, which are based on a number of assumptions, includingmany of which are beyond our control. These assumptions aboutinclude job-site conditions (both surface and sub-surface), future economic conditions, prices and availability of materials, labor and other requirements. Estimates are revised based upon changing conditions and new developments that are continuous and characteristic of the construction process.and drilling industries. In addition, the time required to complete a construction or drilling project may be greater than originally anticipated. We may not be able to obtain compensation for additional work performed or expenses incurred as a result of changes or inaccuracies in these estimates and underlying assumptions. We have experienced inaccurate estimates, or changes in other circumstances, such as unanticipated technical problems, difficulties obtaining permits or approvals, changes in local laws or labor conditions, ambiguities in specifications, supply shortages, weather delays, unanticipated sub-surface site conditions, accidents, equipment failures, inefficiencies, cost of raw materials, or our suppliers’ or subcontractors’ inability to perform, which could result in substantial losses. Many of our contracts also are subject to cancellation by the customer upon short notice with limited or no damages payable to us. As a result, cost and gross margin may vary from those originally estimated making the project less profitable than originally estimated, or possibly not profitable at all, and, depending upon the size of the project, variations from estimated contract performance could significantly affect our operating results.
Our failure to meet the schedule or performance requirements of our contracts could harm our reputation, reduce our client base and curtailharm our future operations.
In certain circumstances, we guarantee contract completion by a scheduled acceptance date. Failure to meet any such schedule could result in additional costs, and the amount of such additional costs could exceed projected profit margins. These additional costs include liquidated damages paid under contractual penalty provisions, which can be substantial and can accrue on a daily basis. In addition, our actual costs could exceed our projections. Performance problems for existing and future contracts could increase the anticipated costs of performing those contracts and cause us to suffer damage to our reputation within our industry and our client base, which would harm our future business.
The schedulingtiming of new contract awards and the performance of those new contracts could have an adverse effect onresult in fluctuations in our operating results and cash flows.
It is difficult to predict when and whether new projects will be let out for bid. New projects often must endureentail a lengthy and complex design and bidding process. This process can be affected by governmental approvals, budget negotiations, funding approvals, weather, as well as changing market conditions. The uncertainty of the timing of contract awards as well as the timing of the commencement date of the contract can have an adverse effect on our results of operations and cash flows causing fluctuations from quarter to quarter or year to year. These fluctuations can be significant.
If we cannot obtain third-party subcontractors, or if their performance is unsatisfactory, our profit could be reduced.
We rely on third-party subcontractors to complete some of our projects. To the extent that we cannot engage subcontractors as planned, our ability to complete a project in a timely fashion or at a profit may be impaired. If the amount we are required to pay for subcontracted services exceeds the amount we have estimated in bidding for fixed-price work, we could experience reduced profits or losses in the performance of these contracts. In addition, if a subcontractor is unable to deliver its services according to the negotiated terms for any reason, including the deterioration of its financial condition, we may be required to purchase the services from another source at a higher price, which could reduce the profit to be realized or result in a loss on a project for which the services were needed. Also, if our subcontractors perform unsatisfactory work, we may become subject to increased warranty costs or product liability or other claims against us.
If we are unable to obtain performance bonds or letters of credit on acceptable terms, our ability to obtain future projects could be materially and adversely affected.
A significant portion of our projects require us to procure a bond to secure performance. Our continued ability to obtain surety bonds primarily will depend upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. With a decreasing number of insurance providers in that market, it may be difficult to find sureties who will continue to provide contract-required bonding on acceptable terms and conditions.
We have granted our sureties a security interest in certain assets. The surety companies may in the future request us to provide further collateral or other security. Our ability to satisfy any future requests may require the consent of the lenders under the asset-based credit facility. If the lenders are unwilling to agree to any future requests on terms acceptable to the surety companies, we may be unable to continue to obtain performance bonds on acceptable terms.
With respect to ourOn certain projects we may enter into a joint ventures, ourventure agreement with others. Our ability to obtain a bond may also depend on the credit and performance risks of our joint venture partners.
In addition, events that generally affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, being available only at a significantly greater cost or not being available at all. If we are unable to obtain performance bonds on future projects, our results of operations would be materially and adversely affected. The amount of our surety bonds as of January 31, 2015,2017, based on the expected amount of revenues remaining to be recognized on the projects, was $359.5$223.8 million.
We also occasionally utilize a letter of credit instead of a performance bond, primarily overseas.bond. Almost all of the letters of credit are issued under the asset-based credit facility. Our ability to continue to obtain new letters of credit under the asset-based credit facility is limited to the lesser of (a) $75.0 million and (b) the amount of Excess Availability (as defined in the asset-based credit facility agreement) under the asset-based credit facility and is subject to limitations on the issuance of letters of credit if the expiry date of the proposed letter of credit extends beyond the five business days prior to the maturity date of the asset-based credit facility. Our inability to obtain bonding or letters of credit on favorable terms and at reasonable prices or at all would increase operating costs and inhibit the ability to execute or pursue new projects, which could have a material adverse effect on our business, financial condition and results of operations.
We may not achievefully realize the results expectedanticipated benefits from our restructuring plan, the timing could be delayed or theplans.
We continue to implement certain restructuring costs necessary to achieve the targeted expense reductions could be higher than expected, any of which could materially and adversely affect our results of operations.
In response to continued operating losses and reductions in our revenue, the Board of Directors approved our management’s plan designedinitiatives that seek to reduce expenses, which contemplates,our cost structure and streamline our operations. These restructuring plans have, among other things, resulted in a reduction in workforce, cost containment measures and working capital management initiatives.
Our restructuring plans may not reduce expenses or produce the cost savings we anticipate or in the time frame we expect. Further restructuring activities may also be required in the future beyond what is currently planned, which could enhance the risks associated with these activities.
In addition, our management is conducting a strategic review ofperiodically reviews our businesses and portfolio of assets to identify those businesses and assets that may be underperforming and for which we may consider a sale or other disposition. However, we may not correctly identify businesses or assets that are, or will be, underperforming, and we may not be able to dispose of those businesses and assets on favorable terms, if at all. Our inability to identify and favorably dispose of underperforming businesses and assets may significantly harm our business.
Furthermore,Our use of the percentage-of-completion method of accounting involves significant estimates and management judgment, changes of which could result in volatility in our cost-reduction initiativesresults of operations.
Our revenue on larger construction and drilling contracts is recognized on a percentage-of-completion basis for individual contracts based upon the ratio of costs incurred to total estimated costs at completion. Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the percentage of completion are reflected in contract revenue, costs and profits in the reporting period when such estimates are revised. Total estimates may be affected by:
changes in expected costs of materials, labor, productivity or scheduling;
changes in external factors outside of our control, such as weather, sub-surface site conditions or customer requirements; and
change orders, which are a normal and recurring part of our business and can increase or decrease the scope of work and therefore the revenue and the cost of a job.
The above items can change the estimates on a contract, including those arising from contract penalty provisions, and final contract settlements, and can result in revisions to costs and income. Revisions in estimates are recognized in the period in which they are determined. This could result in the reduction or reversal of previously recorded profits. Change orders often change the scope and cost of a contract. Change orders can also have the short-term effect of reducing the percentage of completion on a contract and the revenues and profits that otherwise would be recognized. We also factor in all other information that we possess with respect to the change order to determine whether the change order should be recognized at all and, if recognition is appropriate, what dollar amount of the change order should be recognized. Due to factors that we may not anticipate at the time of recognition, however, revenues ultimately received on these change orders could be less than revenues that we recognized in a prior reporting period or periods, which could require us in subsequent reporting periods to reduce or reverse revenues and profit previously recognized. Our Inliner and Heavy Civil segments primarily use the percentage-of-completion method for their contracts, while Water Resources segment uses the percentage-of-completion method for its larger, more complex contracts.
Our contracts may require us to perform extra, or change order, work, which can result in disputes or claims and adversely affect our working capital, profits and cash flows.
Our contracts generally require us to perform extra, or change order, work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in unanticipateddisputes or claims over whether the work performed is beyond the scope of work directed by the customer and/or exceeds the price the customer is willing to pay for the work performed. To the extent we do not recover our costs for this work or losses, including losses wethere are delays in the recovery of these costs, our cash flows and working capital could be adversely impacted.
We may incur uponnot fully realize the disposal ofrevenue value reported in our businesses or assets. The timing and actual cost savings achieved from our plans may significantly vary from our announced expectationsbacklog due to a varietycancellations or reductions in scope.
As of reasons, including, among other things, the potential need to replace eliminated positionsJanuary 31, 2017, our backlog of uncompleted construction and costs we may incurdrilling work was approximately $360.0 million. The revenue projected in connection with employee turnover. Our restructuring plan may not reduce expenses or produce the cost savings we anticipate or in the time frame we expect. In addition, some of the actions that we may elect to take may require lender approval under our asset-based credit facility, and webacklog may not be able to obtainrealized or, if realized, may not result in profits. For example, the consentcancellation or reduction in scope of the lenders.any project in our backlog could have a material adverse effect on our financial condition, results of operations and cash flows.
Our actual results could differ if the estimates and assumptions that we use to prepare our financial statements are inaccurate.
To prepare financial statements in conformity with generally accepted accounting principles in the United States, we are required to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of assets, liabilities, revenue, expenses and disclosures of contingent assets and liabilities. Areas in which we must make significant estimates include:
|
|
contract costs and profit and application of percentage-of-completion accounting and revenue recognition of contract claims;
|
|
provisions for income taxes and related valuation allowances;
|
|
recoverability of equity method investments;
|
|
recoverability of other tangible and intangible assets and their related estimated lives; and
|
|
valuation of assets acquired and liabilities assumed in connection with business combinations.
If these estimates are inaccurate, our actual results could differ materially from currently recorded amounts.
Our reported financial results may be adversely affected by changes in accounting principles applicable to us.
GAAP is subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC, and other bodies formed to promulgate and interpret appropriate accounting principles. A change in existing principles, standards or guidance can have a significant effect on our reported results, may retroactively affect previously reported results, could cause unexpected financial reporting fluctuations, and may require us to make costly changes to our operational processes.
We are required to assess and report on our internal controls each year. Findings of inadequate internal controls could reduce investor confidence in the reliability of our financial information.
As directed by the Sarbanes-Oxley Act, the SEC adopted rules generally requiring public companies, including us, to include in their annual reports on Form 10-K a report of management that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, the independent registered public accounting firm auditing our financial statements must report on the effectiveness of our internal control over financial reporting. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and records of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
We have had in the past, currently have, and may in the future have deficiencies in the design and operation of our internal controls. If any of the deficienciesdeficiency in our internal control, either by itself or in combination with other deficiencies, becomes a “material weakness”, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis, we may be unable to conclude that we have effective internal control over financial reporting. In such event, investors could lose confidence in the reliability of our financial statements, which may significantly harm our business and cause our stock price to decline. In addition, the failure to maintain effective internal controls could also result in unauthorized transactions.
Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.
We have a significant amount of indebtedness. As of January 31, 2015, we have total long-term indebtedness of approximately $132.1 million. As of March 31, 2015, we have total long-term indebtedness of approximately $191.6, which includes the 8.0% Convertible Notes issued on March 2, 2015. Our substantial indebtedness could have important consequences. For example, it could:
|
|
|
|
|
|
|
|
|
|
In addition, the agreements governing our indebtedness and future indebtedness we incur may contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debt. Our growth plans and our ability to make payments of principal or interest on, or to refinance our indebtedness will depend on our future operational performance and our ability to enter into additional debt or equity financings. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing, which we may be unable to do on favorable terms, if at all.
Despite current indebtedness levels, we and our subsidiaries may still incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
Although the agreements governing our indebtedness contain limitations on our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions. If we or our subsidiaries incur additional indebtedness, the related risks that we now face would intensify.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service our substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness depends on our future performance which is subject to economic financial competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to serve our debt because of factors beyond our control. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial conditions at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms which could result in a default on our debt obligations.
We may not have sufficient borrowing capacity under asset-based facility to meet our liquidity requirements, and a reduction in our borrowing base could result in a portion of our borrowings becoming immediately due.
We rely in significant part on our ability to borrow under our asset-based facility to satisfy our liquidity needs. If we are unable to borrow under our asset-based facility or otherwise obtain capital as needed to operate our business, our financial performance and position could materially suffer.
Our ability to borrow under our asset-based facility depends on, among other things, the amount of the borrowing base as defined in the asset-based facility and our available capacity under the asset-based facility. Continued operating losses or negative cash flows from our operations will typically increase the amounts we borrow under our asset-based facility and reduce the available capacity under the asset-based facility. Our borrowing base is primarily comprised of a percentage of the net book value of our construction and mining equipment (less a reserve for certain specialized equipment related to certain bonded contracts) and the value of certain customer and contract receivables. Our borrowing base is reduced by any reserves that the co-collateral agents under our asset-based facility determine to be necessary in good faith and their reasonable business judgment. As of January 31, 2015, our borrowing base under the asset-based facility was approximately $108.3 million, with $31.3 million of letters of credit and $21.9 million of borrowings outstanding, resulting in “Excess Availability” of $55.1 million. The amount of our borrowing base could be materially and adversely affected by decreases in the value of our eligible equipment and/or receivables, amounts of our equipment and/or receivables being deemed ineligible under the terms of our asset-based facility or the co-collateral agents imposing additional reserve requirements. In connection with our 8.0% Convertible Notes offering in March 2015, our owned real estate was excluded from our borrowing base, which reduced our borrowing base by approximately $4.2 million.
In addition, if our borrowing base is reduced below the amount of letters of credit and borrowings outstanding under our senior credit agreement, then the excess indebtedness would, absent a waiver or amendment, become immediately due and payable and any outstanding letters of credit could require replacement or cash collateralization. We may not have the resources to make any required repayment or cash collateralization, and such repayment obligation or cash collateralization could have a material adverse impact on our liquidity and financial condition.
Our indebtedness agreements contain and the terms of any future indebtedness may contain significant operating and financial restrictions. These restrictions may limit our and certain of our subsidiaries’ operating flexibility and, in turn, hinder our ability to make payments on our obligations, impair our ability to make capital expenditures and/or increase the cost of obtaining additional financing.
Our asset-based facility includes customary conditions to funding, representations and warranties, covenants and events of default. The terms of the indebtedness could have important consequences to shareholders, including the following:
|
|
|
|
|
|
|
|
|
|
For example, our asset-based facility requires us to maintain a cumulative minimum cash flow as defined in that agreement of not less than negative $45.0 million and during any twelve consecutive month period, a minimum cash flow of not less than negative $25.0 million, until the last to occur of the following:
|
|
|
|
We currently anticipate being subject to the cumulative minimum cash flow covenant for at least the next twelve months. In addition, under our asset-based facility, if Excess Availability is less than the greater of $25.0 million or 17.5% of total availability, in each case for more than one business day, then a “Covenant Compliance Period��� will exist until we have Excess Availability for a period of 30 consecutive days equal to or greater than the greater of (a) 17.5 % of the total availability and (b) $25.0 million. During each Covenant Compliance Period, we must maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 and a first lien leverage ratio of not greater than 5.0 to 1.0 for the four fiscal quarter period ended immediately prior to commencement of a Covenant Compliance Period and for every four fiscal quarter period ending during a Covenant Compliance Period. If we had been in a Covenant Compliance Period during FY2015, we would not have been in compliance with either the minimum fixed charge coverage ratio or the first lien leverage ratio.
Furthermore, during a covenant Compliance Period or if an Event of Default has occurred and is continuing all of our funds received on a daily basis will be applied to reduce amounts owing under the asset-based credit facility. Although we do not anticipate being in a Covenant Compliance Period during the next twelve months, a Covenant Compliance Period could occur if the borrowing base is decreased for any of the reasons discussed above or if we are required to borrow more funds than is currently anticipated at a time when we meet the minimum fixed charge coverage ratio and the first lien leverage ratio.
We cannot assure that waivers will be granted or amendments made to any of the agreements governing our indebtedness if for any reason we are unable to comply with the obligations thereunder or that we will be able to refinance our debt on acceptable terms, or at all, should we seek to do so. See Note 7 to the consolidated financial statements for a more detailed description of our indebtedness.
If we do not attract and retain qualified managers and executives, our business could be materially and adversely affected.
We are very dependent on the skills and motivation of our employees, managers and executives to define and implement our corporate strategies and operational plans. We maintain and rely on a small executive team to manage our business. During FY2015 the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer left Layne. Michael Caliel, our new Chief Executive Officer, began on January 2, 2015. The Chief Financial Officer position has been filled on an interim basis. At this time, the duties of the Chief Accounting Officer are being performed by the Chief Financial Officer. We may not be successful in retaining or attracting a qualified replacement.replacements should any personnel leave. The loss of members of our managementexecutive team and inability to retain and attract suitable replacements could materially and adversely affect our business.
Because we are a multinational company conducting a complex business in manyseveral markets worldwide,in North and South America, we are subject to legal and operational risks related to staffing and management, as well as a broad array of local legal and regulatory requirements.
Operating outside of the U.S. creates difficulties associated with staffing and managing our international operations, as well as complying with local legal and regulatory requirements. The laws and regulations in the markets in which we operate are subject to rapid change. Although we have local staff in countries in which we deem it appropriate, we cannot ensure that we will be operating in full compliance with all applicable laws or regulations to which we may be subject, including customs and clearing, tax, immigration, employment, worker health and safety and environmental. We also cannot ensure that these laws will not be modified in ways that may adversely affect our business.
A portion of our earnings is generated from our foreign operations, and those of our affiliates. Political and economic risks in those countries could reduce or eliminate the earnings and cash flow due to dividends we derive from those operations.
Our earnings are significantly impacted by the results of our operations in foreign countries. Our foreign operations are subject to certain risks beyond our control, including the following:
| political, social and economic instability; war and civil disturbances;
the taking of property through nationalization or expropriation without fair compensation;
changes in government policies and regulations;
tariffs, taxes and other trade barriers;
barriers to timely movement or transfer of equipment between countries; and
In particular, changes in laws or regulations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could materially adversely affect our business, growth, financial condition or results of operations. For example, while there are currently no limitations on the repatriation of profits from the countries in which we have subsidiaries, several countries do impose withholding taxes on dividends or fund transfers. Foreign funds transfer restrictions, taxes or limitations may be imposed or increased in the future with regard to repatriation of earnings and investments from countries in which we operate. If foreign funds transfer restrictions, taxes or limitations are imposed, our ability to receive dividends or other payments from affected subsidiaries could be reduced, resulting in an adverse material effect. In addition, corporate, contract, property, insolvency, competition, securities and other laws and regulations in many of the developing parts of the world in which we operate have been, and continue to be, substantially revised. Therefore, the interpretation and procedural safeguards of the new legal and regulatory systems are in the process of being developed and defined, and existing laws and regulations may be applied inconsistently. Also, in some circumstances, it may not be possible to obtain the legal remedies provided for under these laws and regulations in a reasonably timely manner, if at all. We perform work at mining operations in countries which have experienced political and economic instability in the past, or may experience similar instability in the future. The mining industry is subject to regulation by governments around the world, including the regions in which we have operations, relating to matters such as environmental protection, controls and restrictions on production, and, potentially, nationalization, expropriation or cancellation of contract rights, as well as restrictions on conducting business in such countries. In addition, in our foreign operations we face operating difficulties, including political instability, workforce instability, harsh environmental conditions and remote locations. We do not maintain political risk insurance. Adverse events beyond our control in the areas of our foreign operations could reduce the earnings derived from our foreign operations to the extent that contractual provisions and bilateral agreements between countries may not be sufficient to guard our interests. Our operations in foreign countries expose us to devaluations and fluctuations in currency exchange rates. We operate a
We conduct business in While we obtain advice from legal and tax advisors as necessary to help assure compliance with tax and regulatory matters, most tax jurisdictions that we operate in have complex and subjective rules regarding the valuation of intercompany services, cross-border payments between affiliated companies and the related effects on income tax, value-added tax (“VAT”), transfer tax and share registration tax. Our foreign subsidiaries frequently undergo VAT reviews, and from time to time undergo comprehensive tax reviews and may be required to make additional tax payments should the review result in different interpretations, allocations or valuations of our products or services. Certain countries may, from time to time, make changes to their existing tax structure which might affect our operations. These countries may, with little or no notice, implement additional taxes in the form of severance taxes, windfall profits taxes, production taxes and tariffs, which could negatively impact our results in our segments that perform services in those countries. We earn a Turmoil in the credit markets and poor economic conditions could negatively impact the credit worthiness of our financial counterparties. Although we evaluate the credit capacity of our financial counterparties, changes in global economic conditions could negatively impact their ability to access credit. The risks of such reduction in credit capacity include:
ability of institutions with whom we have lines of credit to allow access to those funds; and
viability of institutions holding our cash deposits or, in the case of U.S. banks, cash deposits in excess of FDIC insurance limits. If these institutions fail to fulfill their commitments to us, our access to operating cash could be restricted. Fluctuations in the prices of raw materials could increase our operating costs. We purchase a significant amount of steel and concrete for use in connection with all of our businesses. We also purchase a significant volume of fuel to operate our trucks and equipment. The manufacture of materials used in our sewer rehabilitation business is dependent upon the availability of resin, a petroleum-based product. At present, we do not engage in any type of hedging activities to mitigate the risks of fluctuating market prices for oil, steel, concrete or fuel and increases in the price of these materials may increase our operating costs.
Professional liability, product liability, warranty and other claims against us could reduce our revenue. Any accidents or system failures in excess of insurance limits at locations that we engineer or construct or where our products are installed or where we perform services could result in significant professional liability, product liability, warranty and other claims against us. Further, the construction projects we perform expose us to additional risks, including cost overruns, equipment failures, personal injuries, property damage, shortages of materials and labor, work stoppages, labor disputes, weather problems and unforeseen engineering, architectural, environmental and geological problems. In addition, once our construction is complete, we may face claims with respect to the work performed. If we incur these claims, we could incur substantial losses of If our joint venture partners default on their performance obligations, we could be required to complete their work under our joint venture arrangements, which could reduce our profit or result in losses. We sometimes enter into contractual joint ventures in order to develop joint bids on contracts. The success of these joint ventures depends largely on the satisfactory performance of our joint venture partners of their obligations under the joint venture. Under these joint venture arrangements, we may be required to complete our joint venture partner’s portion of the contract if the partner is unable to complete its portion and a bond is not available. In such case, the additional obligations could result in reduced profit or, in some cases, significant losses for us with respect to the joint venture. Claims for indemnification related to the sale of business units and assets may be substantial and have a negative impact on our financial condition. From time to time, we dispose of business units or assets. As part of a sale, we may agree to indemnify the purchaser for certain preclosing liabilities associated with the business unit or assets that are sold and for any breach of the representations and warranties contained in the asset purchase agreement for the transaction. There can be no guarantee that material claims will not arise during the relevant indemnification periods and that we will not have to provide the requisite indemnification. In addition, legal challenges to any potential claim for indemnification could result in increased legal expenses. Also, as is typical in divestiture transactions, some third parties may be unwilling to release us from guarantees, performance bonds or other credit support provided prior to the sale of the business unit or assets. As a result, after a divestiture, we may remain secondarily liable for some of the obligations guaranteed, bonded or supported to the extent that the buyer of the business unit or assets fails to perform these obligations. If we are unable to satisfy all the conditions precedent to closing the sale of our Heavy Civil business segment, or to achieve the results expected from the sale, our financial condition could be materially affected. As discussed in Note 21 to the Consolidated Financial Statements, on February 8, 2017, we entered into an Asset Purchase Agreement to sell substantially all of the assets of our Heavy Civil business segment. The transaction is subject to certain terms and closing conditions. We may not have the ability to obtain all of the consents and approvals and satisfy all of the other closing conditions to the sale. Until the transaction has closed, there can be no assurance that the sale of our Heavy Civil business segment will provide us additional liquidity to fund general working capital requirements or pursue growth opportunities in our core businesses. Our business is subject to numerous operating hazards, logistical limitations and force majeure events that could significantly reduce our liquidity, suspend our operations and reduce our revenue and future business. Our drilling and other construction activities involve operating hazards that can result in personal injury or loss of life, damage or destruction of property and equipment, damage to the surrounding areas, release of hazardous substances or wastes and other harm to the environment. To the extent that the insurance protection we maintain is insufficient or ineffective against claims resulting from the operating hazards to which our business is subject, our liquidity could be significantly reduced. In addition, our operations are subject to delays in obtaining equipment and supplies and the availability of transportation for the purpose of mobilizing rigs and other equipment, particularly where rigs or mines are located in remote areas with limited infrastructure support. Our business operations are also subject to force majeure events such as adverse weather conditions, natural disasters and mine accidents or closings. If our drill site or construction operations were interrupted or suspended as a result of any such events, we could incur substantial losses of revenue and future business. If we are unable to retain skilled workers, or if a work stoppage occurs as a result of disputes relating to collective bargaining agreements, our ability to operate our business could be limited and our revenue could be reduced. Our ability to remain productive, profitable and competitive depends substantially on our ability to retain and attract skilled workers with expert geological and other engineering knowledge and capabilities. The demand for these workers is high and the supply is limited. An inability to attract and retain trained drillers and other skilled employees could limit our ability to operate our business and reduce our revenue. As of January 31, If we are not able to demonstrate our technical competence, competitive pricing and reliable performance to potential customers we will lose business to competitors, which would reduce our profit. We face significant competition and a large part of our business is dependent upon obtaining work through a competitive bidding process. In Water Resources, Inliner and Heavy Civil, Our failure to comply with the regulations of the U.S. Occupational Safety and Health Administration, the U.S. Mine Safety and Health Administration, the U.S. Department of Transportation and other state and local agencies that oversee transportation and safety compliance could reduce our revenue, profitability and liquidity. OSHA, MSHA and other comparable state and foreign laws establish certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the applicable regulatory authorities and various recordkeeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards and safety in excavation and demolition work may apply to our operations. We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of business in complying with OSHA, MSHA and other state, local and foreign laws and regulations, and could incur penalties and fines in the future, including in extreme cases, criminal sanctions. While we have invested, and will continue to invest, substantial resources in worker health and safety programs, the industries in which we operate involve a high degree of operational risk and there can be no assurance that we will avoid significant liability exposure. Although we have taken what are believed to be appropriate precautions, we have suffered employee injuries and fatalities in the past and may suffer additional injuries or fatalities in the future. Serious accidents of this nature may subject us to substantial penalties, civil litigation or criminal prosecution. Personal injury claims for damages, including for bodily injury or loss of life, could result in substantial costs and liabilities, which could materially and adversely affect our financial condition, results of operations or cash flows. In addition, if our safety record were to substantially deteriorate, or if we suffered substantial penalties or criminal prosecution for violation of health and safety regulations, customers could cancel existing contracts and not award future business to us, which could materially adversely affect our liquidity, cash flows and results of operations. We have, from time to time, received notice from the The cost of complying with complex governmental regulations applicable to our business, sanctions resulting from non-compliance or reduced demand resulting from increased regulations could increase our operating costs and reduce our profit. Our drilling and other construction services are subject to various licensing, permitting, approval and reporting requirements imposed by federal, state, local and foreign laws. Our operations are subject to inspection and regulation by various governmental agencies, including the DOT, OSHA and MSHA of the Department of Labor in the U.S., as well as their counterparts in foreign countries. A major risk inherent in drilling and other construction is the need to obtain permits from local authorities. Delays in obtaining permits, the failure to obtain a permit for a project or a permit with unreasonable conditions or costs could limit our ability to effectively provide our services. In addition, these regulations also affect our mining customers and may influence their determination to conduct mineral exploration and development. Future changes in these laws and regulations, domestically or in foreign countries, could cause our customers to incur additional expenses or result in significant restrictions to their operations and possible expansion plans, which could reduce our profit. Our water treatment business is impacted by legislation and municipal requirements that set forth discharge parameters, constrain water source availability and set quality and treatment standards. The success of our groundwater treatment services depends on our ability to comply with the stringent standards set forth by the regulations governing the industry and our ability to provide adequate design and construction solutions cost-effectively. In most states, one of our employees is required to be a licensed contractor in order for us to bid for, or perform, certain types of construction related projects. From time to time, we are temporarily unable to bid for, or perform work with respect to, those types of construction projects in a particular state, because our licensed employee resigns, is terminated, or dies. Depending upon the length of time to qualify another employee as a licensed contractor in the state and the number and size of the affected projects in that state, the loss of the services of an employee that is a licensed contractor could have a material adverse effect on our results of operations. The SEC rules require disclosure of the use of tin, tantalum, tungsten and gold, known as conflict minerals, in products manufactured by public companies. The SEC rules require that public companies conduct due diligence to determine whether such minerals originated from the Our activities are subject to environmental regulation that could increase our operating costs or suspend our ability to operate our business. We are required to comply with foreign, federal, state and local laws and regulations regarding health and safety and the protection of the environment, including those governing the generation, storage, use, handling, transportation, discharge, disposal and clean-up of hazardous substances in the ordinary course of our operations. We are also required to obtain and comply with various permits under current environmental laws and regulations, and new laws and regulations, or changed interpretations of existing requirements, which may require us to obtain and comply with additional permits and/or subject us to enforcement or penalty proceedings. We may be unable to obtain or comply with, and could be subject to revocation of, permits necessary to conduct our business. The costs of complying with environmental laws, regulations and permits may be substantial and any failure to comply could result in fines, penalties or other sanctions. Our operations are sometimes conducted in or near ecologically sensitive areas, such as wetlands, which are subject to special protective measures and which may expose us to additional operating costs and liabilities related to restricted operations, for unpermitted or accidental discharges of oil, natural gas, drilling fluids, contaminated water or other substances or for noncompliance with other aspects of applicable laws and regulations. Our operations are subject to various environmental laws and regulations, including those dealing with the handling and disposal of waste products, PCBs, fuel storage and air quality. Certain of our current and historical operations have used hazardous materials and, to the extent that such materials are not properly stored, contained, recycled or disposed of, they could become hazardous waste. Many of our operations involve the production or disposal of significant quantities of water. We may be subject to regulation that restricts our ability to discharge water in the course of these operations. The costs to dispose of this water may increase if any of the following occur: we cannot obtain future permits from applicable regulatory agencies; water of lesser quality or requiring additional treatment is produced; or new laws and regulations require water to be disposed in a different manner. The cost to dispose of, or treat that water or otherwise comply with these regulations concerning water disposal may reduce our profitability. Various foreign, federal, state and local environmental laws and regulations may impose liability on us with respect to conditions at our current or former facilities, sites at which we conduct or have conducted operations or activities or any third-party waste disposal site to which we send hazardous wastes. We may be subject to claims under various environmental laws and regulations, federal and state statutes and/or common law doctrines for toxic torts and other damages, as well as for natural resource damages and the investigation and clean-up of soil, surface water, groundwater and other media under laws such as CERCLA. Such claims may arise, for example, out of current or former conditions at project sites, current or former properties owned or leased by us and contaminated sites that have always been owned or operated by third parties. Liability may be imposed without regard to fault and may be strict, joint and several, such that we may be held responsible for more than our share of any contamination or other damages, or even for the entire share, and may be unable to obtain reimbursement from the parties causing the contamination. The costs of investigation or remediation at these sites may be substantial. Environmental laws are complex, change frequently and have tended to become more stringent over time. Compliance with, and liability under, current and future environmental laws, as well as more vigorous enforcement policies or discovery of previously unknown conditions requiring remediation, could increase our operating costs and reduce our revenue. See Part I, Item 1—Business—Regulation in this Form 10-K for additional information.
If our health insurance, liability insurance or workers’ compensation insurance is insufficient to cover losses resulting from claims or hazards, if we are unable to cover our deductible obligations or if we are unable to obtain insurance at reasonable rates, our operating costs could increase and our profit could decline. Although we maintain insurance protection that we consider economically prudent for major losses, we have high deductible amounts for each claim under our health insurance, workers’ compensation insurance and liability insurance. Our current individual claim deductible amount is $200,000 for health insurance, The cost of defending litigation or successful claims against us could reduce our profit or significantly limit our liquidity and impair our operations. We have been and from time to time may be named as a defendant in legal actions claiming damages in connection with drilling or other construction projects and other matters. These are typically actions that arise in the normal course of business, including employment-related claims and contractual disputes or claims for personal injury or property damage that occur in connection with drilling or construction site services. To the extent that the cost of defending litigation or successful claims against us is not covered by insurance, our profit could decline, our liquidity could be significantly reduced and our operations could be impaired. Impairment in the carrying value of long-lived assets, equity method investments, and goodwill could negatively affect our operating results. Under GAAP, long-lived assets are required to be reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment. If business conditions or other factors cause profitability and cash flows to decline, we may be required to record non-cash impairment charges. Goodwill must be evaluated for impairment annually or more frequently if events indicate it is warranted. If the carrying value of our reporting units exceeds their current fair value as determined based on the discounted future cash flows of the related business and other market-related valuation models, the goodwill is considered impaired and is reduced to fair value by a non-cash charge to earnings. Events and conditions that could result in impairment in the value of our long-lived assets, equity method investments and goodwill include changes in the industries in which we operate, particularly the impact of a downturn in the global economy, as well as competition and advances in technology, adverse changes in the regulatory environment, changes in corporate strategy and business plans or other factors leading to reduction in expected long-term sales or profitability. Our ability to use U.S. federal net operating loss carryforwards, foreign tax credit carryforwards, capital loss carryforwards and net unrealized built-in losses could be severely limited in the event of certain share transfers of our common stock. We currently have a significant U.S. deferred tax asset, before considering valuation allowances, which results from federal net operating loss carryforwards, foreign tax credit carryforwards, capital loss carryforwards and net unrealized built-in losses. While we have recorded a full valuation allowance against the net deferred tax asset, the carryforwards and the future use of these attributes could provide significant future tax savings to us if we are able to use such losses and credits. However, our ability to use these tax benefits may be restricted due to a future ownership change within the meaning of Section 382 of the Internal Revenue Code. An ownership change could occur that would severely limit our ability to use the tax benefits associated with the net operating loss carryforwards, foreign tax credit carryforwards, capital loss carryforwards and net unrealized built-in losses, which may result in a significantly higher tax cost as compared to the situation where these tax benefits are preserved. If we repatriate earnings from foreign subsidiaries which are currently considered indefinitely reinvested, our income tax expense could be significantly increased. We have not recognized a deferred tax liability on a portion of the undistributed earnings of foreign subsidiaries and certain foreign affiliates as allowed under the indefinite reversal criterion of ASC 740. We consider these amounts to be indefinitely invested based on specific plans for reinvestment of these earnings. However, if liquidity deterioration were to require Layne to change its plans and repatriate all or a portion of these undistributed earnings, a significant amount of our net operating losses could be utilized, or income tax expense and deferred income tax liabilities could be significantly increased. If we are unable to protect our intellectual property adequately, the value of our patents and trademarks and our ability to operate our business could be harmed. We rely on a combination of patents, trademarks, trade secrets and similar intellectual property rights to protect the proprietary technology and other intellectual property that are instrumental to our operations. We may not be able to protect our intellectual property adequately, and our use of this intellectual property could result in liability for patent or trademark infringement or unfair competition. Further, through acquisitions of third parties, we may acquire intellectual property that is subject to the same risks as the intellectual property we currently own. We may be required to institute litigation to enforce our patents, trademarks or other intellectual property rights, or to protect our trade secrets from time to time. Such litigation could result in substantial costs and diversion of resources and could reduce our profit or disrupt our business, regardless of whether we are able to successfully enforce our rights. We may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that Layne or any of its subsidiaries has violated the Foreign Corrupt Practices Act could have a material adverse effect on our business. We operate in On October 27, 2014, we entered into a settlement with the SEC to resolve allegations concerning the legality of certain payments by us to agents and other third parties interacting with government officials in certain countries in The FCPA and related statutes and regulations provide for potential fines, civil and criminal penalties, and equitable remedies, including disgorgement of profits or monetary benefits from such payments, related interest and injunctive relief. Further, detecting, investigating and resolving these types of matters is expensive and could consume significant time and attention of our senior management. We could also face fines, sanctions and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in or curtailment of business operations in those jurisdictions and the seizure of rigs or other assets. Our customers in those jurisdictions could seek to impose penalties or take other actions adverse to our interest. We could also face other third-party claims by our directors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders or other interest holders or constituents. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets. Future violations of the FCPA may also give rise to an event of default under the agreements governing our debt instruments if such violation were to have a material adverse effect on our business, assets, property, financial condition or prospects or if the amount of any settlement resulted in our failing to satisfy any financial covenants. Future climate change could adversely affect us. The prospective impact of potential climate change on our operations and those of our customers remains uncertain. Some scientists have hypothesized that the impacts of climate change could include changes in rainfall patterns, water shortages, snowpack levels, changing sea levels, changing storm patterns and intensities, and changing temperature levels and that these changes could be severe. These impacts could vary by geographic location. At the present time, we cannot predict the prospective impact of potential climate change on our results of operations, liquidity or capital resources, or whether any such effects could be material to us. Deliberate, malicious acts, including terrorism and sabotage, could damage our facilities, disrupt our operations or injure employees, contractors, customers or the public and result in liability to us. Intentional acts of destruction could hinder our sales or production and disrupt our supply chain. Our facilities could be damaged or destroyed, reducing our operational production capacity and requiring us to repair or replace our facilities at substantial cost. Employees, contractors and the public could suffer substantial physical injury for which we could be liable. Governmental authorities may impose security or other requirements that could make our operations more difficult or costly. The consequences of any such actions could adversely affect our operating results and financial condition. We are dependent on our information systems. Layne is dependent on a variety of information technology systems for the efficient functioning of our business as well as the security of our information. Problems with the implementation of new or upgraded systems as our business grows or with maintenance or discontinuance of existing systems could disrupt or reduce the efficiency of our operations. Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer. In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers and suppliers, and personally identifiable information of our employees, in our facilities and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence, which could adversely affect our business. We may pay our suppliers and subcontractors before receiving payment from our customers for the related services. We use suppliers to obtain the necessary materials and subcontractors to perform portions of our services and to manage work flow. In some cases, we pay our suppliers and subcontractors before our customers pay us for the related services. We may pay our suppliers and subcontractors for materials purchased and work performed for customers who fail to pay, or delay paying, us for the related work, which could harm our liquidity and results of operations. We extend trade credit to customers for purchases of our services, and in the past we have had, and in the future we may have, difficulty collecting receivables from customers that experience financial difficulties. We grant trade credit, generally without collateral, to our customers, which include mining companies, general contractors, commercial and industrial facility owners, state and local governments and developers. Consequently, we are subject to potential credit risk related to changes in business and economic factors in the geographic areas in which our customers are located. If any of our major customers experience financial difficulties, we could experience reduced cash flows and losses in excess of current allowances provided. In addition, material changes in any of our customers’ revenues or cash flows could affect our ability to collect amounts due from them. Risks Related To Our Indebtedness Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations. We have a significant amount of indebtedness. As of January 31, 2017, we had total long-term indebtedness of approximately $162.3 million. Our substantial indebtedness could have important consequences. For example, it could: make it more difficult for us to satisfy our obligations; increase our vulnerability to general adverse economic and industry conditions; require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which reduces the availability of our cash flow to fund working capital, capital expenditures, development efforts and other general corporate purposes; place us at a competitive disadvantage compared to our competitors that have less debt; and limit our ability to borrow additional funds if needed. In addition, the agreements governing our indebtedness and any future indebtedness we incur may contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debt. Our growth plans and our ability to make payments of principal or interest on, or to refinance our indebtedness will depend on our future operational performance and our ability to enter into additional debt or equity financings. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing, which we may be unable to do on favorable terms, if at all. If we are unable to refinance or restructure our Convertible Notes before May 15, 2018, the maturity date of our asset based credit facility will, and the maturity date of our 8.0% Convertible Notes may, accelerate and we may not have sufficient capital resources to repay all of our indebtedness at that time. Our debt facilities currently consist of: $69.5 million of 4.25% Convertible Notes that are due on November 15, 2018, a $100 million senior secured asset-based facility that is due on April 14, 2019 (of which $27.7 million of letters of credits have been issued under the facility) and $99.9 million of 8.0% Convertible Notes that are due on May 1, 2019. However, the maturity date for the asset based credit facility will accelerate to May 15, 2018, if each of the following has not yet occurred on or before such date:
With respect to the 4.25% Convertible Notes, either
In addition, if the 4.25% Convertible Notes have not been redeemed, repurchased, otherwise retired, discharged in accordance with their terms or converted into our common stock, or effectively discharged, in each case on or prior to August 15, 2018 or the scheduled maturity date of the 4.25% Convertible Notes has not been extended to a date that is after October 15, 2019, then the 8.0% Convertible Notes will mature on August 15, 2018. The 4.25% Convertible Notes will be effectively discharged if, among other things, we have irrevocably deposited with the trustee of the 4.25% Convertible Notes cash in an amount sufficient to pay any remaining interest and principal payments due on any then remaining unconverted 4.25% Convertible Notes, with irrevocable instructions to the trustee to make such payments to the holders of the 4.25% Convertible Notes as they become due. If we are unable to refinance or restructure our Convertible Notes before May 15, 2018, our asset based credit facility will become due on that date. If we are unable to refinance or restructure our 4.25% Convertible Notes before August 15, 2018, our 8.0% Convertible Notes will become due on that date. We may not have sufficient capital resources to repay all of our indebtedness at that time, which could result in a default under all of our indebtedness. Despite current indebtedness levels, we and our subsidiaries may still incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage. Although the agreements governing our indebtedness contain limitations on our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions. If we or our subsidiaries incur additional indebtedness, the related risks that we now face would intensify. Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service our substantial debt. Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness depends on our future performance which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt because of factors beyond our control. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial conditions at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms which could result in a default on our debt obligations. We may not have sufficient borrowing capacity under our asset-based facility to meet our liquidity requirements, and a reduction in our borrowing base could result in a portion of our borrowings becoming immediately due. We may need to borrow on our asset-based facility in the future for our liquidity needs. If we are unable to borrow under our asset-based facility or otherwise obtain capital as needed to operate our business, our financial performance and position could materially suffer. Our ability to borrow under our asset-based facility depends on, among other things, the amount of the borrowing base as defined in the asset-based facility and our available capacity under the asset-based facility. Continued operating losses or negative cash flows from our operations may cause Layne to borrow under our asset-based facility and reduce the available capacity under the asset-based facility. Our borrowing base is primarily comprised of a percentage of the net orderly liquidation value of eligible equipment and the value of certain customer and contract receivables. Our borrowing base is reduced by any reserves that the co-collateral agents under our asset-based facility determine to be necessary in good faith and their reasonable business judgment. As of January 31, 2017, our borrowing base under the asset-based facility was $100.0 million, with $27.7 million of letters of credit and no borrowings outstanding, resulting in Excess Availability of $72.3 million. The amount of our borrowing base could be materially and adversely affected by decreases in the value of our eligible equipment and/or receivables, a portion of our equipment and/or receivables being deemed ineligible under the terms of our asset-based facility or the co-collateral agents imposing additional reserve requirements. In addition, if our borrowing base is reduced below the amount of letters of credit and borrowings outstanding under our asset-based facility, then the excess indebtedness would, absent a waiver or amendment, become immediately due and payable and any outstanding letters of credit could require replacement or cash collateralization. We may not have the resources to make any required repayment or cash collateralization, and such repayment obligation or cash collateralization could have a material adverse impact on our liquidity and financial condition. Our indebtedness agreements contain and the terms of any future indebtedness may contain significant operating and financial restrictions. These restrictions may limit our and certain of our subsidiaries’ operating flexibility and, in turn, hinder our ability to make payments on our obligations, impair our ability to make capital expenditures and/or increase the cost of obtaining additional financing. Our asset-based facility includes customary conditions to funding, representations and warranties, covenants and events of default. The terms of the indebtedness could have important consequences to shareholders, including the following: the ability to obtain necessary financing in the future for working capital, acquisitions, capital expenditures, debt service requirements or other purposes may be limited or financing may be unavailable; a portion of cash flow must be dedicated to the payment of interest on the indebtedness and other obligations and will not be available for use in our business; the asset-based credit facility contains various operating and financial restrictions which could limit our ability to incur additional indebtedness and liens, fund our foreign operations, make investments and acquisitions, transfer or sell assets, transact with affiliates and require us to cash collateralize some or all of the outstanding letters of credit; an event of default under the asset-based credit facility, including a subjective event of default if we have experienced a material adverse change, could result in an acceleration of the obligations under the asset-based credit facility, in the foreclosure on assets subject to liens in favor of the asset-based credit facility lenders and the inability to borrow additional amounts under the asset-based credit facility; and acceleration of the indebtedness or payment default under the asset-based credit facility would also be an event of default under the indenture governing our convertible notes. In addition, under our asset-based facility, if Excess Availability is less than the greater of $17.5 million or 17.5% of total availability, in each case for more than one business day, then a “Covenant Compliance Period” will exist until we have Excess Availability for a period of 30 consecutive days equal to or greater than the greater of (a) 17.5 % of the total availability and (b) $17.5 million. During each Covenant Compliance Period, we must maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 and a first lien leverage ratio of not greater than 5.0 to 1.0 for the four fiscal quarter period ended immediately prior to commencement of a Covenant Compliance Period and for every four fiscal quarter period ending during a Covenant Compliance Period. If we had been in a Covenant Compliance Period during the fiscal years ended January 31, 2017 and 2016, we would not have been in compliance with the minimum fixed charge coverage ratio. Furthermore, during a covenant Compliance Period or if an Event of Default has occurred and is continuing all of our funds received on a daily basis will be applied to reduce amounts owing under the asset-based credit facility. Although we do not anticipate being in a Covenant Compliance Period during the next twelve months, a Covenant Compliance Period could occur if the borrowing base is decreased for any of the reasons discussed above or if we are required to borrow more funds than is currently anticipated at a time when we do not meet the minimum fixed charge coverage ratio and the first lien leverage ratio. We cannot assure that waivers will be granted or amendments made to any of the agreements governing our indebtedness if for any reason we are unable to comply with the obligations thereunder or that we will be able to refinance our debt on acceptable terms, or at all, should we seek to do so. See Note 8 to the Consolidated Financial Statements for a more detailed description of our indebtedness. The conditional conversion feature of In the event the conditional conversion feature of the 4.25% Convertible Notes is triggered, holders of the 4.25% Convertible Notes will be entitled to convert such notes at any time during specified periods at their option. If one or more holders elect to convert their 4.25% Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying solely cash in lieu of any fractional share), including if we have irrevocably elected full physical settlement upon conversion, we would be required to make cash payments to satisfy all or a portion of our conversion obligations based on the applicable conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their 4.25% Convertible Notes, if we have irrevocably elected net share settlement upon conversion we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 4.25% Convertible Notes as a current rather than long-term liability, which could result in a material reduction of our net working capital. We may in certain circumstances elect to settle conversions of our 4.25% Convertible Notes in cash, and the accounting method for convertible debt securities that may be settled in cash could have a material effect on our reported financial results.
If we Conversion of our 8.0% Convertible Notes could dilute the ownership interests of our shareholders. Our 8.0% Convertible Notes are convertible, at the option of the holders, into consideration consisting of shares of our common stock (and cash in lieu of fractional shares) until the close of business on the scheduled trading day immediately preceding the maturity date. To the extent we issue common stock upon conversion of our 8.0% Convertible Notes, that conversion would dilute the ownership interests of our shareholders. We may not have the ability to raise the funds necessary to repurchase our convertible notes upon a fundamental change, asset sale or casualty or condemnation event, and our debt instruments may prohibit some of these payments. As discussed in Note 8 to the Consolidated Financial Statements, if a “fundamental change” (as defined in the indentures governing our convertible notes) occurs, holders of our convertible notes may require us to repurchase all or a portion of such notes in cash. Any such cash payment could be significant, and we may not have enough available cash or be able to obtain financing so that we can make payments on our convertible notes when due. In addition, except in very limited circumstances involving a refinancing of the 8.0% Convertible Notes in a manner permitted by our asset-based facility, our asset-based facility prohibits us from making or offering to make certain voluntary repurchases of the convertible notes, except that we may repurchase the 8.0% Convertible Notes if certain “payment conditions” are satisfied. This provision may prohibit us from repurchasing the convertible notes at the holders’ election following a fundamental change or, with respect to the 8.0% Convertible Notes, certain asset sales and casualty and condemnation events. If we fail to repurchase our convertible notes when required, we will be in default under the indentures for the convertible notes. In addition, such a failure could also be a default under our asset-based facility, which may allow the lenders under that agreement to cause all outstanding amounts under the facility to become immediately due and payable. Certain provisions in the indentures governing our convertible notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us. Certain provisions in the indentures governing our convertible notes could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change (as defined in the indentures governing our convertible notes), holders of our convertible notes will have the right to require us to repurchase their convertible notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their convertible notes in connection with such takeover. In either case, and in other cases, our obligations under our convertible notes and the indentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us. Risks Related To Ownership of Our Common Stock Provisions in our organizational documents, Our certificate of incorporation, bylaws and the Delaware General Corporation Law contain provisions that could make it more difficult for a third party to acquire us without consent of our board of directors. In addition, under our certificate of incorporation, our board of directors may issue shares of preferred stock and determine the terms of those shares of stock without any further action by our stockholders. Our issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby effect a change in the composition of our board of directors. Our certificate of incorporation also provides that our stockholders may not take action by written consent. Our bylaws require advance notice of stockholder proposals and nominations, and permit only our board of directors, or authorized committee designated by our board of directors, to call a special stockholder meeting. These provisions may have the effect of preventing or hindering attempts by our stockholders to replace our current management. In addition, Delaware law prohibits us from engaging in a business combination with any holder of 15% or more of our capital stock until the holder has held the stock for three years unless, among other possibilities, our board of directors approves the transaction. Our board may use this provision to prevent changes in our management. Also, under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future. In addition, provisions of Delaware law may also discourage, delay or prevent a third party from acquiring or merging with us or obtaining control of Layne. If a “fundamental change” (as such terms are defined in the indentures governing our convertible notes) occurs, holders of the convertible notes will have the right, at their option, to require us to repurchase all or a portion of their convertible notes. A “fundamental change” generally occurs when there is a change in control of Layne (acquisition of 50% or more of our voting stock, liquidation or sale of Layne not for stock) or trading of our stock is terminated. In the event of a “make-whole fundamental change” (as is defined in the indentures for the convertible notes), we may also be required to increase the conversion rate applicable to the convertible notes surrendered for conversion in connection with such make-whole fundamental change. A “make-whole fundamental change” is generally a sale of Layne not for stock in another publicly traded company. In addition, the indentures for the convertible notes prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the convertible notes. The market price of our common stock could be Sales by us or our shareholders of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. In addition to outstanding shares eligible for future sale, as of January 31, We are restricted from paying dividends. We have not paid any cash dividends on our common stock since our initial public offering in 1992, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, our current credit arrangements restrict our ability to pay cash dividends. Our share price The stock markets, including the NASDAQ Global Select Market, on which we list our common stock, have experienced significant price and volume fluctuations. As a result, the market price of our common stock could be similarly volatile, and you may experience a decrease in the value of the shares of our common stock that you may hold, including a decrease unrelated to our operating performance or prospects. In addition, the trading of our common stock has historically been characterized by relatively low trading volume, and the volatility of our stock price could be exacerbated by such low trading volumes. The market price of our common stock could be subject to significant fluctuations in response to various factors or events, including among other things:
our operating performance and the performance of other similar companies;
actual or anticipated differences in our operating results;
changes in our revenue or earnings estimates or recommendations by securities analysts;
publication of research reports about us or our industry by securities analysts;
additions and departures of key personnel;
strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;
the passage of legislation or other regulatory developments that adversely affect us or our industry;
speculation in the press or investment community;
actions by institutional stockholders;
changes in accounting principles;
terrorist acts; and
general market conditions, including factors unrelated to our performance. These factors may lower the trading price of our common stock, regardless of our actual operating performance, and could prevent you from selling your common stock at or above the price that you paid for the common stock. In addition, the stock markets, from time to time, experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may lower the market price of our common stock. We have no unresolved comments from the Securities and Exchange Commission staff. Our
We are, from time to time, a party to legal or regulatory proceedings arising in the ordinary course of our business. The discussion in Note 15 to the Consolidated Financial Statements included elsewhere in this Form 10-K is incorporated herein by reference. Currently, there are no other legal or regulatory proceedings that management believes, either individually or in the aggregate, would have a material adverse effect upon our consolidated financial statements. In
The operations Layne performs on mine sites are subject to regulation by the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-K.
At
The following graph provides a comparison of our five-year, cumulative total shareholder return The following performance graph and related text are being furnished to and not filed with the SEC, and will not be deemed to be “soliciting material” or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate such information by reference into such filing.
The following selected historical financial information as of and for each of the five fiscal years ended January 31, The information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 and the consolidated financial statements and notes thereto under Item 8 included elsewhere in this Form 10-K.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with Cautionary Language Regarding Forward-Looking Statements This Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Such statements may include, but are not limited to, statements of plans and objectives, statements of future economic performance and statements of assumptions underlying such statements, and statements of management’s intentions, hopes, beliefs, expectations or predictions of the future. Forward-looking statements can often be identified by the use of forward-looking terminology, such as “should,” “intended,” “continue,” “believe,” “may,” “hope,” “anticipate,” “goal,” “forecast,” “plan,” “estimate” and similar words or phrases. Such statements are based on current expectations and are subject to certain risks, uncertainties and assumptions, including but not limited to: estimates and assumptions regarding our strategic direction and business strategy, the timely and effective execution of turnaround strategy for Water Resources, the extent and timing of a recovery in the mining industry, prevailing prices for various commodities, Management’s Overview
Within our Mineral Services business, we offer unique technologies for mineral exploration and
Key Fiscal Year
During the second quarter of fiscal year ended January 31, 2017, we continued our efforts by initiating a plan to reduce costs and improve our profitability in our Water Resources segment (“Water Resources Business Performance Initiative”). The Water Resources Business Performance Initiative involves cost rationalization, increased standardization of functions such as sales, pricing and estimation, disposal of underutilized assets, and process improvements to drive efficiencies. We recorded approximately $3.2 million in restructuring costs related to the Water Resources Business Performance Initiative for the fiscal year ended January 31, 2017. During the fiscal year ended January 31, 2017, we continued the implementation of our FY2016 Restructuring Plan, which involves the exit of our operations in Africa and Australia and other actions to support our strategic focus in simplifying the business and improving profitability (“FY2016 Restructuring Plan”). For the fiscal year ended January 31, 2017, we recognized approximately $14.1 million of restructuring expenses under the FY2016 Restructuring Plan, primarily related to the closure of our Australian and African entities resulting in the impairment of our assets held for sale. In calculating the impairment, the carrying amount of the
Subsequent Event As disclosed in Note 21 to the Consolidated Financial Statements, on February 8, 2017, we entered into an Asset Purchase Agreement (the
Non-GAAP Financial Measures
Consolidated The following table, which is derived from
Comparison of Fiscal Year Consolidated Results Revenues Cost of revenues Selling, general and administrative expenses Depreciation and amortization decreased $5.8 million, or 17.7%, to $26.9 million, for the fiscal year ended January 31, 2017, compared to $32.7 million for the fiscal year ended January 31, 2016. The decrease represents reductions in capital expenditures, and the disposal or write down of
Equity in earnings (losses) of affiliates improved to earnings of Restructuring costs of $17.3 million were recorded Interest expense decreased $1.1 million, or 6.3%, to $16.9 million for the fiscal year ended January 31, 2017, compared to $18.0 million for the fiscal year ended January 31, 2016. The decrease in interest expense was mainly due to a $1.0 million write-off of unamortized deferred financing fees as a result of the reduction in the borrowing base available under the asset-based facility during the third quarter of the fiscal year ended January 31, 2016. Income tax (expense) benefit from continuing operations The result of operations for the fiscal year ended January 31, 2016 included net income from discontinued operations of $8.1 million, primarily related to the gain on the sale of our Geoconstruction business. Segment Operating Results Water Resources
Revenues for Water Resources decreased $35.3 million, or 14.7%, to $204.6 million, for the fiscal year ended January 31, 2017, compared to $239.9 million for the fiscal year ended January 31, 2016. The decline in Adjusted EBITDA decreased $26.3 million to ($2.4) million, for Inliner
Revenues for Inliner increased $3.1 million, or 1.6%, to $196.8 million, for the fiscal year ended January 31, 2017, compared to $193.7 million for the fiscal year ended January 31, 2016. Revenues increased due in part to the increase in the number of crews, from 34 at the start of fiscal year ended January 31, 2016 to 38 crews at the end of fiscal year ended January 31, 2017. Increased activity and a favorable product mix of a higher volume of larger diameter pipe projects Adjusted EBITDA increased $4.1 million, or 14.6%, to $32.0 million, for the fiscal year ended January 31, 2017, compared to $27.9 million for the fiscal year ended January 31, 2016. The increase in Adjusted EBITDA represents improved results across most operating regions as compared to the prior year. The increase in Adjusted EBITDA as a percentage of Heavy Civil
Revenues for Heavy Civil decreased $27.7 million, or 16.8%, to $137.2 million, for the fiscal year ended January 31, 2017, compared to $164.9 million for the fiscal year ended January 31, 2016. The decline in revenues for Heavy Civil is primarily a result of a reduced volume of contracts due to our continuing strategic shift towards more selective opportunities. Adjusted EBITDA improved $0.8 million, or 20.0%, to ($3.2) million, for the fiscal year ended January 31, 2017, compared to ($4.0) million for the fiscal year ended January 31, 2016. The increase in Adjusted EBITDA, despite a reduction in revenues, was primarily due to improved job margins. Mineral Services
Revenues for Mineral Services decreased $22.6 million, or 26.2%, to $63.8 million, for the fiscal year ended January 31, 2017, compared to $86.4 million for the fiscal year ended January 31, 2016. Revenues declined primarily due to our exit from our operations in Africa and Australia during the fiscal year ended January 31, 2016, which contributed to approximately $12.4 million in Adjusted EBITDA increased $6.7 million to $8.6 million for the fiscal year ended January 31, 2017, compared to $1.9 million for the fiscal year ended January 31, 2016. The increase in Adjusted EBITDA was due to a $2.2 million value added tax recovery during the current year, $1.1 million increased dividends received from our Latin American affiliates, and increased margins in Brazil and Mexico. Unallocated Corporate Expenses Unallocated corporate expenses reflected in our Adjusted EBITDA were $23.8 million for the fiscal year ended January 31, 2017, compared to $29.3 million for the fiscal year ended January 31, 2016. The improvement was primarily due to reductions in legal and professional fees, and compensation expenses related to reduced headcount. Comparison of Fiscal Year 2016 to Fiscal Year 2015 Consolidated Results Revenues decreased $37.6 million, or 5.2%, to $683.0 million, for the fiscal year ended January 31, 2016, compared to $720.6 million for the fiscal year ended January 31, 2015. The decrease in revenues was primarily due to lower revenues at Mineral Services and Heavy Civil, partially offset by increases in revenues at Water Resources and Inliner. Cost of revenues (exclusive of depreciation, amortization and impairment charges) decreased $40.8 million, to $570.1 million (83.5% of revenues) for the fiscal year ended January 31, 2016, compared to $610.8 million (84.8% of revenues) for the fiscal year ended January 31, 2015. Cost of revenues as a percentage of revenues for the fiscal year ended January 31, 2016 decreased from the prior year, primarily due to improved margins in Heavy Civil and Water Resources partially offset by a $7.9 million (1.2% of revenues) write-down of inventory as part of our restructuring activities in Africa and Australia. Selling, general and administrative expenses decreased $8.9 million, or 7.6%, to $108.2 million for the fiscal year ended January 31, 2016, compared to $117.1 million for the fiscal year ended January 31, 2015. The decreases were primarily due to the overall effort to reduce overhead costs, including reductions in consulting expenses, compensation expenses and office rent due to the FY2015 Restructuring Plan, and relocation costs included in the fiscal year ended January 31, 2015 that were not repeated in the fiscal year ended January 31, 2016. Depreciation and amortization decreased $9.3 million, or 22.1%, to $32.7 million, for the fiscal year ended January 31, 2016, compared to $42.0 million for the fiscal year ended January 31, 2015. The decrease was primarily due to reductions in capital expenditures over the past several years, disposal of underutilized assets and impairment of certain fixed assets during the fiscal year ended January 31, 2016. An asset impairment charge of $4.6 million was recorded during the fiscal year ended January 31, 2016 for the Energy Services segment, which was previously reported as a separate segment prior to being combined with Water Resources beginning in the third quarter of the fiscal year ended January 31, 2016. The impairment charge was recorded to reflect reductions in the estimated fair value of certain long-lived assets. Restructuring costs of $10.0 million were recorded for the fiscal year ended January 31, 2016, compared to $2.7 million for the fiscal year ended January 31, 2015. For the fiscal year ended January 31, 2016, restructuring costs related to a $3.9 million asset write-down, combined with $6.1 million of severance and other costs, as part of the restructuring activities in Africa and Australia. Restructuring costs for the fiscal year ended January 31, 2015 primarily consisted of severance and other cost reduction efforts associated with the FY2015 Restructuring Plan. A gain on extinguishment of debt of $4.2 million was recognized during the fiscal year ended January 31, 2016 in connection with the partial redemption of the 4.25% Convertible Notes in exchange for 8.0% Convertible Notes, as discussed in Note 8 to the Consolidated Financial Statements. Interest expense increased $4.3 million, or 31.4%, to $18.0 million for the fiscal year ended January 31, 2016, compared to $13.7 million for
An income tax benefit from continuing operations of The result of operations for the
Segment Operating Water Resources
Revenues for Water Resources increased $12.3 million, or 5.4%, to $239.9 million, for the fiscal year ended January 31, 2016, compared to $227.6 million for the fiscal year ended January 31, 2015. The revenue growth in Water Resources was driven mainly by drilling projects in the western U.S. related to drought conditions. The revenue growth in the western region was partially offset by declines in water management services for the energy market as a result of the decline in oil and natural gas prices. Adjusted EBITDA increased $1.1 million, or 5.0%, to $23.9 million, for the fiscal year ended January 31, 2016, compared to $22.7 million for the fiscal year ended January 31, 2015. The increase in Adjusted EBITDA was primarily due to margin improvements from projects in the western region, partially offset by operating losses generated in our energy market. Inliner
Revenues for Inliner increased $18.7 million, or 10.7%, to $193.7 million, for the fiscal year ended January 31, 2016, compared to $175.0 million for the fiscal year ended January 31, 2015. Revenues increased primarily due to the increase in activity and work orders under our longer term multi-year contracts. Adjusted EBITDA remained flat at $27.9 million for the fiscal year ended January 31, 2016, compared to fiscal year ended January 31, 2015, as the revenue increase was offset by margin decrease due to higher subcontractor work. Heavy Civil
Revenues for Heavy Civil decreased $33.6 million, or 16.9%, to $164.9 million, for the fiscal year ended January 31, 2016, compared to $198.5 million for the fiscal year ended January 31, 2015. The decline in revenues for Heavy Civil is due to the continuing strategic shift towards more selective opportunities including negotiated and alternative delivery contracts and less emphasis on traditional fixed-price contracts. These negotiated and alternative delivery contracts are typically lower risk and contributed to improved margins. Furthermore, certain large projects closed or are neared completion and reduced revenues recognized during the current period. Adjusted EBITDA increased
Revenues for Mineral Services decreased $34.9 million, or 28.7%, to $86.4 million, for the fiscal year ended January 31, 2016, compared to $121.2 million for the fiscal year ended January 31, 2015 primarily as a result of
Unallocated Corporate Expenses
Inflation Management does not believe the operations for the periods discussed have been significantly adversely affected by inflation or changing prices from its suppliers. Liquidity and Capital Resources
As of
Cash provided by (used in) operating activities was $13.0 million, ($0.3) million and ($23.1) million for the fiscal years ended January 31, 2017, 2016 and 2015, respectively. The improvement in cash flow was primarily due to better working capital management. Cash (used in) provided by investing activities was ($8.4) million, $22.4 million and ($3.6) million for the fiscal years ended January 31, 2017, 2016 and 2015, respectively. Cash used in investing activities for the fiscal years ended January 31, 2017 and 2015 consisted primarily of capital expenditures partially offset by the sales of assets. We are selectively investing capital expenditures in growth businesses, while continuing to dispose of underutilized assets. Cash provided by investing activities for the fiscal year ended January 31, 2016 primarily relates to proceeds from the sale of our Geoconstruction business segment in August 2015. Cash flows (used in) provided by financing activities were ($0.1) million, $21.9 million, and $14.9 million for the fiscal years ended January 31, 2017, 2016 and 2015, respectively. Cash provided by financing activities for the fiscal year ended January 31, 2016 primarily relates to proceeds from the issuance of 8.0% Convertible Notes, partially offset by net payments on our asset-based credit facility. Cash provided by financing activities for the fiscal year ended January 31, 2015 primarily relates to net borrowings on our asset-based credit facility. Financing Agreements Below is a summary of certain provisions of our debt instruments and credit facility. For more information about our indebtedness, see Note 8 to the Consolidated Financial Statements in this Form 10-K. 4.25% Convertible Senior Notes due 2018. We have outstanding $69.5 million in aggregate principal amount of our 4.25% Convertible Notes as of January 31, 2017. The 4.25% Convertible Notes bear interest payable semi-annually in arrears in cash on May 15 and November 15 of each The initial conversion On and after November 15, 2016, and prior to the maturity date,
The 8.0% Convertible Notes are convertible, at the option of the holders, into consideration consisting of shares of our common stock (and cash in lieu of fractional shares) until the close of business on the scheduled trading day immediately preceding the maturity date. No holder will have the right to convert any 8.0% Convertible Notes into shares of common stock to the extent that the conversion would cause that holder to beneficially own more than 9.9% of the shares of our common stock then outstanding after giving effect to the proposed conversion. The initial conversion rate is 85.4701 shares of our common stock per $1,000 principal amount of 8.0% Convertible Notes
At any time prior to the maturity date, we may redeem for cash
In addition, upon the occurrence of a “fundamental change” (as defined in the 8.0% Convertible Notes Indenture), holders of the 8.0% Convertible Notes will have the right, at their option, to require us to repurchase their 8.0% Convertible Notes in cash at a price equal to 100% of the principal amount of the 8.0% Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Asset-based revolving credit facility The asset-based facility is guaranteed by
If Excess Availability
During the fiscal year ended January 31, 2016, we had two consecutive four-quarter periods with a fixed charge coverage ratio of not less than 1.0 to 1.0 and therefore, we are no longer required to maintain a cumulative minimum cash flow (as defined in the asset-based facility
The asset-based facility also contains a subjective acceleration clause that can be triggered if the lenders determine that In general, during a Covenant Compliance
Contractual Obligations and Commercial Commitments Contractual obligations and commercial commitments as of January 31,
The 4.25% Convertible Notes bear interest at a rate of 4.25% per year, payable semi-annually in arrears in cash on May 15 and November 15 of each year. The 4.25% Convertible Notes will mature on November 15, 2018 unless earlier repurchased, redeemed or converted (under the terms of the The 8.0% Convertible Notes bear interest at a rate of 8.0% per annum, payable semi-annually in arrears on May 1 and November 1 of each year. The 8.0% Convertible Notes will mature on May 1, 2019, subject to certain provisions in the 8.0% Convertible Notes Indenture. Capitalized leases are obligations for certain
We have surety bonds to secure performance of our projects, amounting to $223.8 million as of January 31, 2017. The amount is not included in the table above as information on the timing of the resolution of the amounts is not available. Additional obligations in the ordinary course of operations are also incurred. These obligations, including but not limited to income tax payments, are expected to be met in the normal course of operations. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Critical Accounting Policies and Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss the consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Our accounting policies are more fully described in Note 1 to the Revenue Recognition – The significant estimates with regard to these consolidated financial statements relate to the estimation of total forecasted construction contract revenues, costs and profits in accordance with the criteria established in Accounting Standards Codification (“ASC”) Topic 605-35 “Construction-type and Production-type Contracts”. Based on experience and The nature of accounting for contracts is such that refinements of the estimating process for changing conditions and new developments are continuous and characteristic of the process. Prior to the execution of a contract, any related costs are expensed during the period incurred. Generally during the early stages of a contract, cost estimates relating to purchases of materials and subcontractors can be subject to revisions. As a contract moves into the most productive phase of execution, change orders, project cost estimate revisions and claims are frequently the sources for changes in estimates. During the contract’s final phase, remaining estimated costs to complete or provisions for claims will be closed out and adjusted based on actual costs incurred. The impact on operating margin in a reporting period and future periods from a change in estimate will depend on the stage of contract completion. Generally, if the contract is at an early stage of completion, the current period impact is smaller than if the same change in estimate is made to the contract at a later stage of completion.
Revenues are recognized on large, long-term construction contracts meeting the criteria of ASC Topic 605-35 using the percentage-of-completion method based upon the ratio of Management focuses on evaluating the performance of contracts individually. In the ordinary course of business, and at a minimum on a quarterly basis, based on changes in facts, such as an approved scope change or a change in estimate, projected total contract revenue, cost and profit or loss for each of our contracts is updated. Normal recurring changes in estimates include, but are not limited to: changes in estimated scope as a result of unapproved or unpriced customer change orders; changes in estimated productivity assumptions based on experience to date; changes in estimated materials costs based on experience to date; changes in estimated subcontractor costs based on subcontractor experience; and changes in the timing of scheduled work that may impact future costs. When determining the likelihood of recovering unapproved change orders and claims, we consider the history and experience of similar projects and apply judgment to estimate the amount of eventual recovery. Settlement of events such as these can take several years depending on how easily the claim is able to be resolved with the customer or whether arbitration or litigation is necessary to reach settlement. As new facts become known, an adjustment to the estimated recovery is made and reflected in the period in which it becomes known. The cumulative effect of revisions in estimates of the total revenues and costs, including unapproved change orders and claims, during the course of the work is reflected in the accounting period in which the facts that caused the revisions become known. The financial impact of these revisions to any one contract is a function of both the amount of the revision and the percentage of completion of the contract. There were no material change orders during the fiscal years ended January 31, 2017, 2016 and 2015. There were no material contract penalties, claims, settlements or changes in contract estimates during the fiscal years ended January 31, 2017, 2016 and 2015. No amounts were netted in revenue during the fiscal years ended January 31, 2017, 2016 and 2015. We have provided for all estimated costs to complete on all of the ongoing contracts. However, it is possible that current estimates could change due to unforeseen events, which could result in adjustments to overall contract costs. Variances from estimated contract performance could result in material adjustments to operating results for any fiscal quarter or year. For all contracts, if a current estimate of total contract cost indicates a loss, the projected loss is recognized in full when such losses become known. During the fiscal years ended January 31, 2017, 2016 and 2015, approximately $12.9 million, $22.2 million and $25.2 million in losses on open contracts were recorded, respectively. The current provision for loss contracts was $2.2 million and $1.5 million as of January 31, 2017 and 2016, respectively. Further, as of January 31, 2017, there were no contracts, individually, that could be reasonably estimated to be in a material loss position in the future. Costs and estimated earnings in excess of billings represents the excess of contract costs and contract revenue recognized to date on the percentage of completion accounting method over contract billings to date. Costs and estimated earnings in excess of billings occur when:
costs related to unapproved change orders or claims are incurred, or
a portion of the revenue recorded cannot be billed currently due to the billing terms in the contract. As allowed by ASC Topic 605-35, revenue is recognized on smaller, short-term construction contracts using the completed contract method. Contracts for mineral drilling services within Mineral Services are billable based on the quantity of drilling performed. Revenues are recognized in terms of the value of total work performed to date on the basis of actual footage or meterage drilled.
The percentage of
Impairment of
Long-lived assets, including amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors management considers important which could trigger an impairment review include but are not limited to the following:
significant underperformance of our assets;
significant changes in the use of the assets; and
An impairment loss is recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value, which is generally calculated using a combination of market, comparable transaction, third party quoted prices or asset appraisals, and discounted cash flow approaches. During the fiscal year ended January 31, 2016, as a result of our decision to exit our operations in Africa and Australia, we performed an assessment of property and equipment located in these locations. Based on our assessment, property and equipment in Africa and Australia with carrying value of $10.4 million was adjusted to reflect its estimated fair value of $6.5 million, resulting in a charge of approximately $3.9 million recorded as part of restructuring costs in the During the fiscal year ended January 31, 2017, we performed the following long-lived assets reviews - Due to the significant negative operating We reviewed the recoverability of the asset values of our long-lived assets in our Heavy Civil Due to the ongoing softness in commodity prices, we reviewed the recoverability of the asset values of our long-lived assets in our Mineral Services Based on our analysis, the sum of the undiscounted cash Prior to the segment realignment in the third quarter of the fiscal year ended January 31, 2016, we reviewed the recoverability of the asset values of our long-lived assets in the Energy Services segment as of July 31, 2015. Using Equity Method Investments A loss in value of an equity method investment is recognized when the decline is deemed to be other than temporary. Unforeseen events and changes in market conditions could have a material effect on the value of equity method investments due to changes in estimated sales growth rates and estimates of expected changes in operating margins, and could result in an impairment charge. Income Taxes – Income taxes are provided using the asset and liability method, in which deferred taxes are recognized on the difference between the financial statement carrying amounts and tax basis of existing assets and liabilities. In assessing the need for a valuation allowance, For
The principal market risks to which Layne is exposed are interest rate risk on variable rate debt and foreign exchange rate risk that could give rise to translation and transaction gains and losses. Interest Rate Risk
Foreign Currency Risk Operating in international markets involves exposure to possible volatile movements in currency exchange rates. As currency exchange rates change, translation of the income statements of the international operations into U.S. dollars may affect year-to-year comparability of operating results.
Index to Consolidated Financial Statements and Financial Statement Schedule
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 or the notes thereto.
Board of Directors and Stockholders Layne Christensen Company The Woodlands, Texas We have audited the accompanying consolidated balance sheets of Layne Christensen Company and subsidiaries (the “Company”) as of January 31, We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Layne Christensen Company and subsidiaries as of January 31, We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 31, /s/DELOITTE & TOUCHE LLP Houston, Texas April
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
See Notes to Consolidated Financial Statements
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY
See Notes to Consolidated Financial Statements.
LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH
See Notes to Consolidated Financial Statements.
(1) Summary of Significant Accounting Policies Description of Business – Layne Christensen Company and subsidiaries (together, Fiscal Year – Layne’s fiscal year end is January 31. References to fiscal years, or “FY,” are to the twelve months then ended. Investment in Affiliated Companies – Investments in affiliates (20% to 50% owned) in which Principles of Consolidation – The Presentation – Beginning with the first quarter of fiscal year ended January 31, 2017, we are excluding nonvested restricted stock units (“RSU”) from the total shares issued and outstanding in our Consolidated Balance Sheets, since no shares are actually issued until the shares have vested and are no longer restricted. Once the restriction lapses on RSUs, the units are converted to unrestricted shares of our common stock and the par value of the stock is reclassified from additional paid-in-capital to common stock. RSU shares in prior periods have been reclassified to conform to this presentation. As discussed further in Note Business Segments – We also report corporate activities under the title Use of and Changes in Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions about future events and their effects cannot be perceived with certainty, and accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as Layne’s operating environment changes. While Foreign Currency Transactions and Translation – In accordance with ASC Topic 830, “Foreign Currency The cash flows and financing activities of Net foreign currency transaction losses Revenue Recognition – Revenues are recognized on large, long-term construction contracts meeting the criteria of ASC Topic 605-35 “Construction-Type and Production-Type Contracts” (“ASC Topic 605-35”), using the percentage-of-completion method based upon the ratio of costs incurred to total estimated costs at completion. Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the percentage of completion are reflected in contract revenues in the reporting period when such estimates are revised. The nature of accounting for contracts is such that refinements of the estimating process for changing conditions and new developments are continuous and characteristic of the process. Many factors can and do change during a contract performance period which can result in a change to contract profitability
As allowed by ASC Topic 605-35, revenue is recognized on smaller, short-term construction contracts using the completed contract method. Provisions for estimated losses on uncompleted construction contracts are made in the period in which such losses become known.
Revenues for direct sales of equipment and other ancillary products not provided in conjunction with the performance of construction contracts are recognized at the date of delivery to, and acceptance by, the customer. Provisions for estimated warranty obligations are made in the period in which the sales occur.
Inventories –
Property and Equipment
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability is evaluated by comparing the carrying value of the assets to the undiscounted associated cash flows. When this comparison indicates that the carrying value of the asset is greater than the undiscounted cash flows, a loss is recognized for the difference between the carrying value and estimated fair value. Fair value is determined based either on market quotes or appropriate valuation techniques. See Note 4 to the Consolidated Financial Statements for a discussion of fixed asset impairments recognized during the fiscal year ended January 31, 2016. As discussed in Note 18 to the Consolidated Financial Statements, during the fiscal year ended January 31, 2016, we implemented a plan to exit our operations in Africa and Australia. As a result of the decision, we determined that it was more likely than not that certain fixed assets will be sold or otherwise disposed of before the end of their estimated useful lives. We recorded charges of approximately $12.9 million and $3.9 million during the fiscal years ended January 31, 2017 and 2016, respectively, to adjust the carrying values of property and equipment in Africa and Australia to estimated fair values, based upon valuation information that includes available third-party quoted prices and appraisals of assets. In calculating the impairment for fiscal year ended January 31, 2017, the carrying amount of the assets included the cumulative currency translation adjustment related to our African and Australian entities. The charges are shown as part of restructuring costs in the Consolidated Statement of Operations. We reflect property as assets held for sale when management, having the authority to approve the action, commits to a plan to sell the asset, the sale is probable within one year, and the asset is available for immediate sale in its present condition. We also consider whether an active program to locate a buyer has been initiated, whether the asset is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Upon designation as asset held for sale, we record the carrying value of each asset at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and cease recording depreciation. During the fourth quarter of the fiscal year ended January 31, 2017, we determined that our assets in Australia amounting to $2.5 million, which is part of Mineral Services segment, met all of the held for sale criteria, and as such were classified as held for sale in the Consolidated Balance Sheet as of January 31, 2017. We recorded a reserve for assets held for sale related to Australia of $12.4 million as of January 31, 2017, and the reserve is included as part of Other Current Liabilities in the Consolidated Balance Sheet. During the fourth quarter of the fiscal year ended January 31, 2016, we determined that assets in our Ethiopian location amounting to $0.8 million, which is part of Mineral Services segment, met all of the held for sale criteria, and as such were classified as held for sale in the Consolidated Balance Sheet as of January 31, 2017 and 2016. During the fourth quarter of the fiscal year ended January 31, 2015, assets in our Redlands, California location amounting to $1.4 million, which is part of the Water Resources segment, were classified as held for sale. Due to unforeseen circumstances, the foregoing sale was not completed during the past two fiscal years; however, the assets continue to meet the held for sale criteria as of January 31, 2017, and disposition is expected to be completed within the next twelve months. Discontinued Operations –We adopted Accounting Standards Update 2014-08,"Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," on February 1, 2015. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. See Note 16 to the Consolidated Financial Statements for a discussion of our discontinued operations. Goodwill –In accordance with ASC Topic 350-20, “Intangibles-Goodwill and Other”,
The cumulative goodwill impairment losses for Intangible Assets – Other intangible assets with finite lives primarily consist of tradenames Finite-lived intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Cash and Cash Equivalents – Restricted Deposits – Restricted deposits consist of escrow funds Allowance for Uncollectible Accounts Receivable –
Concentration of Credit Risk – Accrued Insurance Costs estimated to be incurred in the future for employee health and welfare benefits, workers’ compensation, property and casualty insurance programs resulting from claims which have been incurred are accrued currently. Under the terms of the agreement with the various insurance carriers administering these claims,
Fair Value of Financial Instruments – The carrying amounts of financial instruments, including cash and cash equivalents, customer receivables and accounts payable, Litigation and Other Contingencies – Supplemental Cash Flow Information –The amounts paid or refunded for income taxes, interest and non-cash investing and financing activities were as
Income Taxes – Income taxes are provided using the asset and liability method, in which deferred taxes are recognized on the difference between the financial statement carrying amounts and tax bases of existing assets and liabilities. Deferred tax assets are reviewed for recoverability and valuation allowances are provided as necessary. Provision for U.S. income taxes on undistributed earnings of foreign subsidiaries and affiliates is made only on those amounts in excess of funds considered to be invested indefinitely. In general, In assessing the need for a valuation allowance,
Income (Loss) Per Share – Income (loss) per share is computed by dividing net earnings available to common Share-Based Compensation – Unearned compensation expense associated with the issuance of Research and Development Costs – Research and development costs charged to expense during
(2)
We bill our customers based on specific contract terms. Substantially all billed amounts are collectible within one year. As of (3) Property and Equipment Property and equipment consisted of the following:
Depreciation expense was (4) Impairment Charges Prior to the segment realignment in the
A summary of material, jointly-owned affiliates, as well as their primary operating subsidiaries if applicable, and the percentages directly or indirectly owned by Layne are as follows as of January 31,
Financial information of the affiliates is reported with a one-month lag in the reporting period. The impacts of the lag on our investment and results of operations are not significant. Summarized financial information of the affiliates
(6)
Other intangible assets consisted of the following as of January 31:
Total amortization expense for other intangible assets was
(7) Other Balance Sheet Information The table below presents comparative detailed information about other current assets at January 31, 2017 and 2016:
The table below presents comparative detailed information about other non-current assets at January 31, 2017 and 2016:
The table below presents comparative detailed information about other current liabilities at January 31, 2017 and 2016:
(8) Indebtedness Debt outstanding as of January 31,
As of January 31,
Asset-based Revolving Credit Facility
The asset-based facility
Availability under the asset-based facility is currently the lesser of (i) $100.0 million or (ii) the borrowing base (as defined in the asset-based facility agreement). Availability under the asset-based facility as of January 31, 2017, was approximately $100.0 million, as the borrowing base exceeded total commitments. Approximately $27.7 million of letters of credit were issued under the asset-based facility as of January 31, 2017, resulting in Excess Availability (described below) of $72.3 million. Advances under the asset-based facility are subject to certain conditions precedent, including the accuracy of certain representations and warranties and the absence of any default or event of default. Future advances may be used for general corporate and working capital purposes, and to pay fees and expenses associated with the asset-based facility. Pursuant to the asset-based facility agreement, the revolving loans will bear interest at either:
the LIBOR rate (as defined in the asset-based facility agreement) The asset-based facility contains various restrictions and covenants, including restrictions on dispositions of certain assets, incurrence of indebtedness, investments, distributions, capital expenditures, acquisitions and prepayment of certain indebtedness. In general, provided that
During the fiscal year ended January 31, 2016, we had two consecutive four-quarter periods with a fixed charge coverage ratio of not less than 1.0 to 1.0 and therefore, we are no longer required to maintain a cumulative minimum cash flow (as defined in The asset-based facility also contains a subjective acceleration clause that can be triggered if the lenders determine that The balance sheet classification of the borrowings under the asset-based facility has been determined in accordance with ASC Topic 470-10-45, “Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include both a Subjective Acceleration Clause and a Lock-Box Arrangement.” Accordingly, the borrowings have been classified as a long-term liability in the accompanying Consolidated Balance Sheet. In general, during a Covenant Compliance Period or if an Event of Default has occurred and is continuing, all of Layne’s funds received on a daily basis will be applied to reduce amounts owing under the asset-based facility. Based on current projections Layne does not anticipate being in a Covenant Compliance Period during the next twelve months.
Defaults under the asset-based facility include (but are not limited to) the following: non-payment of principal, interest, fees and other amounts under the asset-based facility
failure to pay certain indebtedness when due specified events of bankruptcy and insolvency one or more judgments of $5.0 million not covered by insurance and not paid within a specified period. a change in control as defined in the asset-based facility. The
4.25% Convertible Senior Notes On November The 4.25% Convertible Notes bear interest at a rate of 4.25% per year, payable semi-annually in arrears in cash on May 15 and November 15 of each year, beginning on May 15, 2014. The 4.25% Convertible Notes will mature on November 15, 2018, unless earlier repurchased, redeemed or converted. The initial conversion rate was 43.6072 shares of On and after November 15, 2016, and prior to the maturity date,
If any amount payable on a 4.25% Convertible Note (including principal, interest, a fundamental change repurchase or a redemption) is not paid by us when it is due and payable, such amount will accrue interest at a rate equal to 5.25% per annum from such payment date until paid. In accordance with ASC Topic 470-20, “Debt with Conversion and Other Options,” In accordance with guidance in ASC Topic 470-20 and ASC Topic 815-15, “Embedded Derivatives,” On March 2, 2015, we exchanged approximately $55.5 million aggregate principal amount of our 4.25% Convertible Notes for approximately $49.9 million aggregate principal amount of our 8.0% Convertible Notes (described further below). In accordance with the derecognition guidance for convertible instruments in an exchange transaction under ASC Topic 470-20, the fair value of the 8.0% Convertible Notes (“the exchange consideration”) and the transaction costs incurred were allocated between the liability and equity components of the 4.25% Convertible Notes. Of the $49.9 million exchange consideration, $42.1 million, which represents the fair value of the 4.25% Convertible Notes immediately prior to its derecognition, was allocated to the extinguishment of the liability component. Transaction costs of $0.9 million were also allocated to the liability component. As a result, we recognized a gain on extinguishment of debt of $4.2 million during the first quarter of the fiscal year ended January 31, 2016. The remaining $7.8 million of the exchange consideration and $0.2 million of transaction costs were allocated to the reacquisition of the equity component and recognized as a reduction of stockholders’ equity. The following table presents the carrying value of the 4.25% Convertible Notes:
8.0 % Senior Secured Second Lien Convertible Notes On March 2, 2015, The sale of the 8.0% Convertible Notes generated net cash proceeds of approximately $45.0 million after deducting discounts and commissions, estimated offering expenses and accrued interest on the 4.25% Convertible Notes being exchanged. The 8.0% Convertible Notes were issued pursuant to an Indenture, dated as of March 2, 2015 (the “8.0% Convertible Notes Indenture”), among Layne, the guarantor parties thereto and U.S. Bank National Association, as trustee and collateral agent. The 8.0% Convertible Notes are senior, secured obligations of Layne, with interest payable on May 1 and November 1 of each year, beginning May 1, 2015, at a rate of 8.0% per annum. The 8.0% Convertible Notes will mature on May 1, 2019; provided, however, that, unless all of the 4.25% Convertible Notes (or any permitted refinancing indebtedness in respect thereof) have been redeemed, repurchased, otherwise retired, discharged in accordance with their terms or converted into The 8.0% Convertible Notes are
The 8.0% Convertible Notes are secured by a lien on substantially all of our assets and the assets of At any time prior to the maturity date,
In addition, upon the occurrence of a “fundamental change” (as defined in the 8.0% Convertible Notes Indenture), holders of the 8.0% Convertible Notes will have the right, at their option, to require The 8.0% Convertible Notes Indenture permits us to reinvest the net proceeds from certain “asset sales” (as defined in the 8.0% Convertible Notes Indenture). Any such reinvestments are subject to the criteria and time periods in the 8.0% Convertible Notes Indenture. Any net proceeds from “asset sales” that are not reinvested within the applicable time period constitute “excess proceeds” (as defined in the 8.0% Convertible Notes Indenture). When the aggregate amount of “excess proceeds” exceeds $10.0 million, we must, within 30 days, make an offer to all holders of the 8.0% Convertible Notes and holders of certain other pari passu debt obligations of the Company (together, the “Qualifying Indebtedness”) to repurchase the Qualifying Indebtedness up to the maximum amount of the available “excess proceeds.” The Qualifying Indebtedness repurchase price will equal 100% of the principal amount plus any accrued and unpaid interest to, but excluding the repurchase date. The holders of the Qualifying Indebtedness may, at their option, elect to accept the repurchase offer. If the aggregate amount of Qualifying Indebtedness tendered for repurchase exceeds the amount of “excess proceeds”, the Qualifying Indebtedness tendered will be repurchased on a pro rata basis. We may use any “excess proceeds” remaining as a result of an insufficient amount of Qualifying Indebtedness being tendered for repurchase for any purpose not otherwise prohibited by the 8.0% Convertible Notes Indenture. The 8.0% Convertible Notes are convertible, at the option of the holders, into consideration consisting of shares of The initial conversion rate was 85.4701 shares of The 8.0% Convertible Notes Indenture contains covenants that, among other things, restrict If any amount payable on a 8.0% Convertible Note (including principal, interest, a fundamental change repurchase or a redemption) is not paid by us when it is due and payable, such amount will accrue interest at a rate equal to 9.0% per annum from such payment date until paid. In accordance with guidance in ASC Topic 815-15, we determined that the embedded conversion components and other embedded derivatives of the 8.0% Convertible Notes do not require bifurcation and separate accounting. We accounted for the 8.0% Convertible Notes as debt with conversion features that are not beneficial under ASC Topic 470-20. Accordingly, all the proceeds from the issuance of the 8.0% Convertible Notes are recorded as a liability in our Consolidated Balance Sheets. The following table presents the carrying value of the 8.0% Convertible Notes:
Surety Bonds As of January 31, 2017 and 2016, surety bonds issued to secure performance of our projects amounted to $223.8 million and $259.7 million, respectively. The amount of our surety bonds is based on the expected amount of revenues remaining to be recognized on the projects.
Other income, net consisted of the following:
Gain from disposal of property and equipment of $4.2 million for the fiscal year ended January 31, 2017 primarily relates to the sale of assets in Africa and Australia. For
Components of income tax (benefit) expense from continuing operations were as follows:
A reconciliation of the total income tax (benefit) expense from continuing operations to the statutory federal rate is as follows for the fiscal years ended January 31:
The The tax effect
In assessing the need for a valuation allowance,
The net income (loss) Deferred income taxes result from temporary differences between the financial statement and tax bases of
As of January 31, Deferred income taxes were provided on undistributed earnings of certain foreign subsidiaries and foreign affiliates where the earnings are not considered to be invested indefinitely.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding penalties and interest is as follows:
Substantially all of the unrecognized tax benefits recorded at January 31,
Our operating leases are primarily for buildings, light and medium duty trucks, and other equipment. We sublease certain portion of our facilities under non-cancelable sublease agreements. Rent expense under operating leases (including insignificant amounts of contingent rental payments and sublease rental income) was $4.9 million, $7.3 million and $9.6 million for the fiscal years ended January 31, 2017, 2016 and 2015, respectively. Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms and related subleases in excess of one year from January 31,
assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;
if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and
if we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. In accordance with accounting guidance,
the total employees participating in the multiemployer plan compared to the total employees covered by the plan;
the total contributions to the multiemployer plan as a percentage of the total contributions to the plan by all participating employers; and
As of January 31,
Layne has an equity-based compensation plan that provides for the granting of options to purchase or the issuance of shares of common stock at a price fixed by the Board of Directors or a committee. As of January 31, We granted 13,495 shares of restricted stock, 199,352 restricted stock units and 447,903 performance vesting restricted stock units under the Layne We recognized $3.5 million, $3.9 million and $2.6 million of compensation cost for share-based plans for the fiscal years ended January 31, 2017, 2016 and 2015, respectively. Of these amounts, $3.0 million, $3.0 million and $1.2 million, respectively, related to non-vested stock. The total income tax benefit recognized for share-based compensation arrangements was $1.4 million, $1.5 million and $1.0 million for the fiscal years ended January 31, 2017, 2016 and 2015, respectively. As of January 31, 2017, no tax benefit is expected to be realized for equity-based compensation arrangements due to a full valuation allowance of our domestic deferred tax assets. As of January 31, 2017, total unrecognized compensation cost related to unvested stock options was approximately $0.2 million, which is expected to be recognized over a weighted-average period of 0.9 years. As of January 31, 2017, there was approximately $3.6 million of total unrecognized compensation cost related to nonvested restricted stock awards and restricted stock units that is expected to be recognized over a weighted-average period of 1.7 years. The fair value of share-based compensation granted in the form of stock options is determined using a lattice
Stock option transactions for
The aggregate intrinsic value was calculated using the difference between the current market price and the exercise price for only those options that have an exercise price less than the current market price. Nonvested stock awards having service requirements only, are valued as of the grant date closing stock price and generally vest ratably over service periods of one to five years. Other nonvested stock awards vest based upon Layne meeting various performance goals. Certain nonvested stock awards provide for accelerated vesting if there is a change of control (as defined in the plans) or the disability or the death of the executive and for equitable adjustment in the event of changes in Assumptions used in the Monte Carlo simulation model for
Non-vested share transactions for
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than those included in Level 1, such as quoted market prices for similar assets and liabilities in active markets or quoted prices for identical assets in inactive markets.
Level 3 – Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing an asset or liability.
Other Financial Instruments
Cash equivalents – The carrying amounts reported in the accompanying Consolidated Balance Sheets approximates their fair values and are classified as Level 1 within the fair value hierarchy. Short-term and long-term debt, other than the Convertible notes – The
The following table summarizes the carrying values and estimated fair values of the long-term debt:
Layne, through Geoconstruction, our discontinued segment, was a subcontractor on the foundation for an office building in California in 2013 and 2014. Geoconstruction's work on the project was completed in September 2014. Certain anomalies were subsequently discovered in the structural concrete, which were remediated by the general contractor during 2015. We have participated in discussions with the owner and the general contractor for the project regarding potential causes for the anomalies. During fiscal year ended January 31, 2016, the owner, the general contractor and Layne submitted a claim to the project’s insurers to cover the cost of remedial work, which claim was denied on November 2, 2016. The owner and the general contractor have filed a legal proceeding against the insurers seeking coverage under the insurance policy. Management does not believe that we are liable for any of the remediation costs related to this project. As of the date of this report, no action has been filed against us. Accordingly, no provision has been made in the Consolidated Financial Statements. As previously reported, beginning in October 2010, the Audit Committee of the Board of Directors conducted an internal investigation into, among other things, the legality of certain payments by Layne to agents and other third parties interacting with government officials in certain countries in Africa. The internal investigation suggested potential violations of the FCPA and certain local laws. Layne made a voluntary disclosure to the
Geoconstruction On August 17, 2015, we sold our Geoconstruction business segment to a subsidiary of Keller Foundations, LLC, a member of Keller Group plc (“Keller”), for a total of $42.3 million, including the preliminary estimate of the business segment’s working capital. After post-closing adjustments, the total purchase price increased to $47.7 million, to adjust for our estimated share in the profits of one of the contracts being assumed by Keller and final working capital adjustments. As of January 31, 2016, we had approximately $1.5 million held in an escrow account, which is part of Other Assets in the Consolidated Balance Sheet, which was paid in the fourth quarter of the fiscal year ended January 31, 2017 after the satisfaction of certain conditions. In addition, as of January 31, 2017 and 2016, we recognized a $4.2 million contingent consideration receivable, included in Other Assets in the Condensed Consolidated Balance Sheet. The contingent consideration represents our best estimate of our share in the profits of one of the contracts assumed by Keller. Tecniwell On October 31, 2014, Costa Fortuna On July 31, 2014,
The purchase price for the shares and remaining intercompany receivable is payable in future years, beginning with the year ended December 31, 2015, based on 33.33% of Costa Fortuna’s income before taxes for such year. The unpaid portion of the purchase price will accrue interest at the rate of 2.5% per annum. The unpaid balance of the purchase price, plus accrued interest, is due and payable to Layne on July 31, 2024. The loss
The financial results of the discontinued operations are as follows:
Prior to the completion of the sale of the Geoconstruction business segment, we owned 65% and 50% of Case-Bencor Joint Venture (Washington) and Case-Bencor Joint Venture (Iowa), respectively, which were both included as part of the Geoconstruction business segment as investments in affiliates, and were discontinued as a result of the sale. Summarized financial information of the entities, which were accounted for as equity method investments, through the date of the sale was as follows:
In accordance with our adoption of ASU 2014-08 effective February 1, 2015, additional disclosure relating to cash flow is required for discontinued operations. Cash flow information for Costa Fortuna and Tecniwell is not required since they were accounted for based on the previous accounting guidance. Cash flow data relating to the Geoconstruction business segment is presented below:
(17) Segments and Foreign Operations
In the first quarter of the fiscal year ended January 31, 2017, changes were made to simplify our business and streamline our operating and reporting structure. Our Collector Wells group was shifted from Heavy Civil to Water Resources to better align their operational expertise. We also shifted certain other smaller operations out of our “Other” segment and into our four reporting segments, and no longer report an “Other” segment. Information for prior periods has been recast to conform to our new presentation. During the third quarter of the fiscal year ended January 31, 2016, as a result of our strategic review of all aspects of our operations, we realigned our operating structure to combine the Energy Services segment with Water Resources segment. We determined that given the similar nature of the equipment and services for Energy Services and Water Resources, we can effectively manage our cost structure and serve our customer base in a combined segment. We now manage and report our operations through four segments: Water Resources, Inliner, Heavy Civil, and Mineral Services. Historical segment numbers have been recast to conform to this new operating structure. During the second quarter of the fiscal year ended January 31, 2016, we entered into a definitive agreement to sell our Geoconstruction business segment. The operating results of the Geoconstruction business are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. See Note 16 to Consolidated Financial Statements for further discussion. Layne’s segments are defined as follows: Water Resources Water Resources provides its customers with Inliner Inliner provides a wide range of process, sanitary and storm water rehabilitation solutions to municipalities and industrial customers dealing with aging infrastructure needs. Inliner focuses on its proprietary Inliner® cured-in-place pipe (“CIPP”) which allows Heavy Civil Heavy Civil resource. Heavy Civil provides services in most regions of the U.S.
Mineral Services Mineral Services conducts primarily
Financial information for Management evaluates segment performance based primarily on revenues and Adjusted EBITDA. Adjusted EBITDA represents income or loss from continuing operations before interest, taxes, depreciation and amortization, non-cash equity-based compensation, equity in earnings or losses from affiliates, certain non-recurring items such as impairment charges, restructuring costs, gain on extinguishment of debt, and certain other gains or losses, plus dividends received from affiliates. Refer to further discussion on Non-GAAP Financial Measures included in Part II, Item 7 in this Form 10-K.
The following table presents various financial information for each segment.
During the fiscal year ended January 31, 2017, we continued the implementation of our FY2016 Restructuring Plan, which involves the exit of our operations in Africa and Australia and other actions to support our strategic focus in simplifying the business and build upon our capabilities in water (“FY2016 Restructuring Plan”). For the fiscal year ended January 31, 2017, we recognized approximately $14.1 million of restructuring expenses for the FY2016 Restructuring Plan, primarily related to the closure of our Australian and African entities resulting in the impairment of our assets held for sale. In calculating the impairment, the carrying amount of the assets included the cumulative currency translation adjustment related to our Australian and African entities. Also included are severance costs and other personnel-related costs, and other costs to support our business focus and strategy. For the fiscal year ended January 31, 2017, the FY2016 Restructuring Plan related to the segments as follows: $13.3 million in Mineral Services, $0.4 million in Heavy Civil, $0.3 million in Corporate, and $0.1 million in Inliner. The FY2016 Restructuring Plan was substantially completed as of January 31, 2017. We estimate remaining amounts to be incurred for the FY2016 Restructuring Plan of approximately $0.1 million. We previously implemented a restructuring plan The following table summarizes the plans discussed above:
(19) New Accounting Pronouncements On On December 22, 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Revenue from Contracts with Customers.” The amendments in ASU 2016-20 include thirteen technical corrections and improvements that affect only narrow aspects of the guidance issued in ASU 2014-09. These narrow aspects include (1) pre-production costs related to long-term supply arrangements; (2) contract costs–impairment testing; (3) contract costs–interaction of impairment testing with guidance in other Topics; (4) provisions for losses on production-type and construction-type contracts; (5) scope of FASB ASC 606; (6) disclosure of remaining performance obligations; (7) contract modifications example; (8) fixed-odds wagering contracts in the casino industry; (9) cost capitalization for advisors to private and public funds, (10) loan guarantee fees; (11) contract asset versus receivable; (12) refund liability; and (13) advertising costs. ASU 2016-20 will become effective when the guidance in ASU No. 2014-09 becomes effective, beginning February 1, 2018 for Layne. We are currently evaluating the effect that the adoption of this ASU will have on our financial statements. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash,” which provides guidance about the presentation of changes in restricted cash and restricted cash equivalents on the statement of cash flows. This ASU is effective for us beginning on February 1, 2018 and will be applied using a retrospective transition method to each period presented. We are currently evaluating the effect that the adoption of this ASU will have on our financial statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance and clarification in regards to the classification of eight types of receipts and payments in the statement of cash flows, including debt repayment or extinguishment costs, settlement of zero-coupon bonds, proceeds from the settlement of insurance claims, distributions received from equity method investees and cash receipts from beneficial interest in securitization transactions. The guidance is effective for us beginning on February 1, 2018 and will be applied using a retrospective transition method to each period presented. We are currently evaluating the effect that the adoption of this ASU will have on our financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases,” which establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU is effective for fiscal years beginning after December 15,
On July 22, 2015, the FASB issued ASU 2015-11, “Inventory – Simplifying the Measurement of Inventory,” which applies to inventory measured using first-in, first-out or average cost. The guidance in this update states that inventory within scope shall be measured at the lower of cost or net realizable value, and when the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings. The new standard is effective for us beginning on February 1, 2017 and will be applied on a prospective basis. The adoption of this ASU will not have a material
On August 27, 2014, FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern”. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under GAAP.
The FASB issued ASU 2014-09, “Revenue from Contracts with Customers” on May 28, 2014.
(20) Quarterly Results (Unaudited) Unaudited quarterly results were as follows:
We incurred restructuring costs as part of our Water Resources Business Performance Initiative and our FY2016 Restructuring Plan, consisting primarily of costs related to office closures, severance costs, impairment of our assets held for sale related to the closure of our Australian and African entities, and other costs to support our business focus and strategy. The total impact of these restructuring costs was $0.5 million, $1.0 million, $1.7 million and $14.2 million during the first quarter, second quarter, third quarter and fourth quarter of the fiscal year ended January 31, 2017, respectively.
The second quarter of As part of
(21) Subsequent
Accountants on Accounting and Financial Disclosure |
None.
Disclosure Controls and Procedures
Based on an evaluation of disclosure controls and procedures for the period ended January 31, 2015,2017, conducted under the supervision and with the participation of Layne’sour management, including the Principal Executive Officer and the Principal Financial Officer, Laynewe concluded that itsour disclosure controls and procedures are effective to ensure that information required to be disclosed by Layne in reports that it fileswe file or submitssubmit under the Securities Exchange Act of 1934 is accumulated and communicated to Layne’sour management (including the Principal Executive Officer and the Principal Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Management’s Report on Internal Control over Financial Reporting
Management of Layne Christensen Company and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of the Company’sour management, including our Principal Executive Officer and Principal Financial Officer, Laynewe conducted an evaluation of the effectiveness of itsour internal control over financial reporting based upon the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”).
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore it is possible to design into the process safeguards to reduce, although not eliminate, this risk. Layne’sOur internal control over financial reporting includes such safeguards. Projections of an evaluation of effectiveness of internal control over financial reporting in future periods are subject to the risk that the controls may become inadequate because of conditions, or because the degree of compliance with Layne’sour policies and procedures may deteriorate.
Based on the evaluation under the COSO Framework, management concluded that Layne’sour internal control over financial reporting is effective as of January 31, 2015. Layne’s2017. Our independent registered public accounting firm has audited the consolidated financial statementsConsolidated Financial Statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report on the effectiveness of Layne’sour internal control over financial reporting as of January 31, 2015.2017. The report is included below.
Changes in Internal Control over Financial Reporting
There were no changes in Layne’sour internal control over financial reporting during the three months ended January 31, 2015,2017, that have materially affected, or are reasonably likely to materially affect, Layne’sour internal control over financial reporting.
None.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Layne Christensen Company
The Woodlands, Texas
We have audited the internal control over financial reporting of Layne Christensen Company and subsidiaries (the “Company”) as of January 31, 2015,2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2015,2017, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended January 31, 20152017 of the Company and our report dated April 13, 201510, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/DELOITTE & TOUCHE LLP
Houston, Texas
April 13, 201510, 2017
Layne’sOur Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on June 5, 2015,May 31, 2017, will contain, (i) under the caption “Election of Directors,” certain information relating to Layne’sour directors and its Audit Committee financial experts required by Item 10 of Form 10-K and such information is incorporated herein by this reference (except that the information set forth under the subcaption “Compensation of Directors” is expressly excluded from such incorporation), (ii) under the caption “Transactions with Management/Related Party Transactions,” certain information relating to Layne’sour Code of Ethics required by Item 10 of Form 10-K and such information is incorporated herein by this reference, and (iii) under the caption “Section 16(a) Beneficial Ownership Reporting Compliance,” certain information required by Item 10 of Form 10-K and such information is incorporated herein by this reference.
ExecutiveOur executive officers of Layne are appointed by the Board of Directors for such terms as shall be determined from time to time by the Board, and serve until their respective successors are selected and qualified or until their respective earlier death, retirement, resignation or removal. The Board of Directors may delegate its authority to appoint executive officers to the President or Chief Executive Officer.
Set forth below are the name, age and position of each executive officer of Layne.
Name | Age | Position |
Michael J. Caliel |
| President, Chief Executive Officer and Director |
|
| Senior Vice President and Chief Financial Officer |
Steven F. Crooke |
| Senior Vice President, Chief Administrative Officer and General Counsel |
|
|
|
Larry D. Purlee |
| Division President - Inliner |
Leslie F. Archer |
| Division President - Heavy Civil |
|
|
|
|
|
|
|
|
|
|
|
|
The business experience of each of the executive officers of Layne is as follows:
Michael J. Caliel was appointed President and Chief Executive Officer effective January 2, 2015. Mr. Caliel served as President and Chief Executive Officer of the Invensys Software and Industrial Automation Division of Invensys plc, an automations, controls and process solutions company. Mr. Caliel was employed by Invensys from December 2011 until July 2014. From July 2006 until June 2011, Mr. Caliel served as President, Chief Executive Officer and a Director of Integrated Electrical Services, a publicly held, national provider of electrical and communications solutions for the commercial, industrial and residential markets. From 1993 until June 2006, Mr. Caliel was employed by Invensys, where he served in a variety of senior management positions, including his most recent position as President of Invensys Process Systems. Prior to becoming President of Invensys Process Systems, he served as President of its North America and Europe, Middle East and Africa operations from 2001 to 2003.
Andy T. Atchison has served asJ. Michael Anderson was appointed Senior Vice President and Chief Financial Officer since August 1, 2014.effective July 20, 2015. Prior to joining Layne, Mr. AtchisonAnderson served as Layne’s ControllerChief Financial Officer at Southcross Energy Partners, L.P., a Master Limited Partnership engaged in the natural gas midstream business. Mr. Anderson previously served as Chief Financial Officer of Exterran Holdings, Inc. and Exterran Partners, L.P., a global market leader in natural gas compression and oil and gas services, from 1997 to June2003 until 2012. Thereafter, he continued to assist LayneMr. Anderson also served as Chief Financial Officer and as Chairman and Chief Executive Officer at Azurix Corp., a global owner and operator of water and wastewater assets, during his tenure from 1999 until 2003. Mr. Anderson began his career with JPMorgan Chase & Co. as an investment banker after earning his undergraduate degree in various accounting roles duringbusiness from Texas Tech University and his MBA from The Wharton School of the relocationUniversity of Layne’s headquarters to The Woodlands, Texas, until July 2013. Following his departure from Layne, Mr. Atchison provided consulting services to other companies on finance and accounting matters. Prior to working for Layne, Mr. Atchison worked for Deloitte and Touche LLP in various positions from 1985 to 1997. Mr. Atchison is a certified public accountant.Pennsylvania.
Steven F. Crooke was promoted to Senior Vice President, Chief Administrative Officer and General Counsel in December 2014. Prior to that, Mr. Crooke served as Senior Vice President, Secretary and General Counsel from 2006 to 2014. Mr. Crooke served as Vice President, Secretary and General Counsel from 2001 to 2006. For the period of June 2000 through April 2001, Mr. Crooke served as Corporate Legal Affairs Manager of Huhtamaki Van Leer. Prior to that, he served as Assistant General Counsel of the Company from 1995 to May 2000.
Ronald Thalacker has
Kevin P. Maher was promoted to Senior Vice President for Water Resources and Mineral Services in March 2016. Prior to that, Mr. Maher served as the President of Water ResourcesMineral Services of Layne since January 1, 2013, when he joined Layne. Prior to joining the company, Mr. Maher ran his family business, which was acquired and is responsiblesuccessfully integrated into Boart Longyear. At Boart Longyear, Mr. Maher was the Eastern Regional Manager for Layne’s groundwater supply, well and pump rehabilitation, specialty drilling services and water treatment equipment. Mr. Thalacker has been in Water Resources since 2008 as GeneralEnvironment & Infrastructure. Most recently, he was Manager of Specialty Drilling. In addition toReverse Circulation & Mine Support Drilling Operations at Major Drilling America. Mr. Maher is an M.B.A., Mr. Thalacker has 27experienced executive with over 25 years of experience in large and diversethe drilling and water supply projects.industry.
Larry D. Purlee became the President of the Inliner division, a wholly-owned subsidiary of Layne which provides wastewater pipeline and structure rehabilitation services, on February 1, 2010. Mr. Purlee served as Executive Vice President of Reynolds Inliner, LLC from the early 1990s until February 1, 2010. Mr. Purlee has over 40 years of experience in the wastewater pipeline rehabilitation industry.
Leslie F. Archer became the President of Heavy Civil, a wholly-owned subsidiary of Layne which provides products and services to the water and wastewater industries, in June 2014. Mr. Archer served as Senior Vice President of Integrated Services within Heavy Civil from 2010 until 2014 and Vice President of Integrated Services from 2008 until 2010. Prior to that, Mr. Archer was Director of Design Build services from 2000 until 2010 within Heavy Civil.
Mauro Chinchelli has served as the President of Geoconstruction of Layne since August 2013. Mr. Chinchelli joined Layne in 2000 and became Executive Vice President of Geoconstruction in 2011 and was responsible for the Italian and Brazilian operations. Mr. Chinchelli has over 40 years of experience in the field of geoconstruction, including two patents and several publications in his name.
Kevin P. Maher has served as the President of Mineral Services of Layne since January 2013, when he joined Layne. Prior to joining the company, Mr. Maher ran his family business, which was acquired and successfully integrated into Boart Longyear. At Boart Longyear, Mr. Maher was the Eastern Regional Manager for Environment & Infrastructure. Most recently, he was Manager of Reverse Circulation & Mine Support Drilling Operations at Major Drilling America. Mr. Maher is an experienced executive with over 25 years of experience in the drilling industry.
Kent Wartick became the President of Energy Services since February 2013. Prior to that, Mr. Wartick served as Regional General Manger from February 2010 until being promoted to Vice President of Energy Services in November 2012. Mr. Wartick has been with Layne since 1985. Over his 28 years of experience he has served as Sales Engineer, District Manager, General Manager and a Regional General Manager. He has extensive drilling, pump and construction industry experience.
Layne’sOur Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on June 5, 2015,May 31, 2017, will contain, under the caption “Executive Compensation and Other Information,” the information required by Item 11 of Form 10-K and such information is incorporated herein by this reference.
Stockholder Matters
Layne’sOur Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on June 5, 2015,May 31, 2017, will contain, under the captions “Ownership of Layne Christensen Common Stock” and “Equity Compensation Plan Information” the information required by Item 12 of Form 10-K and such information is incorporated herein by this reference.
Layne’sOur Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on June 5, 2015,May 31, 2017, will contain, under the captions “Other Corporate Governance Matters,” and “Transactions with Management/Related Party Transactions” the information required by Item 13 of Form 10-K and such information is incorporated herein by this reference.
Layne’sOur Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on June 5, 2015,May 31, 2017, will contain, under the caption “Principal Accounting Fees and Services,” the information required by Item 14 of Form 10-K and such information is incorporated herein by this reference.
| Description | |
|
|
|
**2.1 | Asset Purchase Agreement, dated February 8, 2017, by and among Layne Christensen Company and certain subsidiaries, as Sellers, and Reycon Partners, LLC, as Buyer. | |
3.1 |
| Amended and Restated Certificate of Incorporation of |
|
|
|
3.2 |
| Amended and Restated Bylaws of Layne (effective as of April 15, 2014) (filed as Exhibit 3.1 to Layne’s Form 8-K filed April 16, 2014, and incorporated herein by this reference). |
|
|
|
4.1 |
| Specimen Common Stock Certificate (filed with Amendment No. 3 to Layne’s Registration Statement on Form S-1 (File No. 33-48432) as Exhibit 4(1) and incorporated herein by reference). |
|
|
|
4.2 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Indenture relating to 4.25% Convertible Senior Notes due 2018, dated as of November 12, 2013, between Layne Christensen Company and U.S. Bank National Association, including the form of Global Note attached as Exhibit A thereto (filed as Exhibit 4.1 to Layne’s Form 8-K filed on November 12, 2013, and incorporated herein by reference). |
|
|
|
|
| Form of Exchange and Subscription Agreement, dated February 4, |
2015 (filed as Exhibit |
| |
|
|
|
|
| Form of Amendment to Exchange and Subscription Agreement dated February 27, |
|
|
|
|
| Notice Regarding the Issuance and Sale of 8.0% Senior Secured Second Lien Convertible Notes of Layne Christensen Company dated February 27, |
|
|
|
|
| Indenture relating to the 8.0% Second Lien Senior Secured Convertible Notes, dated as of March 2, 2015, among Layne Christensen Company, the guarantor parties thereto and U.S. Bank National Association, including the form of Global Note attached as Exhibit A thereto (filed as Exhibit 4.1 to Layne's Form 8-K filed on March 2, 2015, and incorporated herein by reference). |
|
|
|
|
| Security Agreement, dated as of March 2, 2015, among Layne Christensen Company, certain of its subsidiaries, as pledgers, and U.S. Bank National Association, |
|
|
|
|
| Intercreditor and Subordination Agreement dated as of March 2, 2015, between PNC Bank, National Association and U.S. Bank National Association and acknowledged by the Company and the subsidiary guarantors (filed as Exhibit 4.3 to Layne's Form 8-K filed on March 2, 2015, and incorporated herein by reference). |
|
|
|
4.9 | Amended and Restated Credit Agreement dated as of August 17, 2015 among Layne Christensen Company, as Borrower, certain subsidiaries of Layne Christensen Company, as Co-Borrowers, the guarantors party thereto, the lenders party thereto, PNC Bank, National Association (“PNC Bank”), as Administrative Agent, Jefferies Finance, LLC, as Syndication Agent, Lead Arranger and Book Running Manager, PNC Bank and Wells Fargo Bank, N.A., as Co-Collateral Agents, and PNC Bank, as Swingline Lender and Issuing Bank (filed as Exhibit 4.1 to Layne's Form 8-K filed August 19, 2015, and incorporated herein by this reference). | |
4.10 | First Amendment and Consent to Amended and Restated Credit Agreement dated June 9, 2016, among Layne Christensen Company, as Borrower, certain subsidiaries of Layne Christensen Company, as Co-Borrowers, the guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Administrative Agent (filed as Exhibit 4.1 to Layne's Form 10-Q for the fiscal quarter ended July 31, 2016 filed September 6, 2016, and incorporated herein by this reference). | |
| Form of Incentive Stock Option Agreement between Layne and Management of Layne (filed with Layne’s Annual Report on Form 10-K for the fiscal year ended January 31, 1996 (File No. 0-20578), as Exhibit 10(15) and incorporated herein by this reference). | |
|
|
|
*10.2 |
| Form of Incentive Stock Option Agreement between Layne and Management of Layne effective February 1, 1998 (filed with Layne’s Form 10-Q for the quarter ended April 30, 1998 (File No. 0-20578) as Exhibit 10 and incorporated herein by reference). |
|
|
|
*10.3 |
| Form of Incentive Stock Option Agreement between Layne and Management of Layne effective April 20, 1999 (filed with Layne’s Form 10-Q for the quarter ended April 30, 1999 (File No. 0-20578) as Exhibit 10(2) and incorporated herein by reference). |
|
|
|
*10.4 |
| Form of Non-Qualified Stock Option Agreement between Layne and Management of Layne effective as of April 20, 1999 (filed with Layne’s Form 10-Q for the quarter ended April 30, 1999 (File No. 0-20578) as Exhibit 10(3) and incorporated herein by reference). |
|
|
|
*10.5 |
| Layne Christensen Company 2006 Equity Incentive Plan (as amended and restated) (filed as Exhibit 10.5 to Layne's Form 10-K for the fiscal year ended January 31, 2015, filed on April 14, 2015, and incorporated herein by this reference). |
|
|
|
*10.6 |
| Form of Incentive Stock Option Agreement between Layne and management of Layne for use with the 2006 Equity Incentive Plan (filed as Exhibit 4(e) to the Company’s Form S-8 (File No. 333-135683), filed July 10, 2006, and incorporated herein by this reference). |
|
|
|
*10.7 |
| Form of Nonqualified Stock Option Agreement between Layne and management of Layne for use with the 2006 Equity Incentive Plan, as amended effective January 26, 2009 (incorporated by reference to Exhibit 10(20) to Layne’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, filed on March 31, 2009). |
|
|
|
*10.8 |
| Form of Nonqualified Stock Option Agreement between Layne and non-employee directors of Layne for use with the 2006 Equity Incentive Plan, as amended effective January 26, 2009 (incorporated by reference to Exhibit 10(21) to Layne’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, filed on March 31, 2009). |
|
|
|
*10.9 |
| Form of Restricted Stock Agreement between Layne and management of Layne for use with the 2006 Equity Incentive Plan, as amended effective January 23, 2008 (incorporated by reference to Exhibit 10(22) to Layne’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, filed on March 31, 2009). |
|
|
|
*10.10 |
| Form of Restricted Stock Agreement between Layne and management of Layne for use with the 2006 Equity Incentive Plan (with performance vesting) (incorporated by reference to Exhibit 10(1) to Layne’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2009, filed on June 3, 2009). |
|
|
|
*10.11 |
| Form of Restricted Stock Agreement between Layne and non-employee directors of Layne for use with Layne’s 2006 Equity Incentive Plan, as amended effective January 26, 2009 (incorporated by reference to Exhibit 10(23) to Layne’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, filed on March 31, 2009). |
|
|
|
*10.12 |
| Severance Agreement, dated March 13, 2008, by and between Steven F. Crooke and Layne Christensen Company (incorporated by reference to Exhibit 10.3 to Layne’s Current Report on Form 8-K filed March 19, 2008). |
|
| |
|
|
|
*10.13 |
| |
|
| Layne Christensen Company Deferred Compensation Plan for Directors (Amended and Restated, effective as of January 1, 2009) (incorporated by reference to Exhibit 10(37) to Layne’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, filed on March 31, 2009). |
|
|
|
* |
| Layne Christensen Company Key Management Deferred Compensation Plan (amended and restated, effective as of January 1, 2008) (incorporated by reference to Exhibit 10(38) to Layne’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, filed on March 31, 2009). |
|
|
|
* |
| |
|
| Layne Christensen Company Executive Short-Term Incentive Plan (amended and restated as of February 1, 2016) . |
Layne Christensen Company Long-Term Incentive Plan (effective as of | ||
|
|
|
* |
| |
|
| Form of Restricted Stock Unit Agreement between Layne and management of Layne for use with the 2006 Equity Incentive Plan (filed as Exhibit 10.2 to Layne’s Current Report on Form 8-K filed April 4, 2013, and incorporated herein by reference). |
|
|
|
* |
| Form of Performance Shares Agreement between Layne and management of Layne for use with the 2006 Equity Incentive Plan (filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended April 30, 2013, and incorporated herein by reference). |
|
|
|
|
| |
|
| General Agreement of Indemnity, dated September 2, 2014, by and between Layne Christensen Company, as Indemnitor, and Travelers Casualty and Surety Company of America, as the Company (filed as Exhibit 10.2 to Layne's Form 10-Q for the Fiscal Quarter ended July 31, 2014, filed on September 9, 2014, and incorporated herein by reference). |
|
|
|
* |
| Offer Letter, dated December 8, 2014, between the Company and Michael J. Caliel (filed as Exhibit 10.26 to Layne's Form 10-K for the fiscal year ended January 31, 2015, filed on April 13, 2015, and incorporated herein by this reference). |
*10.21 | Severance Agreement, dated December 8, 2014, between the Company and Michael J. Caliel (filed as Exhibit 10.27 to Layne's Form 10-K for the fiscal year ended January 31, 2015, filed on April 13, 2015, and incorporated herein by this reference). | |
*10.22 | Offer Letter, dated July 6, 2015, between Layne Christensen Company | |
|
|
|
*10.23 | Severance Agreement, dated July 6, 2015, between Layne Christensen Company and J. Michael Anderson (filed as Exhibit 10.2 to Layne's Form 10-Q for the quarter ended July 31, 2015, filed on September 9, 2015, and incorporated herein by reference). | |
10.24 |
|
|
|
|
|
*10.25 |
|
|
|
|
|
|
| |
|
| |
21.1 |
| List of Subsidiaries. |
|
|
|
23.1 |
| Consent of Deloitte & Touche LLP. |
|
|
|
|
|
|
|
|
|
31.2 |
| |
|
| |
|
|
|
|
| Section |
|
|
|
|
| Section |
|
|
|
|
|
|
| |
|
| |
95 |
| Mine Safety Disclosures. |
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
| Management contracts or compensatory plans or arrangements required to be identified by Item 14(a)(3). |
|
|
|
** |
|
|
|
|
|
(b) |
| Exhibits The exhibits filed with this report on Form 10-K are identified above under Item 15(a)(3). |
|
|
|
|
|
|
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| Layne Christensen Company |
|
|
|
By |
| /s/ Michael J. Caliel |
|
| Michael J. Caliel |
|
| President and Chief Executive Officer |
|
| Dated April |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature and Title |
| Date |
|
|
|
/s/Michael J. Caliel |
| April |
Michael J. Caliel President, Chief Executive Officer and Director (Principal Executive Officer) | ||
|
|
|
/s/ |
| April |
Senior Vice President, Chief Financial Officer (Principal Financial Officer) | ||
/s/Lisa Curtis | April 10, 2017 | |
Lisa Curtis Vice President and Chief Accounting Officer (Principal Accounting Officer) | ||
|
|
|
/s/David A. B. Brown |
| April |
David A. B. Brown Director | ||
|
|
|
/s/J. Samuel Butler |
| April |
J. Samuel Butler Director | ||
|
|
|
/s/Robert R. Gilmore |
| April |
Robert R. Gilmore Director | ||
|
|
|
/s/John T. Nesser III |
| April |
John T. Nesser III Director | ||
|
|
|
/s/Nelson Obus |
| April |
Nelson Obus Director | ||
/s/Alan P. Krusi | ||
Alan P. Krusi Director | April 10, 2017 | |
11299