10-K 1 layn-10k_20160131.htm 10-K layn-10k_20160131.htm

333+ 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-K

 

(Mark One)

x

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended January 31, 2016  

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 800 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

 

x

 

 

 

 

Non-accelerated filer

 

¨    (Do not check if a smaller reporting company)

 

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 20,930,864 shares of Common Stock of the registrant held by non-affiliates of the registrant on July 31, 2015, 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 $173,726,171.

At April 7, 2016, there were 19,802,596 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 2016 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A.

 

 

 

 

 


LAYNE CHRISTENSEN COMPANY

Form 10-K

 

PART I

 

 

Item 1. Business

 

1

Item 1A. Risk Factors

 

10

Item 1B. Unresolved Staff Comments

 

29

Item 2. Properties

 

29

Item 3. Legal Proceedings

 

29

Item 4. Mine Safety Disclosures

 

29

PART II

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

30

Item 6. Selected Financial Data

 

32

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

33

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

51

Item 8. Financial Statements and Supplementary Data

 

52

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

94

Item 9A. Controls and Procedures

 

94

Item 9B. Other Information

 

95

PART III

 

 

Item 10. Directors, Executive Officers and Corporate Governance

 

97

Item 11. Executive Compensation

 

98

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

98

Item 13. Certain Relationships, Related Transactions and Director Independence

 

98

Item 14. Principal Accountant Fees and Services

 

98

PART IV

 

 

Item 15. Exhibits, Financial Statement Schedules

 

99

Signatures

 

 104

 

 

 

 


 

PART I

Item 1.

Business

General

Layne Christensen Company (“Layne”, “our”, “we” or “us”) is a leading global water management and services company, with more than 130 years of industry experience, providing responsible, integrated solutions to address the world’s toughest water, mineral and energy challenges. 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 78 sales and operations offices located throughout North America, South America, and through our affiliates in Latin America countries. Layne maintains executive offices at 1800 Hughes Landing Boulevard, Suite 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.

Our teams are responsible for effectively managing water throughout its lifecycle including supply, treatment, delivery and maintenance. 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 our heavy civil expertise, we design and construct comprehensive, end-to-end water management systems, as well as individual intakes, reservoirs, pump stations, pipelines and plants. Layne also provides comprehensive turnkey drilling solutions for water management, mineral services and specialty drilling needs. Our team of specialists helps 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-free samples that accurately reflect the underlying mineral deposits for our global mining customers.

Business Segments

During the third quarter of fiscal year ended January 31, 2016, we completed the sale of our Geoconstruction business segment, and realigned our operating structure to combine the Energy Services segment with our Water Resources segment. Historical information has been updated to conform to the realigned operating segments and the disposition of the Geoconstruction business segment.

As of fiscal year ended January 31, 2016, we operate our business in four segments: Water Resources, Inliner, Heavy Civil and Mineral 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 15 to the Consolidated Financial Statements for financial information pertaining to the operations and geographic spread of the segments and foreign operations.

Water Resources

Operations

Throughout the U.S., Water Resources provides our customers with sustainable solutions for water supply system development and technology. We provide a full suite of water-related products and services, including hydrologic design and construction, source of supply exploration, well and intake construction and well and pump rehabilitation. We also offer water treatment equipment engineering services, providing systems for the treatment of regulated and nuisance contaminants, specifically iron, manganese, hydrogen sulfide, arsenic, radium, nitrate, perchlorate and volatile organic compounds.

 

1


 

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, 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 variety of customer requirements.

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.

Our involvement in the initial drilling of wells positions us to win follow-up rehabilitation business, which is generally a higher margin business than well drilling. 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 a network of local offices throughout our geographic markets in the U.S. 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 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. Our customers are typically national and regional consulting firms engaged by federal and state agencies, as well as industrial companies that need to assess, define or clean up groundwater contamination sources. We assist the customer in determining the extent of groundwater contamination, installation of recovery wells that extract contaminated groundwater for treatment, which is known as pump and treat remediation, and specialized site safety programs associated with drilling at contaminated sites.

Water Resources provides responsible water management solutions to the oil and natural gas industry’s exploration and production (E&P) water related challenges. Our water management services for the energy market specialize in hydrogeological assessments and sourcing, transfer and storage, and 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 energy businesses. The term “government agencies” includes federal, state and local entities. Current customers in our energy market include E&P companies that operate in the Permian Basin.

Demand for water solutions will grow as government agencies, and industrial, agricultural and energy companies 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. 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.

In the drilling of new water wells we target customers that require compliance with detailed and demanding specifications and regulations and that often require bonding and insurance, areas in which we believe we often have competitive advantages.

 

2


 

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, 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.

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 is highly fragmented, consisting of several thousand regionally and locally based contractors. The majority of these contractors are primarily involved in drilling low-volume water wells for agricultural and residential customers, markets in which we do not generally participate. Competition in the energy market 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 that we offer.

Competition for Water Resources’ services consists primarily of small, local operations and some larger regional competitors. 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. Since well and pump rehabilitation work is typically negotiated on an emergency basis or within a relatively short period of time, those companies with available rigs and the requisite expertise have a competitive advantage by being able to respond quickly to repair requests.

Inliner

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® cured-in-place pipe (“CIPP”). The product allows us to rehabilitate aging and deteriorated infrastructure and provide structural rebuilding as well as infiltration and inflow reduction. Its 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. From 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. Since our start we have successfully installed approximately 25 million feet of CIPP throughout the U.S. Pipe diameters have ranged from 4-inches to 90-inches and have included traditional round as well as non-circular geometries. Inliner’s lining tube manufacturing facilities, saturation facilities, and installation techniques are all ISO 9001:2008 certified bringing an added element of quality control to tube construction, product design and field installation.

Inliner has the ability to supply both traditional felt-based CIPP lining tubes cured with water or steam as well as fiberglass-based lining tubes cured with ultraviolet light. All product types and curing media are installed with internal crews. In addition, Layne offers outside sales of dry felt liners and saturated fiberglass/UV liners to other marketplace installers.

While Inliner focuses on CIPP, it is committed to full system renewal and construction management. Inliner provides a wide variety of other rehabilitative methods including Janssen structural renewal for service lateral connections and mainlines, traditional excavation and replacement and manhole renewal with cementitious and epoxy products. Inliner’s expertise, experience and customer-oriented contracting combined with its ability to provide a diverse line of products and services differentiates it from other rehabilitation contractors and allows Inliner to provide clients with single source accountability when it comes to rehabilitative services.

 

3


 

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 to the Rocky Mountains. Felt based sales through Liner Products are predominantly U.S. based. Fiberglass/UV based sales were all U.S. generated.  

Many of the drivers for sewer rehabilitation demand are largely a function of deteriorating urban infrastructure compounded by population growth and deteriorating water quality. Additionally, federal and state agencies are forcing municipalities and industry to address infiltration and inflow of groundwater into damaged or leaking sewer lines, enforcing stricter regulation and encouraging new technology that encourages us to achieve new standards of quality.

Competition

The CIPP industry has a limited number of contractors with nationwide coverage, the largest being Insituform, a subsidiary of Aegion Corporation.  In addition, several more regionalized competitors are found throughout the U.S. Municipal work is typically obtained on a competitive bid basis with rare exceptions of qualification-based or design build proposals being used for contractor selection. Industrial or private work can be either competitive bid or negotiated.

Larger competitors share the same vertical integration (tube manufacturing/assembly, wetout and installation) as Inliner, while 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 enter and remain in the CIPP business. The entrance of fiberglass products cured with ultraviolet light continues to open up competition even further. Despite widespread competition, Inliner remains one of the most diversified providers in the industry by offering management services and more solutions than just CIPP.

Heavy Civil

Operations

 

Heavy Civil delivers solutions to public and private customers by providing design and construction services of water and wastewater treatment plants and pipeline installation.  In addition, Heavy Civil builds radial collector wells (Ranney® Method), surface water intakes, pumping stations, hard rock tunnels and marine construction. Heavy Civil also provides design and construction services for biogas facilities (anaerobic digesters) for the purpose of generating and capturing methane gas, an emerging renewable energy resource.

The Heavy Civil treatment plant group, specializes in new facility construction, expansion and 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.

Our 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, including collection systems, interceptor sewers and force main. Heavy Civil can also deliver special piping systems for process piping and cooling water needs. Heavy Civil has the capability to install deep, large diameter piping in rock or other difficult soil conditions, including applications involving tunnels and marine construction.  

Heavy Civil professionals include specialists in the design and construction of intakes and pump stations for high-capacity water supply systems.  In addition, The Ranney® group 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.

Our 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.

 

4


 

Customers & Markets

 

Continued population growth in water-challenged regions, more stringent regulatory requirements, as well as deteriorating infrastructure all lead to an increased need to conserve water resources and control contaminants and impurities.  

Competition

 

Heavy Civil routinely competes with local and national construction firms across the U.S. Management believes that many of the competitors in this industry do not possess the capabilities for end-to-end water management systems in the same manner as Heavy Civil. This differentiates Heavy Civil from its competitors.

 

Mineral Services

Operations

Before investing heavily in development to extract minerals, global mining and junior mining companies hire Mineral Services to extract rock and soil samples for analyses of mineral content and 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. Samples extracted must be free of contamination and accurately reflect the location and orientation of underlying mineral deposits.

Mineral Services has country managers who are responsible for operations throughout North America and South America. These managers are responsible for maintaining contact and relationships with mining operations that perform work on a global basis, as well as junior mining companies that operate more regionally.

In the case of Mineral Services’ foreign affiliates, where it does 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 comprehensive operating and financial information. The foreign affiliates are engaged in similar operations to Mineral Services, in addition to 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 the fiscal years ended January 31, 2016, 2015 and 2014.  In response, Mineral Services has continually adjusted its operations to react to market conditions experienced by the industry.  As discussed in Note 16 to the Consolidated Financial Statements, during the year ended January 31, 2016, we implemented a plan to exit our operations in Africa and Australia, in addition to reducing operating expenses, and shifting assets to the Americas where exploration has been slightly less affected. The minerals exploration business is cyclical in nature. The longer term mining industry fundamentals remain positive. Our safety record and ability to re-deploy assets quickly when called upon makes Mineral Services well positioned for opportunities.

Customers and Markets

Mineral Services customers are major gold and copper producers and to a lesser extent, other base metal producers. Mineral Services’ largest customers are multi-national corporations headquartered in the U.S., 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. Our primary markets are in the western U.S., Mexico and South America. Mineral Services also has ownership interests in foreign affiliates operating in Latin America that form its primary presence in this market. 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 volatility in commodity prices, 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. The continuing decline in commodity prices has significantly impacted demand for 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.

 

5


 

Mining companies continue to focus their efforts on reducing costs throughout their supply chain to lower the cost of production and improve value.  Mining service companies have responded by idling drills and reducing staff. Those with healthy balance sheets, global operating expertise and scale should be well positioned once demand increases.  Technological advancements in drilling and processing are improving cost efficiencies 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. Some 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. Mineral Services work is typically performed on a negotiated basis.

Other

Operations

Other operations consist of purchasing 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

We identify potential projects from a variety of sources.  After determining which projects are available, we make a decision on which projects to pursue based on factors such as project size, duration, availability of personnel, current backlog, profitability expectations, type of contract, prior experience, source of project funding and geographic location.

Contracts are usually awarded through a competitive bid process.  We execute our contracts through a variety of methods, including cost-plus, fixed-price, day rate, unit price or some combination of these methods.  Customers may consider price, technical capabilities of equipment and personnel, safety record and reputation.

Fixed-price contracts have 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.  However, we are beginning to see a greater use of cost-plus contracts for these types of projects.

Most of our contract revenues and costs are recognized using the percentage of completion method.  For each contract, we regularly review 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, we recognize a charge against current earnings which could be material.

Backlog Analysis

Backlog represents the dollar amount of revenues we expect to recognize in the future from contracts that have been awarded as well as contracts that are currently in progress. We include a project in backlog at such time as a contract is executed. 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. 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 the fiscal years ended January 31, 2016 and 2015. Backlog is not a measure defined by U.S. GAAP and is not a measure of profitability. Our method for calculating backlog may not be comparable to methodologies used by other companies.

Layne’s backlog of uncompleted contracts at January 31, 2016, was approximately $346.3 million as compared to $395.6 million at January 31, 2015. The following table provides an analysis of backlog by segment for the fiscal year ended January 31, 2016.

 

6


 

 

 

 

Backlog at

 

 

New Business

 

 

Revenues Recognized

 

 

Backlog at

 

(in millions)

 

January 31, 2015

 

 

Awarded (1)

 

 

FY 2016

 

 

January 31, 2016

 

Water Resources

 

$

83.2

 

 

$

233.1

 

 

$

227.5

 

 

$

88.8

 

Inliner

 

 

126.8

 

 

 

180.5

 

 

 

193.7

 

 

 

113.6

 

Heavy Civil (2)

 

 

184.6

 

 

 

135.1

 

 

 

175.8

 

 

 

143.9

 

Mineral Services

 

 

1.0

 

 

 

84.9

 

 

 

85.9

 

 

 

 

Total

 

$

395.6

 

 

$

633.6

 

 

$

682.9

 

 

$

346.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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)

As of January 31, 2016, approximately 13% of the Heavy Civil backlog is not reasonably expected to be completed in FY2017.

Of Layne’s total backlog of $346.3 million as of January 31, 2016, approximately $14.9 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. We 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, 2016, there were no significant contracts in backlog not moving forward as originally scheduled.

During the fiscal years ended January 31, 2016 and 2015, 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  

 

We strive to be a responsible 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, construction and drilling. Our strategy is to solve our clients’ most complex natural resource problems by leveraging our diverse product and service offerings into solutions that provide the greatest value.

Our water management and construction expertise has historically been focused on the U.S. municipal marketplace and we are focused on extending our expertise further into the agricultural, industrial and energy marketplaces.

Our mining clients are mainly large and intermediate global companies that engage us principally for exploration drilling services for copper, gold, and selected other minerals. This is a deeply cyclical business and we aim to mitigate revenue downturns in this sector by cross selling our water management capabilities. We are marketing our dewatering capabilities and our water sourcing and treatment expertise as a way to generate additional revenues from current clients as the mineral drilling services market continues in its downturn.

We are continuing to manage our costs to align with lower earnings and to explore opportunities within each segment to develop sustainable, profitable operations within the organization.

Seasonality

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, drilling activities slow down during Thanksgiving, Christmas and New Year holidays. As a result, revenues and earnings in the first and fourth quarters tend to be less than revenues and earnings in the second and third quarters.

 

7


 

Regulation

General

As an international corporation operating in many parts of the world, 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 its 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. Layne has internal procedures and policies that management believes help to ensure that its operations are conducted in compliance with current regulations.

We 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.

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

Our 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, its predecessors or locations where Layne or its 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 our customers and influence their determination whether to engage in projects which utilize its products and services.

As part of our adherence to environmental laws and regulations, we highlight on the importance of sustainability.  Our employees contribute to the economic and environmental sustainability of the communities in which we operate.

 

8


 

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 our 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 our 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. In many cases, a solid safety record is a requirement of doing business with our customers.

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 our 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 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 for the violation of a mandatory health and safety standard. A civil penalty must be assessed 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.

The operation and registration of our motor vehicles are subject to various regulations, including those promulgated by the U.S. Department of Transportation, 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. We maintain well drilling and contractor’s licenses in those jurisdictions in which we operate and in which such licenses are required. In addition, we employ licensed engineers, geologists and other professionals necessary to the conduct of our business. In those circumstances in which we do not have a required professional license, we subcontract that portion of the work to a firm employing the necessary licensed professionals. Our 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 our customers.

 

9


 

Anti-corruption and Bribery

We 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. We are also subject to the applicable anti-corruption laws in the jurisdictions in which we operate, thus potentially exposing us 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 us 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.

As discussed in Note 13 to the Consolidated Financial Statements, we remain subject to a settlement agreement with the SEC entered into on October 27, 2014, under which we agreed to undertake certain compliance, reporting and cooperation obligations to the SEC for two years following the settlement date.

We devote significant 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 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

Our 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 industry practice.

As is common practice in the construction business, we 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.  

Employees

At January 31, 2016, we had approximately 2,680 employees, approximately 145 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 training and development of its personnel. Periodic technical training is provided for senior field employees covering such areas as pump installation, drilling technology and electrical troubleshooting.

In addition, Layne emphasizes strict adherence to all health and safety requirements and offer incentive pay based upon achievement of specified safety goals. This emphasis encompasses developing site-specific safety plans, ensuring regulatory compliance and training employees in regulatory compliance and sound safety practices. Training consists of an OSHA-mandated 40-hour hazardous waste and emergency response training course as well as the required annual 8-hour updates. In addition to the OSHA-mandated training, all employees working on mine sites are required to attend a 24-hour MSHA new miners training and an 8-hour annual refresher. Layne has a safety team staffed with certified professional trainers which allows us to offer such training in-house. 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 drillers have approximately nine years of experience with Layne. Many of our professional employees have advanced academic backgrounds in agricultural, chemical, civil, industrial, geological and mechanical engineering, geology, geophysics and metallurgy. Management believes that our size and reputation allow us to compete effectively for highly qualified professionals.

Item 1A.

Risk Factors

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.

 

10


 

Risks Relating to Our Business and Industry

Demand for our services is vulnerable 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 current economic conditions, volatile credit and commodity markets, many of our customers are facing considerable budget shortfalls or are delaying capital spending that will 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. Reduced tax revenue in certain regions, or inability to access traditional sources of credit, may limit spending and new development by local municipalities, 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. The bidding for these projects is highly competitive. In addition, the competition for projects with negotiated contracts is also 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 is negatively impacting Mineral 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 current decline in oil and gas prices has depressed the energy market, negatively impacting 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 have resulted in a reduction in demand for our Mineral Services which has reduced our revenue.

The mining industry is highly cyclical and commodity prices can be extremely volatile.  Demand for the type of services provided by Mineral Services depends in significant part upon the level of exploration and development activities, particularly with respect to gold and copper. The price of gold and 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.

 

11


 

During FY2016, Mineral Services continued to experience a reduction in its revenue as it did during FY2015 and FY2014. This decrease was due, in part, to lower mining exploration budgets of our customers as well as less demand in the marketplace. 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.

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.

Adverse weather conditions, natural disasters, disease, force majeure and other similar events can curtail our operations in various regions of the world throughout the year, 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:

 

·

changes in expected costs of materials, labor, productivity or scheduling;

 

·

changes in external factors outside of our control, such as weather 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.

Our reported financial results may be adversely affected by changes in accounting principles applicable to us.  

Generally accepted accounting principles in the United States (“U.S. GAAP”) are 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.

 

12


 

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. Under such contracts, prices are established in part on cost and scheduling estimates, which are based on a number of assumptions, including assumptions about 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.  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, weather delays, inefficiencies, cost of raw materials, or our suppliers’ or subcontractors’ inability to perform, which could result in substantial losses. As a result, cost and gross margin may vary from those originally estimated 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 harm 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 timing of new contract awards and the performance of those new contracts could result in fluctuations in our operating results and cash flows.

New projects often must endure 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.

 

13


 

On certain projects we may enter into a joint venture 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, 2016, based on the expected amount of revenues remaining to be recognized on the projects, was $259.7 million.

We also occasionally utilize a letter of credit instead of a performance bond, primarily overseas.  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 achieve the results expected from our restructuring plans, the timing could be delayed or the 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.

During the year ended January 31, 2016, in response to continuing decline in the global minerals market, we implemented a plan to exit our operations in Africa and Australia. The plan to exit operations in Africa and Australia is expected to reduce compensation expenses and other operating expenses within these regions. We also periodically review our corporate and operational structures to improve efficiencies and reduce expenses. These reviews may, among other things, result in a reduction in workforce, cost containment measures and working capital management initiatives.

The timing and actual cost savings achieved from our current and any future plans may significantly vary from our announced expectations due to a variety of reasons, including, among other things, the potential need to replace eliminated positions and costs we may incur in connection with employee turnover.  Our restructuring plans 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 we may not be able to obtain the consent of the lenders.

In addition, our management is conducting a strategic review of our businesses and 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.

 

New business initiatives may have an adverse effect on our business.

As part of our business strategy, we have completed a comprehensive review of our processes to determine greater efficiencies, including an overall review of our general and administrative costs. As a result of these reviews, we are realigning some of our corporate functions, and review the administrative functions at the divisional level to reduce redundancy and minimize costs. If these initiatives are ineffective or insufficient, we may not yield the full financial results that we anticipate.

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;

 

14


 

 

·

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.

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 deficiency 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, 2016, we had total long-term indebtedness of approximately $159.0 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.

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.

 

15


 

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, 2016, our borrowing base under the asset-based facility was $100.0 million, with $33.9 million of letters of credit and no borrowings outstanding, resulting in Excess Availability of $66.1 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, 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;

 

16


 

 

·

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.

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:

 

·

Excess Availability is greater than the greater of 17.5% of the Total Availability or $17.5 million for a period of 30 consecutive days, and

 

·

For two consecutive fiscal quarters after the closing date, the fixed charge coverage ratio (tested on a trailing four fiscal quarter basis) has been in excess of 1.0 to 1.0.

We currently anticipate being subject to the cumulative and twelve consecutive month minimum cash flow covenants for at least the next twelve months.  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 FY2016, 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 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 6 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. We may not be successful in retaining or attracting qualified replacements should any personnel leave.  The loss of members of our executive 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 many markets worldwide, 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.

 

17


 

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 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;

 

·

bribery and corruption;

 

·

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

 

·

exchange controls and limitations on remittance of dividends or other payments to us by our foreign subsidiaries and affiliates.

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 portion of our business in countries outside the U.S. The majority of our costs in those locations are transacted in local currencies. Although we generally contract with our customers in U.S. dollars, some of our contracts are in other currencies. We do not currently engage in foreign currency hedging transactions. As exchange rates among the U.S. dollar and other currencies fluctuate, the translation effect of these fluctuations may have a material adverse effect on our results of operations or financial condition as reported in U.S. dollars. Exchange rate policies have not always allowed for the free conversion of currencies at the market rate. Future fluctuations in the value of the U.S. dollar could have an adverse effect on our results. In addition, some of the countries in which we operate have foreign currency restrictions that may prohibit or limit our ability to convert local currencies into U.S. dollars and/or transfer U.S. dollars from such countries to the U.S., which restrictions could affect our liquidity or our ability to use such funds in other countries.

 

18


 

We conduct business in many international markets with complex and evolving tax rules, including value-added tax rules, which subject us to international tax compliance risks.

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 portion of our operating income from outside of the U.S., and any repatriation of funds currently held in foreign jurisdictions may result in additional tax expense. In addition, there have been proposals to change U.S. tax laws that would significantly impact how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form this proposed legislation will pass, if enacted, it could have a material impact on our tax expense and cash flows.

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 revenue or additional costs.

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.

 

19


 

Claims for indemnification related to the sale of the Geoconstruction business segment may be substantial and have a negative impact on our financial condition.

As part of the sale of our Geoconstruction business segment, we have agreed to indemnify the purchaser for certain preclosing liabilities associated with the Geoconstruction business segment 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 period 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 were unwilling to release us from guarantees or other credit support provided prior to the sale of the Geoconstruction business segment. As a result, after a divestiture, we remain secondarily liable for some of the obligations guaranteed or supported to the extent that the buyer of the Geoconstruction business segment fails to perform these obligations.

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, 2016, approximately 5% of our workforce was unionized and 4 of our 21 active collective bargaining agreements are scheduled to expire within the next 12 months. To the extent that disputes relating to existing or future collective bargaining agreements arise, a work stoppage could occur. If protracted, a work stoppage could substantially reduce or suspend our operations and reduce our revenue.

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, we compete with many smaller firms on a local or regional level, many of whom may have a lower corporate overhead cost than us. There are few proprietary technologies or other significant factors which prevent other firms from entering these local or regional markets or from consolidating together into larger companies more comparable in size to our company. Competition also places downward pressure on our contract prices and profit margins. Competition in all of our markets, has intensified in the last couple of years due to the continuing difficult economic conditions and such heightened competition is expected to continue for the foreseeable future. If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience an overall reduction in our profit. Additional competition could reduce our profit.

 

20


 

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 U.S. Department of Transportation (DOT) that our motor carrier operations may be monitored and that the failure to improve our safety performance could result in suspension or revocation of vehicle registration privileges. If we were not able to successfully resolve these issues, our ability to service our customers could be damaged, which could lead to a material adverse effect on our results of operations, cash flows and liquidity.

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.

 

21


 

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 Democratic Republic of Congo (DRC) or an adjoining country. We have incurred additional costs associated with complying with these disclosure requirements, including costs to determine the origin of conflict minerals used in our products. In addition, the implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. Also, we may face reputational challenges if the due diligence procedures we implement do not enable us to verify the origins for all conflict minerals. We may also encounter challenges to satisfy customers that may require all of the components of products purchased to be certified as DRC conflict-free because our supply chain is complex. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.

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.

 

22


 

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, $1,500,000 for general liability insurance, $1,000,000 for auto liability insurance and $1,000,000 for workers’ compensation insurance. We cannot assure that we will have adequate funds to cover our deductible obligations or that our insurance will be sufficient or effective under all circumstances or against all claims or hazards to which we may be subject or that we will be able to continue to obtain such insurance protection. In addition, we may not be able to maintain insurance of the types or at levels we deem necessary or adequate or at rates we consider reasonable. A claim or damage resulting from a hazard for which we are not fully insured could increase our operating costs and reduce our profit.

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. We evaluate our long-lived assets, equity method investments and goodwill for impairment at least annually or when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline. See Note 4 to the Consolidated Financial Statements for a discussion of impairment charges recorded.

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, income tax expense and deferred income tax liabilities could be significantly increased.

 

23


 

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 a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and our code of business conduct and ethics. We are subject, however, to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including the U. S. Foreign Corrupt Practices Act of 1977 (“FCPA”).

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 Africa.  Under the terms of the settlement, without admitting or denying the SEC’s allegations, we agreed, among other things, to undertake certain compliance, reporting and cooperation obligations to the SEC that continue until October 27, 2016.

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. Civil penalties under the anti-bribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2.0 million per violation or twice the gross pecuniary gain to Layne or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $0.5 million and a company that knowingly commits a violation can be fined up to $25.0 million. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions for these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA.

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.  We could also be subject to additional penalties if we violate the order settling the FCPA investigation or are found to not comply with its compliance, reporting and cooperation obligations.

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.

 

24


 

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 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.

The conditional conversion feature of our 4.25% Convertible Notes, if triggered, may adversely affect our financial condition.

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.

 

25


 

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.

Pursuant to the terms of our 4.25% Convertible Notes, at our election, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock.  We refer to these settlement methods as cash settlement, physical settlement and combination settlement, respectively.  In May 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20.  ASC 470-20 requires an entity to separately account for the liability and equity components of convertible debt instruments whose conversion may be settled entirely or partially in cash in a manner that reflects the issuer’s economic interest cost for non-convertible debt.  During the first quarter of FY2015, the liability component of the convertible debt instrument was valued at the fair value of a similar debt instrument that did not have an associated equity component and was reflected as a liability on the balance sheet.  The equity component of the convertible debt instrument was included in the additional paid-in capital section of stockholders’ equity on the balance sheet, and the value of the equity component was treated as original issue discount for purposes of accounting for the debt component.  This original issue discount is being amortized to non-cash interest expense over the term of the convertible debt instrument.  Accordingly, we record a greater amount of non-cash interest expense in current periods as a result of this amortization.  We report lower net income in our financial results because ASC 470-20 requires the interest expense associated with our 4.25% Convertible Notes to include both the current period’s amortization of the debt discount and our 4.25% Convertible Notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of our 4.25% Convertible Notes.

If we elect to settle conversions using physical settlement, then we must include the full number of shares underlying our 4.25% Convertible Notes in the calculation of our diluted earnings per share, regardless of whether the contingent conversion feature of our 4.25% Convertible Notes is triggered.  In addition, under certain circumstances, convertible debt instruments whose conversion may be settled entirely or partly in cash (such as our 4.25% Convertible Notes) are currently accounted for using the treasury stock method.  Under this method, the shares issuable upon conversion of convertible notes are not included in the calculation of diluted earnings per share unless the conversion value of the convertible notes exceeds their principal amount at the end of the relevant reporting period.  If the conversion value exceeds their principal amount, then, for diluted earnings per share purposes, convertible notes are accounted for as if the number of shares of common stock that would be necessary to settle the excess, if we elected to settle the excess in shares, are issued.  Accordingly, the treasury stock method could result in more favorable reported diluted earnings per share.  If we do not satisfy the criteria required to utilize the treasury stock method, we will be required to determine diluted earnings per share utilizing the “if converted” method, the effect of which is that the shares issuable upon conversion of the notes are included in the calculation of diluted earnings per share assuming the conversion of the notes at the beginning of the reporting period if the impact is dilutive. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. Additionally, we cannot be sure that we will satisfy the relevant criteria to utilize the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares, if any, issuable upon conversion of our convertible notes, then our diluted earnings per share could be adversely affected.

 

26


 

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 the 8.0% 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 6 to the Consolidated Financial Statements, if a “fundamental change” (as defined in the indenture governing our 8.0% Convertible Notes) occurs, holders of the 8.0% 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 the 8.0% 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  8.0% Convertible Notes unless certain “payment conditions” are satisfied. This provision may prohibit us from repurchasing 8.0% Convertible Notes at the holders’ election following a fundamental change or certain asset sales and casualty and condemnation events.

If we fail to repurchase the 8.0% Convertible Notes when required, we will be in default under the indenture for the 8.0% 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 and Delaware law could prevent or frustrate attempts by stockholders to replace our current management or effect a change of control of Layne.

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.

 

27


 

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 lowered by future sales of our common stock.

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, 2016, 2.2 million shares of our common stock were issuable, subject to vesting requirement, under currently outstanding stock options and restricted stock units granted to officers, directors and employees and an additional 0.8 million shares are available to be granted under our stock option and employee incentive plans.

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 has been volatile and could decline, resulting in a substantial or complete loss of your investment. Because the trading of our common stock is characterized by low trading volume, it could be difficult for you to sell the shares of our common stock that you hold.

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.

 

28


 

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.

Item 1B.

Unresolved Staff Comments

We have no unresolved comments from the Securities and Exchange Commission staff.

Item 2.

Properties

Our corporate headquarters are located in The Woodlands, Texas (a suburb of Houston, Texas), in an office space leased by Layne pursuant to a written lease agreement which expires in 2025 and has two, five-year extensions.  We have subleased a certain portion of our corporate facilities under sublease agreement that expires in 2025.

As of January 31, 2016, we (excluding foreign affiliates) owned or leased approximately 455 drill and well service rigs throughout the world, approximately of which 317 were located in the U.S. The total rig number includes rigs used primarily in each of our service lines as well as multi-purpose rigs. In addition, as of January 31, 2016, our foreign affiliates owned or leased approximately 196 drill rigs.

Item 3.

Legal Proceedings

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 13 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 accordance with U.S. GAAP, we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These liabilities are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case or proceeding.  

Item 4.

Mine Safety Disclosures

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.

 

 

 

 

29


 

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NASDAQ Global Select Market under the symbol LAYN. The following table sets forth the range of high and low sales prices of our stock by quarter for the fiscal years ended January 31, 2016 and 2015, as reported by the NASDAQ Global Select Market.

 

 

 

 

 

 

 

 

 

 

Fiscal Year 2016

 

High

 

 

Low

 

First Quarter

 

$

8.68

 

 

$

4.35

 

Second Quarter

 

 

10.51

 

 

 

6.31

 

Third Quarter

 

 

8.80

 

 

 

5.56

 

Fourth Quarter

 

 

7.21

 

 

 

3.75

 

 

 

 

 

 

 

 

 

 

Fiscal Year 2015

 

High

 

 

Low

 

First Quarter

 

$

18.92

 

 

$

15.81

 

Second Quarter

 

 

17.47

 

 

 

10.45

 

Third Quarter

 

 

11.99

 

 

 

5.90

 

Fourth Quarter

 

 

10.39

 

 

 

6.73

 

 

 

 

 

 

 

 

 

 

At April 7, 2016, there were 168 owners of record of our common stock.

We have not paid any cash dividends on our common stock. Moreover, our Board of Directors does not anticipate paying any cash dividends in the foreseeable future. Future dividend policy will depend on a number of factors including our future earnings, capital requirements, financial condition and prospects and such other factors as the Board of Directors may deem relevant, as well as restrictions under our indebtedness agreements. Our indebtedness agreements currently contain restrictions on our ability to pay cash dividends.

 

 

30


 

The following graph provides a comparison of our five-year, cumulative total shareholder return (1) from January 31, 2011 through January 31, 2016 to the return of S&P 500, the Russell 3000, and a custom peer group selected by Layne.  The peer group includes Aegion Corp, Nuverra Environmental Solutions Inc., Matrix Service Company, Primoris Services Corp., Tutor-Perini Corp., Boart Longyear Limited, Major Drilling Group International Inc., Foraco International SA and Forage Orbit Garant Inc.  Going forward, we will be using the Russell 3000 index for our market comparison because we believe it provides a broader-based index representing the market as a whole, whereas the NASDAQ Composite index is heavily weighted with technology companies. The comparisons shown in the graph are based on historical data.  The stock price performance shown in the graph is not necessarily indicative of, nor is it intended to forecast, the potential future performance of Layne’s common stock.  Information used in the graph was obtained from Research Data Group, a source believed to be reliable, but we are not responsible for any errors or omission in such information.

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.

 

 

 

31


 

 

 

Item 6.

Selected Financial Data

The following selected historical financial information as of and for each of the five fiscal years ended January 31, 2016, has been derived from our audited consolidated financial statements. All periods presented below reflect the effects of operations discontinued during each of the years in the table below.

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and Years Ended January 31,

 

2016(1)

 

 

2015(3)

 

 

2014(4)

 

 

2013(5)

 

 

2012

 

Income Statement Data (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

683,010

 

 

$

720,568

 

 

$

772,102

 

 

$

935,879

 

 

$

1,017,625

 

Cost of revenues (exclusive of depreciation, amortization and impairment charges shown below)

 

 

(570,078

)

 

 

(610,844

)

 

 

(645,078

)

 

 

(774,326

)

 

 

(814,285

)

Selling, general and administrative expenses (exclusive of

   depreciation, amortization and impairment charges

   shown below)

 

 

(108,159

)

 

 

(117,085

)

 

 

(126,315

)

 

 

(143,050

)

 

 

(146,882

)

Depreciation and amortization

 

 

(32,685

)

 

 

(41,978

)

 

 

(48,792

)

 

 

(49,475

)

 

 

(45,421

)

Impairment charges(6)

 

 

(4,598

)

 

 

 

 

 

 

 

 

(8,431

)

 

 

(96,579

)

Equity in (losses) earnings of affiliates

 

 

(612

)

 

 

(2,002

)

 

 

(2,974

)

 

 

16,700

 

 

 

21,302

 

Restructuring costs

 

 

(9,954

)

 

 

(2,698

)

 

 

 

 

 

 

 

 

 

Gain on extinguishment of debt(2)

 

 

4,236

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(18,011

)

 

 

(13,707

)

 

 

(7,132

)

 

 

(3,301

)

 

 

(2,357

)

Other income, net

 

 

2,354

 

 

 

1,352

 

 

 

6,696

 

 

 

5,389

 

 

 

9,131

 

Loss from continuing operations before income taxes

 

 

(54,497

)

 

 

(66,394

)

 

 

(51,493

)

 

 

(20,615

)

 

 

(57,466

)

Income tax benefit (expense)(7)

 

 

1,635

 

 

 

3,945

 

 

 

(56,884

)

 

 

10,024

 

 

 

(6,639

)

Net loss from continuing operations

 

 

(52,862

)

 

 

(62,449

)

 

 

(108,377

)

 

 

(10,591

)

 

 

(64,105

)

Net income (loss) from discontinued operations

 

 

8,057

 

 

 

(46,878

)

 

 

(19,674

)

 

 

(25,432

)

 

 

10,923

 

Net loss

 

 

(44,805

)

 

 

(109,327

)

 

 

(128,051

)

 

 

(36,023

)

 

 

(53,182

)

Net (loss) income attributable to noncontrolling interest

 

 

28

 

 

 

(824

)

 

 

(588

)

 

 

(628

)

 

 

(2,893

)

Net loss attributable to Layne Christensen Company

 

$

(44,777

)

 

$

(110,151

)

 

$

(128,639

)

 

$

(36,651

)

 

$

(56,075

)

Earnings per share information attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Layne Christensen Company shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per share-continuing operations

 

$

(2.68

)

 

$

(3.22

)

 

$

(5.56

)

 

$

(0.58

)

 

$

(3.44

)

Basic income (loss) per share-discontinued operations

 

 

0.41

 

 

 

(2.39

)

 

 

(1.00

)

 

 

(1.30

)

 

 

0.56

 

Basic loss per share

 

$

(2.27

)

 

$

(5.61

)

 

$

(6.56

)

 

$

(1.88

)

 

$

(2.88

)

Diluted loss per share-continuing operations

 

$

(2.68

)

 

$

(3.22

)

 

$

(5.56

)

 

$

(0.58

)

 

$

(3.44

)

Diluted income (loss) per share - discontinued operations

 

 

0.41

 

 

 

(2.39

)

 

 

(1.00

)

 

 

(1.30

)

 

 

0.56

 

Diluted loss per share

 

$

(2.27

)

 

$

(5.61

)

 

$

(6.56

)

 

$

(1.88

)

 

$

(2.88

)

Balance Sheet Data (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital, including current maturities of debt

 

$

131,280

 

 

$

104,832

 

 

$

121,330

 

 

$

125,079

 

 

$

136,404

 

Total assets(8)

 

 

488,657

 

 

 

541,942

 

 

 

642,499

 

 

 

812,226

 

 

 

805,836

 

Total long-term debt, excluding current maturities(8)

 

 

158,986

 

 

 

128,566

 

 

 

102,999

 

 

 

95,142

 

 

 

52,716

 

Total Layne Christensen Company shareholders' equity

 

 

128,658

 

 

 

181,215

 

 

 

289,464

 

 

 

412,737

 

 

 

448,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

During the second quarter of FY2016, we entered into a definitive agreement to sell the assets of our Geoconstruction business, and accounted for it as a discontinued operation. We completed the sale on August 17, 2015.

(2)

During the first quarter of FY2016, we recognized a gain on extinguishment of debt of $4.2 million in connection with the partial redemption of the 4.25% Convertible Notes in exchange for 8.0% Convertible Notes.

 

32


 

(3)

During the second quarter of FY2015, we authorized the sale of our Costa Fortuna operation and sold it on July 31, 2014.  We purchased 50% of Costa Fortuna on July 15, 2010 and accounted for it using the equity method of investment until May 30, 2012 when we acquired the remaining 50%.  In accordance with accounting guidance, we did not account for Costa Fortuna as discontinued operations for the fiscal year ended January 31, 2012, when it was accounted for as an equity method investment.  For the fiscal year ended January 31, 2013, we accounted for Costa Fortuna as discontinued operations for the period in which we held 100% of the business of Costa Fortuna.  In the third quarter of FY2015, we sold our Tecniwell business and accounted for it as a discontinued operation.  This business was sold on October 31, 2014.  Both Costa Fortuna and Tecniwell, previously reported in the Geoconstruction operating segment, were accounted for as discontinued operations in FY2015. 

(4)

During the first quarter of FY2014, we authorized the sale of our SolmeteX operation and accounted for it as a discontinued operation. The operation was sold on July 31, 2013.

(5)

During FY2013, we accounted for the former Energy segment, which was sold in October 2013, as a discontinued operation.  

(6)

See Note 4 to the Consolidated Financial Statements for a discussion of impairment charges recorded during FY2016.  During FY2012, we performed our annual goodwill impairment and determined $86.2 million of our then existing goodwill was impaired.  Also during FY2013, we determined $8.4 million of our intangible assets were impaired.

(7)

A $73.4 million valuation allowance on deferred tax assets was recorded during FY2014.  Of the $73.4 million valuation allowance, $54.4 million related to deferred tax assets established in a prior year, and $19.0 million related to deferred tax assets established in FY2015.  See Note 8 to the Consolidated Financial Statements.

(8)

All periods presented have been changed to reflect our adoption of Accounting Standards Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (as supplemented by ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”) at January 31, 2016, which required retrospective application.

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto under Item 8.

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: prevailing prices for various commodities (including gold, copper, crude oil and natural gas), the duration of the current slowdown in the mineral drilling services market, unanticipated slowdowns in Layne’s major markets, the availability of credit, the risks and uncertainties normally incident to the construction industry, the timing for the completion of the existing unprofitable contracts in Heavy Civil, the impact of competition, the effectiveness of operational changes expected to increase efficiency and productivity and reduce costs, worldwide economic and political conditions and foreign currency fluctuations that may affect worldwide results of operations. Many of the factors that will determine these items are beyond Layne’s ability to control or predict. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, estimated or projected. These forward-looking statements are made as of the date of this filing, and Layne assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Layne, our operations and our present business environment. MD&A is provided as a supplement to and should be read in connection with the consolidated financial statements and the accompanying notes thereto contained in Item 8 of this report. MD&A includes the following sections:

 

·

Business—a general description of our business and key fiscal year 2016 events.

 

·

Consolidated Review of Operations—an analysis of our consolidated results of operations for the three years presented in the consolidated financial statements.

 

33


 

 

·

Operating Segment Review of Operations—an analysis of our results of operations for the three years presented in the consolidated financial statements for our reporting segments: Water Resources, Inliner, Heavy Civil and Mineral Services.  

 

·

Liquidity and Capital Resources—an analysis of cash flows, aggregate financial commitments and certain financial condition ratios.

 

·

Critical Accounting Policies and Estimates—a discussion of our critical accounting policies and estimates that involve a higher degree of judgment or complexity.

Business

Layne is a global water management, construction and drilling company. We provide responsible solutions for water, mineral and energy challenges. We manage and report our operations through four segments:  Water Resources, Inliner, Heavy Civil and Mineral Services.  

Key Fiscal Year 2016 Events

On March 2, 2015, we completed the offering of approximately $100.0 million aggregate principal amount of our 8.0% Convertible Notes.  The 8.0% Convertible Notes were offered at par to certain investors that held approximately $55.5 million of our 4.25% Convertible Notes pursuant to terms in which the investors agreed to (i) exchange the 4.25% Convertible Notes owned by them for approximately $49.9 million of the 8.0% Convertible Notes and (ii) purchase approximately $49.9 million aggregate principal amount of 8.0% Convertible Notes at a cash price equal to the principal amount thereof.  We received net cash proceeds from the issuance of 8.0% Convertible Notes, net of expenses related to the offering of approximately $45.0 million. We used a portion of the net cash proceeds to repay amounts outstanding under our asset-based credit facility, with the remainder of the net cash proceeds held for general working capital purposes. See Part II, Item 7—Liquidity and Capital Resources for additional information.

Mineral Services continues to be impacted by the global slowdown in spending for mineral drilling services, both in the markets served by our wholly-owned operations and our Latin American affiliates. Global spending for minerals drilling services has decreased significantly over the past three years in every geographic region. This has reduced the revenues generated by Mineral Services and has adversely affected our results of operations and cash flows. During FY2016, in response to continuing decline in the global minerals market, we implemented a plan to exit our operations in Africa and Australia. The restructuring, which is expected to be completed in the first quarter of FY2017, was designed to optimize our cost structure, and involved a reduction in workforce and the disposition of assets.

On May 20, 2015, we signed a definitive agreement to sell our Geoconstruction business. The transaction closed on August 17, 2015 for total consideration of $42.3 million, including the preliminary estimate of the business segment’s working capital which was subject to a post-closing reconciliation. 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 the buyer and final working capital adjustments. We expect to use the net proceeds from the sale for general corporate purposes and growth opportunities in our core businesses. The disposition is discussed in Note 14 to the Consolidated Financial Statements.  

 

Concurrent with the closing of the sale of the Geoconstruction business segment on August 17, 2015, our existing asset-based facility was amended to, among other things: (1) reduce the maximum amount that may be borrowed under the asset-based facility from $120.0 million to $100.0 million; (2) eliminate the $15.0 million Availability Block (as defined in the asset-based facility agreement); (3) reduce Minimum Excess Availability from $25.0 million to $17.5 million; (4) revise the borrowing base calculation; and (5) increase the annual commitment fee on unused commitments from 0.50% to 0.75%.

During the third quarter of FY2016, we realigned our operating structure by combining the Energy Services segment with the Water Resources segment. This segment realignment is expected to increase efficiencies both in terms of asset management and operations. 

We appointed J. Michael Anderson as Senior Vice President and Chief Financial Officer effective July 20, 2015. Mr. Anderson brings more than 25 years of experience in senior management roles at publicly-traded companies in the water and energy industries, and in commercial and investment banking.

Effective November 9, 2015, we appointed Jami M. Phillips as the principal accounting officer. Ms. Phillips has worked for us in various finance positions since 2013, and has served as our Controller since October 9, 2014. Prior to working for us, Ms. Phillips worked for CBIZ, Inc., a financial services company from 2010 to 2013.

 

34


 

Consolidated Review of Operations

The following table, which is derived from our consolidated financial statements included in Item 8, presents, for the periods indicated, the percentage relationship which certain items reflected in our results of operations bear to revenues and the percentage increase or decrease in the dollar amount of such items period-to-period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period-to-Period

 

 

 

 

Fiscal Years Ended January 31,

 

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

2015

 

 

 

 

2016

 

 

2015

 

 

2014

 

 

vs. 2015

 

 

vs. 2014

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Water Resources

 

 

33.3

 

%

 

30.0

 

%

 

23.6

 

%

 

5.1

 

%

 

18.8

 

%

Inliner

 

 

28.4

 

 

 

24.3

 

 

 

19.2

 

 

 

10.7

 

 

 

17.9

 

 

Heavy Civil

 

 

25.7

 

 

 

28.7

 

 

 

34.6

 

 

 

(15.1

)

 

 

(22.5

)

 

Mineral Services

 

 

12.6

 

 

 

16.7

 

 

 

22.4

 

 

 

(28.5

)

 

 

(30.5

)

 

Other

 

 

2.6

 

 

 

2.7

 

 

 

2.6

 

 

 

(7.8

)

 

 

(3.8

)

 

Intersegment Eliminations

 

 

(2.6

)

 

 

(2.4

)

 

 

(2.4

)

 

 

1.7

 

 

 

(6.8

)

 

Total net revenues

 

 

100.0

 

%

 

100.0

 

%

 

100.0

 

%

 

(5.2

)

 

 

(6.7

)

 

Cost of revenues (exclusive of depreciation, amortization

   and impairment charges shown below)

 

 

(83.5

)

%

 

(84.8

)

%

 

(83.5

)

%

 

(6.7

)

 

 

(5.3

)

 

Selling, general and administrative expenses (exclusive

   of depreciation, amortization and impairment charges

   shown below)

 

 

(15.8

)

 

 

(16.2

)

 

 

(16.4

)

 

 

(7.6

)

 

 

(7.3

)

 

Depreciation and amortization

 

 

(4.8

)

 

 

(5.8

)

 

 

(6.3

)

 

 

(22.1

)

 

 

(14.0

)

 

Impairment charges

 

 

(0.7

)

 

 

 

 

 

 

 

*

 

 

*

 

 

Equity in losses of affiliates

 

 

(0.1

)

 

 

(0.3

)

 

 

(0.4

)

 

 

69.4

 

 

 

(32.7

)

 

Restructuring costs

 

 

(1.5

)

 

 

(0.4

)

 

 

 

 

*

 

 

*

 

 

Gain on extinguishment of debt

 

 

0.6

 

 

 

 

 

 

 

 

*

 

 

*

 

 

Interest expense

 

 

(2.6

)

 

 

(1.9

)

 

 

(0.9

)

 

 

31.4

 

 

 

92.2

 

 

Other income, net

 

 

0.4

 

 

 

0.2

 

 

 

0.9

 

 

 

74.1

 

 

 

(79.8

)

 

Loss from continuing operations

 

 

(8.0

)

 

 

(9.2

)

 

 

(6.6

)

 

 

(17.9

)

 

 

28.9

 

 

Income tax benefit (expense)

 

 

0.3

 

 

 

0.5

 

 

 

(7.4

)

 

 

(58.6

)

 

*

 

 

Net loss from continuing operations

 

 

(7.7

)

 

 

(8.7

)

 

 

(14.0

)

 

 

(15.4

)

 

 

(42.4

)

 

Net income (loss) from discontinued operations

 

 

1.1

 

 

 

(6.5

)

 

 

(2.6

)

 

*

 

 

*

 

 

Net loss

 

 

(6.6

)

 

 

(15.2

)

 

 

(16.6

)

 

 

(59.0

)

 

 

(14.6

)

 

Net income attributable to noncontrolling interests

 

 

 

 

 

(0.1

)

 

 

(0.1

)

 

*

 

 

 

40.1

 

 

Net loss attributable to Layne Christensen Company

 

 

(6.6

)

%

 

(15.3

)

%

 

(16.7

)

%

 

(59.3

)

 

 

(14.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

not meaningful

 

35


 

Revenues, equity in earnings (losses) of affiliates and income (loss) before income taxes pertaining to our operating segments are presented below. Unallocated corporate expenses primarily consist of general and administrative functions performed on a company-wide basis and benefiting all operating segments. These costs include accounting, financial reporting, internal audit, treasury, legal, tax compliance, information technology, executive management and Board of Directors.

 

 

 

Fiscal Years Ended January 31,

 

(in thousands)

 

2016

 

 

2015

 

 

2014

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Water Resources

 

$

227,534

 

 

$

216,452

 

 

$

182,211

 

Inliner

 

 

193,704

 

 

 

175,001

 

 

 

148,384

 

Heavy Civil

 

 

175,773

 

 

 

207,036

 

 

 

267,192

 

Mineral Services

 

 

85,922

 

 

 

120,217

 

 

 

172,960

 

Other

 

 

17,682

 

 

 

19,178

 

 

 

19,935

 

Intersegment Eliminations

 

 

(17,605

)

 

 

(17,316

)

 

 

(18,580

)

Total revenues

 

$

683,010

 

 

$

720,568

 

 

$

772,102

 

Equity in losses of affiliates

 

 

 

 

 

 

 

 

 

 

 

 

Mineral Services

 

$

(612

)

 

$

(2,002

)

 

$

(2,974

)

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Water Resources

 

$

5,372