LAYN

Layne Christensen Company (LAYN)

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Layne Christensen Company (LAYN)

F2Q2011 Earnings Call Transcript

September 2, 2010 11:00 am ET

Executives

Andrew Schmitt – President and CEO

Jerry Fanska – SVP, Finance

Analysts

Richard Paget – Morgan Joseph

Ryan Connors – Janney Montgomery

Anish [ph] – Bank of America

Steve Ferazani – Sidoti

Steven Fisher – UBS

John Rogers – D. A. Davidson

Christopher Patel – Janney

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the fiscal 2011 second quarter earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions) As a reminder, this conference is being recorded. I’d now like to turn the conference over to our host, President and Chief Executive Officer, Mr. Andrew Schmitt. Please go ahead.

Andrew Schmitt

Thanks, Ellen. Good morning, everyone. I am here with Jerry Fanska, our Chief Financial Officer. We would like to welcome you to Layne Christensen’s second quarter conference call. Earlier today, we issued a press release outlining the results for the second quarter ended July 31, 2010.

Before we discuss the financial results, I would like to remind the participants that the call may contain forward-looking statements that are subject to the Safe Harbor statement found in today’s press release. Jerry will take you through the financial results and I will give you an overview of some of the division operating performance and how we see things going forward.

Okay. Jerry, you want to take us through the numbers?

Jerry Fanska

Thank you, Andy. Good morning, everyone. Revenues for the second quarter increased $36.1 million or 16.6% to $253.3 million from $217.2 million in the prior year. Water infrastructure revenues increased $19.8 million or 11.4% in the quarter to $194 million. The increase resulted mainly from acquisitions and from specialty drilling operations.

Mineral exploration revenues increased 67.8% to $50.8 million from $30.3 million last year, with demand increasing across most regions, the largest demand increase being in Africa and Mexico. Layne Energy revenues decreased 51.3% to $5.8 million, as a result of the exploration of favorably priced forward sales contracts and to the current lower natural gas price environment.

Cost of revenues increased $32.2 million to $197.7 million or 78.1% of revenues for the three months compared to $165.5 million or 76.2% of revenues for the same period last year. The increase as a percentage of revenues is primarily focused in the energy division as a result of nearly flat production costs combined with lower revenues due to the lower gas prices.

Selling, general and administrative expenses increased to $31.7 million in the quarter from $30.3 million in the prior year, primarily the result of increased incentive compensation expenses of $1.9 million as a result of higher earnings and $1.1 million in expenses from acquired operations, offset by reductions in various other expense categories.

Depreciation, depletion and amortization decreased in the quarter to $12.1 million from $14.3 million primarily due to lower depletion rates in the energy division resulting from updated estimates of economically recoverable gas reserves.

Equity in earnings of affiliates decreased in the quarter to $1.6 million compared to $0.4 million in the previous year as a result of a customer-driven project delay at a large South American mine. Interest expense decreased $295,000 to $517,000 for the quarter as a result of scheduled debt reductions.

Income tax expense was $6.6 million for the quarter, an effective rate of 50.4% compared to a benefit of $4.4 million for the same period last year as a result of an impairment charge for oil and gas properties. Excluding this charge, the company would have recorded income tax expense of $4.2 million or an effective rate of 49%.

The increase in the effective rate was primarily attributable to the impact of non-deductible expenses and the treatment for certain foreign operations. The net result for the quarter was $0.33 per share compared to a loss of $0.45 per share last year, that loss also including an after-tax non-cash impairment charge of $0.68 per share.

The company’s balance sheet at July 31 reflects total assets of $764.1 million; stockholders’ equity of $480.8 million; total long-term debt of $6.7 million, excluding current maturities of $20 million; and cash and cash equivalents of $49.2 million. The company generated $16.1 million in cash from operating activities in the quarter. Investing activities totaled $34 million and included $752,000 in unconventional gas expenditures with the remainder divided almost equally between acquisitions and additions to property, plant and equipment.

With that, I will turn it back over to Andy to talk about the operations.

Andrew Schmitt

Thanks, Jerry. When you look at the individual business operating segments, our mineral exploration division is once again a clear winner. And it continues at a very strong level. Both the year-over-year and sequential improvement is coming from our wholly-owned business. If we were to pull that piece out of the segment reporting that you’ve seen that division’s quarterly EBIT is $7.3 million versus $1.2 million last year on a revenue increase, as Jerry said, about 68%.

Our total of the Latin American affiliate net income is below last year, $1.6 million versus $2.4 million. In this case, the issue really was a shutdown at one of the larger mines that we operate on in Chile. The problem was safety-related, but it was not a problem that we had. There were other problems on the mine. The mine just resumed normal operations. Our affiliate results should be improved next quarter. We will also point out that our Latin American affiliates are playing in a key role in the efforts to safely free the trapped miners in Chile.

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