Layne Christensen Company (LAYN)

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Layne Christensen Company (LAYN)

F3Q2011 Earnings Call Transcript

December 7, 2010 11:00 am ET


Andrew Schmitt – President and CEO

Jerry Fanska – SVP, Finance


Richard Paget – Morgan Joseph

John Rogers – D.A. Davidson

Steve Ferazani – Sidoti

Christopher Patel [ph] – Janney Montgomery Scott

John Brett [ph] – KS Capital

Jay Chap [ph] – Bank of America/Merrill Lynch

Herb Buchbinder – Wells Fargo Advisors

Dick Kindig [ph] – Keeley Asset Management



Ladies and gentlemen, thank you for standing by, and welcome to the Layne Christensen fiscal 2011 third quarter earnings conference call. At this time, all participant lines are in a listen-only mode, and later we will be an opportunity for your questions. Instructions will be given at that time. As a reminder, today’s conference call is being recorded. I’d now like to turn the conference over to the President and Chief Executive Officer of Layne Christensen, Mr. Andrew Schmitt. Please go ahead.

Andrew Schmitt

Thanks, Leah. Good morning, everyone. I’m here with Jerry Fanska, our Chief Financial Officer. And we would like to welcome you to the third quarter conference call. Earlier today, we issued a press release outlining the results for the third quarter ended October 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 then I will give you an overview of 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 third quarter increased $52 million or 23.9% to $269.8 million from $217.8 million in the prior year. Water Infrastructure revenues increased $35.5 million or 20.4% for the quarter to $209.9 million. The increase resulted mainly from acquisitions and from specialty drilling operations.

Mineral exploration revenues increased 68.2% to $51.7 million from $30.7 million last year, with demand increasing across most regions, the largest of which being Africa, the US, and Mexico. Layne Energy revenues decreased 57.9% to $4.9 million, impacted by lower natural gas prices and the exploration of favorably priced forward sales contracts that were in effect last year.

Cost of revenues increased $47.9 million or $209.7 million or 77.7% of revenues for the three months compared to $161.8 million or 74.3% of revenues for the same period last year. The increase as a percentage of revenues was primarily focused in the Water Infrastructure division due to higher cost structured projects this year and 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 $37.9 million in the quarter from $31.5 million in the prior year, primarily the result of increased incentive compensation expenses of $2.3 million as a result of higher earnings and $1.4 million in added expenses from acquired operations, and the remainder spread across various categories.

Depreciation, depletion and amortization decreased in the quarter to $12.8 million from $14.2 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 increased in the quarter to $4.3 million compared to $1.2 million in the previous year as a result of an improved mineral exploration market in Latin America. Interest expense decreased to $337,000 for the quarter as a result of scheduled debt reductions.

Income tax expense was $5.2 million for the quarter, an effective rate of 38.7% compared to $4.9 million, an effective rate of 42.7% for the same period last year. The decrease in the effective rate is mainly the result of a catch-up adjustment to reflect through the third quarter higher than expected estimated earnings for this year. The net result for the quarter was $0.42 per share compared to $0.34 per share last year, a 23.5% increase.

The company’s balance sheet at October 31, 2010 reflects total assets of $808.3 million and stockholders’ equity of $491.5 million; debt reflected as current maturities on the balance sheet of $6.7 million; and cash and cash equivalents of $32.9 million.

The company generated $26.2 million in cash from operating activities in the quarter. Investing activities totaled $22.3 million and included $670,000 in oil and gas expenditures, with the remainder divided between acquisition-related activities of $11.4 million and net additions for PP&E of $10.2 million. Early in this quarter, we also paid off $20 million in long-term debt.

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

Andrew Schmitt

Thank you, Jerry. Before I get into operations review, a couple of comments about the FCPA notice. As mentioned in our press release in connection with updating our Foreign Corrupt Practices Act policy, some of the employees raised questions in late September 2010 about among other things the legality of certain payments by the company to customs clearing agents in connection with importing equipment in the DRC and other countries in Africa.

Our Audit Committee is engaged outside counsel to conduct the internal investigation to review these and other payments with the assistance of an outside accounting firm. We’ve contacted the SEC and DOJ to inform them of this matter, and naturally the company will cooperate fully with the government authorities. But the review is still ongoing, and we don’t have conclusions yet. But based on results to date, we currently believe the amount in question with regard to the payments is not material with respect to Layne’s results of operations or financial statements.

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