LAYN

Layne Christensen Company (LAYN)

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Layne Christensen (LAYN)

Q2 2013 Earnings Call

September 06, 2012 11:00 am ET

Executives

Devin Sullivan - Senior Vice President

Rene J. Robichaud - Chief Executive Officer, President and Director

Jerry W. Fanska - Principal Financial Officer, Principal Accounting Officer, Senior Vice President of Finance and Treasurer

Jeffrey J. Reynolds - Chief Operating Officer, Executive Vice President and Director

Analysts

John Rogers - D.A. Davidson & Co., Research Division

Steven Fisher - UBS Investment Bank, Research Division

Michael G. Roomberg - Ladenburg Thalmann & Co. Inc., Research Division

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Taylor Finch

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Layne Christensen Company's 2013 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference may be recorded. It is now my pleasure to turn the call over to Devin Sullivan, Senior Vice President of the Equity Group. Sir, the floor is yours.

Devin Sullivan

Thank you, Hewey. Good morning, everyone, and thank you for joining us today for Layne Christensen's Fiscal 2013 Second Quarter Conference Call. Our speakers today will be Rene Robichaud, President and Chief Executive Officer of Layne Christensen; and Jerry Fanska, Senior Vice President of Finance.

Before we get started, I'd like to remind everyone that statements made during today's call 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 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 and uncertainties and assumptions, including but not limited to, the outcome of the ongoing internal investigation into, among other things, the legality under the FCPA of local -- and local laws of certain payments to agents and other third parties interacting with government officials in certain countries in Africa, relating to the payment of taxes and the importing of equipment, including any government enforcement action which could arise out of the matters under review, or that the matters under review may have resulted in a higher dollar amount of payments or may have a greater financial and business impact than management currently anticipates; prevailing prices for various commodities; unanticipated slowdowns in the company's major markets; the availability of credit; the risks and uncertainties normally incident to the construction industry and exploration for and development of production of oil and gas; the impact of competition; the effectiveness of operational changes expected to increase efficiency and productivity; worldwide economic and political conditions and foreign currency fluctuations that may affect worldwide results of operations. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, estimated or projected.

These forward-looking statements are made as of the date of this filing, and the company assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

I'd now like to turn the call over to Rene Robichaud. Rene, please go ahead.

Rene J. Robichaud

Thanks, Devin, and good morning, everyone. Thank you all for joining us today. Hopefully, you've had an opportunity to review our results for the second quarter. I'll make some brief remarks, turn it over to Jerry Fanska for a review of the numbers, and then we can open the call up for questions.

Three significant factors impacted our results for the second quarter. We realized a noncash loss of $7.7 million related to the remeasurement of our equity investment in Costa Fortuna, which was recorded in the Geoconstruction division. Exclusive of this adjustment, income from continuing operations for the second quarter was $4.8 million or $0.25 per diluted share.

This was an odd accounting result for what is a good business combination for Layne. Accounting rules require that we remeasure the value of the first half of the Costa Fortuna investment, which was acquired 2 years ago, based on what we paid for the second half. The purchase price is basically the same as the first half. With significant growth in earnings in the business over the last 2 years, we are paying substantially less for the second half than our recorded investment plus earnings for the first half. Again, a very odd accounting result for a very good acquisition.

As we move further down the P&L, you'll see that we recorded a net loss from discontinued operations for the second quarter of $21.1 million, reflecting our strategic decision to exit the exploration and production business. The great bulk of this charge is noncash.

As we've previously discussed, our shift in corporate strategy forced us to take a hard look at not only who we are, but more importantly, what we want to become. We do intend to be in the oil and gas services business for quite some time. We see a significant opportunity to build a water services business that addresses the critical needs of the E&P industry. Our plan is to develop this total water solutions business under the energy services banner into a $200-million enterprise over the next 3 to 5 years.

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