NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of Significant Accounting Policies
Description of Business
—Layne Christensen Company and its subsidiaries (together, “Layne,” the “Company,” “we,” “our,” or “us”) is a global water management, drilling and infrastructure services and drilling company, providing responsible solutions to the world of essential natural resources – water, minerals and energy. We primarily operate in North America and Brazil and through our affiliates in Latin America. Our customers include government agencies, investor-owned utilities, industrial companies, global mining companies, consulting engineering firms, oil and gas companies, power companies and agribusinesses. We have an ownership interest in certain foreign affiliates operating in Latin America. See Note 8 to the Condensed Consolidated Financial Statements.
Fiscal Year
—
Our fiscal year end is January 31. References to fiscal years, or “FY2019” are to the twelve months then ended January 31 of that year.
Principles of Consolidation
—
The Condensed Consolidated Financial Statements include our accounts and the accounts of all of our subsidiaries where we exercise control. For investments in subsidiaries that are not wholly-owned, but where we exercise control, the equity held by the minority owners and their portions of net income (loss) are reflected as noncontrolling interests. All intercompany accounts and transactions have been eliminated in consolidation.
Investment in Affiliated Companies
—
Investments in affiliates (20% to 50% owned) in which we have the ability to exercise significant influence, but do not hold a controlling interest over operating and financial policies, are accounted for by the equity method. We performed a qualitative assessment to determine the existence of events and circumstances that would lead to a determination that a triggering event occurred that would indicate a loss in value of the investment. If such a conclusion is reached, then we would be required to perform a quantitative impairment assessment over the value of our investments. However if the assessment leads to a determination that the fair value of the investments is greater than the carrying amount, no further assessments are required. As of January 31, 2018, we performed a qualitative assessment and concluded no triggering events had occurred. Distributions from our equity method investees are accounted for using the cumulative earnings approach on our Consolidated Statement of Cash Flows. Distributions received are considered returns on investment and classified as cash inflows from operating activities, unless the investor’s cumulative distribution received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor. When such an excess occurs, the current-period distribution up to this excess is considered a return on investment and classified as cash inflows from investing activities.
Presentation
—
The unaudited Condensed Consolidated Financial Statements included herein have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, certain information and disclosures normally included in our annual consolidated financial statements have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018 (“Annual Report”). We believe the Condensed Consolidated Financial Statements included herein reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. In the Notes to Condensed Consolidated Financial Statements, all dollar amounts in tabulations are in thousands of dollars, unless otherwise indicated.
As discussed further in Note 11 to the Condensed Consolidated Financial Statements, during the first quarter of FY2018, we completed the sale of substantially all of the assets of our Heavy Civil business. The results of operations related to the Heavy Civil business have been classified as discontinued operations for all periods presented. Unless noted otherwise, discussion in these Notes to Condensed Consolidated Financial Statements pertain to continuing operations.
Effect of Adopting Accounting Standards Codification (“ASC”) Topic 606
On February 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, (“ASC Topic 606”) using the full retrospective method. As a result of adoption, our prior-period financial statements and disclosures have been restated using the cumulative catch-up method. We have updated our accounting policies and internal controls, and implemented changes to our business processes and information systems to support the new revenue recognition and disclosure requirements.
The objective of ASC Topic 606 is to report useful information to users of our financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with our customer and to recognize revenue at an amount that reflects the consideration to which we expect to be entitled to receive in exchange for transferring goods or services to a customer.
8
The adopt
ion of
ASC
Topic 606, Revenue from Contracts with Customers,
had
three
primary impacts on our
Condensed
Co
nsolidated Financial Statements -
(1) Prior to adoption of ASC Topic 606, we would recognize revenue and cost under the completed contract method on smaller, shorter-term duration contracts in our Water Resource segment once the contract was completed. This method is no longer permitted under the new guidance, and we now recognize revenue and cost over time when control of the goods and/or services is transferred to the customer.
(2) Under ASC Topic 606 the unit of account is a performance obligation, which is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. This change eliminated segmentation treatment for certain customer contracts in our Inliner segment.
(3) The impact of (1) and (2) above on profit recorded in prior years is now reflected in the period identified (cumulative catch-up method), rather than prospectively over the remaining contract term. The cumulative effect of the adoption was recognized as a reduction to retained earnings of $43 thousand on January 31, 2018. See Note 9 to the Condensed Consolidated Financial Statements for further discussion.
As part of our adoption, we applied the following practical expedients:
|
•
|
We did not restate projects that utilized the completed contract method that began and ended in the same annual reporting period. (ASC Topic 606-10-65-1(f)(1))
|
|
•
|
We utilized the contract transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods. (ASC Topic 606-10-65-1(f)(2))
|
|
•
|
For contracts that were modified before the beginning of the earliest reporting period presented in accordance with the standard, we did not retrospectively restate the contract for those modifications in accordance with the contract modification guidance in ASC Topic 606-10-25-12 and 25-13. Instead we reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price. (ASC Topic 606-10-65-1(f)(4))
|
|
•
|
We recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. (ASC Topic 340-40-25-4))
|
|
•
|
As a practical expedient, when we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date, we recognize revenue in the amount to which we have a right to invoice. (ASC Topic 606-10-55-18)
|
The following tables summarize the effects of adopting this accounting standard on our unaudited Condensed Consolidated Financial Statements.
|
|
As of January 31, 2018
|
|
|
|
As Previously
|
|
|
Impact of Adoption
|
|
|
|
|
|
(in thousands)
|
|
Presented
|
|
|
of ASC Topic 606
|
|
|
As Adjusted
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
44,987
|
|
|
$
|
(1,810
|
)
|
|
$
|
43,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
10,563
|
|
|
|
(1,767
|
)
|
|
|
8,796
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
(296,131
|
)
|
|
$
|
(43
|
)
|
|
$
|
(296,174
|
)
|
9
|
|
Three Months Ended April 30, 2017
|
|
|
|
As Previously
|
|
|
Impact of Adoption
|
|
|
|
|
|
(in thousands, except per share data)
|
|
Presented
|
|
|
of ASC Topic 606
|
|
|
As Adjusted
|
|
Revenues
|
|
$
|
111,507
|
|
|
$
|
(594
|
)
|
|
$
|
110,913
|
|
Cost of revenues (exclusive of depreciation and amortization,
shown below)
|
|
|
(86,283
|
)
|
|
|
33
|
|
|
|
(86,250
|
)
|
Loss from continuing operations before income taxes
|
|
|
(2,368
|
)
|
|
|
(561
|
)
|
|
|
(2,929
|
)
|
Net loss from continuing operations
|
|
|
(3,418
|
)
|
|
|
(561
|
)
|
|
|
(3,979
|
)
|
Net loss
|
|
$
|
(22,900
|
)
|
|
$
|
(561
|
)
|
|
$
|
(23,461
|
)
|
Loss per share from continuing operations - basic and diluted
|
|
$
|
(0.17
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.20
|
)
|
Loss per share - basic and diluted
|
|
|
(1.15
|
)
|
|
|
(0.03
|
)
|
|
|
(1.18
|
)
|
|
(1)
|
Of the $594 revenue adjustment, $253 relates to Water Resources and $341 relates to Inliner, all in the U.S.
|
|
(2)
|
The $33 cost of revenues (exclusive of depreciation and amortization) adjustment relates to Water Resources, in the U.S.
|
Business Segments
—
We report our financial results under three reporting segments consisting of Water Resources, Inliner, and Mineral Services.
We report corporate expenses under the title “Unallocated Corporate.” Unallocated corporate expenses primarily consist of general and administrative functions performed on a company-wide basis and benefiting all segments. These costs include expenses related to accounting, financial reporting, internal audit, treasury, legal, information technology, tax compliance, executive management and board of directors.
Use of and Changes in Estimates
—
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions about future events and their effects cannot be perceived with certainty, and accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. While we believe that the estimates and assumptions used in the preparation of the Condensed Consolidated Financial Statements are appropriate, actual results could differ from those estimates.
Foreign Currency Transactions and Translation
—
In accordance with ASC Topic 830, “Foreign Currency Matters,” gains and losses resulting from foreign currency transactions are included in the Condensed Consolidated Statements of Operations. Assets and liabilities of non-U.S. subsidiaries whose functional currency is the local currency are translated into U.S. dollars at exchange rates prevailing at the balance sheet date. The net foreign currency exchange differences resulting from these translations are reported in accumulated other comprehensive income (loss). Revenues and expenses are translated at average foreign currency exchange rates during the reporting period.
The cash flows and financing activities of our operations in Mexico are primarily denominated in U.S. dollars. Accordingly, these operations use the U.S. dollar as their functional currency. Monetary assets and liabilities are remeasured at period end. Foreign currency transactions are measured at the current exchange rate and nonmonetary items are measured at historical foreign currency exchange rates with exchange rate differences reported in the Condensed Consolidated Statement of Operations.
Net foreign currency transaction gains (losses) were $0.1 million and ($0.3) million for the three months ended April 30, 2018 and 2017, respectively, and are recorded in other income (expense), net in the accompanying Condensed Consolidated Statements of Operations.
Inventories
—
In February 2017, we adopted Accounting Standards Update (“ASU”) 2015-11 “Inventory (Topic 330) – Simplifying the Measurement of Inventory” issued by the Financial Accounting Standards Board (the “FASB”) on July 22, 2015. We adopted this ASU on a prospective basis, as such, our inventories are valued at the lower of cost or net realizable value. Implementation did not result in a material difference in our reported inventory values. Cost of U.S. inventories and the majority of foreign operations are determined using the average cost method. Inventories consist primarily of supplies and raw materials. Supplies of $19.5 million and $17.7 million and raw materials of $3.8 million and $2.3 million were included in inventories in the Condensed Consolidated Balance Sheets as of April 30, 2018 and January 31, 2018, respectively.
Goodwill
—In accordance with ASC Topic 350-20, “Intangibles – Goodwill and Other,” we are required to test for the impairment of goodwill on at least an annual basis. We conduct this evaluation annually as of December 31 or more frequently if events or changes
10
in circumstances indicate that goodwill might be impaired.
As a result of our annual impairment analysis, no impairment
was required
. As of April 30, 2018 and January 31, 2018, we had $8.9 million of goodwill which is all attributable to the Inliner reporting segment.
Other Long-lived Assets
—Long-lived assets, including amortizable intangible assets, are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors management considers important which could trigger an impairment review include but are not limited to the following:
|
•
|
significant underperformance of assets;
|
|
•
|
significant changes in the use of the assets; and
|
|
•
|
significant negative industry or economic trends.
|
No impairments were indicated as of April 30, 2018.
Cash, Cash Equivalents and Restricted Deposits
—On January 31, 2018, we early adopted ASU 2016-18, “Statement of Cash Flows: Restricted Cash,” issued by the FASB in November 2016, by applying a retrospective transition method to each period presented. This ASU provides guidance about the presentation of changes in restricted cash and restricted cash equivalents on the statement of cash flows. The adoption of this ASU involved removing restricted deposits from cash provided by operating investments to reconcile net income to cash, cash equivalents and restricted deposits for each year presented in the Consolidated Statement of Cash Flows.
On January 31, 2018 we formally adopted the ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” issued by the FASB in August 2016. This ASU provides guidance and clarification in regards to the classification of eight types of receipts and payments in the statement of cash flows, including debt repayment or extinguishment costs, settlement of zero-coupon bonds, proceeds from the settlement of insurance claims, distributions received from equity method investees and cash receipts from beneficial interest in securitization transactions. Our Latin American affiliates issue dividends which we account for using the cumulative earnings approach, so no accounting transition was necessary. See “Investment in Affiliated Companies” above.
We consider investments with an original maturity of three months or less when purchased to be cash equivalents. Our cash equivalents are subject to potential credit risk. Our cash management and investment policies restrict investments to investment grade, highly liquid securities. The carrying value of cash and cash equivalents approximates fair value. Restricted deposits consist of escrow funds related to a certain disposition and judicial deposits associated with tax related legal proceedings in Brazil.
Our statement of cash flows explains the change in the total of cash, cash equivalents and restricted deposits. The following table provides a reconciliation of cash, cash equivalents, and restricted deposits reported within the Condensed Consolidated Balance Sheet that sum to the total of the same such amounts in the Condensed Consolidated Statements of Cash Flows at April 30, 2018 and 2017.
|
|
Three Months Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Beginning of the period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,041
|
|
|
$
|
69,000
|
|
Restricted deposits
|
|
|
6,572
|
|
|
|
5,055
|
|
Total cash, cash equivalents and restricted deposits, beginning of period
|
|
|
38,613
|
|
|
|
74,055
|
|
End of the period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
17,805
|
|
|
|
54,598
|
|
Restricted deposits
|
|
|
6,190
|
|
|
|
4,998
|
|
Total cash, cash equivalents and restricted deposits, end of period
|
|
|
23,995
|
|
|
|
59,596
|
|
Net decrease in cash, cash equivalents and restricted deposits
|
|
$
|
(14,618
|
)
|
|
$
|
(14,459
|
)
|
Customer Receivables—
Our customer receivables represents receivables from contracts with customers.
Cost and estimated earnings in excess of billings on uncompleted contract
s
—
Includes unapproved change orders and claims included in revenue for an amount less than or equal to the amount of the costs incurred by us to date for contract price adjustments that we seek to collect from customers for delays, errors in specifications or designs, change orders in dispute or unapproved as to scope or price, or other unanticipated additional costs, in each case when recovery of the costs is considered probable.
Allowance for Uncollectible Accounts Receivable—
We make ongoing estimates relating to the collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In
11
determining the amount of the allowance, we make judgments about the creditworthiness of customers based on ongoing credit evaluations, and also consider a review of accounts receivable aging, industry trends, customer financial strength, cr
edit standing and payment history to assess the probability of collection.
Bad debt expense, which is recorded as part of Selling, General and Administrative Expenses in the
Condensed
Consolidated Statement of Operations, amounted to $
0.2
million and
$
0.4
million for the three months ended
April 30, 2018 and 2017
, respectively.
Concentration of Credit Risk
—
We grant credit to our customers, which may include concentrations in state and local governments. Although this concentration could affect our overall exposure to credit risk, we believe that our portfolio of accounts receivable is sufficiently diversified, thus spreading the credit risk. To manage this risk, we perform periodic credit evaluations of our customers’ financial condition, including monitoring our customers’ payment history and current credit worthiness. We do not generally require collateral in support of our trade receivables, but may require payment in advance or security in the form of a letter of credit or bank guarantee.
Billings in excess of cost and estimated earnings on uncompleted contract
s
—
Represents the excess of contract costs and contract revenue recognized to date on when a performance obligation is accounted for using the costs incurred to date to total estimated costs at completion over contract billings to date. Costs and estimated earnings in excess of billings occur when costs related to unapproved change orders or claims are incurred, or a portion of the revenue recorded cannot be billed currently due to the billing terms in the contract.
Fair Value of Financial Instruments
—The carrying amounts of financial instruments, including cash and cash equivalents, customer receivables and accounts payable, approximated fair value at April 30, 2018 and January 31, 2018, because of the relatively short maturity of those instruments. See Note 6 to the Condensed Consolidated Financial Statements for fair value disclosures.
Liquidity and Capital Resources
—Under GAAP, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans if it is probable (1) that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been committed and/or approved before the date that the financial statements are issued. As of the date of filing these financial statements, we have debt and letters of credit coming due within one year, and we do not have committed refinancing plans or the liquidity to meet all of these obligations as they become due. These conditions, therefore, raise
substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements are issued.
Management’s current plans include several alternatives to manage our debt and letters of credit coming due over the next year.
On February 13, 2018, we entered into a definitive agreement whereby Granite Construction Incorporated will acquire all of the outstanding shares of Layne in a stock-for-stock transaction with each share of Layne common stock exchanged for 0.27 shares of Granite common stock. The transaction is subject to the approval by Layne’s shareholders and other customary closing conditions. A special meeting of Layne shareholders to approve the transaction is scheduled for June 13, 2018. Granite has stated its intention, if the transaction closes, to repay the 4.25% Convertible Notes on the maturity date of November 15, 2018, which would result in the maturity date of the 8.0% Convertible Notes being August 15, 2018. Based on the exchange ratio for the merger and the current trading price for Granite common stock, we believe most, if not all, of the holders of our 8.0% Convertible Notes would convert their notes into Granite common stock on or prior to August 15, 2018 and any remaining unconverted amounts could be paid with available cash or funding from Granite. Granite has advised us that it intends to terminate the asset-based credit facility if the transaction closes.
The 4.25% Convertible Notes are due November 15, 2018, and are currently classified as current. On March 19, 2018, we entered into an option to issue, at our election, $71.0 million of new 11.0% Senior Unsecured Notes (“11% Unsecured Notes”) to one of our existing bondholders. If the Granite merger is not consummated, we may elect to issue the 11.0% Unsecured Notes in order to effectively discharge the 4.25% Convertible Notes on or prior to July 16, 2018. Under this scenario, we would plan to refinance (1) the asset-based credit facility on or prior to April 14, 2019, (2) to the extent they are not converted into our common stock, the 8.0% Convertible Notes on May 1, 2019 and (3) the 11.0% Unsecured Notes on or prior to October 16, 2019. As it relates to our 8.0% Convertible Notes, if the market price of our common stock remains above the conversion price of $11.70 per share, we believe the holders would convert the 8.0% Convertible Notes into our common stock on or prior to August 15, 2018.
If the Granite merger is not consummated, nor the 8% Convertible Notes converted, we believe refinancing options are viable and likely. However, these conditions and events are not within the Company’s control, and management’s plans cannot be considered
12
probable. As such, there remains substantial doubt about our ability to continue as a going concern within one year after the date th
ese financial statements are filed.
Litigation and Other Contingencies
—We are involved in litigation incidental to our business, the disposition of which is not expected to have a material effect on our business, financial position, results of operations or cash flows. In addition, some of our contracts contain provisions that require payment of liquidated damages if we are responsible for the failure to meet specified contractual milestone dates and the applicable customer asserts a claim under these provisions. These contracts define the conditions under which our customers may make claims against Layne for liquidated damages. In many cases in which we have historically had potential exposure for liquidated damages, such damages ultimately were not asserted by our customers. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions related to these proceedings. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is accrued in our Condensed Consolidated Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, is disclosed. These provisions 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.
Supplemental Cash Flow Information
—
The amounts paid or refunded for income taxes, interest and non-cash investing and financing activities were as follows:
|
|
|
|
|
|
Three Months Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Income taxes paid
|
|
$
|
398
|
|
|
$
|
490
|
|
Income tax refunds
|
|
|
(187
|
)
|
|
|
(46
|
)
|
Interest paid
|
|
|
351
|
|
|
|
245
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Accrued capital additions
|
|
|
1,411
|
|
|
|
1,404
|
|
Income (Loss) Per Share
—Income (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. For periods in which we recognize losses, the calculation of diluted loss per share is the same as the calculation of basic loss per share. For periods in which we recognize net income, diluted earnings per common share is computed in the same way as basic earnings per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued that were dilutive. Options to purchase common stock and nonvested shares are included based on the treasury stock method for dilutive earnings per share, except when their effect is antidilutive. The 4.25% Convertible Notes and the 8.0% Convertible Notes are included in the calculation of diluted earnings (loss) per share if their inclusion is dilutive under the if-converted method. Options to purchase 0.2 million and 0.7 million shares have been excluded from weighted average shares outstanding in the three months ended April 30, 2018 and 2017, respectively, as their effect was antidilutive. A total of 2.2 million nonvested shares have been excluded from weighted average shares outstanding in the three months ended April 30, 2017, as their effect was antidilutive.
New Accounting Pronouncements—
In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this ASU affect any entity that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We anticipate adopting this ASU beginning on February 1, 2019 and do not believe the adoption will have a material impact on our financial statements
13
In February 2016, the FASB issued ASU
No. 2016-02, “Leases
(Topic 842)
,” which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. In January 2018, the FASB issued
ASU No. 2018-01 Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. These AS
Us are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-02 requires modified retrospective adoption for all leases existing at, or entered into after, t
he date of initial application, with an option to use certain transition relief. We are preparing to implement changes to our accounting policies and controls, business processes and information systems to support the new accounting and disclosure requirem
ents, which is effective for us beginning on February 1, 2019. We are currently evaluating the significance of adoption of this ASU.
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. As a public business, adoption of the amendments in this ASU are required, prospectively, for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted for testing dates after January 1, 2017. We anticipate adopting this ASU beginning on February 1, 2020 and do not believe the adoption will have a material impact on our financial statements.
2. Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts consisted of the following:
|
|
April 30,
|
|
|
January 31,
|
|
(in thousands)
|
|
2018
|
|
|
2018
|
|
Cost incurred on uncompleted contracts
|
|
$
|
511,629
|
|
|
$
|
496,324
|
|
Estimated earnings
|
|
|
214,325
|
|
|
|
204,081
|
|
|
|
|
725,954
|
|
|
|
700,405
|
|
Less: Billings to date
|
|
|
692,826
|
|
|
|
666,024
|
|
Total
|
|
$
|
33,128
|
|
|
$
|
34,381
|
|
Included in accompanying balance sheets under the following
captions:
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
$
|
41,088
|
|
|
$
|
43,177
|
|
Billings in excess of costs and estimated
earnings on uncompleted contracts
|
|
|
(7,960
|
)
|
|
|
(8,796
|
)
|
Total
|
|
$
|
33,128
|
|
|
$
|
34,381
|
|
|
|
|
|
|
|
|
|
|
We bill our customers based on specific contract terms. Substantially all billed amounts are collected within one year. As of April 30, 2018 and January 31, 2018, our costs and estimated earnings in excess of billings on uncompleted contracts included unbilled contract retainage amounts of $16.2 million and $16.0 million, respectively.
14
3
. Property and Equipment
:
Property and equipment consisted of the following:
|
|
April 30,
|
|
|
January 31,
|
|
(in thousands)
|
|
2018
|
|
|
2018
|
|
Land
|
|
$
|
11,071
|
|
|
$
|
11,156
|
|
Buildings and improvements
|
|
|
32,659
|
|
|
|
31,530
|
|
Machinery, equipment and pipeline
|
|
|
355,227
|
|
|
|
356,132
|
|
Property and equipment, at cost
|
|
|
398,957
|
|
|
|
398,818
|
|
Less - Accumulated depreciation
|
|
|
(279,516
|
)
|
|
|
(278,214
|
)
|
Property and equipment, net
|
|
$
|
119,441
|
|
|
$
|
120,604
|
|
4. Indebtedness
Debt outstanding was as follows:
|
|
April 30,
|
|
|
January 31,
|
|
(in thousands)
|
|
2018
|
|
|
2018
|
|
4.25% Convertible Notes
|
|
$
|
68,000
|
|
|
$
|
67,248
|
|
8.0% Convertible Notes
|
|
|
98,985
|
|
|
|
98,769
|
|
Capitalized lease obligations
|
|
|
36
|
|
|
|
45
|
|
Total debt
|
|
|
167,021
|
|
|
|
166,062
|
|
Less current maturities of long-term debt
(1)
|
|
|
(68,036
|
)
|
|
|
(67,293
|
)
|
Total long-term debt
|
|
$
|
98,985
|
|
|
$
|
98,769
|
|
(1) Based on the latest possible maturity date (May 1, 2019) for the 8.0% Convertible Notes. The maturity date for the 8.0% Convertible Notes will accelerate to August 15, 2018 under certain circumstances, including if the 4.25% Convertible Notes have not been effectively discharged by that date.
The following table presents the carrying value of the convertible notes:
|
|
April 30,
|
|
|
January 31,
|
|
(in thousands)
|
|
2018
|
|
|
2018
|
|
4.25% Convertible Notes:
|
|
|
|
|
|
|
|
|
Carrying amount of the equity conversion component
|
|
$
|
3,106
|
|
|
$
|
3,106
|
|
Principal amount of the 4.25% Convertible Notes
|
|
$
|
69,500
|
|
|
$
|
69,500
|
|
Unamortized deferred financing fees
|
|
|
(326
|
)
|
|
|
(476
|
)
|
Unamortized debt discount
(1)
|
|
|
(1,174
|
)
|
|
|
(1,776
|
)
|
Net carrying amount
|
|
$
|
68,000
|
|
|
$
|
67,248
|
|
|
|
|
|
|
|
|
|
|
8.0% Convertible Notes:
|
|
|
|
|
|
|
|
|
Principal amount of the 8.0% Convertible Notes
|
|
$
|
99,898
|
|
|
$
|
99,898
|
|
Unamortized deferred financing fees
|
|
|
(913
|
)
|
|
|
(1,129
|
)
|
Net carrying amount
|
|
$
|
98,985
|
|
|
$
|
98,769
|
|
(1)
|
As of April 30, 2018, the remaining period over which the unamortized debt discount will be amortized is 6 months using an effective interest rate.
|
15
11% Unsecured Notes
On March 19, 2018, we entered into a note purchase agreement with two investments funds advised by Corre Partners Management, LLC to sell $ 71.0 million of our 11.0% Unsecured Notes. Corre Partners Management and its affiliated funds, including the purchasers of the 11.0% Unsecured Notes, own a portion of our 4.25% Convertible Notes and 8.0% Convertible Notes. Under the note purchase agreement, the purchasers have committed to purchase $71.0 million of our 11.0% Unsecured Notes due October 16, 2019 at a purchase price equal to 100% of the principal amount of the 11.0% Unsecured Notes. The closing of the purchase and sale of the 11.0% Unsecured Notes will be the earlier to occur of (i) October 1, 2018 and (ii) the fifth business day after delivery of a funding notice by us to the purchasers. As a result, if the proceeds of the 11.0% Unsecured Notes were to be used to effectively discharge the 4.25% Convertible Notes prior to July 16, 2018, we would then need to refinance (1) the asset-based credit facility on or prior to April 14, 2019, (2) to the extent they are not converted into our common stock, the 8.0% Convertible Notes on May 1, 2019 and (3) the 11.0% Unsecured Notes on or prior to October 16, 2019. The commitment of the purchasers to purchase the 11.0% Unsecured Notes terminates upon the earliest to occur of: (i) a change of control (including the closing of the pending merger with Granite) and (ii) delivery to the purchasers of a notice of termination by us.
We may at our option prepay the 11.0% Unsecured Notes in whole or in part at any time. The 11.0% Unsecured Notes are subject to a mandatory prepayment upon the closing of a change of control. The 11.0% Unsecured Notes are subject to an Early Payment Event Fee if the 11.0% Unsecured Notes are repaid less than 90 days after the 11.0% Unsecured Notes are issued. The amount of the Early Payment Event Fee will be equal to the excess, if any, of (x) 90 days of accrued interest on the principal amount repaid, over (y) the amount of interest accrued and paid or payable with respect to the principal amount repaid from the date of issuance to and including the date of the repayment.
There are no covenants applicable to us under the Unsecured Notes purchase agreement so long as: (i) the 11.0% Unsecured Notes have not been issued, (ii) any of the 8.0% Convertible Notes are outstanding and (iii) none of the provisions of the indenture governing the 8.00% Convertible Notes have been amended or waived. After the 11.0% Unsecured Notes have been issued, we will be subject to certain covenants, including, delivery of financial statements and other reports, compliance with material contracts and applicable laws, and maintenance of corporate existence, insurance and properties. In addition, after the earliest date that (i) none of the 8.0% Convertible Notes are outstanding or (ii) all or any of the provisions of the indenture governing the 8.0% Convertible Notes are no longer in effect or have been amended or waived, we will be subject to negative covenants related to indebtedness, liens, sale and leaseback transactions, asset sales, dividends and restricted payments, transactions with affiliates, and maximum ratio of funded indebtedness to earnings before interest, taxes, depreciation and amortization ("EBITDA"). None of our 11.0% Unsecured Notes were outstanding as of April 30, 2018.
Asset-Based Credit Facility
On March 30, 2018, our asset-based credit facility agreement was amended to revise the acceleration provision included in the definition of Maturity Date to be July 16, 2018 if we have not delivered to the administrative agent for the asset-based credit facility evidence by July 15, 2018 that the 4.25% Convertible Notes have been effectively discharged with the proceeds from the issuance of the 11.0% Unsecured Notes or (b) May 15, 2018 if (i) the issuance of the 11.0% Unsecured Notes is cancelled for any reason or (ii) the proceeds of the 11.0% Unsecured Notes are used for a purpose other than to effectively discharge the 4.25% Convertible Notes in full; provided, that if an event described in clause (i) or (ii) above occurs after May 15, 2018, then the maturity date of the asset-based credit facility will be the date the event occurred.
Surety Bonds
We utilize surety bonds to secure performance of a portion of our projects. As of April 30, 2018 and January 31, 2018, the amount of surety bonds outstanding was $133.7 million and $148.3 million, respectively, based on the expected amount of revenues remaining to be recognized on the projects. Of the amount outstanding at April 30, 2018, $36.4 million related to surety bonds on contracts which were assumed by the purchasers of our Heavy Civil business. We expect to obtain releases on the remaining jobs when those jobs are completed.
5. Income Taxes
On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “The Act”), resulting in significant modifications to existing U.S. tax law, including but not limited to, (1) lowering the corporate federal income tax rate from 35% to 21% effective January 1, 2018; (2) implementing a territorial tax system; and (3) imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries.
16
The Act provides for a new requirement, beginning in 2018, that certain income earned by controlled foreign corporations in excess of an allowable return on foreign subsidiary’s tangible assets is subject to U.S. income tax (the global intangible low-taxed
income or “GILTI” provision).
We have elected to account for GILTI tax in the p
eriod in which it is incurred.
We do not expect the GILTI provisions to have a material impact to our financial statements.
Also beginning in 2018, The Act provides for a new b
ase erosion and anti-abuse tax provision (“BEAT”) which eliminates the deduction of certain base-erosion payments made to related foreign corporations and imposes a minimum tax if greater than regular tax. We do not expect the BEAT provision to have a mate
rial impact to our financial statements.
The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) which provides additional clarification regarding situations where the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of The Act for the reporting period in which The Act was enacted. We have recognized the provisional tax impacts, based on reasonable estimates, related to the Deemed Dividend and the revaluation of deferred tax assets and liabilities and have included these amounts in our consolidated financial statements for the year ended January 31, 2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of The Act. We intend to complete our accounting under The Act within the measurement period set forth in SAB 118. During the three months ended April 30, 2018, the Company did not make any adjustments to its provisional amounts included in its consolidated financial statements for the year ended January 31, 2018. The accounting is expected to be completed when the U.S. corporate income tax return is filed in 2018.
On April 2, 2018, the Internal Revenue Service issued Notice 2018-26 which provides guidance on how to determine, report and pay the repatriation tax on deemed repatriated earnings of foreign subsidiaries provided in The Act and included in the consolidated financial statements for the year ended January 31, 2018. Notice 2018-26 is not expected to have a significant impact on the Company’s consolidated financial statements.
Income tax expense for continuing operations of $1.0 million was recorded in the three months ended April 30, 2018, compared to $1.1 million for the same period last year. We recorded no tax benefit on domestic deferred tax assets and certain foreign deferred tax assets generated during the three months ended April 30, 2018. Current period tax expense is primarily related to income in Mexico and withholding tax related to our dividends from our Latin American affiliates. The effective tax rate for continuing operations for the three months ended April 30, 2018 was 25.2% compared to (35.8%) for the same period last year. The difference between the effective tax rates and the statutory tax rates resulted primarily from valuation allowances recorded during the respective periods on current year losses.
After valuation allowances, we maintain no domestic net deferred tax assets and no net deferred tax assets from foreign jurisdictions. The establishment of a valuation allowance does not have any impact on cash, nor does such an allowance preclude us from using our loss carryforwards or utilizing other deferred tax assets in the future.
As of April 30, 2018 and January 31, 2018, the total amount of unrecognized tax benefits recorded was $8.9 million and $9.1 million, respectively, of which substantially all would affect the effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits will decrease during the next twelve months by approximately $4.5 million due to settlements of audit issues. We classify uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year. We report income tax-related interest and penalties as a component of income tax expense. As of April 30, 2018 and January 31, 2018, the total amount of liability for income tax-related interest and penalties was $8.9 million and $9.1 million, respectively.
6. Fair Value Measurements
Our estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in the valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than those included in Level 1, such as quoted market prices for similar assets and liabilities in active markets or quoted prices for identical assets in inactive markets.
Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing an asset or liability.
17
Our assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability. Our financial instruments held at fair value are presented below as of
April 30, 2018, and January 31, 2018:
|
|
|
|
|
|
Fair Value Measurements
|
|
(in thousands)
|
|
Carrying Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
April 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposits held at fair value
|
|
$
|
6,190
|
|
|
$
|
6,190
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Contingent consideration receivable
(1)
|
|
|
4,244
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,244
|
|
January 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted deposits held at fair value
|
|
$
|
6,572
|
|
|
$
|
6,572
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Contingent consideration receivable
(1)
|
|
|
4,244
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,244
|
|
(1) The contingent consideration receivable represents our share in the profits of one of the contracts assumed by the purchaser, as part of the sale of the Geoconstruction business on August 17, 2015. The amount was estimated based on the projected profits of the contract. There have been no changes in the estimated fair value since the closing date of the sale agreement.
Other Financial Instruments
We use the following methods and assumptions in estimating the fair value disclosures for our other financial instruments:
Cash equivalents – The carrying amounts reported in the accompanying Condensed Consolidated Balance Sheets approximates their fair values and are classified as Level 1 within the fair value hierarchy.
Short-term and long-term debt, other than the convertible notes – The fair value of debt instruments is classified as Level 2 within the fair value hierarchy and is valued using a market approach based on quoted prices for similar instruments traded in active markets. Where quoted prices are not available, the income approach is used to value these instruments based on the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments or on estimated prices based on current yields for debt issues of similar quality and terms.
Convertible notes
—
The convertible notes are measured on a non-recurring basis using Level 1 inputs based upon observable quoted prices of the 4.25% Convertible Notes and the 8.0% Convertible Notes.
The following table summarizes the carrying values and estimated fair values of our debt:
|
|
April 30, 2018
|
|
|
January 31, 2018
|
|
(in thousands)
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
4.25% Convertible Notes
|
|
$
|
68,000
|
|
|
$
|
69,674
|
|
|
$
|
67,248
|
|
|
$
|
68,631
|
|
8.0% Convertible Notes
|
|
|
98,985
|
|
|
|
125,996
|
|
|
|
98,769
|
|
|
|
122,150
|
|
7. Equity-Based Compensation
Layne has an equity-based compensation plan that provides for the granting of options to purchase or the issuance of shares of common stock at a price fixed by the Board of Directors or a committee. As of April 30, 2018, there were 787,247 shares which remain available to be granted under the plan as stock options or restricted stock awards. We have the ability to issue shares under the plan either from new issuances or from treasury shares, although we have previously always issued new shares and expect to continue to issue new shares in the future.
We recognized compensation cost for equity-based compensation arrangements of $0.7 million and $1.0 million for the three months ended April 30, 2018 and 2017, respectively. Of these amounts, $0.7 million and $0.9 million, for the three months ended April 30, 2018 and 2017, respectively, related to non-vested stock. The total income tax benefit recognized for equity-based compensation arrangements was $0.3 million and $0.4 million for the three months ended April 30, 2018 and 2017, respectively; however, as of April 30, 2018, no tax benefit is expected to be realized for equity-based compensation arrangements due to a full valuation allowance of our domestic deferred tax assets.
18
As of April 30, 2018, there was approximately $
3.2
million of total unrecognized compensation cost related to nonvested restricted stock awards and restricted stock units that is expected to be recognized over a weig
hted-average period of
1.7
years. As of April 30, 2018, total unrecognized compensation cost related to unvested stock options was approximately $
0.1
million, which is expected to be recognized over a weighted-average period of
0.2
years.
A summary of nonvested share activity for the three months ended April 30, 2018, is as follows:
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
Intrinsic Value
(in thousands)
|
|
Nonvested stock at February 1, 2018
|
|
|
1,957,803
|
|
|
$
|
5.17
|
|
|
|
|
|
Vested
|
|
|
(926,314
|
)
|
|
|
3.80
|
|
|
$
|
13,070
|
|
Nonvested stock at April 30, 2018
|
|
|
1,031,489
|
|
|
$
|
6.39
|
|
|
$
|
14,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of stock option activity for the three months ended April 30, 2018, is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Intrinsic Value
(in thousands)
|
|
Outstanding at February 1, 2018
|
|
|
659,086
|
|
|
$
|
13.23
|
|
|
|
6.1
|
|
|
|
|
|
Outstanding at April 30, 2018
|
|
|
659,086
|
|
|
|
13.23
|
|
|
|
5.8
|
|
|
$
|
2,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at February 1, 2018
|
|
|
649,086
|
|
|
|
13.30
|
|
|
|
6.0
|
|
|
|
|
|
Exercisable at April 30, 2018
|
|
|
649,086
|
|
|
|
13.30
|
|
|
|
5.8
|
|
|
$
|
2,399
|
|
Options expected to vest after April 30, 2018
|
|
|
10,000
|
|
|
|
8.6
|
|
|
|
7.2
|
|
|
|
55
|
|
The aggregate intrinsic value was calculated using the difference between the current market price and the exercise price for only those options that have an exercise price less than the current market price.
Nonvested stock awards having service requirements only are valued as of the grant date closing stock price and generally vest ratably over service periods of one to five years. Other nonvested stock awards vest based upon Layne meeting various performance goals. Certain nonvested stock awards provide for accelerated vesting if there is a change of control (as defined in the plans) or the disability or the death of the executive and for equitable adjustment in the event of changes in our equity structure.
19
8. Inv
estment in Affiliates
We have investments in affiliates that are engaged in mineral drilling services, and the manufacture and supply of drilling equipment, parts and supplies. Investment in affiliates may include other drilling related joint ventures from time to time.
A summary of material, jointly-owned affiliates, as well as their primary operating subsidiaries, if applicable, and the percentages directly and indirectly owned by us are as follows as of April 30, 2018:
|
|
Percentage
Owned
Directly
|
|
|
Percentage
Owned
Indirectly
|
|
Boyles Bros Servicios Tecnicos Geologicos S.A. (Panama)
|
|
50.00%
|
|
|
|
|
|
Boytec, S.A. (Panama)
|
|
|
|
|
|
50.00%
|
|
Boytec Sondajes de Mexico, S.A. de C.V. (Mexico)
|
|
|
|
|
|
|
50.00
|
|
Sondajes Colombia, S.A. (Columbia)
|
|
|
|
|
|
|
50.00
|
|
Mining Drilling Fluids (Panama)
|
|
|
|
|
|
|
25.00
|
|
Inmobiliaria Plantel Industrial Limitada (Chile)
|
|
|
|
|
|
|
50.00
|
|
Christensen Chile, S.A. (Chile)
|
|
|
50.00
|
|
|
|
|
|
Christensen Commercial, S.A. (Chile)
|
|
|
50.00
|
|
|
|
|
|
Geotec Boyles Bros., S.A. (Chile)
|
|
|
50.00
|
|
|
|
|
|
Centro Internacional de Formacion S.A. (Chile)
|
|
|
|
|
|
|
50.00
|
|
Diamantina Christensen Trading (Panama)
|
|
|
42.69
|
|
|
|
|
|
Christensen Commercial, S.A. (Peru)
|
|
|
35.42
|
|
|
|
|
|
Geotec, S.A. (Peru)
|
|
|
35.38
|
|
|
|
|
|
Boyles Bros. Diamantina, S.A. (Peru)
|
|
|
29.49
|
|
|
|
|
|
Mining Drilling Fluids S.A. (Chile)
|
|
|
25.00
|
|
|
|
|
|
Boytec Chile S.A. (Chile)
|
|
|
50.00
|
|
|
|
|
|
Financial information of the affiliates is reported with a one-month lag in the reporting period. The impacts of the lag on our investment and results of operations are not significant. Summarized financial information of the affiliates was as follows:
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
46,133
|
|
|
$
|
36,120
|
|
Gross profit
|
|
|
9,310
|
|
|
|
5,716
|
|
Operating income
|
|
|
5,078
|
|
|
|
1,840
|
|
Net income
|
|
|
3,268
|
|
|
|
1,754
|
|
9. Revenue
Our revenue is primarily derived from construction contracts that can span weeks, months or years. We account for revenue in accordance with ASC Topic 606, which we adopted on February 1, 2018, using the full retrospective method (see Note 1 to the Condensed Consolidated Financial Statements for further discussion of the adoption, including the impact on our prior period financial statements). ASC Topic 606 provides for a five-step model for recognizing revenue from contracts with customers as follows:
|
2.
|
Identify performance obligations
|
|
3.
|
Determine the transaction price
|
|
4.
|
Allocate the transaction price
|
The unit of account in ASC Topic 606 is a performance obligation, which is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods and services to the customer. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts contain a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each
20
performance obligation using our best estimate of the standalone selling price (based on estimated cost plus margin) of each distinct good or service in the contract.
Revenue on large, longer-term water drilling and infrastructure services contracts are recognized over time on the basis of costs incurred to date to total estimated costs at completion as we have an enforceable right to payment from the customer for the performance obligation completed. The amount of revenues recognized reflects the cost of revenues (e.g. labor, materials and overhead) that contributes to our progress in satisfying the performance obligation that has been transferred to date to the customer, inclusive of the estimated project profit margin. The input measure used is the ratio of costs incurred to date to total estimated costs at completion.
Revenue on contracts relating to unapproved change orders and claims are recognized by including in revenue an amount less than or equal to the amount of the costs incurred by us to date for contract price adjustments that we seek to collect from customers for delays, differing site conditions, errors in specifications or designs, change orders in dispute or unapproved as to scope or price, or other unanticipated additional costs, in each case when recovery of the costs is considered probable. The amount of unapproved change orders and claims revenues are included in our Condensed Consolidated Balance Sheets as part of costs and estimated earnings in excess of billings on uncompleted contracts (see Note 2 to the Condensed Consolidated Financial Statements). When determining the likelihood of eventual recovery, we consider such factors as our experience on similar projects and our experience with the customer. As new facts become known, an adjustment to the estimated recovery is made and reflected in the current period.
Revenues for drilling contracts within Mineral Services are primarily recognized over time on the basis of time and materials in terms of the value of total work performed to date determined by actual footage drilled, meterage drilled or services performed.
Revenues for direct sales of equipment and other ancillary products not provided in conjunction with the performance of drilling and infrastructure services contracts are recognized at a point in time at the date of delivery to, and acceptance by, the customer. Provisions for estimated warranty obligations are made in the period in which the sales occur.
Our revenues are presented net of taxes imposed on revenue-producing transactions with our customers, such as, but not limited to, sales, use, value-added and some excise taxes.
Of our total revenues, 87% are recognized over time (Water Resources 95%, Inliner 79%, and Mineral Services 86%), by costs incurred to date to total estimated costs at completion contracts and time and material contracts, and 13% are recognized at a point in time by direct sales contracts (Water Resources 5%, Inliner 21%, and Mineral Services 14%).
See Note 10 to the Condensed Consolidated Financial Statements for disaggregated revenues by product line and geographic location.
On April 30, 2018, we had $163.1 million of remaining performance obligations, including contracts fulfilled over less than one year. We expect to recognize approximately 88% of our total remaining performance obligations as revenue by January 31, 2019, an additional 10% by January 31, 2020 and the balance thereafter.
Contract Estimates.
Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the costs incurred to date to total estimated costs at completion are reflected in contract revenues in the reporting period when such estimates are revised. The nature of accounting for these contracts is such that refinements of the estimating process for changing conditions and new developments may occur and are characteristic of the process. Many factors can and do change during a contract performance obligation period which can result in a change to contract profitability including differing site conditions (to the extent that contract remedies are unavailable), the availability of skilled contract labor, the performance of major material suppliers, the performance of major subcontractors, unusual weather conditions and unexpected changes in material costs. These factors may result in revisions to costs and income and are recognized in the period in which the revisions become known. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. Provisions for estimated losses on uncompleted water drilling and infrastructure services contracts are made in the period in which such losses became known. When the estimate on a contract indicates a loss, the entire loss is recorded during the accounting period in which the facts that caused the revision become known.
Management evaluates the performance of contracts on an individual basis. In the ordinary course of business, but at least quarterly, we prepare updated estimates that may impact the cost and profit or loss for each contract. The cumulative effect of revisions in estimates of the total forecasted revenue and costs, including unapproved change orders and claims, during the course of the contract is reflected in the accounting period in which the facts that caused the revision become known. Large changes in cost estimates on larger, more complex drilling and infrastructure services projects can have a material impact on our financial statements and are reflected in results of operations when they become known.
21
Contract Assets
.
Our contract assets
are presente
d as “
cost and estimated earnings in excess of billings on uncompleted contracts
” on our Condensed Consolidated Balance Sheet
and
include
amounts due under contractual retainage provisions
of $16.2 million and $
16.0
million
as of April 30, 2018 and
January 31,
201
8
, respectively
,
and provisions for losses of ($0.8) million and
(
$
0.9)
million
as of April 30, 2018
and January 31, 2018
, respectively
.
Costs and estimated earnings in excess of billings
on uncompleted contracts
represent amounts earned and
reimbursable under contracts, but have a conditional right for billing and payment such as achievement of milestones or completion of the project
.
The balances billed but not paid by customers pursuant to retainage provisions generally also become due upo
n completion and acceptance of the project work or products by the owners
.
Such unbilled amounts will become billable according to the contract terms and generally will be billed and collected over the next twelve months
.
Based on our historical experience
, we generally consider the collection risk related to billable amounts to be low. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced.
Contract Liabilities.
Our contract liabilities are presented as “Billings in excess of costs and estimated earnings on uncompleted contracts” on our Condensed Consolidated Balance Sheet and includes provisions for losses of ($0.1) million and ($0.1) million as of April 30, 2018 and January 31, 2018, respectively. Billings in excess of costs and estimated earnings on uncompleted contracts are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months. Provisions for losses are recognized in the consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.
During the three months ended April 30, 2018, we recognized revenue on 99% of the contract liabilities balance at January 31, 2018.
10. Segments and Foreign Operations
We are a global solutions provider to the world of essential natural resources – water, minerals and energy. The Chief Operating Decision Maker (“CODM”) reviews operating results to determine the appropriate allocation of resources within the organization. The CODM defines the operational and organizational structure into discrete segments based on our primary product lines.
During the first quarter FY2018, we completed the sale of substantially all of the assets of our Heavy Civil business. The operating results related to the Heavy Civil business are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. See Note 11 to the Condensed Consolidated Financial Statements for further discussion.
Our segments are defined as follows:
Water Resources
Water Resources provides its customers with an array of water management solutions, including discovery and defining of water sources through hydrologic studies, water supply development through water well drilling and intake construction. Through our Water Midstream business we provide water delivery through pipeline and pumping infrastructure with the ability to deliver non-potable water at multiple points along the pipeline route. Water Resources also brings technologies to the water and wastewater markets and offers 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. Water Resources drills deep injection wells for industrial and municipal clients that need to dispose of wastewater associated with their processes. Water Resources also performs complete diagnostic and rehabilitation services for existing wells, pumps and related equipment, including conducting downhole closed circuit televideo inspections to investigate and resolve water well and pump performance problems. In addition, Water Resources
constructs radial collector wells through its Ranney® Collector Wells technology, which is an alternative to conventional vertical wells and can be utilized to develop moderate to very high capacities of groundwater.
Water Resources provides water systems and services in most regions of the U.S.
Inliner
Inliner provides a wide range of process, sanitary and storm water rehabilitation techniques and services to municipalities and industrial customers dealing with aging infrastructure needs. Inliner focuses on its proprietary Inliner
®
cured-in-place pipe (“CIPP”) which allows it to rehabilitate aging sanitary sewer, storm water and process water infrastructure to provide structural rebuilding as well as infiltration and inflow reduction. Inliner’s trenchless technology minimizes environmental impact and reduces or eliminates surface and social disruption. Inliner has the ability to supply both traditional felt-based CIPP lining tubes cured with water or steam as well as a fiberglass-based lining tubes cured with ultraviolet (“UV”) light. Inliner owns the North American rights to the Inliner
CIPP technology, owns and operates the liner manufacturer and also provides installation of Inliner CIPP product. While Inliner focuses on our proprietary Inliner CIPP, it provides full system renewal, including Janssen structural renewal for service lateral connections and mainlines, slip lining, traditional excavation and replacement and form and manhole renewal with cementitious and epoxy products. Inliner provides services in most regions of the U.S.
22
Mineral Services
Mineral Services conducts primarily above ground drilling activities, including all phases of core drilling, reverse circulation, dual tube, hammer and rotary air-blast methods. Our service offerings include both exploratory and definitional drilling. Global mining companies engage companies such as Mineral Services to extract samples from sites that the mining companies analyze for mineral content before investing heavily in development to extract the minerals. Mineral Services helps its clients determine if any minable mineral deposit is on the site, the economic viability of the mining site and the geological properties of the ground, which helps in the determination of mine planning. Mineral Services also offers its customers water management and soil stabilization expertise. Mine water management consists of vertical, large diameter wells for sourcing and dewatering; and horizontal drains for slope de-pressurization. The primary markets are in the western U.S., Mexico and Brazil. Mineral Services also has ownership interests in foreign affiliates operating in Latin America that form our primary presence in Chile and Peru.
Financial information for our segments is presented below. Unallocated corporate expenses primarily consist of interest expense, tax expense and the expenses of general and administrative functions performed on a company-wide basis and benefiting all segments. These costs include expenses related to accounting, financial reporting, internal audit, treasury, legal, information technology, tax compliance, executive management and board of directors.
Our measure of Total Adjusted EBITDA, which may not be comparable to other companies’ measure of Total Adjusted EBITDA, represents net loss before discontinued operations, taxes, interest, depreciation and amortization, gain or loss on sale of fixed assets, non-cash equity-based compensation, equity in earnings or losses from affiliates, certain non-recurring items such as restructuring costs and certain other gains or losses, plus dividends received from affiliates. Our chief operating decision maker evaluates segment performance based on the segment’s revenues and Adjusted EBITDA, among other factors. In addition, we use Total Adjusted EBITDA as a factor in incentive compensation decisions and our credit facility agreement uses measures similar to Total Adjusted EBITDA to measure compliance with certain covenants
.
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Water Resources
|
|
$
|
39,777
|
|
|
$
|
41,890
|
|
Inliner
|
|
|
48,888
|
|
|
|
47,067
|
|
Mineral Services
|
|
|
25,886
|
|
|
|
21,956
|
|
Total revenues
|
|
$
|
114,551
|
|
|
$
|
110,913
|
|
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Total Adjusted EBITDA
|
|
|
|
|
|
|
|
|
Water Resources
|
|
$
|
4,469
|
|
|
$
|
249
|
|
Inliner
|
|
|
8,155
|
|
|
|
7,732
|
|
Mineral Services
|
|
|
4,811
|
|
|
|
5,026
|
|
Unallocated corporate expenses
|
|
|
(4,804
|
)
|
|
|
(3,960
|
)
|
Total Adjusted EBITDA
|
|
$
|
12,631
|
|
|
$
|
9,047
|
|
23
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Net income (loss)
|
|
$
|
2,705
|
|
|
$
|
(23,461
|
)
|
Items not included in Total Adjusted EBITDA
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
175
|
|
|
|
19,482
|
|
Income tax expense
|
|
|
970
|
|
|
|
1,050
|
|
Interest expense
|
|
|
4,408
|
|
|
|
4,200
|
|
Depreciation expenses and amortization
|
|
|
6,763
|
|
|
|
6,484
|
|
Gain on sale of fixed assets
|
|
|
(4,609
|
)
|
|
|
(612
|
)
|
Non-cash equity-based compensation
|
|
|
699
|
|
|
|
1,019
|
|
Equity in earnings of affiliates
|
|
|
(1,714
|
)
|
|
|
(711
|
)
|
Restructuring costs
|
|
|
2,806
|
|
|
|
428
|
|
Other (income) expense, net
|
|
|
(99
|
)
|
|
|
163
|
|
Dividends received from affiliates
|
|
|
527
|
|
|
|
1,005
|
|
Total Adjusted EBITDA
|
|
$
|
12,631
|
|
|
$
|
9,047
|
|
The following table presents various financial information for each segment.
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Revenues by product line
|
|
|
|
|
|
|
|
|
Water systems
|
|
$
|
33,775
|
|
|
$
|
32,179
|
|
Water treatment technologies
|
|
|
2,909
|
|
|
|
5,723
|
|
Sewer rehabilitation
|
|
|
48,888
|
|
|
|
47,067
|
|
Exploration drilling
|
|
|
24,557
|
|
|
|
21,098
|
|
Other
|
|
|
4,422
|
|
|
|
4,846
|
|
Total revenues by product line
|
|
$
|
114,551
|
|
|
$
|
110,913
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
Revenue by geographic location
|
|
|
|
|
|
|
|
|
United States/Canada
|
|
$
|
103,764
|
|
|
$
|
100,554
|
|
South America
|
|
|
3,141
|
|
|
|
2,253
|
|
Mexico
|
|
|
7,646
|
|
|
|
8,106
|
|
Total revenues
|
|
$
|
114,551
|
|
|
$
|
110,913
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Water Resources
|
|
$
|
2,987
|
|
|
$
|
3,057
|
|
Inliner
|
|
|
1,719
|
|
|
|
1,517
|
|
Mineral Services
|
|
|
1,854
|
|
|
|
1,686
|
|
Corporate
|
|
|
203
|
|
|
|
224
|
|
Total depreciation and amortization
|
|
$
|
6,763
|
|
|
$
|
6,484
|
|
|
|
|
|
|
|
|
|
|
24
11
. Discontinued Operations
On April 30, 2017, we completed the sale of substantially all of the assets of the Heavy Civil business to
Reycon Partners LLC (the "Buyer"), which is owned by a group of private investors, including members of the former Heavy Civil senior management team
. The purchase price was $10.1 million
, plus or minus the amount by which the business’s working capital was less than an agreed upon target amount. After the working capital adjustment, the purchase price was $3.5 million
.
The financial results of discontinued operations are as follows:
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
30,359
|
|
Cost of revenues (exclusive of depreciation and
amortization, shown below)
|
|
|
—
|
|
|
|
(25,674
|
)
|
Selling, general and administrative expenses (exclusive
of depreciation and amortization, shown below)
|
|
|
(175
|
)
|
|
|
(7,129
|
)
|
Depreciation and amortization
|
|
|
—
|
|
|
|
(287
|
)
|
Gain on sale of fixed assets
|
|
|
—
|
|
|
|
4
|
|
Restructuring costs
|
|
|
—
|
|
|
|
(27
|
)
|
Other expense items
|
|
|
—
|
|
|
|
(21
|
)
|
Total operating loss on discontinued operations
before income taxes
|
|
|
(175
|
)
|
|
|
(2,775
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
Total operating loss on discontinued operations
|
|
|
(175
|
)
|
|
|
(2,775
|
)
|
Loss on sale of discontinued operations before income
taxes
|
|
|
—
|
|
|
|
(16,707
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
Total loss on discontinued operations
|
|
$
|
(175
|
)
|
|
$
|
(19,482
|
)
|
Supplemental cash flow data relating to the Heavy Civil business is presented below:
|
|
|
|
Three Months Ended
|
|
(in thousands)
|
|
|
|
April 30, 2017
|
|
Cash flow data:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
$
|
287
|
|
Capital expenditures
|
|
|
|
|
226
|
|
Bad debt expense
|
|
|
|
|
1,595
|
|
12. Contingencies
Our drilling activities involve certain operating hazards that can result in personal injury or loss of life, damage and destruction of property and equipment, damage to the surrounding areas, release of hazardous substances or wastes and other damage to the environment, interruption or suspension of drill site operations and loss of revenues and future business. The magnitude of these operating risks is amplified when we, as is frequently the case, conduct a project on a fixed-price, turn-key basis where we delegate certain functions to subcontractors but remain responsible to the customer for the subcontracted work. In addition, we are exposed to potential liability under foreign, federal, state and local laws and regulations, contractual indemnification agreements or otherwise in connection with our services and products. Litigation arising from any such occurrences may result in Layne being named as a defendant in lawsuits asserting large claims. Although we maintain insurance protection that we consider economically prudent, there can be no assurance that any such 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. A successful claim or damage resulting from a hazard for which we are not fully insured could have a material adverse effect on us. In addition, we do not maintain political risk insurance with respect to our foreign operations.
Through one of our discontinued segments, Geoconstruction, we were a subcontractor on the foundation for the Salesforce Tower office building in San Francisco, California in 2013 and 2014. Certain anomalies were discovered in March 2014 in the foundation’s structural concrete, which were remediated by the general contractor during 2015. We have participated in discussions with the project
25
owner and the general contractor regarding potential causes of the anomalies. We have assigned our claims under the projec
t's builder's risk insurance policy to the general contractor. During the fiscal year ended January 31, 2016, the project owner and the general contractor submitted a claim to the project’s builder’s risk insurers to cover the cost of remedial work and rel
ated damages. The claim was denied by the builder’s risk insurers and the project owner and the general contractor subsequently filed a legal proceeding against the insurers seeking coverage under the builder’s risk insurance policy. Although we
are
not a
party to this legal proceeding, we believe, based on court filings in the legal proceeding, that the project owner and the general contractor are asserting a claim for damages against the project’s builder’s risk insurers of approximately $100 million. Man
agement does not believe that we are liable for any of the remediation costs or other claims related to this project. Accordingly, no provision has been made in these interim Condensed Consolidated Financial Statements.
We are involved in various other matters of litigation, claims and disputes which have arisen in the ordinary course of business. We believe that the ultimate disposition of these matters will not, individually and in the aggregate, have a material adverse effect upon our business or consolidated financial position, results of operations or cash flows. However, it is possible, that future results of operations for any particular quarterly or annual period could be materially affected by changes in the assumptions related to these proceedings. In accordance with 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 provisions 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. To the extent additional information arises or the strategies change, it is possible that our estimate of the probable liability in these matters may change.
Litigation Relating to the Merger
On April 3, 2018, two putative class actions captioned Malka Raul v. Layne Christensen Company, et al., and Colleen Witmer v. Layne Christensen Company, et al., were filed in the U.S. District Court for the Southern District of Texas against Layne, Layne’s directors, Granite and Lowercase Merger Sub Incorporated ("Merger Sub"). The complaints generally allege that Layne, the Layne directors and Granite disseminated a false or misleading registration statement regarding the proposed merger in violation of Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and SEC Rule 14a-9. Specifically, the complaints allege that the registration statement misstated or omitted material information regarding the parties’ financial projections, the valuation analysis performed by Greentech Capital Advisors, LLC ("Greentech") in support of its fairness opinion, and potential conflicts of interest of Greentech. The complaints further allege that the Layne directors and/or Granite are liable for these violations as “controlling persons” of Layne under Section 20(a) of the Exchange Act. The complaints seek injunctive relief, including to enjoin and/or rescind the merger, rescission or rescissory damages in the event the merger is consummated, and an award of attorneys’ fees, in addition to other relief.
Additional lawsuits arising out of the merger may be filed in the future. There can be no assurance that any of the defendants will be successful in the outcome of the pending or any potential future lawsuits. A preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin the completion of the merger. Layne and Granite believe that the lawsuits are without merit and intend to defend vigorously against the lawsuits and any other future lawsuits challenging the transaction.
26
13.
Restructuring Costs
During the second quarter of FY2017, we initiated a plan to reduce costs and improve profitability in our Water Resources segment (“Water Resources Business Performance Initiative”). The Water Resources Business Performance Initiative involves cost rationalization, increased standardization of functions such as sales, pricing and estimation, disposal of underutilized assets, and process improvements to drive efficiencies. We recorded $1.1 million in restructuring costs related to the Water Resources Business Performance Initiative for the three months ended April 30, 2018, primarily for consulting fees. We estimate that the remaining amounts to be incurred for the Water Resources Business Performance Initiative are approximately $1.1 million.
During the three months ended April 30, 2018, we continued the implementation of our FY2016 Restructuring Plan, which involves the exit of our operations in Africa and Australia and other actions to support our strategic focus in simplifying the business and building upon our capabilities in water (“FY2016 Restructuring Plan”). In FY2019, we have incurred costs supporting this strategic focus, recognizing $0.4 million of restructuring expenses for the three months ended April 30, 2018. The FY2016 Restructuring Plan costs for the three months ended April 30, 2018 related primarily to our Mineral Services segment. We estimate that the remaining amounts to be incurred for the FY2016 Restructuring Plan are approximately $0.1 million.
During the three months ended April 30, 2018, we incurred cost associated with the pending merger with Granite of $1.3 million. We estimate that the remaining amounts to be incurred for merger related costs are approximately $0.1 million.
The following table summarizes the carrying amount of the accrual for the restructuring plans discussed above:
|
|
Severance
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
|
|
|
|
|
|
personnel-
|
|
|
|
|
|
|
|
|
|
|
|
related
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
costs
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2018
|
|
$
|
641
|
|
|
$
|
1,070
|
|
|
$
|
1,711
|
|
Restructuring Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Water Resources Business Performance Initiative
|
|
|
75
|
|
|
|
1,018
|
|
|
|
1,093
|
|
FY2016 Restructuring Plan
|
|
|
—
|
|
|
|
420
|
|
|
|
420
|
|
Pending Merger Related Costs
|
|
|
—
|
|
|
|
1,293
|
|
|
|
1,293
|
|
Total restructuring costs
|
|
|
75
|
|
|
|
2,731
|
|
|
|
2,806
|
|
Cash expenditures
|
|
|
(327
|
)
|
|
|
(2,440
|
)
|
|
|
(2,767
|
)
|
Balance at April 30, 2018
|
|
$
|
389
|
|
|
$
|
1,361
|
|
|
$
|
1,750
|
|
14. Pending Merger
As discussed in Note 20 of our Annual Report on Form 10-K for the fiscal year ended January 31, 2018, on February 13, 2018, we entered into a definitive agreement whereby Granite will acquire all of the outstanding shares of Layne in a stock-for-stock transaction with each share of Layne common stock exchanged for 0.27 shares of Granite common stock. The transaction is subject to the approval by Layne’s shareholders and other customary closing conditions. A special meeting of Layne shareholders to approve the transaction is scheduled for June 13, 2018. There is no impact in these first quarter of FY2019 Condensed Consolidated Financial Statements and Notes from this pending transaction other than merger related costs of $1.3 million included in restructuring costs.
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